VideoNuze Posts

Some of you may have noticed that Vudu announced last Thursday that it was cutting the price of its box by over $100 to $295. I recently wrote about Vudu in "Apple TV Improves, Vudu in its Crosshairs." Looks like it didn't take long for Vudu to start feeling Apple's heat. It's a good move, but I still remain skeptical about this box's mass appeal.

Two weeks ago, in "Here Comes the Video Experience Era", I argued that in the future consumers' satisfaction with video will have less to do with traditional yardsticks. I tried to explain it this way: if you are a TV manufacturer, traditional consumer satisfiers have included "how big is my set and how great is the picture quality" while if you are a content provider, traditional satisfiers have been "how funny is that show, or seeing well-loved actors/actresses."

But in that prior post, coming at the conclusion of CES, I suggested that consumers are beginning to shift from using these metrics to gauge their own satisfaction with video. Instead they are increasingly looking for new and compelling video experiences, many of which are not yet well-defined. These might include how well do broadband-delivered video choices integrate with the overall TV experience, how can I interact with the content and with other viewers, or how can I move it around from device to device depending on my lifestyle?

I raise all of this again today because just this week I was provided with a very tangible data point supporting my assertions. A good friend of mine recently bought a 50 inch plasma HDTV (his first HDTV set). He doesn't work in the technology or content industries. To understand his technical orientation better, if on a scale of 1 to 10, 1 was a technology Luddite and 10 was an uber-geek, he'd be about a 5. He's not afraid of technology, but hardly rushes out to get every new thing. And note, he's 44 years old, not 14 or 24.

With is new TV in place, one of the first things he did was begin figuring out how to connect it to his PC. Since the TV didn't have a VGA port, he researched and found a relatively inexpensive adaptor to convert VGA output to component inputs for his TV. When done, he excitedly emailed me saying that, by his count, he's now playing 10 different formats on his TV (linear TV, broadband content - both free and paid, Netflix Watch Instantly, podcasts from his iTunes library, DVD, Blu-ray DVD, DVR, VOD, CD Music and radio). And he's psyched to read surf the web on his TV, and move files around. Talk about a plethora of choices and experiences!

To understand the emerging mindset of today's consumer, the example of my friend is illustrative. It was not just the 50 inch plasma TV that got him excited. Rather, it was the impetus to expand his video choices and to add new energy to pre-existing options. Here again, the interplay of technology and content is what is cool to him. Not just one or the other in isolation. I believe his mindset is becoming more common each day. It embodies what marketers and product managers in the "video experience era" will need to grasp if their companies are to succeed.

What's your reaction? Post a comment and let us all know!

Bob Pittman will be presenting at next week's NATPE conference. A long time media executive, he is a founding member of Pilot Group LLC, a consumer brand focused private investment firm based in New York. Among other prior roles, he's served as President and COO of America Online and was also a co-founder of MTV and later CEO of MTV Networks.

Yesterday I caught up with him for a pre-NATPE briefing. Read on to learn why he's bullish on broadcast TV stations, skeptical about broadband video's impact on the TV business and emphatic that convenience rules.

VideoNuze: Pilot has been a buyer of broadcast stations. That's somewhat contrarian. What do you see in the industry?

Bob Pittman: Broadcast stations are greatly unappreciated. TV is America's hobby. Look at any category, the biggest is always the most important. So we want to invest in place where most people are. It is a fantastic advertising medium. There's no substitute for TV advertising. It works like nothing else. It's still wildly cheap - for the most part it's a $7-8 CPM, compared with newspapers and magazines which are $25-30, and it outperforms by every measurement - reach, time spent, effectiveness. It's still wildly underpriced.

We have focused on small market television, where local advertising is the predominant revenue stream. We have done that because we believe national advertisers will slow down spending in economic downturns, whereas in local market when you're dealing with a local retailer he still has to sell everything that's on the shelf, come good times or bad. And we believe that in small markets, newspapers and yellow pages are getting wildly disproportionate share of the revenue, so we think there's a great growth opportunity as well. In smaller markets the station's coverage area nicely matches the advertiser's reach goals. It's also a fantastic free cash flow business.

VN: Is broadband video a net positive or a net negative for broadcast stations, or is it not clear yet?

BP: We have to be really careful about broadband video, it's still a very small percentage of use for most people. Most of what people talk about is still 3 minutes or shorter clips on YouTube, many sent to you by a friend in email. The idea of people sitting down and watching their computer is a small part of the overall audience. So we have to be careful not to talk about fringe uses as if they're going to be major uses.

However, we think it presents an opportunity for our stations and we've pursued that, by setting up what are in essence "newspapers online." And in our smaller markets, we're not competing with Google or MSN, so we can get large local audiences, which allow us to better serve our advertisers. But I don't think broadband is competitive with TV, putting TV shows on the Internet is nice, but you're talking about small audiences.

VN: What will the impact of services like Hulu and CBS's Audience Network on broadcast stations' audience size?

BP: Well, you may occasionally watch a program online if you can't get to your TV, or it wasn't available, or you're a little geeky, but as a replacement offering, I don't think so. TVs are big screen, public viewing devices, computers are not. They're 18 inches away and are private experiences, you don't want people looking over your shoulder at it. They're completely separate uses and devices, so to try to put the wrong kind of programming on either one limits your audience severely.

BP: If it's completely invisible to the consumer then yes things change, but if people have to do a whole lot of work then it's not going to be big. The one thing that motivates the consumer through every product category is convenience. The easiest thing to get is what people will use, even if the quality is lower.

I think it's going to be pretty hard to get something in the home that's easier to use than pushing a button on my TV set that I already know how to do and I'm set up to do. To start connecting a box and moving stuff around, then my rule of thumb is about 10% of the population will adopt new technology because it's cool and neat, but it will be hard to get past that threshold.

VN: So it sounds out like you're not that bullish on these new boxes succeeding?

BP: Right now these require a step or two more, and my experience from the Internet is that just one more click means a lot less response. You think, well it's just one more click. But for example, when I was at Time Warner, we had 2 options for ordering PPV - one to click a button and one to call an 800 number. The response rate for the former was three times the latter - that's the power of ease of use and convenience.

VN: How about broadband's larger impact on the video industry - who's helped and who's hurt?

BP: Short form appears to be working very well. If there's a nifty little video that's great, but get above 3 mintues and you start to lose people - certainly you lose me. So who's advantaged - people who have short clips that they can build a business out of. But I still think the best thing to do online is to read and write, because it's quiet, it's personal, you can do it with others in the room. Importantly, it's not sequential. Internet is like a newspaper - it's random access - if I don't like sports I can skip that section. But video by its nature is sequential, it's linear, you have to have a story arc, you have to sit through the whole thing. So I think you're asking people to make a different sort of commitment.

VN: Your take on user-generated video?

BP: I think it's great. Probably 99.9% of it is crap, but the rest of it is brilliant. If you have a way of editing it down to the brilliant stuff and also allowing people to discover it easily, then it can be very appealing. So when you look at YouTube for example, and you can look at the "most viewed" and can skip my neighbor's kid's birthday party, that's great.

VN: Does user-generated video compete at any point with professionally produced content?

BP: Well, what's happening with the level of technology that's now in the hands of consumers plus their ability and knowledge of how to edit makes you ask the question, "who's really the professional now?" So I think you're going to see some shows on TV by what were once considered "amateurs." Professionals are anyone that has a good idea and other people want to see their stuff.

So I think the world is opening up and that's very healthy. When the studios have a set list of actors, writers and directors, by definition you're limiting the innovation process. When you've got those capabilities in the hands of everyone, you're now opening up to the possibility of some real breakthrough innovations. And that's good for the TV business, because if they do it in a 30 or 60 minute form, the best way to watch it is on the TV. And that's the medium that can pay the most for it, and has the biggest audience.

VN: What's your message to NATPE attendees?

BP: I'll be trying to put broadcast television into perspective. You hear so many negative stories yet I think it's one of the most misunderstood mediums out there today. So the idea is to try to point out how it relates to Internet, newspapers, magazines, what the trendlines are and explain why believe it's actually a very good business with a brilliant future.

People keep talking about Internet as if it's competing with TV. But what the Internet has really done is replace print - things like yellow pages, newspapers and traditional research books. It's also replaced communications - phone calls, voice mail. So when you hear these stories about the Internet replacing TV, I think they've got it all wrong.

VN: Thank you and see you in Las Vegas.

(Bob Pittman's NATPE presentation is Tues, Jan 29th at 10am)

Yesterday TiVo and Comcast announced that their joint service offering, known as "Comcast DVR with TiVo" is now available to Greater Boston residents. The announcement comes almost 3 years since the partnership was announced. Multichannel News recently reported that Comcast has funded $24 million of co-development work to date. I have had the service since late October as part of the beta test, but the companies had asked me to stay mum until its official launch.

The first thing to know about this new service is that it really is familiar, lovable TiVo inside a Motorola cable set-top box. I am a long-time TiVo Series 2 owner, and as best I can tell all of the core TiVo features are available (e.g. Season Pass, Wish List, Suggestions) along with the inimitable TiVo blooping sounds effects. The box has a dual tuner so you can record one show while watching another. The navigation also incorporates all of Comcast's VOD selections, so all linear and VOD programs are considered in your searches. It's an HD-capable box, which can hold 15-20 hours of HD video. The peanut-shaped remote control is virtually unchanged.

What's not included are all the wonderful broadband features (e.g. TiVoCast, Amazon Unbox, Rhapsody, Music Choice, Photos, Home Movies, etc.) and network features (e.g. remote scheduling, whole house service). The absence of broadband content (CNET, The Onion, NY Times, etc.) in particular will be missed. TiVo has gradually been introducing this over the last couple years. I've written a lot about broadband-to-the-TV solutions recently, and TiVo's approach has been very solid. However, Comcast obviously wanted to retain strict control over what video gets pumped into the set-top box. I have discussed this "closed" vs. "open" mindset earlier - hopefully something that will change down the road.

The service itself has mostly worked well. There were some initial hiccups requiring the Comcast service techs to return to the house and for me to call in for service. There are a few small issues that have persisted. These include periodically getting a green screen which requires me to turn the box on and off. I can't continuously lower the volume or change channels by suppressing the appropriate button on the remote control (this is possibly a TV-specific issue). I also find the service just a little less responsive than my Series 2 box - my fingers have had to adjust their muscle memory somewhat when working the familiar remote control. None of these are deal-breakers, but I do intend to have Comcast come out a take a look one of these days.

Comcast has priced the service at $2.95/mo, on top of its plain vanilla DVR service fee of $12.95/mo. I continue to believe that for consumers this proposition makes a lot of sense when compared with buying a standalone Series 3 box. It's a $3 delta over paying the monthly service charge directly to TiVo, but you avoid buying the Series 3 box (about $600 street price around $400) and potential maintenance and obsolescence issues. And it means one less box in your rack. The downside is the missing TiVo features described above.

If Comcast markets the TiVo service aggressively and correctly I think they can shift a lot of current DVR subscribers over plus add plenty of new ones down the road. It's a meaningful competitive advantage for a company caught up in a brutal battle with satellite and telco competitors. For TiVo, which has also done a deal with Cox (and others in the future presumably), it's a great shot at migrating itself out of the hardware business, into software and solutions.

The unveiling of HBO's broadband video strategy provides fresh evidence that the 3 major premium cable channels - HBO, Showtime and Starz - are pursuing 3 very different paths in navigating the broadband world.

These 3 channels have traditionally been tight-knit partners with cable operators who leveraged these channels' brands and programming relentlessly in marketing campaigns to gain new revenues and subscribers. But operators' high margin digital services (e.g broadband access, phone, HD, VOD DVR) have lately become the primary focus of cable marketers' finite promotional power. Somewhat mitigating this shift has been powerful original programming, especially from HBO (The Sopranos, Sex and the City, etc.) that has often made these "must have" channels for audiences, helping build powerful consumer brands in the process.

Broadband delivery further scrambles the relationship between these 3 premium channels and their cable operator brethren. For the first time, the premium channels can promote their services, and even deliver them directly to consumers, all without cable operators' involvement. This newfound flexibility has led to 3 very different strategies that I would categorize as "Be bold" (Starz), "Be incremental" (Showtime) and "Be aligned" (HBO).

"Be bold" - Starz has pursued the boldest broadband strategy, launching Vongo, a pure broadband-delivered subscription service several years ago. Starz has invested heavily in making Vongo a top-notch user experience, including hundreds of hours of additional content specifically for the service. Starz has marketed Vongo directly to consumers and through non-cable industry distribution partnerships (e.g. HP, AT&T, Microsoft, Toshiba, Samsung, others). Starz is very clearly trying to grow the market for its programming.

Starz has sought cable operator partnerships as well, I believe correctly arguing that Vongo can be priced and packaged in a way that provides new value for subscribers as well as cable operators. These efforts have been stymied to date as reluctant operators perceive Vongo as possibly opening the door for Starz and others to gain direct access to subscribers, while also creating possible confusion around operators' budding VOD services.

"Be incremental" - Showtime has focused its broadband efforts on new revenue opportunities such as selling episodes through aggregators like iTunes, and also offering innovative new programming and features that capitalize on broadband's ability to directly interface with audiences. Two perfect examples of the latter are the "Dexter" parallel webisode series and season finale producers' video I have previously written about.

Showtime's goal is to create valuable exposure for its programming to non-subscribers on the bet that actual sampling is the best way to drive new subscriptions (in the past sampling was limited to cable operators' offering "preview weekends"). Showtime's "be incremental" approach studiously avoids creating conflicts with its cable operator partners, while not limiting the network's ability to harness broadband's potential.

"Be aligned" - HBO's belated entry into the broadband world is intended to support its cable partners by offering access to HBO Broadband to only those viewers who are both existing HBO subscribers AND cable broadband subscribers. This "value add" positioning is comparable in some ways to Netflix's "Watch Instantly" approach. They are both focused on giving existing subscribers more, not creating a distinct service, a la Vongo, aimed at expanding the market. Further, by limiting HBO Broadband's geographic rollout, HBO is taking an additionally cautious approach compared with the others. The HBO message is clear: we're staying strongly aligned with our traditional cable industry partners.

Three premium channels, three distinct broadband strategies. Further evidence that we currently live in a world of vast experimentation, with market participants focused on different goals and different ways of achieving them. I expect plenty more of this to come, as all players gather data about what works and what doesn't.

What do you think? Post a comment and let us all know!

Although other Wall Street pros fairly yawned at Chieftain's radical proposals - in fact just last week selecting him, for the 2nd year in a row, as Institutional Investor magazine's best CEO in the cable and satellite industry - the letter does provide an opportunity to consider Comcast's stature in the highly dynamic video marketplace. But rather than looking backwards at Comcast's performance, I'd suggest looking forward and asking: how healthy is Comcast's positioning for future success? Is it closer to "Comcastic" or to "Comcastrophe"?

I'd argue that the most important factor determining Comcast's (and other cable operators') future financial success is how well they are embracing delivery of broadband video into their core business models. The adoption of broadband video by consumers, and the enthusiasm for it by content providers large and small are the most crucial fundamental marketplace changes that cable operators are now facing.

This is the case because, as I've said repeatedly over the years, broadband's open access undermines cable operators' traditional closed business model, in which only networks which have so-called "carriage deals" are available to subscribers. This closed approach contrasts with the broadband world, where all programming is accessible by everyone, all the time. Piggybacking on the Internet's own success in driving consumer choice, broadband's openness is poised to drive a stake into the heart of cable's traditional video packaging paradigm and revenue model.

Yet despite this gathering storm, Comcast and other cable operators have been woefully inattentive to explaining how they'll weave broadband video into their TV-based services. Instead, their broadband access businesses, now generating billions of dollars per year in revenues, remain almost entirely siloed from the core video side of the business.

While Comcast should be lauded for initiatives such as broadening Fancast's content, starting Ziddio, announcing an aggressive agenda for bringing more HD content to its VOD menu, and backing Tru2way, none of these directly answer the question of how Comcast will update its closed approach to content, facilitating its subscribers' access to broadband video through their set-top boxes. This would provide for a seamless and highly compelling viewing experience. Comcast's and others' silence is creating the void that is behind the frenzy of activity from technology vendors and consumers trying to kluge the broadband and TV worlds together.

Ending the week on a slightly lighter note, if you happened to go to WSJ.com or NYT.com yesterday, you would have seen that Apple bought out all the top of page ad inventory at both sites for its latest "Get a Mac" video spot (also known as the "Mac vs. PC" ads), which have been hugely popular on TV and online.

Apple's so-called "roadblock" strategy yesterday meant that every single visitor to these 2 sites were exposed to the same leaderboard/skyscraper video ad highlighting WSJ writer Walt Mossberg's opinion that Apple's latest Leopard OS release is "better and faster than Vista." Apple has a whole gallery of its "Get a Mac" ads here, though this new one is not yet posted.

In the online ad business, this type of video ad is referred to as "rich media." I haven't spent much time in VideoNuze discussing rich media ads, instead concentrating on pre-rolls and overlays ads which are actually adjacent to video content. Rich media ads show that there are many different ways to leverage video's emotional and informational impact even when there is no underlying video content to be adjacent to. Given the limitation of high-quality video content against which to run video ads, rich media has become an important and growing segment of the overall online ad business.

While, some rich media ads are way too "in your face" and spoil the user's experience, I think the way the yesterday's roadblock was executed is well within bounds. The video begins playing when the site loads, but the audio is muted. The user has to click the audio icon, and then the spot replays from the start. This means there's been an opt-in decision, which leads to higher engagement. Also, unlike many other rich media spots, the ad is composed solely of a leaderboard and skyscraper, so it doesn't have any obnoxious "pop-ups", "floating" or "expandable" components that block the underlying site content. These are the types of things that drive users crazy.

Rich media ads are an important part of the mix for fully understanding what's happening with video online, especially for advertisers who want to explore all options for leveraging video's emotional impact. I see the category continuing to grow. If ads are well-executed like Apple's, there will not only be minimal user pushback, but rather genuine opportunities for branding and interactivity.

While it's easy to fixate on how broadband video delivery is opening up new distribution opportunities for films and TV programming, there is also a ton of innovation happening well outside the professional video space.

I'm always keen to learn about entrepreneurs who are recognizing that broadband video can have a revolutionizing influence on sectors in which they're deeply familiar. A recent example to hit my radar is PlatformQ, which is harnessing broadband to create powerful virtual events in the higher education, energy and health care sectors.

PlatformQ sees itself as a digital media company in the sense that revenues will be derived from sponsorships; another way of thinking about them is as a next-generation, broadband-powered trade show company. I recently caught up with Robert Rosenbloom, CEO/Co-Founder (former VP Biz Dev/Co-Founder of iCongo) and Chris Charron, VP Product Management (former Group VP at Forrester Research) to learn more.

PlatformQ's first event, CollegeWeek Live, was held in November '07 and drew 15,000+ registrations and 100+ participating colleges. More than an aggregation of text/graphic info, CWL featured live, streamed keynotes from 8 admissions experts (originating from studios around the U.S.), 50 hours of live video chat sessions between actual students and prospective applicants, and thousands of hours of chat sessions. For this event, PlatformQ used Unisfair as the key underlying events technology, but it believes there a number of other alternatives for future shows depending on specific requirements.

The key to CWL is that it creates an informative and intimate user experience using broadband video to augment the traditional college search process. It's not just a win for prospective applicants. Bringing this appealing audience together is a magnet for all kinds of marketers, and thus CWL creates tons of sponsorship opportunities, many of which can be video-based as well.

In addition, all user behavior in CWL is tracked, so it is a great lead-gen source for the participating colleges and an opportunity for them to shoot their own video to showcase their school in new and innovative ways. Since CWL will be held at least semi-annually, schools can showcase timely events (e.g. football victories, winter scenes, etc.). Taken together, CWL opens up a whole new window for applicants into the overwhelming college selection process by using technologies (video, chat, social networking, etc.) that are already very familiar to them.

Next up for PlatformQ are virtual events in the energy and health care sectors, which the company believes are ripe for broadband video to also add new value. This seems like a great business model to me as it delivers strong value to all the target constituencies. It is also another terrific example of how broadband is stimulating new innovation in areas that traditionally had little or nothing to do with video. PlatformQ is based in Needham, MA and has done one angel round.