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iPod Muddles the Financial Waters

Nov 14, 2005  •  Post A Comment

Apple’s recent launch of the video iPod drew attention to the podcast platform in a big way, but it won’t necessarily be sales of downloaded music videos and episodes of network TV shows that define the new market’s economics.

Apple said it sold 1 million videos-including music videos and episodes of the ABC shows “Lost” and “Desperate Housewives”-in the first 20 days; the programming is commercial-free.

However, the true test of the emerging financial model for video on the new device is advertiser support. iTunes, the central marketplace for video and audio podcasts, includes a dynamic ranking of the most-requested podcasts. The video podcasts regularly appearing on the top 20 represent varying stages in the development of an ad-supported model.

Most podcasts are still audio-based, but four or five videos have regularly peppered the top 20 rankings in the first few weeks of the video iPod.

Among them:

  • “Photoshop TV,” produced by the National Association of Photoshop Professionals, is like a Photoshop class with tips on using the image creation and editing software. The content, hosted by “The Photoshop Guys,” is educational in nature, but it’s also effectively branded content for Photoshop.

  • Ziff Davis’ “Digital Life TV” runs conventional 30-second spots in its twice-weekly show for technology enthusiasts. The first advertiser was CDW Warehouse, followed by Xerox. The show expected to add Microsoft last week.

  • Popular “Tiki Bar TV” is not yet ad-supported, but the creator of the short entertainment show said he expects to transition to an ad-supported model next year to continue to justify his time producing episodes that feature Dr. Tiki filling prescriptions for cocktails and cavorting with a beautiful midriff-baring brunette.

  • “Diggnation,” hosted by two guys dressed in hooded sweatshirts and hats who drink beer while discussing top tech stories of the week, is supported through limited sponsorships. Godaddy.com is the current lead sponsor; the hosts mention the sponsorship during the show.

    These shows are on the iPod video vanguard. They may not be the final winners, and they may rank high only because there aren’t many competing videocasts. After all, big media has yet to penetrate this new video sphere, though ESPN, CNN, CBS and others offer audio podcasts. Most experts expect them to supply video content for iPods too.

    What’s unknown at this early stage of podcasting is how disruptive low-budget, first-mover videocasts will be to the traditional TV model. But it’s clear that podcasts are one more thing that fractionalizes and fragments audiences, said David Ernst, executive VP and director of futures and technology for media agency Initiative.

    So the early entrants are hammering out their business models now, moving quickly to seize the opportunity in front of them. In addition to “Digital Life TV’s” new advertisers, Ziff Davis is embarking on an ad sales push for the show and plans to launch additional tech-enthusiast video podcasts soon. The company won’t share numbers on downloads or viewers for “Digital Life TV,” but Jason Young, president of Internet and consumer technology publishing at Ziff Davis Media, said the number of shows downloaded had risen 65 percent since the video iPod was released. Overall, the show has risen 300 percent in viewership since August.

    “Digital Life TV” is available through iTunes and also online at DL.TV. It operates on a shoestring budget, relying on promotion through the network of Ziff Davis sites that reaches more than 20 million unique monthly visitors, and on the show’s cachet among the tech cognoscenti. “There was a real viral explosion that took place amongst this very well-connected crowd,” Mr. Young said.

    As Ziff Davis pitches marketers on moving their video assets into the new medium, it’s also working with advertisers to determine pricing metrics. A number of options exist, Mr. Young said. “It could be on a CPM basis, based on total number of viewers seeing a specific ad,” he said.

    But that raises the question of what qualifies as a viewer, he said. Does someone have to watch the whole show? What if someone downloads a show and never watches it?

    “It could be in share of voice. It could be based on the percentage of advertising they get in a show,” he said. “So instead of on a spot-by-spot basis, you will get 25 percent share of voice [total amount of airtime available for a show] in the ads. There is also a branded player on our Web site with CDW Warehouse.”

    Another question is whether the ads are priced discretely or packaged with a broader Ziff Davis buy. “Our challenge in the next two months is to figure out how this is best packaged and transacted, so as we get into the first quarter we can present this to major marketers and beyond core technology advertisers, whether it’s the automotive category, financial services category [etc.],” he said.

    While Ziff Davis recognizes the need for a financial model, some viewers need convincing. In a recent episode of “Digital Live TV,” host and executive producer Patrick Norton addressed viewer feedback about too many ads by explaining that ad support was necessary to pay salaries and the “ginormous bandwidth costs.” That’s a very real issue for podcasters because video download costs are astronomically higher than those for audio podcasts due to their much larger file size.

    Even though “Digital Life TV” is a live show produced in a stripped-down, low-cost manner, “We are moving terabytes and terabytes of this on a weekly basis,” Mr. Norton said.

    And terabytes aren’t cheap. An hour-long video file can average about 250 megabytes. If 4,000 people were to download a file that size, that would equate to about one terabyte of data, said Leo Laporte, the host of “This Week in Tech.”

    The audio podcast of his show regularly cracks the top five on the iTunes ranking with 250,000 downloads a week, but not the video version he produces in tandem because it’s not offered yet through iTunes-which he finds cost prohibitive at this point. Prices vary widely, but the cost to move a terabyte of data can range from about $100 to $500, he said. And that’s a cost the content provider must incur in most cases.

    “I don’t dare put [“This Week in Tech”] on iTunes because I have no idea how much it would cost me,” he said.

    One possibility is to offer the show for Apple’s standard $1.99 download fee. Apple has not sanctioned independent producers yet for sale and declined to comment on whether it might in the future. But Mr. Laporte said he is talking with Apple about the possibility. Under one potential model, Apple would pay the download cost and also retain a large portion of the revenue, Mr. Laporte said.



    Digging ‘Diggnation’

    For now, Mr. Laporte’s volunteer-produced show is supported through donations of about $10,000 a month, which covers bandwidth and equipment expenses.

    Then there’s “Tiki Bar TV,” the classic example of unusual video content bubbling up via the Internet. The show’s creator, Jeff Macpherson, who produces the show from his Vancouver apartment, expects to migrate to an ad model next year to continue to deliver the show. “It would be a big switch from making it out of my apartment to having advertisers involved,” he said. “There has been some interest.”

    Podcast “Diggnation” plans to stick with its model of limited sponsorships mixed in with donations, said David Prager, director of business development for Revision 3, which operates “Diggnation.” The show generates about 50,000 downloads a week, the vast majority of which are through iTunes.

    While advertising opportunities exist for targeted, concentrated video podcasts, don’t expect big national advertisers to sign up until they can reach 10 million or so people, Initiative’s Mr. Ernst said. Some national advertisers may participate sooner for the learning and the experience, but it would be experimental, he said. “But when you start to talk about mass audiences for ma
    ss content, I think it will be a while before you see this become an efficient way to reach people.”



    ‘Screen’ Spins into Podcasts

    About two years ago a TechTV show about computers and technology, “The Screen Savers,” generated a small audience of nearly 75,000 viewers daily.

    Now the show, which has morphed into three unofficial podcast spinoffs, is getting close to those numbers on a weekly basis.

    G4 bought TechTV in May 2004 and last March broadened “The Screen Savers” into “Attack of the Show!,” which includes live musical performances, guests and news on trends, Internet finds, newest gadgets and the coolest downloads. But because three of the show’s former hosts are now hosting tech shows online, the spirit of “The Screen Savers” lives on in a form closer to its original premise of serving the tech enthusiast.

    Kevin Rose now hosts “Diggnation,” Leo Laporte fronts “This Week in Tech” and Patrick Norton headlines “Digital Life TV.” Those shows are among the top-ranked video podcasts, with the audio version of “This Week in Tech” alone generating 250,000 downloads. The video podcast of “Diggnation” garners about 50,000 downloads per week.

    Their popularity as low-cost, almost homegrown shows is an interesting commentary on how programming can morph, evolve and appear again in new outlets. Because the network shackles are now off, the hosts are largely in control because they have the means, through iPods and the Internet, to produce and deliver the content directly to viewers.

    “The show lives again,” Mr. Laporte said. “We had a large enough audience to be viable but not a large enough audience to satisfy a traditional TV network.”

    While at TechTV Mr. Laporte wanted to “embrace the niche” of the tech geek. But that wasn’t possible. Now, he said, it is possible-and it’s what audiences want. “I’m being proven right,” he said. “[‘This Week in Tech’] has a larger audience than TechTV did.”-DAISY WHITNEY