When you find back-to-back Hulu and Verizon Hub commercials rolling across your TV screen, (as I recently did in New York), you know for traditional media delivery, the times, they are a-changin’.

Turns out, the TV spot for Hulu and Verizon Hub each mark a first for their respective parent company; pitching products previously not marketed on live television.
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Who doesn’t like Hulu.  As a fan of user interface design, I enjoy the elegance and simplicity of the site almost as much as the video streams themselves.  Launched in 2007 as a joint venture between NBCU and News Corp. (Fox/Paramount), the service has since grown to offer streams from many other content owners as well (recently Disney signed on, and is also reportedly planning to become an equity stakeholder).
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Speculating here about Disney’s recent (quasi-) presence on YouTube, we concluded that:

• YouTube was expanding beyond its core business of UGC (user-generated content) hosting into premium licensed content - and is willing to be just an aggregator to do it.
• Disney was finally ‘dipping its toe into video stream syndication via YouTube before placing its bet on hulu.

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Last week on a panel discussion in New York, ABC’s Albert Cheng described how his network was syndicating its content on YouTube - to paraphrase Mr. Cheng, “we supply them with meta data for our shows, but the actual ABC streams themselves still originate from our servers at ABC.”
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I attended a Boxee meetup/beta announcement event here in New York last night.

Boxee, for those of you unfamiliar with it, is the small New York-based startup behind a “media browser” application that has received a lot of attention lately, despite being still in alpha testing.  Optimized for a 10 ft. lean-back internet video experience, the app can be installed on an Apple TV - or you can connect that spare Mac Mini you have laying around the house to your television and install it there.

Either way, this is precisely the kind of solution that’s needed for internet video to evolve beyond the solitary dorm-room/workplace short-form diversion it currently is to a true home entertainment medium.

The profoundly disruptive implications of such a scenario were not lost on Hulu owners News Corp. (Fox/Paramount) and NBCU, who decided to deny access from the Boxee client a few weeks ago, just as the app’s ability to provide a compelling Hulu experience on the television was becoming more widely known.  This started of a series of back-and-forth technical maneuvers between the two companies: Hulu first started refusing any connections originating from Boxee rather than from standard web browsers.   In response, Boxee quickly implemented a workaround solution, instead accessing Hulu streams via the site’s public RSS feed, only to have Hulu implement a block on all Boxee RSS subscription requests a day or two later.   And on it goes - Boxee tweaks their RSS reader implementation to get through, Hulu tweaks their RSS feed implementation to deny it…  It’s gotten to the point that recent Boxee releases include a status message in the upper right corner, alerting users to whether the Hulu service happens to be available at that particular moment.

It was interesting last night, then, as Boxee CEO Avner Ronen slipped in the following item while listing the feature set of Boxee’s upcoming beta release: Boxee will now include, as Ronen put it, a fully Mozilla (i.e. FireFox)-compliant browser.  Although not explicitly stated, the implication is that Hulu will no longer be able to identify Boxee and block it. In other words, when you select Hulu content on the next Boxee beta, the software will first connect to the Hulu web page rather than the stream itself, and will appear to Hulu as simply yet another instance of Firefox on yet another computer.   Boxee will then automatically display the stream in full screen mode.

In general, there was no shortage of Hulu-related catcalls from the assembled faithful throughout last night’s event - so I found it interesting that these two or three sentences failed to generate much immediate crowd reaction, especially since Mozilla compliance is both a major new feature and the strategy behind Boxee’s next round of maneuvers to maintain access to Hulu.

One has to give Boxee credit: the tiny (12 person) company is going up against News Corp. and (indirectly) NBCU owner General Electric - yet they are not going away.  In fact, Boxee appears more determined than ever to keep forcing Hulu’s hand, leaving America’s preeminent premium web video streaming service with no choice other than to continue having to do (as Hulu itself puts it) “a hard thing” - to  block access to users depending on what software they’re using - or to put it more accurately, depending on where (the desk or the couch) that software is being used.

Although it met with a similarly underwhelming audience response at the time, the other announcement worth noting consisted of one literally one sentence: “Look for Boxee to announce major content partnerships in 2009.“  Boxee has already partnered with some major content owners (CBS, CNN, and Netflix, to name a few), so it will be interesting to see who’s next.   Probably not Disney, due to their close relationship with Hulu competitor Apple/iTunes - but maybe Viacom (Comedy Central/MTV, etc)?

One thing is clear: Boxee will continue to be a fascinating company to watch in 2009.

I recently attended an event in New York presented by videonuze (a highly recommended resource for all things internet video, by the way).  The  evening’s panel discussion tended to focus primarily on three issues:

• Monetization
• Content aggregation
• Whether overall video consumption will continue to grow to accomodate increased internet video usage, or will terrestrial television (cable and broadcast) start to lose market share

Listening to the panelists, I found myself increasingly struck by fact that they all appeared to be laboring under the assumption that as a technology, internet video is necessarily a function of the personal computer and the web browser (and perhaps someday the smartphone).   It wasn’t until moderator Will Richmond explicitly addressed the issue in his final question that what I consider to be the elephant in the room was even mentioned: internet video on the television.

That the subject sat so low on the panelists’ collective radar screen was interesting, only because there happens to be such a major CE push underway right now: a slew of network-enabled hardware was just announced at CES, Adobe’s got Flash running a chip, and several noteworthy cross-industry partnerships have been struck between some pretty heavy hitters - I’ve commented previously on a few of them:

• zillion tv
• yahoo connected tv
• tivo search

The question was put to the panelists: “Do you see internet video coming to the television in two years?”  Answers ranged from a clear “no” to a hedged “it’s a ways off” to an interesting prediction (from a cable executive) that users will likely be frustrated attempting to connect such devices themselves without the high level of customer care they’re used to receiving from their cable company.

The consensus?  That ‘killer app’ internet television solution you’ve been waiting for is probably closer to five years away than two.  While I’m of the opinion that it will come sooner than that (and sooner than might be comfortable for many in the industry), the one thing everyone agrees on is that it is coming.  There are not ‘ifs’ in this conversation - only ‘whens’.  Here then is my take on how it will impact the three core issues listed above:

Monetization: Internet video on the television will mean the high-CPM targeted ads of the internet, and (due to the lean-back, social nature of the television viewing experience) an audience finally willing to tolerate a more traditional (i.e. heavier) ad load.  From the perspective of the advertising industry, this long-awaited combination represents the best of both worlds - and so in the long run, I’m optimistic that internet video on the television will more than solve the monetization issues many industry analysts and executives have struggled to address so far.

Content Aggregation: This is a very interesting topic.  The web (and the web browser) are arguably the killer apps of at least the last several decades (happy 20th birthday, btw), but a wide-open browser paradigm (with all the accompanying complexity, security, and instability issues) is not really an appropriate solution for a CE device such as a television or set-top box (nobody wants to have to worry about their television crashing).  In place of all that convenient web standardization, though, there will be some heavy lifting needed to create more appropriate dedicated solutions.  Unlike the web, the system architecture will be closed and centralized: in other words, the hardware will present the viewer with a user interface containing all necessary controls and content meta data, and upstream communication will be limited to a single service-providing host - even if the actual video data streams are then streamed from an assortment of asset-owning partners and their optimized CDNs.  The goal is an elegant and cohesive user experience that still solves the tricky problem of allowing content search, discovery, and delivery across multiple sources and multiple video formats (TiVo, for one, recognizes the challenge and is taking an interesting search-based approach to solving it).

The Size of the Pie: The prospect of a disruptively successful lean-back internet video experience eating into terrestrial broadcast and cable viewership (and the resulting impact on traditional advertising and cable/satellite subscription revenue models) is on a lot of people’s minds these days.  For example,  note how quickly (and how thoroughly) joint owners Fox and NBCU recently forced hulu to shut down access from the boxee application after it became clear the small startup had plans to release a set-top hardware device (and that people were already installing boxee on their Apple TVs).  To insulate the incumbents from such zero-sum viewership concerns, several recently-announced initiatives (Time Warner’s TV Everywhere and Zillion TV) have announced they plan to require customers maintain at least one concurrent cable or satellite television service contract.  Of course, there’s no technical reason for this policy - it’s just there to prevent viewers from canceling their cable subscription and going “over the top” with only their broadband internet connection.  Long term, such an arbitrary restriction will prove unsustainable in the marketplace, but in the short term it’s a smart move: in a nascent market such as internet-enabled CE, first-mover advantage is huge, and any insurgent internet television solution that makes the cable companies feel at least a little less threatened (even if only for the time being) is going to have an advantage gaining traction quickly.

All in all, aside from the realtively short shrift given to the CE industry’s recent discovery of the internet by the panelists, it was an excellent discussion - and once again, if you’re at all curious about the future of internet video, I highly recommend videonuze.

It’s time to talk about Zillion TV.  Announced a week or two ago and slated for a 2009 Q4 launch, this set-top box streaming initiative has already received quite a bit of coverage. Here’s our quick take:

What They Got Right

• Investors - One impressive thing about Zillion TV is the stature of the companies behind it:  Visa is a major investor (and will implement the back-end billing transactions for purchasing streams), and content providers Disney/ABC, Fox, NBC Universal, Sony Pictures and Warner Bros. Digital Distribution are all also investors/partners.  In fact, while I’ve read Zillion TV described as the “Hulu” of set-top boxes (due to the innovative cooperation between otherwise competing companies Fox and NBCU), Zillion TV goes Hulu one further, having Sony, Warner Brothers, and even long-time Hulu holdout and rival Disney/ABC on board as primary stakeholders as well.

• Revenue Model – Although television viewers and web browser users have consistently expressed a preference for “free” (ad-supported) content over paying subscription or per-view fees, Zillion TV itself will be agnostic as to which monetization model individual content owners choose, and will be able to support either.  One thing Zillion seems to understand, though, is the game-changing impact targeted advertising will have, given a lean-back audience willing to tolerate the heavier ad-loads typical of traditional TV.  I touched upon this a few weeks ago here - and as Zillion TV’s initial press release puts it: “Gone are the days of mass market, untargeted television commercials.  Through the ZillionTV Service, advertisers clearly will reach a more highly-targeted and engaged audience.  This is a major boon for the advertising industry.”

• User interface - We believe that in the absence of a keyboard on the coffee table (which studies show nobody really wants), the problem of the remote control and the user interface will have to be solved.  One way or another, the current remote paradigm (dozens of never-used dedicated buttons) is going to go away - to be replaced by either a touch-screen iPhone-like device or a Wii-like pointing remote (something I touched upon a few weeks ago here).  While Apple’s been quietly filing for patents on the laser-recognition pointing technology necessary for such remotes, Zillion TV will be the first internet video device to market that actually features one (which, come to think of it, is probably why the Zillion TV “box” has to hang over the top edge of the screen - see image).

• Zillion TV and the Service Provider - Easily the most noteworthy aspect of Zillion TV is that like Time Warner’s “TV Everywhere,” access will be limited to customers with current cable and/or ISP contracts from selected vendors already in place (more on TV Everywhere here).  Could this be an emerging trend - internet video services sharing monetization with carriers?  Possibly - in Zillion TV’s case, the device will be marketed as a hardware value-add available through (as yet unnamed) service provider partners.  The decision to Include the carrier in the revenue stream is huge, because instead of an insurgent over-the-top internet video service threatening to dramatically increase user bandwidth consumption while simultaneously making cable TV access less valuable, Zillion will instead be a business partner.  Of course, as the issue of monetizing internet video remains up for grabs, incumbent service providers remain (to put it mildly) “concerned” over what services running “over the top” could ultimately mean to the business models they’ve come to know and love – but from the service provider’s perspective, Zillion TV will likely be seen as the lessor of several evils, because at least some participation is better than none.  And the arrangement works for Zillion TV, too: the company plans to install caches of video content at your local ISP.  The technical innovation of expanding the content delivery network one step closer out to the user (from the edge of the internet onto the user’s local service provider) is potentially huge- and yet another step in one of our favorite topics, the privatization of the internet (something I touched upon a few weeks ago here).   Which brings us to…

What Could Be A Problem

• Net Neutrality - With Zillion TV content caches sitting out there in ISP data centers, look for this to come up when Zillion TV launches later this year - and look for the issue to be ongoing, because If I’m a Vudu, Roku, TiVo (or any other 4-letter box making company) - or if I’m a Yahoo Connected TV, Amazon VOD (or any other television/set-top streaming service), even if I lose a legal challenge to the Zillion TV business model, I’m going to be out there doing continuous comparative testing to see if there’s any hint of Zillion TV-partnered ISPs slowing down my packets - in other words, it’s going to be a good couple of years to be a media (or antitrust) lawyer.

Conclusions

In short, I’m impressed with Zillion TV - the big players are clearly onboard, I think including the service providers is a smart business move, and I like what little I know about the user interface.  A few things to watch:

• As the year progresses, which MSOs and ISPs will announce they’ll be partnering with Zillion TV?
• WIll the hyper-localized ISP/CDN model offer dramatically enhanced performance over competing solutions using CDNs external to the carrier?
• If so, will the net neutrality/anti-trust challenges be equally forceful?
• Will Zillion TV expand from television content into film as well?

I’m looking over some recent numbers from nielsen online and I’m struck by something: while hulu may indeed be a big fish, long-form internet video is still a pretty small pond.  Consider:

Of the four major broadcast networks, hulu partners Fox and NBC saw the largest month-over-month increases in October 2008:  Fox was up 165%, while NBC (helped by Tina Fey’s triumphant if temporary return to SNL as America’s favorite eye-winking, Russia-seeing hockey mom) saw a whopping 312% increase (by contrast, ABC was up 105% and internet video laggard CBS was only up 38%.)

312 % and 165 % increases over the course of one month? Let’s celebrate - professionally produced long-form video has finally come into its own, right?

Wrong.

From that same Nielsen report, here’s another statistic: during October, YouTube had almost 82 million unique visitors to hulu’s 6.3 million - that’s a factor of fifteen (even with Tina Fey’s Palin sketches driving users to hulu).

A direct comparison between the two by total streams delivered would skew unfairly towards YouTube due to the shorter running time of the average user-generated video - but what the heck, let’s do it anyway, just for fun…  because the difference between those Nielsen numbers is even more stark than you might imagine: YouTube delivered almost 38 times the total number of streams delivered by hulu.

That’s thirty eight times more streams from YouTube than hulu.

Granted, hulu is one well-executed website.  Yet clearly, long-form premium video over the internet still has a long way to go.  What’s the takeaway here?  In my opinion, the answer is somewhat obvious: people don’t want to sit alone in front of their computers for a half hour or more at a time to view long-form video - in other words, the effectiveness of the personal computer as a video-viewing device is inversely proportional to the program length of the video being viewed.

The numbers in this report clearly put Hulu and YouTube in stark contrast against one another in terms of actual usage.  However, it would be a mistake to fail to take into account the fundamental differences between the short form/long-tail (user generated) and long form/short-tail (professionally produced) video viewing experiences - or the fact that we don’t have a truly compelling lean-back device for delivering long-form internet video viewing just yet.  Therefore, it would be a mistake to infer from reports such as this that internet video will remain primarily a short-form UGC medium.

For long-form premium video over the internet, it’s going to take a new generation of device that offers content directly from the couch before we can make any such comparisons.   The user interface on these devices will not be a web-browser, instead it will be simpler and optimized for lean-back media. Companies such as boxee (at left) and Yahoo/Intel are working on just such user interfaces. While I’ve already written a bit on the Yahoo initiative here, Boxee is more recent development. Right now it’s just a Windows/Mac application that aggregates disparate video sources (including Hulu) into a cohesive whole. While that’s pretty cool in itself, what makes Boxee really interesting is that the company plans to bring dedicated set-top Boxee hardware to the market within the next year or so - and in ther meantime, the software can be installed on the Apple TV device today. As I’ve said before, I think the prospect of Boxee on - well, a box - changes everything.

We shall see - but in the meantime, a quick reality check is in order: while well-suited to workplace video snacking, the computer and web browser are inappropriate (and ultimately intermediate) solutions for viewing long-form video - no matter how well-implemented a given website (such as Hulu) happens to be.

If there’s one widely agreed upon fact of life in the still nascent long-form (short-tail) internet video space, it’s that consumers will not tolerate anything close to the advertising density they will for traditional broadcast television:

• A current NBC show on hulu carries roughly ¼ of the advertising that same show broadcast on a terrestrial NBC affiliate carries.

At the same time, online CPM rates are substantially higher than traditional broadcast rates, based on the internet-given ability to target online ads to individual users:

• NBC and hulu can charge over twice the CPM that NBC can charge for broadcast television.

It’s often taken for granted that these two characteristics are both inherent to internet video and even somehow compensatory - yet imagine if we could challenge the first assumption (the relative intolerance for online advertising ): in other words, imagine online video advertising density more in line with that of broadcast video, yet maintaining the higher CPM rates charged for target online advertising…

Now there’s a business model.

How to get internet video consumers to tolerate the amount of advertising tolerated on television, though? To me, the (somewhat obvious) answer is to solve the problem of making the internet video experience itself more comparable to the television experience.

In other words,

I would submit that there’s a direct correlation between the amount of advertising online premium video consumers will tolerate and the fact that (until now) they happen to have been sitting alone in front of a computer at the time– in other words, increase the comfort, ease, and sociability of the experience, and (for better or worse) you can increase the advertising.

Now that’s finally happening, as CE companies start rolling out TV hardware with embedded network interfaces this week in Las Vegas.

Today I read with interest a Will Richmond VideoNuze article questioning whether the current online advertising model will support this new generation of internet-enabled television hardware, and how it might have to change.  What I feel Will misses, though, is that as a result of all this new couch-centric hardware changes the fundamental viewing experience, there will be a commensurate increase in tolerance for advertising on the part of the average internet video viewer.

So as the density of long-form premium internet video advertising approaches that of traditional television yet the online CPM rates remain higher than the effective traditional broadcast rates (because of the internet-only value-add of ad targeting), I feel that the advertising-supported long form short-tail internet video sector has a bright future indeed.

I’ve been thinking lately about how business issues (the shifting landscape of allegiances between companies) affects what (and when) technologies become available.

Not for nuthin’ (as they say here in New York) - here are a few thoughts…

no Flash on iPhone’s Safari browser
I think Adobe would be more than happy to write an iPhone Safari Flash player, but Apple is probably hoping the growing number of iPhone users will drive wider adoption of their Quicktime platform for streaming.  More on that here.

no Hulu-iPhone app
OK, so no Flash - but at least we get a bundled YouTube iPhone App that streams via QuickTime - because despite YouTube’s parent Google being behind the competing android smartphone platform, the two companies get along quite well, thank you (witness the iPhone’s rock solid gmail support).   Why not, then, a similar Flash-workaround Hulu iPhone App?  I imagine Hulu would love to see the swelling ranks of iPhone owners use their service (batteries permitting),  but don’t hold your breath: AT&T would have a major problem with that, because of the additonal bandwidth required (the average Hulu program is a lot longer than the average YouTube snippet).  This, by the way, is also the reason you won’t see an approved iPhone App any time soon allowing you to use the camera to shoot rudimentary video - as cool as that would be, AT&T doesn’t want us emailing anything that big around…  (although ‘jailbroken’ apps are out there if you’re brave and/or foolhardy enough to go off the Apple reservation and unlock the thing).

no Disney/Pixar content on Amazon’s ‘Video on Demand’ service
As a result of selling Pixar to Disney in 2004, Steve Jobs became Disney’s largest individual stockholder, and was given a seat on the Disney board.  iTunes video (via Apple TV) happens to compete directly with Amazon Video on Demand (via TiVo and the Sony Bravia).  Although Jobs has described Apple TV as nothing more than a ‘hobby’, could Apple have influenced Disney/Pixar not to play ball with such a direct internet video competitor?

no NBC/Universal content on Sony’s ‘Video Store’ service
NBC/Universal is the only major studio absent from the recently launched Sony Video Store service - since NBC is partnered with Microsoft on MSNBC, could NBC be a little reluctant to sign a deal with Microsoft’s game console arch rival Sony?

I’m just sayin’….