VideoNuze Posts

What to Look for in Netflix's Q1 '10 Results Later Today

Later today Netflix will report its Q1 '10 results which will be closely scrutinized to see if the company's strong momentum has continued following its blowout Q4 '09.  Netflix is easily the most important "over the top" (OTT) contender and recently it announced further moves that will strengthen its position (e.g. launch of Wii streaming, Warner Bros., Universal and Fox 28-day DVD window deals, iPad app, more CE partners and additional indie content).

In January the company forecasted Q1 ending subscribers would be in a range of 13.5 to 13.8 million, which would represent net sub growth of 1.232 million to 1.532 subs over its Q4 '09 ending 12.268 million subs. The forecasts are a sign of how bullish Netflix management itself is; even the low end would represent the strongest quarterly net sub growth ever. Netflix's best Q1 was in '09 when it added 920K net subs meaning even the low end of the Q1 '10 forecast is 34% higher than the Q1 '09 actual. And a strong Q1 would also bode very well for full 2010 results; historically Q1 represents between 32-41% of Netflix's full year net sub adds.

As I explained in my Feb post, "It's Official: Netflix has Entered a Virtuous Cycle" there are several other key numbers to zero in on today. First is subscriber acquisition cost (SAC), which is what the company spends to add each new sub. SAC in Q4 '09 was $25.23, the second lowest ever (only Q2 '09 SAC of $23.88 was better). SAC has been falling dramatically (it was $47.46 in Q1 '07). I think this is a direct reflection of the company's unlimited streaming feature becoming better understood and valued as online video viewing has soared and convergence devices have proliferated. A continued decline of SAC in Q1 '10 would be very good news.

Churn is another number to focus on. In Q4 '09 it was 3.9%, matching the company's all time low. Churn is tightly related to sub growth. If new subs are low quality (e.g. responding to promotional offers, not understanding up-front what to expect, high delinquencies, etc.), churn will increase. If Netflix can sustain sub 4% churn in the face of unusually high sub growth that means sub quality is strong.

The percentage of subs using its streaming feature for at least 15 minutes/month is yet another number to focus on. In Q4 '09 it was 48%, up from 41% in Q3 '09 and 26% in Q4 '08. I'm sure we'll see an increase in this percentage in Q1 '10, the only question is to what. Last but not least, it will be interesting to see where gross margin comes in. Gross margin ticked up to 38% in Q4 '09, a level not seen since 2006, but it's not clear whether this will be sustained. Benefits of the 28-day DVD deals, which in part reduce the company's cost of acquiring DVDs from these studios will likely not be visible yet in Q1.

Netflix has a huge amount of momentum in its fundamentals, which the stock market seems to have woken up to recently. The company's stock price closed at $87.07 yesterday, up 58% from its 12/31/09 price of $55.09 and up 71% from $50.97, the level that it was at just prior to when it reported its blowout Q4 results. Investors will no doubt be looking at Q1 results to help justify the stock's big recent move. In particular, if sub growth beats the high end of the forecasted range, it could well trigger another strong move higher for the stock (and no that's not a recommendation to buy). Netflix has a wide open playing field, later today we'll find out how well it continues to capitalize on it.

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Categories: Aggregators

Topics: Netflix

Widevine Announces Product Update, List of Supported Devices and New Customers

Widevine is announcing the 4.4.4 version of its video optimization and DRM platform today, with new features, a list of supported devices and new customers. Widevine's CEO Brian Baker brought me up to speed yesterday.

Widevine is supporting HTTP streaming and also adaptive bit rate streaming for live events and shows, not just on-demand. Devices supported include Apple products, Blu-ray players (Haier, LG, Philips, Samsung, Toshiba), connected TVs, Nintendo Wii, Windows PCs and 50 models of set-top boxes. As TV Everywhere services begin to roll out, secure delivery is a key to success, and Brian explained that Widevine is positioning itself to be in the middle of the action.

On the customer front, Netflix and Best Buy are being announced as new customers. Netflix has been aggressively rolling out new content and supported devices for its Watch Instantly streaming feature. Brian wouldn't confirm, but it seems fair to assume that Widevine is the DRM solution Netflix is using for streaming to the Nintendo Wii, which, given its massive installed base could quickly become a significant percentage of Netflix's streaming use (it just went live last week). In a related move, last week Irdeto announced that Netflix had licensed its Cloakware software as part of its DRM efforts.  

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Categories: Aggregators, Devices, DRM

Topics: Best Buy, Netflix, Widevine

Discovery and PointRoll Combine Editorial and Ads in "Dig@torial" In-Banner Video Unit

A new ad unit announced by Discovery and PointRoll and called "Dig@torial" (pronounced "digitorial") caught my attention a few weeks ago, and I've been meaning to write about it since. The unit intrigued me because it dynamically leverages Discovery's video library to enhance an advertiser's message in an easy-to-navigate rich media banner. I hadn't seen anything quite like it before and believe it is yet another indicator of how content and ads are blurring into one seamless experience.

To learn more, I talked to Michael Aronowitz, VP of Channel Development at PointRoll, which is owned by Gannett, and Brent Spitzer, VP and Leigh Solomon, Manager of Activation, both at Discovery Digital Media Advertising Sales.

PointRoll worked with Discovery to build a shell in the requested leaderboard and 160x600 skyscraper formats. In these examples 50% of the space promotes Montana Office of Tourism specifically and the other 50% offers opportunities to engage with Discovery content. When you roll over the ad it unfolds to show a mosaic of photos to look at in the Montana space (plus a link to visit www.visitmt.com), and a choice of relevant articles and videos from Discovery's library in its space. A video begins playing in-banner automatically with 4 thumbnails exposed below, plus a link to view more on a customized landing page. The videos play with a 10 second pre-roll for Montana that is frequency-capped.



Brent and Leigh explained that with the Dig@torial, Discovery works collaboratively with its advertising clients to select the most relevant content to incorporate into the ads. Discovery's team combs through its archive of video clips and proposes a playlist to the client. If the client has its own video that can be incorporated too. The video is fed dynamically into the Dig@torial unit, so it can be updated at any time. The key to making all this possible for Discovery is that it owns all of its programs, so it has a free hand to carve them up and integrate them into ads like these.

It's still early for the Dig@torial unit, but it appears to be succeeding. Michael said that the benchmark "interaction rate" for the PointRoll network (which is the first time someone interacts with a PointRoll ad) over the last 1 1/4 years is 6.4% with a 14 second engagement time. The Dig@torial press release says that regular rich media ads on Discovery's sites exceed the PointRoll benchmark by 70% and that the Dig@torial ads provide another 50% lift. That would imply an approximately 16% interaction rate and 36 second engagement time, both of which are very strong. Attesting to the Dig@torial's appeal, Brent and Leigh said that Dig@torial campaigns for 8 other clients have also recently launched or are being launched (I combed through Discovery's sites, but wasn't able to find them though).

Brands and sites are perpetually trying to identify ways to increase user engagement and conversion. By blending client messages with relevant and strongly branded content, the Dig@torial unit is breaking new ground in delivering value to all parties. It's also a reminder that for content providers, it's worth trying to secure re-use rights to programming and then archiving and tagging them for subsequent retrieval. Dig@torial is showing that content's value can extend well beyond its initial airing.

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Categories: Advertising, Cable Networks

Topics: Discovery, PointRoll

NDS Leads $20 Million Investment in BlackArrow for Advanced Advertising

Amid all the coverage that online video advertising receives, it's also important to remember that advanced advertising in on-demand and pre-recorded TV continues to evolve. News today that NDS, one of the largest technology providers to multichannel video programming distributors ("MVPDs") is leading a $20 million Series C round in BlackArrow, a provider of advanced advertising solutions, is a reminder of progress. Last week I spoke to Todd Narwid, VP of New Media for NDS and Dean Denhart, BlackArrow's CEO, to learn more about the deal.

To put the deal and its upside in context, it's important to first understand there's a big difference between how online video advertising against free streams in the open Internet works vs. how advertising against VOD and DVR programs in paid, subscription-based services run by MVPDs works. In the Internet world, there are pretty well-established standards, allowing significant interoperability among sites and ad servers. While measurement challenges persist, the act of getting video ads inserted where they're supposed to be is now pretty straightforward.  

Conversely, in the MVPD world, the first challenge is just getting ad serving systems approved and deployed. Because ads are served from within the MVPD's own infrastructure, new ad servers must be tested and integrated with existing video delivery infrastructure residing in distribution centers often called "headends" in the cable world. Unlike MVPDs' broadband deployments, much of MVPDs' TV delivery architecture pre-dates the Internet and therefore is heterogeneous and often difficult to integrate with. In addition, there are the tens of millions of deployed set-top boxes which also differ in their capabilities and openness. MVPDs have made significant progress in creating their own standards and in deploying advanced services, but as anyone who's ever tried to implement any kind of advanced service in the MVPD world can attest, it's hard work and has ground down many promising technology start-ups.

When I first wrote about BlackArrow, on its launch in Oct, '07, I liked its vision of delivering advanced advertising in VOD and DVR programs, but I noted the above challenges gave it a steep hill to climb. Since then, BlackArrow has made progress, deploying with Comcast in Jacksonville, FL and with other operators (though Dean isn't able to mention them due to MVPD restrictions). Still, MVPDs have so many priorities and their resources for testing and integrating new technology are limited. Further, there's a lingering sentiment that MVPDs have only made a half-hearted attempt to really monetize VOD and DVR.

Given these circumstance, the NDS deal appears to offer BlackArrow a lot of upside. As one of the largest technology providers to MVPDs globally ("conditional access" systems that provide secure MVPD video delivery are its main product line, among others), NDS immediately gives BlackArrow both credibility and significantly improved sales and support reach, particularly outside North America. The companies also announced a joint solution offering, which will be key to realizing actual sales  Importantly, NDS gives BlackArrow improved financial footing for what promises to be a very long-term process of deploying advanced advertising by MVPDs. Conversely, for NDS, as Todd explained, BlackArrow provides the monetization piece of the puzzle that MVPDs need to create business cases to help them justify NDS's advanced technology delivery systems.  

For MVPDs, who are witnessing the rapid adoption of online video and the threat of cord-cutting down the road, it is essential to be able to offer subscribers more flexible viewing options like VOD and DVR and to give their content partners opportunities to effectively monetize these views. This has been the Achilles heel of VOD and DVR to date, and the scarcity of ad-supported programs in VOD (particularly relative to what's available online) is a direct reflection of this.

Going forward, the challenge for MVPDs will only intensify as content providers face escalating choices about where to optimally monetize their programming. This is where BlackArrow fits in. Plus the company has always had a multi-platform vision, so once it's enabled for TV and DVR, BlackArrow could also provide a pathway to online monetization, which given MVPDs' TV Everywhere initiatives, is also a growing priority.

What do you think? Post a comment now (no sign-in required).

Categories: Advertising, Cable TV Operators, Deals & Financings, DVR, Satellite, Technology, Telcos, Video On Demand

Topics: BlackArrow, Comcast, NDS

Early Bird Rate Ends Today for April 26th VideoSchmooze

Early bird discounted registration for VideoNuze's next "VideoSchmooze" Broadband Video Leadership Evening on April 26th ends today. The event runs from 6-9pm at the Hudson Theater in New York City and includes open bar (beer/wine/soda), hors d'oeuvres and a full educational program. As an extra incentive, early bird registrants only will be entered for a chance to win an iPad.

The panel, which I'll moderate, is "Money Talks: Is Online Video Shifting to the Paid Model?" This is one of the most central questions in the online video landscape today and our executive panelists and I will dig into it deeply. Joining me are:

• Jeremy Legg - SVP, Business Development, Turner Broadcasting System, Inc.

• Damon Phillips - VP, ESPN3

• Avner Ronen - CEO and Co-founder, boxee

• Fred Santarpia - General Manager, VEVO

Click here to learn more and register for the early bird discount

We'll also have a 15-minute presentation by Emily Nagle Green, President and CEO of Yankee Group, a leading industry market research and consulting firm. Emily is the author of the recently published book, "Anywhere - How Global Connectivity is Revolutionizing the Way We Do Business." Emily has tons of great data from Yankee's research about consumer preferences and what's really happening in the market.

VideoSchmooze is a terrific opportunity to expand your network and meet the panelists. Some of the companies represented at VideoSchmooze include HBO, Scripps Networks, NBA, ESPN, 5Min, Comcast, AT&T, Answers.com and lots of others.

Early bird discounted tickets are available through today for $65. If you're planning to come, register now and save (plus you get a chance to win the iPad). If you're planning to attend with colleagues, more deeply discounted "5-Pack" and "10-Pack" tickets are also available.

I look forward to seeing you on April 26th!

Click here to learn more and register for the early bird discount

Categories: Events

Topics: VideoSchmooze

Is "Cord-Cutting" a Big Deal or Not?

Categories: Cable Networks, Cable TV Operators

Topics: Convergence Consulting Group

Conan's Jump to TBS Shouldn't Really Surprise Anyone

David Pogue's "Video Wall" Explained

If you're a David Pogue fan like me, you were also likely wondering how he pulled off his recent "iPad Town Hall" which featured him interacting with 20 people in what appeared to be a live "video wall." The town hall video, which runs about 5 minutes is classic Pogue - funny, educational and fast moving.



This week Pogue shared the details of how he built the "video wall" which actually wasn't live, but was instead a mosaic of scripted QuickTime videos he solicited from his Twitter followers. He then embedded them all in a Keynote presentation and through some editing flair created the illusion that it was live. The result is very slick and showcases what a relative amateur can produce with some creativity and persistence.

What do you think? Post a comment now (no sign-in required).

Categories: Devices, Newspapers

Topics: David Pogue, iPad