Posts for 'Aggregators'

For those who weren't up for reading 700-1,000 words each day last week, today I offer a quick recap my 5 broadband video projections for 2009.

1. The Syndicated Video Economy Accelerates

This one is easily my least controversial prediction, since I've been writing about this trend for most of 2008. The "SVE" as I call it, is an ecosystem of video content providers, distributors and the technology companies who facilitate their relationships. In '08 video content providers increasingly realized that widespread distribution to the sites that users already frequent would improve on the "one central destination site" approach. That's a big change in the traditional media mentality. In '09 the SVE will only accelerate, as the technology building blocks for distributing, monetizing and measuring syndicated video continues to improve. To be sure, the SVE is still nascent, but many companies across the broadband landscape have begun embracing it in earnest.

2. Mobile Video Takes Off, Finally

In '08 VideoNuze has been mainly focused on wired broadband delivery of video to homes and businesses. But as the year has progressed, powerful new mobile devices have mutated the definition of broadband to also include wireless delivery. The huge success of the iPhone and other newer video-capable devices, coupled with 3G, and soon 4G networks, have contributed to mobile delivery finally realizing some of its long-held promise. Still, as some of you commented, obstacles remain. iPhones don't support Flash, the most popular video format. Wireless carriers are careful with doling out too much bandwidth for video apps. And so on. Still, '08 was a big year for video delivery to mobile devices, and I think '09 will be even bigger.

3. Net Neutrality Remains Dormant

Proponents of "net neutrality" legislation, which would codify the Internet's level playing field, expected that under an Obama administration they would finally be granted their wish, particularly since he supported the concept on the campaign trail. But I'm predicting that net neutrality will be dormant for yet another year. Mr. Obama has been emphatic about basing policy decisions on facts and data, and this is an area where net neutrality advocates continue to come up short as there's yet to be any sustained and proven ISP misbehavior. With Mr. Obama and his team having urgent fires to address all around them, there are only two scenarios I can see that move net neutrality up the prioritization list: a startling new pattern of ISP misbehavior or some kind of deal ISPs agree to in exchange for infrastructure buildout subsidies from the stimulus package.

4. Ad-Supported Premium Video Aggregators Shakeout

One of the best-funded categories of the broadband landscape has been aggregators of premium-quality video - TV programs, movies and other well-produced video. These companies have been thought of as potential long-term online competitors to today's video distributors (cable/satellite/telco). However, it's proving very difficult for these sites to differentiate themselves. Content is commonly available, user experience advantages are hard to maintain, user acquisition is not straightforward, audiences are fragmented and ad dollars are under pressure. All of this means that '09 will see a shakeout among the many players in this category, though it's hard to predict at this point who will be left standing (though at a minimum I expect Hulu and Fancast to be in this group).

5. Microsoft Will Acquire Netflix

My long-ball prediction was that at some point in '09 Microsoft will acquire Netflix. Though many of you emailed me offering kudos for boldness, not many are buying into my prediction. Fair enough, I'll either be flat-out wrong on this one or I'll get a gold star for prescience. I provided my rationale, which starts with the assumption that Apple and Google (Microsoft's two fiercest rivals in the consumer space) are best-positioned for success in the battle for the biggest consumer prize of the next 10 years: delivering broadband video services directly to the TV.

I think Microsoft needs to directly play in this space, and Netflix is a perfect vehicle. It has a great brand, a large and loyal subscriber base and excellent back-end fulfillment systems. In 2008 Netflix great strides in broadband, building out its "Watch Instantly" feature. Yet to grow WI's catalog from its current 12K titles to anything approaching the 100K+ available by DVD will require deep financial resources to deal with a recalcitrant Hollywood, and also shelter from quarter-to-quarter earnings pressures. Netflix's measured approach to broadband is consistent with its historical overall operating style. While that style has worked exceedingly well in the past, the broadband-to-the-TV service landscape is wide open right now, and Netflix should be pursuing in a thoughtful, yet ultra-aggressive way. Combined with Microsoft it would be poised to become the broadband video category leader over the next 10 years.

OK, there's the summary. I'll be checking back in on these as the year progresses.

What do you think? Post a comment now.

As I promised, I've tried to make my 2009 broadband predictions bolder as the week has progressed. So to cap off the week, I'm offering up a doozy: my 2009 prediction #5 is that Microsoft will acquire Netflix sometime next year.

Before I get into my rationale, I want to be perfectly clear that I have absolutely no insider information, nor have I talked to anyone at either company about this prediction, which is solely my own personal opinion. I don't directly own stock in either company, though I may have some in various mutual funds I own. This prediction doesn't constitute advice to purchase stock in either company. I'm an industry analyst who happens to believe that this deal would make a lot of strategic sense for both companies based on my assumptions about broadband video's future.

First, it's important to understand that the single biggest consumer market opportunity in the next 10 years will be delivering premium-quality video (mainly hit TV programs and movies) over broadband Internet connections to TVs. Broadband is poised to disrupt the current providers of multichannel video (cable/satellite/telco) which generate about $80-100 billion of annual revenue in the U.S. alone. Rich potential rewards await successful new broadband-only or "over the top" entrants.

While Microsoft has an impressive portfolio of consumer-facing products (e.g. Xbox, Silverlight, WMP, IE, MSN, etc.), the reality is that today it lacks a well-branded service offering with sufficient consumer traction to credibly vie for a piece of the multichannel video market that will be up for grabs. It is unimaginable to me that Microsoft will continue to content itself with focusing only on the enablers like those listed above, along with its Mediaroom IPTV software platform, while others launch new broadband video services to consumers. Further, since the race is actually already well underway, the classic "build vs. buy" analysis tilts heavily toward "buy," especially if a jewel like Netflix is possibly available.

Another Microsoft motivator is that its two keenest competitors in the consumer space, Apple and Google, also happen to be the two best-positioned companies to deliver premium video to the TV using broadband. In iTunes, Apple has by far the most successful consumer-paid download store which is already highly relevant to studios and networks (witness NBC's decision to return to iTunes earlier this fall), not to mention the most successful devices (iPod and iPhone). iTunes is Apple's springboard into disrupting the traditional multichannel video model, though exactly how the company will do so is yet to be determined. Its initial foray with Apple TV is hardly the company's final word. And with Steve Jobs' personal stake in Disney, Apple has a lot of insight and leverage to get things done in Hollywood.

Meanwhile Google, when combined with YouTube, has the highest potential for delivering an ad-supported premium broadband video service. I recognize that the operative word in that sentence is "potential." YouTube still has lots of monetization challenges. And though it has made great strides adding premium video to its site in '08, I doubt many users yet associate YouTube with premium video the way they do with Hulu for example, or any of the network sites for that matter. Further, YouTube has made little progress in articulating a strategy for getting to the TV. In a post I did earlier this year, "YouTube: Over-the-Top's Best Friend" I suggested that it would be an appealing partner for all of the over-the-top device makers, who desperately need content and a brand to penetrate the market.

Despite these shortcomings, when you consider the upside of Google Content Network and the reality that YouTube dominates video usage with 40% share of all monthly streams, its potential from an ad-supported standpoint is impressive.

Meanwhile Netflix, with over 8 million subscribers, is the most successful video subscription service outside of the cable/satellite/telco industry. Nobody else is even close. Netflix's big opportunity is to morph its DVD-by-mail business into an online delivery model. If it succeeds it could pose significant new on-demand competition to today's multichannel providers (something that cable operators now well appreciate according to several people I've spoken to).

2008 has been a very good year for Netflix in broadband. It has beefed up its WI catalog to 12,000 titles by doing deals with Starz, CBS and Disney. It has gained a toehold in the home with its Roku box, and by integrating with Xbox 360 and LG and Samsung Blu-ray players. By offering WI as a value add instead of an extra charge, it has further strengthened its customer relationships and begun collecting valuable data about what impact WI can have on future subscriber acquisition costs and retention tactics.

As I've pointed out previously, Netflix's problem is that growing its WI catalog, so that it can be perceived as a bona fide replacement for DVDs-by-mail, is a tough challenge. In most of its content deals, Netflix has DVD-based subscription rights, but not electronic or online subscription rights. That's why it only offers 12,000 titles on WI out of its total catalog of 100,000+ titles on DVD.

The major pay TV channels (HBO, Showtime and Starz) have paid billions of dollars for these exclusive electronic rights. Though Netflix was able to do a content deal with Starz, I think similar deals with HBO or Showtime are highly unlikely. Neither network is nearly as committed to online, and both no doubt view Netflix as an eventual competitor.

Reviewing Netflix's recent "Investor Day" presentation, it is clear that the company is taking a concerted, yet gradual approach to online distribution, at one point stating that the evolution to full streaming will happen over 20 years. Since Netflix is a public company and has to manage Wall Street's expectations and its quarter-to-quarter earnings, it must emphasize gradual, not disruptive, change. One look at the gorgeous hockey stick graphs of Netflix's historical revenue and earnings growth over the years attests to its "steady-Eddie" approach.

Indeed, while that approach is admirable, I think broadband represents a game-changing opportunity for Netflix. As such, rather than easing into it as the company appears to be doing, it should instead be pursuing it full bore, capitalizing on the opening competitors like Apple and Google have currently created. However, doing so will require vastly more resources, as well as insulation from public market pressures. So here are some of the appealing points of a Microsoft acquisition:

• Microsoft would instantly give Netflix new economic clout in Hollywood to compete with the pay TV networks' studio deals as they come up for renewal, scrambling the traditional "windowing" paradigm and clearing a path to a far stronger future WI catalog.
• Microsoft would also allow Netflix to build a business model where it pays broadcast networks a fee for their programs. Over time these payments could become an important adjunct to broadcasters' traditional advertising model (much like cable networks' rely on both affiliate fees and advertising). If successful, Netflix could possibly even gain preferred terms relative to broadcasters' distribution to ad-supported online aggregators.
• As the WI model takes shape, Netflix would also be in a totally new position to approach certain cable networks - who are among the most reluctant to embrace broadband delivery for their full episodes - with financial incentives that could rival what they currently collect from their cable/satellite/telco affiliates. Deals with cable networks would give potential "cord cutters" more comfort in doing so, while also pressuring the close ties between cable networks and operators.
• Just as Google has given YouTube financial cover for its spiraling bandwidth/delivery costs, Microsoft could do the same for Netflix, as it encourages its subscribers to use WI more heavily.
• Last but not least, there's Microsoft's MSN, which not only represents a solid intra-company promotional platform for Netflix's subscriber acquisition, but also the possibility of a new Netflix ad-supported service. This isn't something the company has ever pursued, but is an intriguing as a possible competitor to the likes of Hulu and others. It would give Netflix a unique hybrid paid/free model.

So that's the strategic rationale. Then there's a lot of other existing inter-company stuff that lays nice groundwork for a deal: Netflix CEO Reed Hastings is on Microsoft's board, Netflix is now using Silverlight for WI, XBox has recently integrated WI in it NXE release, etc. In short, these are two companies that already know each other well. And on the financial front, with a current market cap of $1.6B, even with an acquisition premium, Netflix would be a relatively small bite for Microsoft (particularly compared with $45B, which Microsoft was prepared to shell out for Yahoo!).

Successful as Netflix is, it is still a relative minnow swimming in a sea of whales that will be competing for the biggest consumer prize of the next 10 years. Netflix has an impressive track record and it could very well succeed by remaining independent. But it (and its stock price) will be under continuous scrutiny as everyone from Apple to Google to Comcast to Amazon to Hulu to countless others launch broadband initiatives that pressure Netflix's model.

What do you think? Post a comment now.

2009 Prediction #1: The Syndicated Video Economy Accelerates

2009 Prediction #2: Mobile Video Takes Off, Finally

2009 Prediction #3: Net Neutrality Remains Dormant

2009 Prediction #4: Ad-Supported Premium Video Aggregators Shakeout

"Look to your left, look to your right. One of you won't be here next year."

- Professor Charles Kingsfield, The Paper Chase

As I wrote last summer in "Video Aggregators Have Raised $366+ Million to Date," there has been a lot of enthusiasm around broadband-only aggregators, especially those that focus on premium-quality video. Part of the excitement is based on the idea that they could eventually snatch a chunk of the $100 billion/year that today's cable, satellite and telco video distributors generate. This vision is enhanced by the inevitability of broadband connecting seamlessly to millions of consumers' TVs, enabling a pure on-demand, a-la-carte experience. The result has been many well-funded startups (e.g. Joost, Veoh, Vuze, etc.) as well as offensive/defensive initiatives backed by large media companies (e.g. Hulu, Fancast, portal sites, etc.).

However, ad-supported video aggregators face multiple challenges. First and most is that as their ranks have grown, the audience they're commonly targeting fragments. Not only does this make it hard to achieve scale, it makes it hard to identify meaningful audience differences that advertisers seek when allocating their budgets. The recent economic collapse and ad spending slowdown only exacerbate these audience-related issues.

The next big problem is that it is very difficult for aggregators to differentiate themselves. As with most web sites, there are really two main drivers of differentiation: content and user experience. On the content side, there is a finite amount of premium video available for ad-supported online distribution and there's no such thing as exclusivity (except to some extent with Hulu and its rights to NBC and Fox shows).

Increasingly broadcast programs are available in lots of places online, (starting with the broadcasters' own sites), while cable programs are in short supply (more on why that's the case and why it will stay that way in "The Cable Industry Closes Ranks"). Though there is lots of other quality video being produced, the reality is that once you get away from hit TV shows and recently-released movies (which themselves are not available except as paid downloads), little else has the same audience-driving appeal.

User experience is certainly a bona fide differentiator, and as I have spent time at all these sites, it's evident which sites are better and easier to use than others. But user experience differences are hard to maintain; it's all too easy for one site to emulate what another one does, and with cheap, open technology there are few barriers to doing so. Over time, most of the really important differences melt away (ample evidence of this is found in the ecommerce world, where checkout processes have long since gravitated to a set of best practices).

Another problem is customer acquisition and retention, which is a particular issue for the independent aggregators, who don't have incumbent advantages to leverage. With premium video only coming online relatively recently, users' video search processes are not yet well understood. Suppose someone is looking for a missed episode of Lost and don't want to pay for it. Do they start with a Google search for "Lost?" Or for "ABC?" Or do they reflexively go to ABC.com? Or maybe they're a heavy YouTube user, so they start by heading over to YouTube.com? Still others no doubt start by going to video search sites like blinkx or Truveo. Video aggregators need to insert themselves in the flow of an online user's video search process. But doing effectively is not yet anywhere close to the reasonably well-understood world of web-based optimization techniques.

The landscape for video aggregators is still pretty wide open, so some winners will emerge. But there are just too many entrants chasing the same prize. I'll be keeping close track of the aggregator space on VideoNuze as '09 unfolds, and will keep you apprised of all developments.

What do you think? Post a comment now.

2009 Prediction #1:The Syndicated Video Economy Accelerates

2009 Prediction #2:Mobile Video Takes Off, Finally

2009 Prediction #3:Net Neutrality Remains Dormant

Tomorrow, 2009 Prediction #5

comScore's latest video traffic rankings came out earlier this week, and it was hard to miss Hulu's big growth in 2008. As the chart below show, the site, which only launched officially in March landed in the #6 spot with 235 million video streams in October, up from 119 million in July, 88 million in May and not in comScore's top 10 in April.

While Hulu's latest stats benefited from the SNL political skits, it's worth noting that in October Hulu delivered more streams than Viacom, Disney, AOL, ESPN, Time Warner and ABC.com as recently as April (when Hulu wasn't yet in the top 10). As Todd Spangler points out, Hulu's success is also a very significant syndication data point: in October it generated "only" 5.3 million uniques on its own site with the remainder of its 24 million uniques coming from partners.

By anyone's standards Hulu's off to a pretty amazing start. Hulu's pre-launch naysayers have been proven dead wrong. A year ago I gave Hulu's beta a solid B+; it has now become one of the best out there. In '09 its key challenge is to maximize the revenue from all that traffic.

What do you think? Post a comment now.

1. Advertising business model gains further momentum

I saw '08 as a year in which the broadband ad model continued growing in importance as the paid model remained in the back seat, at least for now. I think that's pretty much been borne out. We've seen countless new video-oriented sites launch in '08. To be sure many of them are now scrambling to stay afloat in the current ad-crunched environment, and there will no doubt be a shakeout among these sites in '09. However, the basic premise, that users mainly expect free video, and that this is the way to grow adoption, is mostly conventional wisdom now.

The exception on the paid front continues to be iTunes, which announced in October that it has sold 200 million TV episode downloads to date. At $1.99 apiece, that would imply iTunes TV program downloads exceed all ad-supported video sites to date. The problem of course is once you get past iTunes things fall off quickly. Other entrants like Xbox Live, Amazon and Netflix are all making progress with paid approaches, but still the market is held back by at least 3 challenges: lack of mass broadband-to-the-TV connectivity, a robust incumbent DVD model, and limited online delivery rights. That means advertising is likely to dominate again in '09.

2. Brand marketers jump on broadband bandwagon

I expected that '08 would see more brands pursue direct-to-consumer broadband-centric campaigns. Sure enough, the year brought a variety of initiatives from a diverse range of companies like Shell, Nike, Ritz-Carlton, Lifestyles Condoms, Hellman's and many others.

What I didn't foresee was the more important emphasis that many brands would place on user-generated video contests. In '08 there were such contests from Baby Ruth, Dove, McDonald's, Klondike and many others. Coming up in early '09 is Doritos' splashy $1 million UGV Super Bowl contest, certain to put even more emphasis on these contests. I see no letup in '09.

3. Beijing Summer Olympics are a broadband blowout

I was very bullish on the opportunity for the '08 Summer Games to redefine how broadband coverage can add value to live sporting events. Anyone who experienced any of the Olympics online can certainly attest to the convenience broadband enabled (especially given the huge time zone difference to the U.S.), but without sacrificing any video quality. The staggering numbers certainly attested to their popularity.

Still, some analysts were chagrined by how little revenue the Olympics likely brought in for NBC. While I'm always in favor of optimizing revenues, I tried to take the longer view as I wrote here and here. The Olympics were a breakthrough technical and operational accomplishment which exposed millions of users to broadband's benefits. For now, that's sufficient reward.

4. 2008 is the "Year of the broadband presidential election"

With the '08 election already in full swing last December (remember the heated primaries?), broadband was already making its presence known. It only continued as the year and the election drama wore on. As I recently summarized, broadband was felt in many ways in this election cycle. President-elect Obama seems committed to continuing broadband's role with his weekly YouTube updates and behind-the-scenes clips. Still, as important as video was in the election, more important was the Internet's social media capabilities being harnessed for organizing and fundraising. Obama has set a high bar for future candidates to meet.

5. WGA Strike fuels broadband video proliferation

Here's one I overstated. Last December, I thought the WGA strike would accelerate interest in broadband as an alternative to traditional outlets. While it's fair to include initiatives like Joss Wheedon's Dr. Horrible and Strike.TV as directly resulting from the strike, the reality is that I believe there was very little embrace of broadband that can be traced directly to the strike (if I'm missing something here, please correct me). To be sure, lots of talent is dipping its toes into the broadband waters, but I think that's more attributable to the larger climate of interest, not the WGA strike specifically.

6. Broadband consumption remains on computers, but HD delivery proliferates

I suggested that "99.9% of users who start the year watching broadband video on their computers will end the year no closer to watching broadband video on their TVs." My guess is that's turned out to be right. If you totaled up all the Rokus, AppleTVs, Vudus, Xbox's accessing video and other broadband-to-the-TV devices, that would equal less than .1% of the 147 million U.S. Internet users who comScore says watched video online in October.

However, there are some positive signs of progress for '09. I've been particularly bullish on Netflix's recent moves (particularly with Xbox) and expect some other good efforts coming as well. It's unlikely that '09 will end with even 5% of the addressable broadband universe watching on their TVs, but even that would be a good start.

OK, that's it for '08. On Monday the focus turns to what to expect in '09.

What do you think? Post a comment now.

Have you received the email pitch from Blockbuster Online yet, to rent 25 movies and get the new 2Wire MediaPoint Digital Media Player "free?" I've received a couple already this week (see below), and after reviewing the offer and its details, and comparing it to other alternatives, my conclusion is that the new service has a tough climb ahead.

The new 2Wire box itself is in the same general family as other single-purpose boxes such as AppleTV, Vudu and Netflix's Roku. There are some differences among them in hard drive size, pricing, outputs and streaming vs. downloading orientation. But they all serve the same basic purpose: connecting you via your home broadband connection to one source of "walled garden" premium-quality video content.

VideoNuze readers know I've been quite skeptical of the standalone box model, especially when box prices start in the $200-300 range. There's no question there's an upscale, early adopter audience that will buy in, but mainstream consumers will be uninterested for all kinds of reasons including: financial considerations (especially in this economy), resistance to connecting another box in already crowded consoles, perceived technical complexity, strong existing substitutes (e.g. cheap ubiquitous DVD players) and indistinct value propositions.

My judgment is based on a pretty simple set of criteria I rely on to gauge a new product or service's likelihood of success: Does it offer meaningful new value (some combination of better price, quality or speed) with minimal adoption effort required? Can a large target audience for this new value be clearly defined, served and acquired in an economically-reasonable manner? Is this new value attainable without sacrificing meaningful benefits of existing alternatives?

Value: As explained below, for certain movies renters, the offer is valuable. It provides convenience at a relatively low financial commitment for the new device. But explaining these benefits just to the relevant target audience at an economic cost per acquisition is going to be nearly impossible. I'm dubious that even in-store promotions - which on the surface seem Blockbuster's strength - will work. First, there may be franchisee issues, as there were with previous "Total Access" promotions. And second, Blockbuster has closed so many stores in prime target neighborhoods - due to the rise of Netflix and other options eroding their business - that they'll be missing many prospects (example: in my upscale home town of Newton, MA there is not a single Blockbuster store left).

Audience: There's only one real target audience I can see for this offer, and it seems very narrow to me: low-volume renters of movies only, who are not iTunes users. Think about it - if you rent a lot of movies, you've likely been subscribing to Netflix for years (more so if you also rent TV shows). If you want to own your content instead of rent it, then you buy DVDs or maybe more recently have been buying digital version, most likely with iTunes primarily. If that's the case, then when it comes to watching on TV, you're going to buy an Apple TV (even then, few have done so to date), not a 2Wire MediaPoint. The eligible target audience left for Blockbuster/MediaPoint seems pretty slim.

Sacrificing existing benefits: Inevitably all digital distribution options need to be compared to the incumbent DVD format, which is remarkably strong (no wonder a billion units have been shipped to date). Against the DVD standard, Blockbuster/MediaPoint is inferior in a number of ways: limited viewing windows (the usual online limitations of 24 hour expiration after starting, and 30 day automatic file deletion), no portability to view rented movies on other TVs not connected to a MediaPoint, no TV shows available for rent, and at this point, smallish storage that only keeps up to 5 movies at a time.

What do you think? Post a comment now.

5Min, one of the many well-funded entrants in the video-based how-to/knowledge space which I wrote about last Feb, has recently introduced VideoSeed, a clever syndication tool that has already helped drive its video to dozens of partner sites aggregating 110 million unique visitors per month. VideoSeed is another indicator that the Syndicated Video Economy is helping shape product development priorities throughout the broadband industry. I spoke to Ran Harnevo, 5Min's CEO/co-founder yesterday to learn more.

VideoSeed's goal is to give 5Min's partners relevant and complimentary video that can be easily inserted into text-oriented pages with little-to-no editorial oversight. As Ran explained it, a partner signs up, specifies which pages it wants video inserted into, selects parameters of 5Min video it wants to allow and templates for how the video should appear. 5Min editors rank all of its videos 1-5 according to an internal quality scale while rigorously assigning metadata to each.

VideoSeed semantically scans all of the partner-submitted pages and matches and inserts relevant 5Min video. (Examples can be seen at Answers.com and wikiHow) As new, relevant videos are added to 5Min, they automatically rotate into the partners' pages. Videos can be viewed on the site or through 5Min's "SmartPlayer" which has features like super slow motion, zooming, etc.)

5Min currently has a library of about 40K videos, of which Ran thinks 80% are sufficiently high quality to be of interest to partners. 5Min commissions some videos and aggregates others. Ran eschews terms like "premium" and "UGC" as they've found some of the best videos come from pure amateurs.

5Min sells ads across the syndication network, using its own team and third-party ad networks. It's using overlays and pre-rolls to date. Revenue is shared with the content providers and publishing partners. Advertisers benefit by reaching a targeted, engaged audience across dozens of sites while only having to make one buy decision.

Text-oriented how-to/knowledge-based sites and subject-driven specialty sites lend themselves perfectly to accepting complimentary syndicated video. But as Ran points out, shooting video, hosting/serving it and selling ads against it is a lot of effort for most text-oriented sites. This is especially true in a down economy when resources are tight. These factors have helped contribute to 5Min expanding its partner audience rapidly to 110 million uniques, with 2-3 new partners coming on board daily.

I could also see the VideoSeed technology being interesting in other categories (celebrity video comes immediately to mind), though for now Ran says 5Min's staying focused on knowledge, and also isn't looking to license VideoSeed externally. No doubt others will watch its progress and look to emulate it. But as Ran notes, to really succeed, they must first focus on assigning highly accurate metadata so the matching process works as intended and users truly get relevant, high quality video.

What do you think? Post a comment now.

A short interview in Multichannel News with Rouzbeh Yassini before the Thanksgiving break last week caught my eye.

Rouzbeh's name is likely unfamiliar to many of you. But for others who have been in and around the cable and broadband industries since the '90s, he is semi-famous. In those days Rouzbeh ran a company called LANCity, which was a pioneer in designing and manufacturing cable modems. These of course are the devices that now reside in tens of millions of homes around the world, enabling broadband Internet access and the high-quality video services like YouTube, Hulu, iTunes and others that run through them.

Though it's only been about 15 years, the early-to-mid '90s seem like another age entirely. Can you remember dial-up Internet access? Busying up your phone line if you wanted to be online? Listening to all those weird tones as your creaky 56K modem connected you to Prodigy, CompuServe, AOL, or eventually this thing everyone seemed to be talking about called the "World Wide Web?"

In my opinion, Rouzbeh deserves as much credit as anyone for the transformation of the dial-up Internet era to the broadband world we now enjoy. He played a crucial role in articulating broadband's business potential to scores of senior cable executives who barely knew what a computer was, much less this new-fangled thing called the Internet. Importantly, he was a key technical architect of modern cable networks, which today barely resemble the passive, one-way networks of old.

In short, I've learned to take notice of Rouzbeh's prognostications. Though he can be irrepressibly optimistic, he's directionally right more often than not.

All of that brings me to his Multichannel interview. Rouzbeh now envisions the era of gigabit or 1,000 megabit Internet access within a decade. To put this in perspective, today's cable modems typically deliver around 10 megabit service or 1% of a gigabit. Spurred by competitive pressures, Comcast has recently announced the rollout of 50 megabit service to certain regions, with expansion to its entire footprint by 2010. These new rollouts are part of the cable industry's "DOCSIS 3.0" standards, covering a new generation of modems and channel management techniques.

There's an axiom in the broadband industry that usage always rises to the level of bandwidth provided. Yet when we're talking 1 gigabit service, one has to rightly ask, "what in the world are people going to do with all that bandwidth?" Rouzbeh posits things like corporate networking, remote offices, medical services and the like, but only touches briefly on video delivery.

From my perspective, video is the killer application that will drive this bandwidth explosion. As I wrote recently in "Video Quality Keeps Improving - What's it All Mean?" we are on the front end of a shift toward dramatically higher video quality, with near HD delivery already becoming common (Hulu, Netflix and Vudu are among the most recent to announce HD initiatives). This shift will only accelerate going forward. And to accommodate it will require lots more bandwidth from network providers.

In reality, the trickiest part of bandwidth expansion is less the technology development and deployment and more the business models that support the investments and make the most strategic sense. Questions abound: Is the right model to charge $150/mo for 50 megabit access as Comcast plans? Or to build a content service available only to those high-powered users? Or act like a CDN and provide services so as to charge content providers themselves to deliver higher-quality video? Maybe some hybrid of these, or some other model? And of course, what impact do these models have on the incumbent multichannel subscription video offering?

While there's murkiness now, like Rouzbeh, I'm a big believer that these things will ultimately be worked out and that bandwidth expansion is inevitable. Just as we now look back on the dial-up era and wonder how we got by, eventually we'll look at the mid-to-late 2000s and wonder how we survived on so little bandwidth.

What do you think? Post a comment now.

Welcome to December and to the home stretch of 2008. Following are 3 key themes from VideoNuze in November:

Cable programming's online distribution narrows - Last month I concluded that cable programmers (e.g. Discovery, MTV, Lifetime) are going to become much more sparing when it comes to distributing their full programs online. As noted in "The Cable Industry Closes Ranks," after hearing from industry executives at the CTAM Summit and on the Broadband Video Leadership Breakfast, it has become apparent that the industry is going to defend its traditional multichannel video subscription model from broadband and new "over-the-top" incursions.

Both programmers and operators have a lot vested in this successful model, and are surely wise to see it last as long as possible. Subscription and affiliate fees are particularly precious in this economy, as the WSJ wrote on Saturday. Still, many VideoNuze readers pointed out the music industry's folly in trying to maintain its business model, only to see it turned upside down. Many predicted the cable industry is doomed to follow suit. Truth-be-told though, as I wrote in "Comcast: A Company Transformed," major cable operators are already far more diversified than they used to be. Broadband, phone and digital TV (+ add-ons like DVR, HD and VOD) have created huge new revenue streams. Surging broadband video consumption only helps them, even as "cord-cutting" looms down the road.

Netflix moves to first ranks of cord-cutting catalysts - Three posts in November highlighted the significant role that Netflix is poised to play in moving premium programming to broadband distribution. Most recently, in "New Xbox Experience with Netflix Watch Instantly: A 'Wow' Moment," I shared early reactions from a VideoNuze reader (echoed by many others) to receiving a subset of Netflix's catalog through Xbox's recently upgraded interface. Netflix CEO Reed Hastings highlighted the increasing importance of game devices in bridging broadband to the TV in his keynote at NewTeeVee Live this month (recapped here).

Still, Netflix lacks the rights to deliver many movies online, a problem unlikely to be rectified any time soon given Hollywood's stringent windowing approach. As such, in "Netflix Should be Aggressively Pursuing Broadcast Networks for Watch Instantly Service," I offered my $.02 of advice to the company that it should build on its recent deal with CBS to blow out its online library of network programs. In this ad-challenged environment, I believe networks would welcome the opportunity. Hit TV programs would help drive device sales, which is crucial for building WI's adoption. While the Roku box is a modest $99, other alternatives are still pricey, though becoming cheaper (the Samsung BD-P2500 Blu-ray player is down $100, now available at $300, I spotted the LG BD300 over the weekend for $245). A robust Netflix online package would be poised to draw subscribers away from today's cable model.

Lousy economy still looms large - Wherever you go, there it is: the lousy economy. Though the market staged a nice little rebound over the last 5 days, things are still fragile. Across the industry broadband companies are doing layoffs. This is only the most obvious of the side effects of the economic downturn. Another, more subtle one could be downward price pressure. As I wrote in "Deflation's Risks to the Broadband Video Ecosystem," economists are now growing concerned that the credit crunch could lead to collapsing prices and profits across the economy. I noted that such an occurrence would be particularly damaging for the broadband industry, where business models are still nascent, so ROIs and spending are softer.

Here's to hoping for some good economic news in December...

What do you think? Post a comment now.

Wow.

That was the reaction that VideoNuze reader and digital media public relations executive Jeff Rutherford had after downloading the "New Xbox Experience" (or NXE) to his Xbox 360 and activating Netflix Watch Instantly. Jeff relayed the details to me in an email and phone call yesterday, adding that it felt comparable to his (and many others') first experience with TiVo.

Hyperbole? Maybe. I'm always mindful about how gadgeteers' early wows seem to melt away when new technology products reach the broader mass market. Still, the Xbox 360/Netflix Watch Instantly integration seems promising on at least three fronts.

First, Xbox 360 is a relatively mainstream device that has its own clear value propositions, thereby driving a sizable footprint that is only going to grow. Second, Netflix's Watch Instantly is a value-add to its subscription service, requiring no incremental fees, or special new add-on hardware to Xbox 360. And third, as Jeff reported, it was very easy to get going: he was given a code to input online and when he returned to his Xbox, his Watch Instantly queue was displayed there, awaiting his on-demand selections.

As I explained recently in "Netflix Should be Aggressively Pursuing Broadcast Networks for Watch Instantly Service," today's windowing model puts the company is in a serious bind with respect to getting top-flight Hollywood films. While Jeff reported seeing some strong titles like Disney's Ratatouille (and other films he noticed carrying the Starz watermark), the reality is that Watch Instantly's catalog is still a small sliver of Netflix's DVD-by-mail catalog and will remain so for some time to come.

Further portending the difficulties of what's ahead for Netflix as it navigates Hollywood's minefields is early word, courtesy of Joystiq and other blogs, that all of Sony's Columbia Pictures movies have been disabled for XBox 360 Netflix users, due to licensing issues. While we may all be rooting for Netflix to find deal terms with Sony and the others, the realist side of me says that Hollywood's overseers understand that the Xbox 360 integration (and others TBD) have real significance in the relentless push to digital delivery. So before the proverbial horse gets out of the barn, they want to ensure the right deals are in place for them to capture appropriate value.

While that drama plays itself out, Netflix would be wise to do everything else it can to bolster Watch Instantly content value and selection. As I wrote in the prior post, incorporating broadcast programs should be a top priority. Also high on the list should be well-branded, high-quality broadband-only content.

Netflix has a very interesting opportunity to accelerate the Watch Instantly adoption curve, leveraging the huge installed base of Xbox 360 users and Microsoft's UI improvements (more on NXE's new look at Engadget if you're interested). With proof of its success in hand, Netflix's negotiations with recalcitrant studios can only be helped along. Meantime, Xbox 360 is getting another strong (albeit likely temporary) value proposition to compete in the game console space. And consumers win - as Jeff pointed out - by gaining ever-better access to the content they want.

What do you think? Post a comment now.

The answer to that question will start to come early next week when Sling.com, the latest entrant in this already crowded space, officially launches. Recently Jason Hirschhorn, president of Sling Media's entertainment group and Brian Jaquet, Sling's Director of Public Relations came through Boston and caught me up on their plans to launch commercially on Nov. 24th.

Many of you know that Sling is the maker of the Slingbox, which connects to your TV or DVR, allowing you to remotely watch programs on your computer. It's a very clever product, though I have to admit its use case has always been a little confounding to me. Nonetheless, just over a year ago, Sling was acquired by EchoStar in a $380 million deal. Shortly thereafter, EchoStar split itself into two parts, Dish Network, the satellite-delivered programming company, and EchoStar Corporation, which includes Sling and other technology-based businesses.

Sling.com, developed by Jason's entertainment group, is the first Sling offering not tethered to any of its devices and therefore open to all users. Acknowledging that Hulu has set a high bar on user experience, Jason explained that Sling.com is attempting to go one step further on usability, and will also differentiate itself with updated social networking capabilities and highly focused editorial content.

In particular, Sling.com offers a slew of Facebook-like features that allow users to subscribe to and favorite programs and networks, with users in turn able to follow these activities. As Jason aptly put it, the goal is to "digitize the water cooler conversation." The whole experience is geared toward engaging the user at a far deeper level than we're accustomed to in passive linear viewing, or even typical at other aggregators' sites.

The real differentiator for Sling long-term though is the integration of Sling.com with the remote viewing offered by Slingbox. Enabled by a new web-based player (instead of the prior downloadable client), users are able to seamlessly browse back and forth between watching live TV and cataloged programs, as shown below.

Taking this one step further, Sling's goal is to get its remote viewing technology embedded in others' set-top boxes as well. So for example, a Comcast STB with Sling inside would allow you to have live TV integrated into your Sling.com, without having to go buy another box.

That's an enticing prospect, but making it happen will be no small feat; the STB giants like Motorola and SA (now part of Cisco) will get on board only when their biggest customers - America's cable operators - ask for it. The prospect of these cable executives wanting to incorporate any technology controlled by Charlie Ergen, Echo's founder/CEO and the cable industry's arch-enemy, stretches my mind. However, stranger deals have been done, so who knows. In the meantime, there are a whole lot of other non-cable homes globally Sling can address first.

But much of that is down the road anyway. For now, Sling.com is going to compete head on with Hulu (which by my count supplies virtually the entire current movie catalog at Sling.com, in turn begging the question of how many different ways one relatively small ad revenue stream can get carved up?), Fancast, the portal sites, YouTube and so on. Jason readily admits that these sites will not compete on content exclusivity; ultimately they'll all have access to everything that's available.

So in this incredibly crowded space, is there room for a newcomer? On the surface, it's tempting to say "no." But history teaches us that "better mousetraps" can elbow their way into even the most crowded spaces. Remember how many search engines already existed when Google burst onto the scene? On a totally different level, I can relate to this challenge myself. A year ago I wondered whether there was room for a new broadband video-centric blog when so many others already existed; now here we are.

The reality is that newcomers succeed because they don't accept the status quo as final. Rather, they find smart ways of delivering new and better value to customers who didn't necessarily even know what they wanted, but when they got it, were delighted. That's Sling.com's challenge. Whether it can meet it remains to be seen. But in this crummy economy, their deep-pocketed backing certainly gives them a leg up on any VC-funded competitors when it comes to long-term staying power.

What do you think? Post a comment now!

Yesterday I had my own positive broadband video experience, remotely watching portions of the NewTeeVee Live conference held in SF from the comfort of my office. Om Malik and crew put together a packed agenda and I had wanted to go, but a personal conflict kept me in Boston.

I caught most of Netflix CEO Reed Hastings' keynote (until the UStream feed froze up, arghh...) and thought he offered some interesting tidbits about how he sees the broadband video market unfolding. VideoNuze readers know I've been avidly following Netflix's recent moves with Watch Instantly and I've come to think of the company as one of three key aggregators best-positioned to disrupt the cable model (the other two being YouTube and Apple).

Three noteworthy points that Hastings made:

Standards needed to interface broadband to the TV - Hastings catalogued the efforts Netflix is making to integrate with various devices like Roku, LG, TiVo, Xbox, etc, but concluded by saying that these one-off, ad hoc integrations are not scalable and are really slowing the market's evolution. Most of us would agree with this assessment. Still, he was quite pessimistic about a standards setting process's ability to move quickly enough - saying this could be a 10-30 year endeavor. Instead, if I understood him correctly, he thinks the TV approach should just be browser- based, and also that today's remotes should be scrapped in favor of pointer-driven (i.e. mouse-like) navigation.

First, apologies for those of you getting sick of me talking about the cable TV industry and broadband video; I promise this will be my last one for a while.

After attending the CTAM Summit the last couple of days, moderating two panels, attending several others and having numerous hallway chats, I've reached a conclusion: the cable industry - including operators and networks - is closing ranks to defend its traditional business model from disruptive, broadband-centric industry outsiders.

Before I explain what I mean by this and why this is happening, it's critical to understand that the cable business model, in which large operators (Comcast, Time Warner Cable, etc.) pay monthly carriage or affiliate fees to programmers (e.g. Discovery, MTV, HGTV, etc.) and then bundle these channels into multichannel packages that you and I subscribe to is one of the most successful economic formulations of all time. The cable model has proved incredibly durable through both good times and bad. In short, cable has had a good thing going for a long, long time and industry participants are indeed wise to defend it, if they can.

It's also important to know that the industry is very well ordered and as consolidation has winnowed its ranks to about half a dozen big operators and network owners, the stakes to maintain the status quo have become ever higher. All the executives at the top of these companies have been in and around the industry for years and have close personal and professional ties. There's a high degree of transparency, with key metrics like cash flow, distribution footprint, ratings and even affiliate fees all commonly understood.

One last thing that's worth understanding is that the cable industry has very strong survival instincts, or as a long-time executive is fond of saying, "Real cable people (i.e. not recent interlopers from technology, CPG or online companies that have joined the industry) were raised in caves by wolves." The fact is that the industry started humbly and experienced many very shaky moments. Yet it has managed to survive and continually re-invent itself (for those who want to know more, I refer you to "Cable Cowboy: John Malone and the Rise of the Modern Cable Business" by Mark Robichaux, still the best book on the industry's history that I've read).

All of that brings us to broadband and its potential impact on the cable model. As I've said many times, broadband's openness makes it the single most disruptive influence on the traditional video distribution value chain. Principally that means that by new players going "over the top" of cable - using its broadband pipes to reach directly into the home - cable's model is at serious risk of breaking down, once and for all.

The cable industry now gets this, and I believe has closed ranks to frown heavily on the idea of cable programming, which operators pay those monthly affiliate fees for, showing up for free on the web, or worse in online aggregators' (e.g. Hulu, YouTube, Veoh, etc.) sites. The message is loud and clear to programmers: you'll be jeopardizing those monthly affiliate fees come renewal time if your crown jewels leak out; worse, you'll be subverting the entire cable business model.

And this message isn't being delivered just by cable operators such as Peter Stern from Time Warner who said on my Broadband Video Leadership Breakfast panel that "a move to online distribution by cable networks would directly undermine the affiliate fees that are critical to creating great content." It's also coming from the likes of Discovery CEO David Zaslav who said on a panel yesterday that "there's no economic value from online distribution," and that "great brands like Discovery's must not be undervalued by making full programs available for free online."

The issue is, as a practical matter, can the industry really control all this? If there's zero online distribution, then as Fancast's impressive new head, Karin Gilford said on my panel yesterday, "pressure builds up and another channel inevitably opens" (read that as The Piracy Channel). The problem is that if, for example, an operator does put programs up on its own site - as Fancast is doing - they're available to ALL the site's visitors, not just existing cable subscribers, unless other controls are put in place like passwords, IP address authentication, geo-targeting, etc. But these are confusing and cumbersome to users whose expectations are increasingly being set by broadcasters who are making their primetime programs seamlessly available to all comers.

So what does this closing ranks suggest? Going forward, I think we'll still see cable networks putting up plenty of clips and B-roll video from their programs, maybe the occasional online premiere, some made-for-the-web stuff, paid program downloads (iTunes, etc.) and promotional/community building contests, as Deanna Brown from Scripps described with "Rate My Space" or Zaslav discussed with "MythBusters."

But when it comes to full cable network programs going online, I think that spigot's going to dry up. That has implications for online aggregators like Hulu, who will continue to have big holes in their libraries until they're ready to pay up for these carriage rights. And it also means that broadband-to-the-TV plays are also going to be hampered by subpar lineups unless these companies too are willing to pay for cable programming.

For my part, there are just too many moving parts for me to call this one just yet.

What do you think? Post a comment now!

My opening question to frame the discussion centered on broadband's eventual impact on the cable business model: does it ultimately upend the traditional affiliate fee-driven approach by enabling a raft of "over-the-top" competitors (e.g. Hulu, Netflix, Apple, YouTube, etc.) OR does it complement the model by creating new value and choice? As I said in my initial remarks, I believe that how this question is ultimately resolved will be the key determinant of success for many of the companies involved in today's broadband ecosystem and video industry.

I posed the question first to Peter Stern, who's in the middle of the action as Chief Strategy Officer of Time Warner Cable, the second largest cable company in the U.S. I thought his answer was intriguing: he said that it is cable networks themselves who will determine the sustainability of the model, depending on whether they choose to put their full-length programs online for free or not.

Later in the session, he put a finer point on his argument, saying that "a move to online distribution by cable networks would directly undermine the affiliate fees that are critical to creating great content" and that finding ways to offer these programs only to paying broadband Internet access subscribers was a far better model for today's cable networks and operators to pursue (for more see Todd Spangler's coverage at Multichannel News).

Peter's point echoes my recent "Cord-Cutters" post: to the extent that cable networks - which now attract over 50% of prime-time viewership, and derive a third or more of their total revenues from affiliate fees - withhold their most popular programs from online distribution, they provide a powerful firewall against cord-cutting. Speaking for myself for example, the prospect of missing AMC's "Mad Men" (not available online anywhere, at least not yet...) would be a powerful disincentive for me to yank out my Comcast boxes.

Still, our audience Q&A segment revealed some very basic cracks in the panelists' assertions that the transition to the broadband era can be orderly and managed (not to mention that afterwards, I was privately barraged by skeptical attendees). First and foremost these individuals argued the idea that the cable industry can maintain the value of its subscription service by using the control-oriented approach typified by the traditional windowing process flies in the face of valuable lessons learned by the music industry.

Of course most of us know that sorry story well by now: an assortment of entrenched, head-in-the-sand record labels forcing a margin rich, but speciously valued product (namely the full album or CD) on digitally empowered audiences, who decided to take matters into their own hands by stealing every song they could click their mouses on. Consequently, a white knight savior (Apple) offering a legitimate and consumer-friendly purchase alternative (iPod + iTunes), which would grew to be so popular that it has made the record labels beholden to it, while simultaneously hollowing out the last vestiges of the original album-oriented business model.

Does history repeat itself? Are Peter and the other brightest lights of the cable industry deluding themselves into thinking that a closed, high-margin, windowed platform like cable can ever possibly morph itself into a flexible, must-have service for today's YouTube/Facebook generation?

As Fred succinctly wrapped things up, "The reason I love capitalism is that it forces all of us to keep doing things better and better." To be sure, broadband and digital delivery are unleashing the most powerful capitalistic forces the video industry has yet seen. What impact these forces ultimately have on today's market participants is a question that only time will answer.

What do you think? Post a comment now!

Three numbers in last week's third quarter Comcast earnings release underscored something I've believed for a while: Comcast is a company transformed, now reliant on business drivers that barely existed just ten short years ago. Comcast's transformation from a traditional, plain vanilla cable TV operator to a digital TV and broadband Internet access powerhouse is profound proof of how consumer behaviors' are changing and value is going to be created in the future.

That it doesn't any longer owes to the company's ability to bolster video services revenue and cash flow through ever-higher penetration of digital services into its remaining sub base (at the end of Q3 it stood at 69% or 16.8 million subs). Years after Comcast and other cable operators introduced "digital tiers," stocked with ever-more specialized channels that consumers resisted adopting, the industry has hit upon a winning formula for driving digital boxes into Americans' homes: layering on advanced services like HD, VOD and DVR that are only accessible with digital set top boxes and then bundling them with voice and broadband Internet service into "triple play" packages. Comcast has in effect gone "up-market," targeting consumers willing and able to afford a $100-$200/month bundle in order to enjoy the modern digital lifestyle.

Still, in a sense the new advanced video services represent just the latest in a continuum of improved video services. Far more impressive to me is the broadband growth that both Comcast and other cable operators have experienced. Comcast's approximately 15 million YE '08 broadband subscribers will generate almost $8 billion in annual revenue for Comcast, up dramatically from its modest days as part of @Home 10 years ago. (It's also worth noting the company now also provides phone service to over 6 million homes today vs. zero 10 years ago)

The cable industry as a whole will end 2008 with approximately 37 million broadband subs, again up from single digit millions 10 years ago. And note that the 387,000 net new broadband subs Comcast added in Q3 '08 compares with just 277,000 net broadband subs that the two largest telcos, AT&T and Verizon added in quarter, combined. As someone who was involved in the initial trials of broadband service at Continental Cablevision less than 15 years ago, observing this growth is nothing short of astounding.

While broadband's financial contribution to Comcast is unmistakable, its real impact on the company is more keenly felt in its newfound importance in its customers' lives. Broadband Internet access has become a true utility for many, as essential in many homes as heat, water and electricity. A senior cable equipment executive told me recently that research done by cable companies themselves has shown that in broadband households, broadband service would be considered the last service to get cut back in these tough economic times. In these homes cable TV itself - long thought to be recession-resistant - would get cut ahead of broadband.

Comcast is indeed a company transformed from what it was just 10 years ago. Technology, changing consumer behaviors and a little bit of "being in the right place at the right time" dumb luck have combined to allow Comcast to remake itself. Comcast itself must fully recognize these changes and aggressively build out Fancast and other initiatives to fully capitalize on its newfound opportunities.

What do you think? Post a comment now.

Over the past several months Netflix has made a series of announcements related to its "Watch Instantly" feature. On the device side, there are new partnerships with TiVo (for Series 3, HD and HD XL models), Microsoft Silverlight (for Mac viewing), Samsung (for Blu-ray players), LG (for Blu-ray players), Xbox 360 and of course Roku. All allow Netflix Watch Instantly content to be delivered directly to users' TVs. Meanwhile on the content side, there have been deals with Starz, CBS and Disney Channel, with more no doubt yet to come.

Our household has been an enthusiastic subscriber to Netflix for years and I welcome the commitment that Netflix appears to be making to Watch Instantly. However, as I pointed out in May, in "Online Movie Delivery Advances, Big Hurdles Still Loom," Watch Instantly is hobbled by its limited catalog, now totaling around 12,000 titles, just 10% of Netflix's total catalog, even after including the recently added Starz titles.

The fundamental problem Netflix is bumping up against in building out Watch Instantly's film catalog is Hollywood's well-established windowing process. Studios have wisely and methodically maximized their films' lifetime financial value by doling out the rights to air them to a series of distribution outlets. These rights unfold in a carefully calibrated timeline and have become wrapped up in a thick layer of contractual agreements extending to all parties in the value chain. It is a system that has served all constituencies well, generating billions of dollars of value. It is also unlikely to change in any material way any time soon.

As such, Netflix, the "world's largest online movie rental service," as it calls itself, is increasingly discordant. On the one hand, growing the Watch Instantly service is crucial to Netflix's long term success in the digital/broadband era but on the other, it doesn't have the ability to offer a competitive catalog that meets consumers' online delivery expectations. So what to do?

My recommendation is for Netflix to incorporate the delivery of TV programming, via Watch Instantly, into its core value proposition. Specifically, Netflix should be making an all-out effort (if it is not already doing so) to secure next-day rights to deliver all prime-time broadcast network programs to its subscribers.

This strategy provides Netflix with many clear benefits and positions it well for long-term success. First, in these tight economic times, it dramatically expands the value of the Watch Instantly feature, turning it into both a bona fide subscriber retention tool to battle churn as well as a high-profile subscriber acquisition lever (not to mention an exciting pull-through offer big box retailers could use in their Sunday circulars to generate traffic).

Second, it is a clever competitive strike against four primary alternative ways whereby consumers can watch network programs on demand: cable-based VOD, a la carte paid downloads at iTunes/Amazon/others, free online aggregators like Hulu/Fancast/others and DVRs (though note the TiVo deal addresses this last option).

A comprehensive Netflix prime-time catalog compares well with each alternative. Against cable VOD it offers familiar, superior navigation plus a viable revenue stream for broadcasters while cable tries to get Canoe ready; against paid downloads, the obvious advantage of being a value-add service; against online aggregators, commercial free delivery; and against DVRs, the lack of consumer hardware purchases and persistent recording space limitations.

All of this should make Netflix a very appealing partner for the broadcast networks. They are getting hammered by ad-skipping, audience fragmentation, quality programming migrating to cable and an inferior single revenue source business model. The prospect of Netflix offering payments for their programs should be well-received. There may be concerns about programs' long term syndication value and also the potential enablement of a new gatekeeper. In better times these might be deal-killers; in this climate they shouldn't be.

Finally, there's the big potential long-term Netflix prize: if it can stitch together a large-scale network of compatible devices for Watch Instantly distribution, it could create a viable "over-the-top" alternative to today's multichannel subscription services (cable/telco/satellite). As I described in my recent "Cord Cutters" post, to really succeed, Netflix would have to eventually incorporate cable network programming. But if its reach is wide and its economics sound, that's within the realm of possibility as well.

But those are long-term issues. For now, while the recent CBS deal is a great start, Netflix should be working double-time to build out a full library of broadcast programs. It would dramatically improve Watch Instantly's appeal and value, while positioning Netflix well for the broadband era.

What do you think? Post a comment now.

This morning Twentieth Century Fox and Metacafe are announcing "The Thirty Second Film Contest," which challenges contestants to put together a winning thirty second spot for the epic film "Australia," opening on November 26th. Though not yet fully live, I like the direction of this initiative a lot, and believe it provides an innovative example of how to blend traditional film marketing techniques with broadband-enabled audience participation.

Contestants visit the promotional site hosted at Metacafe, a large aggregator of short-form entertainment, to obtain film-related assets provided by Fox. These can be augmented with the contestant's own music, voiceovers, sound effects and artwork to create a highly original entry. Entries are submitted through Metacafe and will be judged by the folks at Fox and Bazmark (Australia director Baz Luhrman's company).

The contest is actually meant to be quite serious and semi-professional; Luhrmann has also created a whole library of videos about film-making, which a student of the art can use to help shape his/her entry, or just watch to learn. The grand prize is enticing: a trip for two to Australia, another to NY for a private screening/meeting with Luhrmann and inclusion of the winning entry on the film's eventual DVD.

The Australia contest builds on a similar one that Metacafe and Universal offered for "The Bourne Ultimatum" last year, which I reviewed enthusiastically here. The concept also follows on previous posts I've done about the value of what I call "purpose-driven user generated video" or "YouTube 2.0" opportunities for users to create videos that have actual business value. I continue to believe that user-submitted videos which go beyond goofball entertainment are a huge area of broadband industry opportunity.

The Australia contest is a winner on multiple levels as it; creates pre-release buzz for the film, allows fans and aspiring artists to get involved and showcase their work, taps into a large base of original (and free!) ideas to help promote the movie, and introduces a fresh, updated approach to film marketing that is sorely needed for differentiation.

This week I've been talking a lot about engagement and why it's so critical in the broadband era. While media and entertainment companies must always focus on driving ratings points or a big opening day box office, the ways to do so are changing. The key change I see is that films, TV programs and other entertainment must become part of a larger experience - complete with multifaceted engagement opportunities - rather than just a one-off moment of audience consumption. Broadband enables this shift in a big way. More marketers need to take advantage of the possibilities.

What do you think? Post a comment now!

Last week Apple announced that it has sold 200 million TV episodes to date and also that all four of the major broadcast networks are now providing HD versions of their prime-time shows. These periodic updates are always welcome as Apple is notoriously parsimonious with its iTunes numbers, making it hard for analysts to get a real handle on how the store is doing.

This latest total got me to thinking about the relative sizes of online aggregators of prime-time TV shows. Below I've made some calculations comparing the revenues of iTunes, the largest paid download store, with the revenues of Hulu, likely the largest free, ad-supported streaming site for TV programs. The conclusion is clear: for now at least, iTunes is a far larger business, demonstrating that despite the obvious appeal of free video, a segment of consumers are still plenty willing to buy and collect individual episodes.

iTunes calculations

I estimate iTunes is currently generating about 10 million TV program downloads/month. TV program downloads officially began just about 3 years ago with ABC's initial iTunes partnership. There's obviously been a ramp over the years, so if you assume 50% of the volume came in the first 3 years combined, and 50% in the 10 months of '08 alone, that produces 100 million TV program downloads year to date or about 10 million downloads/month. (that actually synchs with the fact that Apple last disclosed 150 million total TV program downloads in May, '08, 5 months ago).

To grossly simplify, let's say the download price is $2/episode. I know that doesn't take account of the $3 HD downloads iTunes launched last month (of which it says it sold a million) or the varying prices of international downloads. At $2/episode iTunes does $20 million/month in gross download revenues from TV programs.

Hulu calculations

Conclusions

Though the above numbers need to be taken with a grain of salt, they suggest there's a huge gap in TV program-related revenues between iTunes and Hulu. Now of course iTunes has been around a lot longer than Hulu, and of course it benefits from the massive popularity of the iPod, and more recently the iPhone. We also can't forget there are lots of places to watch free TV episodes online while there are comparably fewer online stores to purchase and download high-quality episodes. So it might actually be fairer to compare the monthly revenues of ALL the online aggregators (and the networks' own sites too) to iTunes to get a clearer comparison.

Still, I think comparing iTunes and Hulu does show how nascent the streaming TV market is today. In the long-run, I'm a believer that free, ad-supported trumps a la carte paid downloading. But for now, when it comes to real revenues - which for many is the only metric that really matters - it's no contest.

What do you think? Post a comment now!

In the two years since Google acquired YouTube, I've often wondered about two things: (1) was there really a strategic rationale behind the deal? and, (2) if there was indeed a strategic rationale, when might we see it borne out in actual business initiatives?

For sure YouTube's organic growth has continued unabated during these two years and from a traffic perspective, it is more dominant now than ever. Yet the dearth of initiatives that are tangibly strategic (or meaningfully revenue-producing for that matter) to Google, or that even minimally strengthen either company's underlying value proposition, has led me to conclude that the deal had more to do with the Google guys wanting to acquire YouTube for its "coolness" factor - simply because they could - than anything else.

I don't mean to sound unfair to the YouTubers who work diligently to make YouTube an incredible experience, which of course it truly is. Yet it is hard to deny the obvious: exactly what has YouTube done differently during the last two years that it couldn't have done had it remained independent (and saying "afforded its monthly CDN bills" doesn't count!), and how exactly have either YouTube or Google benefited from being together during this time?

However, I think things are finally changing. In fact, with little fanfare or proactive PR, Google at last seems to be strategically flexing YouTube's muscles. While some of what they're doing is experimental, other moves have significant market potential and could be highly disruptive to other broadband oriented media and technology companies.

At the top of my "highest potential" list is Google Content Network, especially as it's envisioned as "spokes" tied to YouTube's "hub." I wrote at length about GCN a month ago in "Google Content Network Has Lots of Potential, Implications" so I won't rehash my arguments here. But note yesterday's news about "Poptub" as the second video series to get the GCN/YouTube treatment; I expect a steady drumbeat of these types of deals in the months to come. GCN has the potential to become a key driver of the Syndicated Video Economy.

Another high-potential activity is YouTube's plan to start streaming full episodes. The first deal with CBS is no doubt a signal of many more to come. Full episode streaming is strategic on a number of levels. It enhances YouTube's and Google's access to big brands' ad dollars. While Google has thrived in the self-service, "long tail of advertising" world, it needs more cred among big brands, especially as it pursues its Google TV initiative (see latest deal with NBCU) and other eventual broadband-to-the-TV activities. Full episodes are also a winner from a user standpoint: a unified video experience across premium, indie, long tail and UGC video is very compelling and also squeezes competitors with narrower offerings.

Yet another high-potential activity is the implementation of search ads on YouTube. When the deal was originally done, my first reaction was to think it was a no-brainer to simply start displaying ads against every YouTube search (example - you search for "West Wing" in YouTube and the results page shows an ad to buy the DVD set). If there's one thing Google knows cold, it's the search ad business. YouTube searches represent billions of incremental opportunities each year to extend its core franchise.

Lastly - and this is admittedly more of a "Will Richmond thing" than anything Google or YouTube are yet pursuing: I think it's practically inevitable that the company will start investing in independent broadband video companies at some point. I touched on this in yesterday's piece about NBCU-60Frames and MSN-Stage 9. As time marches on and some of the above activities bear fruit, it's going to become very tempting for Google/YouTube to lever its strengths more directly into content ownership. I know what Google's always maintained about being a technology company, committed to neutrality in way that even Switzerland would appreciate. But as Google's ad business matures and it inevitably is pressured for growth, content is going to be a very alluring opportunity.

Regardless of what happens on this last point, YouTube now seems to have a full plate of strategic activities underway. It's great to finally see this happening.

What do you think? Post a comment now.