Following is my list of the five most important announcements from the summer of '06:
1. Google's deal with MTV Networks to syndicate its video clips
What it was: On August 7th, Google and MTV announced a trial in which MTV will provide video clips to Google for distribution using its AdSense network. MTV will sell the ads and the revenue will be split among MTV, Google and AdSense publishers.
Why it rates: I'm much more sanguine about the model being pursued with MTV than I was about Google Video, the company's initial broadband video foray launched in January '06. With so many potential strengths to leverage, Google Video's start as an iTunes/YouTube imitator with little new innovation seemed odd to me.
In the MTV trial, Google is leveraging its distribution capability and its powerful advertising model to syndicate MTV's content all over the web. I have long believed that advertising is going to be the primary near-term (and quite possibly long-term) business model for broadband video. Success for ad-supported broadband video requires three things — scale, targetability and measurability. Google's network seems ideally-positioned to deliver all of these for MTV. If this trial works, expect Google to be a go-to partner for other content providers. Syndication of video is going to be a big theme for the next 6-12 months, with many more announcements soon to come.
As many of you know, I'm bullish on the opportunities Google, Yahoo, AOL, MSN and Apple (a so-called "Group of Five" as my firm called them in our Q1 '06 report "How Broadband is Creating a New Generation of Video Distributors") have to benefit from broadband video. I expect lots of activity from these five companies in the coming months.
2. ABC's statistics on its ad-supported trial and plans for a fall launch
What it was: In early August, ABC announced the results of its spring '06 trial of ad-supported episodes of four of its programs and also confirmed that it would formally launch an ongoing free, ad-supported service this fall. The most significant statistics that were revealed were that 87% of viewers could recall the advertiser who sponsored the episode they viewed, more than 50% rated the experience positively and 84% thought they were getting a "great deal" by being able to watch the episode for free in exchange for ads being inserted.
Why it rates: You'll recall that this trial was the first time that a major network diverged from consumer paid downloads (a model that was catalyzed by last fall's Disney-iTunes deal) to test ad-supported TV programs streamed through broadband. At the time, many questioned the gambit — why, just as consumers were being conditioned to pay for a la carte episode downloads, was ABC willing to provide them for free? Further, it raised howls of protest from the network's affiliates, as they felt left out by ABC.
I think the results demonstrate that ABC understands that when it comes to broadband, a one-size-fits-all strategy isn't the way to go. Rather, it's important to offer multiple options to consumers for accessing content. With some people willing to pay, and others not, offering both options makes sense. It also shows that Bob Iger knows that for ABC to remain relevant to advertisers when more and more of its viewers are skipping ads using their DVRs, the company must be willing to take greater risks by deviating from the status quo. Once again, Disney has shown itself to be a broadband video leader, as other networks have recently announced that they too will launch ad-supported streaming of their shows this fall. Notwithstanding that iTunes' deals with networks for paid downloads continue apace (and new download initiatives like Amazon's Unbox continue to launch), I perceive all these networks' moves as a tilt in favor of advertising as their business model of choice. Once consumers get a taste for free broadband video, it's going to be hard to get them to pay.
3. YouTube's ongoing success
What it was: In the event that you were checked out the entire summer, welcome to the video-sharing/user-generated content phenomenon. YouTube, which was only born in February, 2005 dominates the category, with an estimated 43% of all usage. It reports that it is now streaming a whopping 100 million videos a day and has quickly become the most-talked about online media property, with speculative valuations of $1 billion or more.
Why it rates: Nothing epitomizes the "democratization of video" more than YouTube. All of a sudden, everyone's a video provider and the wackier the video, the more popular it becomes. The notion that amateurish YouTube video could compete with highly-produced programs with top-draw talent for viewers' time (notwithstanding the reality that plenty of YouTube video is in fact pirated video from the networks) is startling. Yet the early evidence is in — for many in today's younger audience segments in particular, it's more fun to spend a couple of hours on YouTube (or on MySpace where millions of YouTube videos are embedded) than to troll around the dial in search of stimulation.
YouTube's short videos fit well with today's PC-based consumption model. Going forward, as PCs and TVs get connected, YouTube's (and other video sharing sites') appeal only increases relative to today's basic cable TV channel lineup costing $60+ per month. Then think about the power of YouTube and its ilk to drive the "direct-to-consumer" cable bypass trend. Plus, factor in when users' mashups become more pervasive, elevating the appeal of user-generated video. YouTube's challenge is to delicately figure out how to start making some money from this baby, while not ticking off their users. Since this is easier said than done, I wouldn't be surprised to see YouTube's founders accept a rich buyout offer sometime soon.
4. The Long Tail is published
What it was: Almost two years since the debut of his original Wired article of the same name, Chris Anderson published The Long Tail as a book.
Why it rates: Ok, there's not much new here compared to the original Wired article. But I still think that no framework captures the potential impact of broadband video on the current video distribution value chain better than The Long Tail. While the exact nature of the long tail's demand and revenue patterns is still being determined (for more on this, see the Wall Street Journal's Lee Gomes's thoughts on the subject), the concept is real. I've had a number of content providers confirm this to me through their site's usage patterns. The publication of the book and its ascension to best-seller lists will only serve to further popularize the concept.
As broadband distribution drives the tail effect in video, every part of the value chain will be affected. As I wrote back in March, 2005, cable networks are the original long tail of video. To this day they continue to serve long tail medicine to the broadcasters (the traditional "head") by taking their audience share. Now the YouTubes and other broadband video sites of the world are trying to serve long tail medicine to the cable networks.
The Long Tail also suggests that as abundance flourishes, new tools can empower users to shape demand. This is consistent with efforts of sites like Digg.com, which allows users to rate news articles by importance. This effectively allows the community to decide what's most important, as opposed to professional editors and programmers. Digg-like filters are going to become increasingly important as the long tail of video lengthens. I think smart programmers will soon realize that offering these kinds of ratings tools for their broadband video experiences enhances viewer loyalty. The Long Tail is coming to video — the key is learning how to profit from it.
5. AOL goes "all-in" on content
What it was: Six years after the failed AOL-Time Warner merger and multiple "this-will-be-the-savior-of-AOL" strategies later, AOL finally bit the bullet and announced that it was pulling back from the dial-up access business by allowing non dial-up subscribers to access all AOL services. The company has put its faith in an ad-supported content strategy. In fact AOL Video, launched this past summer as well, is a centerpiece of AOL's content plans.
Why it rates: It's way too early to tell whether AOL's decision will ultimately proven to be correct. Regardless, I think the real importance of AOL's decision is that it's an early warning signal to today's high-speed Internet access providers that relying on Internet access without a complementary content strategy is short-sighted. Just as broadband surpassed dial up, there will inevitably be better, faster, cheaper Internet access technologies (fiber, wireless, etc.) that will surpass broadband. Staying the course on high-speed access alone is not an option.
Cable operators in particular should know that long-term success is not in pure access, but in how access drives valuable new content. Cable operators evolved their businesses from retransmitting broadcast signals (better access for existing content) to offering scores of new cable networks over their infrastructure. Operators' real value is not in pure access, it's in blending this with valuable content and services.
AOL's decision should be a reminder that cable operators need to expand their singular focus on high-speed Internet access to also encompass becoming broadband-centric video packagers and providers. Google and the other "Group of Five" companies are already doing this (see above), generating revenue and customer loyalty by bypassing cable's walled gardens. Waiting will only result in cable operators' networks being relegated to "dump pipe" status.
Wrap up
OK, there you have it — my personal list of the five announcements that mattered the most in the summer of '06. With the fall fast approaching, there's no let up in broadband video activity in sight. The first area to keep an eye on is paid movie downloads with Amazon Unbox and Apple both launching initiatives aimed at catalyzing the download market. Stay tuned for more!
