A couple of months ago, I wrote a piece called “The Virtual MSO” which described a vision for the Internet video service of the future, the platform that would support it and how the Virtual MSO will fundamentally re-shape the pay television industry. Here, I handicap the winners and losers in that new world order. 

The central point I made in “The Virtual MSO” is that the migration of TV to the Internet will pull along attributes from both the traditional cable model (”MSO” or “Multiple System Operator” is the industry term for a cable operator, like Comcast) and the first generation of ad-supported Web video services like YouTube and Hulu.  I refuted the assumption by some that free, ad-supported Web video would displace consumers’ need for pay TV services and cause them to “cut the cord”.  But I hypothesized that if a new type of service (the “Virtual MSO”) offered consumers something that blended the best of both, consumers would embrace it and the traditional pay TV business would be seriously pressed to adapt. 

“What if someone offered you a service for, say, $69.99? per month that integrated Web video and pay TV - allowed you to get any Web video (like free broadcast network TV from Hulu), along with a handful of linear channels you select (we really only need linear for sports and breaking news) plus a rich VOD library of premium TV content and movies? And you could access it from anywhere at any time from any device - TV, PC, netbook, smart phone. Streaming or download. No special set top box (Web connected TV’s and open set top devices will leapfrog service-specific boxes), no truck roll, not restricted by geographic footprint or multi-billion dollar infrastructure build outs - because it’s an IP based, broadband distributed, managed service.” 

In one sense, this is obvious.  It’s hardly controversial to suggest that there will be Internet distributed pay TV services that follow their cable, satellite and telco predecessors.  Cable came first, DirecTV took the same basic business but used satellite distribution, AT&T, Verizon and others followed with telco IPTV services.  The difference is that the Internet distributers will have the benefit of the lessons of the TV past and the lessons of the Web.  We now know people value an on-demand experience more than linear except in a handful of instances (again, sports, other live events and breaking news).  So the service will have the inverse ratio of linear to on-demand, relative to the traditional MSOs.   The business model will look more like the traditional pay TV dual-stream - subscription and advertising - revenue model. High-quality, high production value content is expensive to produce and advertising alone isn’t likely to be enough.  But the user experience will reflect the best of the Web - largely on-demand, in the cloud and available on any device, Web-like search and discovery, etc.  There will be a huge cost advantage to the operator, which unlike its competitors, would not have to build out its own proprietary network. 

Some commentators, like Mark Cuban, have written that the Internet can’t support full-blown Internet TV today. Mark’s right.  Today, it can’t support millions of simultaneous users on linear video streams, but the popularity of premium on-demand content services like Hulu and Internet-distributed live events like March Madness along with technology and equipment advances like Cisco’s new CRS-3 router show that we’re heading there and even Mark acknowledges that it’s a matter of time.  If the capacity is there in a meaningfully disruptive way (and remember, the VMSO is a largely on-demand service with select linear programming) in the next, say, five years that’s a big, big, deal for the $364 billion global pay TV business.  Particularly since five years is plenty of time for agile companies like Apple and Google who are gunning for this business, but may not be enough time for the slower moving pay TV operators who will have to find a way to adapt to save themselves from becoming dumb pipes. And remember, it doesn’t have to be “as good as” it just has to be “good enough”.  The landline voice business laughed at cord cutting for a long time — ‘no one will rely on flaky cellular networks with scratchy quality and dropped calls in lieu of a home landline, ha ha ha’. Then cellular got “good enough”, hit the tipping point, and nobody in the landline business laughs at cord cutting anymore. 

So who will be the winners and losers in this new TV world order?

 The New Entrants

The best bets among the newcomers are — no surprise — on four large consumer Internet companies - Apple, Google, Microsoft and Amazon.

 They all have: 

• the ambition
• the experience running consumer-facing services
• the technical/ software leadership (the VMSO won’t be a network or box-centric business, but a software-centric business)
• the very deep pockets needed to get over the content rights hurdles
• staying power (it will be a bumpy road)

Netflix, Hulu, YouTube, Boxee, Sezmi and many other agitators will help drive the movement (and may be acquired by these larger companies to advance their causes in one way or another), but ultimately I think these big four consumer Internet companies - Apple, Google, Microsoft and Amazon — are the most likely to change the pay TV landscape forever and Apple and Google are the clear frontrunners.

 Apple is building a subscription video service on its iTunes platform and will likely come out with a living room display device, think an iMac with a 52″ screen built to replace your flat screen on your living room wall with a hybrid remote/keyboard and seamless integration with other Apple devices in your house (like the iPad on the kitchen counter). Apple people will love it and if the premium content library is there (the big “if”), for the first time a meaningful segment of the population will be just fine with Apple (along with the open Internet) as their sole pay video provider.  Another significant development favoring Apple is its recent embrace of advertising. The fact that it has acquired Quattro Wireless to build a mobile ad business is important in many ways not the least of which is that it is a fundamental shift for Apple which has up until now eschewed advertising altogether. People have suggested that the economics of Apple’s planned subscription video service won’t work because it’s a single revenue stream business - well, probably not any more.  Apple is now in the ad business too. 

Google has stumbled in its premium video efforts to date (partly as a result of trying to run premium video services under the YouTube brand - obviously a losing battle).  But it seems to now be getting serious about this space and its new Google TV JV with Sony and Intel shows it wants its Android platform to be the OS for the VMSO.  It has suggested that it does not plan to acquire rights and offer the consumer content service as part of this initiative, but that will likely change as Apple and others assemble rights and expand services.  Google’s an ad-driven business.  It built the Adwords/ Adsense cash machine on top of its consumer search service (not on top of platform technologies like Chrome or Android). Google will need to build a premium video service to build the video ad business to which it aspires.

MSFT is building multi-screen video platform capabilities into its Mediaroom IPTV middleware platform as well as in its Silverlight technologies. MSN has aggregated rights for an over-the-top consumer content service offering in Europe.  My guess is that these initiatives will likely come together with some sort of broader based consumer video service in the not too distant future.  Although Microsoft’s opportunity may be challenged by its silo’d culture and it may take the vision and initiative of someone at the top to connect the dots within Microsoft. 

Amazon is a little less obvious but I think it should be taken seriously.  Amazon’s video service plus its huge investment in cloud infrastructure provides key building blocks for a VMSO. It has done a lot of legwork on rights acquisition. It could put together a bundled white-label infrastructure with aggregated rights for other aspiring VMSO operators or launch a full-blown consumer VMSO service itself.

Each will need to build (or buy) an online software platform that can manage all the things an MSO does but in an Internet environment - linear and on-demand video, packaging and publishing, entitlement and authentication, subscriber and device management, integration with advertising, transactional and billing platforms, DRM, CRM etc - as well as integrate web video along with social, search and discovery features etc. - and manage all of that across any device (disclosure: this is what my company, Extend Media, does).

The biggest question mark around all of this has to do with the content rights landscape. Each VMSO operator will need to acquire the content rights for its service and will have to write very big checks, but the rights are available. There is Federal law to the effect that cable programmers have to do deals with any operator who is willing to pay their market rates (the result of court battles weighed by the nascent satellite industry years ago).  Right now digital distributors are approaching this by trying to acquire narrow slices of digital rights in a piece meal fashion to satisfy nascent web or mobile services, but before too long, the opportunity will be obvious enough, the Internet capacity problems will have foreseeable solutions and they will start approaching things more like they are aspiring pay TV operators and they will say (in the courts, if they have to) “we are no different from a start up cable, satellite or telco TV company (other than the fact that we will take a different distribution path) and we want the entire bundle of TV rights (linear and VOD) that you license to everyone else in the pay TV business and we’re willing to pay just what a fledgling cable, satellite or telco operator would pay”.  Accordingly, the new VMSO’s will have to adopt the existing pay TV business model (subscription and advertising) to pay the big bucks for subscriber fees to programmers. The costs of entry will be great, but also the potential rewards. That may seem like a reach today, but before long the several hundreds of millions that they will have to pay to get it all (i.e. the full bundle of rights required for the VMSO to be viable) will seem like a good bet and all of Apple, Google, Microsoft and Amazon have the means to do it (for example, my guess is Google could have pre-paid three[?] year’s worth of the full monty of TV/digital rights for a VMSO service for what it paid for YouTube).

I should also mention the CE/ HDTV manufacturers — Vizio, LG, Sony, Samsung, etc.  It’s possible some Web connected TV manufacturers will launch VMSO content services of their own.  More likely, they will become aggregators of services and when you take your web-connected TV home you will plug in a broadband cable, turn it on and see a collection of widgets for a variety of content services aggregated by the TV manufacturer with whom you may have the primary billing relationship.  But some of these guys might also pay up for the full array of content rights and try to displace your current pay TV provider. 

The Incumbents

The incumbent pay TV operators are, of course, well equipped to build VMSOs in many ways.  They are in the MSO business already and own many of the broadband connections over which VMSOs would presumably deliver their services (and since we now have complete uncertainty around Net Neutrality this could be very important).  Their biggest problem is that they have the most to lose. So many will only move when newcomers force them to.  Even then, some will stick their heads in the sand (dumb pipes).  Others will try to respond but will be unable to move quickly enough (more dumb pipes).  Others, the survivors and winners in this category, will decide that if anyone is going to cannibalize them, it had better be themselves.  They will launch subscription broadband video services, in and out of footprint, that appeal to the generation that grew up on the web instead of the TV — the real threat to the pay TV  industry is less cord cutting than it is a whole generation that may not care to buy the cord in the first place — and position it as a compatible entry level tier alongside their full service cable, satellite or telco TV offerings.    

I think Comcast is the only operator that is currently adequately prepared and positioned for the VMSO. In 2006 Comcast bought the software capabilities (its acquisition of thePlatform), and then it launched an aggressive IP network infrastructure initiative (Project Excalibur). With the pending NBCU acquisition, it will control a sufficient wealth of premium content that, when combined with web content, will be enough to launch a meaningful consumer offering.  When it can’t grow its traditional business and/or one of the newcomers pushes it, Comcast will have the all the ingredients for a viable VMSO offering - in and outside its cable footprint - and won’t need anyone’s permission. At the outset it might not have all the programming customers want, but it could be “good enough” at the right price point to compete against the newcomers and other operators.

Comcast is the only operator who sees broadband video as both a threat and an opportunity and understands that its TV Everywhere efforts have a dual purpose — preserve the status quo as long as possible but also build the offering (they are getting the digital rights to content now) and be ready to offer a national broadband subscription service when the time comes.  

The other big challenge for incumbents is technology.  They have a lot of it for their current pay TV services but not the kind they need for the VMSO.  They will need to develop a software platform with capabilities that can run a service on and over any network and the old approaches of hardware and network based solutions won’t be particularly relevant. The telco operators will be a little better off with their more modern IPTV infrastructures and platforms but unfortunately they used a lot of legacy cable technology in many of those buildouts. 

Content

We’re hitting a ceiling on free ad-supported premium content on the Web. The pendulum is swinging back. Free ad-supported premium sites, namely Hulu, are having trouble growing their free libraries and are being pushed to add subscription services to expand their offerings. Content owners and TV distributors are successfully collaborating to stop the bleeding with efforts like the cable-industry’s TV Everywhere (where cable programming is made available for free online only after a consumer “authenticates” that he/she is a cable TV subscriber). It’s in both the content companies’ and operators’ interests to preserve the status-quo dual revenue stream business model for television and I think that will continue to shape the landscape.  So, I think premium content creators will fare relatively well in the VMSO world.   That industry is going through a revolution of its own partly in response to the rise of Internet video but also as a part of a long-overdue right-sizing of the cost side of the business.  But more importantly, the broader industry is recognizing that the economics of premium content - high production value, high quality TV and film content, which the US does better than anyone else in the world — does not match well with the economics of free ad-supported Web video.  Eventually the content companies will embrace the VMSO as just another pay TV business with a dual subscription and ad business model that can expand access to their content.

Conclusion

As I said upfront, Internet distributed subscription video services (VMSOs) are as natural an outgrowth from the cable seed as the satellite and telco TV businesses were.  I’m not saying it will happen overnight.  As I said earlier, I think this is a five year evolution.  And I’m not saying it will necessarily destroy its predecessors, just as satellite and telco TV haven’t killed cable.  But it will change everything and for the less agile in the pay TV business there may not be enough time to adapt, even if they start now.

Here’s a term you’re going to be hearing more and more in 2010 — the Virtual MSO.

Web video and traditional TV have been on a collision course for a while. For most of that time, the discussion has been Web-centric, with the media and analysts asking whether Web-based video services–YouTube, Hulu and others like them–which have garnered huge, loyal audiences and have become part of our culture, lexicon and experience in a very short time, will pose a serious threat to traditional TV distributors. Will consumers, they ask, cut the cable cord and rely instead on free, ad-supported Web video rather than paying Comcast (or some other cable, telco or satellite TV provider) $150 per month for a cable package? Maybe, someday, but not anytime soon.

On the other hand, they might just cut the cord in favor of the Virtual MSO.

Apple’s planned subscription service (see today’s WSJ), Netflix’ streaming service, maybe even Comcast’s new Xfinity are early examples of the Virtual MSO. Its attributes – premium content, multi-business model (subscription, advertising, transactional), linear and on-demand consumption, user and multi-device entitlement – come from both Web video and pay TV. Also, with the Virtual MSO, the big screen is primary, maybe an Apple iMac with a 52” screen built for the living room or a Web-connected TV from Vizio, LG, Sony or Samsung.

Expect the discussion to shift to a more TV-centric view of the broadband video landscape. The VMSO will offer consumers something between free (ad supported Web-video) and $150 per month (Comcast). What if someone offered you a service for, say, $69.99 per month that integrated Web video and pay TV — allowed you to get any Web video (like free broadcast network TV from Hulu), along with a handful of linear channels you select (we really only need linear for sports and breaking news) plus a rich VOD library of premium TV content and movies? And you could access it from anywhere at any time from any device – TV, PC, netbook, smart phone. Streaming or download. No special set top box (Web connected TV’s and open set top devices and will leapfrog service-specific boxes), no truck roll, not restricted by geographic footprint or multi-billion dollar infrastructure build outs – because it’s an IP based, broadband distributed, managed service. OK, so maybe this TV-nirvana service is a ways away, but we will see VMSO services in 2010 that begin to set the stage.

We’re hitting a ceiling on free-ad supported premium content on the Web. Content owners and TV distributors are trying to stop the bleeding. Efforts like the cable-industry’s “TV Everywhere” – under which cable programming is made available online only after a consumer “authenticates” that he/she is a cable TV subscriber – are proof that the incumbents plan to preserve the status-quo business model for television and keep premium content under their lock and key as long as possible. They have a massive business to protect and will, no doubt, fight to protect it. So the new VMSO’s will have to adopt the existing pay TV business model and pay big bucks to content owners. The costs of entry will be great, but also the potential rewards. But even these cable incumbents, namely Comcast, may be forced by the new VMSO operators – Apple, Google, Amazon? — to offer their own national footprint VMSO services. Several have speculated that “TV Everywhere” might be considered a “dry run” for a cable VMSO service. Operators could flip the business model switch and offer their TV Everywhere services as out-of-footprint national subscription-based VMSO services if new competitors force their hands.

Who will succeed in bringing us the Virtual MSO? Apple (best bet so far), Google, Amazon, Microsoft? Vizio, LG, Sony, Samsung? Comcast, Verizon, AT&T? Should be interesting…

That cracking sound you hear is the walls of the clubby world of cable beginning to crumble. Everything in the media world — ­ especially the world of media distribution –has changed as a result of Comcast taking control of GE’s NBCUniversal.

Many people think this is a deal to preserve the status quo — that it is no different from News Corp controlling DirecTV or Time Warner’s ownership of Time Warner Cable.

As we all know, both of those deals failed to provide the heavily promised synergies between programming and distribution and have been since unwound. That being said, I believe there is a lot more to this story.
Comcast is among the major distributors with a clear long-term world view and digital savvy. It sees that its core business faces a big challenge in the form of broadband-distributed premium content to the TV–so-called “over-the-top” video; it also understands that over-the-top video is inevitable and full-fledged deployments are on the horizon.

And while plenty of analysts believe consumers won’t cut off their cable services — they like the convenience and the linear programming — even cable bulls recognize that a new generation of consumers may bypass cable subscriptions altogether in favor of an over-the-top approach. And so even though Comcast looks like it is trying to preserve its cable distribution primacy by acquiring NBCUs trove of content, the cable operator quietly is making moves that suggest to me that it plans to launch a national “over the top” services in the not-too-distant future.

Going national?

In 2006 Comcast bought the software infrastructure (thePlatform), and then they launched an aggressive IP network infrastructure initiative (Project Excalibur).

Now with the NBCU acquisition, they control a sufficient wealth of premium content that, when combined with web content, will be enough to launch a meaningful “over the top” consumer offering.

When they can’t grow their traditional business (already the case — telephone services have been powering their meager growth for the last few
years) they will have the all the ingredients to distribute video over broadband – in and outside Comcast’s cable footprint – and it won’t need anyone’s permission.

The new growth driver will be a broadband distributed service to new geographic markets at a lower price point. At the outset it wouldn’t have all the programming customers desire — shows from ABC or CBS, for example — but it would have enough content to drive eyeballs and attention away from subscription cable services.

Time Warner Cable, Cox, Cablevision, Charter: watch your backs and your precious subscriber bases. It’s a risky, potentially cannibalistic move for Comcast, but the alternative is that someone else (Apple, AT&T, Microsoft or Google) gets there first. Even so, it seems a sure bet that Comcast would be ready to be ready to respond very quickly and in a powerful way. In fact, think about Comcast’s “On Demand Online” as a dry run for a national “over-the-top” offering.

Operators will unlock cable content for digital distribution, build out the distribution infrastructure, and condition users to access content on multiple devices. All that will be left to do will be to throw the business model switch to out-of-footprint subscription and build out a TV interface (the digital home problem will be solved in parallel via web-connected TVs, special-purpose low cost set-top boxes, etc.)

It’s not just about responding to free ad-supported Web offerings like Hulu and Google’s (GOOG) YouTube, but also to services that look more like pay TV, like iTunes, Netflix (NFLX), and Amazon (AMZN). These new video services may have business models that are familiar — subscription, VOD, etc. — but they are unencumbered by geographic footprint.

Comcast’s out-of-footprint over-the-top service is inevitability. The media world will be forever changed and the cozy club of non-competing cable operators will be a thing of the past.

Needless to say, it is exciting (and to some, scary) times for the entertainment industry and we are on the cusp of a fundamental shift in who distributes digital content, how people consume it, and how the various industry players make money. The shift is arguably even more dramatic than the emergence of cable TV operators that ended the hegemony of the big three broadcast networks. This shift, of course, is the continued explosion of digital content - espcially video - over IP networks.

With monthly online video streams consumed passing 10 billion according to Nielsen, there is no argument about consumer appetite for this shift. What is less clear, is what happens next. One of the industry’s answers to this fluid situation is a concept labeled ‘TV Everywhere”. In short, it is the ability to access your favorite cable programming online and ultimately across a range of devices. So far, most cable content has been held hostage to the revenue stream of carriage fees, but a variety of proposals led by Comcast, Time Warner and others, promises to unlock a bunch of it. The first technical challenge is to figure out how to identify and authenticate users to make sure they have a cable subscription that “entitles” them to see the content online. Then the fun begins.

Earlier this week we announced OpenCASE Publisher, a new product that helps tackle the myriad of challenges, beyond authentication, that building and deploying a “TV Everywhere”-type service can uncover. In Tom’s quote in our press release, he asked a number of rhetorical questions about the variety of other challenges a successful “TV Everywhere service must address. I’ll attempt to flesh out the Q&A here:

How does a provider manage a scalable broadband service fed by dozens or even hundreds of cable networks?

• Scalable Content Management - Never before has this much premium content been made newly available at one time. OpenCASE Publisher provides a tool that can easily manage and automate the ingest of hundreds of simultaneous content sources. This eliminates the need for operators to custom build software and processes to manage aggregated content.

How does it make sure the right channel lineup is delivered to each consumer?

• Service Management and Provisioning - Once a user is authenticated, they need to be mapped to the services they have rights to. In the simplest case this could mean giving a user access to the same “bundles” they have available in their cable service. OpenCASE Publisher expands on this by allowing the service operator to create any number of unique bundles, channels and playlists using a drag and drop UI or via rules based automation capabilities.

How does it manage entitlement across devices?

• Multi-screen, Multi-device - Basic authentication can identify a user and what cable services he has subscribed to, but successful services will need to support other devices besides the PC including portable media players, mobile phones, game consoles and more. OpenCASE Publisher can simultaneously publish its aggregated content to any number of portal, players and devices. Furthermore, the OpenCASE platform provides the registration and device profile infrastructure that allow users to link devices with their accounts—and where necessary appropriate licensing and DRM rules.

How does it provide transactional capabilities for up-sell, cross-sell or a la carte content consumption?

• Cross-sell, Up-sell - Over-the-top entitled video services must leverage the inherent flexibility of a web-based offering when it comes to monetization. OpenCASE Publisher in conjunction with other OpenCASE products provides a full range of monetization options including advertising, rental, subscriptions PPV and download to own. The platform allows the service operator to mix and match monetization models with product bundles – perhaps ones unique to the web-based offering. This is a real opportunity to drive additional revenue – even for the core cable service packages.

How does it avoid the advertising and reporting issues that have hindered TV VOD?

• Advertising and Reporting - OpenCASE Publisher is integrated with most of the leading ad servers including DoubleClick, LightningCast, Adtech and any other VAST-compliant ad server/network. This means that from day one, a service operator leveraging OpenCASE Publisher has the same advertising functionality as leading sites that leverage the best-in-class ad networks. These capabilities are combined with a robust, video-service specific reporting and analytics capabilities that can measure monetization, video consumption behavior, title virality, category (channel) popularity and more.

We’re pretty excited about this next “wave” of development in the video industry and are looking forward to helping our customers deliver industry leading services to their customers and revenue to their bottom line. Check back for more updates and announcements as our current deployments bear fruit throughout this year.

By way of introduction, I’m Andrew Parker, the newest member of the team at ExtendMedia with responsibility for Technology & Strategy in Europe. I have spent the last 15 years working in the Internet and digital media industry and will be a regular contributor to this blog.

So, on with my first article.  I recently came across the Comscore figures for online video consumption in December 2008 which make for interesting reading

For Dec 2008: Source

• 150 million people (78.5% of total US Internet audience) watched 14.3 billion online videos, with the average viewer watching 309 minutes (or 5 hrs)
• The average duration of these videos was 3.2 minutes

To put all of this in context, if we look at the year before:

For Dec 2007: Source

• 141 million people watched 10 billion online videos with the average viewer watching 203 minutes (3.4 hrs)

So the volume of video being consumed is continuing to grow rapidly, and Google still accounts for nearly 60% of the video market–predominantly based upon YouTube. Unfortunately for Google and many others, the growth in consumption of these ad-supported solutions hasn’t been reflected in the advertising revenues:

From reviewing the IAB’s Internet Advertising Report here, we can see a total growth in the Internet advertising market from $5.9 Billion in 2007 to $6.1 Billion in 2008 but with Digital Video only accounting for a 1% growth (from 2% to 3%).

So despite the increasing uptake in online video, the success of advertising isn’t following in the same fashion. I find this quite strange as Internet video advertising certainly has all of the technical underpinnings to create highly targeted adverts based upon the content itself, the location of the viewer, and a variety of other metrics that are readily available. It should stand to reason that the more targeted the ad, the higher the likelihood of success, and therefore the more valuable the medium - clearly, there is a lot of upside to come.

It has been a busy several weeks here at ExtendMedia. Some of you may have seen noticed that we recently appointed Tom MacIsaac as our new CEO. Tom has already hit the ground running and the team here is pretty excited to have him on board. Perhaps most importantly, Tom brings really deep expertise in our industry having run LightningCast, a leader in video advertising and as SVP Strategy and Corporate Development at AOL after AOL acquired the company. Welcome, Tom!

Extend also announced a recent customer win with Thales that is important to the company for a number of reasons. For one, it is our first foray into yet another “screen” for the distrbution of digital video — in-flight entertainment. IFE faces many of the same challenges that one see in broadband video distribution including managing costs, a desire to support numerous business models and managing the ingest of content from numerous providers. Since Thales is a European customer, this project also represents even more momentum for us as we continue to expand globally. We’re really looking forward to bringing some of the best-practices we have developed to this segment of the industry.

The folks over at Nielsen have released a Q4 report on video viewing across all three screens - TV, Internet and mobile. There is plenty of good news in here for our industry with consistent growth year to year in every category. There were a few things, however, I found particularly intriguing. First, is that mobile video consumption is alive and kicking, despite a substandard experience with a lot of devices and networks. Quarter-to-quarter, mobile video users increased 9% in Q4 of last year. Even more interesting, is that these users spent more time per month watching video on their phones than people did watching video on the PC–28% more. Really??

Now keep in mind that the mobile measurements are for mobile video in general, while the Internet and TV measurements are for commercial TV. That said, people are clearly willing to consume significant amounts of content on the littlest of screens. When you combine this with the robust growth data on the usage of DVRs, it couldn’t be clearer that today’s video consumer wants to view their content, when, where and how they choose. This is in spite of the fact, that DVRs, mobile-capable phones and data plans cost money.

Extrapolate these finding into a more robust economy, add in faster network speeds with the transition to 4G, and some sort of consensus on cross-platform DRM and we’ll really be cooking!

Chris Gardner

It was nice to see that Hulu saw fit to tap their cache of subsidized advertising with parent NBC for the Superbowl. I thought the spot itself was pretty funny, actually. One of the better ones this year.  Check it out here. Silicon Alley Insider claims Hulu may have as much as $50M in advertising credits to spend with parent NBC, so expect to see a more aggressive front from the company in the months to come.

As one of the most successful over the top Internet video sites, Hulu has a lot to gain and a lot at stake in this evolving space and clearly they are going to continue to go hard at it along with Netflix, content owners and yes, the big service operators too. Mark Cuban’s recent manifesto on the The Great Internet Video Lie nothwithstanding, Internet Video is charging forward–warts and all. As usual, Cuban makes plenty of good points, including the fact that the economics of bandwidth mean that live Internet streaming is not competitive to traditional cable delivery. He’s right. That said, lumping all of Internet video into that bucket makes for awesome blog theater, but isn’t the whole story.

Internet video is as much about a change in user behavior as it is about technology, distribution and business models. Consumers are choosing to consume video at these sites in spite of an experience not yet on par with traditional delivery models. It is an evolution of the time-shifting that DVR’s introduced, into a fully on-demand world. Consumers get to watch content whenever they want and increasingly on whatever device they want. On-demand delivery suffers fewer problems around peak-time bandwidth that Cuban highlights and the consumers are accepting convenience in exchange for a smaller screen experience. Clearly, Internet video business models are in their infancy, but we’re only in the first few chapters of this story.

Chris Gardner

I am surprised that there is still any debate on the subject, but Fierce Online Video had a piece today on the future of Blu-ray. I commented on the original piece, but thought I would expand upon my thoughts a bit.

I certainly think that the future of video distribution will eventually be entirely online. Technologies like the Blu-ray disc are transitional and will ultimately become obsolete in favor of “soft” distribution models. That said, it will be quite some time before disk-based video distribution goes the way of the LP–three to five years and potentially much longer.

Why? First, a Blu-ray movie is huge. 40-50GB huge with all the trimmings. Even with the fastest broadband connection, there is a good bit of overhead for downloading these files and with broadband caps becoming more prevalent (250GB monthly at Comcast last I checked) a real limit to how much you can affordably consume. Second, even the best online HD streams don’t hold a quality candle to full bit-rate Blu-ray. It is true some folks can’t tell the difference, but with HD TV sales exploding, more and more folks will notice and care. Finally, disks are PORTABLE.  You can play it on a laptop and bring it over to your friends house. There really isn’t another convenient option of you want to preserve the quality of the original content. Portability is a topic I will likely wax poetic on repeatedly in this forum.

So how does Hollywood extend the tail of a hard goods distribution model? Blu-ray hardware Profile 2.0, otherwise known as BD-Live is one way. In short, this gives users of the latest Blu-ray hardware an ethernet connection and local storage. While I am a little lukewarm to this concept, it could certainly help bridge the interactivity and online gap. Another more promising alternative is for the Studios to bundle portable versions of the content with the disc itself. Studios are beginning to nibble at this notion, but comprehensive portability is still a ways off. People want to consume content they have purchased when, where, and on whatever device they like. Many will pay a premium for true portability, but this would represent a pretty fundamental shift in thinking for the video content owners. The music industry finally gets it, but it may be too late already for them.

Chris Gardner

Hey folks, welcome to our blog. We’ve been awfully busy lately between supporting customers like BellCanada and AT&T, expanding into Europe and AsiaPac, and raising another round of investment. That said, we’re long overdue for getting our blog going, so here you go.

You won’t find a whole lot of shameless self-promotion (well not too much) in this space, but hopefully you will find some useful insight into the digital video distribution industry from the perspective of a company in the thick of it. You will hear from me and over time a bunch of other folks here at Extend, so check back often.

Welcome!

Chris Gardner, CMO
ExtendMedia