As promised in my previous e-newsletter, this month I am peering into my crystal ball to identify 7 key broadband video trends for 2007. I'll connect some of these thoughts to earlier e-newsletters, which you may link to for more background. I look forward to your reactions!
1. Apple's iTV box will likely succeed (but only if more than just iTunes video is easily accessible). This is clearly my most controversial prediction and the one I will devote the most ink to. Let me stipulate upfront — standalone appliances like these are indeed the "third rail" of consumer electronics. I understand all the reasons why they don't succeed. And the list of failures is long and undistinguished. However, my bet is that is that if ever a company stood a chance of succeeding and a box potentially met a clear consumer need, it is Apple and iTV. (by the way, "iTV" is just a code name, expect a new name prior to launch). Apple's user-centric design, functionality and coolness quotient are its key differentiators.
First, for those of you who missed it, back in September Steve Jobs pre-announced the company's "iTV" box (see it here). Product pre-announcements are very rare for Apple. iTV's suggests that Jobs wanted to both lay some pre-launch buzz groundwork and also simply couldn't contain his enthusiasm for this product's market opportunity.
To understand iTV's market opportunity, it is necessary to understand current broadband-delivered video viewership. As I see it, the amazing ramp up in broadband video consumption this year is surpassed by an even more amazing fact — that virtually all of this viewership has occurred on users' computers. Think about it — virtually all those clips, full-length programs and movies are consumed on the PC, not the TV! Nobody could have predicted that. But of course the TV is still the preferred viewing device for just about everyone. So logic suggests that if someone could make an affordable, easy-to-install box that unshackled users from their computers, allowing them to easily bridge the PC/broadband world with the TV, there would be a market for such a product. And that this could be far more than a niche opportunity, given that it could potentially disrupt cable and satellite operators' set-top box/walled garden stronghold.
iTV's success turns on one key factor: Apple's content strategy for the product. And the hitch in iTV's potential is that to date Apple's content model has been to aggregate paid-only media in iTunes, its digital download store. The company has gotten off to a decently strong start selling TV programs and the like on an a la carte basis for $1.99 or more. But carrying over this paid approach is not a strong enough content strategy to support iTV.
In fact, in the music world, a recent Ipsos study showed that only 25% of MP3 owners use fee-based download services. That's been OK for iPod sales because many people still have large CD collections (or share theirs with friends), which can be easily "ripped" to iPods. But what would the equivalent source of video content be to support iTV? Possibly DVDs, though converting them for iPod use is far from a mainstream activity (plus, why bother anyway?). How about the free video podcasts from a Byzantine array of providers also available through iTunes? Doubtful. Quite simply, if Apple extends its iTunes paid approach to iTV it would be forcing iTV buyers to pay for each and every incremental piece of video content to get value out of their iTV purchase. The number of people willing to shell out $299 for an iTV box without readily available free content is tiny.
Therefore, the alternative — providing easy TV-based viewing of free, ad-supported broadband video — should be iTV's core value proposition. Cracking this nut allows Apple to break open the video distribution value chain, with consumers finally getting TV-based access to the broadband content they love. And it positions iTV as the key building block in making "long tail" video content accessible on TVs, potentially setting up Apple as a longer-term competitor for all video services (i.e. a possible competitor to cable and satellite).
Exactly what content should be easily available through ITV is less clear to me. Certainly a key selection criterion is video that is either NOT currently available through cable or satellite. Many video content providers still dreaming of becoming a digital cable channel would salivate at the opportunity to be accessible on consumers' TVs. Plus broadcast and cable TV networks would love a way to get their broadband-only webisodes and other "broadband channels" all the way to the TV.
But the most tantalizing content deal would be one with Google/YouTube. Consider how many YouTube devotees would love to get convenient access to this content right on their TVs. Since Apple has no in-house advertising skills and assets, and Google is the reigning advertising king, a partnership would be mutually beneficial. With Eric Schmidt, Google's CEO, now on Apple's board of directors, the personal relationship between him and Jobs would help clear the way for a deal.
Packaging and offering easy access to ad-supported video would be a big content strategy departure for Apple, but a necessary one for iTV to fully flourish. Remember, selling hardware is what Apple's really all about. Given Apple's famous appetite for secrecy, I expect we'll only find out how Steve Jobs has decided to play his hand upon iTV's official launch. If it's to be iTunes-only paid video, I'll downgrade iTV's likelihood of big-time success considerably.
2. All eyes on Google. Much as I dislike adding to the current hype around Google, I must say that Google is the company best-positioned for success in a broadband video world. Google recovered from its misguided launch of Google Video following CES in January '06 with signs that it is not only "getting it", but that it is prepared to leverage its considerable assets into the video arena.
Back in Q1 my firm published a report (How Broadband is Creating a New Generation of Video Distributors: The Market Opportunity for Google, Yahoo, Microsoft, AOL, Apple and Others) which concluded that these companies (a "Group of Five" as the report called them) were the best-positioned to emerge as winners. Our analysis identified key skills and assets each of these companies' possessed, which if capitalized on correctly, could lead to key competitive advantages. Some of what we identified for Google seems to now be coming to fruition. This included using the AdWords system for targeted video ads, using the AdSense publisher network as a syndication engine for video, and reaching out to mainstream media for content partnerships. What the report didn't foresee was Google's willingness to shell out $1.65 billion to buy YouTube and its gigantic audience. This only strengthens Google's market position.
Even before the YouTube deal, Google had identified video distribution and advertising as big frontiers to be exploited. In fact, I expect their intention is to do for video advertising what they have already done for web advertising. That is, attempt to create a "long tail" of video advertisers (beyond TV's traditional big brand marketers) and also apply the company's unique algorithmic ad system to monetize video content better than anyone else. These are not trivial pursuits, but Google's intellectual and financial resources are immense and if anyone can do this, it's surely Google.
If the company does begin to succeed in video, as I expect it will, the repercussions throughout the video value chain will be significant.
3. Ad-supported video dominates (at least for now). One of the key trends from 2006 is the growing momentum behind advertising as the business model of choice for broadband video. Sure, Apple has continued to release promising figures on its progress with downloads, and sure other aggregators of premium content have jumped on the bandwagon (e.g. Amazon, AOL, others soon). But based on all of the conversations that I've had with people (outside of the Hollywood studio folks) I'm convinced that ad-support is being embraced most enthusiastically.
There is huge interest from advertisers and their agencies, an easy migration path for media companies to leverage current skills and a disproportionate desire by consumers to get free video vs. paying for it (at least for now). To be sure, I'm bullish on paid models, but I think there's a timing issue at work, with a number of variables (e.g. easy/widespread viewing of broadband video on TV, consumer usage rights, business models, etc.) needing to mature further.
In the mean time, bet on advertising to be where most broadband video revenues are derived.
4. Syndication grows in importance. Syndication is the handmaiden of the ad-supported broadband video business model. Successful online advertising requires scale and targeting. Syndication provides both. It is the tried and true model for current web-based content. To date video syndication has happened mainly by web publishers manually embedding YouTube video clips.
But companies with robust syndication technology and strategies (e.g. Brightcove, Voxant, NBBC, ClipSyndicate, AP and most recently Google) were busy beavers this past year, developing new products and services, while laying the groundwork for broader rollouts in '07. As many of you know already, I am very bullish on syndication's ability to dramatically accelerate the distribution of specific video to a wide variety of web sites and blogs, enhancing the value proposition of broadband video to users, while scaling up the ad-supported model.
Syndication approaches will continue to be in flux in '07, as some of the 3rd party technology and aggregation companies mentioned above vie for attention of media companies who will also experiment with their own syndication plays. They will also be ramping up their distribution networks. Recently VH1 launched its "branded player". Other Viacom networks will soon follow suit, as will others. At play here is whether the 3rd parties can provide additional reach and/or features that media companies cannot achieve on their own.
This is but one of the many syndication issues that will unfold in '07. This is going to be a white hot space in the coming year with product, partnership and technology announcements flying fast and furious.
5. Community-building around video goes mainstream. One of the main things YouTube's success showed was that, if users are given the chance to interact around video, they will. The intense viral nature of compelling video launched more than one unknown amateur video producer into the stratosphere this past year. This interactive/viral phenomenon has been noticed by mainstream media companies, who are just beginning to incorporate interactive features and functionality around video offered on their own sites.
I am convinced that there is real strategic advantage for these media companies to capture if they execute on this well. Back in my November, 2005 e-newsletter, "It's the Relationship, Stupid", I wrote that media companies needed to work hard to deepen their bonds with the viewers of their programs. I suggested that moving from an "audience-centric" approach to a "customer-centric" one was a key to success. Community building is all about customer-centricity. Nevertheless, as I wrote about at length last month in "Big Media's Most Vexing Challenge", community building requires media companies to modify longstanding copyright control mentalities, to unlock the latent value their video has in a broadband dominated world.
6. Brand marketers score with broadband video. 2007 will mark the year that big brand marketers embrace broadband video in earnest, moving it from an experimental pursuit to an integral part of the marketing mix. In many ways broadband offers an extension of online's interactivity and measurability by overlaying the emotional impact that only video provides.
Already more and more brand marketers are realizing that broadband video offers a game-changing opportunity to reach their audiences in ways never before possible. Marketers launching broadband video initiatives include Nike's JogaTV, Ford's "BoldMoves", Krups Espresso Shorts and others. Just last week, Coke partnered with YouTube for a special holiday greetings video feature.
I expect Super Bowl XLI to debut numerous cross-platform (i.e. TV and PC/broadband) integrated campaigns, starting with Bud TV. As I suggested in February, in "The $10 Million Dollar Super Bowl Ad?" broadband allows Super Bowl advertisers to dramatically expand the impact of their initial $2.5 million 30 second outlay, by engaging consumers well after the game-ending whistle blows. The creative wizards at these marketers and their agencies should have a field day with the new creative palette that broadband offers. It will be great fun to watch what they come up with.
7. Legitimate P2P gains traction. OK, this is the most speculative of the seven trends. But I think some recent announcements in this area, plus the intensifying challenge of distributing high-quality video in a cost-effective manner, bode well for P2P growth in '07. Though bandwidth delivery and storage prices continue to decrease, I continue to hear consternation from media executives that when their broadband video businesses scale up, they will need to augment current solutions with P2P. Plus, online advertising is a margin-constrained business, implying that cost-containment will be key to the execution of profitable free, ad-supported video models.
To date P2P has been tainted with the illegal file-sharing brush. But indications that BitTorrent is making headway transitioning its model, and the early '07 launch of the Venice Project from the founders of Skype suggest to me that P2P may be heading mainstream. Related to trend #1 above, higher-quality video will be an important factor in driving adoption of broadband video on TVs. It's hard to say much more than this except to keep a lookout for mainstream video providers adopting P2P approaches.
Conclusion
There are my seven broadband video trends for 2007. I'll be watching how things unfold, and will let you know if I have any course corrections in my thinking during the year. As always I welcome your thoughts. In the meantime, I wish you a happy, healthy and prosperous New Year!
