Broadband Video Girds for Growth
From Content Delivery to Syndication, Market's Hot for Internet TV Services
By Todd Spangler -- Broadcasting & Cable, 1/7/2007 7:00:00 PM
Watch full episodes online for free!” So goes the ebullient pitch at ABC.com, which dangles 30 or so complete episodes of shows like Desperate Housewives and Lost in front of anyone with an Internet browser and decent network connection.
Similar offers have appeared at the portals of CBS, NBC, MTV Networks, Showtime and many other programmers looking to stake out territory on the broadband TV frontier.
In fact, the nascent business of delivering TV over the Internet is a growing, multimillion-dollar industry. One key segment: Content delivery networks (CDNs) that facilitate the delivery of TV shows, video and other multimedia content over the Internet will represent a $600 million business in 2006, according to Accustream iMedia Research.
|The Back End of Web TV|
|Overview of different technology service providers for Internet video.|
|Category||What They Do||Who They Are|
|Content delivery||Provide bandwidth and operate streaming||Akamai Technologies, Limelight Networks, networks or download servers to distribute digital RealNetworks, VeriSign, VitalStream video to consumers|
|Management and publishing services||Provide media management, such as transcoding||Comcast's ThePlatform, ExtendMedia, Entriq, publishing services into multiple formats, publishing and workflow The FeedRoom, Maven Networks, WhiteBlox functions and digital rights management|
|Video syndicators||Provide content acquisition and ad sales,||Brightcove, NBC Universal's National as well as media management and Broadband Co., ClipSyndicate, Voxant publishing functions|
|SOURCE: Multichannel News research
For ABC, Limelight Networks operates the CDN that provides the servers and bandwidth to stream those free episodes. The five-year-old venture, which operates 16 data centers around the world, also supports Amazon.com's Unbox download-to-own video service and MSNBC.com's on-demand replays of programs including Today and Meet the Press.
CDN operators like Limelight are part of a group of companies delivering broadband video services, ranging from delivery and syndication to workflow and management tools for publishing content. And on the flip side, at least two new ventures are looking to curtail unfettered Internet video with services that scan for copyright violations (see sidebar, page 22).
The market is growing fast, as cable networks and operators, broadcasters and movie studios — not to mention potentially anyone with a high-speed Internet connection and a YouTube account — upload an ever-expanding universe of video bits. The race is already on to secure an Internet video audience that's sure to be even more fragmented than the ones served today by cable and satellite.
“There will be an infinite number of Internet channels,” said Will Richmond, president of Broadband Directions, a consulting firm specializing in broadband video. “And just like cable networks have put the squeeze on broadcast networks, broadband content will put the squeeze on cable.”
Feeding that demand, privately held Limelight was on pace to triple its business last year, reporting revenue of more than $42 million for the first nine months of 2006. In July, the 125-employee company announced it had received $130 million in an equity-financing round led by Goldman Sachs Capital Partners.
“You have a nice convergence of what users want and what content owners and distributors want, so you're going to get a dramatic increase in the amount of video online,” Limelight chief strategy officer and co-founder Michael Gordon said.
Even so, Internet video viewership has yet to hit the level of one Nielsen Media Research point, or 1.1 million households, said Bill Wheaton, vice president of digital media for Akamai Technologies, one of the first content-delivery network providers and now the biggest.
In March, Akamai and Limelight provided hosting for the live streaming of CBS's coverage of the NCAA Men's College Basketball Tournament. It was one of the biggest online TV events, drawing 5 million viewers over four days, but CBS capped the broadband broadcast at 268,000 simultaneous streams.
Wheaton said 1 million online viewers, each pulling down a 400-kilobit-per-second video stream, would eat up about 33% more bandwidth than Akamai's global network currently serves on peak days.
“Every year we think we hit milestones of concurrent viewers,” Wheaton said. “But consumers' expectations keep growing.” Akamai, which touts a network of 20,000 servers, said it invested $75 million into its CDN infrastructure in 2006.
Where are cable operators in this mix? It's still early in the Internet TV game, but operators are in a position to capitalize on their existing roles as aggregators of video content, according to industry executives.
They're also in the same boat as numerous other broadband video players, everyone from Apple Computer's iTunes and AOL to TV programmers, in the sense that they've needed to build out a separate infrastructure for delivering Internet content, as well as secure online distribution rights.
Comcast, for one, has been steadily turning up online properties in the last few months, and now owns a piece of the Internet-video delivery business itself with the acquisition of ThePlatform, a deal driven in part by the operator's desire to more cost-effectively build out its internal broadband initiatives.
In June, the cable operator bought the Seattle-based content publishing and management services company for an undisclosed sum. ThePlatform, which Comcast is operating as an independent subsidiary, provides an array of services that let video distributors design portals and video players, deliver advertising, format and transcode content and apply digital-rights management policies.
DESIGNED FROM GROUND UP
Ian Blaine, ThePlatform CEO, said its services provide a turnkey content management system that was designed from the ground up to handle the tasks. “You're not going to be rewarded for rebuilding something we've built,” he said.
ThePlatform, which currently has 80 employees, already provides back-end services for Comcast's The Fan, a Web site with short news and entertainment clips available to subscribers. The company continues to work with other customers like Verizon Wireless and Starz Entertainment, which offers Vongo, a direct-to-consumer Internet movie subscription service.
Now Comcast is using ThePlatform to launch new online properties, like Fearnet.com, a site featuring horror-related streaming videos and downloads, tied to an on-demand service of the same name.
Diane Robina, president of emerging networks in Comcast's programming group, said a Web presence was crucial to the Oct. 31 launch of Fearnet, which is aimed at an 18-to-34 demographic. “Teenagers spend as much time on the Web as watching TV,” she said. “They're increasingly watching video on their laptops like it's TV.”
Using ThePlatform to handle content management for Fearnet.com's streaming video “kept our costs down in developing this site,” Robina said.
“Part of our strategy was that, if we couldn't build it, we would use someone else's technology,” she added. For example, Comcast inked a deal with Guba, a video-sharing site and online movie retailer, to provide a selection of horror movies that users can purchase and download in Microsoft's Windows Media format through Fearnet.com.
“We wanted to be a home for all things horror, but we don't necessarily want to be in the electronic sell-through business, at least not this year,” Robina said.
Former Guba CEO Thomas McInerney said a key selling point of the company's private-label movie-download service — which the company hopes to sell to other operators — is that it has already cleared online distribution rights with two movie studios, Sony and Warner Bros. Entertainment. “The hardest part is the studio deals. It took us a year to negotiate the Warner deal,” he said. “Time to market is the big thing. Why reinvent the wheel?”
The answer, of course, is that cutting out a content-aggregator middleman would probably yield better terms. But navigating the thicket of distribution agreements for the Internet is a complex and time-consuming process.
Take the case of TreehouseDirect.com. The site, launched this fall by Toronto-based media company Corus Entertainment, sells downloads of about 200 episodes from kids' TV shows, including those of animation producer Nelvana.
But it's available only in Canada. ExtendMedia, which provides the hosted content-management services for the site, disallows access to TreehouseDirect from Internet browsers outside the country.
“Our intent is to be a global distributor of kids' TV programming online,” Corus senior manager of licensing Scott MacMillan said. “But to ease the launch, we've focused on Canada.”
In the U.S., MTVN's Nickelodeon is one of Nelvana's linear broadcast distribution partners, and Corus has signed a deal for VOD content with Comcast.
Corus is now looking at its properties, which include Nelvana's Little Bear and Franklin, to “clean up the rights and understand what we can show,” MacMillan said. “Everyone at the moment is looking at their agreements and seeing what's been negotiated, and figuring out who's best able to exploit these rights.” For now, he said, it's a case-by-case investigation for each show.
Some new Internet video providers function as syndication hubs that handle more than just infrastructure. These providers extend to business-side activities such as clearing distribution rights, audience development and selling ad inventory.
One such player is NBC Universal's Internet video syndication venture, the National Broadband Co. (NBBC). In NBBC's model, network participants either contribute content, distribute it or both. Partners receive a split of advertising revenue NBBC sells against the content.
In September, NBBC launched a beta version of the service with two dozen partners. Since then, the unit has signed up about 150 partners, general manager Brian Buchwald said. Partners include NBC Universal and its broadcast affiliate group, A&E Television Networks, Hearst, The Horror Channel, Vibe Media Group, CNET Networks and Forbes.com.
NBBC serves “millions” of video impressions daily, with advertising-to-content ratios of 1:2 or 1:3, depending on a partner's specifications, Buchwald said. All of NBBC's distribution agreements are nonexclusive: “If you're a content owner, we think you should look for as many outlets as possible, even though we'd like to be your one-stop shop,” Buchwald said.
So far, the unit is generating almost twice the revenue NBBC projected, according to Buchwald, though he wouldn't specify dollar figures. “We've been a real business since September.”
In addition to the NBBC's two charter advertisers — JPMorgan Chase and Procter & Gamble — the unit is working with Sheraton Hotels & Resorts and Toyota.
During the beta period, the NBBC video syndication system is available only to preapproved partners. After its official launch, set for the first half of 2007, the company will allow any contributor and distribution partner to join the network in a self-service fashion. Also this year, NBBC plans to explore delivering video to new platforms, such as mobile phones and Internet protocol TV, as well as examining download-to-own models.
Two-year-old startup Brightcove has launched its own syndication play, with a suite of services designed to let any content producer package video into an Internet TV channel.
The resulting Brightcove “channels,” which are collections of on-demand clips, can be popped into a producer's Web portal or anywhere else the content owner wants. Brightcove.com also acts as a destination site, pointing visitors to customers' video content if so desired.
Brightcove also allows video producers to distribute pay content through AOL, which has invested in the startup. Customers include the National Geographic Channel, TV Land, IFC, Discovery Communications, Oxygen, The New York Times Co. and TV Guide Channel.
Adam Berrey, Brightcove vice president of marketing and strategy, said its biggest competition comes from producers' in-house projects to integrate different content management and acquisition, programming and ad-buying systems.
The relationship between a content producer and Brightcove is very different from a programmer and operator, according to Berrey. “As a cable operator, if you laid cable in a market, you had a lot of control,” he said. “In Internet TV that's not the case. We think of ourselves as a distributor — we're providing content owners the means to let them distribute the services to consumers.”
To others, “syndication” is an infrastructure-oriented concept. Akamai, for example, last fall launched a beta service called Link Syndication, which allows a content owner to provide a Web address for a particular piece of content that can be shared with distribution partners.
In December, Akamai acquired Nine Systems, which provides media management tools to assign business rules to content that will be distributed via Link Syndication. For example, a content provider could specify different formats depending on the distribution partner — one for, say, Verizon Wireless' V Cast mobile on-demand service and another for video to be downloaded to Xbox 360 consoles, Wheaton said.
But it's often not feasible to use a single third-party provider's distribution network or hub, said Chris Lucas, vice president and executive producer of Showtime Networks' digital media group.
Showtime supplies Internet video content to more than 20 partners on a weekly basis. Comcast, for example, requires content to be submitted via ThePlatform; others grab content from a Showtime file-transfer protocol server.
“We have so many mouths to feed on our promotional side that we've really had to develop a proprietary solution to deliver that content,” he said. “The challenge with some of the third-party solutions out there is you're locked into delivering content into that solution.”
In contrast to ad-supported broadband TV models, Showtime's strategy has been to seed promotional entertainment content intended to encourage consumers to subscribe to its monthly pay-TV channels.
Select Showtime clips are available on YouTube, MySpace and V Cast. In October, Yahoo! also provided full-length episodes of Weeds, Sleeper Cell, Brotherhood and The L Word, and Showtime has offered a few episodes on sho.com. In addition, the network works “very closely with cable and satellite affiliates” to provide promotional clips for their Internet video sites, said Showtime digital media group senior vice president and general manager Rob Hayes.
Showtime does provide episodes for sale through iTunes, but even with that relationship, the overriding aim has been promotional. “The goal of what we do is subscriber acquisition,” Hayes said. “It's about 'Call Showtime to order.'”
How effective have the promos been? Traffic to the subscriber sign-up portion of Showtime's site was up 40% in 2006 compared with the year before, Hayes said.
As for the number of people who actually subscribe, that's harder to measure because the premium network only forwards leads to cable operators. Showtime doesn't disclose subscriber figures. CBS, which owns the network, reported in its third-quarter financial results that subscribers had increased in the first nine months of the year.
Meanwhile, HBO has started discussing the launch of a broadband-video service in 2007 with cable and satellite operators. The network hasn't revealed specific details except to say that it will be a “value-added service” for affiliates — and that it isn't looking to run a direct-to-consumer play.
Liberty Media's Starz has taken the most direct route to the Internet among the pay-TV providers. Its $10-per-month Vongo subscription service, launched in June, provides unlimited rental downloads of about 2,500 movie titles, as well as a streaming version of the primary Starz linear channel through proprietary Windows software.
Cable isn't very happy with Vongo. “The initial reaction was that it was an over-the-top service,” Starz executive vice president of advanced services Bob Greene said. “Their first reaction was understandably one of concern.”
But from the start, Vongo was designed as a way to let affiliates wholesale a broadband movie offering, said Greene. The company already has a reseller agreement with AT&T, and Starz has been trying to sell a private-label version of Vongo to operators.
For now, services like Vongo pose a minimal threat to operators' core video business, said Broadband Directions' Richmond. “The reality is that today, people aren't going to drop their cable subscription and only use broadband to satisfy their video craving,” he said.
But once it gets easier to play broadband content on TVs, the game will shift, he said. Past attempts at PC and TV convergence have been disappointing, but products set to roll out this year, like Apple's iTV and Microsoft's Windows Vista Media Center Edition, may finally get it right.
When a sturdy, easy-to-use bridge for taking Internet video to TVs arrives, operators will need to be ready with their own broadband video strategies or risk turning into mere purveyors of Internet pipes. Operators, Richmond said, should “be agnostic as to exactly how that video gets into a user's home, as long as they collect a toll for it.”
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