Fall 2007

Heavy Traffic

Content is booming on the Internet almost daily. In our ongoing look at developments in new technology, we sort out some of the ways film and TV are reaching a new audience.

Illustration by David Julian

DGA Quarterly - Heavy Traffic

When Movielink began renting first run movies and recent TV programs online in November 2002, then-MPAA president Jack Valenti called it a “great experiment.” For the first time studios were going directly to consumers using the Internet to cut out middlemen—broadcast and cable networks, telecoms and satellite services.

Movielink’s five investors—Paramount, Sony, Universal, MGM and Warner Bros.—poured more than $150 million into the company, acquiring IBM technology to deliver movies and TV shows directly to any computer for a specified period, while maintaining control over copying. Content was downloaded from a central file server to a renter.

But despite its blue chip-backers, Movielink fell prey to an explosion of competitors—both legal and illegal—making movies and TV shows easily available online. Ultimately, Movielink was crippled by a number of factors: bandwidth requirements that limited the audience; high movie and TV download prices; slow download times; studios’ reluctance to offer current product because of piracy fears; and a move by new Internet ventures to ad-supported content provided free to consumers.

The partners sold Movielink last August to Blockbuster for the bargain-basement price of $6.6 million. The attempt by the major studios at distribution hegemony was history, at least for now, replaced by a myriad of online choices serving a fragmented audience.

For Internet users today it can be tough going to navigate those choices. Dozens of companies—from Innertube to Nicktropolis to Pulse—are supplying everything from repurposed kids’ shows to classic films and homemade videos. In addition to movies and television, there is a rapidly growing number of intermediary services that mix commerce with news, games and social networking. To help sort out the heavy traffic on the Internet, we offer a look at some of the emerging delivery platforms and new middlemen filling the void between those who make content and those who consume it.

“It’s a confusing environment,” admits Barry Parr, lead analyst for JupiterResearch, a company that tracks new media. “Obviously, distribution is an incredibly powerful business. At the same time, lots of folks who thought they could control distribution online have discovered that it’s not quite that simple.”

One of the most pervasive forms of online distribution is also the oldest. When the Internet was first conceived in 1979, it was designed to be a peer-to-peer distribution system. This meant that an online sender could store content on other member’s computers, which could then be accessed by all users on the network on demand. P2P communications were refined further and became more commercially viable in 2001 when programmer Bram Cohen created BitTorrent software, which made it easier to prepare, request and transmit large computer files. Today it accounts for a significant amount of the activity on the Internet on a variety of platforms.

Using Cohen’s formula, BitTorrent.com was founded in early 2007 to sell P2P software to other Internet networks as well as distribute movies, TV shows, music and video games. P2P images over broadband are close to broadcast-TV quality. “Rather than only be a recipient of data, the consumer can also be a provider of data,” says Ashwin Navin, president of BitTorrent. “It’s a two-way relationship.”

While P2P networks were changing how content was being distributed, the entire business of electronic delivery was rocked by a game-changing innovation in 2005. Apple, which had already revolutionized music delivery with its iPod, entered the download business selling TV and movies from the iTunes online store that could be viewed on its video player.

In the first three months, with TV shows from Disney, Apple sold 1.3 million downloads, which was roughly double every other legal electronic download vendor combined during that period (but still a relatively small number compared to home video). That set off a lively competition with Apple. Amazon launched Unbox; Microsoft became one of the largest movie download vendors servicing buyers of its Xbox 360 game system, which could be adapted as a movie player to receive downloads.

To put the current activity in perspective, a recent study by PricewaterhouseCoopers reported the industry as a whole had $32 million in download sales in 2006 in comparison to $16.9 billion in DVD/VHS/Home Video sales for the same period. So despite increased activity, the downloading business is still nascent at this point.

Much of the growth in free content on the Internet has been driven by the move to advertiser-supported streaming videos, meaning a file is sent to a computer in a steady stream that can be processed for immediate viewing. For example, when ABC shows Desperate Housewives on ABC.com, it is streaming the video. The users don’t need as fast a connection or the ability to download large multimedia files. Studios like the fact that it is nearly impossible to copy the content as it airs.

Consumers have come to expect content to be free on the Web, which explains why Google suddenly abandoned a pay-downloading venture in August and is now offering advertising-supported video for free on the search engine and on YouTube. “We feel most encouraged by advertising-supported monetization models for video,” said a Google spokesman.

The ad-supported model also serves the newest marketing mandate of the TV networks that have discovered it is a new source of ad inventory and revenue. The networks have moved away from distributing online themselves, or making exclusive deals, because they want content available to consumers and potential viewers in as many places, and in as many ways, as possible. Further expanding on this trend, Fox, NBC and Disney recently announced that they will be offering free, ad-supported downloads for some premieres and continuing episodes from the 2007 season. Not only does ad-supported streaming, and now downloading, help promote programming, but the sales departments aggregate all viewing across all platforms when selling advertising. The more exposure the better and Web viewers benefit, too.

Those looking for CBS content online will have no trouble finding it. The network has been among the most aggressive at expanding the distribution of its content, often with advertising included. In addition to their own sites, online partners include AOL, Microsoft, CNET and Sling Media. And this past May, CBS went after consumers by partnering with a number of social networking websites such as Clearspring, MeeVee, MuseStorm, VideoEgg, which make available streams of programming and easy access to clips of the network’s shows.

Anyone doing even a cursory search on the Internet will notice a new generation of intermediary businesses that deliver Hollywood content to the consumer, often mixing TV and movies with a dose of original programming. One such company is a startup called Joost that combines P2P with traditional downloading. Content, mostly non-mainstream, is free, advertiser-supported and available on demand around the clock. It offers full-screen, broadcast-quality pictures and audio, and also features interactive and community services, all as part of more than 150 branded digital channels, including animation, movies, sports and documentaries.

Sometimes it seems like new players are arriving almost daily in the marketplace. Former Disney Chairman Michael Eisner is among the investors in Joost rival Veoh, which also utilizes a form of P2P distribution technology to host a variety of programming, from major television networks such as Fox and CBS, to independently produced content, including YouTube and MySpace. It also serves as a DVR for Web video, which enables playback later.

But as the outlets grow and the Internet audience becomes more selective and fractured, selling downloads or advertising will become more difficult, predicts Scott Hettrick, former editor of Video Business. “The challenge for each of these networks is to build a big enough audience to finance whatever it is they are doing. That’s the serious question mark right now. There’s no doubt the whole system is being upended and revolutionized, and it’s going to be great for would-be filmmakers and consumers who want a plethora of program options. The question is: How does anybody make any money out of it?”

The Industry / Technology

Articles on creative issues and new technology in features, television and new media.

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