Online video P&L watch

beyondnessofthings will update this post as figures emerge. Meanwhile some companion reading at Silicon Valley Insider:

Economics of Online Video 1: One Tough Business

Economics of Online Video 2: Unit Cost Structure

Estimating Financial Impact of iTunes/NBC: Small, For Now, But We Still Expect Reconciliation

NBC Universal / iTunes: NBCU may have pulled its shows off iTunes, but last year’s profits, representing 40% of all TV content on iTunes, were US $15 million , 3 Dec 07″>Multichannel News, 3 Dec 07]

Walt Disney: The Mouse expects to generate around US $25 million in revenues from digital downloads in the fiscal year to Sep 2007

Hulu: thin on content, high on usability

Online Video Watch gives its verdict on the Hulu private beta over in this post. The service scores highly for ease-of-use and discoverability of content, but poorly for the extent of the content offer itself.

However, that may be about to change, says the Hollywood Reporter, revealing that Warner Brothers Television is in discussions with Hulu, which will likely see a selection of its catalogue added alongside that from Sony and MGM, as well as Hulu co-founders NewsCorp. (Fox) and NBC Universal.

In related news, paidContent offers a pretty blunt assessment of NBCDirect.com, a new TV downloads service which offers content for seven days from broadcast and viewing for 48 hours once first played.

Hulu bows today

One of the most eagerly-anticipated online video launches Hulu, the tie-up between NBC Universal and NewsCorp., launches in private beta later today, following a week of preview access for journalists and analysts.

The service rolls out with most of the trailed features, reports Variety, including the ability for users to share entire shows or just clips of them with eachother.

Hulu has also inked a deal with Sony Pictures Television for 40 TV series, and Metro-Goldwyn-Mayer Studios for an undisclosed number of series and movies.

All featured series will run with two minutes of commercials per hour, in the form of unskippable 15 and 30-second spots.

TV nets face up to growing online competition

Variety reports on the latest online video forecasts produced by market analysts Screen Digest: the U.K. market for online TV will be worth £181 million (US $362 million) by 2011, but growth of the online movies segment is predicted to be slower.

There’s no doubting that across the Pond, the competitive environment is really gaining traction, as observed by the Financial Times: in the two years since that watershed moment when iTunes first started offering download-to-own TV shows from Disney, all of the major networks have scrambled to not only beef up their own sites, but also to broker those all-important third party syndication deals.

In the last week alone, Walt Disney-owned ABC has agreed a deal to syndicate its shows, for free, via AOL. The net joins CBS, which has been aggressively pursuing its own syndication strategy for the past few months, while Hulu.com, the online video aggregator site JV between NBC Universal and NewsCorp. is due to bow next month.

Hopping back over the Pond to the U.K., the BBC, ITV, Channel Four and five all have online catch-up TV services: the BBC offers the broadest range and volume of hours, while ITV and Channel Four are increasingly bolstering their catch-up offers with back catalogue shows. Satellite broadcaster BSkyB is broadening its Anytime service, with different flavours of the catch-up service available both via broadband and Sky+ DVRs; the company’s recent pact with Sony will also see an extension of the service for Playstation PSPs.

The Screen Digest research referenced at the top of this post acknowledges that established players such as TV networks also face competition from non-traditional market entrants, such as Joost and iTunes. Significantly, it may be players such as Apple and Microsoft, which stand to gain the most if they can finesse their strategies to leverage consumer relationships through ownership of devices, such as iPods, or the world’s most uniquitous operating system.

Four predictions of my own:

1. The last year or so has merely been about positioning and trying to establish which online video offers work, and which don’t. Note CBS is moving beyond merely offering full-length TV shows online and gradually ramping up 2.0 functionality: conversational content. 2008 will see the space grow up considerably. 
2. Whether it’s aggregators or TV networks’ own sites, online video offers are principally restricted to ‘walled gardens’ of content, usually from the operating network or a select few content partners. This is wholly alien to the TV viewing experience: consumers don’t watch shows from a single network or producer. The walled garden approach smacks of protectionism and, over the fuller term, it won’t last for all but the smallest handful of players. The creation of Hulu.com is the first acknowledgement by two major players that hybrid partnerships such as thes, which broaden out the available content offer, are the way to go. YouTube is further evidence of a successful broad-brush aggregation model – albeit with some copyright complications.
3. The market is already overcrowded: come further shocks to the world’s stock markets (an inevitability), watch the venture capital evaporate. Incumbent players looking to second or third round financing, against a backdrop of unproven business models (let alone profit) will shutter or consolidate. Viacom had better be hoping that it can pick up the assets of Joost for a song.
4. Apple TV and Microsoft Media Center are the first two examples of mainstream PC/TV convergence: but neither has yet created a compelling enough content offer nor low enough price points to give the products a reasonable run at setting the market alight, beyond early adopters. Next gen games consoles from Sony and Microsoft will up the ante by gradually bolstering their IP-delivered VOD offers, but even these may struggle to break through beyond gaming loyalists. Either some boffin will come up with the cheapest and most elegant plug-and-play convergence-enabler – witness what Freeview set-tops did for the U.K. market – or new product categories, such as networked DVD player / recorders or DVRs will hit that magic tipping point of attractive pricing and mainline retail distribution.

NewsCorp.: TV shows to stay on iTunes

Following last month’s decision by NBC Universal to end supplying iTunes with download-to-own TV shows, speculation had grown over the future of other contracts coming up for renewal.

NewsCorp. prez Peter Chernin yesterday confirmed that the company has no plans to take its shows off iTunes, but has called on Apple to be more flexible about its approach to pricing.

“Right now we have a perfectly good relationship with Apple,” Chernin told Reuters. “But let me say this, we’re the ones who should determine what the fair price for our product is, not Apple.”

Apple to halve cost of iTunes TV downloads; supplier rebellion brewing?

Apple is planning to cut the cost of TV downloads via its iTunes service from US $1.99 to just 99 cents, reports Variety.

The move would create a single price point for both audio and TV downloads, which Apple believes will drive consumption for the latter category, which remains completely dwarfed by equivalent music track downloads. Given Apple’s success in dominating the digital downloads sector, any changes to pricing could prove an adrenalin shot to sales of TV downloads.

It’s reported that pricing for movie downloads will likely remain unchanged and there hasn’t been any comment on price points for the recently-launched TV downloads offer via the iTunes U.K storefront, where shows sell for double the existing equivalent price across the Pond.

Reuters builds on Variety’s coverage, suggesting that other TV networks may be emboldened by NBCU’s move, with a Gartner analyst even speculating that video content may all but disappear from the iTunes service.

News Corp., Time Warner, Viacom and Walt Disney Co. all have contracts with iTunes. One of them is due to expire by the end of this year, and another by next year, according to industry sources, the report adds.

In related news, Apple and partner record labels are to go before the European Commission on 19 and 20 September, to defend accusations of price-fixing across the Eurozone.

A week in online TV & video: wrap-up

U.K. indie producer and Guardian columnist Anthony Lilley provides an excellent contextual wrap-up of the week’s key developments in the online video space, including:

• The arrival of iTunes video downloads in the UK;
• NBCU’s non-renewal of its video deal with iTunes;
• South Park creators Trey Parker and Matt Stone’s online syndication deal with Viacom — a watershed moment for the producers of the most sought after content;
• Google’s deal with music collecting societies the MCPS and PRS.

NBCU blows out iTunes TV downloads deal

NBC Universal, the biggest supplier of TV shows to iTunes, will not be renewing its two-year deal offering downloads via Apple’s digital entertainment storefront when it comes to an end in December, The New York Times reports. In a tit-for-tat response, Apple then announced that it would cease offering NBC TV shows from September.

While both companies declined to discuss the exact reasons behind the decision, it’s believed that NBCU had grown increasingly uncomfortable with Apple’s rigid pricing model, which offers just two price points for download-to-own video titles: US $1.99 for TV shows and $9.99 for movies.

NBCU’s 1,500-hour catalogue accounts for as much as 40% of TV show downloads via iTunes, including titles such as The Office and Heroes which play particularly well to online audiences.

Proving that Apple is mostly expert when it comes to managing ‘bad’ news (something TiVo also excels at), its revelation that a new generation iPod is on the way more than offset the blow, sending its shares up 6% on a day’s trading.

In related news, NBC Digital Entertainment yesterday announced that it will stream free episodes of Late Night With Conan O’Brien, when the series returns for its new season on 13 September.

Newsite has a name

Newsite, the ‘YouTube killer’ online video JV between NewsCorp. and NBC Universal has taken the wraps off its official name: Hulu.com.

A holding page has gone live, trailing a by-invitation beta launch in October (anyone can sign up, when the account gets activated will presumably be determined by capacity).

“We just wanted a name that is short and easy to spell. We like the idea that it rhymes with itself. We wanted a fun name. It captures the spirit of what the team and the service is like,” Hulu spokeswoman Christina Lee told Reuters. “It doesn’t have a definition in the dictionary.”

With a name like that it’s clear that the site is going after a younger-skewing demographic, concurring with these findings from advertising.com that the largest market for online catch-up TV is 18 to 34s.

‘YouTube killer’ gets cash injection

Ramping up to the mooted autumn launch of NBC Universal / NewsCorp. online video joint-venture codenamed ‘Newsite’, the companies yesterday disclosed that they have swapped 10% of equity for the venture in return for US $100 million from Providence Equity Partners. The deal values the new service at $1 billion and, say paidContent, is the strongest hint yet that the partners may be looking to float the company.

What’s holding online video advertising back?

Wave, after wave, after wave of research suggesting that consumers (especially younger ones) are spending more time watching video online; tet the ad $ have been slow to move in. Why?

Take Procter & Gamble – the biggest advertiser in the world – which over recent years has accelerated the amount of spend away from traditional media and towards online. What aren’t the rest getting?

Well there’s the small problem of measurement, for starters: Nielsen/NetRatings may have made a bold announcement about standardisation, yet implementation is still some way off.

Meanwhile, eMarketer claims 2007 is the year where ad spend on online video will rise by 89% . What are we waiting for?

In a word (or several): the big trucks rolling into town.

It’s unlikely the effects of new launches from the NBC Universal / NewsCorp. ‘newsite’ launch, Comast’s major web drive, Joost out of beta and the BBC’s non-public service iPlayer launches will be fully felt at least until next year. Which is why next year the figures for ad spend suddenly start to leap. Advertisers need proof-of-concept, not stuff for shareholders.

Then there’s honing understanding of the type and duration of advertising which will work with online users.

The same eMarketer study, suggests existing approaches remain fragmented and confusing. The one thing that’s overwhelmingly clear, the ad-funded model is here with us for good, as only a tiny minority of users are prepared to pay for online video:

More granularity still when it comes to exploring consumer attitudes towards the context of accompanying ads:

And then re-posing questions concerning ad durations:

More online TV premieres

US cable network Lifetime has partnered with Yahoo! TV to show full episodes of its new dramas A Side Order of Life and State of Mind prior to their boradcast airing. It’s an expansion of Lifetime’s earlier deals with Yahoo! TV, which saw sneak previews of Army Wives offered via the portal.

Other US nets which have experimented with online premieres include CBS, which streamed Jericho on Yahoo! and NBC, which offered Studio Sixty on the Sunset Strip via AOL.

Deal watch: Lionsgate buys in to Break.com

Lionsgate has taken a stake of $21 million (= 42% of equity) in blokey-targeted video aggregator Break.com, reports Bloomberg.

Break.com attracts around 1.3 million daily unique users, each consuming around 12 videos per day. The company already has content deals with NBC Universal, Endemol USA and Twisted Pictures.

Web metrics just got a little more serious

No more handbags between comScore Nielsen/NetRatings when it comes to online measurement, at least as far as the US Interactive Advertising Bureau is concerned. Why? You can’t realistically monetise it until metrics are standardised.

As an indication of how complex the whole area can be, here are some of the different metrics being applied by the US networks, when it comes to the performance of online video properties (full report available from TV Week here, assuming it doesn’t become premium content after 24 hours):

“Turner Broadcasting last week said it intends to report how many episodes of its TNT and TBS series are watched online, rather than how many streams, or segments, of a show get played.

Last month, NBC spurred networks to re-examine how they count Web viewers when it announced it had delivered more than 300 million streams of video on NBC.com since last October.”

“The industry would benefit from standardization in terms of reporting because it’s harder to move forward when there is confusion,” pithily put by Tracey Scheppach, senior VP and video innovation director at media-buying agency Starcom USA [which represents clients advertising on at least four of the major network online offers].

So the piece continues: “If you report streams, you end up being able to game the system, meaning I can create gains or losses at will, simply by cutting a show into more pieces,” said Jack Wakshlag, chief research officer for Turner Broadcasting.

That’s why Turner has decided to switch from reporting streams to episodes. Earlier this year, Turner reported TBS’ “My Boys” had delivered 2.7 million streams online. But each episode was broken into three streams, providing an unclear picture of how many episodes consumers were watching. [Echoes of MSN's Live Earth stats to date, anyone?]

“I want to give more information rather than less, and at least give information they can compare to other networks or to episodes on our Web sites,” Mr. Wakshlag said.

The lack of standards so far is keeping the Web from fulfilling its potential as a medium that lets advertisers know exactly who is seeing their commercials — and acting on them.

Quite, hmmm…

ABC reports episode starts, while NBC reports streams. Fox releases aggregated streaming figures for Fox Interactive Media, which includes Fox’s full-length episodes and MySpace videos as well. CBS doesn’t release data on consumption of its online video.

NBC prefers to report streams to give a sense of the volume of people clicking in to its sites, said Vivi Zigler, executive VP of NBC Digital Entertainment and New Media… ABC initially reported streams viewed of its full-length episodes on ABC.com last summer and then quickly switched to include counts of episodes and streams. Since last fall, ABC.com has delivered more than 120 million episode starts and more than 500 million streams.

“When we first did streams it was just a mad rush to figure out what the data was,” said Albert Cheng, executive VP of digital media with the Disney-ABC Television Group. “But streams are segments of a video. So we decided it’s probably a lot more accurate to call it episode starts.”

Roll on standardisation…

The cost of online video-on-demand

4oD: not explicitly reported, but new media division – spanning other activity too – spent £34.6 million, up £11.5m on 2005. (Source: C4’s 2006 annual report).

60frames: the JV between Hollywood power brokers United Talent Agency and online ad agency Spot Runner. Start-up capital of US $3.5 million. (Source: Globe & Mail, 31 Jul 07)

Babelgum: €220 million [US$288m] (source: C21 Media [by subscription], 19 April 2007). Other sources suggest seed capital of €10 million [£6.78 million] from founder Silvio Scaglia, with a further €70 million pledged during the next three years.

BBC iPlayer: £4.5 million (source: The Sunday Herald [UK], 2 December 2007). Funded by licence fee.

BitTorrent: backed by US $20 million from  Accel Parners and DCM.

Break.com: Lionsgate has invested US $21million for a 42% stake.

Brightcove: US $81 million so far… Launched 2005 with $5.5 million funding from General Catalyst Partners and Accel Partners (source: company press release, 1 March 2005). Raised a further $16 million the same year, attracting investment from AOL, IAC/InterActiveCorp, The Hearst Corporation, and Allen & Company LLC (source: company press release, 22 November 2005). A further $59.5 million was sunk by a syndicate led by AllianceBernstein L.P., Brookside Capital LLC, Maverick Capital, Ltd.; the funding round also included investments from The New York Times Company, Transcosmos Investments & Business Development, Inc., as well as all of the company’s existing strategic and financial investors: Accel Partners, Allen & Company LLC, AOL, General Catalyst Partners, The Hearst Corporation, and IAC/InterActiveCorp. (Source: company press release, 17 January 2007).

Bud.tv: backed by parent company Anheuser-Busch to the tune of US $30 to 40 million.

Dave.tv: Provider of video distribution and social networking platforms to content providers, founded in 2003. The company is currently backed by angel investors, including Applied Semantics co-founder Rex Wong, who is believed to have sunk at least half of the company’s initial $7 million funding (source: MarketWatch, 1 Aug 2006). Potential investors take note: the company’s site says ”We are in the midst of seeking strategic or venture capital to facilitate our growth.”

ITV Broadband: £20 million (source: Digital Spy, 8 June 2007).

Hulu.com: NBC Universal / NewsCorp.’s JV, originally dubbed ’Newco’: US $131 million (source: LA Times, 29 June 2007).

Joost: seed capital of US $45 million (source: Wikipedia, 29 June 2007). Backers include Sequioa Capital, Index Ventures – an early investor in Skype – CBS, the US media group, and Li Ka-Shing, the Hong Kong tycoon. Viacom, the US media giant, also has a minority stake.

Vmix: seed capital of US $5 million in 2005 (source: Marketwatch, 1 Aug 2006), plus further funding of $16.5 million in October 2007 (source: Vmix press release, 31 Oct 2007). Founded by former execs from Universal Music Group, Fox Studios, Apple and mp3.com. JK&B Capital and ATA Ventures joined existing investors Mission Ventures and Enterprise Partners in the latest funding round.

Vudu: founded 2004, launching summer 2007. Backed by US $21 million from Benchmark Capital and Greylock Partners.

Vuze: backed by US $13.5 million raised from Redpoint Ventures, BV Capital, Greycroft Partners.

Update 17 Dec 07

Recommended reading: Media and entertainment freelance writer Daisy Whitney has produced this excellent summary of going rates for online video advertising rates on some of the best-known sites.

Online video: nota bene

The-still-to-be-named online video tie-up between NBC Universal and NewsCorp has hired former Amazon exec Jason Kilar to head up the new venture, slated for launch this September, or possibly later still. According to the LA Times, TV industry heavy-hitters weren’t interested in the role, “in part because of Hollywood’s pockmarked history with partnerships and the inherent difficulty of keeping the interests of the two giant media owners aligned.” Kilar’s 10 years at Amazon saw him forge strong relationships with the studios and beef up the e-tailer’s bottom line for physical (DVD) and online sales of TV and movie product. He also moved on to take overal responsibility for “facets of the online customer experience”, with a direct reporting line in to Amazon CEO Jeff Bezos.

Who’d sniff at a job which links two of the US’s biggest content owners, and sews up up 90% of online distribution? Good luck, Jason.