For some time now every conversation we have between Faultline and someone that plans to offer online films, contains a key admission that ‘of course the way forward for online films is via advertising support,’ which is strange because every one of the online film services that were launched during 2006 was based on download to own, or paid rental or subscription. This week Movielink, the original online film store that charged per rental was bought by Blockbuster, but even here it seems obvious that this will end up as a free service, designed to drive down Blockbuster churn (see separate article).
While the internet has managed to suck up some $30 billion of advertising (ZenitOptimedia) annually to date, out of the global $400 billion advertising spend, if advertising becomes the sauce that drives video profitably onto the internet, that figure will eat into TV advertising, and grow just as aggressively going forwards.
PriceWaterhouseCoopers recently predicted that internet advertising will remain the fastest-growing projecting an 18.3% compound annual increase to $73 billion by 2011, a figure north of the US total TV advertising revenues, by some way.
For some time two facts have therefore felt strange to us, that the top 25 online video services which carry full featured films and TV series (so not YouTube) are all pay per view or subscription services, and virtually none of these services have given out data on just how many films have been downloaded.
It was back in January 2006 that Starz launched Vongo, and then at CES at least five more competing online film services were launched or promised by Google, Sony, Clear Channel, 4Flix and Blinkx. Amazon and Wal-Mart have since joined the rush, and Apple has slowly, stealthily, added more and more films to its iTunes service, DirecTV has promised a service for a while now, and BitTorrent has also joined the race to lead in paid or subscription films. In Europe British Telecom has launched such services, and so has Arvato and LoveFilm and NTL. To date none have been truly successful, and none have announced acceptance levels.
There are a number of reasons for this. The TV broadcasting industry was quietly undergoing a revolution in its thinking. It has always had an ad supported model, while films never have, so it began the process of lifting its broadcast business, lock stock and barrel, onto the internet, to avoid advertising shortfalls.
That process in turn has stimulated the creation of tools to make such a step easier, and key to this has been the ability to serve different advertising to each viewer, in the same way that advertising is dropped into existing web pages.
And with the arrival of both Joost and Babelgum, two P2P advertising supported online video services, we expected to see the shackles finally cast from online films and the emergence of an advertising supported film service. It still hasn’t happened.
Back in Feb 2006, when Google entered the online video fray, it mostly began to offer TV series’ online, but also tried to add films. The first deal we reported was when CBS first got involved with ‘catch up TV’ by offering its CSI on Google Video for $1.99. Later Google paid $1.65 billion to undermine all of its paid video efforts by buying YouTube. At that point, although illegal, it was possible to get much of what Google Video was selling, free on YouTube.
Given that Google is usually the first company to reach for advertising in order to pay for any internet service, it seems perfectly natural that it should put its efforts to take TV and films to the web under the auspices of advertising sales and to do so before most other web portals. This week it has done just that, by shuttering the payment side of Google Video, but will move to make the same content available ad-supported for free.
This is just a milestone that we can look back on in the shift towards creating a new online video world, just as early 2006 can be seen as the year of the video download that went wrong, a kind of false start for web video. Back at NAB the writing was on the wall when Adobe correctly analyzed all of this and began the ambitious roll out of a series of new technologies, centered on its new Media Player, that would enable this ad supported world.
The idea was to take all the Adobe multimedia tools such as Premiere, Director, Framemaker, Authorware, Creative Suite, Photoshop, Illustrator, Flash Media Server and a host of others, could be used to create content and then it could be deployed anywhere, including the web, complete with built in, flexible advertising models.
Adobe Media Player is about combining Flash Video in new ways with other Flash animations, into new business models. Instead of interrupting video on the web to show adverts, a video or static ad can be inserted to run OVER an existing piece of video, perhaps in a darkened corner not showing much of the action right at that second. Click on it and the video stream will stop and the viewer can watch the ad. Click back on the stream and it continues as if nothing had happened.
We come across companies that want to do this all the time in the experimental world of web video, especially as it becomes more obvious that ad supported video services will lead. Why write such a product yourself, why not use an off the shelf product, that is widely deployed.
And while companies like Adobe prepare for mass deployment and a global shift to the ad-supported business model, start ups will try to move swiftly to steal the idea and get in ahead of Adobe.
So this week when NBC, unhappy at waiting for the Adobe technology and also committed to use Microsoft data formats, decided to implement systems built by Israeli start up Hiro, we see yet another milestone flashing by (no pun intended) in the roadmap to an internet where video is as natural as html.
Hiro talks about its ‘Positive DRM,’ which is not really DRM at all, it is ad-supported video downloads which rival the Adobe technology and are ready to deploy now. What it does is embed ‘unremovable’ calls to remote servers to request adverts that are inserted at the time of play, just like in-game advertising. The adverts are irregularly spaced so that it is hard (but not impossible) for hackers to take them out and create a clean copy of the file. The service is initiated by the download of a Windows Media Player add-on, and it requires in its set up the filling in of a series of forms which ask about your interests. The consumer is told that they are going to be served ads and encouraged to select only things they are really interested in, to ensure they don’t get inappropriate (boring) adverts.
When the file plays, the adverts are called and spliced into the video on the fly and can be sold as addressable or targeted advertising, which cannot be fast forwarded. Hiro reckons that targeted advertising will allow higher charges for each advert delivered, and means that fewer ads need to be dropped into online video compared to TV to make services viable, with the result that anyone watching online will get a better experience than watching on TV.
The problem with this technology is that it works with a completed download, not a video stream, whereas Adobe can do either. Our point is that by NBC signing up for it, this is yet another clue to other broadcasters and eventually to movie owners, about where all of this is heading.
The major broadcast networks will take video onto the web, toolmakers like Adobe will facilitate this, and that will make it a ‘de facto’ clean business model, which will stimulate start up rivals and a strong, competitive eco system, and the events of this week merely endorse all of that.
NBC’s DotComedy.com will be the first to use the technology, as an experiment for other programs which it may add later.
Microsoft itself is almost forced to lookout for a way to integrate this type of technology into its AdCenter advertising system, and must also want to build this function, ready made, into its Media Player, adding the use of its new Silverlight Flash Video lookalike. One way might be to buy a company like Hiro and at some stage, very likely in the next 12 months, we’d bet money that Microsoft will build or more likely buy this kind of capability.
We already have the beginnings of products, like Apple TV, that are designed to get this online video to a TV, and as these proliferate, and the advertising model proves its robustness, the two approaches will come together and this time, unlike paid downloads, there will be takeoff.