Commentary

Video Distribution Wars Heat Up


Just last week, NBC announced it would not be renewing its video distribution partnership with Apple and its iTunes service, and it moved to Amazon instead --while Sony has announced plans to more directly compete with Apple when it comes to video downloading services. Many analysts believe that the video distribution "wars" have only begun, with no clear-cut winner yet to emerge, and I could not agree more.


Online video content creators are in the enviable position of having learned from what happened to their friends in the music industry, and are making sure they don't end up in the same position. With more than 3 billion songs downloaded through iTunes, consumers are clearly passionate about music distributed through the web and, more specifically, through the Apple service. However, at 99 cents per song download, the financial reward has been very limited for the record companies. Apple can afford to have music be a breakeven or loss-leading product, provided it can help create demand and buzz for the company's slew of offerings including the music players, phones and their soon-to-be-launched WiFi device. Apple has had the upper hand when it comes to negotiating with the record labels, but that is certainly not the case when it comes to video.

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These two announcements are interesting because they are the first of what I expect to be a significant amount of back and forth when it comes to video distribution. Companies like ABC have decided to rely primarily on themselves for distribution, while CBS has taken the opposite approach and has numerous licensing agreements with other websites. Who is taking the right approach? That's still to be decided, although I think both strategies have strong arguments.


It is certainly more profitable for CBS when a consumer watches an episode of "CSI" directly on CBS.com as opposed to through a third party. However, if a site like YouTube, Joost, or even Hulu can gain the necessary viewership, then broadcasters and video content providers will need to revenue share to maintain scale and avoid sacrificing brand recognition. Let's not forget that Web distribution today is still primarily used for on-air promotion, with online video still holding its place as an "opportunity."


While I am a fan of Apple and iTunes, I am pleased to see Amazon emerge as another choice (in addition to Netflix, Blockbuster and others) when it comes to distribution. With the new Hulu CEO most recently having spent almost 10 years at Amazon, it should come as no surprise that NBC and Amazon have partnered (Reminder -- Hulu is partly owned by NBC).


As for Sony, it is in a fantastic position to grab a significant seat at the table by leveraging its role as a media and technology company. Kurt Scherf, vice president and principal analyst with Park Associates, says, "If there is a company that can marry all this emerging content to products that people want, it's Sony." What Sony means for online video distribution is yet to be seen, although I think the company's greatest impact might be the ability to move online video upstream through its television products.


Expect many more announcements -- including new partnerships and terminations of old ones as the distribution wars heat up. There is no question that online video will be a driving force not only behind online advertising, but also advertising as a whole in the coming years. But where you go for your video and how it is downloaded in the future may surprise us all.

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