10 conditions of success for online video

Today, I received my daily email commentary from my friend Matt Coppet, who runs global media and strategy at UBS. He & I occasionally discuss the new media space & share ideas, and I wholeheartedly agree with his thoughts today. His commentary is reproduced below.

Since we published our "10 conditions of success for online video" three weeks ago, new announcements came in. CBS started the CBS Interactive Audience Network and syndicated its content to ten online channel partners. The NBCU-NWS partnership signed up Comcast and added new cable networks to its future line up as well as offering new distribution outlets through Comcast online sites.

CBS and the NBCU-NWS venture offer diverging economics but aim at a similar outcome, the creation of a new syndicated marketplace, matching growing online content inventories to currently strong advertiser demand.

*CBS decided to give up some of its distribution control (and surrounding environment) for broader penetration (working with all the potential core players such as Joost, Brightcove, AOL, Microsoft and Veoh). By broadening its online distribution sooner (using IBM "hyper-syndication" term), CBS could forgo some potential monetization in the longer term and suffer conflict with its brand (some of its partners have varying traffic quality).

*The NBCU-NWS venture has a more daunting task, which is to generate user destination traffic. The capability for the venture to invest in marketing the new site(s) will be key. Comcast's ownership of several high profile technology partners should facilitate that work. Our conversation with The Platform (Comcast owned) CEO Ian Blaine highlighted many potential synergies, mainly for content management and syndication support. Our conversation happened before yesterday Comcast announcement.

Implication => We believe a syndication model would enable studios to regain eye balls online. It is too soon to estimate how user generated content (UGC) demand will evolve following the massive arrival of easy to access, indexed and searchable studio content (both in long and short format). AOL, NBCU-NWS venture, Joost (expanded beta in May) and other platform would likely take market share away from current UGC leaders.

We highlight again our 10 conditions of success for any online video ventures: Traffic optimization, advertising integration, brand focused, syndicated model, social media friendly, independent decision making, bandwidth costs control, leveraging data mining, bit sized content available and predictive marketing

(1) High web traffic from start is necessary to sustain advertisers' interest and to soften the impact of higher ad inventories on CPMs. Current CPMs up to $50 would be tough to retain in a basic streaming environment (no targeted ad).

(2) Integrated ad servicing process is key (no ability for each partner to sell its own ad inventory, which would defeat the purpose). It also eliminates channel conflicts.

(3) Brands/advertisers friendly (brands should be able to go behind pre roll/post-roll ads. We believe opening the full interface to branding/ sponsorship - including the player skin - is key. Ability for users to bookmark content and distribute segment is important.

(4) Syndication model can work with compelling content. It is not a surprise to see NBC Universal in the venture. It recently pre-launches the National Broadband Co. (nbbc), a content syndication marketplace. We do not know yet if nbbc would be integrated into the venture or become an infrastructure partner.

(5) Minimal social-media (web 2.0) function (such as users' commentaries/ ratings/chat). Over promising in term of user customization could conflict with future branding/sponsorship. For instance, mySpace users would be able to embed those videos from the NBCU-NWS venture on their webpage. Any venture would have to make sure of the integrity of the player branding (against program scripts that could remove them).

(6) Independence is important. Operating power should not be shared among partners, which could slow down the decision making process. It also eliminates conflict of interest.

(7) Contextual advertising (or predictive marketing) should enable advertisers to focus on branding as well (and not only on shorter term promotion). As relevance improves, brands would likely spend more driving monetization up.

(8) Managing bandwidth costs is central to any ventures success.

(9) Moving from simple data gathering to leveraging data. Understanding the customer (analyzing databases) offers a potential viewer "lifespan value". Package goods companies for instance could be inclined to spend more for addressable advertising.

(10) Offering content in the format customers want (such the 5 minute signature moment in a sitcom or a specific candidate performance on American Idol). Smaller length would respond their younger demo aspiration and could increase the ratio ad over content.

How to Marry a Millionaire

Now that in-game advertising is gaining traction, the next steps would be to allow marketers and advertisers to target their audience with the most relevant messages. How would they do that? Predictive Analytics to the rescue!

As per Wikipedia, Predictive Analytics are techniques that use past performance to assess how likely a customer would display a specific behavior in the future. An example application is credit scoring in financial services, where attributes such as credit history, loan applications, payment defaults, etc are used to assess how likely an individual would make future credit payments on time.

Now that the discipline has matured in one industry, it's time to port that to the new media world, particular in-game marketing and television guidance. A Business Week article suggested that predictive analytics would provide the intelligence to help marketers target consumers while playing online games. By analyzing historical campaign performance, and hundreds of gamer attributes, including session activities, downloads, number of friends and genre preferences, marketers can identify consumer preferences and behavior. In an online gaming, different messages can be targeted to different players, each getting a message relevant to them. With such targeting, marketers would be willing to pay a higher price (per capita) to reach the right consumers. Moreover, since social networking enables peer-to-peer influence, predictive analytics can also identify the influencers who have loyal fan followings, not unlike identifying the most popular kid in high school, only through data analytics.

In-game advertising is only one application. That discipline can be used in television guidance. Then additional (though more targeted and more relevant) advertising opportunities can be created. With personalization and recommendation engines powering TV Guide 2.0, why not employ predictive analytics to (1) add to the power of giving the consumers exactly the television (or video, in general) that they want, and (2) market to them at the same time, since we understand their viewing behavior already?

For The Love of the Game

In a recent eMarketer research report, Video Game Advertising, advertising spending in video games (either by in-game advertising or advergaming) is expected to grow by 23% CAGR (compound annual growth rates) annually in the next 5 years. In the US alone, such spending is expected to almost triple between 2006 ($346MM) to 2011 ($969MM). Advertisers are finally realizing where their target consumers are and going after them there. With such tremendous growth in ad spending, it also means that (1) more consumers are playing video games than before, and (2) that more than young males (ie women and older gamers) are being targeted.



More players mean fewer of them are watching television, the advertisers' previous playground. Looks like it is no longer enough for a television network to offer broadband videos anymore, they will have to include a gaming strategy as well, if they want to keep their piece of the total advertising pie. Google bought Adscape recently for $23M and bought Massive for $200MM, both of which insert advertising into gaming environments. It's only a matter of time before they make it easy for advertisers to buy into video games and with better analytics.

While console games still skews young, adults prefer casual online games. According to WSJ, Forrester Research reported that over 50% of online games players are over 30 years old. Their favorite games include mahjong, Sudoku and solitaire, and the gender breakdown is evenly split between male and female players.

Even print publications are getting in the "game". In the same WSJ article, teen titles from Hearst Magazines such as CosmoGIRL! and Seventeen had been getting up to 10% of their site traffic from casual online gamers. Understanding that fact, they are redesigning the site to feature casual games more prominently to increase and engage their audience base. Other magazine websites are following suit. As casual games become mainstream and are easily available, their players will have to trade out other entertainment time (ie television, movies, etc..) for games.

Where's Waldo

Recommendation or search? The battle is just beginning to help viewers discover their video content.

Recently, two online personalization and content recommendation companies received 10 figures funding each (ChoiceStream raised $26MM for their 3rd round; Aggregate Knowledge raised $20MM in their 2nd round). While at first glance, these P&R companies many use their new funds to sell their services as online behavior targeting uses (AK specifically earmarked their $$ for sales and business development), it would only be naturally to extend these uses to online video.

Why online video? Because it can be a trojan horse to the home, particularly if the personalization and recommendation engines can be ported seamlessly across multiple platforms (broadcast via set top box, online and mobile). The software that powers these platforms can engage the viewers, which then leads to better ways to advertise, market and sell to those viewers.

TV networks are pushing a lot of video content to their sites and at NATPE this past January, many television executives verbalized their valid concerns for video discovery. As more video becomes available online (especially from television networks), online viewers will have a tough time finding videos that interest them. While video search engines (Blinkx, Truveo, Google Video, etc..) are now coming of age, they still dependent on good metadata and tagging taxonmy, both of which are managed by "gatekeepers", to enable video searching by keywords. Keyword searching may be perfect for text content, but would it work for videos as well?

iTunes, Netflix and Tivo recommend video titles based on past experiences (ie ratings) by oneself and/or from other similar raters (ie friends). In these cases, searched content is specifically restricted to within each of their walls, which then returns the most relevant recommendations without the long-tailed outliers corrupting the results. Taking such cues, TVGuide is launching phase 1 of Project Stingray that limits its search to only 65 relevant video sites. I can only postulate that phase 2 would incorporate personalization and recommendations to video searches, with more relevant results given heavier weightings. Viewers searching for "The Office" are more likely to look for the television show rather than homemade videos of your co-workers' shenanigans at the office. However, by drawing a distinction between the two, amateur gems can still be discovered and the integrity of user-control viewing is maintained. It is “TVGuide” after all.

Monsoon Wedding

Hello! is just the latest celebrity magazine launching in India. Other print publications such as Cosmopolitan, Marie Claire, Seventeen, Maxim and Time Out are already on the newsstands with more on the day. India's English speaking population with rising disposable income & consumer spending makes the market ready for entertainment and lifestyle media brand imports from the west. However, most Indians prefer reading about Bollywood celebrities than the western ones, hence making the brand more valuable than its content.

According to a new report from Pricewaterhousecoopers, India's M&E industry is forecasted to outgrow the general economy every year, to double by 2011, to US$22.5B. India is a rare market where the print business is still growing. It is estimated to reach only 220MM people, while about 370MM literate readers are not reached by any publication.

Also, the TV industry is forecasted to grow 22% annually to reach US$11.78B in 2011, while print would grow 13% annually to US$5.27B. Internet advertising would grow at 43% annually to a measly $216.50MM in 2010. Only an estimated 32MM Indians were exposed to the Internet as of 2006, with 21MM regular users, leading to a great growth but still pale in comparison to other parts of the world.

Moreover, adoption of mobile phones and the internet as media consumption platforms are increasing. Because of infrastructure limitations, the former may leap-frog the latter in terms of adoption, especially by the rising middle class and the hip younger generation.

So, how is this news new media related? I think these factors point to a "perfect storm" of opportunities to launch multi-platform media brands in India, with print publication & television platforms leading the charges. Opportunities abound for including new media platforms to those brands almost immediately, without having to wait for 80 years (like in the US) for technology adoption to catch up.

We just have to remember that newspaper was once new media too. Soon, mobile & internet media delivery will become as common as online shopping, but with instant gratification.

The Search for Spock

While researching the topic of personalization in the new media world, I came across Mark Cuban’s blog entry from almost a year ago, on finding content in an unlimited video on demand world. It’s tough enough to get viewers to tune in, with linear channels, where (a) viewers are constantly reminded what show is coming next, and (b) some channels, particular on cable, specialize in certain type of programming (ala HBO, FX, Food). What happens when the viewers have to fend for themselves?

At NATPE this past January, one constant point rehashed in most panels was video discovery in this age of plenty. Technology can help with the platform distributions (ie Brightcove) by setting up metadata for video search engines (ie Blinkx). But then, who is assigning the metadata and why should they be trusted? This is where the “wisdom of crowds” is called upon. Similar to the recommendation engines for online media (iTunes), books (ala Amazon) and DVD rentals (ie Netflix), which both draw from databases of reviews and recommendations from other users, a video consumer would then need a personalized video search engine to tell them what they would want to watch: certain genres or topics of their interests plus new, random & unexpected clips that might pique their interest too.

StumbleUpon, a browser toolbar that helps user find interesting website to stumble onto, is extending that model to online video. While it is addicted as it is now just to discover interest videos, imagine what they can do, if they finetune their “recommendations” to find me what I (and others like me) would like to watch.

Now, imagine if your video search & recommendation engine is portable across all three screens, TV, online & mobile. Personalize once, propagate everywhere. Now, I’d be total control of my video consumption, wouldn’t I? A TV Guide on steroids.

Back to the Future

In a somewhat contradictory (to my yesterday’s posting) survey by Advertiser Perception (a survey of 2400 media planners) , more ad executives are planning to increase their TV ads budget in the next 6 months than for online ads. At least with 2 points in time, we can start mapping out the long term, almost liken it to comparing short-term interest rates with the long term one, where more volatility exists in the former.

Despite strong growth in online advertising, spending on TV ads still remains at a higher level than for online ads. According to WPP’s GroupM’s report “This Year, Next Year: Worldwide Media and Marketing Forecasts”, which forecasts contributions to advertising growth in 2007, spending in TV ads will increase more than that of online.

2007 Growth in ad spending
TV (North America / WorldWide) = 46% / 50%
Online (North America / WorldWide) = 41% / 28%

Some possible factors for this, as per the report:
1) Households watching Spanish language TV grew faster than expected and advertiers are starting to chase them. Over 70% of Hispanic households will have multi-channel options by 2010.
2) US TV networks continue to expand into new media, hence, offering a portfolio of diverse outlets for their advertisers.
3) Online advertising is too efficient in stream-lining costs that even with similar percentage growth, dollar growth online would be less than for TV

But eventually, online advertising growth will takeover, and all will be right in the world again. Of course, TV by then may be more interactive and be coming to us in many different ways.

The Search for Signs of Intelligent Life in the Universe

AAF (American Advertising Federation) recently issued their annual survey on industry trends. The survey asked advertising industry executives how much they thought ad spending on TV would shift to online video by 2010. Over half responded that they expected to move 20% or more of their TV advertising budget into online video. Even if the TV ad market is conservatively estimated to be $60B (not the $74B as estimated by Google), this shift translates to $12B in ad spend previously allocated to TV alone (not including ad dollars already allocated to online). That’s a 3,000% leap from last year’s (2006) $410MM ad spend. Rather than quoting my crude estimate, a Park Associates study stated that online video revenues will pass $7B in 2010, with 85% of that (almost $6B) coming from ads associated with TV, news & user generated content.

With that much money chasing online videos, its supply would surely keep up until equilibrium. Even that may not happen for a while, because the biggest barrier to consuming online videos lies in its discovery. If we thought flipping through 500 TV channels on our cable box is a tedious, wait till we get unlimited video channels. Discovery of video will be the immediate challenge. As consumers are used to search engines, reviews and recommendations to find what they are looking for, they will expect those tools to be available for video discovery as well. Video search engines like Blinkx, and personalization tools (ie Amazon’s & Netflix’s recommendation engines) would be in the next wave of products. The idea is to help your consumers find what they are looking for and they will thank you for that, and maybe watch a few ads in the process.

The World is not Enough

It's not your father's social networking anymore. eMarketer released a report recently titled “Social Network Marketing: Ad Spending Update". Ad spending in the US for social networking will increase from $280M this year to an estimated $865M in 2007, with MySpace hosting 60% of the ad spending. All leading to a staggering $1.86B estimated in 2010. Social networking’s share of US total online ad spending is also projected by eMarketer to grow from 1.7% ($280M/$16.7B) in 2006 to 6.3% in 2010. Globally, such ad spending will grow from $350M in 2006 to $2.51B in 2010.

So, social networks are poised to grow both internationally and in niche groups. International expansion is only natural as social networking promotes communities without physical borders. The large players such as MySpace are already expanding to at least Europe and Asia, where it is facing off against homegrown social networks such as Cyworld in South Korea, Mixi in Japan, Studivz.net in Germany and Skyblogs in France. However, MySpace may gain a slight advantage only if it is able to incorporate media products (ie movies, television shows, etc…) from News Corp. other properties, and not turn off its targets. 24, the TV show has a huge following in Japan (note the energy drink commercial starring Kiefer Sutherland in Jack Bauer mode) and should complement the Japanese launch, if the lawyers allow it.

Niche social networking would be another way social networks can grow in the near future. This segment has been getting its fair share of attention lately as well as funding and endorsement. JibJab launched its social network to share online humor more than ½ year ago followed by some venture capital funding. Sports Illustrated aligned with Takkle, a high school sports social network, recently while it may invest $25M in FanNation.com, another social network for sports, according to another report. The large players will still be the draw for general social networks, while niche sites will become like the Long Tail, attracting communities interested in particular topics, whether acting like virtual watercoolers for entertainment or virtual community center for common activities.

By growing social networks, both globally and in niches, additional advertising inventory can be created. The more targeted the communities (by geography or interest), the more valuable they are for advertisers. Then, these newer social networks will then be alternative distribution platforms for larger media concerns as well as additional advertising outlets. The question is whether the owners can monetize their social networks without alienating their community. I think “yes" but only if they remain true to their community and be upfront about their intentions, ie relevant advertising.

A Night at the (virtual) Roxbury

Tonight I attended a conference in Second Life. It was the Second Life’s first CaseCamp and was hosted by Crayonville, a new marketing company whose office presides in Second Life. At this casecamp, 4 marketers presented their First Life marketing case studies for an audience literally from around the world. Our avatars sat at an amphitheater as if we were physically at a conference location, all without leaving the comforts of our home or office. Both voice streaming by the presenters and their powerpoint presentations came across almost perfectly too. This could be the beginning of something special.

Second Life has now over 2M residents, of which over 800K had logged in the last 60 days (stats from home page). Since it’s founding in 2003, buzz about SL only started to grow exponentially in 2006. Of course, the extra press about Second Life first millionaire didn’t hurt either.

What’s remarkable now is that large media companies are starting to experience with SL as an alternative distribution outlet. Given its early life cycle, SL is a good bet (especially by those with enough betting resources) to gain residency in. If it takes off beyond the niche early adopter stage, those experimenters would have a head start over their competitors. However, Many are unconvinced that Second Life would hit critical mass. Though I agree with them that SL is not ready for consumer prime time (it is still a steep learning curve to learn how to navigate your avatar in SL), SL has the potential to be the next generation 3D internet browser, where your avatar can visit places in SL just like we started surfing the web a decade ago.

What can make it tip is good quality and compelling content. Media companies are exploring that option. NBC’s iVillage Girls’ Night Out programmed a SL tour tonight. A good way for them to dip their toes in the waters. Instead of building an island, let’s explore the world instead! Moreover, Sundance will launch a virtual screening room in SL, with interactive events with filmmakers. Maybe we don’t need to wait in line in the freezing cold in Park City after all! Access to otherwise inaccessible content will bring in more than curiosity seekers. Of course, the insiders won’t be so special after all. It would be wise for them to use this opportunity to convert this new audience somehow. UPDATED: Oops, wrong Sundance, the channel not the film festival

UPDATED (12/15): Circuit City announced an SL store opening that it's developing with IBM. IBM's own SL presence was set up for employees. Circuit will join GM, Nisssan, Toyota, Addidas, Reebok, American Apparel and Starwood as brands in SL.

Recap from ITA TechWalk Lunch

This is the recap from the Lunch Roundtable Workshop from the ITA TechWalk on November 20, 2006, with guest speaker Conrad Riggs of Mark Burnett Productions.

Information about the TechWalk is here

Recap from ITA TechWalk Breakfast

On November 20, 2006, I had the pleasure of participating in a roundtable workshop at the ITA Technology Walkthrough conference. Information about the TechWalk is here

The ITA TechWalk promotes year-round continuous conversation between technology providers and content creators/producers. ITA’s razorsharp focus is to connect all of these players to get Interactive TV deployed.

I recapped the Breakfast Roundtable Workshop with guest speaker, Steve Oedekerk of O Entertainment.

Pick me! Pick me! Me! Me! - Donkey

After eMarketer’s findings, Jupiter Research revealed their own study that the media and entertainment category will indeed outspend other groups on online advertising. The 4 leading categories (M&E, financial services, travel and automotive) are estimated to spend a total of $11.5B on online advertising in 2011. Of these categories, only M&E is most relevant to those under 25. Further breakdown of the study reveals that M&E is estimated to spend more money on search advertising than the other 3 categories.

This is a no-brainer I discussed in my previous post that young people (ala the targets) are spending more time online than traditional entertainment. They are not surfing aimlessly but are focused on finding what they want quickly. So, search would be the right tool to acquire those targets. Generation Y/Millennials consume more than 24 hours of media each day, even with their limited free-time, because they have been trained throughout their formative years to multitask way beyond our adult comprehension. How else could they juggle 6-plus homework assignments nightly, extracurricular activities, keeping up with friends, etc… and still maintain their sanity?

Harris Interactive and Teenage Research Unlimited conducted a study in June 2006 and found that 13-24 year-olds spent 17 hours a week on the internet while only 14 hours a week watching television. This may be a more generous bias towards television than in reality. This is because television is the passive media playing in the background while other more interactive platforms consume more of their attention (Hence, the multitasking skill). This is where the lean-back experience of current television will come back and hurt them. Television has the content but interactive television what time-strapped consumers will pick to engage in. So what if the numbers are smaller than before? These consumers actively sought you out. That type of consumers is a keeper. [Disclaimer – I work with the Interactive Television Alliance)

I believe the children are our future. Teach them well and let them lead the way

According to a recent research report from eMarketer, Hollywood has only spent 3% of their marketing budget on online advertising. This compares to the average of 5.7% of all industries (estimated 2006 online ad spending = $16B divide by $281B Total media spending estimated in 2006).

This is ironic since the same young people that Hollywood is trying to reach tend to get their movie information online more so than their older counterparts. (MPAA did a study in April 2006 and found that nearly half of 18-to-20-year-olds saw one or more movies per month in 2005, compared to less than a third of those 30 and older). However, the same eMarketer report forecasted that online ad spending by Hollywood will increase to 8% of total media spending by 2010, which is still almost a whole percentage point under the forecasted internet-to-total-media-spend of 8.9% ($25.2B divided by $284B) by 2010. One would have thought that Hollywood’s online ad spending would be above the average amount, which in this case, doesn’t seem to be.

By 2010, the teen population (ages 12-17) will reach about 20M and a staggering percentage of them (~84%) are internet users. Since, this being the target audience that goes to the movies frequently, it only makes sense that Hollywood’s priority should be to reach them where they hang out, ie online. Moreover, this demographic group grew up entirely with the internet and is certainly savvy enough to differentiate between relevant ads pushed to them (and maybe even pull relevant ads themselves) and plain crap. Advertising online where the target audience feels an affinity to the product can certainly leads to the audience paying for the product. So, Rupert Murdoch had the right idea 12 months ago after all.

we'll be right back after this short break...

Thank you everyone for your feedback and well wishes. I wanted to let everyone know that my blog is going on hiatus for a little while. Actually, it's been on hiatus since a month ago, the reasons being new project, moving to a new apartment, upcoming planned vacation. I promised to be back in November with more lowdown on new media postings. The earth may shift again by that time.

Take care.
kw