Web TV / IPTV / DTV

YouTube users are the losers in the carve up between YouTube (Google) and Viacom. The NYT is one of many reporting the issue, but this says it well:

the judge’s order, which was made public late Wednesday, renewed concerns among privacy advocates that Internet companies like Google are collecting unprecedented amounts of private information that could be misused or could unexpectedly fall into the hands of third parties....

....Google’s lawyers asked their counterparts at Viacom to agree to allow Google to remove information from the data that could potentially be used to identify individuals.

The legal judgement is a red herring - this is the fundamental issue: there is no good reason for Google to collect the amount of user data it does, or retain it for as long as it does, in order to serve a YouTube video. By doing so it puts its own users at risk (not just from legal challenges but from all sorts of rogue behaviour), and thus if it is not yet Evil, it is far from being a Good Thing.

For a variety of reasons* I was unable to attend 2gether08, but I have been able to be a Virtual Participant so far via a number of channels:

Firstly, the Mogulus Web TV feed - even when I can't watch it as I'm on other tasks, I can listen in. A switchable TV/ Radio service

Secondly, the Summize service taking feed from Twitter picking up the hashtag #2gether08

Thirdly. my personal backchannel - via Twitter, email, Skype - there are friends of mine there and we are batting comments back and forth.

What has been quite interesting is the experience of being able to not just consume the streamed media, but to comment and chat online to some of the people there in real time by using Twitter etc - it's been like passing a comment to the person sitting next to you.

This afternoon and tomorrow morning I have leaving ceremonies at my kids' school to attend, somehow I think that will be a major challenge to listen to 2gether08 live - not because of the technology, mind you - more the expectations in the situation. But of course, the media has persistence so I can time shift it.



* Work etc

From the Times comes more ammunition for the view that we have held for some time, ie that making money from YouTube won't be easy, and the ROI is hard especially given (i) what Google paid and (ii) that there was no ability to claw it back with performance based earnouts:

Google has said that it is still unsure how to make money from YouTube, the enormously popular video-sharing website it owns, but hopes to be able to do so soon.

Eric Schmidt, the search giant's chief executive, said it "seemed obvious" that Google should be able to generate "significant amounts of money" from YouTube, on which hundreds of millions of videos are watched every day, but that as yet it hadn't figured out how to go about it

Unlike much of the rest of Google's operations (and unlike many other Web 2.0 companies), YouTube has to ship a lot of bandwidth, and that costs real money. A Google search costs pennies, but a Youtube video serve probably costs not much shy of dollars (if not more), and there are 130 million odd per month. Adsense rates of recovery just won't cover that sort of cost per user, they are going to have to get CPM levels from a YouTube play.

Google has very deep pockets, so its not a financial problem, but every month that YouTube succeeds in growing increases the drain on the Googlepockets.

Ah, the penalties of FreeConomics - it eventually bites the *rse of the hand that feeds

Update - interesting take here by Mark Cuban on how services such as Hulu hitch a free ride on YouTube.

There is an article on TechCrunch today asking if YouTube is building market dominance or building a business. The essential argument comes from 2 conflicting datasets:

(i) YouTube is apparently 37% of all video watched, says Comscore
(ii) Youtube, with c $200m revenues, is only 15% of e-Marketers estimated $1.35bn Web TV ad market

In other words they are apparently only getting 40% the revenue per TV unit output than their legion of tiny competitors. How can this be, TechCrunch asks.

This gap could mean one of two things. Either YouTube is unable to make money from a large portion of its user-generated video inventory (advertisers want to stick to the home page and the safety of their own channels). Or YouTube just hasn’t turned on the money-gushing hose yet.

Actually, they are doing both - by building market dominance they are building a business.

Leaving aside the dubiousness of any forecast in this market (I'd happily divide e-Marketers numbers by 25%, after all they will in 6 months or so anyway ), or any assertions that YouTube is less sharp at extracting Ad revenue than competitors, I can't see why this is so surprising. Any model ever built of network economics shows that (i) if you can first achieve market dominance, you rule and (ii) Free is a great business model to achieve dominance, especially if it can be subsidised by very deep pockets - and with the exception of Microsoft, there is no one on the planet in the space who Google cannot outspend to subsidise this. No one VC backed outfit can come close.

Thus YouTube is highly probably using good old Freeconomics, funded by Google (see our paper here for a detailed look at FreeConomics) to give away more than the rest of the competition and go for market dominance. Once they get to Google levels of dominance I'm sure they will find that monetisation follows, strangely enough.

Opponents may cry foul, after all this is not that different to how Microsoft beat Netscape (but they haven't cried foul yet), ie by cross subsidy, but its realbusiness so unless a regulatory hand enters its unlikely to stop.

Whether its a good investment of $1.65bn by Google - ie whether its profitable to dominate the sector - is another matter entirely, the jury is still out there (literally with the lawsuit games ), but at Google's size its not a very expensive option to play.

Now that eBay has admitted they were a tad optimistic on Skype valuation, its clear Google feels it too can talk a bit about YouTube: From Nic Brisbourne:

I’ve been hearing rumours to this effect for a while now, but yesterday Eric Schmidt confirmed that YouTube isn’t exactly throwing off oodles of cash. Reported here on News.com and here on Sillicon Alley Insider.

I wish this were not the case for two reasons.

Firstly, everyone with an interest in the startup ecosystem wants to see more top-dollar transactions like the Google acquisition of YouTube and that will only happen if a decent proportion of the ones that have happened to date are deemed successes. Following ebay’s Skype writedown it has become even more critical that Google finds a way to make YouTube work

(At this rate we predict AOL will be in the confessional by Xmas 2009)

At the time we wondered if Google had considered the "DiY" business case rather than a highly priced acquisition - here was our deeply analytical approach which we did a bit later:

Broadstuff Biz Case (expurgated version*)

Cost of Service build - $1m
Cost of Operation before breakeven - $100m
Cost of "persuading" critical mass of YouTube UGC videos onto new service = $5 / video x 50 million clips = $ 250m (added to their content)

And if breakeven took longer than $100m, that's still a lot of headroom before picking up the tab for YouTube.

Bargain

Now we know that the deal was "strategic", but once done it has to make sense economically too (thats the rub with those strategic deals) and if they are turkeys, no amount of extra runway will help. Especially if the initial acquisition price is way, way too high - it changes from a Turkey on the runway to an Albatross round the neck.

In this specific case, Google is far too large to be on a wing and a prayer if YouTube can't fly, as Nic says the issue more that it has an impact on the valuation of the whole "Web TV" market development. And that issue now is how to find a way to make money in a world where there is so much video inventory looking for advertising that average CPM's will possibly fall to less than the fully loaded cost of transmitting the video in the first place.

This is brilliant!



Tip of wing to Media Influencer for pointer to it. Wait for the Q&A.....

Article in the NYT about how US TV viewing habits are shifting:

When the fourth season of “The Office,” an NBC comedy, had its premiere in September, one in five viewings was on a computer screen instead of a television. The episode attracted a broadcast audience of 9.7 million people, according to Nielsen Media Research. It was also streamed from the Web 2.7 million times in one week, the executive producer, Greg Daniels, said.

The TV Times, thay are a-changing......

A study in October by Nielsen Media Research found that one in four Internet users had streamed full-length television episodes online in the last three months, including 39 percent of people ages 18 to 34 and, more surprisingly, 23 percent of those 35 to 54.

“I think what we’re seeing right now is a great cultural shift of how this country watches television,” said Seth MacFarlane, the creator of “Family Guy,” a Fox animated comedy that ranks among the most popular online shows. “Forty years ago, new technology changed what people watched on TV as it migrated to color. Now new technology is changing where people watch TV, literally omitting the actual television set.”

This is not exactly unexpected if you were watching what people do - but many companies were not. I recall being at IBC 2 years ago when the world was trying to pimp Web TV via the STB/IPTV framework. When we opined that TV on the PC was the real gig - and in fact TV through the PC was an endgame - we were told by many "experts" and "analysts" we were nuts, the PC would Nevah be in the living room. (In fact we built our MyPCTV rig then just to prove them all wrong after that!). 18 months later and "everyone" knows this is the New Way.

However, the old adage of "following the money seems to be road to nowhere.......

Although people are watching their shows, the networks are loath to release data about how many people are watching TV shows online and how often. The reason? Possibly because Internet viewers are worth only a fraction of the advertising dollars of television viewers.

“The four and a half billion we make on broadcast is never going to equate to four and a half billion online,” said Quincy Smith, the president of CBS Interactive.

Which in itself begs an interesting question - why am I worth less if I watch a show on my PC rather than on my TV? Doesn't make sense, so clearly there is a big arbitrage - and thus opportunity - for people who can match the value of my PC minute to my TV minute.

Rory Cellan-Jones over at the BBC has an interview with Niklas Zennstrom about Joost.

Last year Joost raised $45 million from investors - after initial funding from Zennstrom and his Skype co-founder Janus Friis - to launch a platform enabling TV firms to put their content in front of a global audience. There was a lot of hype and hope about this advertising-supported platform which was going to be the big winner from the internet television revolution, just as Skype had made internet telephony take off.

But when I interviewed Niklas Zennstrom at a networking event in London this week, he conceded that Joost was going to take a lot longer to reach a big audience than Skype, partly because of the need to reach complex deals with media owners. And when I asked when he expected to turn a profit, he made it clear that was so far off it wasn't worth talking about now....

....Zennstrom insists that Joost does not need blockbuster programming, like the Premier League football on which BskyB built its business. He believes this global platform can prosper by serving viewers with all sorts of special interests, from fly-fishing enthusiasts to gadget fans. What's not clear to me is why a large audience will go to the bother of installing software without the lure of something they can't get anywhere else.

2007 was supposed to be the year that internet television took off, with the launch of a whole clutch of services with wacky names and big ambitions. But two things have happened - the viewers have been slower to take to online TV than expected, and the big established broadcasters have launched their own platforms, keen to avoid the mistakes of the music industry which handed the digital initiative to Apple's iTunes service.

Three things have stopped Joost so far according to our analysis:

(i) Their proposition has not got a good enough - or at least differentiated - proposition (or content) to drive switching behaviour, whereas Skype had an immediate benefit (Free)

(ii) There are a lot of new entrants by major playesr (eg iPlayer) - if anything, the "Skype" plays in Web TV are the newly emerging pure PC-TV plays.

(iii) The good enoughs are still good enough

For Joost to improve its fortunes, Content is always king - but UGC/ProAm is probably a better play than More TV We Can See Already.

...Following on from the previous post of blogger Kathy Sierra on video, here's Umair Haque on video on how the new economy is more about a conversation with users and between users.

Whats interesting to me is not the discussion per se (its about the impact of reducing transaction costs changing the role of branding*), but the fact that its being done as Web TV rather than a blog post.

And its only 1min 37 seconds, though it looks like its been cut off?.

Video material will increase hugely over 2008, the issue emerging that Videoblogging will have to grapple with is how the story is told, and how long it should take to tell it - the "signal to noise-time" ratio.

Anyone who has watched unscripted Seesmic stuff will know how dire free-form video can be...but unlike a crap blog post, or a banal Twittter post, it goes on for a long time, trying to grab a large piece of your attention....and I don't think this medium sustains that

For example, I didn't watch either as videos, but played them as audio while doing something else - because I can.

* resonates with VRM thinking as well, in that with the information/conversation capability today "branding" - and thus advertising - is less useful to the consumer/user.

W(h)ither Joost...the high profile resignation/sacking/whatever of their CTO is the tip of a "rats leaving the ship" rumourmill thats been going for a few months now, and now some are questioning whether its being sucked into the deadpool (we have no clue of the reliability of said rumours), whereas other are throwing out lifelines

And yet, and yet.....2008 is supposed to be the Year of Video, Seesmic has been launched amidst similar raptures that Joost was (about a year ago...), and others have rolled out in Qik succession. Some, like Wallstrip, have even been sold. So who is wrong, who is right?

Well, here is a bit of high level analysis, this is what we think is happening as the new video services all march in 2x2.



It's slightly tongue in cheek, but there is some method behind the mirth. Defining the 4 areas:

Low Production Values
At its lowest level its stream-of-consciousness waffle, badly recorded on low budget devices with no postproduction editing. Yes, I'm talking about some of the "videoblogging" we see. The other "low production value" angle is content with zero differentiation, ie stuff you can see in a hundred other placesIn essence the effort to produce is extremely low. Problem is, the effort to receive cr*p is actually quite high. We know that if people find the content compelling, they will put up with poor production values...but the content has to be sufficiently compelling to a large enough user base.

High Production Values
At its best its thoughtful scripting, original content, high quality capture and editing, high resolution, widescreen - you can play it on your TV comfortably. the sort of approach i-Ball has used, for example.

Low Cost of Operation
Lowest cost option is automated capture and editing of user generated content, hosted at the lowest possible service levels and at such a low resolution that you can stream it over baseband easily. Oh, and low volumes to minimise traffic costs.

High Cost of Operation
Carefully (ie costly) management of ingestion and editing, a set top box subsidy, high transport costs from big volumes and large bandwidth files, big marketing /PR expenses, sales machines etc etc all contribute to high operating costs.

So, putting these together into the 2x2 allows us to conclude that:

High Value, Low Cost businesses will make out like bandits.. Cost reduction is possible via the "free ride" over the web (ie no STB subsidy), few-to-many downloading rather than video conversations (get the users to pay for bandwidth as much as possible)

High Value, High Cost businesses are "in interesting times" as they will most likely have a high burn rate from Day 1, whereas the revenue will come later. You need deep pockets and strong stomachs - or a strategic rationale - to take this path. Their main challenge is to justify why their STB subs / Ad CPM are higher than similar quality, lower cost plays.

Low Value, Low Cost businesses have Subsistence Economics - if they can get very compelling content (niche stuff, maybe porn) and keep operating costs low via viral marketing, low bandwidth streams, minimal chatter in the system, and attract sufficient low rent Ad revenue (I doubt much of this will be subscription) or have an offset model (the moolah is made elsewhere, maybe sell-through of DVDs etc) then it can work

Low Value, High Cost - the deadpool. In essence, if they cannot justify an incremental value on the service to attract more / higher value Ads or subscriptions over low cost operators, or the model has intrinsically higher infrastructure and / or customer capture costs, they will fail.

So, where are Joost, Babelgum, Seesmic, Qik, Wallstrip, iBall, YouTube, the various IPTV plays etc on this. We leave it to you to place them relative to each other on the matrix, (or pay us some money to do it for you, or buy the report* when its out - but here are a few calibration points:

(i) You can get a lot of TV repeats for near-free
(ii) You can get a lot of UGC for free, and some of it is quite high quality
(iii) In general, any service where the producer lowers their costs by forcing the consumer to raise theirs is at a strategic disadvantage. Piracy is a real world model.

It's also worth noting that as well as competing with each other, these services are competing with text, image and audio based media which do have lower infrastructure costs, so it is worth thinking through whether they do a better job vs the nearest alternative "lower bandwidth" competitors - which incidentally tend to have more people attached to them. (Seesmic v Twitter, Joost v BBC, Wallstrip v CNN etc)

*erm...we haven't finished it yet. End Feb - promise.