Questions About The Value Of Online Video; Insight On Long-Term Value of DirecTV Merger

What fools! I’m a sucker for pieces that say what’s black is actually white. So the piece on 24/7 Wall Street.com by Douglas A. McIntyre that questions the profit-making power of YouTube gets my attention.  

He notes that YouTube provides so little revenue to Google, compared especially to its search business, that “it begs the question of how rich the online video markets really are.”

In April, he writes, YouTube had 115.7 million unique viewers, according to fresh data from comScore. But Google’s first-quarter earnings report barely mentions YouTube because it “does not play a meaningful role in its revenue composition.”  Search provides 90% of its total revenue.

That 800-pound gorilla isn’t making loads of dough off of its user-generated-content and network of channels? What does this says about everybody else?

“If video advertising, for which marketers pay a premium over display ads, is critical to any set of Internet properties it is the three portals: AOL Inc., Yahoo! Inc. and Microsoft Corp.’s  MSN,” McIntyre writes. “Revenue at these sites has been flat for several years. Video advertising, with its promise of high prices like those paid to television networks, might spark some growth. At this time, the proof that has worked is terribly thin.”

Ditto this: “Although Amazon had 32.6 million unique video viewers in April, its earnings releases do not boast that this business is even a modest part of its sales.”

Online video? Insignificant?

Well, one might note that to real big money makers, it’s possible to get excited about the up-and-coming profit place if bigger bucks are coming from somewhere else, and always have been.

After all, when GE bought NBC from RCA in 1986 for $6.4 billion (that was real money back then), the deal didn’t even need shareholder approval. In the GE realm of turbines and jet engines and, oh yes, those toasters, a TV network was so...so.  (That’s why Jack Donaghy was vice president of East Coast television AND microwave programming for NBC, at least on “30 Rock.” )

Still, such attitude from McIntyre! His sour assessment of online video would seem to be pretty shocking news to the Walt Disney Co and lots of other investors in the great, chugging online video locomotive who are supposing video is the future of the somewhat-free world.

But maybe he’s got a point or two? Is this online video platform just an illusion?.  Please discuss.   

MORE ON AT&T/DIRECTV: I guess you might say the online video play is a kind of programming evolution in the making, which is one damn fine way to float right over to discuss a thoughtful piece about the impending DirecTV/AT&T link-up by getting a little deeper into it.

Steve Donohue, a journalist who’s been covering media for a long time and is in the midst of launching his own online publication, took a pretty smart look at AT&T’s long term evolution, or LTE, plans for content distribution in the over the top content biz.

He suggests (to me, anyway) that an earlier Verizon LTE  experiment may have been helpful toward convincing AT&T it was on the right path.

“Verizon demonstrated the potential of LTE multicast technology in January, when it teamed up with NFL Network and technology vendors MobiTV, Sequans, Alcatel-Lucent and Qualcomm to show how it could one day use LTE to stream hundreds of linear TV networks to smartphones, tablets and connected TVs,” Donohue writes.

Then he notes that AT&T is thinking the same way:

“AT&T CEO Randall Stephenson pointed Monday morning to LTE multicast as the distribution platform that AT&T and DirecTV will rely on to deliver multiscreen video to subscribers. ‘The next six years are going to be about delivering video over these networks. That was frankly the key rationale for trying to do something with DirecTV,’ Stephenson told analysts on a conference call.”

The sweet thing is that AT&T won’t have its technical chops together for 12 to 18 months, which means that as regulators and foes of the merger try to gum things up, they'll give AT&T more time to get its LTE plan together. That’s a kind of short-term long-term evolutionary plan that could be pretty shrewd in the end.

pj@mediapost.com
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