VideoNuze Posts

The NY Times reported this week that YouTube is in talks with the William Morris talent agency about a possible deal to have some of its clients create videos especially for YouTube.

Nothing's confirmed at this point and who knows if an actual deal will result. However, if one does it would be a major strategy change for YouTube and I believe would create lots of new issues for the company to deal with. YouTube has always insisted that it is not a content creator; rather its goal has been to be a platform partner for premium video providers seeking to get the most out of the broadband medium.

The company has made significant progress on this front while recognizing that its vast collection of user-generated video will always be valued by its users but will be largely unmonetizable. Still, YouTube has been viewed cautiously by large media companies wary of its reach and disruptive potential. There's still lingering concern about why it took so long to get its Content ID system in place to protect its partners' copyrights (lest we forget the residual of that delay is the Viacom lawsuit that still looms).

From my perspective YouTube risks its credibility with its premium partners if the Morris deal happens. It is going to reopen the debate about what YouTube wants to be when it grows up: distribution partner or content creator. Other questions abound: Will the YouTube-Morris content compete directly with certain premium partners? Will the Morris content receive preferential promotional treatment? And how about the risk that data YouTube keeps about its premium partners' channels could be shared with Morris to help guide its content strategy? The questions go on. YouTube may feel it can finesse these questions and/or that its 40% video market share gives it leeway to push the envelope.

I've long thought that YouTube would find it irresistible to eventually get into the content business itself. The logic flows from precedent. For example, in the cable TV world, TCI was once the largest cable operator. It recognized the enormous financial leverage it enjoyed if it evolved beyond simply being packager of others' channels. As partner in channels in which it owned equity, it guaranteed them distribution, which in turn created viewership, ad and affiliate revenues and big-time value. In fact, TCI's content activities were so successful that it ultimately spawned a whole new company, Liberty Media, to manage its programming investments.

Similarly for YouTube, its access to millions of eyeballs creates a lot of temptation to have its own content properties, all the more so as broadband finds its way to the TV. No doubt YouTube has been pitched on this idea repeatedly over the years. But if it chooses to proceed this time it will no doubt hear concerns raised from its partners. Can it be a neutral, committed distribution partner while it also tries to build up its own content portfolio?

Further, there's the specter of Google and its potent monetization engine backing YouTube's content properties, which could also be viewed as competitive with its partners' ad sales efforts. Put all of this together and the potential Morris deal creates lots of new issues. If it comes to fruition it will be interesting to see how YouTube navigates them.

Click here for previous podcasts (Jan. 16, '09, Dec. 23, '08)

At the NATPE conference in Las Vegas yesterday I listened to TiVo CEO Tom Rogers send television executives an unmistakable message: either adopt a sense of urgency to address the two main forces upending the industry or prepare to watch the world as you've known it go away.

Rogers didn't mince words, forecasting for the TV industry a crisis comparable to the ones that have engulfed the financial services and newspaper industries if TV executives are complacent. Why Rogers didn't also cite the even more desperate U.S. auto industry was unclear....Is it possible that no other industry could ever find itself in that much pain?

The two forces underpinning Rogers' potential doomsday scenario are rampant time-shifting/ad-skipping by DVR-enabled households and fragmented viewing due to inevitable widespread broadband-connected TVs. On the DVR front, Rogers cited forecasts of DVR penetration in 60 million U.S. homes in several years, up from 30 million today. He explained that at that penetration level research suggests that brands will suffer major erosion from ad skipping.

I think Rogers is absolutely right. If you live in a DVR-enabled household, consider how different your (and your kids') viewing patterns are vs. in the pre-DVR age. Rogers noted that plenty of industry executives themselves have admitted to him that they too skip the ads.

As for broadband, Rogers said that 85% of TiVo HD buyers now connect their boxes to TiVo's broadband features. And he echoed a point that I'm fond of making: despite all of the broadband consumption on PCs that has occurred in recent years, for most consumers video isn't really "TV' until it is actually consumed on the TV. TiVo has been incredibly aggressive in introducing broadband features (see their site for a listing), and clearly its buyers are getting the message.

Rogers' comments were serving a larger purpose which is to position TiVo's new ad products as a key solution to these problems. For the past couple of years TiVo has begun promoting a slew of new ad units, targeting and measurement capabilities that it believes can make the TV ad model comparable or superior to the online advertising model (I wish you could see more details but oddly, information about TiVo's ad products sits behind a password-protected area of the company's site.) Rogers conceded the irony that the company most responsible for undermining the traditional ad model through ad-skipping adoption is now trying to ride to the industry's rescue.

Be that as it may, the main problem dogging TiVo's ad solution is that TiVo's subscriber base of under 4 million is just a tiny percentage of all U.S. TV households. And that's unlikely to change. The big driver of DVR penetration is service providers including the feature (sometimes from TiVo) in their set-top boxes.

Further, in the cable world at least, TiVo's ad solutions are going to run smack into Canoe, the industry's advanced advertising initiative. TiVo has already learned about how cable companies follow their own agenda; when TiVo is included in cable set-tops none of the broadband features are enabled. I know this first-hand. My old TiVo Series 2 in the basement gets all the broadband goodies, my Comcast TiVo in the family room gets none of them.

Rogers emphasized that his comments should be taken positively, in the context of the massive opportunities being created, rather than as an assertion that the industry is doomed to failure. I applaud Rogers for calling out the massive problems that lie ahead for the TV industry if it doesn't act with urgency to address these issues. TiVo is doing its part, but much more must also be done.

What do you think? Post a comment now.

Yesterday I moderated a fun little panel at NATPE with Ben Relles, creator of the hugely popular "Obama Girl" site Barely Political and Obama girl herself, Amber Lee Ettinger. "Obama Girl" has been a huge success since launch (13 million + views of "I've Got a Crush on Obama" on YouTube alone). Obama Girl offers plenty of clues for aspiring broadband video producers.

Relles did "I've Got a Crush on Obama" for $2,500 and said he made back all of his money the second day of release through T-shirt sales. That's a lesson in being opportunistic about multiple revenue streams. He conceived and wrote the song and then found Amber through her web site. He signed her up on the spot at a local Starbucks. All of that of course shows that big budgets aren't necessarily required to make big hits (Hollywood, hint, hint). He advised that creating videos that fit into larger conversations already underway are key to success.

Now with Barely Political part of Next New Networks, Relles has cranked up video production and has NNN's ad sales team monetizing its streams alongside its other channels. To answer a question some of you may be wondering: Amber conceded she's never actually met Obama personally, but had cordial relations with his campaign staff. (Daisy has more here.)

A reminder that early bird discounts are available for VideoNuze's next event, the Broadband Video Leadership Evening on Tuesday, March 17th in New York City. The evening will start with a "VideoSchmooze" cocktail/networking reception from 6pm - 7:30pm, followed by a panel discussion I'll moderate from 7:30pm - 9pm titled, "Broadband Video '09: Building the Road to Profitability." We have an all-star panel including:

• Albert Cheng, EVP, Digital Media, Disney/ABC Television Group
• Greg Clayman, EVP, Digital Distribution & Business Development, MTV Networks
• Karin Gilford, SVP, Fancast and Online Entertainment, Comcast Interactive Media
• Curt Hecht, President, VivaKi (Publicis Groupe)
• Tom Morgan, Chief Strategy Officer, Move Networks

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

The event will be held at the Hudson Theater, a beautifully-renovated venue on West 44th Street just off Times Square. I'm pleased to have NATPE, VideoNuze's partner since launch, on board for the event. And I'm extremely grateful to lead sponsor Move Networks and supporting sponsor ExtendMedia (and others soon to follow) who are making the evening possible. Note, additional sponsorship opportunities are still available, contact me to learn more.

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

Netflix's Q4 earnings and business metrics released late Monday are resounding evidence of how important the company's Watch Instantly streaming feature is becoming to its future. Netflix ended '08 with just under 9.4 million subscribers, up 26% for the year. In Q4 '08 it added almost 2.1M gross subs (39% better than in Q4 '07) and 718K net subs (59% better than in Q4 '07). The company generated $51M in free cash flow in Q4 alone, more than in all of 2007. Did someone say there's a recession going? Not for Netflix it seems.

But here's the really interesting news: on the earnings call CEO Reed Hastings pinned the company's ability to beat its Q4 subscriber growth guidance on underestimating "the positive impact of the introduction of the multi-function CE devices from LG Electronics, Samsung, Microsoft and TiVo that promote Netflix streaming." He further added that "streaming is energizing our growth." Those are pretty strong validations of the company's broadband and CE strategy. (Btw, SeekingAlpha has the full transcript here. If you're a Netflix follower like me, it's a must-read.)

Hastings highlighted the LG and Samsung Blu-ray players as having a high connect rate in the 4th quarter, though noting that in terms of gross numbers Xbox and TiVo were more significant simply because their installed bases are so much larger. It's also important to know that Netflix is paying spiffs to CE partners to generate new Netflix subscribers. That further enhances the relationship between Netflix and its CE-partners. On the one hand Netflix content is both a competitive differentiator for these brands' and a generator of cash while on the other CE partners are a driver of both new subs and streaming adoption for Netflix.

Hastings noted that Netflix is in discussions with all major CE companies to "broadly cover the Blu-ray category and Internet TV category over the next few years." In the coming years, expect Netflix to be the content locomotive for marketing broadband-enabled devices the same way that "Intel Inside" was once the technology locomotive for marketing PCs. What other content provider is going to come close to such ubiquity? Possibly Amazon, whose pay-per-download model could actually be complimentary to Netflix in driving more device adoption. But certainly not Apple, which seems intent to yoke its massive iTunes video library to the proprietary Apple TV box in a fruitless (my opinion) attempt to recreate its iPod success.

Netflix's eventual device ubiquity is going to open up vast opportunities for the company. As I've said in prior posts, in combination with its affordable subscription model and well-respected brand name, Netflix could well become the prime potential "over-the-top" competitor to incumbent video service providers (cable/satellite/telco).

The fly in the ointment remains Watch Instantly's content selection, which is still a shadow of the DVD-by-mail catalog. VideoNuze readers know that I've been a forceful proponent of Netflix bolstering the number of broadcast network programs in its streaming catalog. Yet I think it's clear from Netflix CFO Barry McCarthy's comments on the call that Netflix isn't planning any home run initiatives when it comes to building the streaming catalog. He notes that the level of online content spending "will be paced by our success with streaming and our determination to continue to deliver strong earnings growth."

I generally favor that kind of steady-Eddie approach. But in this case I'd hate to see Netflix give too much weight to smoothly-growing earnings (which of course act to defend its stock price) at the expense of missing out on the big first-mover advantages it is sitting on. In fact, a key part of my prediction that Netflix could well be acquired this year (in my opinion by Microsoft, but who knows...) is that a deep-pocketed acquirer who can insulate Netflix from Wall Street's earnings expectations would be able to build Watch Instantly's library with far more vigor and hence make Netflix an even more formidable competitor.

Only time will tell on that front. Meanwhile Netflix's outstanding Q4 - in the face of a titanic economic slowdown - is tangible evidence that the company is on a path to play a far larger role in entertainment distribution in the broadband era.

What do you think? Post a comment now.

Continuing VideoNuze's pattern of highlighting relevant third-party research, today I'm pleased to make available for complimentary download a dozen research slides from Starz Entertainment. Many of you are likely familiar with Starz, which owns a leading collection of premium cable networks which have been in the forefront of pursuing broadband distribution opportunities.

Starz participated in an omnibus research study of 5,500 U.S. Internet users (4,000 18+ years-old and 1,500 12-17 years-old) in September-October '08. The survey was administered by market research firm Synovate and the goals were to measure 17 different media consumption activities on 9 different platforms.

Starz research head David Charmatz and members of his team walked me through key findings I think it will be beneficial for VideoNuze readers trying to make sense of the shifting video landscape. I have no financial stake in this research.

Consistent with other numbers I've seen recently, 62% of respondents now watch some online video each week. That compares with 87% for live TV, 46% for DVD and just 38% for Time-shifted TV (DVR/VOD). There's little gender difference among those watching online video; 66% of males watch, 58% of females watch.

"Televidualists" as Starz calls them are a key group representing 18% of respondents who watch long-form media at least once per week either online, on a mobile device or through a media extender like Apple TV or Xbox. This group watched more video on all platforms and down the road I see them as the early adopters who are going to be most open to exploring online/on-demand-only solutions. To keep things in perspective, note that just 1% said that they only watch long-form content on new platforms and not on TV (and some of these may have never watched TV at all).

Importantly 60% of Televidualists are 12-34 years-old, compared to 39% overall. That's of course no surprise to anyone, and it continues to underscore how important it is for all incumbents in the existing video distribution value chain to pay close attention to serving their younger customers flexibly and cost-effectively. All of this and more data is contained in the slides.

Click here for complimentary download

Digitalsmiths is announcing this morning that Cisco has invested an undisclosed amount in the company. The deal adds onto Digitalsmiths' $12M Series B round from a couple months ago, led by .406 Ventures. Digitalsmiths has been building momentum in the video indexing and content management/publishing space and the Cisco investment is a nice validation for the company, particularly in this bruising economic climate. I talked to Digitalsmiths' (which is a VideoNuze sponsor) CEO/co-founder Ben Weinberger on Friday to learn more.

The deal was shepherded by the Cisco Media Solutions Group, which recently announced the general availability of its Eos (Entertainment Operating System) social media platform at CES. This follows a period of relative quiet for Eos. Almost 2 years ago I moderated an NAB Show Super Session panel which included Dan Scheinman, the SVP/GM of CMSG who was then just beginning to talk about Eos.

As Ben explained it, Digitalsmiths' indexing and video management will allow Eos to offer more advanced, targeted advertising capabilities to its customers. That certainly puts it in line with marketers' increasing desire for maximum context and ROI for their dollar. Improved navigation and a strong focus on monetization have been two critical Digitalsmiths' competitive differentiators.

At a broader level, Ben described how other Cisco groups began taking interest in Digitalsmiths during the due diligence process. In particular, the idea of Digitalsmiths-generated video metadata and indexing could become an interesting fit for Cisco's other products (remember that through its 2005 acquisition of Scientific-Atlanta, Cisco became one of the biggest suppliers of set-top boxes to video service providers. Cisco's also a leading maker of broadband access/routing infrastructure and in-home networks through Linksys).

Still, realizing this value is well down the road and will require working across multiple groups each with multiple priorities. For example, anything involving advanced advertising in the cable industry will also have to align with the growing role that Canoe is going to play in the industry. For now the upside of the Digitalsmiths investment is in how Eos leverages the company's technology.

Eos is a newcomer to the social media platform space, which has evolved considerably over the last two years. KickApps, Pluck and others have made a lot of headway in the media and entertainment vertical Eos is targeting; other verticals like sports, brand marketing and enterprise have also recently started to grow.

I have to admit that even after watching this almost year-old video of Dan explaining Eos, I'm still not sure I fully understand the role of Eos as a standalone offering from Cisco, especially when I read recently that its business model is a combination of a "nominal license fee and an ad revenue split." I mean, is there really enough financial upside in a hosted social media platform for mighty Cisco (fiscal Q1 '09 revenues of $10.3B) to pursue it? It's also worth asking whether Cisco has sufficient core software platform development competencies in this area. Certainly Cisco has plenty of financial muscle to back Eos, but is that enough to succeed in the crowded and scrappy social media space?

Yet another piece of this to consider is how players like Facebook and MySpace fit in at the intersection of social media and video. While neither is offering a white label platform (nor do I expect them to), last week's CNN/Facebook inauguration effort exposed the possibility that some major media companies may simply try to marry their video to these existing audiences. I've been a big fan of making broadband video more engaging through social applications but I'm cognizant that doing so is easier said than done. With resources increasingly scarce, some media companies may need to rethink how social they can afford to be.

For Eos, incorporating Digitalsmiths effectively would be a big help and could lay the foundation for other Cisco groups to benefit down the road as well. If Cisco's truly committed to the social media platform space this story will unfold over many years.

What do you think? Post a comment now.