I'm pleased to present the 187th edition of the VideoNuze weekly podcast with my weekly partner Colin Dixon of nScreenMedia. During the short July 4th week news broke that Samsung acquired Boxee. Today, we discuss whether the deal makes sense and how much Samsung could benefit. Colin believes that Samsung will benefit by being able to integrate live broadcast TV more seamlessly into its Smart TVs, something that has been missing to date, but which Boxee excelled at with its Boxee TV service.
While that would be a step forward, it feels to me like a relatively limited value proposition, since cable TV networks wouldn't be included unless a CableCARD slot was available. Even as a second TV in the home as Colin proposes, a Samsung/Boxee Smart TV seems like it would have limited appeal, due to the rise of tablet-based viewing and the ability to access broadcast TV via Hulu, network sites/apps, pay-TV operator apps, etc. (a larger question raised is whether 2nd TVs have much of a future themselves).
While Colin and I agree that the rumored $30 million purchase price for Boxee is a drop in the bucket for a goliath like Samsung, it's not clear yet how much of a return they'll get.
Listen in to learn more!
Click here to listen to the podcast (19 minutes, 52 seconds)
Colin Dixon, senior partner at The Diffusion Group and I are back for the 152nd edition of the VideoNuze-TDG podcast. This week Colin and I first share our reactions to the launch of Boxee TV earlier this week. Colin is struck by Boxee TV's unlimited video recording feature, the first that either of us have seen. Colin also points out potential challenges with upstream bandwidth that could be a challenge for Boxee TV recording programs at HD quality. Overall though, Colin likes Boxee TV's direction and believes it's a better strategy for the company than the original Boxee Box.
As I wrote earlier this week, I see Boxee TV in the context of innovation happening with broadcast TV and DVR. Along with Simple.TV and Aereo, consumers are gaining more control of their broadcast TV experience. In addition, they're all overlapping to an extent with Hulu and Hulu Plus which already offer unprecedented access to broadcast TV programs. It's still too early to tell which of these approaches will succeed, but Colin and I share our predictions.
Click here to listen to the podcast (21 minutes, 39 seconds)
Odd as it may seem on the surface, the intersection of broadcast TV and the DVR has become a hotbed of innovation. Yesterday brought the latest player in this space, Boxee TV, which followed news earlier this week that Simple.TV has begun shipping, which itself followed the launch earlier this year of Aereo.
While each has its own unique approach, they all fundamentally provide viewers more flexibility to record and play back broadcast TV programs by leveraging over-the-top, broadband delivery, while seeking to undercut the price of a monthly subscription to pay-TV. They are all segmenting the consumer market, pursuing a cohort of "cord-cutters" and "cord-nevers" open to alternatives to pricey multichannel TV bundles.
Daisy Whitney and I are pleased to present the 46th edition of the VideoNuze Report podcast, for January 22, 2010.
Daisy gets us started today, discussing recent smartphone research from eMarketer. According to the research, in Q4 '09, the percentage of people saying they're interested in purchasing an Android phone jumped from 6% to 21%, while the iPhone's dropped from 32% to 28%, creating a narrow 7% gap. In addition, research on how the phones are actually used revealed extremely similar behavior, with usage skewed toward reading news on the Internet, using apps, social networking and IM.
Daisy's takeaway is that this could be early signals that the smartphone market may be getting commoditized. I add that with the proliferation of Android phones, and the disproportionate amount of retail shelf space they'll soon take up, Apple could well find itself in the familiar spot of competing against a large and growing ecosystem of well-aligned competitors (i.e. similar to competing against the Windows ecosystem). Time will tell.
We then switch gears and I add some more detail to Boxee's plan to offer a payment platform, which it unveiled this week. Boxee's move is yet another effort to shift the online video model from advertising, which has of course accounted for the dominant share of the online video industry's revenue to date. In addition to Boxee, this week we've also seen additional paid model initiatives: YouTube dipped its toe into rentals, rumors resurfaced of Hulu's subscription plans, and, outside the video space, the NYTimes.com's announced plans to erect a pay wall early next year. And that's all on top of TV Everywhere's rollout.
Click here to listen to the podcast (11 minutes, 47 seconds)
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Boxee is announcing this morning that it plans to support paid options for premium video by the end of Q2. To date, Boxee has been delivering mostly free, often ad-supported, video, though users of subscription services like Netflix and MLB could also access these. The new initiative means that Boxee will process transactions itself, so Boxee will become a legitimate option for content providers who want to charge for their programming. Avner Ronen, Boxee's CEO and co-founder told me more about the plan yesterday.
Avner likened Boxee's approach to Apple's App Store, in that content providers will be able to set their own pricing and business model (e.g. rental, subscription, etc.). Boxee will work with a payment partner (not yet disclosed) which will provide the platform itself, with Boxee developing a 1-click UI for consumers as well as a content partner console. Avner said Boxee hasn't decided on the transaction percentage it aims to charge, but did say it will be less than the 30% or so that others like iTunes and Amazon ordinarily keep.
Boxee has attracted a strong early adopter following and has unveiled plans to launch its first convergence device, the Boxee Box, with partner D-Link. The move to support paid video is significant because as Boxee reaches into more mainstream homes, it could be yet another meaningful "over-the-top" alternative for consumers to pay for just the content they want, further pressuring the traditional multichannel subscription model. Microsoft's Xbox Live Marketplace with the Xbox 360 is probably the closest comparable set up, although it supports downloading, whereas Boxee is focused solely on streaming.
While digital delivery offers new convenience, an issue for both streaming and downloading is limited portability. Avner said that one way Boxee intends to address this is to offer authentication options to third-party web sites, so that if a user has rented an episode of "Mad Men" for example, through Boxee, they would subsequently be able to go to AMC's web site and watch it again without paying for it a second time. This is somewhat similar to what TV Everywhere providers are also thinking about doing in their second phase, extending user authentication to content providers' sites themselves.
From Avner's perspective, Boxee's ability to support multiple business models, in a content partner and user-friendly approach, is key to success. It is still very early days for over-the-top delivery, and with TV Everywhere now rolling out, incumbent video service providers are fighting hard to maintain their positions.
Still, news this week that Disney is negotiating with Microsoft to extend some of ESPN's programming to Xbox is a potent reminder that premium video providers are exploring (albeit gingerly) all their options for getting into the living room. If Boxee's new box becomes widely adopted, it could become an important player in the unfolding over-the-top drama.
What do you think? Post a comment now (no sign-in required)
Daisy Whitney and I are pleased to present the 44th edition of the VideoNuze Report podcast, for December 18, 2009. This will be the last podcast for 2009, and we'd both like to say a huge thanks to everyone who's been listening in this year.
This week I start things off by providing further detail on my experience so far with Comcast's TV Everywhere initiative, Fancast Xfinity TV (or "FXTV" as I call it for short), which was released in beta to 14 million subscribers this week at no additional charge. On the whole I think it's a respectable effort, and in the big picture, is exactly what the company should be doing with online distribution. The main challenge for improving it is getting lots more content from ad-supported and premium cable networks, so that users are more likely to find what they're looking for. For all kinds of reasons, this won't be easy, but if any company can make it happen, it's surely Comcast.
Then Daisy reviews her '09 predictions and shares her "New Media Minute Awards for Excellence." She recognizes Kaltura, 5Min, boxee, Quantcast, and number 1 pick, MyDamnChannel. All have excelled this year, attracting new venture financing, signing new deals and growing their business. Daisy is particularly proud of MyDamnChannel because it also achieved profitability this year. Listen in to find out more.
Click here to listen to the podcast (14 minutes, 18 seconds)
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Following are 4 items worth noting for the Dec 7th week:
1. Boxee's new box with D-Link - It was hard to miss the news from boxee this week that it will be launching its first box, in partnership with D-Link, in early 2010. Boxee has gained a rabid early adopter following, but the high hurdle requirement of downloading and configuring its software onto a 3rd party device meant it was unlikely to gain mainstream appeal. Strategically, the new box is the right move for the company.
For other standalone box makers such as Roku, boxee's box, with its open source ability to easily offer lots of content, is a new challenge (though note, still no Hulu programming and little cable programming will be available on the boxee box). The indicated price point of $200 is on the high side, particularly as broadband-enabled Blu-ray players are already sub-$150 and falling. Roku has set a high standard for out-of-the-box usability whereas D-Link's media adaptors have never been considered ease-of-use standouts. Boxee's snazzy, but very unconventional sunken-cube design for the D-Link box is also risky. While eye-catching, it introduces complexity for users already challenged by how to squeeze another component onto their shelves. If boxee only succeeds in getting its current early adopters to buy the box it will have gained little. This one will be interesting to watch unfold.
2. AT&T tries to solve its iPhone data usage problem - In the "be careful what you ask for, you might just get it" category, AT&T Wireless head Ralph de la Vega revealed an interesting factoid this week at the UBS media conference: 3% of its smartphone (i.e. iPhone) users consume 40% of its network's capacity. Of course video and audio capabilities were one of the big ideas behind the iPhone, so AT&T should hardly be surprised by this result. AT&T, which has been hammered by Verizon (not to mention its users) over network quality, thinks the solution to its problem is giving heavy users unspecified "incentives" to reduce their activity. No word on what that means exactly.
Mobile video has become very hot this year, largely due to the iPhone's success. But the best smartphones in the world can't compensate for lack of network capacity. While AT&T is adding more 3G availability, it's questionable whether they'll ever catch up to user demand. That could mean the only way to manage this problem is to throttle demand through higher data usage pricing. That would be unfortunate and surely stunt the iPhone's video growth. Verizon, with its line of Android-powered phones, could be a key beneficiary.
3. Q3 '09 Nielsen data shows TV's supremacy remains, though early slippage found - Nielsen released its latest A2/M2 Three Screen Report this week, offering yet another reminder that despite online video's incredible growth, TV viewing still reigns supreme. Nielsen found that TV viewing accounted for 129 hours, 16 minutes in Q3. While that amount is more than 40 times greater than the 3 hours, 24 minutes spent on online video viewing, it is actually down a slight .4% from Q3 '08 of 129 hours 45 minutes.
How much weight should we give that drop of 29 minutes a month (which equates to just less than a minute/day)? Not a lot until we see a sustained trend over time. There are plenty of other video options causing competition for consumers' attention, but good old fashioned TV is going to dominate for a long time to come. This is one of the key motivators behind Comcast's acquisition of NBCU.
4. 3D poised for major visibility - In my Oct. 30th "4 Items" post I mentioned being impressed with a demo from 3D TV technology company HDLogix I saw while in Denver for the CTAM Summit. This Sunday the company will do a major public demonstration, broadcasting the Cowboys-Chargers in 3D on the Cowboys Stadium's 160 foot by 72 foot HDTV display. HDLogix touts its ImageIQ 3D as the most cost-effective method for generating 3D video, as it upconverts existing 2D streams in real-time, meaning no additional production costs are incurred.
Obviously those watching from home won't be able to see the 3D streaming, but it will surely be a sight to see the 80,000 attendees sporting their 3D glasses oohing and aahing. Between this and James Cameron's 3D "Avatar" releasing next week, 3D is poised for a lot of exposure.
Enjoy the weekend!
Roku is launching its Channel Store today with 10 free channels, bidding to become the must-have broadband-to-the-TV video player in an increasingly crowded space. With the Channel Store Roku is releasing a free software developer kit (SDK) that further content partners can use to create an application to run on Roku players. Up until now Roku has selected its content partners (Netflix, Amazon VOD and MLB.TV), but the SDK helps Roku re-position itself as an open platform, available for all legal and non-adult content providers. Existing Roku players will get a software upgrade to enable the Channel Store, while new players receive the software upon initial install.
I got a sneak peak at the Channel Store over the weekend using the new Roku HD-XR player which itself was recently released. The 10 channels include Pandora, Facebook Photos, Revision3, Mediafly, TWiT, blip.tv, Flickr, Frame Channel, Motionbox and MobileTribe. The Content Store is a new icon on the Roku home screen, alongside the 3 existing partners. After selecting it, the 10 new channels' icons are visible along with their respective shows and their episodes.
The video quality is terrific; as with prior Netflix movies I've watched there's no buffering, the audio and video are in synch, it's possible to pause, fast-forward and rewind and come back later and resume at the same spot. The only issue I had was that the start-up time for new shows was very slow, sometimes taking up to 5 minutes while the screen said "retrieving...." I'm chalking this up to using the Channel Store pre-release, as Netflix movies I also retrieved over the weekend loaded quickly as they always do.
One other minor annoyance was that to watch Revision3 shows I had to first create an account at Revision3. Only after doing so and linking my Roku to that account was I able to start watching. I guess I understand that Revision3 wants to know who's watching via Roku, but the hurdle will suppress sampling of its shows when users are in channel surfing mode. Plus, online I'm able to watch Revision3 shows like Tekzilla without an account. I'd like to see the Roku process streamlined to emulate online.
Roku's spokesman Brian Jaquet explained to me that these 10 channels are just the start. Just as Apple has done with the App Store, Roku imagines letting a thousand flowers bloom, with an expanding variety of popular content helping drive sales of Roku players. The company has set up an affiliate program so that content partners that help sell players get a commission. It is also experimenting with different internal discounts that incent partners to sell players.
As I wrote in back in August, I continue to be bullish about Roku's prospects. Though I'm generally not a fan of new special purpose boxes, Roku has a few key things going for it that make it appealing to all-important mainstream buyers: piggybacking on existing well-known brands (e.g. Netflix, Amazon, MLB, Pandora, Facebook, etc.) to drive awareness, a low price-point that neutralizes much of the buyer's purchase risk, and a dead simple process of connecting and getting started. While boxee, for example, has for now appealed mainly to early adopters, Roku has from day 1 been positioned as a mainstream product (note boxee plans to launch its own box shortly along with its beta version). The Channel Store will only help broaden Roku's appeal. If Roku could clinch a promotional deal with Netflix, that would be a killer this holiday season, especially as a stocking stuffer.
Nonetheless, I still don't expect Roku or any of the other Internet-connected devices to incite a wave of cord-cutting any time soon. These are still "fill-in-the-gaps" kinds of value propositions; access to linear broadcast and cable programming is required for any of them to be considered bona fide substitutes to cable/satellite/telco. The risk to the incumbent providers is that new devices continue getting stronger, making them appealing as "good enough" alternatives to some portion of viewers. The Channel Store gives Roku that potential, as well as a leg up on the myriad other connected devices currently hitting the market. It will be worth watching over time.
What do you think? Post a comment now.
When boxee announced it raised a $6M second round last week it caught my attention for two reasons. First, it was further evidence that broadband video-related companies are continuing to raise money right through the current economic meltdown (industry companies raised at least $64M in Q2 '09, $75M in Q1 '09 and $78M in Q4 '08).
Second, and more noteworthy to me was how much industry experience and insight now backs boxee. The new lead investor in the round was Boston venture firm General Catalyst Partners (joining prior investors Spark Capital and Union Square Ventures), whose portfolio includes broadband video companies like Brightcove, DECA, EveryZing, Maven Networks (acquired by Yahoo), ScanScout, ViTrue and Visible Measures.
Spark also has many investments in the industry, including 5Min, Adap.tv, EQAL, KickApps, Next New Networks, thePlatform (acquired by Comcast) and Veoh. And Union Square is one of the most active firms in the online media/advertising industry with stakes in MeetUp, OddCast, Twitter (with Spark), Tacoda (acquired by AOL) and others.
Beyond the firms themselves are the individuals helping steer boxee. Joining its board from GC is Neil Sequeira, a veteran of the cable industry, who was most recently Managing Director, Technology of AOL Time Warner Ventures. Already on the board is Spark's Bijan Sabet who knows the cable/satellite ecosystem equally well, having done stints at Moxi, WebTV and Apple and Union Square's Fred Wilson, who is deeply immersed in online media and writes a hugely popular blog.
I corralled Neil and Bijan (two old friends) for a phone interview late last week to explain boxee's future and where it fits into the current video ecosystem. Following is an edited transcript.
VideoNuze: What attracted you to invest in boxee?
Neil Sequeira: Three things. The boxee team, the market opportunity and our ability to be a great partner. We think boxee has the potential to be the next generation "Firefox for media," a widely- used consumer platform. That's incredibly exciting to us.
Bijan Sabet: We've been involved with boxee for a while now, and we're convinced the time is right for something like this. boxee has the right ingredients: it is open source and includes social media capabilities, an app store and a huge community of users/developers.
VideoNuze: boxee has gained a loyal following, but it doesn't have a business model yet. What do you see as boxee's business model and it what time frame must it develop it in order to succeed?
BS: boxee's still a very young company, but we have a number of ideas around business models. But the key is patience. The company has a very low burn rate, with around 16 people or so , most of whom are in Israel. The focus for now is building the product and the user base. And the company's been very successful doing that. Last year boxee had 10,000 users, now it has 600,000.
NS: It also has a very excited developer community. But I agree - patience is needed here. Too often companies can get themselves focused to early on a specific business model, which then constrains them. With the new funding, box has room to see how things evolve.
VideoNuze: Hulu recently told boxee to remove its content. What do you think boxee needs to do to win Hulu (and others) onto its platform?
NS: At a high level boxee we believe boxee is an incredible friend to content providers, and we want to work with everyone. We're big believers that consumers want access to everything and that's where the market will go over time.
BS: All of us are Hulu fans and of course would love to have Hulu on boxee. But each content provider has its own business model, and has to decide what works best for them. boxee will continue to be a content provider-friendly platform, where different business models can be used and different technologies integrated. We think that's powerful.
VideoNuze: How should established video service providers (i.e. cable/satellite/telco) regard boxee - as friend, foe, or something else?
NS: We want boxee to be regarded as friend and we think boxee can add a lot of value to the ecosystem. Consider for example, the case of TiVo. Early on it looked like a foe. But now see how Comcast is integrating TiVo into its set-top boxes and driving incremental revenue. boxee brings great search, apps and context to the broadband viewing experience. All that will drive usage of broadband Internet connections, which in turn helps "fill the pipe" making cable and telco Internet access services that much more valuable to users - and to their providers.
BS: Agreed. We believe that in an IP world, these things aren't either/or, mutually exclusive. Again look at Comcast, which has great assets like Fancast, and is now working on entitlements with TV Everywhere. boxee can help drive more value from them. This is especially true for certain user segments, like new college grads, for whom the Internet is now far more important than is traditional TV. The point is traditional service providers need to figure out how to delight a variety of user segments. We believe boxee can help.
VideoNuze: You guys and your firms have deep relationships in the cable/satellite/telco industries. How are those folks reacting to boxee?
NS: People in the ecosystem are taking a "wait-and-see" approach. There's a certain amount of fascination, and though we don't see any impending deals, Avner (Ronen, boxee's founder/CEO) has multiple conversations ongoing with the industry.
VideoNuze: Who are boxee's primary competitors?
BS: What Apple and Microsoft are doing is most competitive, though their approaches include both hardware and software. We think of boxee like Android (Google's mobile OS), sort of the "inside-out" version of Apple TV. And we believe convergence device/hardware providers want alternatives.
VideoNuze: How about Roku?
NS: We believe Roku should be partners with boxee. Hardware companies have core competencies and typically those don't include open source media platforms. So boxee can help devices like Roku be even better. We'll have a number of device deals to announce soon.
VideoNuze: A lot has been written about "over-the-top" services. Are they starting to succeed, and if so, what must happen for them to gain further success?
NS: Well, yes, when we look at what Netflix and others are doing already, we do believe over-the-top services are starting to succeed. And we think this isn't necessarily a bad thing for cable operators for example. That's because the video business has had margin compression due to rising programming costs, whereas broadband Internet service has been incredibly profitable for them.
Consider that that cable operators didn't offer DVR or voice services just 10-11 years ago, but now they are a significant driver of ARPU (average revenue per unit). There's a lot more that cable operators can derive from broadband services than they currently are, considering the IP connection is now - for many - the most important connection they have. Content providers know this and are looking for more, not fewer, ways to distribute their content.
BS: Agreed, look at an example like CNBC, whose ratings are down something like 30% year-over-year. What's causing this? Is there demo changing? Is the web providing alternatives? Some of both? The point is content providers need to figure out how to control their destiny. That doesn't mean they have to give their stuff away for free. But it does mean they need to figure out how to distribute as effectively as possible. We want to help them do that. You can't go backwards here. Broadband is too interesting and too important to too many people.
VideoNuze: Thanks guys.
Everywhere I look there are companies doing innovative, clever things to bring broadband video to the TV and to mobile devices.
Yesterday brought another great example, from Vuze, a company with roots as a BitTorrent client that has evolved to an aggregator of hi-def niche broadband video using its desktop application for discovery, download and playback. Vuze announced an update that enables users to drag-and-drop downloaded videos for playback on non-PC devices such as Xbox, PS3 and - via an integration with iTunes - to the iPhone, Apple TV and iPods. It's a pretty cool extension of the Vuze client experience and I spoke with Vuze's CEO Gilles BianRosa and Sr. Director of Marketing Chris Thun to learn more.
Without getting too far into the technical details, what Vuze has done is capitalized on hooks that have existed in these various devices, making videos downloaded via Vuze visible in these devices' interfaces. As Gilles explained it, these hooks have been available for a while, but only the super-technical would have invested the time and effort to benefit from them.
The connections to Xbox (installed base of 30M) and PS3 (installed base of 23M) are quite complimentary to Vuze, which has 10M unique visitors/mo and about 50M downloads to date, because its content library is heavily skewed toward SciFi, animation, games and comedy (all HD btw) along with its user base. In other words, there's an affinity audience who will immediately benefit from being able to watch Vuze's content on their big screens and on-the-go. In fact, in a recent survey of its users for how they'd want to connect their PCs to TV and mobile, Vuze got 30K responses with a strong emphasis on gaming and Apple devices.
In prior conversations with Gilles I've raised a concern about the viability of Vuze's (or anyone's) client download model given the ever-increasing quality of browser-based streaming. But these integrations do shed new light on the value proposition of having a desktop presence. With its update, Vuze actually goes one step further by automatically transcoding downloaded videos into the format appropriate for the target device, often in real-time, thus eliminating playback issues.
Gilles noted that this is a beta release however, and that one current limitation is that ads cannot be passed through. This is a not insignificant gap for an ad-supported site. Vuze hopes to have ads up and running within a month or so. It also has its eye on integrating with additional devices. My bet is that TiVo is next up given that TiVo founder Mike Ramsey sits on Vuze's board.
For now Vuze's content is relatively nichey and Gilles concedes that despite ongoing negotiations with major studios and TV networks, they're still getting comfortable with Vuze's P2P platform. Given the crowded video aggregator space, Vuze's ongoing challenge is to bolster its content library to broaden its appeal.
But Vuze's new update, sure to mimicked by others, which comes on top of Netflix reporting 1M Watch Instantly users connecting to their Xboxes and consuming 1.5 billion in the first 2 months of its availability, Boxee's multiple integrations and other PC-to-TV convergence initiatives underway, shows the huge pent-up interest users have in watching broadband video on their TVs. The genie is way out of the bottle and content providers need to begin adapting to the coming landscape where video flows between PC, TV and mobile, offering unprecedented convenience to users.
What do you think? Post a comment now.
Watching President Obama's appearance on "The Tonight Show with Jay Leno" on NBC.com over the weekend was a classic reminder of how so many sites miss out on so much of their total broadband video advertising opportunity.
The interview, which lasts over 24 minutes, carried just one 15 second pre-roll ad, (for Subway, when I watched it) along with a companion banner. Twice during the interview, Leno interrupted the President to pause for a TV commercial break, but when he did so, there was no mid-roll ad inserted by NBC.com. There was also no post-roll ad appended, just a promo graphic for the show itself.
If you figure there were at least 4 potential 15 second avails (1 pre-roll, 1 post-roll and 2 mid-rolls), but only the pre-roll was filled, it means that NBC.com missed out on 75% of the potential ad revenue that each full stream viewer would have generated. In reality the percentage is probably even higher because the mid-rolls could likely be 30 seconds or more.
That degree of under-monetization is pretty disappointing. Don't get me wrong, I'm not advocating that broadband video streams become overwhelmed with ads, which would surely cause a consumer backlash. But I do believe that providers of premium content like NBC.com (and there are few videos more premium than the first time ever a U.S. President has appeared on the "Tonight Show") must recognize and monetize their opportunities effectively. There are at least three reasons why:
First, and most obviously, broadcast networks' poor recent financial performance demands that they seize every available money-making opportunity. Not doing so is just bad business. How many businesses succeed long-term when they don't execute on all chances to generate revenue?
Second, NBC.com and other premium video providers are setting a bad precedent for consumers' expectations. If I can watch 24 minutes of Leno with just one 15 second ad, then if and when NBC.com tries to increase the ad load, I'm inevitably going to be displeased. In short, NBC is devaluing its own content by not serving notice to broadband viewers NOW, that a "price" - in the form of watching ads - must be paid for access.
Third, and tying together the first two reasons, is that it is urgent that networks learn how to achieve economic parity between programs viewed via broadband delivery vs. on-air delivery.
That's because the era of broadband-connected TVs has already begun, and is poised to gain further steam as new devices and connected TVs proliferate.
As this happens, online viewing will no longer be merely supplemental for many viewers to on-air, as it often (thought not exclusively) is today. Rather it will be substitutive. That means viewers will watch Leno via broadband on their TVs, instead of via cable/satellite/telco or over-the-air delivery. Just as "Tonight" would never go 24 minutes on-air without an ad pod (which consists of more than one just 15 second ad btw); NBC.com should never let this happen online. Doing so will cause major damage to its future P&L.
In his Media Summit interview last week, NBCU's Jeff Zucker said the company has already evolved from "digital pennies" to "digital dimes." Yet Hulu's recent stiff-arming of Boxee underscores the reality that networks are nowhere close to economic parity between online and on-air delivery of their programs today. Neither consumers nor technology are standing still waiting for them to catch up. Behaviors, expectations and future economics are being formed right now.
NBC.com - and others - need to be mindful of this and ensure that when they put their premium video online they're fully capitalizing on their ad opportunities. If they don't, then 5 years from now Mr. Zucker will wind up like so many of today's newspaper CEOs - lamenting, not praising, his company's "digital dimes," long after his "analog dollars" have evaporated.
What do you think? Post a comment now.
Last week a publicly-traded communications-equipment company invited me to speak to a group of investment analysts it had assembled for its annual "investor day." In the Q&A session following my presentation I took a question that I'm not often asked, nor do I give much thought to: "10 years from now, who will be the video industry's winners and losers?"
It's a far-reaching question that doesn't lend itself well to an impromptu answer. Also, while it's great fun to prognosticate about the long run, I've found that it's also a complete crapshoot, which is why my focus is much shorter-term. I've long-believed there are just too many variables in play to predict with any sort of certainty what might unfold 10 years into the future.
Still, as I've thought more about the question, it seems to me that there are at least 5 main factors that will influence the video industry's winners and losers over the next 10 years:
1. Penetration rate of broadband-connected TVs -There's a lot of energy being directed to "convergence" technologies and devices which connect broadband to the TV. Broadband to the TV is a big opportunity for video providers outside the traditional video distribution value chain. It's also a minefield for those who have dominated the traditional model, such as broadcasters. The Hulu-Boxee spat demonstrates this. A high rate of adoption of broadband to the TV technologies will result in more openness and choice for consumers. That's a good or a bad thing depending on where you currently sit.
2. The effectiveness of the broadband video ad model - A large swath of broadband-delivered video is and will be ad-supported. But key parts of the broadband ad model such as standards, reporting and the buying process are still not mature. There's a lot of work going into these elements which is promising. The extent to which the ad model matures (and the economy rebounds) will have a huge influence on how viable broadband delivery is. Producers need to get paid to do good work or it won't get done. The imploding newspaper industry offers ample evidence. Those with robust online ad models like Google are likely to play a key role in helping distribute and monetize premium content.
3. How well the broadcast industry adapts to broadband delivery - The broadcast TV industry generates about $70 billion of ad revenue annually. But both broadcast networks and local stations are on the front lines of broadband's change and disruption, putting a chunk of that ad revenue up for grabs. With broadband-to-the-TV coming, broadcast networks must figure out how to make broadband-only viewership of their programs profitable on a stand-alone basis (i.e. when the online viewing is the sole viewing proposition). Local stations face bigger challenges. As the Internet was to newspapers, broadband delivery is to local stations. They face a slew of new competitors for ad dollars and audiences, while losing their exclusive access to network programming. To what extent they're able to reinvent themselves will determine how much share they hold on to and how much others peel off.
4. How aggressively today's video providers (cable/telco/satellite) and new paid aggregators pursue broadband video delivery - While anecdotes about "cord-cutting" will no doubt only intensify, the reality is that if today's video providers adapt themselves to broadband realities, they are likely to be as strong or stronger 10 years from now. The recent moves from Comcast and Time Warner are encouraging signs that the cable industry gets that being ostriches about the importance of broadband delivery is a road to nowhere. Consumers expect more flexibility and value; incumbents are in a tremendous position to deliver. Ownership of local broadband access networks that serve consumers' unquenchable bandwidth demands is going to be a very good business to be in. That all said, new paid aggregators like Netflix, Amazon and Apple could well steal some share if they aggressively beef up their content, offer a competitive user experience and deliver a better value. They could have a major impact on online movie distribution in particular.
5. The level of investment in startups - The venture capital industry, crucial to the funding of early-stage innovative technology companies, is going through its own turmoil. The industry's limited partners have been wounded by the market's drop, causing VCs to raise smaller funds (if they're even able to do this), limit the number of investments they make, and shy away from betting on big transformational startups. Plenty of strong video technology companies are still successfully raising money, but it's harder than ever. Lots of potentially promising ideas are going begging. The length and severity of the economic slowdown will have a big effect on just how much funding new technologies that can potentially reshape the video landscape over the next 10 years.
So there are 5 factors to consider in how the video landscape shapes up over the next 10 years. Now back to the here and now..
What's your crystal ball say? Post a comment now.
This week's drama between Hulu and Boxee shines the strongest light yet on all of the disruptive forces broadband-delivered video has unleashed: the fight for how video content will reach your living room in the broadband era, and who exactly will control the process. It is a litmus test for major networks in how they intend to transition from the orderly and closed traditional distribution world to the new, open and messy one.
For those who haven't been paying close attention, this week Hulu's CEO Jason Kilar announced in a blog post that its content would no longer be available to users of Boxee, which is an open source media player that connects broadband delivered content to the TV with a friendly and social interface. Boxee has quickly become a darling of the early adopter and techie set (it's still in "Alpha" release, and only runs on Mac OSX and Ubuntu Linux).
Despite not having a formal agreement from Hulu, several months ago Boxee was able to extend its product to enable Hulu viewing. Hulu promptly became Boxee's #1 content source, and according to Boxee's CEO Avner Ronen, it was recently generating 100K streams per week (note that this amount is still chicken feed relative to Hulu's 240 million monthly streams). Boxee doesn't interrupt Hulu's business model; Hulu's content and ads are shown in their entirety. One would have thought the calculation for Hulu and its owners would be pretty simple: more streams = more ads = more success.
Yesterday I checked in with senior executives around the industry to see what's going on here. The picture that emerges is one of big media companies trying to reassert their control over how users access their content. In his blog post, Kilar says "our content providers requested that we turn off access to our content via the Boxee product, and we are respecting their wishes." According to everyone I spoke to, the unnamed content providers can only be Hulu's two owners, NBC and Fox.
Embracing broadband delivery by backing Hulu was progressive thinking by NBC and Fox. And as long as its skyrocketing usage was perceived as a net positive for on-air distribution (research has shown no cannibalization, higher sampling, more awareness, etc.) and its usage was mainly computer-based, all was fine.
But what Boxee did was extend the Hulu experience to sanctified ground: the TV itself. And that opened a real can of worms for the networks. Are they aiding and abetting "over the top" user behavior which could lead to "cord-cutting," in turn jeopardizing their highly profitable cable operator relationships? Are they undermining their own P&L's because Hulu usage on TV will cannibalize on-air delivery which carries higher revenues/viewer? Are they setting a dangerous precedent that any scruffy startup can distribute their prized programming without a formal relationship? And so on. These questions were too significant and Boxee's implications too profound to go unchecked. So Hulu's owners snapped its leash.
There's just one problem here: what's the impact of the decision on Hulu's users and by extension, the Hulu franchise? A quick perusal of the comments to Kilar's post says it all: people are ballistic and they are deeply confused. They don't get the arbitrary logic of why it's ok to watch Hulu in lots of other ways, but just not through Boxee. And they raise the nightmare scenario that this decision will only serve to fuel piracy, an outcome networks were expected to avoid given the devastating Napster precedent their music industry brethren experienced.
One can only imagine the anguish being felt by Kilar and the Hulu team. Having sweated every detail to create the best video experience out there, it is now watching that goodwill evaporate due to its owners' squeamishness. Better yet, one wonders what the folks at Providence Equity Partners, which invested $100 million in Hulu at a $1 billion valuation, are thinking? Did they sign up at this stratospheric valuation only to see NBC and Fox circumscribe Hulu's reach?
I've been saying for a while now that broadband's openness makes it the single greatest disruptive influence on the traditional video distribution value chain. The Hulu-Boxee situation illustrates this perfectly. Once content providers embrace broadband they inherently give up some of their traditional control. And there's no going back; once the proverbial genie is out of the bottle, it can't be put back in. Hulu, NBC and Fox are learning this first hand. With everyone now watching for their next move, I'm betting a change of heart is forthcoming. Hulu will be back on Boxee in one form or another soon enough. Resistance is futile.
What do you think? Post a comment now.
(Note: Hulu-Boxee is going to be outstanding grist for the Mar 17th Broadband Leadership Evening's panel discussion. Early bird discounted tickets are available through the end of today)