Could Disney Join Hulu? Sources Say Talks Are Serious

Why is Disney thinking of joining Hulu? Is it the equity stake? And why join a group with your broadcast and cable competitors and share knowledge and revenue with them. If anything, Hulu should demonstrate to Disney that high quality content, professionally created, on a good player, with strong marketing can work. That Hulu grew from nothing to second place in a couple years is amazing. But why share?

Let me look at the pros. Hulu is an amazing distribution point and has fed the hunger of online starved consumers eager to consume videos online. Its meteoric growth, its advertising model, its stickiness, all encourage viewers to watch multiple videos and stay connected with it. And despite a silly name that many people still mistype as HULA, its a slick and well managed website, easily searched and navigated, offering top views as well as variety. "Why now? One source says, 'Hulu has more scale (than the networks), which is why I think they’re back at the table.'” So why isn't Disney also talking with CBS's TV.com?

And now the cons. The web is open with low barriers to entry and Disney has a great brand and the marketing savvy to build its online business. And where will Hulu be after the departure of people like George Kliavkoff of NBC and Peter Chernin of Fox. In addition, Disney has cable distribution partners eager to keep the subscription model alive; aligning with them and offering exclusivity to cable customers with a broadband connection, may be the added value that actually helps to increase license fees, not destroy them. Certainly, Fancast, Comcast's online portal, would love to have an exclusive window on some full length ABC, Disney, and ESPN content. Hulu may bring some advertising revenue, but it may also cause some viewers to disconnect from cable to only get their shows online.

Online video is also more than just watching online. The fun is in the social networking, the message boards, the casual gaming, the quizzes, the interactive elements that extend beyond simply watching a TV show online. Hulu may be one means of entry, and certainly today a popular one, but by no means the only one. My advice to Disney, look internal first; there may not be a need to enter into a partnership.

Online Gaming -- the Family Edition

Terrific article in today's Wall Street Journal about online gaming. And yet the title truly doesn't represent the story, that of the multi-player online environment that is growing by leaps.

Still, family and games seem to go together. As an activity, it brings the family closer together, building strong bonds, new lines of communication, memories, and fun. At the very least, family games provide something to do, especially on rainy or snowy days! Before computers, we had card games, board games, dice games, etc. New technologies bring new ways to interact.

So that an "increasing number of families have become receptive to the games as more homes get high-speed Internet access and more people familiarize themselves with social networking through mini-games like Scrabble on Facebook", these are simply new access points to familiar games. Younger audiences have embraced these games; their parents need to also in order to maintain a healthy family dynamic. Whether it is online fantasy games, Wii or Playstation or Xbox, family games have moved into the 21st century. However it is played shouldn't really matter; ultimately, for the family, it is about doing these activities or games together.

The story's approach is that more online games are moving from one player, or player against machine, to multi-player engagement online. Not playing within the family, but playing with strangers. It is this blind communication that is of concern to parents. As children are easy prey to online predators, parents are seeking cures that guard against such horrific behavior and provide protection. "To alleviate concerns, game developers are taking precautions to protect children by limiting chat sessions to predetermined phrases or banning the use of numbers and proper names so players can't divulge personal information. Many games also give parents the ability to limit social-networking features." Separating the friends from strangers, and assuring that they are who they say they are, is key to a safer environment. Gaming is fun, as long as no one breaks the rules.

Blockbuster and TiVo Join to Deliver Digital Movies

I hate "me too" strategies. That Blockbuster is following the Netflix model to simply try and duplicate their business strategies makes little sense. How are they differentiating themselves? As Netflix continues to build a leader strategy, Blockbuster continues to look confused and flustered. So to join with Tivo to make online movies available through Tivo boxes produces a yawn. Netflix already owns that space. The only company that wins in this partnership is Tivo who gets another retail partner to distribute its boxes.

Worse than employing a "me too" strategy against Netflix, Blockbuster does even less to differentiate from cable and VOD. "Blockbuster will offer a smaller selection of about 5,000 to 10,000 titles at any one time, mostly newer releases like “The Dark Knight” that will typically cost $3.99 to watch over a 24-hour period. The company already offers online rentals through the Movielink service it bought from a group of studios in 2007." Cable gives me the same title at the same price for the same length of time. And while I haven't viewed either picture, my assumption is that cable will also deliver a superior picture quality.

Blockbuster is facing an uphill battle and does not seem to be doing well. If Blockbuster thinks that it will get better titles or exclusive windows on titles that other distributors don't get is hard to believe. Exclusive exhibition windows are fading away to the point that movies are released to VOD and DVD at the same time. Blockbuster needs to be more creative - better pricing models, longer access to movies, etc - something to get a competitive edge. Otherwise, this "me too" strategy appears to be a last gasp before bankruptcy.

Making More Than A Good Impression

Terrific Ad Week article that illustrates why advertising can no longer be about reach and frequency. While that measurement might work in a linear, one-way world, the web brings interaction and better ways to measure engagement. And while CPM and CPC prove a known standard for pricing, it does not measure the attentiveness and interaction with the brand. "'It's like going to a 3-D movie without the glasses,' (Morgan) Freeman (CEO of Betawave) said. 'The Internet is more dimensional, but [for the most part] measurement criteria are the same as a one-way medium. You don't have the glasses so you're not appreciating the dimensions.'" What a great a analogy.

The web, and soon interactive TV, is more than just impressions. It is about the consumer spending time and interacting with the brand, from reading its blogs, to watching a related video, from playing an on-line game to downloading a coupon. It is at the heart of social networking and affords an opportunity to build real stickiness of the consumer with the brand.

For that reason, Facebook has great revenue potential. "Facebook, for instance, has a two-tiered ad system. Its self-service ads are mostly cost per click, while it sells "engagement ads" on an impression basis. A Facebook rep said the company has no plans to change that, pointing out that 'most of the industry still expects to buy on the standard CPM/CPC models.'" Still, they seem poised to take full advantage of the trend in advertising engagement that is taking place.

And yet the ad community is slow to adapt. I recall how hard it was to convince ad agencies that cable TV offered a more effective reach, than broadcast, with niche programming rather than general entertainment. The same holds true today. Studies have shown that consumers are far more digitally savvy than agencies give them credit. Thus ad dollars are slower to be moved into this new medium. Eventually, they will catch on.

NBC Affils Launch Study to Shape 'Leno'

How to make the Jay Leno 10 pm experiment successful, or at least profitable. One is to raise the price to advertise. Another is to lower the costs to produce. Compared to the cost of scripted series, like Law and Order, that currently occupies one or more of those 10 pm blocks, Leno will be inexpensive to produce. But will it be successful and more profitable than a scripted series in that space?

Well to "assure" that success, NBC is reaching down into its distribution world, the local affiliates, for support. “'NBC has promised the affiliates' input into the structure of the show, and we believe this research will help us represent the key drivers that will best flow a Jay Leno viewer into affiliates' local late news,'" says Brian Lawlor of Scripps. "Of course, how much Leno and NBC will listen is up in the air. An NBC network spokesperson declined to comment."

I don't believe that creativity and business should be linked; good creativity may lead to profitable results, but results shouldn't guide creativity. And one rarely sees decision by committee as effective to building a show. Creativity is visionary and tends to come from one, not many. And research will not be useful in rebuilding this show for prime time. It will simply lead to death by survey. What works for 11:30 pm will not necessarily work for 10 pm. At the end of the day, all the local affiliates want is a strong rating that leads into local news, plain and simple.

Rather, think a bit out of the box. Take the creativity in a different direction and create a show that will benefit from the charms and talent of Jay Leno; not a retread of the Tonight Show earlier in the day. That will kill 10 pm and perhaps also hurt the Tonight Show franchise as well.

Charter Bankruptcy Planned for April 1

In just 11 days, Charter will go bankrupt and Paul Allen keeps his voting control, while other shareholders are not so lucky. As bondholder, private equity firm Apollo Group will convert its bonds into new equity shares of Charter. "Allen was able to retain the voting rights because of a clause in the bank loan agreements that would have allowed the banks to reprice the company's bank debt at a much higher rate if there had been a change of control in the company, two sources said." Not so others who invested in Charter hoping that it would run a profitable business.

So what will become of Charter. Some speculate that in order for Charter to survive it must sell off some assets and become smaller. But who will buy. Comcast has to be careful of exceeding its percentage of cable penetration so as to not run afoul of the FCC. Some assets, including their Los Angeles property would be a perfect fit for Time Warner and their CT property might be of interest to Cablevision. Or will Charter run as is, post bankruptcy with a cleaner liability sheet and nowhere left to go but up.

Could Facebook Eclipse Google?

Commenting on an RBC analysis, Barron's reports that Facebook could pose a major threat to Google. While both are great sites, I don't envision that to be a problem. First, today Google is making money, lots of it, and Facebook has none. Google is first and foremost about search and Facebook is about social interactions. Competitive no, complimentary, yes.

What Facebook is poised to become is more of an entry point for emails to friends, IMing and other types of immediate communication, and yes even a bit of twittering. But where Facebook is poised to excel is not search but in navigation and recommendation. With so much content to be consumed, Facebook enables you to recommend sites and videos to others and others to you. Interestingly, "according to a note from AdAge that Sandler refers to, Facebook is now directing more traffic to some key Websites than does Google, implying that over time, Facebook could eclipse Google’s function as a directory for the Web for some significant portion of computer users."

A friend recently recommended a NYT article that I had missed. That recommendation allowed me to quickly click on her link and check out the article. Another friend recently recommend an online clip, and a third friend a movie that I should go see. These "expert" recommendations and easy navigation help me stay up to date and current and ease the discovery process of new things without the clutter. Could Facebook become cluttered? The newly organized site might, but it has great potential to improve and take recommendations and rank and rate them for me.

Facebook is already becoming an easy means to connect to friends and reach out to them when they are online like me. The digital space is moving fast and anything can happen. Just look at the meteoric rise and fall of AOL. "The space is still too fragmented, the ‘cool kids’ are fickle and quick to move to the next social net, unlike the stickiness in the search marketplace.”

NBC doesn't want their web videos on TV

A TV is a TV is a TV, and web video shouldn't be viewed on your TV set. As companies like Boxee, Apple, and others are building devices to connect web video content to your TV screen, NBC is pushing back. For one simple reason, money. Too much of it, spent by cable, telco, and satellite distributors to NBC for placement on cable lineups. And that revenue stream is in addition to the advertising dollars for placement on their shows that NBC receives. The web hasn't built a subscription model to offset the one they have built with cable.

A direct connection of Hulu to the TV means that USA programming like Monk can be watched by viewers without buying a cable subscription. The bottom line, "NBC and Fox only get paid when you watch the TV shows on TV or cable, which gets them Nielsen ratings and subscriber fees. Internet revenues from the likes of Hulu are puny. So they can't afford to lose viewers to Web video shows on TV when they need them to be watching TV shows on TV."

But does a consumer really need Boxee to watch Hulu on their big screen TV. The answer is no. Savvy viewers are already connecting their TV screen to their PC and treating it as a monitor. As long as NBC enables Hulu, they will not be able to stop viewers from moving web content to the TV.

One might ask, but broadcast networks are free and over the air; they don't get a subscription so why care which platform a cosumer uses to watch 30 Rock. True, but each broadcaster also owns a number of cable nets, so it does still affect their bottom line. Also, web eyeballs aren't measured with Nielsen so they are not sold the same way. And they are presented with less advertising interruptions so less advertising dollars; Hulu might have some advertising, but it can't provide the same return as the linear network. Web videos are most valuable as promotional vehicles bringing new viewers to taste shows and hopefully move over to the TV to watch more. By themselves, they provide much less revenue to the bottom line.

So the NBC - Boxee feud may simply be about slowing down the inevitable. Companies are already coming up with more ways to easily access internet video content on TV. It is a slippery slope for NBC and Hulu and the subscription model they are trying to protect.

Building the Road to Broadband Video Profitability

Last night's Broadband Video Leadership panel brought big networks, big distributor, and big advertiser together to assure us that big media was making money and all is right with the world. Sponsored by VideoNuze and NATPE, the evening was well attended and attentive. And the company line was well represented.

Digital is making money, more than the pennies, but still less than dollars, and for both the content distributor and content creators on the panel, additive to the bottom line. Most interesting, digital was not taking eyeballs away from TV, simply enhancing it, and profitable when packaged to advertisers as a multi-platform solution.

Nor do they see consumers switching off their cable subscription to rely primarily on broadband. "Today cable, satellite and telco TV providers pay an estimated $22 billion per year in programming fees, Karin Gilford noted. 'It's pretty hard to imagine that revenue stream going away,' she said. Asked about 'cord-cutting' -- the notion that cable customers would cancel their pay-TV service and obtain all their video content online -- Gilford said that remains a theoretical idea rather than a real trend."

Also asked was the effect of competition from Netflix, You Tube, and others on the cable business. Cable's variety and depth of content far exceeds what others might offer and user generated content will not surplant the premium content that cable serves. None of the panelists seemed concern about these video aggregators. But while they may not be taking huge bites, they may be nibbling away and shouldn't be ignored. TVs are now connecting directly to the web, bypassing the settop box to access online content.

The most interesting comment was about search. Currently, You Tube appears to be the choice for the initial search for video content. And cable has done little to provide an application that easily searches for video programs, movies, VOD, or clips through its platform. It seems that search, navigation, and recommendation may be the ultimate decider for the consumer on which platform, broadband or cable, best serves a viewer's need. Missed a Daily Show, click a button watch a clip, click another button, watch the full show, click another button, watch a preview of the guest's clip that they are hyping. Will Fancast be the site that does that first, will Hulu, will Facebook, or someone else? Search, navigation, recommendation seem to be the drivers that will shape who wins the race.