Stickam was recently included in a large piece on the popularity of Web videos in the Ottawa Citizen.

Read it here: http://www.canada.com/ottawacitizen/news/technology/story.html?id=d5c256a6-5b26-4beb-8304-79a9939b1fdd

Video populi booms, Hollywood plays catch-up

With homemade videos exploding in popularity, the movie and TV industries want a piece of the Web-video action. They’re second fiddle now, but likely not for long.

Vito Pilieci

The Ottawa Citizen

Thursday, November 02, 2006

If there’s a lesson for the technology and entertainment industries in Google Inc.’s $1.65-billion U.S. acquisition of YouTube last month, it’s that people will use their Internet connections to watch — and post — almost anything.

At YouTube and similar websites such as Stickam and MySpace, the recent parade of user-generated footage has included: a toy kangaroo in a three-round boxing match with a toy gorilla; a one-minute documentary about the softer side of Tusken Raiders (otherwise nasty Star Wars franchise creatures); and a slide show showing pictures of former American presidential candidate Bob Dole — set to the national anthem of the former Soviet Union.

The videos are weird, wacky, often just plain stupid. However, each of the above shorts had attracted viewers by the thousands — more than 240,000 have watched the toy boxing match, for example. Toss in the potential to serve each interested viewer with short advertisements prior to the video clip, and it’s not hard to see why companies — ranging from search engine Lycos to Ottawa-based online movie rental firm Zip.ca — are trying to add Web video content to their businesses.

The emerging business models for such sites run the gamut. CNN.com forces viewers to watch a short advertisement before they can see their video. YouTube splashes advertisements in various places on its website. MLB.tv, which is owned by Major League Baseball, requires a subscription for people to see baseball games online.

The king is YouTube, which has shown that the shared-content ethos of Web 2.0 — the next version of the Internet — can translate into a billion-dollar business. The website hosts more than 100 million videos, with 65,000 new videos uploaded daily. According to Nielsen NetRatings, more than 20 million unique users visit YouTube every month — for content that is effectively donated. Millions of people around the world are willing to run around with their camcorders, record something silly and post it on YouTube or similar sites. YouTube and its peers just have to provide a place to store the content and then sit back and reap the profits.

But the boom in user-created online video is only part of the picture. Demand for subscription-based Internet video is also taking off.

At the start of the 2005 major league season, MLB.tv took the television feeds for baseball games and streamed those games on the Web. The site requires people to pay a monthly fee of $14.95 U.S. for access to more than 300 baseball games in that month. MLB.tv has reported sales of more than $195 million U.S. for the 2006 season, and with interest in online content growing, it expects revenues to increase by as much as 70 per cent during the 2007 baseball season.

And yet with all this, major movie studios are stumbling to get feature-length films online. The studios have been plagued with problems and have, so far, been falling behind in this push to get video online.

With more than 59 per cent of Canadians and Americans using high-speed connections to access the Internet from home, the number of people watching video on their computer screens is growing and expected to take off sharply.

This has advertising companies salivating. According to the IAB/PricewaterhouseCoopers the online market for advertising was worth around $12.5 billion U.S. in 2005. Most of that was spent on static text ads that linked to other websites.

In Canada, advertisers spent $562 million in 2005. New types of advertising, such as video ads, should see that total almost double to $801 million by the end of this year.

Given the expansion in the market for online ads, it’s not surprising that companies are rushing to offer online video.

Ottawa’s Zip.ca is a prime example. The online DVD rental business has amassed thousands of Canadian clients by providing them with access to more than 51,000 possible rental titles. Zip.ca’s twist, which allows it to compete with bricks-and-mortar incumbents such as Blockbuster Inc. and Rogers Video, is that it sends its DVDs through the mail for free. Two and a half years old, the company shipped its five-millionth DVD in early August.

This business model has worked so far, but Rick Anderson, Zip.ca’s president, recognizes that to keep flourishing, the company must innovate in the realm of online video.

Zip.ca is launching Zip.tv in the coming months, becoming one of the first Canadian companies to jump aboard the Internet video bandwagon.

“I remember saying 18 months ago that I can’t imagine people are going to want to watch video on a two-inch PDA screen,” says Anderson. “I was wrong about that. People like it portable, they like watching it on a laptop, in a hotel room, on a train, in a plane, and some people like watching it in on an iPod.”

The site will provide access to content from the BBC, National Geographic and Discovery Channel through partnerships signed with websites including Akimbo.com and Totalvid.com. There will also be a user-posted component — much like YouTube — allowing people to post whatever they feel like showing to the world.

Anderson said the company is still hammering out a business model for Zip.tv that will incorporate advertising, pay-per-view and subscription services, depending on what type of content a user wants to see. For example, a person who chooses to watch freely posted videomay have to watch a short advertisement prior to the clip. Other video could be made available by subscription or pay-per-view.

Zip.tv is already in beta testing, with content from the Canadian Broadcasting Corp., Fox News, Reuters and short clips from popular TV shows, including one infamous clip of a woman on the Maury Povich Show who seems to be deathly afraid of pickles.

Anderson says it’s a safe bet that video will shake up the Internet in a big way. “We think it’s going to be huge over the course of the next decade,” he says.

“People are discussing whether it’s five years away or five months away. Whatever. It’s coming. Just as it has in music. We are very keen to be part of it.”

The increasing demand for video has some Internet service providers wondering if they have the infrastructure they’ll need to keep up.

At a telecom conference this week, Videotron president and chief executive officer Robert Depatie said the Quebec communications company will invest an additional $300 million in infrastructure this year.

Because of online trends such as the popularity of online music and video, he said, customers are using four times more bandwidth than in 2005.

Depatie called on the federal government to charge film and recording studios a transmission tariff to help shoulder the burden of providing infrastructure to customers.

Right now, he said, movie studios get the equivalent of free shipping. A company sending a DVD through the mail would need to pay a postage fee, he pointed out, asking why there shouldn’t be a similar fee structure in place for Internet transmissions.

For Zip, the ultimate goal is to use the momentum created from providing online video to eventually springboard into providing full-length feature-films over the Internet to its customers.

The problem is that movie studios are taking their time with the online market.

So far only the Walt Disney Co. is offering downloads of about 75 movie titles, available on Apple Computer Inc.’s iTunes website and online retailer Amazon.

Another American website called Movielink has managed to work out a deal allowing downloadable movie rentals in which the file automatically deletes itself after 48 hours. However, Movielink offers only about 2,000 titles — fewer than the selection available at the average Blockbuster video store.

In Canada, Anderson said, there are no providers of downloadable full-length feature films.

The rapid digital evolution of entertainment content was a focus of last week’s GTEC Canadian technology conference, held at the Ottawa Congress Centre.

Vito Mabrucco, managing director of research firm IDC Canada, said the huge rise of MP3 music files in recent years is only the first wave in the online entertainment assault. Video is next, he said, and its ascent will mimic the establishment of MP3s.

“You now have a massive marketplace,” Mabrucco told a panel discussion. “People want their media and their entertainment when they want it.”

The industry can look to the popularity of electronic music files as an indication of the potential demand for electronic media.

According to the NPD Group, a U.S. research firm, more than 12.3 million MP3 players were sold to Americans in 2006. Canadians have bought more than two million of the devices. Those numbers are up from the nine million that Americans had bought in 2005 and the 1.3 million sold to Canadians last year.

Online music services such as Apple’s iTunes have sold more than 300 million MP3 files for about $1 each. Microsoft Corp., Bell Canada and smaller corporations such as Real Networks have rushed to partner with music companies to provide downloadable song services.

The growing catalogues of legal content that can be downloaded has had a profound impact on the music industry’s traditional business model. The average price of CDs has plummeted. Many major retailers have been forced out of business — U.S. chain Tower Records was sold last month to a liquidator that will close its 89 stores and lay off 3,000 employees. Other CD sellers have had to shutter shops and set up online stores to compete with the Internet-based services.

The music industry fought the rise of MP3s every way it could, claiming that digital music files could only lead the copying of songs and increased piracy. Studios spent millions taking companies such as Napster and Sharman Networks Ltd., the company behind the Kazaa file sharing program, to court to keep people from downloading music.

Now, in an about-face, the industry is partnering with online services to distribute music on the Web.

“The CD as it is right now is dead,” EMI Music chairman and chief executive Alan Levy told a conference last week in London.

He said companies must put more effort into offering better online services, and music studios must offer more special content on discs if they want to keep making money.

Other media companies are watching the rapid changes in the music industry, with TV networks particularly interested. They see potential in leveraging the Web to boost ratings.

Leading the pack is the American Broadcasting Corp., which posts episodes of Lost and Grey’s Anatomy on iTunes and other download services the day after they air on TV.

Aaron Novak, one of the founders of Stickam.com, said that while ABC has been first to jump into the space with both feet, others are following quickly.

“The networks were a little wary of this space,” he said, adding that many debated whether the online videos would hurt TV ratings. “They are now catching on that that was beneficial to them … there is money to be made in this space.”

The massively popular sites may have gained their appeal by allowing quirky user-created videos to be posted and viewed for free, but the networks plan to use that popularity to heavily flog their television content, essentially giving people another place where they can watch TV — or bite-sized portions of shows.

Just as Google’s acquisition of YouTube was announced, CBS Corp. announced it had signed a partnership deal to provide television content to YouTube. In Mid-October, YouTube’s CBS channel debuted, with clips posted from Late Show With David Letterman, CSI: Miami and CBS News First Look With Katie Couric, as well as archival sports games. Vivendi, which owns Universal Studios and NBC, followed by signing a similar deal with the website.

Earlier this week, the Turner Broadcasting System, which owns TV networks CNN and TNT, announced plans to launch an online website dedicated to short comedy clips. The TV-quality clips would be created by the website. The site will be supported by short advertisements users must watch before seeing the clip.

Fox Broadcasting Co., meanwhile, made the season premiere of its hit teen drama The O.C. available on MySpace.com a week before it airs on TV tonight.

The July 2005 deal in which Fox acquired the social-networking website MySpace for $580 million U.S. is another example of how traditional television companies are looking to hook viewers with online content.

For the networks, putting video on the Internet is easy. They simply take existing content and post it. Networks no longer need stations full of employees, buildings to broadcast signals, towers to boost those signals, or the other infrastructure needed for traditional broadcasting.

“What’s interesting about Google (YouTube) is that they are introducing a new business model,” said Mabrucco of IDC Canada. “Now that they can broadcast on the Internet, guess what that does to the traditional broadcasting model.”

He called it the “democratization of distribution.” No longer do content distributors need to wait for a large demand in order to release a product offering. The cost of putting media online is so cheap that everything can be made available and people can pick and choose what they want to watch.

Which is why seemingly silly videos showing a woman who is afraid of pickles, two toy animals boxing or even dancing Tusken Raiders are driving interest in online video and making the market worth billions of dollars.

“In the Internet world, only a few people need to want see something for it to be reasonably cost effective and to make it available,” said Zip.ca’s Anderson. “That is what’s driving the user-published content. Some of these things are viewed by thousands or even millions of people, but those are the rarities. Most of them are going to be seen by a handful of people.”

Analysts predict that with the appeal of silly video snippets and TV programs over the Internet, the major movie studios will soon begin an aggressive push to have their wares available on the Internet.

“We have a saying at IDC: If you drop a pebble in the water, it creates ripples and the ripples spread,” said Mabrucco.

Facing issues such as piracy, slumping movie ticket sales and dropping prices for DVDs, the studios are eager to find a new source of revenues.

However, poor picture quality and lengthy download times are among the headaches keeping them out of the market.

A Wall Street Journal report last month spoke about U.S. consumers encountering two-hour waits when downloading a movie via iTunes and amazon.com. And that was with a high-speed Internet connection — dial-up users would wait much longer.

Another deterrent is picture quality, which is nowhere near DVD standards and a far cry from newer video formats such as Sony Corp.’s Blu-ray or Toshiba Corp.’s HD-DVD.

Price, however, is a positive factor in drawing people to the online offerings is their price. Many of the downloadable films sell for between $9.99 U.S. and $12.99 U.S.

But even the price point is creating problems for the movie studios. It has sparked a war with retailers such as Wal-Mart Stores Inc. and Target Corp., who complain that cheap online movies will hurt in-store DVD sales. Seeing the damage online music sales have done to traditional retailers, U.S. big-box retailers are calling for a “level playing field” in which DVDs and downloads would be priced similarly. The stores, which notch millions of DVD sales annually, have threatened to cut back on the amount of shelf space they devote to DVDs if their demands are not met.

Yet with innumerable feature films in their archives, the studios are sitting on a gold mine of content that could be released to the masses at very low cost.

A movie such as Howard Hughes’ aerial epic Hell’s Angels might not be worth re-mastering and printing on DVD or Blu-ray/HD-DVD because the number of people willing to buy it in these formats would be relatively small. But the film could be placed on a server for a very small cost and offered to anyone who wants to download it for a nominal fee.

The same could be done for speciality films, independent movies, classic TV shows, foreign movies — anything with smaller audiences than big blockbusters.

Technology companies are gambling on when, not if, Hollywood will get into this market.

Despite continuing complaints about download times, the technological restrictions that are the biggest obstacle to downloading video have largely been solved.

In the years before the technology bubble collapse, many telephone companies and broadband carriers installed thousands of kilometres of fibre optic cable, providing the bandwidth to enable entertainment content to travel swiftly across the Internet.

Microsoft Corp. has been busy working with its media player software and Windows Media Video file format, which is capable of storing, transporting and playing video in high definition. The company will release its Zune portable media player next month.

Apple Computer Inc. has been working on similar high-definition functionality with its Quicktime video player. Apple has also been pushing forward with updates to its video-capable iPod player.

Late last year, Intel Corp. released its Viiv computing technology, a digital platform designed to plug into a home network and interface with a television, home stereo or portable device.

The entire industry is gearing up for this next wave in entertainment content. But until the movie studios jump in, it remains a waiting game.

“We have been around talking to pretty much everybody who has a stake in entertainment to the home and most recognize this trend,” said Doug Cooper, country manager for Intel of Canada. “The demand is there for it, the devices are allowing you to do it.”

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