Jim Louderback

September 10, 2011

How YouTube Wins in the Great Unbundling of Cable TV

Filed under: Commentary — Tags: , , , , , , , , , , — Jim @ 9:52 am

stupid taxLast weekend I attended Vidcon, the annual gathering of YouTube celebrities, video bloggers, fans and others in this burgeoning online space. It was held across the street from CAA, but still worlds apart from the Hollywood glitz and glamour.

But it’s getting closer. Many of the early "vloggers" are now creating polished packages, rather than the slice-of-life vignettes that they built their audiences on. Hollywood agents and hangers-on were more prevalent, as a land-rush of sorts is underway for larger companies to sign up these new stars.

But for me, the most fascinating part of Vidcon was clarity around YouTube’s strategic direction, and what it wants to be when it grows up. I now firmly believe that YouTube is positioning itself to be a "super-bundle," sitting near the top of the emerging video hierarchy. Let me place them in context, though, by describing how I see the world evolving over the next three years.

The great unbundling
We’re in the early days of a great unbundling of services from transport. Over the past 30 years, TV services and the cables they run upon have been inextricably linked — you paid your cable bill, and got wire and channels together.

In the analog cable world that made sense. But now that most cable is digital, along with carrying two-way internet bits, the transport (which is basically just a collection of 1/0 bits) can finally be separated from the channels.

I know of at least three companies, and I assume there are many more, that are building what looks like a traditional cable TV bundle of local channels, super-nets like CNN and Lifetime and smaller channels like Current and Discovery. But rather than being locked into a single physical cable plant, these bundles will travel across the internet via cable modems and DSL. Soon you’ll be able to buy your TV bundle from, say, Comcast — even though you get your internet service from Time Warner or Verizon. And you’ll be able to watch any of those bundled channels on whatever internet service you happen to be sitting upon — whether it’s the hotel network in the Hanoi Hilton or your smartphone’s 4G service.

But that’s just an intermediate step. I see these unbundled cable services giving way to direct relationships between video content providers and customers. We’re seeing the beginnings of this sort of direct relationship today, most notably with HBO Go and CNN’s new "Everywhere" offering. Currently you need to have a paid relationship with a cable operator to use either of those two amazing services, but it’s only a small leap from the today’s programmer-controlled viewer authentication to tomorrow’s direct financial relationship. And that will give rise to a world with three distinct types of services, delivered over an internet/IP network, and with direct relationships with viewers: Super-Premium Channels, Super-Premium Bundles and Premium Independents.

Super Premium Channels
These single brand services provide libraries of unique and aggregated content to consumers for between $8 and $20 a month. We already have one Super-Premium Channel today — Netflix. And HBO is well positioned to be the second. After that, I’m not so sure. Fox’s recent eight-day exclusion was a cold face slap to Hulu, and unless Apple buys Hulu I don’t see its path to success. Showtime and Epix both have potential, but too much of their content has been licensed to Netflix. And like as not, consumers will only have pocketbook power to pay for one at a time.

Super-Premium Bundles
The problem with trying to re-create unbundled bundles of channels is that the content owners control too much power. These cable TV-like bundles will probably end up costing significantly more than a similar services from today’s cable operators. And that, I believe, will lead the big five networks to go direct, delivering their own super-bundles direct to consumers via the internet. Who are these big five? Comcast/NBC, Fox, Viacom, Time Warner and Disney. In the end, these are the companies that have built the biggest portfolios of individual channels and have built enough scale to appeal to men, women and children.

Take Disney, for example. It currently has a lock on kids with Disney and XD, it owns men with ESPN, and have at least a passable offering for women (and if it ends up buying Scripps Networks, they’ll really dominate here, with HGTV, Food and Travel). Disney is already building an extensive, direct to consumer video-based web destination that should equal or surpass what Time Warner’s CNN and HBO units have built. And the first pieces will begin to roll out early next year.

Premium Independents
So what about everyone else? These Super-Premium Bundles and Channels will be able to charge a monthly fee to consumers — everyone else will have to go free and direct via IP to compete. There will be very large businesses built here as well, but they will look much different than today’s independent cable networks. And as an aside, this is the opportunity my company, Revision3, is building for.

How will we watch?
In addition to the great unbundling, we’re also seeing the great "screenification." We have smartphones, smart computers, smart tablets and smart TVs. The only real difference is the size of the screen. Viewers increasingly want to watch their favorite shows on whichever smart screen is close at hand — and won’t settle for being limited to just the TV in the living room. And history shows that when technology creates an ability for consumers to get their media in new and more convenient ways, they figure out how to do it — legal or not (see Napster, BitTorrent).

So what about YouTube?
YouTube wants to be the sixth Super-Premium Bundle. The company already has a variety of premium content, and if the stories about the new channels they’re funding are true, they’ll have a plethora of premium offerings as well. The new "Cosmic Panda" interface is far more TV-like, and far more focused on helping viewers find a series or sequence of videos to watch — vs. the hunt-and-peck discovery model of the current site. Although the company will still be a vast repository of vacation videos and cats on skateboards, it really hopes to take its place as a legitimate premium service sitting alongside Viacom, Disney and the other three. Even better, it should remain free to all to boot.

How will we know if YouTube is successful? I’ll be keeping my eye on the NFL — when YouTube snaps up a package of football games in the 2013-2014 TV-rights renegotiation, then we’ll know that the company has truly arrived.

March 4, 2009

Video is the Killer App, say Media, Tech CEOs

Filed under: Commentary — Tags: , , , , , , , , , , — Jim @ 10:25 am

image Over the last two weeks, I was lucky enough to speak at, and be a fly on the wall at, two investor conferences. The first, from Goldman Sachs, focused on technology and the Internet, the second, from Deutsche Bank, was geared towards media and telecommunications.

During these conferences, CEOs or CFOs from the major companies present their strategy and describe their business models for mostly large institutional investors. Thus it’s a fascinating way to take the temperature of an industry – and business in general – by pulling together themes across many different presentations. I sat through 20 of these, featuring such notables as Cisco’s John Chambers, Time Warner’s Jeff Bewkes, and Bob Iger from Disney. Over the next six blog posts – one per day – I’ll be pulling together some of the themes, and major trends I saw during these meeting.

Today’s will focus on media, and video on the Internet, and how the companies I listened to are adapting, reacting and growing in this area.

John Chambers from Cisco kicked off the Goldman Sachs meeting, and he was very bullish on Internet video, calling it the “killer app” for his business – and also noted that this is only the first or second time in his 20 year career he’s seen anything this pervasive and this “killer”. The more video gets consumed on the Internet, the better for Cisco.

So what does Internet video content look like? If you’re a big media company, and own big brands, it looks a lot like what you’re already doing. At Viacom, according to CEO Phillipe Dauman, “we have developed our digital activities in conjunction with our brands and shows. They are profitable but very linked with our core activities.” At CBS, it’s about expanding the viewing experience. “Online is not just regurgitated TV, it is about enhancing the experience on-air”, explained CEO Les Moonves.

But what do you do if you lack your own brands? Soon to be ex-CFO Blake Jorgensen talked about the Yahoo’s multi-pronged approach of both partnering with existing brands and building their own in house. With “Sports Minute”, the company built a low cost daily streamed update, and then married it to Dunkin Donuts, who wanted to reach young men in the morning. He also highlighted the relative success of Tech Ticker, which was launched in partnership with Scott Trade – and who recently re-upped.

There was some disagreement about how we’ll be watching all this video content. Intel CEO Paul Ottelini is more focused on the big screen TV, but noted that “Surfing the web from your couch is something that no one likes.” That’s why Intel is working with Yahoo to build a widget channel that doesn’t replace the TV experience, but instead augments it with targeted information and ads.” Disney CEO Bob Iger countered with the results of an in-house survey that showed that 80% of millenials see their notebook PC as chiefly an entertainment device, but noted that even 64% of boomers see the PC as a platform for fun. “The computer is a very, very important place to entertain people”, he explained. “If we don’t occupy space on that platform, others will and we will be marginalized.”

Not everyone agreed that online video was a sensible business right now. Over at Discovery Networks, “digital right now is not a big business for us, last year it produced $55M in revenue”, said CFO Brad Singer. The company plans on continuing to invest at its current level; “You won’t see us making significant acquisitions or putting money to work in that area, we have the critical mass (now) to get things done.”

Iger at Disney, also, isn’t convinced. “I’m more of a pessimist in that area”, he said, while explaining the failure of the company’s recent digital studio, Stage 9. “The ability to monetize original content on the Internet is still somewhat in question.” Going forward, Disney will limit its online video investment to Disney-related content, rather than broader efforts.

Is anyone making money on Internet video? According to Patrick Pichette at Google, they aren’t, at least not yet – despite developing “four or five different ways to monetize the property.” Still, Google seems happy with YouTube’s progress. “The world runs on Youtube today, it has legitimacy.” Now, says Patrick, the focus is on figuring out monetization .

Nor is Disney. We’re “slightly behind where we thought we’d be in terms of revenue generation, said Iger. “ We still believe the Disney presence and ESPN presence in new tech is important and we have to make some investment before we deliver real value.:

CBS, though, is making “a little bit” of money, according to Moonves. He sees better profitability ahead, promising that “ultimately the margins will be terrific.”

But what about cannibalizing broadcast and cable viewership by putting shows online? So far it’s not happening, at least at CBS. “we have seen it is not cannibalistic (so far), but the worst fear for a broadcaster is if 50% watch (CSI) online, and we’re not getting paid the same dollars.” But doesn’t think that will happen, noting that today “even the biggest fan of a hit TV series only watches 2 out of 4 episodes”. With DVR and the Internet “we’re looking at it as not cannibalistic, but additive.” A multi-outlet world is good for CBS. “Our goal is to produce a great piece of content, get paid by the network, get paid in syndication, get paid in DVD, get paid through the community, through t-shirts… to produce one property and get paid a hundred times.”

Dauman at Viacom agrees. “”I think if it is done right, it is additive. With the Hills, we have so much online content, we really built out the loyalty of the fans of the show.. it is a good way to build loyalty, and help people discover it and watch it on air.”

Ad agencies see big potential in online video. Sir Martin Sorrell, head of WPP, said ”all the growth in our company is coming in two areas. One is emerging markets, the other is new media.” Interpublic CEO Michael Roth agreed; “digital is the key to growth. It must be at the center of our thinking, and all the programs we create.”

But too many times, the large media companies implied that they were giving new media way to retain old media advertisers, a practice called “merchandising”. Viacom’s Dauman sees it as an “integrated marketing opportunity for advertisers, so that an advertisement can be on Nick, Nick.com, our casual gaming activities”, to “reinforce the relationships with key marketers.” Others seemed to imply that as well, which only devalues new media in the minds of large marketers.

Stop back tomorrow for a look at what the CEOs think of streaming cable channels on the Internet.  And comment below (finally, comments turned on!)

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