Friday, July 28, 2006

July 2006 Early Indications: Web Video Update

As we predicted in January, video over the Internet is making a major impact.

"The relentless reinvention of business markets by the Internet and digitization will continue. . . Who might be next? Television is my best guess, given the presence of Apple (iPod video purchases), Microsoft, Google, Yahoo, Cisco (with its newly-purchased set-top box business), and AOL/Time Warner along with the RBOCs: that's a lot of intellectual and financial capital being focused on a mature industry that is becoming more digital every day."

But who is the main player in this emerging category? None of the giants listed above, though all continue to be active. Surprisingly, a startup called YouTube continues to control the majority of web video market share. The company is doing so despite owning no production facilities, archives, or other "media assets." Instead, YouTube is supplied with content by individuals who submit video clips of themselves on skateboards or hanging around, or old TV clips, or any number of other materials. Some of the videos are illegal in certain jurisdictions, others problematic for a variety of reasons, primarily lack of copyright. One of many fascinating sidenotes to the site's growth is soldiers' use of YouTube as a mechanism to post graphic, unedited videostreams from Iraq, a practice the military is trying to curtail.

But the numbers are soaring. According to Nielsen/Netratings, YouTube's traffic quadrupled in five months. Page views have increased even faster, from 117 million a month in January to 724 million in June: more people are visiting, and those who visit stay longer.

The site's traffic got a huge boost - 75% - in a week. Why? Bill Simmons, a former comedy writer who has a column on ESPN's site, listed his "YouTube Hall of Fame" in mid-June. It featured great athletic plays, unintentional goofiness, on-air interview meltdowns, and emotional moments, particularly the end of the 2004 World Series when Simmons' beloved Boston Red Sox won the World Series. The net result is that a video website with only a small amount of licensed content is beating AOL, Google, and Yahoo, in part on the recommendation of an uncredentialed sportswriter who eschews locker rooms and press boxes posting on an incumbent sports network's website.

Several elements of the YouTube model merit attention. First, while short clips have long been a unit of video production, programming has always worked in 30-minute multiples. Now consumption can work in the same short bursts that characterize everything from news correspondent stand-ups to highlight reels to comedy sketches.

Second, although there's speculation over who will buy YouTube and how much it's worth, recent history would seem to suggest that buyers may inherit major liability. Recall that Napster was a parallel to YouTube, a site hosting unlicensed digital content. It was shut down by lawyers with copyright concerns, then KaZaa and other sites moved music and other software to a peer-to-peer architecture with no central storage facilities, only pointers to users willing to share content. These too have drawn legal attention: just this week KaZaa was ordered to pay $150 AU in damages to recording artists. The vast amount of copyrighted material being distributed by YouTube -- even though it both distributes legal video for NBC and others and has removed copyrighted materials at the rights holder's request -- makes litigation and/or criminal charges seemingly inevitable.

Whatever the shape of the emerging business model for this kind of material, I'd like to look at the question more broadly. How might the economics, viewing practices, and other elements of Internet video evolve?

1) Time Scales
Currently, there is a great deal of time shifting for television viewing, due mostly to the use of VCRs and then personal video recorders such as the TiVo. Rarely will these technologies allow a home viewer to collect an archive's worth of content, nor will the content be indexed and managed. NBC pulled down Saturday Night Live clips from YouTube, so there's currently no easy way to see favorite routines and musical performances from the show's 25+ years, although a select few are on DVD.

Assuming new and appropriately powerful search tools, Web video promises to bridge the gap between TiVo's allowing a viewer to watch a show a day or two after broadcast and the tiny percentage of broadcast material (excluding as it does local news, advertising, and other material never included on commercial DVDs) available on permanent media. The questions of who manages the archives, what conditions are attached to their use, and who pays whom for what are mostly open and promise to be controversial.

2) Business Models
Unlike cinema and music, television has operated on an advertising-supported model from the beginning. As software companies, music labels, and publishers work to adapt to online distribution, television rights holders may be in a prime position to capitalize on the new distribution channel. At the same time, seeing the Internet only as distribution and not as creation and collaboration will lead to major missteps, as the people who upload 65 million videos a day to YouTube alone would seem to prove. The migration from broadcast "push" to download "pull" also makes a major difference.

This blurring of production and consumption is new, and not yet fully formed. The notion of fair use, under U.S. copyright law, will be further reinterpreted by both lawyers and users: the rise of "remix culture" in digital media extends familiar artistic methods of reuse (Jasper Johns' "Flag" is a prime example) to music and video. Establishing principles and practices of ownership will continue to challenge societies and businesses across the globe. However these questions get resolved, web video will emerge under a different model from the so-called "audience commodity" that broadcasters used to sell to over-the-air advertisers.

3) Segmentation
Video serves many kinds of people in many different ways. A corporate training video is fundamentally different from sports replays; long-form mini-series can't be confused with weather reports. Spanish-language game shows vary fundamentally from their Japanese or American cousins. It will be fascinating to watch how cultural and time-zone barriers are affected by the Internet video channels. The World Cup head-butt (a huge YouTube download) is as close to a globally universal image sequence as we currently have.

At the same time, the microscopic scale of the audiences for political satire, or any one of thousands of rock bands, or self-produced documentaries extends the tendency of network television toward fragmentation. The move from three networks in the U.S. to hundreds of cable channels is potentially expanding by orders of magnitude, and "viewers" are no longer passive nor bound to broadcasters' schedules.

4) Tools
As video migrates both to big-screen HDTV sets and small-screen cameraphones, it's clear that one size will not fit all for either production or consumption. It's a parallel situation to blogging: citizen video from mobile phones can be immediate and dramatic (as after the London subway bombings last year), but just as an army of bloggers can't produce and manage a big-city newspaper, so too a dozen or even a hundred amateur videographers can't deliver the World Cup video feed. Lightweight, on-the-spot image capture will continue to emerge, and better tools are available to small-timers every day, but there will always be an audience for highly-paid stars shot in high resolution formats and edited by professionals.

All that said, it's worth noting as a data point that an HD video camera can be bought on Amazon for well under $2000, and an HD digital video editing environment (DV Rack with HDV upgrade) costs only $500 for software. With that kind of access, and with Moore's law making electronics (if not optics or petrochemically-intensive storage media) cheaper every year, the ingredients are in place for major upheaval. Predicting who will capitalize -- Sony, Samsung, Disney, News Corp, Fujitsu (which makes mass storage for this kind of thing), video search startups, Google -- is premature, but it's clear that incumbents and upstarts alike are moving fast. The market, however, is moving even faster.

Bill Simmons YouTube column:

Background on Simmons:
Bryan Curtis, ADRIFT ON THE SEA OF ESPN.COM, New York Times, June 4, 2006,

Nielsen/Netratings figures:

YouTube potential litigation:

Amazon DV video camera: