On-Line Video: Wakeup call for Content Owners

While 2010 was a banner year for online video, it was also a year of missed opportunities.

Online video came of age in 2010.

  1. First and foremost, 2010 was the year of Netflix. With almost 20 M subscribers at the end of the year, it is closing in on Comcast  which has 23 M subs. More than 2/3 of Netflix’s subscribers use its streaming service, with 3.5 M streaming during prime time on any given day. Clearly, mainstream consumers are watching online video!
  2. Internet connected TVs are becoming the norm. Over 100 M TVs (globally) are connected to the internet, mostly through gaming consoles. In addition, most OEMs are pushing Smart TVs heavily, and a variety of boxes (e.g. Google TV) that connect existing TVs to the internet are becoming available.
  3. Video quality issues are becoming a thing of the past. Companies like Conviva have made it possible to cost effectively stream HD quality video at scale (i.e. for millions of users) without buffering or other quality issues.  Millions of people watched the Soccer World Cup in South Africa online. I watch Netflix movies on a 55” LED HD TV (with a Wi-Fi connection) without any issues at all.

However, content availability continues to be an issue online. Content owners are rightly concerned about replacing analog dollars with digital pennies. Yet 28% of US consumers say that they are considering cutting the cord, and HBO recently reported a decline in subscribers in the same year that Netflix doubled its subscriber base. Doesn’t it feel like they (content owners) are plugging holes in the dam with their pinkie fingers ?

Content owners should instead take embrace online video and work with players in the ecosystem to develop a viable business model.

  1. Content owners should aggressively make all their content available online.
    1. Free-to-air (FTA) channels like CBS and ABC should take advantage of the online medium to establish a direct relationship with their consumers. FTA channels should make all their shows available online (for On Demand streaming) on their web properties. In fact, they should aggressively resolve content rights issues and release their entire archives on-line. In addition, FTA channels should make it easy for content distributors like YouTube, Netflix, Joost, Hulu and others to syndicate their content while maintaining control over the advertising rights (see below for details)
    2. Premium channels should offer on-line only subscriptions, similar to Netflix’s streaming only offering. There is a risk of cannibalizing existing revenues, but if they don’t, then they also run the risk of becoming irrelevant.
  2. In order to effectively monetize their content through this transition, content owners need to be able to manage the advertising rights associated with their content irrespective of where it is viewed.  For example, content owners need to bundle on-line inventory (across distributors) with TV inventory and ensure that “exclusive” rights are honored on0line. In order to do so, content owners are working with vendors like FreeWheel to put in place advertising rights management platforms and integrate ad operations across online and linear TV
  3. While online video distribution has its challenges, it also offers content owners and advertisers a host of new capabilities. Content owners can offer a broader variety of ad formats, superior targeting/ tracking and potentially a more engaged audience. For advertisers, online video enables them to improve the efficacy of their advertising by:
    1. Enabling more targeted advertising. Today, most advertisers focus excessively on reach, and not enough on audience segmentation. How often have you see TV ads that you thought were utterly irrelevant? With on-line video, Pampers can target moms with young kids while Lipitor can target middle aged men, both of whom might watch Greys Anatomy
    2. Customizing creative/messaging. On-line video allows advertising to add a “call to action” based on location, serve up different creatives to various audience sub-segments, or even change the creative based on where an individual user in in the sales funnel
    3. Blurring the line between advertising and content. TV artificially constrains advertisers to produce 15, 30 and 60 second spots. On-line, advertisers can offer longer form videos, or provide links to infomercials within traditional 30 second spots. On-line video enables advertisers to engage and build a relationship with interested consumers (also likely buyers) while maintaining a respect distance with others

Advertisers are not standing on the side lines.  Several well know brand advertisers have taken the plunge and moved substantial budgets on-line. Some even talk about moving 100% of their budget from TV to online. Managing this transition is hard though. Harnessing the power of the medium requires a technology platform like TubeMogul to track where they place ads, analyze how consumers engage with those ads and then make decisions around creative and media buying based on that data.

The transition to online video is challenging for content owners, yet inevitable. At the same time, by making advertising more effective and accountable, this transition has the potential to increase total (TV+ online video) ad spend. I guess, the real question is which content owners are going to say, “fortune favors the bold”, and take the plunge!

PS: Through Foundation Capital, I am on the board of/or involved with Conviva, TubeMogul and FreeWheel

About Ashu

General Partner with Foundation Capital. Areas of interest range from digital media, mobile and internet infrastructure to all things related to India. Currently on the board of TreeHouse, Aspire, Conviva, Agni and TubeMogul.
This entry was posted in Internet, On-Line Advertising, Video. Bookmark the permalink.

7 Responses to On-Line Video: Wakeup call for Content Owners

  1. Ashu says:

    I woke up in the morning, and saw that the headline story in the WSJ is about on-line video and Hulu. What a coincidence!

    • Hanad says:

      You’re not required to buy auto inuncasre unless you drive an automobile. Even then you can have a bond which allows you to not have auto inuncasre.

  2. Pingback: Tweets that mention On-Line Video: Wakeup call for Content Owners | Global Choupal -- Topsy.com

  3. Ashu, as usual a great post. But I’d also like to see consumer centric view – how do consumers want to pay for and access the content? With the havoc being created I think one can question the assumptions that consumers want more of the same just different delivery models.

    I imagine it will take a long time for consumption patterns and monetization models to change since content creation and distribution costs are high giving content creators much more bargaining power (giving them long runway room to continue thinking more of the same). But all these costs are going down and (I hope) it brings in a new class of content creators (much more sophisticated than youtube publishers but lower cost basis than studios) which take a much more consumer centric view and completely revamp the thinking behind how content can be monetized.

  4. Brian Burdick says:

    Great post. Spending a lot of time in TV and online so I will provide a bit of a contrarian opinion as I believe it will take a good while for online video to replace linear TV and for some good reasons:

    1. Online Video still doesn’t have the best passive experience in my opinion. The lean-back push of programming that happens on TV still isn’t pervasive in online video. Where is the Online Video for the ‘Couch Potato’ in the living room that isn’t willing to be a ‘Couch Hunter’ looking for Content? Pandora -esque auto-generated play lists will certainly fill this void at some point. Program lineup creation for stations has value and “Channelers” (maybe like a blogger but for creating continuous streams of relevant video ala channels), etc that can create “channels” may stand to benefit in the revenue stream without having to actually create individual pieces of video.

    2. In my opinion, this will shift over generational and socio-economic lines with older and likely less affluent folks probably still watching the TV of today (linear broadcast) for some time into the future (maybe five years or more) because the already understand it and because of the length of time for the consumer TV upgrade cycle (maybe around five year upgrade cycle). I imagine most Boomers will not make the shift to online video consumed through a TV being their primary form of video consumption for a long, long time. The Boomers are the largest demographic group in the country by both wallet and population.

    3. Content owners have yet to figure out how to monetize the online video at the same rate as prime spot TV. This will make them hold out for putting things online except through cable MSO’s where the royalties are the same and behind the scenes it is actually TV working . This may be an inventor’s dilemma problem for them but I am guessing they (content owners) will hold onto those vacuum tubes for too long and the next generation of content creators will be more akin to bloggers as the current providers cannot bring themselves to cannibalize there revenues.

    4. In terms of targeting of linear TV there have been two problems. The first problem was that content wasn’t narrow enough and the second problem was that the measurement in terms of audience wasn’t detailed enough. In 1980 the average consumer had around 30 stations of cable, today the average consumer has around 550 stations. The Food Network has split into the Food Network and Cooking Network. What this means is that you can actually target niche audiences without a lot of waste and you can do it while the consumer is in the lean back experience of their living rooms for all of the impressions. It is true that DVR’s do impact this but the evidence from Nielsen and STB data we have indicates that time-shifted viewing is actually sub-10% of overall viewing. This is really the solution to the first problem. On the measurement front, Nielsen has been the main blocker there but set top box based alternatives are making much richer audience measurement possible. I believe we will see a lot about this with Kantar Direct View and other competing detailed STB based panels. This whole trend is enabling TV dollars to continue to provide value and compete against online video dollars.

    Online video will continue to grow over time but I think it will take a good long time to disintermediate linear television. What I will say is that I have seen controlled markets test of TV drive multiple thousands of percent in lift in sales across channels and over 5000% in sales to the web sales channel specifically. In all my time online I have never seen impact like that. Advertisers can’t measure it precisely yet – but TV can be extraordinarily effective.

  5. This definitely makes great sense!!!

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