In Depth

Infinite Paths to Online Success

Possibilities for Growth Are Many

As a fast-growing and financially promising industry, online video has garnered its share of analysts. TelevisionWeek contributing writer Daisy Whitney asked two Internet television pundits—Forrester Research’s James McQuivey and VideoNuze.com’s Will Richmond—what to expect in the years ahead when it comes to programming and advertising online, respectively.

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Programming

TelevisionWeek: How would you describe the state of online video programming now?

James McQuivey: We are seeing a whirlwind like the eminently lovable history-of-dance video on YouTube that can earn tens of millions of views worldwide and traditional players like “Saturday Night Live” embrace it. It is showing there are many possible content paths to online success. Some are more obvious than others. If you are J.J. Abrams and making “Fringe” and “Lost,” the Internet will be an enormous part of your future strategy of getting to your audience. Online video is not limited and it will have infinite possibility, but that makes it harder to find what you want.

TVWeek: What have we learned so far?

Mr. McQuivey: What we have learned over the last three years is people are open to a wide variety of stimuli. The brain is a place that craves new arrivals, new visitors, new formats, new content. Online video is like hooking up a fire hose to the brain and pouring more stimulus into it. If a picture is worth 1,000 words, then a minute-long video is worth a million words. What we have seen is this human need for variety and stimulation is finally being met through online video.

TVWeek: How do we help people find what they want so their brains can be satisfied?

Mr. McQuivey: What we are going to do is learn from what you watch what you might want to watch. What you want to watch is a function of where you are, who you’re with, how you’re feeling. But if we start to notice that around 1 p.m., when you get home from lunch and you’re not ready to jump back into work and have a tendency to search for a certain type of video, then we can start to help satisfy that. Netflix has a history of doing that really well, but they haven’t been able to intuit it for right now. They and Hulu and others are going to have to say, “It’s Thursday night. What should we give her right now?”

TVWeek: Is the iTunes model for music similar with its recommendations?

Mr. McQuivey: When it comes to music, there is a lot more behavior to measure. You listen to your favorite song 10 times or more. It’s easier in music to learn from the behavior what you might want to listen to, but there are very few videos people want to watch more than once.

TVWeek: How many years away is this, when we see it in video the way we see it in music?

Mr. McQuivey: We are many years away. In an online environment, you will see a lot from Fancast and Hulu, but that doesn’t encompass all the viewing. For the average online viewer, the amount of time spent watching online video is 3.5% of all their video consumption in a given week, and that’s not enough to predict what you want. You would need to see 20% to 30% of the viewing in order to have amazing recommendations. We need to get to a more multiplatform world and we need to know what people are doing online, offline, on PCs, on mobile. That kind of holistic view doesn’t exist yet.

TVWeek: Can search do this?

Mr. McQuivey: With search you are asking for the assurance that the content is actually there, but that’s not an assumption that’s safe to make yet. I am talking about discovering what you want to watch in an automated way. Search is interesting because it responds to what you know you want. That’s more near-term.

Advertising

TVWeek: What does the next year look like for online advertising?

Will Richmond: It’s a mixed bag. On the one hand the fundamentals of increasing consumption, interactivity and targetability suggest money will continue to come into online video advertising. But the financial meltdown and constrained ad budgets, and less willingness by brands to try new things, will dampen the online video spending.

TVWeek: What’s the biggest concern you have about online video?

Mr. Richmond: The immediate worry is the impact of the economy, and that figures into a broader worry about the financial equation coming into focus for online video specifically. The reality is the business models are still nascent and … the medium is still in a tentative state.

TVWeek: Will the business models mature?

Mr. Richmond: There are a ton of smart people who are very motivated to make this medium work, and it’s only a matter of time to make it work, but the question is time and other influences along the way that will be the enemy of companies that don’t have the luxury of time.

TVWeek: What will it take for more advertisers to come around and be interested?

Mr. Richmond: More inventory, better targeting, more proof that the medium works relative to other mediums, better rights management, better user experience for sites.

TVWeek: With that in mind, what should networks do?

Mr. Richmond: No. 1 is always develop an audience. If you don’t have an audience, you don’t have eyeballs to sell to. Develop programming that creates a quality audience and be aggressive about monetizing those eyeballs as well as possible. Do things on a shoestring—be mindful of every dollar.

TVWeek: Is there evidence that premium content will win out over independent or user-created content?

Mr. Richmond: Premium content will always be the most attractive because it has the highest production value and cross-platform support from being on broadcast and cable. There is no question incumbents have an advantage over independents. That’s not to say there is no room for independents. But they will have to work hard to develop their audience and succeed financially.

TVWeek: Does premium content mean it comes from Hollywood?

Mr. Richmond: Premium content is sort of like the old adage about pornography: You know it when you see it. A lot goes into determining whether something is premium. Are its creators people with a Hollywood background? Is it a compelling story, compelling characters, with high production values, that is released on a regular schedule so users can follow a story arc and look forward to the next episode? … An indie film shot on a low budget is considered premium content, even if it doesn’t have a list of actors, if it has top-quality storylines that are compelling. That is my definition of premium.

TVWeek: What have we learned about what consumers want to watch online?

Mr. Richmond: If you look at the statistics, it would say there is the bias toward premium programming and a bias toward user-generated content. But user-generated content doesn’t monetize at all, so the key takeaway is if you are in the broadband content business and you want to succeed financially, you need to offer premium high-quality content because user-generated won’t cut it. The lesson learned about YouTube, the king of user-generated content, is they are making a strong push into premium partnerships because that is where the money is.