VideoNuze Posts

Amid all of the attention Netflix has been receiving for embedding its streaming software in one consumer electronics device after another (the Wii just yesterday) and its recent Warner Bros. deal, it's been easy to overlook the fact that Blockbuster has been getting some online traction itself. One announcement at CES last week, by ActiveVideo Networks, caught my attention as it has the potential to leapfrog Blockbuster On Demand's user experience past Netflix's Watch Instantly.

Much as I'm a big fan of Netflix's Watch Instantly streaming feature, one of its limitations is that the user experience is very segregated between computer and TV. You browse and search online for titles - just as you would for DVDs - and then when you've made your choices, they show up in your Instant Queue online and on your connected TV (via Roku, Blu-ray, Xbox or other device). While it's a perfectly functional approach, wouldn't it be nice if you could do the entire process of search, discovery, previewing, selection and viewing on the TV itself?

That's the experience that ActiveVideo Networks' CloudTV will be helping Blockbuster on Demand deliver to its users. As ActiveVideo's CEO Jeff Miller explained to me yesterday, when deployed, the Blockbuster on Demand app (developed using ActiveVideo's JavaScript/HTML authoring kit), will give Blockbuster's users a web-like experience of search, discovery and previewing on their TVs, via connected devices. In addition, it will present viewing options - streaming, download-to-own and in-store rental (via an API it will even show current availability in selected stores).

The requirements are that ActiveVideo's thin client has been integrated with the device, and that Blockbuster has its own deal with to distribute through the specific device manufacturer. Navigation is via the remote control using an on-screen keypad (see example screen shots below from last week's CES demos).

Similarly, ActiveVideo is also focused both on CE (currently through a partnership with middleware provider Videon Central) and on cable. It has deployed on set-top boxes with Cablevision and Oceanic Time Warner Cable in Hawaii, reaching an audience of 5 million homes. Content providers that have developed apps include Showtime, HSN and Fox, among others. No doubt ActiveVideo and Blockbuster will synch up their biz dev activities to proliferate the Blockbuster on Demand app as widely as possible.

I have to admit that I haven't been paying too much attention to Blockbuster, as it has worked to re-position itself, aiming to close another 1,000 stores by the end of the year and installing more kiosks to compete with Redbox. Of course, it can ill afford to allow Netflix to get too far out in front of it in digital delivery as DVD rentals are poised to be supplanted by streaming down the road.

But Blockbuster has an ubiquitous, if somewhat dated, brand that could be skillfully leveraged into the digital era, provided it has the right services in its arsenal. In this respect, the potential to bring a converged user experience between online and connected TVs is a meaningful differentiator. No initial joint customers have yet been announced by Blockbuster and ActiveVideo, though I expect that soon. And, as online video and TV continue to converge, ActiveVideo is likely to find itself in the middle of a lot of action. All of this is worth keeping an eye on.

(Note - ActiveVideo Networks is a VideoNuze sponsor)

Encoding.com, one of the earliest companies to offer video encoding/transcoding as a service, announced yesterday that it would now be using The Rackspace Cloud as its primary cloud computing environment, a switch from Amazon's EC2. The move is significant as it is another indicator of how the still nascent video encoding as a service is evolving to fit into the overall encoding landscape. Jeff Malkin, Encoding.com's COO and Chandler Vaughn, The Rackspace Cloud's director of product development, gave me an update yesterday.

Media companies have traditionally done their encoding and transcoding in-house, using software from companies like Anystream, Telestream, Digital Rapids, Rhozet and others. As I originally wrote last April, companies like Encoding.com, mPoint and HD Cloud have begun offering alternatives that allow these processes to occur in the "cloud." The idea is that media companies can essentially rent encoding/transcoding capabilities as needed for a fee from companies who do their processes on a third party's infrastructure such as The Rackspace Cloud or Amazon's EC2. For media companies, the new encoding/transcoding service providers' primary value propositions are lower overall cost (both opex and capex), elimination of on-site responsibility for hardware and software, and flexibility.

Jeff reported that Encoding.com is now serving 400 customers, with user-generated content sites like StreetFire still a meaningful part of its business. The company has encoded 3.5 million videos to date and is now encoding 30K source videos/day. Jeff said that established companies like MTV and Brightcove are using Encoding.com's services, but noted that larger media companies are still just dipping their toe into encoding as a service. In particular Jeff said that given turnaround times, the ability to do encodes for full-length HD-quality files on a service basis is not yet practical.

This echoes what an executive at a large encoding software company told me recently - that for the biggest media companies, which have large files that need to be turned around quickly, encoding in the cloud doesn't yet make sense. Another issue is the reluctance to move source files outside the media company's firewall.

Encoding.com's move to Rackspace begins to address some of these issues. Jeff highlighted 3 primary reasons for the switch - Rackspace's CPU bursting capability, which can offer 2x the processing performance of EC2 (The Bitsource just posted a performance comparison analysis); closer proximity to customer's files, as Rackspace is the managed hosting provider for thousands of web sites; and Rackspace's customer support, which improves Encoding.com's ability to deliver on its service level guarantees.

What do you think? Post a comment now.

Online video platform provider Ooyala unveiled a partnership yesterday with NTT SMARTCONNECT that expands the company into Japan. Under the non-exclusive deal, the two companies will collaborate to create a localized and co-branded version of Ooyala's Backlot platform. Marketing and sales are set to begin in February.

As part of the announcement Ooyala also provided some 2009 updates: contracted customers grew from 30 to 300, self-serve customers grew five-fold, the Ooyala player now delivers hundreds of millions of streams/mo to 50 million unique users/mo, it transcodes 60K hours of video/mo and the company now has 70+ employees.

Ooyala also said that 50% of its customers are marketers, and outside of the traditional media space. The company cited Electronic Arts, for which it powers video on 30 different properties, General Mills and Cerner. The non-media focus parallels what Brightcove recently told me, that over half its business now comes from non-media customers (e.g. business, government and education).

As I wrote recently, despite all the growth in the online video platform space, it's still relatively early days. To be in the top tier as the market matures will require providers to scale their operations, including international expansion and serving customers outside the core media market. It looks like Ooyala understands this as well.

What do you think? Post a comment now.

Following my 2 posts late last week (here and here) about how Netflix's new deal with Warner Bros is win for everyone, the NYTimes has posted a terrific interactive map showing the top rentals in 12 geographic areas of the U.S., sorted by zip code. The map is based on data that Netflix provided to the NYTimes. Playing around with the map, you'll quickly hunger for more details, but you'll also get a sense of the mountain of viewership data Netflix maintains on its 11 million+ subscribers. This data, when combined with the Netflix's algorithms for predicting its users' preferences, further demonstrates how valuable a deal like the one with WB could be for Netflix as it emphasizes streaming.

In the digital era, data is king because when used properly, it can dramatically improve the quality of the product delivered, in turn driving user satisfaction and profitability. Netflix has always used data very effectively; examples include how it has chosen sites for its distribution centers so that most Americans are within 1 day's delivery, or how it has recommended other titles based on yours and others' preferences, or how much inventory of newly-released DVDs it decides to build. Now, as Netflix shifts its business from physical to digital delivery, it has another big opportunity to leverage the data it has collected from its users.

While a lot of attention was focused last week on the new 28-day "DVD window" which precludes Netflix from renting recently-released WB titles, I believe more attention should be paid instead to how effectively Netflix will be able to use its trove of data to selectively tap into WB's catalog of titles to boost its streaming selection. Using the data it has collected on physical rentals and search queries, for example, Netflix should be able to literally request title-by-title streaming rights from WB. That's not to say Netflix will necessarily receive access to those particular titles, but by being able to focus its requests, Netflix avoids wasting energy asking for things that are unlikely to have much appeal to its users.

It's unclear whether Netflix will conclude similar deals with other Hollywood studios. If it can't then the above-described benefits will be limited. In fact, as a couple of people pointed out to me last week, with Hollywood also highly dependent on cable, it's not readily apparent that helping Netflix build its streaming selection is actually in their interest as TV Everywhere services continue to roll out. WB is actually an interesting example; on the one hand, Time Warner's CEO Jeff Bewkes has been the strongest proponent of TV Everywhere, but on the other hand, WB's deal with Netflix creates more competition for it. In short, Hollywood will have its hands full trying to recast its distribution strategy in the digital era.

DVDs are not going away overnight, but the user data Netflix has will be an enormously valuable tool in helping transition its business to digital delivery and add more value to its subscribers. As long as Netflix complies with its users' privacy expectations, that gives it a big strategic advantage.

What do you think? Post a comment now.

The 2010 Consumer Electronics Show (CES) is now behind us. There were tons of announcements to come out of this year's show, including many in the online and mobile video areas. Increasingly a core focus of new devices is how to playback online and mobile-delivered video, how to move it around the consumer's house and how to make it portable. Following is a filtered list of the product announcements (or pertinent media coverage if no release was available) that I found noteworthy. They are listed in no particular order and I'm sure I've missed some important ones - if so, please add a comment with the relevant link.

DISH Network Partners with NeuLion to Distribute Live International TV Channels Through IPTV Platform

Boxee box internals revealed. NVIDIA Tegra 2 FTW

Netgear Collaborates with Intel to Launch TV Adapter for Intel Wireless Display, an Intuitive and Easy Way to View Entire Laptop Screen on HDTV Wirelessly

Syabas Announces Popbox for Big Screen Everything

Sling Media Announces Support for Adobe Flash Platform in Hardware and Software Products

LG Electronics Expands Access to Content-on-Demand with New High-Performance Blu-ray Disc Players

ESPN 3D to show soccer, football, more

Discovery Communications, Sony and IMAX Announce Plan to Launch First 24/7 Dedicated 3D Television Network in the U.S.

TV Makers ready to test depths of market for 3D

DirecTV is the First TV Provider to Launch 3D

DISH Network Introduces TV Everywhere

Microsoft Unites Software and Cloud Services to Power New TV Experiences

FLO TV and mophie to Bring Live Mobile TV to the Apple iPhone and iPod Touch

Broadcom Drives the Transition to Connected Consumer Electronics at 2010 International CES

New NVIDIA Tegra Processor Powers the Tablet Revolution

Digital Entertainment Content Ecosystem (DECE) Announces Key Milestones

Disney offers KeyChest, but where is the KeyMaster?

DivX Launches New Internet TV Platform to Redefine the Future of Entertainment

Cisco Eos Social Entertainment Platform Expands Footprint with New Customers, Feature; Introduces Partner Ecosystem

Blockbuster, ActiveVideo Announce Agreement for Cloud-based Online Navigation

Brightcove Expands Online Video Distribution to Millions of Internet-Connected Televisions with Yahoo TV Widgets

Skype Ushers in New Era in Face-to-Face Online Video Communication

Rovi Grows Content Providers List to Include More Movies and TV Shows in its Next-Generation Media Guide

Following are 4 items worth noting for the Jan 4th week:

1. TechCrunch disagrees with my Netflix-Warner Bros. deal analysis - In "Netflix Stabs Us In The Heart So Hollywood Can Drink Our Blood," (great title btw) MG Siegler at the influential blog TechCrunch excerpts part of my post from yesterday, and takes the consumer's point of view, decrying the new 28 day "DVD window" that Netflix has agreed to in its Warner Bros deal. Siegler's main objection is that "Hollywood thinks that with this new 28-day DVD window deal, the masses are going to rush out and buy DVDs in droves again." Instead, Siegler believes the deal hurts consumers and is going to touch off new, widespread piracy.

I think Siegler is wrong on both counts, and many of TechCrunch's readers commenting on the post do as well. First, nobody in Hollywood believes DVD sales are going to spike because of deals like this. However, they do believe that any little bit that can be done to preserve the appeal of DVD's initial sale window can only help DVD sales which are critical to Hollywood's economics. Everyone knows DVD is a dying business; the new window is intended to help it die more gracefully. And because new releases are not that critical to many Netflix users anyway, Netflix has in reality given up little, but presumably gotten a lot, with improved access for streaming and lower DVD purchase prices.

The argument about new, widespread piracy by Netflix users is specious. With or without the 28 day window, there will always be some people who don't respect copyright and think stealing is acceptable. But Netflix isn't running its business with pirates as their top priority. With 11 million subscribers and growing, Netflix is a mainstream-oriented business, and the vast majority of its users are not going to pirate movies - both because they don't know how to (and don't want to learn) and because they think it's wrong. Netflix knows this and is making a calculated long-term bet (correctly in my opinion) that enhancing its streaming catalog is priority #1.

2. comScore's November numbers show continued video growth - Not to be overlooked in all the CES-related news this week was comScore's report of November '09 online video usage, which set new records. Key highlights: total video viewed were almost 31 billion (double Jan '09's total of 14.8 billion), number of videos viewed/average viewer was 182 (up 80% from Jan '09's 101) and minutes watched/mo were approximately 740 (more than double Jan '09's total of 356).

Notably, with 12.2 billion views, YouTube's Nov '09 market share of 39.4% grew vs. its October share of 37.7%. As I've previously pointed out, YouTube has demonstrated amazingly consistent market dominance, with its share hovering around 40% since March '08. Hulu also notched another record month, with 924 million streams, putting it in 2nd place (albeit distantly) to YouTube. Still, Hulu had a blowout year, nearly quadrupling its viewership (up from Jan '09's 250 million views). But with 44 million visitors, Hulu's traffic was pretty close to March '09's 41.6 million. In '10 I'm looking to see what Hulu's going to do to break out of the 40-45 million users/mo band it was in for much of '09.

3. Consumer groups protest TV Everywhere, but their arguments ring hollow - I was intrigued by a joint letter that 4 consumer advocacy groups sent to the Justice Department on Monday, urging it to investigate "potentially unlawful conduct by MVPDs (Multichannel Video Programming Distributors) offering TV Everywhere services." The letter asserts that MVPDs may have colluded in violation of antitrust laws.

I'm not a lawyer and so I'm in no position to judge whether any actions alleged to have taken place by MVPDs violated any antitrust laws. Regardless though, the letter from these groups demonstrates that they are missing a fundamental benefit of TV Everywhere - to provide online access to cable TV programming that has not been available to date because there hasn't been an economical model for doing so. In the eyes of people who think that making money is evil, the TV Everywhere model of requiring consumers to first subscribe to a multichannel video service seems anti-consumer and anti-competitive. But to people trying to make a living creating quality TV programming, the preservation of a highly functional business model is essential.

These advocacy groups need to remember that consumers have a choice; if they don't value cable's programming enough to pay for it, then they can instead just watch free broadcast programs.

4. 3D is the rage at CES - I'll be doing a CES recap on Monday, but one of the key themes of the show has been 3D. There were two big announcements of new 3D channels, from ESPN and Discovery/Sony/IMAX. LG, Panasonic, Samsung and Sony announced new 3D TVs. And DirecTV announced that it would launch 3 new 3D channels by June 2010, with Panasonic as the presenting sponsor. 3D sets will be an expensive proposition for consumers for some time, but prices will of course come down over time.

Something that I wonder about is what impact will 3D have on online and mobile video? Will this spur innovation in computer monitors so that the 3D experience can be experienced online as well? And how about mobile - will we soon be slipping on 3D glasses while looking at our iPhones and Android phones? It may seem like a ridiculous idea, but it's not out of the realm of possibility.

Enjoy your weekend!

Daisy Whitney and I are pleased to present the first VideoNuze Report podcast of 2010 (and the 45th edition overall!).

In today's podcast we first discuss my post from yesterday, "Why Netflix's Long-Term Focus in New Warner Bros. Deal is a Win for Everyone," in which I assert that the new 28 day "DVD window" that the deal creates helps Netflix, Hollywood studios and ultimately consumers. There is a lot of consternation in the blogosphere and Twittersphere about whether Netflix is hosing its subscribers with this new policy, but I believe there's actually little risk of that, and the payoff for Netflix is better content for its streaming catalog as well as lower costs for its DVD purchases. While WB surely doesn't expect to sell more DVDs due to the deal, it can only help make the DVD model's demise a little less disruptive.

Switching gears, Daisy then reviews some of eMarketer's predictions for ad spending in 2010, with particular focus on online video advertising, which eMarketer expects to grow from about $1 billion in '09 to $1.4 billion in '10. Listen in to find out more.

Click here to listen to the podcast (12 minutes, 30 seconds)

Click here for previous podcasts

The VideoNuze Report is available in iTunes...subscribe today!

Netflix's new deal with Warner Bros., in which it agreed to a 28 day "DVD window" for new releases, in exchange for greater access to WB's films for its Watch Instantly streaming feature and reduced pricing on its own DVD purchases, is further proof that Netflix is squarely focused on the long-term. That's not only smart for Netflix, it's also a win for Hollywood studios and also for consumers.

With 11 million subscribers and growing, Netflix has emerged as one of Hollywood's most important home video customers. This dynamic has only increased recently due to slowing sales of DVDs (down another 13% in 2009) and Netflix's dominance in DVD rentals. Yet Netflix is viewed warily by Hollywood, primarily due to concerns that in the digital age, Netflix could gain too much power over Hollywood's fate. This concern was reinforced by Netflix's deal with premium cable channel Starz, a de facto end-run around Hollywood in which Netflix got streaming access to certain Disney, Sony and Lionsgate films.

As I've pointed out many times (as recently as this past Monday, in item #6), despite the Starz deal and the impressive adoption of Watch Instantly to date, Netflix faces a major challenge in building out its catalog of recent films for streaming use. Part of the challenge is Hollywood's "windowing" approach; in particular, other premium channels like HBO, Showtime and Epix have made significant financial commitments for electronic distribution during certain time periods that effectively preclude Netflix gaining streaming rights. Because much of Netflix's value proposition relies on its vast DVD selection (100K+ titles currently), if its streaming catalog continues to look meager by comparison, then Netflix's goal of migrating its users to streaming delivery over time will be seriously undermined.

That's where the new WB deal comes in. While the companies didn't disclose which titles or how many would be available, my guess is that the benefits of the deal, when it's fully implemented, will be noticeable to Netflix's subscribers or Netflix wouldn't have signed on. While WB is just one studio, if the new deal can be used as a template, Netflix could have a solid plan for gaining more films without paying big bucks. And the studios would get greater leverage against Redbox, which is viewed with even greater alarm by much of Hollywood.

Netflix's focus on the long term is smart strategy, and complements well the company's near-term emphasis on riding the convergence wave by embedding its Watch Instantly software in every conceivable living room device (e.g. PS3, Xbox, Roku, Bravia, Blu-ray players, etc.). It's also a strategy that benefits Hollywood. By creating a situation where studios preserve as much of their DVD sales as possible (allegedly 75% of a film's total DVD sales occur in the first 4 weeks following release), Netflix is helping Hollywood gracefully wind down and milk the DVD business.

Not surprisingly, consumers' first reaction to the deal was sour. Yesterday the Twittersphere was alight with grousing about the 28 day DVD window and how Netflix was "selling out its customers." Some even talked about canceling their Netflix service. I think most of this is idle chatter. Netflix has publicly said that just 30% of its DVD rentals come from recent releases (though it is likely that for Netflix's heaviest DVD renters, recent releases are far more important). In the end, Netflix is making a calculated bet that it can manage the potential subscriber consequences of creating the DVD window in order to benefit its larger goal of migrating its business to online delivery.

If Netflix is right, and it can sign on additional studios to similar deals, then ultimately consumers will win. That's because, as Netflix proves in the value of streaming, it will be able to offer improved terms to studios, resulting in Netflix getting better and better access to films. But this will be a gradual process that unfolds over time. Whereas consumers always "want everything yesterday," the reality is that if Hollywood and Netflix can avoid disruption and instead preserve most of their economics by gracefully transitioning their businesses to digital delivery, consumers stand a better chance of continuing to receive the kind of premium-quality (i.e. expensive to produce) films they value. The demise of the newspaper industry is a cautionary example of what happens when disruption instead prevails and an industry's traditional economics are destroyed.

We are still on the front end of seismic shifts that will alter how Hollywood's films are distributed to consumers. By focusing on the long-term, as evidenced by its WB deal, Netflix is playing an important role in increasing the odds of a successful transition.

What do you think? Post a comment now.