TDG Research

Fried Fish and the Comcast Cap Increase

The Diffusion Group — Fri, 18 May 2012 20:48:00 GMT

Fried Fish and the Comcast Cap Increase
Andy Tarczon, Founding Partner

From our "Idiot of the Week" file comes this nugget: a man in Wisconsin was kicked out of an all-you-can-eat fish fry for, you guessed it, eating too much. Watching this video makes you wonder what the hell this guy is thinking.

After eating a dozen pieces of fried fish, the management asked him to depart and packed up a box of eight more pieces to go, just to placate him. That wasn't good enough and the discussion progressed to the point that this gent decided to call the police. After all, the restaurant advertised "all-you-can-eat," right? I mean, wouldn't you protest a bit? Of course you would, and that same reasonable motivation inspired him to picket the restaurant.

And in what strange universe does this have a thing to do with OTT video? Clearly one has to laugh at the absurdity of this story - both from the perspective of the man's reaction and the simple fact that this made the news (are we really that bored?). That said, while watching the video, one sees similarities with the debate about broadband caps and their impact on the consumption of OTT video and the innovative companies driving this sector.

On one hand, consumers had long believed that paying for an Internet service meant unfettered access to the "commodity" for which they pay. It was a subscription or "buffet plan": a flat fee regardless of how much I use. That has long been the lay of the land and we want it to stay that way!

Service providers, of course, had a very different view of all this. Their business, after all, was parsing use of this commodity and setting market price. This power was not at all lost on company executives and was in fact the logic behind eliminating unlimited data plans of all kinds, be it your home or mobile connection.

Remind you of a certain man and a certain restaurant?

Bandwidth caps and the larger issue of net neutrality are among the most contentious topics discussed in our monthly Member consultations. Of late these parleys have focused on the growing yet predictable tension between facility-based incumbent service providers (Comcast) and those web-based service providers that depend upon the incumbents' networks (Netflix).

This issue was brought to the fore when Comcast announced a privileged status for Xbox traffic; privileged in the sense that Xfinity service use over the Xbox won't count against one's bandwidth cap. In contrast, services like Netflix, though delivered to and through the exact same platform, will count toward one's monthly allotment. Fair?

Is Netflix happy with this scenario? Of course not, and its protestations are growing louder each week. Let's just hope the company has better signs than the idiot with the fish...

FCC: Should OTT Services be Included in the Definition of 'MVPD'?

The Diffusion Group — Fri, 18 May 2012 20:47:00 GMT

FCC: Should OTT Services be Included in the Definition of 'MVPD'?
Bill Niemeyer, Senior Analyst

The FCC is currently evaluating whether to expand the definition of "MVPD" (Multichannel Video Programming Distributor) to include online/OTT video services that provide a mix of linear and on-demand programming similar to cable, telco IPTV, or satellite services (the current incumbent MVPDs).

This would convey a unique set of FCC-defined rights and responsibilities to OTT providers that they currently do not have, including a concept known as program access. That is, TV networks that are part of companies that have ownership stakes in multichannel distribution must offer their programming to a qualifying MVPD.

This is an important issue for the development of OTT video services, not to mention expanding consumer choice to include net-delivered services that fully compete with the incumbent MVPDs.

The case that is bringing this issue to the fore is a dispute between Sky Angel and Discovery Networks. Sky Angel is a family and Christian linear and on-demand TV service that formerly was distributed over satellite. In 2008, Sky Angel switched to delivery over the Internet to STBs (using Neulion's distribution platform), at which point Discovery pulled its programming. Sky Angel asked the FCC to declare it a MVPD so it could exercise program access rights with Discovery. (For the record, among Discovery's major shareholders is Liberty Media, which owns a cable system in Puerto Rico. The FCC has yet to rule officially in the matter.)

Discovery responded in a filing that MVPDs provide programming "over facilities they own or control" while Sky Angel uses "the public Internet" - an amorphous phrase whose meaning has evolved from a Defense Department network to what is today provisioned by for-profit companies. And as noted in the FCC's request for comment on the OTT MVPD issue, the commission has already held that entities do not have to own or operate their facilities to qualify as an MVPD. Therein lies much of the rub.

The NCTA this week filed its own comment, similar in tone to Discovery's filing. It asserts that Internet-based services cannot be MVPDs because they do not provide a "transmission path" (checks written to CDNs don't count apparently); instead, consumers pay for the path. Comcast filed a similar comment, undoubtedly in part because an expanded definition of "MVPD" would require NBC Universal to offer its programming to OTT MVPDs on an equal basis with incumbent PayTV operators.

Conversely, DirecTV has taken the rather sensible position that if an OTT service acts like an MVPD and competes with MVPDs, it should be regulated the same way; extending to these online purveyors the same "core set of common rights, protections, and obligations."

The opponents of OTT MVPD status cite various regulatory bases for their opposition, including the 1992 Cable Act and the 1996 Telecommunications Act. I wondered how lawmakers of 15-20 years ago could envision how future technological innovation would impact the media business and consumers. Nevertheless, those lawmakers did provide for unanticipated change.

The 1996 Telecom Act says that in making rules and regulations, the FCC must "reflect the dynamic nature of the communications marketplace." The FCC must also ensure that no operators can "unfairly impede...the flow of video programming from the video programmer to the consumer." It seems that those who formulated this 16-year old legislation were wise enough to realize that, regardless of which direction innovation drives the marketplace, having a level playing field was imperative.

The cable industry's opposition to OTT MVPDs is an obvious bid to constrain a new class of competitors. Incumbent operators and cable TV networks have a great (highly profitable) thing going here. With almost 90% of U.S. homes subscribing to an incumbent MVPD, and a la carte network access (still) a long way away, why upset the applecart?

That being said, it is troubling that the cable operators are so strenuously opposed to Internet-based video competition because they also enjoy such dominant control of the residential broadband market. For reference, the eight largest cable and telco-TV operators today provide broadband service to about 80% of U.S. broadband households. As well, incumbent operators are pursuing their own Internet video distribution strategies, using the power of their carriage contracts with networks to control online content access (for example, TV Everywhere efforts).

With today's technology facilitating expanded consumer choice, it seems very "last century" to proclaim that OTT services cannot qualify as MVPDs because consumers are paying broadband operators (in most cases MVPDs themselves) for the ultimate distribution. In my mind, the FCC has a clear mandate to make sure that regulations change as technology changes to continue protecting the public interest and promoting fair competition.

It thus seems fair that, if incumbent MVPDs get to play in (and charge consumers for access to) the OTT playground (namely Internet distribution), they must allow OTT services to use their incumbent MVPD regulatory toys.

On the Subject of Dish Ad Skipping and Hulu Plus

The Diffusion Group — Fri, 18 May 2012 20:46:00 GMT

On the Subject of Dish Ad Skipping and Hulu Plus
Colin Dixon, Senior Partner, Advisory

Last week we mentioned that had rolled out an automatic commercial-skipping feature to its new Hopper DVR. The feature works in conjunction with the "Primetime Anytime" functionality, which records all four of the national broadcast networks during primetime and keeps a full week of recordings. After spending a week using it, I can tell you that hopping over the commercials automatically is simply great. Watching a show with no ads couldn't be easier. Programs within the Primetime Anytime area that have ad skipping are marked with a little red kangaroo icon. Select a show, acknowledge you want to watch commercial free (image at left), and sit back and enjoy ad-free TV. The only evidence that the commercials existed at all is when a kangaroo icon pops up for a few seconds where the ads once were.

Predictably, the networks are not amused. NBC Broadcast Chairman Ted Harbert declared the feature "an insult to our joint programming and I'm against it." Fox Network announced that it wouldn't air any ads from Dish Network that mentioned the ad skipping functionality or the Hopper DVR. Les Moonves, head of CBS, threatened program cancelation and renegotiated retransmission fees, declaring "How does Charlie Ergen expect me to produce CSI without advertisements?"

Rather than complaining about ad-skipping efforts, major networks would be better served by putting their (substantial) resources behind Hulu and Hulu Plus. I've been using Hulu Plus a lot lately and am pretty happy with the ad load - considerably less than broadcast TV - and the picture quality. Treated correctly, Hulu Plus could render the DVR unnecessary and get the on-demand audience back to watching ads again (precisely as TDG first argued in early 2011.) But with talk of tying Hulu access to a PayTV subscription, broadcasters seem bent on allying their content with operators like Dish. Remember, every operator provides a DVR with a fast-forward button so ad skipping isn't unique to Dish - it's just that Dish has made the process more user friendly.

How will all this play out? Perhaps Dish intends to trade the feature away to keep the broadcasters happy or save some money on retransmission fees. Until then, I will be a heavy and appreciative user of the feature.

Is There Any Hope for Operator VOD?

The Diffusion Group — Fri, 11 May 2012 20:34:00 GMT

Is There Any Hope for Operator VOD?
Andy Tarczon, Founding Partner

This week saw an interesting report out of Europe noting that operator video-on-demand (VOD) is creating only 1% of all TV revenue. Should we be surprised? Probably not. Our consumer and market analyses have arrived at similar findings.

Last year, we asked consumers about their "first glance" TV behaviors - that is, the first source to which they turn when thinking about watching TV. At that time, a third turned first to an on-demand source of content, which is great but PayTV VOD was dead last in that category at 2% "first glance" ratings. Later in the year, we followed up the notorious Netflix' service split and rate hike by asking users to which source they would turn first if they should cancel Netflix. Only 2% said they would make up for the lack of Netflix by using their operator's VOD offering.

In the world of OTT services and TV Everywhere efforts, VOD offers PayTV operators a true hi-def competitive weapon, yet it is largely ignored. No matter how we look at TV services, VOD is an afterthought in the consumer decision matrix, which begs the question: is there any hope for PayTV VOD?

According to numbers shared by Rentrak, we estimate the average U.S. VOD household watches only 12 minutes of VOD per day, about 1% of their overall viewing. In his recent report, Making Ad-Supported VOD Work, my colleague Bill Niemeyer outlined eight prescriptions that would help operator VOD work; opportunities providing a 900% increase in viewership matched with a 4,000% increase in revenue. Below are just two of the ideas presented in this report (in abbreviated format).

#1 Dynamic Ad Insertion

Adding the ability to dynamically insert ads is critical to unlocking the value of VOD for ad-supported content. The technology to enable VOD ad insertion is available now. Ironically, it is standard practice for local cable ads in linear TV to be inserted dynamically by operators on a geo-targeted zone basis using systems very similar to VOD (often using products from VOD vendors). TV networks and stations place commercials in linear feeds using their own VOD-like insertion systems.

Dynamic ad insertion is a moderate cost add-on to most existing VOD systems. Certainly there are technical and operational details to be worked out, but operators need to "take the car out of the garage" (do market-scale field testing) in order to get moving.

#2 Program Guides

As with advertising-specific technologies, better program guides are also sitting on the shelf waiting for operator deployment. Improved guides would do a much better job of helping customers use their TVs to find ad-supported VOD content, as well as subscription and PPV content.

Additionally, these advanced guides offer superior promotional vehicles for both networks and operators to market their content offerings. TV incumbent-deployed web, iPad, and smartphone guide apps show that networks, operators, and consumers are motivated to use better solutions.

These are just two of the ideas presented in this new report. Members, feel free to request a copy, and non-members, feel free to become members. The study's results should be a wake up call to all: let's not forget about the potential of operator VOD.

Do Commerce-Driven TV Apps have a Chance?

The Diffusion Group — Fri, 11 May 2012 20:33:00 GMT

Do Commerce-Driven TV Apps have a Chance?
Michael Greeson, Founding Partner, Research

This week interactive-TV vendor Ensequence landed $26 million in new financing, bringing its total capital raised to $140 million. The 12-year old company first offered a tech platform on which cable operators could deploy TV apps with which viewers could interact using their remote control. The new investment is intended to fund the development of interactive apps for smart TVs and second-screens such as pads and smartphones.

Early efforts focused on simple iTV functions like on-screen polling, but the company is now honing in on simulscreening apps that allow an ancillary device (say, a pad or smartphone) to recognize content being viewed on the TV - whether a program or an advertisement - and automatically offer up interactive apps related to that content. These are commercially sponsored links, mind you, the goal of which is to sell merchandise or services featured in the content. In other words, the program itself becomes a rolling product list.

It was on precisely this subject that Cory Treffiletti of MediaPost penned an article entitled "The 'Myth' of Commerce-Enabled Interactive TV". It was an excellent piece. Cory questioned whether the concept of "hot-spotting" products and services in a TV show is a viable business strategy. Ergo, is there money to be made in giving consumers the ability to buy a sport coat or sweater featured in Mad Men at the very moment it is viewed on the TV, and all at the "click" of a "button"?

This concept has long resonated with tech-inclined media journalists (and media-inclined tech journalists) but, as Cory points out, consumers have yet to buy into the idea. This is consistent with TDG's research from as early as 2007, which cast significant doubt on the viability of these apps.

In 2012, however, we're dealing with a very different consumer, one that understands the benefits of Internet connectivity and net-enabled applications, especially when it comes to media. It is thus worth asking whether today's 'connected consumer' is more receptive to interactive TV commerce applications.

Just a few weeks ago, we asked adult broadband users of their interest in an interactive TV app that, with the click of a control device (a regular remote, a pad, or a smartphone), paused the video and brought up information related to the product or service in question. Should they be so driven, the site also facilitated purchase.

Consumer response was about equally split: about a third were uninterested, another third ambivalent, but four in ten showed some willingness to use the app. Given how poorly consumers have historically responded to this type offering, Ensequence and others should be encouraged.

However, though many expressed a willingness to use the app, very few said they would definitely do so, meaning the jury is still out and burden of proof lies squarely with those developing these apps. They must be consumer-friendly to the utmost degree. If not, there is no "click through" and thus no chance of purchase, meaning the model collapses.

Start by executing the basics. Harder than it sounds, right?

Business as Usual: DISH Complains About Streaming Devaluing TV Then Launches Automated DVR Ad Skipping

The Diffusion Group — Fri, 11 May 2012 20:32:00 GMT

Business as Usual: DISH Complains About Streaming Devaluing TV Then Launches Automated DVR Ad Skipping
Bill Niemeyer, Senior Analyst

There's the expression "some days you're the dog and some days you're the hydrant." In the TV business you're usually both - simultaneously. Former upstart, new-entrant, and now $14 billion market cap sat-caster DISH illustrated the proverb earlier this week.

On Monday, during the Q1 earnings call, DISH Chairman Charlie Ergen said (transcript) the Rainbow networks including AMC have "devalued their programming" by making content available through online/OTT providers "like iTunes, Amazon and Netflix." This was in response to a question about DISH's announcement it will be dropping AMC and the other Rainbow nets at the end of June because of pricing on the upcoming carriage contract renewal.

On Thursday, DISH announced the activation of "Auto Hop," an automated ad-skipping feature available on its recently released Hopper whole-home DVR. When programs are recorded using the PrimeTime Anytime feature (one-click recording of all primetime shows on ABC, CBS, FOX, and NBC), Hopper users can experience the bliss of automatic ad removal when programs are played back (the auto ad skip doesn't work for same day playback, only next day or later).

Thus, DISH demonstrates how it can be the Devaluee and Devaluor simultaneously - that is, assuming that Big Four broadcast network execs feel automated removal of their primetime ad inventory would cause their revenues and paychecks to be "devalued."

Of course, this is Standard Operating Procedure for businesses in TV. Everyone is trying to devalue the business models of their competitors as well as both their upstream and downstream partners; all in an effort to keep as much value as they can for themselves. That's Big Media Business 101.

In TV, however, they tend to do so in a very public way, and with amusingly disingenuous positioning. As a bonus there are abundant lawsuits. DISH and Rainbow are locked in legal battle over the 2008 collapse of the U.S. portion of Rainbow's VOOM HD satellite service (which of course has no impact on the DISH/Rainbow carriage dispute).

To further add to DISH's "TV standard" hypocrisy, it is actively working to get into the wireless broadband business using satellite spectrum to provision ground-based cell towers. What would be the chief use case for wireless broadband? Streaming video, of course, including traffic from services like iTunes, Amazon and Netflix.

What are the takeaways for online video/OTT participants? You get a pat on the back for having been successful enough to become a complaining point in TV incumbent negotiations. And successive platform devaluation is the norm for electronic media. Broadcast TV devalued radio. Cable TV devalued broadcast. And now streaming is devaluing both cable and broadcast.

However, online video/OTT is not killing off the TV incumbents anytime soon. ABC, CBS, FOX and NBC are still the four most viewed networks - 37 years since the launch of HBO, the first national cable net.

A final note to online video/OTT execs - don't get "holier than thou" about the public negotiating antics in TV. You'll soon be fully in the club and well versed in the art of talking out of all three sides of your mouth simultaneously.

The Schism Between Free-to-Air and Free-to-Online Deepens

Colin Dixon — Tue, 08 May 2012 13:42:00 GMT

In the last few weeks, the line between broadcast and online video has become much more sharply drawn. Free-to-air broadcasters continue to step back from the opportunity of free-to-online distribution, while some of the largest online video companies are stepping up to the opportunities of advertising-supported, broadcast-quality online video. Both camps are betting they can capture or retain a significant audience for their shows; at stake are the billions of ad dollars wrapped up in the television market. ...(read more)

Economic Recovery and Cable Growth Part II

The Diffusion Group — Fri, 04 May 2012 17:31:00 GMT

Economic Recovery and Cable Growth Part II
Colin Dixon, Senior Partner, Advisory

In last week's OTT Monitor, I asked whether cable would return to growth now that the economy is showing signs of recovery. I speculated that Time Warner Cable's continued video subscriber losses would not be an aberration for the cable industry and that the sector as a whole would continue to lose subscribers. Comcast reported results for the first quarter of 2012 and the company's results look remarkably similar to TWC.

Comcast lost 37,000 video subscribers in the first quarter to end with 22.3M, down nearly half a million subscribers from the first quarter of 2011. However, like TWC, the company was still able to grow video revenue by 1.6% from the same period one year earlier. Since TWC and Comcast are by far the biggest cable companies, with over 34M video subscribers between them, this performance would seem to set the trend for cable in the U.S.

Does this mean we can expect the PayTV industry as a whole to lose subscribers this quarter?

At the moment it looks unlikely. Both AT&T and Verizon each added around 200,000 video subscribers in the first quarter. DirecTV will report results next week and likely will show a net gain in subscribers after a strong 2011, gaining 662,000 new subscribers for the year. Based on these expectations, I estimate an overall gain in PayTV subscribers of 200-300,000 for this quarter.

Does this mean that 'cord cutting' remains a myth? As our research continues to show, PayTV cancellations remain an exception. However, with the cost of such services continuing to escalate, the trends are not looking good on that score. In 2010, just 8% of broadband users with PayTV said they were considering cancelling their PayTV subscription. In our most recent survey, that number had risen by nearly 40%. I expect to see those contemplating cancelation to grow even more this year as PayTV rates continue their unrelenting march upwards. And at some point, many of these folks may well be moved to act on their intentions.

Assessing Diffusion of Net-Connected TVs - Getting It Right

The Diffusion Group — Fri, 04 May 2012 17:29:00 GMT

Assessing Diffusion of Net-Connected TVs - Getting It Right
Michael Greeson, Founding Partner, Research

It seems that every consumer research firm in the country is now offering 'insights' on over-the-top video delivery and the platforms that support it. Prognostications are a dime a dozen, many of them worth little more than just that. And the more voices that chime in, the harder it becomes to tell fact from fiction.

Take, for example, estimates regarding the diffusion of net-connected TVs -- televisions that are connected to the Internet either directly (as in Smart TVs) or indirectly (via ancillary platforms like game consoles and Blu-ray players). Market sizing is all over the map, with each new estimate reported as if, by virtue of its mention in a press release, it is equally valid and worthy of a headline.

Enough of this garbage - let's set the record straight.

As of March 2012, TDG's research found that approximately 65% of U.S. broadband households had a net-connected television. Assuming broadband penetration of 80 million households, 52 million own a net-connected TV. Assuming 130 million U.S. households, 40% have a net-connected TV.

And that, my friend, you can bank on.

Come on, Michael, that's what every firm says. Why should we believe TDG's numbers any more than the others? Good question. In the words of Jules Winnfield (Samuel Jackson's character in Pulp Fiction), "Allow me to retort."

For one, we've been analyzing, forecasting, and consulting in this market space for eight years. Second, as TDG Members will tell you, we've been getting it right for eight years. Third, our latest estimates were confirmed by two separate studies using two completely separate panels. Fourth, our studies impose strict demographic quotas based on Pew's research findings (arguably the most respected name in consumer research), meaning our data is highly likely to be representative of the U.S. broadband population (the only households that use a net-connected TV).

Independent of these arguments (which are all valid, mind you), consider this: most firms worth their salt acknowledge the fact that two-thirds of broadband households own a game console, three-fourths of those connected to the Internet. Put another way, in and of themselves net-connected game consoles are present in 49% of broadband households. This means, at the very least, 40 million (31% of all U.S. households) currently have a net-connected TV -- and this is before other platforms like Smart TVs, Blu-ray players, DVRs, and Internet set-top boxes are added to the mix.

Are we clear now?

Headlines in an industry newsletter are easy to come by; reliable market estimates and forecasts are much more difficult to produce. TDG Members know the difference. Do you?

Hulu and Authentication - Much Ado About The Inevitable

The Diffusion Group — Fri, 04 May 2012 17:27:00 GMT

Hulu and Authentication - Much Ado About The Inevitable
Bill Niemeyer, Senior Analyst

The NY Post this week broke a story suggesting Hulu may be taking "first steps" towards requiring viewers to authenticate their MVPD subscription before they can access Hulu's content. Experienced digital media journalist Claire Atkinson wrote the article, so I'll take this as reliable. (Strangely, I've come to regard the NY Post as a good source of behind-the-scenes media news, despite the print edition's "colorful" covers and news-free insides.)

I found this story interesting but not that surprising. What I found more interesting was the response to the story. Many articles and blog posts featured headlines expressing disgust and anger over viewers being "forced" to authenticate.

Who could possibly guess that Hulu, a joint venture of three very large media conglomerates, might make decisions based on increasing the owners' profitability? You'll note I didn't mention the fourth owner, hedge fund Providence Equity, which bought 10% of Hulu for $100 million in 2007. As Bloomberg News recently reported, Providence wants out and is about to sell their stake back for $200 million, primarily because its interests and those of owners ABC, FOX, and NBC have been increasingly in conflict.

That Hulu would become an authenticated service (provided it lived long enough) has been evident for several years. As broadcast networks pursued ever-higher retransmission fees in their bid to gain cable-style fee revenue, it was inevitable that they would be asked by operators to accept cable-style restrictions on showing full episodes online. As was the expectation that broadcast networks would gladly accept those restrictions for an extra billion or two each in revenue.

As to the outrage...to use an old expression, it's called "show business" for a reason.

As to those who are predicting the death of Hulu as a result of authentication, I'm going to be a contrarian. Not only will it not kill Hulu; it may even fuel greater growth.

First of all, with close to nine in ten U.S. TV households being MVPD subscribers, the vast majority of Americans will be able to authenticate to watch Hulu. And while online video-driven cord cutting may also be inevitable, at the moment it's not having a big impact on the numbers. According to TDG's Profiling Netflix Streamers 2011, Netflix streamers subscribe to PayTV services at the same rate as all U.S. broadband households. The idea that requiring authentication will drive Hulu users away in large numbers doesn't stand up versus the metrics of today's TV/video landscape.

It is arguably more likely that Hulu will grow under authentication, especially if authentication means Hulu gets access to current full episodes of cable network shows. As well, with authentication in place, Hulu-holdout CBS may be likely to join the mix. CEO Les Moonves recent told The Hollywood Reporter that CBS would "...take a look at (Hulu) under the authentication model."

How will an authenticated Hulu impact Hulu Plus, the company's subscription service? That's a good question. Hulu Plus could differentiate its service much as it does now: by offering a wide range of device support, HD vs. Hulu's SD, and a wider content offering including full seasons of current shows (Hulu now has only the last five) as well as movies and past season TV shows not available on the free service.

We'll be tracking closely what happens with Hulu in the coming weeks and months. In the meantime, here's a bit of advice for those experiencing outrage at the prospect of Hulu requiring authentication. Don't expect large media conglomerates to overturn their own apple carts (at least not intentionally).

As Economy Improves will Cable Recover?

The Diffusion Group — Fri, 27 Apr 2012 16:21:00 GMT

As Economy Improves will Cable Recover?
Colin Dixon, Senior Partner, Advisory

Earlier this week, Morgan Stanley media analyst Ben Swinburne forecast that PayTV subscribers would increase 500,000 in Q1 of this year. An interesting forecast and one that sets itself up for comparison to real-world results.

The first test of this forecast is Time Warner Cable, which announced Q1 results this week. The expectation was that the company would see a bump in subscribers due to the acquisition of Insight Communications. Unfortunately, this did not pan out. Time Warner reported it lost 94,000 video subs in Q1, more than double the losses in the same period in 2011.

Amazingly, TWC was still able to increase revenue for residential video services by 1.9%. The only way this can happen of course is if remaining subscribers agree to pay more. In past quarters, Comcast has also reported similar performance: falling subscribers and increasing revenue - on oxymoron not lost on the market, much less mainstream consumers.

Can PayTV companies continue to defy gravity in this way? Consumer choice is increasing fast courtesy of OTT providers such as Apple, Netflix, and Hulu. These services provide mainstream content at radically different (i.e., lower) price points than PayTV operators. Every price increase in cable makes OTT services that much more appealing.

But the value proposition of OTT delivery is beginning to ring home to others in the value chain of delivery, not just consumers. Microsoft announced this week that ESPN and CBS Interactive have signed on to the company's advertising program. This allows advertisers to insert 15 and 30 second video spots into video content delivered by the game console. The reason ESPN and CBS are interested in the platform is very simple: eyeballs. Microsoft also announced that Xbox live Gold members spend an average of 84 hours a month with the service, more than half of which is in media consumption, not multiplayer gaming.

Despite all this, could Ben Swinburne be right that PayTV is set to return to healthy growth? TWC's result could be an aberration for the sector as a whole. For cable this seems unlikely after years of steady losses. As well, for those people that got rid of PayTV for economic reasons returning to the service is more expensive than ever. And this, in the end, could be the reason they decide to stick with cheaper online services and not to return at all.

Remarkable: Netflix Traffic Grows 30% in Six Months, But So Does Everyone Else's

The Diffusion Group — Fri, 27 Apr 2012 16:20:00 GMT

Remarkable: Netflix Traffic Grows 30% in Six Months, But So Does Everyone Else's
Bill Niemeyer, Senior Analyst

It's not news that Net-delivered video is big and quickly getting bigger. But I track this market closely and was surprised when looking at data released yesterday, just how quickly.

This week, service provider vendor Sandvine published its latest biannual Global Internet Phenomena Report, presenting Internet traffic data gathered from a selection of more than 200 of their customers. It's 36 pages of endless fun for quant-wonks like myself. I identified two takeaways I think are worth your time.

Netflix saw 30% growth in its total North American Internet traffic over the past six months. During the same period, however, its share of peak hour traffic stayed constant at 33%. Sandvine reports the reason is that the rest of the online and OTT video market grew as well, citing YouTube, Hulu, HBO GO, Amazon Prime, and TV network streaming (aka TV Everywhere) as drivers. Confirmation that OTT is now more than just a Netflix success story.

Phones and tablets are fast becoming important consumers of wireline broadband video bandwidth. Sandvine says 9% of Netflix's North America fixed network traffic and 28% of YouTube's is consumed by mobile devices (Wi-Fi use by phones and tablets). Sandvine calls this "home roaming," although I wonder how much Wi-Fi use is out-of-home versus in-home. Overall, phones and tablets consume 16% of fixed network audio/video traffic and 9% of all fixed network traffic. While Sandvine doesn't split out "home roaming" use between tablet and phone, it seems likely the big driver is tablets. It's but one more indication that tablets like the iPad and Kindle Fire are driving big changes in how Americans watch video, including broadcast TV.

This week also saw Netflix release its Q1 results, reporting a gain of 1.7 million U.S. streaming subscribers in Q1 2012, a nice turnaround after Q4's anemic increase of 220,000 (likely reduced due to the "Great Netflix Customer Relations Unpleasantness of 2011"). That means Netflix had a total gain in domestic subscribers over the past six months of 9% vs. total traffic growth of 30% over the same period. This disparity is likely due to a shift towards more HD vs. SD streaming , as well as greater streaming consumption per subscriber.

As TDG's Profiling Netflix Streamers 2011 showed, Netflix streamers are more likely than the average broadband user to own devices that support consumption of net-delivered video, including game consoles, Blu-ray players, Internet STBs (like Roku), and tablets. As the CE market unrelentingly provides more options for video consumption, Netflix streamers are offered (and undoubtedly buying) more ways to spend their time doing something other than consuming traditional MVPD-delivered TV.

This further fuels the impact Netflix is having on multichannel operators and TV networks. I estimated in Making Ad-Supported VOD Work that Netflix saw 80% more hours of use in Q4 2011 than all MVPD VOD combined. With 30% Netflix traffic growth over the past six months, that number has probably only gotten larger.

That's something to give MVPDs pause about future customer retention and ARPUs, especially given this stat from the TDG Netflix report - Netflix streamers are more likely than the general broadband population to subscribe to PayTV services.

London Calling, Eyeing Olympic Gold

The Diffusion Group — Fri, 27 Apr 2012 16:19:00 GMT

London Calling, Eyeing Olympic Gold
Andy Tarczon, Founding Partner

The world has certainly changed in the last four years. Just look at this week's headlines. Broadcast network viewing is down dramatically: ABC down 20%, FOX 21%, NBC 5%. Consumers seem to be changing their video viewing behaviors. What a surprise....

All the stuff we at TDG have been discussing for the past few years is increasingly true. Yep, according to Jeff Gaspin, "We are seeing the cumulative effect of nonlinear viewing." We have long called this "quantum viewing," but it's nice to have outside validation.

Thankfully, we still have sports to drive live viewing, and the biggest event of this summer begins three months from today - the 2012 Olympics in London.

No doubt the flood of announcements surrounding the event will be overwhelming (as seen with Elemental, AT&T, Akamai, and Microsoft). The Olympics not only hold the beauty, pageantry, thrills, and numerous other superlatives that you'll soon be hearing over and over and over. They also provide a quadrennial mark by which we can gauge the progress of OTT video services and supporting platforms in the home.

So how much has the world of OTT changed since the 2008 Beijing games?

In 2008: Beijing	In 2012: London
3,000 hours of Olympic coverage available to stream (of 3,600 hours shot) courtesy NBC	The entire Olympic games will be available to stream
Netflix had under nine million subscribers	Netflix has about 25 million subscribers
iPhone was nearing its first birthday	iPhone is a few years older and used by more than 100 million consumers
The first Android phone was approved by the FCC during the Beijing games	More than 300 million Android devices are in use
In the U.S., broadcasts were still analog	It's digital or die, and cable companies are trying to close the remaining analog loophole
Smart TVs did not exist	More than half of TVs in broadband homes are connected to the Internet

Care to wonder where OTT will be come 2016 in Rio de Janeiro?

Cloudy with a Chance of Content

The Diffusion Group — Fri, 20 Apr 2012 15:39:00 GMT

Cloudy with a Chance of Content

Microsoft Offers Virtual Broadcast Framework with its Windows Azure Media Services

Andy Beach, Contributing Analyst

This week at NAB in Las Vegas, Microsoft announced Windows Azure Media Services (WAMS), an integrated set of services on Windows Azure, MS's scalable cloud platform. These services will enable customers and partners to create, distribute, and manage customized media solutions for a variety of platforms and devices. The platform also supports a variety of connected devices from Microsoft Xbox and Windows PCs, to non-Microsoft platforms such as connected TVs, set-top boxes, and MacOS, iOS, and Android devices. Starting this week, customers and partners can sign-up for a free preview of Windows Azure Media Services. No official launch date has yet been announced.

What's important to recognize is Microsoft isn't launching an OVP-like service; this isn't the next Ooyala. Instead it has launched the framework upon which any content provider can build their own processing and distribution channel. Don't think Brightcove, think EC2 from Amazon.

The benefit is that instead of having to set up and manage a lot of virtual machines yourself, Microsoft can provide turnkey modules of either its own devising or created by its partner ecosystem. And while the Microsoft-provided core service will be important, the partner ecosystem is even more critical to the success of the overall scheme. Interconnecting existing ad delivery platforms, watermarking, and encryption systems will give the service the flexibility companies need to customize it as their own.

Azure is based on standards and services Microsoft vetted through events like the Vancouver Winter Olympics. For companies hoping to move their content online efficiently, WAMS offers an opportunity to do so with improved efficiencies. Why build out a costly infrastructure when you can just set it up as a virtual channel? The system will support both live and on-demand content (though live wasn't being shown off in this preview, only on-demand). It is also worthy to note that this isn't a Windows-centric delivery system. Multi-platform and protocol delivery is the name of the game here (with DASH support touted as well), thus ensuring a path for support for future services and technologies planned (Microsoft was an early supporter of the mpeg DASH promoters group).

While WAMS doesn't have a face per se, I should point out that a proof-of-concept interface showing all the potential services and process for building a workflow were highlighted at NAB with a UI provided by Hypershow, a Microsoft partner offering design and development around interactive media. Though WAMS is clearly geared towards large media broadcasters, I wouldn't be surprised to see several startups take advantage of the infrastructure to build out their own OVP or Encoding.com competitor.

Hulu Plus Reaches Two Million Subs. The "Dual Revenue Model" Is Turning Out To Be A Nice Success (So Far).

The Diffusion Group — Fri, 20 Apr 2012 15:38:00 GMT

Hulu Plus Reaches Two Million Subs.
The "Dual Revenue Model" Is Turning Out To Be A Nice Success (So Far).
Bill Niemeyer, Senior Analyst

Hulu CEO Jason Kilar spoke at this week's Ad Age Digital conference (as reported by GigaOm) and, among other things, noted that the Hulu Plus subscription service now has more than two million subscribers. This continues the strong, steady ramp the service has enjoyed since its November 2010 launch. Kilar also said that Hulu Plus is the fastest growing video subscription service (of any kind) to reach two million subs. (In a past blog post Kilar said that Hulu Plus hit 1.5 million subs in January and reached one million during the summer.)

The subscription offering has turned out to be a good income source for Hulu. In his blog post Kilar said that subscription revenues will comprise more than half of Hulu's total in 2012. Kilar provided historic total revenue and subscription levels in that post, so I did some back-of-the-envelope calculations to look at Hulu's mix of money sources, past and present.

In 2011, Hulu's total revenues were $420 million. Using the subscriber numbers in the post and the $7.99 monthly fee, I estimate Hulu's subscription revenue in 2011 was $80 million, or 19% of the total. Ad revenue accounted for the remaining 81% or $340 million. In 2010, subscription revenues were down in the noise as Hulu Plus launched mid-November. Effectively all of 2010's $260 million in revenue were from advertising.

Let's look forward to 2012 revenues. How many subscribers will Hulu Plus gain over the year? Past results indicate an average gain of about 300K subs per quarter (though in Q1 2012 it gained 600K subs). To be conservative, I'll call it 400K subs per quarter over 2012, which would put Hulu Plus at three million subs by year-end with $210M in revenues. That's a very healthy gain at almost triple 2011 subscription revenues. Unfortunately that is not in line with CEO Kilar's assertion that more than half of the total in 2012 will come from Hulu Plus (unless ad revenues drop dramatically from 2011's $340 million). Of course, Kilar's visibility into Hulu Plus subscriber metrics is a bit better than mine and maybe there are some dramatic gains coming.

Nonetheless, Hulu Plus has been a solid success story for Hulu. It has deployed the cable industry's beloved "dual revenue model" of getting people to pay for access to ad-supported content. Hulu has done this with good execution, most notably by continually expanding the now wide range of connected TVs and devices supported. And Hulu has the benefit of unique access to content from its equity holders (including ABC, FOX, and NBC). As Kilar notes, "Hulu Plus is the only online video subscription service that offers current season content from five of the six largest U.S. broadcast networks."

But Hulu still has the Sword of Damocles hanging over its head, as future decisions by ABC, FOX, and NBC could jeopardize content flow. These content contracts are short term and allow a lot of latitude for the networks, as indicated by FOX's recent move to limit free online viewing of its shows to an 8-day window that applied to free Hulu as well.

Hulu has executed its vision quite well (apart from the still inadequate search and discovery) and has led the market in online video advertising innovation. I wish the team continued good graces with their anchor tenants/network owners - they will need it.

NAB 2012: Second-Screen Apps Usurping TV Ads

The Diffusion Group — Fri, 20 Apr 2012 15:37:00 GMT

NAB 2012: Second-Screen Apps Usurping TV Ads
Colin Dixon, Senior Partner, Advisory

At NAB in Las Vegas this week I spent some time with Alex Terpstra, CEO of Civolution. The company makes solutions for the watermarking of video. Aside from the security aspects of the technology, there are some very interesting commercial opportunities it can unlock. Watermarks can be inserted into the audio of a TV show (inaudible to the human ear) and an app on an iPad can listen for them, identify the show being watched, and allow synchronized services. For example, the app can display closed captioning of the dialog or let you buy something from the home shopping network without having to call up on the phone.

As Alex and I talked, I remembered something that Evan Young, Senior Director of Product Marketing at TiVo, said on the TV Everywhere panel I moderated earlier in the day. While discussing social media and television programing, he reminded us all that content providers and operators want to control everything about the experience. Yet a second-screen synchronized app could break this control in ways sure to invoke the ire of television industry.

As Alex pointed out in our discussion, anyone can deliver an app on an iPad that can synchronize with whatever the user is watching on television. It doesn't have to come from the PayTV operator or the content provider. In my example of closed captioning above, a third-party developer could create a Japanese translation of a movie and sell an app that a Japanese speaker could use while watching it on their TV.

As well, consider this example. Papa John's Pizza creates an app that "listens" to the TV and, every time a pizza ad comes on TV from a competitor like Domino's or Pizza Hut, it gives the user a discount offer for a pizza and an opportunity to order a pie immediately. This is surely what eBay has in mind for the iPad app it announced late last year.

While content providers and operators can continue to exercise strict control of their product on TV, controlling what happens online will prove much harder. And with nearly 40% of iPad owners using their tablet in front of the TV on a daily basis, usurping the intended message of a TV show or ad is becoming easier every day.

TDG: eReaders Diffusion Up 250% Since 2010, Tops 20% of U.S. Internet Households

The Diffusion Group — Thu, 19 Apr 2012 05:41:00 GMT

TDG: eReaders Diffusion Up 250% Since 2010, Tops 20% of U.S. Internet Households
Despite Pad Substitution, Research Finds eReader Uptake Continues to Grow, User Segments Intersect but Distinct

April 19, 2012 (Frisco, Texas) - eReaders continue to enjoy widespread use among U.S. consumers, this despite the rapid uptake of iPads and other tablet PCs. According to TDG’s new report, Profiling eReader Users—A Consumer Snapshot, penetration of dedicated eReaders grew from 8% of U.S. Internet households at year-end 2010 to 20% at year-end 2011—an increase of 250% in just 12 months.

While this constitutes impressive diffusion (eReaders were first introduced in 2007), the activity of eReading has quickly become just another application enabled by more powerful multipurpose devices, chief among them pad or tablet PCs. For this reason, many analysts quickly predicted the rapid decline of dedicated eReaders, much as the calculator or wristwatch has been subsumed by smartphones.

“Undoubtedly eReader demand is increasingly impacted by the availability of pads and tablet PCs,” notes Michael Greeson, TDG Founding Partner and Director of Research. “The pad platform provides a compelling digital reading platform that for many eliminates the need for a separate eReader.”

Despite this ‘app-lification’ of electronic reading, eReaders are proving attractive to a growing number of consumers. For those who enjoy reading digital books, dedicated eReaders are significantly less expensive and arguably more convenient to use than full-size pads. “The simplicity and elegance of experience is hard to replace,” notes Greeson.

Greeson acknowledges that, over time, the retail price of both pads and eReaders will decline. While to some this only increases the likelihood that pads will supplant eReaders, he sees it a bit differently. “As prices decline, dedicated eReaders will become so inexpensive that their cost advantages over pads become more compelling.” This fact is not lost on educational institutions planning to shift to electronic textbooks yet faced with diminishing budgets. “In such cases, fully-functional pads, though optimal, will prove too expensive for mass deployment.”

During the same time, TDG expects pad manufacturers like Apple will introduce smaller form factors that more closely resemble the physical characteristics of eReaders but have the power and memory to support a wider range of applications and services. “With this additional functionality, however, comes additional cost, again separating simple eReaders from these more sophisticated devices. Regardless of cost reductions, dedicated eReaders will always be less expensive than pads, and thus sufficiently compelling to a large number of consumers.”

These are just a few of the highlights of TDG’s new report, Profiling eReader Users—A Consumer Snapshot. The larger analysis includes detailed information on a number of characteristics including devices owned and used per household and adult; frequency of use; source of purchase; and key demographic and techno-graphic comparisons to adult Internet users in general and pad/tablet owners in particular.

The report is now available for purchase at TDG's website or by contacting our Research Services Team at 469-287-8050.

About TDG Research:
TDG provides actionable intelligence on the quantum shifts impacting consumer technology and media behaviors. Since 2004, our market research and advisory services have helped technology vendors, media companies, and service providers understand how consumers access, navigate, distribute, and consume broadband media - whenever and wherever they may be. For more information, visit our website at www.tdgresearch.com.

How to Be A Success in Digital On Demand - "Make sure your film title begins with the letters A, B, C or D." Seriously.

The Diffusion Group — Fri, 13 Apr 2012 19:23:00 GMT

How to Be A Success in Digital On Demand - "Make sure your film title begins with the letters A, B, C or D." Seriously.
Bill Niemeyer, Senior Analyst

I recently read an interesting article at CED titled "Clicking through the Wild West of Video-on-Demand." It reviews the real-world experiences of filmmakers and distributors as they seek to balance the revenue streams from theatrical and digital on-demand release (both via online and operator VOD). The article is a good read, with lessons for OTT enterprises and for ad-supported on-demand as well. These lessons also resonate with the key findings of my recently released TDG report Making Ad-Supported VOD Work.

Among the report's key findings is that a bad program guide will severely limit consumer use of an on-demand service. Towards that, CED cited SXSW Conference comments by Matt Harlock - the gent that directed 2009's independent film and VOD success American: The Bill Hicks Story - on how to drive digital on-demand revenue.

"Make sure your film title begins with the letters A, B, C or D."

Harlock then noted that he wasn't joking.

This reflects the sad and archaic state of most VOD program guides, as well as the far-from-adequate state of many OTT user guides. The wide gulf between the well-done (Netflix) and horribly-done (operator) VOD guides is part of why Netflix streaming video had 80% more hours of use in Q4 2011 than all cable and telcoTV VOD combined (as I estimate in the report).

In the CED article, Eammon Bowles, President of independent films distributor Magnolia Pictures (part of the Wagner/Cuban Companies) illustrates how on-demand has shifted their business. He says most of these films make more money in VOD than they do in theatres. Bowles noted theatrical release is still important for consumers, critics, and the industry in taking a film seriously.

Bowles also reinforces the notion that content is king saying, "People don't buy delivery systems. They buy movies."

There are important lessons here, both for TV incumbents and multichannel operators, as well as online/OTT new entrants set on stealing away some of the former's viewer time and revenue.

First, consumer experiences do matter, particularly with respect to search and discovery. That may seem like "Digital Entertainment Service 101" but the execution of many on-demand video program guides indicates otherwise.

Second, the shift of consumer dollars toward on-demand services is now beyond doubt. The fact that Magnolia Pictures is generating more revenue from VOD than theatrical is one proof point. Netflix is another. As is the recent VOD release of Bridesmaids, which set a record for the most successful on-demand movie with 4.8 million rentals (likely over $25 million in gross revenue at typical prices).

This shift in spending might also be enjoyed by ad-supported TV shows - that is, provided operators make the required changes to VOD advertising capabilities and program guides. In TDG's new report, I estimate that if these steps are taken, VOD ad revenue could rise to $6 billion annually from today's anemic $150 million.

Bridesmaids is but one example that premium video content can be a financial success in digital on-demand. It also probably doesn't hurt that its title starts with a "B."

A Subtle (and Personal) Reminder: Television is Still a Lifeline

The Diffusion Group — Fri, 13 Apr 2012 19:22:00 GMT

A Subtle (and Personal) Reminder: Television is Still a Lifeline
Andy Tarczon, Founding Partner, Corporate Development

Sometimes the ongoing debates around OTT, cord cutting, and a la carte can be overshadowed by simple acts of nature; a subtle reminder that, in a time of need, live television can be an irreplaceable lifeline to critical information.

On Tuesday April 3rd, Dallas was hit by 17 tornados that seemed to erupt from nowhere. (I know, big surprise. Welcome to Texas!) What started as a routine "Tornado Watch" turned into a full scale "Tornado Emergency." Not a "Tornado Warning," mind you, but a full-fledge "Tornado Emergency," a term with which even storm-accustomed Texans are unfamiliar.

Thankfully no one was killed during the storms, but the images of the day have become ingrained in our minds - tractor trailers being thrown like confetti, one school narrowly missed and another taking a direct hit, the stunned face of a meteorologist staring at almost a dozen of the infamous "hook" echoes scattered across the screen.

For the TDG team, the story became personal. These were our children in locked-down schools. These were our neighborhoods and homes being threatened. Six times the sirens sounded right outside our office, with circulation passing directly overhead (thankfully never touching down). My office was transformed into a hyper-connected series of personal command centers; the team congregated around one of our test TVs. Cell phones in hand, laptops on our knees, we all worked to make sure our families were safe. Through Facebook, friends from across the nation reached out as they watched the local drama unfold in the national spotlight. Through Twitter, our school districts were posting updates on precautions taken. Online we tracked radar images, timestamps indicating they were at least 10 minutes old.

Through it all, the most relevant and up-to-date constant was live local television connected by a simple dangling antenna - a precious lifeline to moment-by-moment updates and indelible images of what could have been a much more catastrophic event.

As analysts, of late we've been focused on the value of on-demand video, which undoubtedly suits our when-I-want-it mentality, our on-demand disposition. In truly tough times, however, our most dependable lifeline is still our local television broadcaster. Yes, online access to such information may be as timely as live TV, but nonetheless most consumers in this part of the country turn first to their television set, not a PC or pad. If judged by recent results, this disposition was wise beyond the next day's headlines. And is a key reason why no lives were lost to these horrific Texas storms.

YouTube Establishing "Broadcast Towers" for the Internet

The Diffusion Group — Fri, 13 Apr 2012 19:22:00 GMT

YouTube Establishing "Broadcast Towers" for the Internet
Colin Dixon, Senior Partner, Advisory

YouTube has been very busy over the last year or so. The undisputed king of UGC (user-generated content), it has steadily been moving away from its roots, pushing into new areas such as original branded content and pay-per-view movies. The site continued its relentless march this week, announcing the availability of support for pay-per-view live content. Now, YouTube partners can broadcast live events through the site and charge customers for the privilege of viewing the event.

If you are a professional broadcaster, YouTube could well be a great partner to distribute and monetize your video content. With regard to monetization, YouTube now supports free ad-support and pay-per-view, meaning the only major model left to add is fee-based subscription services. Content hosting and streaming is core to everything the company does, and YouTube has made it very easy to create a branded "channel" both for free (with limited customization) and as a partner. Finally, YouTube clients are available on just about every connected device with a screen. Ergo, a potential audience is virtually guaranteed access to your content on a wide variety of devices (cellphones, PCs, pads, and even net-connected TVs) and a multitude of broadband networks (wired, Wi-Fi, and mobile).

There are, however, some weak spots that require work. Discovery and search on YouTube remains tedious. It also lacks support for content restrictions on accounts so kids can watch safely. As well, the system doesn't "get to know" the user well enough to make effective recommendations. This needs to be beefed up so users can get to content of interest much faster.

That said, YouTube is clearly intent on establishing itself as the Internet's equivalent to a broadcast tower network. With its ubiquitous presence, established infrastructure, and developing monetization models, it offers a great way to quickly launch your video content service in the OTT world.

TV2.0

The Diffusion Group — Mon, 09 Apr 2012 20:04:00 GMT

TV2.0
Colin Dixon | Video | March 29, 2012

Like It or Not, The Future of PayTV is Broadband

Colin Dixon — Thu, 05 Apr 2012 16:41:00 GMT

In the last few months, there has been a flurry of announcements from multi-channel operators regarding the fact that they had (finally) brought their PayTV services to Xbox 360. Only last week, Comcast announced Xfinity on-demand video on the Xbox. Verizon announced a similar client late last year that included live broadcast channels as well as on-demand video. In the U.K., operators Sky and BT have had clients on Xbox more than a year. ...(read more)

Op-ed: Blocking used games unlikely to kill the console game market

The Diffusion Group — Sat, 31 Mar 2012 15:48:00 GMT

Op-ed: Blocking used games unlikely to kill the console game market
ars technica | Kyle Orland | March 31, 2012

OTT Fragmentation Problems Illustrated - Content Provider Blip Tells 12 Platforms "See You Later"

The Diffusion Group — Fri, 30 Mar 2012 16:29:00 GMT

OTT Fragmentation Problems Illustrated - Content Provider Blip Tells 12 Platforms "See You Later"
Bill Niemeyer, Senior Analyst

I have noted of late the friction created by fragmentation in the OTT landscape and the stifling impact this has on growth in the amount and type of content available on connected TV devices.

Recent news out from ad-supported video content provider Blip illustrates this problem in detail. As reported by GigaOM, Blip is in the process of pulling its service off a number of OTT and online video platforms including some notable names (this started at the end of January and will proceed through May as detailed in a Blip blog post).

The platforms Blip is leaving behind are Samsung, Vizio, Sony (specifically the Bravia Internet Video Link), TiVo, AOL Video, Blinkx, Boxee, Vimeo, DivX TV, MeFeedia, PopBox, and VodPod.

Why is Blip leaving these partners? In a subsequent blog post, Blip said it was about value, with that being defined as a platform that has the right mix of building audience, delivering views, and generating revenue. However, Blip still believes in OTT. As VP of Content Steve Woolf told GigaOM, "We're very strong believers in the future of television distribution in all its forms."

What is happening with Blip could be dismissed as anecdotal rather than indicative of a broad trend. Regardless of how one may interpret it, Blip's blog posts provide a great illustration of the platform decision process that every content provider, large or small, must go through in the real market. The primary question each must ask is "Does the marginal value of platform X exceed the marginal cost?" This may seem like Econ 101, but the current behavior of many OTT platform companies indicates otherwise.

First, as to the topic of what platforms are perceived as providing the most value for Blip, it cites that the majority of views come from three sources; the Blip site, YouTube, and the Blip embedded player. I found this FAQ entry quite interesting: "Q - I can't monetize on YouTube either. A - YouTube is too important for generating views to ever nix from our offering." A lot of its developers must be telling Blip that the revenue from ads on YouTube is small relative to the views created (something I have been told by others). The FAQ also notes iTunes and Roku remain as partners even though they don't serve ads. Blip says they are "exploring options" with those partners.

The fragmentation of the OTT platform landscape drives up per-platform marginal cost significantly. And it's not only the development cost of providing a different app for each of the competing platforms; it's also the other costs including staff time for managing approval processes, contracts, and relationships. Add to this the friction in revenue creation, especially because of poor or missing advertising support, and it's easy to see why a content provider like Blip would make these decisions.

OTT platform executives should recognize that having more content than "Netflix plus the same 15 apps as everyone else" will depend on making the pain vs. gain of content providers as attractive as possible by inter-company cooperation on interoperability standards and best practices. As well, the days of deploying services on a platform simply because a well-known brand name can be quoted in a press release or will somehow impress investors are fading fast.

The track record for digital media platform walled gardens has been disappointing. One one hand, we have the success of Apple in mobile and tablets. On the other hand, we have the shuttered gardens of mobile operators and (going back a bit further) those of Prodigy, CompuServe, and AOL. These should be taken as a warning that pursuing an OTT walled-garden strategy comes with a great deal of risk. The years lost in trying to be "the Apple of OTT" may mean you will miss out on early entrant opportunities for value creation afforded by a timely adoption of Internet-style standards.

Pottermore Deal Deserves a Dark Mark

The Diffusion Group — Fri, 30 Mar 2012 16:28:00 GMT

Pottermore Deal Deserves a Dark Mark
Andy Tarczon, Founding Partner

Fizzing Whizzbees! This week the "Harry Potter" series was released in eBook format for Kindle, Nook, and others. But, in a dodgy move worthy of a Slytherin Quidditch player, users are required to purchase the titles not through their established accounts, but directly through JK Rowling's "Pottermore" site (a site that might be more aptly named "Pottersville," hat tip to Frank Capra). Like Centaurs reading the stars, this portends a Sirius-ly bad omen, a "dark mark" for the future of consumer media experiences.

It doesn't take Moody's Mad-Eye to see the implications of fragmented purchasing. There is a reason aggregators - be them OTT or PayTV providers - are critical to the economic viability of content. The ecosystem built around the purchase of premium media - be it Kindle for books or DirecTV for television - allows the consumer to make the billing relationship if not singular then at least manageable. Consumers are highly reluctant to create a separate billing relationship for each one-off purchase. Such efforts simply do not scale, and attempts at it - be it Pottermore for Harry Potter or Louis CK for a single comedy special - are merely exceptions built upon well-established reputations of the creator. Want to launch new, unknown content in this model? It simply won't work.

The OTT space is shaking out much like the Battle of Hogwarts and (spoiler alert) not everyone will survive. Given accelerating demand for video on every screen, a wide variety of companies are entering the fray, setting the stage for our own great war. From OTT brands to the studios to even traditional PayTV players, everyone is staking out a position and investing heavily. The space is only going to get more crowded. My colleague, Colin Dixon, is going to explore more of this in an upcoming webinar: PayTV on OTT: How Operators can Tame Video's Wild West. (Sign up now!)

Hopefully, these efforts to build entirely one-off purchase systems flicker out faster than Dumbledore's Deluminator.

Comcast Seeks to "Circumvent the Rules" of Net Neutrality

The Diffusion Group — Fri, 30 Mar 2012 16:27:00 GMT

Comcast Seeks to "Circumvent the Rules" of Net Neutrality
Colin Dixon, Senior Partner, Advisory

This week Microsoft announced the availability of three new video services on the Xbox: Comcast, HBO Go, and MLB.TV. As expected, the Comcast service quickly came under scrutiny by public interest groups when it became clear that the use of these services would not count against the Xfinity broadband usage cap of 250GB.

Why does Comcast think the video shouldn't count against the cap? Put simply, the video consumed on the Xbox 360 is delivered via Comcast's private broadband network and never traverses the open Internet. On Comcast's FAQ site the company put it this way:

"...similar to traditional cable television service that is delivered to the set-top box, this content doesn't count toward our data usage threshold. The Xbox 360 running our XFINITY TV app essentially acts as an additional cable box for your existing cable service, and our data usage threshold does not apply."

Further, it referred to the usage cap as an "Internet" cap rather than a broadband cap. This implies that there is no cap on broadband use, only on traffic that moves to and from (upstream and downstream) Comcast's broadband network and the open Internet. If held strictly to this definition, the majority of peer-to-peer traffic (such as generated by torrent sites) should not be counted toward the cap either since it never leaves Comcast's broadband network. Can Comcast confirm torrent downloads don't count against the cap? I think not.

Comcast's argument is flawed. Whether the video crosses the Internet or not is irrelevant to its impact on the neutrality of the broadband connection. The Xbox service competes for bandwidth with other services delivered to Comcast subscribers (e.g., Netflix, YouTube, Hulu, and Amazon, among others). This new policy gives its own service a privileged free ride on its own broadband network, though it charges bandwidth tolls for every other service that uses the same connection. Using Comcast's argument the operator could create a whole range of services and privilege them in this way. What if Comcast was to offer cloud storage, backup, etc. for its subscribers without there being a bandwidth toll? This would automatically give Comcast an advantage over other Internet-based services. This isn't a "neutral" position at all, and clearly violates the "open and fair" doctrine espoused by the FCC. In fact, one could make a strong argument that this new policy is in fact anti-competitive and works against innovation.

There is a way Comcast can leverage its broadband network to deliver video services without stomping on net neutrality. Follow the Virgin Media "through-the-middle" approach. When a Virgin customer gets the Virgin TiVo DVR service, they also get a dedicated 10mbps broadband connection included. This is completely separate to a customer-purchased broadband connection yet it leverages the same broadband network. This is exactly the type of service Google and Verizon were talking about in the fifth part of their suggested policy for an open Internet. In part, this says:

"... our proposal would allow broadband providers to offer additional, differentiated online services, in addition to the Internet access and video services (such as Verizon's FIOS TV) offered today. ... Our proposal also includes safeguards to ensure that such online services must be distinguishable from traditional broadband Internet access services and are not designed to circumvent the rules."

Alas, it seems Comcast has set out to "circumvent the rules" with this new Xfinity Xbox app. Let us hope the FCC is paying attention!

Demand for online video driving home networks

The Diffusion Group — Fri, 23 Mar 2012 19:04:00 GMT

Demand for online video driving home networks
ipTVnews | March 23, 2012

Diffusion Group sees home network gear moving to living rooms

The Diffusion Group — Fri, 23 Mar 2012 19:01:00 GMT

Diffusion Group sees home network gear moving to living rooms
Fierce Cable | Dan O'Shea | March 23, 2012

Duration of Engagement is Proportional to Screen Size, Frequency is Inversely Proportional

The Diffusion Group — Fri, 23 Mar 2012 18:05:00 GMT

Duration of Engagement is Proportional to Screen Size, Frequency is Inversely Proportional
Andy Tarczon, Founding Partner

For many years, we've been discussing the role of second-screen and multi-screen solutions, and I've personally spent the past three months on a project that has me thinking about video screens in new ways.

Fundamentally, the TV has long been the first screen and probably always will be for old killjoys like me that are (gasp) almost 40. I can sit down and watch TV programs or movies on those big, beautiful flat panels for an hour or two, but only once or twice a day. And, despite the arrival of all sorts of connected TV applications like web browsing, email, or posting to Facebook or Twitter, watching television is still about watching television.

As we shift into viewing video on other devices, engagement manifests itself differently. Take the smartphone. While consumers can watch video on the smartphone, most do not - and if they do, it is certainly not for hours at a time. They tend to interact with the device in short bursts (content in clips and quick interactions such as texts) and do so frequently throughout the day.

Think of the difference between the two screens. You watch TV, the larger screen, for a longer amount of time, but not with great frequency. The phone you check far more often, but for shorter amounts of time. Stated simply: duration of engagement is proportional to screen size, while frequency is inversely proportional.

If my statement is true, then long-form content is ill suited for smartphones. And this is in fact what Netflix has discovered, as only a tiny fraction of its viewing occurs on smartphones. Think about this for yourself. Do you engage a tablet more often than a TV, but less often than a smartphone? How long is the engagement period on each device?

As you build your video strategy, feel free to apply this simple rule for content engagement.

Takeaways from This Week's OTTCon

The Diffusion Group — Fri, 23 Mar 2012 18:05:00 GMT

Takeaways from This Week's OTTCon
Bill Niemeyer, Senior Analyst

This week I attended the excellent OTTCon conference held in Santa Clara. The day before the conference, Colin Dixon and I co-presented a day-long TDG workshop called "OTT in the Driver's Seat: Transforming TV and Video Delivery." I've got a few topline takeaways to share from these sessions (as well as the always-interesting hallway conversations).

OTTCon this year was held in the Santa Clara Convention Center, a much larger space than last year's conference. Nonetheless, it was still at times standing-room only. This was undoubtedly a reflection of the accelerating interest in OTT content and services among key executives from across the TV, online, and consumer electronics landscape.

"Taking the temperature of the room" regarding OTT and other digital platforms....

So-called "old media" (TV networks particularly) definitely do "get it" when it comes to digital media and have for several years now. TV networks have smart, experienced, and capable execs in key digital areas. The networks are actively working across the digital landscape on a variety of platforms, including the Web, mobile, tablets, and OTT. They know big changes are coming (or are here already) and are looking to reserve their "shelf space" now.

Despite this optimism, there are a number of issues that challenge the progression of OTT. OTT platform fragmentation was identified as a key impediment among both content providers and advertisers. And it may be worse than you think. You likely know that the app platforms used by leading TV makers are incompatible, which in turn prevents OTT from achieving the scale so vital for attracting quality content and advertisers. To make matters worse, I was informed of regional incompatibilities that can exist in the app platforms of individual TV makers. Having to write a different version of an app for Asia vs. the U.S. vs. Europe is a further headache for a worldwide content provider or brand.

Another trend of interest is that many "new media" participants have learned how the business of TV works. Some are actively working with television networks, providing them vendor services or partnering with them for content distribution.

Nonetheless, some new OTT entrants and a few longstanding "old media deniers" have yet to invest the time to understand how the business of television is conducted. Granted they may not be interested in working with TV incumbents but instead seek to overturn the old order, to create a new model. However, even if your intent is to burn the royal castle down, good intelligence is vital. If you proceed blindly, or maintain a naïve belief that digital technology will somehow kill off TV as we know it in five to seven years, the Emperor's hidden tiger may make a meal of you.

Conversely, if you learn the sometimes mysterious and arcane ways of TV, your new online video or OTT enterprise will have a significantly better chance of success, whether your objective is to work with the TV incumbents or steal their gold. Otherwise, that hidden tiger will probably get you. Or perhaps the crouching dragon...