Online television technology is poised to become a commodity.
Last year the online TV firm Brightcove, with its $59 million infusion of venture funding, was the technology darling. This year, competitors are horning in, with players such as Move Networks powering TV programming on the Web for the likes of ABC, CW, Fox and Discovery.
Who might be next year’s sweetheart Web video technology company? A profusion of companies offering essentially the same services makes it almost impossible to predict.
The commoditization of Web video technology poses challenges to the established companies competing in that business, and may spell more and cheaper alternatives for media companies putting video on the Internet.
Internet TV platform providers such as Brightcove, Move Networks, thePlatform, Permission TV, Maven and the new open-source entrant Kaltura are scrambling to introduce new features and services that they hope distinguish them from the crowd. They’re doing so because the big-money network clients are threatening to develop more online video features in-house or are considering open-source solutions.
“The industry in general is going toward an open-source approach, and infrastructure will become more of a commodity,” said Anthony Soohoo, senior VP and general manager of entertainment for CBS Interactive. “The way I look at it is we will judge them on service level, but in time you will pick them the same way a company picks standardizing on a PC.”
And is there really that much difference between a Dell and an HP at the end of the day?
The spread of Web-video technologies comes as the business of distributing video content on the Web is crystallizing. Advertising agencies said digital sales at networks increased about 25% in the upfront over last year. ABC.com said viewers have initiated 350 million episodes of its programming on ABC.com since September 2006. This year alone, the network landed 75 advertisers for its video player.
As networks become more savvy in digital sales, they are also streamlining digital delivery. ABC.com was one of the first networks to lean on homegrown video technology solutions. Although the network uses Move to deliver shows, it developed its Emmy Award-winning video player in-house.
“The part we need to [focus on] is the user interface side,” said Albert Cheng, executive VP, digital media, Disney-ABC Television Group. “We don’t buy technology companies [at the TV group] and that is based on the belief that technology gets commoditized.” The Walt Disney Co. does make strategic investments in technology through its Steamboat Ventures arm, but does not buy those companies outright.
The entry of established software giants like Microsoft and Adobe into Web video also could hasten the transition to a commodity market.
“Whenever there is money, there is innovation, and then you have the potential for commoditization,” said Bill Bradford, chief product officer at Fox Digital Media, which uses both Brightcove and Move Networks. “We are all building out our engineering and design competence to build on top of these platforms.”
Already the online TV technology business has undergone changes. Two years ago Comcast purchased thePlatform. Earlier this year, Yahoo bought Maven.
“In the next 12 to 18 months there will be massive consolidation,” said Fred Singer, CEO of online TV platform Anystream. “There are only so many customers and they can only handle so many vendors.”
The leading players are likely to be Brightcove, Move Networks, thePlatform and Maven, said Neil Sequeira, a partner with venture capital firm General Catalyst, which is invested in Brightcove and Maven.
The work that broadcast networks like CBS and ABC have done in customizing their video players is to be expected, but media companies will continue to need the content and advertising management that technology firms provide, he said.
“It’s hard to believe media companies are really going to do it all themselves. Third parties tend to hire the best technical people,” Mr. Sequeira said.
Web video companies will be left to distinguish their products through new features and better customer service, both expensive propositions that will reduce profit margins as growing competition reduces their pricing leverage.
The third-party providers are working to stave off commoditization. “You have to compete on your own features,” said Ian Blaine, CEO of thePlatform. He’s focused on the parts of the online TV technology infrastructure that media companies are unlikely to duplicate, such as generating revenue from content and managing ads.
Kaltura offers an open-source video player for free, as well as a more sophisticated set of tools to premium customers.
Permission TV recently added free production tools on top of its player so users and media companies can customize their video experience.
Move Networks CEO John Edwards said the company will provide additional programming recommendations for viewers, deepen its ad targeting and offer more data on viewing. He expects to increase revenue through those additional targeting tools.
Move Networks delivers 11 of the top 20 prime-time shows online. Also, 40 million unique viewers watch shows delivered by Move, up 50% in the last six months. They’re watching 61 minutes on average, up from 50 minutes in September.
And while Move Networks may be the darling of the moment, Brightcove is still plugging away. The company recently inked deals with cable networks Showtime and Lifetime to power their online video.
“There is still plenty of room for evolution and a great need for these companies,” said Robert Hayes, senior VP and general manager of digital media at Showtime. “They all approach the market in a very different way.”
Brightcove recently introduced upgrades to its service to better handle high-definition and higher-quality Internet content. Revenues for 2008 should grow four times over last year, said Jeremy Allaire, CEO of the company.
“We expect to reach profitability with this growth,” he said, adding that Brightcove counts more than 300 customers, including A&E, Discovery and Rainbow Media.
“TV networks understand they are not software companies,” Mr. Allaire said. “They don’t build their own cameras and satellites.
“So the folks at ABC, CBS, NBC will continue building their own stuff, but they cannot keep up with the pace of innovation or get the economics of scale to make this a good business,” he said.
Web-Video Technology Becoming Commodity
Jul 13, 2008 • Post A Comment
Online television technology is poised to become a commodity.