I'm just back from a couple days at Digital Hollywood Spring, one of the broadband industry's leading conferences. A key takeaway for me is that there are still many more outstanding questions about the broadband video industry's future - and their implications for other players in related industries - than there are concrete answers.
Here are 3 big ones worth considering:
What role will current video distributors play in an increasingly broadband-centric world?
The subscription video business, dominated by cable and satellite operators, generates approximately $80 billion/year, depending on whose data you use. The model is well-understood, and is a huge part of funding the value chain of cable networks, rights-holders and TV program producers. Bundling ever more channels (50,70,100+) into digital tiers and charging ever-higher prices for them has been a core industry revenue driver.
Yet data continues to show that out of all those channels, the average household still only watches 5-10 at the most. Couple that with the migration to broadband, DVR and on-demand consumption and one is left with the feeling that there is a significant disconnect between the way video is packaged and priced today with growing consumer expectations and behaviors. Is the current approach sustainable long term or are new players (e.g. Sezmi) going to successfully disrupt the formula? Any major disruption would have significant ripple effects.
Is the ad-supported business model for broadband video going to deliver for all the content providers relying on it?
I've been a big supporter of the ad-supported approach for a while and believe in it strongly in the long-term. Yet as I see more and more content providers, aggregators, social networks and others look to it as their primary business model, I'm growing concerned that in the short-term there isn't going to be enough money to go around to support everyone. To be sure, current growth rates are strong, yet at DH many of advertising's big hurdles to reach long-term success were mulled over: achieving scale, standardizing formats, understanding performance metrics, converting media buyers, targeting, proving interactivity's value and so on.
The efficacy of the broadband ad model online is particularly pressing for broadcasters. Though some research indicates on-air viewership is benefited from online program availability, long-term there can be no question that a substitution effect will take place as viewers decide "do I watch on-air OR online?"
Jeff Zucker, NBCU's CEO tersely captured the threat this poses in his now often-repeated question "are we trading analog dollars for digital pennies?" In other words, if someone watching an NBC show like The Office on Hulu currently brings NBC far less revenue than if they were watching it on-air, is the migration to broadband viewership actually causing a permanent down-sizing of broadcasters' ad revenue per minute viewed? A scary thought to contemplate.
What does all this mean for Hollywood?
Surely less subscription or ad revenue eventually means less money for everyone including the whole Hollywood apparatus that has been funded out of the traditional models. But how, when and to what extent does this play out?
Further, is the very nature of what's expected of Hollywood changing? Herb Scannell, CEO/founder of Next New Networks asserted in his panel that the current generation of 'auteurs' - multi-skilled and motivated people who can write, direct, produce, act and promote implies a far different role for how Hollywood creates value for itself in the future. In fact, Herb believes that technology-empowered talent is the biggest disruptive force to the traditional Hollywood equation.
The point was brought home to me in a offsite function I attended in which Bebo, the massive youth-oriented social network (recently sold to AOL for $850 million), outlined its big push into original entertainment (e.g. "KateModern," "Sofia's Diary," etc.). Their expectations of what they, creators and users will be doing to create value are starkly different from the Hollywood model.
And the questions continue. There are ample reasons to be enthusiastic about broadband video, still, we are living through transformational times impacting every corner of the traditional video value chain. For now many questions loom. Hopefully more answers will be forthcoming soon.
Do you have any answers? Post a comment and let everyone know!
I had 5 observations from the discussion:
2. With video proliferation, navigation is key challenge - panelists agreed that users' ability to find what they're looking for in the sea of broadband video is a huge issue. Both TV Guide and Zap2it are focused mainly on TV/entertainment content for now, question arises, will there be a one-stop guide destination for all broadband video (TV, films, short form, UGC, news, etc.)? Nobody owns that position right now, so who is best-positioned to fill that role?
3. Broadband video must be more than just TV - Jonathan made the point most strongly, and others agreed. For broadband to succeed it must do more than just be another medium for delivering existing TV programs. Sure, there's a rush to get broadcast TV shows online, but only real innovation will distinguish broadband from me-too TV delivery. Here, here. I've been preaching that for ages. Broadband offers a whole new creative palette to harness.
4. Cable operators wary of broadband video - no big surprise here, but Dave made it clear that major cable operators are wary of broadband and are focused on retaining as much control of the video experience as possible. For example, I asked what the roadmap looked like for cable operators to enable users to watch YouTube videos (and other broadband-only fare) on their TVs through cable set-top boxes, and if I understood Dave's response correctly, it sounds like no time soon. Quality, liability, and of course control are key limitations. If cable's not going to bring broadband to the TV anytime soon, might that open the door for third-party boxes?
5. WGA strike could drive more broadband projects - Rich speculated that a byproduct of a potential WGA strike and writers sitting around would be that maybe more broadband projects would be undertaken. Hard to predict, but there's certainly plenty of interest in broadband-only production, so my guess is writers wouldn't have a problem finding opportunities. Wouldn't it be ironic if the potential strike, which has new media compensation at its core, actually spurred more broadband video?