When a brand springs up on the internet it tends to have a life of its own. Yahoo was always a useful site but it retains its prominence mostly because it was the first to build a brand on the internet. Google is perhaps the exception to the rule, which reads that ‘he who offers a service first’ will remain dominant on the internet.
Today a new web phenomenon like YouTube can be created by word of mouth and by incidental use of the exiting global internet powers Google, AOL, MSN, MySpace and Yahoo. The question we must ask this week is whether or not such a web phenomenon can also denied, destroyed or diluted by those same internet powers.
NBC Universal and News Corp this week claim that by merging their content and partnering with AOL, MSN, MySpace and Yahoo, in short everyone big except Google and its newest progeny YouTube, they can build a rival to both YouTube and iTunes using the free to internet, advertising based model.
What they can definitely do is retain a route to market for their broadcast products even if they are effectively withdrawn from YouTube when it finally implements copyright filtering software effectively.
They key, as usual are the advertisers, and by lining up commitments from Cadbury, Cisco, Esurance, Intel and General Motors they at least have some financial backing. But like all new internet services, what these advertisers are signing up for is a rate per 1,000 impressions or clicks and an upper limit of spend, in case the service is massively popular.
Failure to get attract viewers to these video properties, or failure to build a service which is compelling enough to retain viewers for multiple and habitual visits, will mean a low number of hits and not enough money to sustain the service.
Video services operated and managed by third parties are split pretty roughly 40% of revenue to the content owners, 30% for content delivery and bandwidth, and 30% for the service operator and its marketing, which includes traffic generation, and profit.
That formula of course cannot exist in this climate. The content owners ARE the operators, and they are partnering with traffic owners and they themselves already have traffic. MySpace has oceans of visitors, but it cannot attract people to watch a video service made up entirely of News Corp’s Fox content or 20th Century Fox films. It needs to offer some of the spoils to other broadcasters, and in order to get NBC interested, with the financial might of GE behind it, it has had to give up some ownership in the new site.
But deep down it would always prefer that visits from Myspace view Fox video on MySpace and that none of the money leaks to this new site.
The same might be true of its online partner AOL. It has great video assets and is part of Time Warner, so why wouldn’t it favor these? And at some level of recommendation and linking prominence, it surely will.
Next is the issue of pricing. Content owners and broadcasters (amount to the same thing) are caught in that permanent bind that they feel they cannot let content out onto the market for less then the price of DVDs or they risk upsetting their major retail partners, any one of which can knock a huge hole in their DVD shipments for a quarter, whether it be Wal-Mart, Amazon or Best Buy.
When they are dealing with a third party, and Amazon here is a case in point, they have the convenient lie of saying ‘We have no control over whether our online retailers sell a product as a loss leader,’ justifying those cheaper prices, which in turn satisfies their retailers. But when they are offering the product themselves, they are wide open to criticisms of favored pricing and undermining their retailers. Now this is mostly okay with TV series because they don’t have the kind of DVD revenue that a major motion picture has. Or do they? This revenue stream is the fastest growing DVD revenue stream. In fact TV series DVD sales may be the ONLY growing revenue stream left in DVD sales.
But remember the price these online programs will be offered for is zero. So this is just a copy of the same business model as broadcasting, which is advertising supported. Here a lower price actually means less advertising per 1,000 impressions. Or adverts shown less frequently. Exactly how do you explain to a VP of Wal-Mar that his DVD revenues for a TV series won’t go down because you plan to saturate these TV properties with a huge number of adverts. Does he care? Will he believe that advertising will discourage viewers and therefore keep his DVD sales higher. Are the broadcasters really uncovering an entirely new viewer, someone that would never had paid for the DVD, but who still wants to watch a program and who either can’t be bothered to set his or her DVR or isn’t home the night ’24’ is on.
The way the studios PLAN to get around this is not to allow the FULL series to be shown. Single selected episodes will be available, and some clips, but not the full series, for which you have to buy the DVD. That also is going to be a negative attraction to viewers and is another example of allowing an internet strategy to be dictated to be ‘old’ routes of distribution. What they need to do is say to hell with the retailers, and put the whole series up as a VoD service and simply ensure they get as much in advertising revenue for an online sale as they do for a DVD purchase.
And anyway the promise of some of the top film products from these companies are also part and parcel of traffic attraction. NBC and News Corp plan to offer what they call ‘fan favorite’ films like Borat, Little Miss Sunshine, Devil Wears Prada, The Bourne Identity and Bourne Supremacy. That will certainly dent the DVD sales of those favorites.
But even if the retailers are happy, the new service has the issue of using conventional content delivery, and almost certainly this content plays to the type of operations such as Akamai or LimeLight Networks.
Meanwhile companies like Joost and BabelGum will be offering P2P delivered TV services, some of it licensed from the same content companies, with virtually zero delivery cost and with no obligation to protect existing DVD sales or other revenues. Also these might not be licensed purely for the US. The P2P move alone will give them a 30% plus potential for price reduction, and since they are both planning to offer advertising supported services, this means they will be able to charge less for the advertising or show far less of it (Joost has suggested 1 minute per hour) and therefore drive far high traffic for the service.
As we understand it the library of content can be viewed at any time through a specially built viewer, but is never stored on the disk of the PC it is downloading to. Instead it will stream, which is a good way of enforcing advertising views, especially if fast forwarding of the buffer is disabled on the player. It is also planned to introduce YouTube style consumer generated video, and to open the service to other networks. Specifically the networks want to simply re-create YouTube and kill the original.
This service will be unattractive and it will fail in its main purpose, that of knocking YouTube off its perch. Instead it will create a two headed monster, a service which is neither fish nor foul, not quite good enough content, trying to be a user generated site with licensed material, trying not to upset anyone in the exiting exploitation chain and targeting primarily the piracy that these companies see within YouTube.
Neither Sony nor Disney, nor its ABC broadcaster are likely to be interested in joining this game, Disney having gone down the iTunes route and Sony having the multiple thrusts of having purchased its own end user video site in Grouper, and preparing shortly to launch film download services to the PS3.
In the end this is the Movielink of the TV broadcasters, and it will roll along eating money and failing until it gets acquired by one of the new online video players that are emerging with a slightly more promising business model.