Thursday, July 11, 2013

Video On Demand: Film and Television's Blind Spot

[Theater in which you are playing]
Missing the VOD Forest for Movie Trees

Scott Myers at Go Into The Story asked this past week why film studios are not making more movies for the largest demographic groups.

What struck me as odd when looking at the Nielsen data provided in Scott’s post: the remarkable stasis in movie audience over the three-year period, when we know that the video-on-demand (VOD) market has changed dramatically during the same period. Consumption of VOD movie content nearly doubled between 2009-2012. (It had already doubled in the preceding three-year time, according to a Pew Internet and American Life study.)

We’re looking at this form of entertainment called film or movies, based on content delivered initially at an external location in approximately two-hour long chunks. But this product and industry appears to be benchmarking against itself when it has other more challenging competition or an entire market in the form of VOD.

This may be one of the answers in itself as to why the industry pitches to the same market; they either cannot get a bead on VOD due to its newness and volatility, or they are blind to it.

Take a look at this presentation [PDF] by the American Advertising Federation (AAF). The numbers are quite different and are extremely fluid, changing substantially over the last three years. Think Netflix, Amazon Instant Video, Hulu, and YouTube as primary examples; how much have their audiences&rsquo consumption patterns changed?

The movie industry’s favorite demographic is the one most likely to watch VOD. At some point, traditional movies as currently formatted will not sync with their lifestyle.

Why is it that the film industry does not appear to be targeting the audience least likely to shift?

Why is it that the film industry is not encouraging development of products that are inherently more flexible in response to their current target demographic before they screen in a traditional theater?

Or is the film industry relying on its traditional products aimed at young adults to continue to appeal through traditional outlets, in spite of the dramatic shift in digital delivery? This approach leaves a more mature market under-served at both the box office and at home.

In theory, advertisers should be pressing the film industry to do better by women with hybridized VOD-movie products as they are the largest group of VOD consumers in terms of consumption of both entertainment and attached advertising. We can see AAF has the numbers, but we can’t yet see any shift in how financing of films may be changing in response to advertisers’ understanding of the marketplace.

There’s a disparity and tension here not fully articulated. Entertainment industry creatives, whether attached to film or VOD, would do well to position themselves for an earthquake when the tension releases.

The Audience is Everywhere, But Different Here and There

Another tidbit popped up this past week germane to the topic of content produced for key demographics. On July 6, Richard Brody at New Yorker magazine tweeted,
Richard Brody @tnyfrontrow
Le Monde: France has more age 50+ moviegoers
than 25-.
The article linked is behind a paywall, but the lede translates,
“The world population is aging. Inaugurated significantly in the twentieth century, the phenomenon mechanically grows. There are now 600 million elderly people in the world – three times more than fifty years ago, three times less that there will in 2050. There is no need to wait until then to see the effects of this silent revolution that is the prolongation of life in almost all fields, including culture. And, of course, in the art of representation cinema excels.”
[Original text: La population mondiale vieillit. Inauguré de manière significative au XXe siècle, le phénomène prend mécaniquement de l'ampleur. On compte aujourd'hui 600 millions de personnes âgées dans le monde - trois fois plus qu'il y a cinquante ans, trois fois moins qu'il n'y en aura en 2050. Point n'est besoin d'attendre cette date pour constater les effets de cette révolution silencieuse qu'est l'allongement de la vie dans à peu près tous les domaines, y compris celui de la culture. Et, bien évidemment, dans cet art de la représentation qu'est par excellence le cinéma.]

What this may say to us (admittedly based only on this superficial bit):

1) The creatives of cinema as well as the business of cinema must come to terms with the growing aggregate of aging viewers, by providing them with content that reflects their lives;

2) Cinema must come to terms with big differences in audiences by country, as indicated in big data. These differences may be based on consumption shaped by technology or culture, or both, as well as the age of the audience. (The U.S. has pathetic distribution of quality broadband as compared to other countries; this may have suppressed changes to VOD consumption greatly.)

Further, with regard to both the need to respond to audiences by location and to their consumption patterns by demographic, cinema’s creatives need to consider leaving a bit of “fat space” in which to negotiate shifts. That is to say:

– Screenwriters should consider the effect of scene transitions not only for traditional theater, but for optimum consumption in digital format used most frequently (i.e., smartphone, tablet, home flat screen monitor);

– Editors should consider enabling two (or more) modes of consumption, optimizing scene transitions;

– Technologists developing streaming formats as well as equipment and hosting should consider differentiating delivery based on consumers’ platform of choice on demand.

There’s more to this concept; viewers don’t like cutting into key scenes and losing their place with VOD content regardless of device used. There must be some way to ensure the content is not denigrated by changes in consumption methods, which in turn increases audience’s interest and demand for content.

Asking the Right Question: Which VOD Business Model Succeeds?

Go Into The Story’s Scott Myers also asked a related question with regard to streaming video provider Netflix, based on an article appearing in Rolling Stone magazine:

Will Netflix become the next big Hollywood studio?
Recently released series House of Cards, Hemlock Grove, and now Orange Is The New Black are all examples of Netflix-funded productions. They are available only on Netflix, and are released all at once rather than by individual episodes though produced on an episode basis.
Perhaps because film and television industries and their critics have a blind spot about or are unable to grasp video on demand (VOD) as a platform; whatever the reason, Rolling Stone’s article missed was a much bigger question than it framed:

Which business model will win the VOD war?

Will it be:

– Netflix, as a streaming video provider producing its own content in-house tailored to big data culled from customers’ viewing habits;

– Amazon, as a low-cost distributor of any product, capitalizing on economies of scale with its cloud-based sales and distribution system, buying or building content based on sales and VOD data;

– Google, the behemoth of advertising sales based on search and hosted content like productions at YouTube, encouraging open source or alternative development through advertising-gleaned data.

Or will it be an unnamed player yet to emerge, or some combination of the above field?

Technology Shapes Consumption, Demand Shapes Technology

Based on the changes VOD brings combined with infrastructure and viewing technology, creatives in cinema will have to come to terms with these facts:

– 56% of Americans carry a theater in the pocket or purse in the form of a mobile device; this trend will not reverse, rather it will increase as more cellphones are replaced by smartphones, and tablets replace PCs.

– Women are a force to reckon with in terms of VOD consumption; their needs have been underserved by traditional film and television, but are closer to their tastes in terms of delivery by VOD.

– The aggregate body of consumers is aging, leaving an underserved population among the oldest viewers, and they still lean toward traditional TV and theater; this mirrors internet usage rates across the most mature demographics, but will shift over time as the percentage of elderly using internet and consuming VOD moves toward 100%.

– The last two 3-year periods, 2006-2009 and 2009-2012 saw doubling of VOD consumption; creatives must shift rapidly to a more flexible content-creation model to adapt to formats preferred by their audiences.

This is a lot to chew on — and machinima (lower case M) virtual filmmaking and its rapidly growing part in VOD marketplace has yet to be mentioned. Only Google is currently positioned to yield benefits from machinima creations.

Format — large screen versus small screen — appears to be a consideration with regards to the structure of content. Large screen users (i.e., cinema or home theaters) prefer to sit for one to three hours, where small screen users are often mobile consumers with limited time for consumption. One might ask how to accommodate users’ content access based on small or large format.

However the technology already exists to describe the equipment one uses to access content; smartphone, tablet, and PC users are in contact with it every day. Websites offer a mobile format as soon as the device type is verified when it pulls content from a URL. Streaming content can do the same thing, offer a different compression for mobile on the fly versus a standard compression for larger screen devices.

But in the digital age, where content is distributed over networks, ALL display types larger than a tablet should pull “large screen” format with the device modifying the output as buffered and displayed.

Other Non-Traditional Players As Studios

Amazon is a key competitor to Netflix in VOD. It has enough capital to experiment with cutting out the middlemen, including studios. They’ve been doing it in other lines of business where content is digitized.

They’ve already established imprints to become a book publisher, creating potential slush piles by running contests to gather unpublished manuscripts.

In VOD they’ve already been in production since 2010 with their own Amazon Studios.

The latest foray into content creation is a hybrid, Amazon Kindle Worlds — the monetization of fan fiction related to specific Warner Bros. programs. The effort looks like the creation of a crowd-sourced slush pile for extending WB programs; imagine serious fans who know WB programs in great detail, literally writing treatment and narrative which can be easily adapted into a script. (What’s iffy about this concept is the bypassing of WGA members at inception of concept…) Does this portend a future deal (or one already in existence we cannot see) in which Amazon gets first rights on Warner Brothers’ TV content produced from Amazon Kindle Worlds’ content?

One might take issue with observers’ comments that VOD production is not in Amazon’s “not in their DNA” given this track record. Amazon has been plugging away at this for years now, and with little concentrated attention by the entertainment industry or the public.

Amazon’s marketing, however, will be a true challenge. Netflix already set an example of how-not-to-promote with its in-house series, Hemlock Grove. While Netflix’s House of Cards had been well-hyped, Hemlock Grove received only cursory promotion. Unfortunately we won’t see the internal numbers to know which of the two models generated return on investment; we can only assume Netflix was happy with Hemlock Grove’s results as a second season has been greenlighted. Amazon’s platform will allow for better promotion within its existing customer base, but they won’t reach traditional TV viewers who don’t frequent Amazon’s storefront.

Amazon As The Next Hollywood Studio Via Acquisition

It doesn’t look likely that Amazon will step in and make an acquisition related to VOD production (however, if they wanted to buy that lackluster POS CNN and ask Ted Turner to step back in to clean house I doubt viewers would be unhappy). They are more likely to manage outsourced production, only a step removed from their management style with acquisitions like Zappo’s.

In the case of programming, Amazon would likely run into headwinds buying an established outlet, for the same reasons other disruptors are running into difficulty. There's enough money in TV and film to make it worth fighting back.

If Amazon makes any acquisition, it would be parallel to its purchase of GoodReads  — a pre-established audience of readers who buy books voraciously, promote books to each other, while offering a built-in sales platform. This kind of purchase solves Amazon’s problem with building vibrant communities; they’ve never really been able to do it successfully in-house. Theoretically, Amazon might look at the equivalent of or to fill this bill.

Other Major Trends Impacting VOD: Aereo TV

Aereo TV is a VOD provider using a digital antenna to capture live broadcast TV; it allows selected content to be stored for time-shifted consumption.

Aereo’s business model is a bellwether in no small part because Barry Diller is on board. He's got a proven track record, and he understands the business — it's his lifeblood. A snippet posted in a technical site’s comments some weeks ago posited the CBS-Aereo TV lawsuit would fundamentally challenge long-existing federal laws regarding carriage fees. The public is already sensitized to carriage after the disputes between Time-Warner and Fox, and DirectTV and Viacom (the latter really riled up parents due to the threats to children's programming — not an audience to screw with, they tend to complain very, very loudly while shaping long-term consumption habits at home).

With regard to CBS v. Aereo TV, CBS wants to make this about intellectual property in the public’s eye; the suit is really about what CBS claims is rebroadcasting their content. CBS already makes money on broadcast through advertising, already paid creators for the IP, and Aereo as a digital antenna doesn't cut into that. (CBS also hasn't made any claims it will pay IP creators more if carriage fees were successfully charged on Aereo.) Content gets a wider audience, but CBS wants carriage fees on a per-user basis. Cable companies don’t appear to have taken a side yet, but depending on whether they are purely a carrier or a carrier-content provider, they will enter the fray with regard to carriage fees they pay. It's going to be a very bloody fight for the future of broadcast.

Other Physical Entrants Shape VOD Market

The other niggling tidbit happening in the background that I haven't previously mentioned is Boxee's acquisition by Samsung. Boxee's latest business model  —  up to Samsung’s acquisition  —  combined a device like competitor Roku, channeling VOD at users' request, but with a DVR-in-the-Cloud so that content can be viewed anywhere, any time from that cloud.

Did Boxee operate the cloud? Uh-unh.

Amazon was the cloud provider.

Samsung killed the DVR-in-the-Cloud service on July 10th; it’s not clear why, since doing so eliminated the key differentiation between Boxee and Roku. It’s hard to believe that Samsung was so desperate for a user interface that it spent $30M in cash to buy Boxee for that purpose alone. It’s not clear that Samsung is ready to host its own cloud, either; in this respect, I’m shocked Sony didn’t make the Boxee play since it already has a cloud with the Playstation Network, and Boxee could have been integrated into PS/PSN components.

If Google had some smarts it would snap up Roku and use it as the interface to a Google-based DVR-in-the-Cloud, especially since its own Google TV hasn’t caught fire with VOD audiences.

Apple is yet another player not yet mentioned, and it, too, could enter with an improved Apple TV device using iTunes as its distribution center and Apple data centers as its own cloud.

There are numerous other set-top devices, and other VOD models; cable and telecom service providers offer either video and/or devices as bundles. But none of these to date has the marketshare with regard to content creation or impact on the same as the parties cited here in this article.

Impact of VOD Content on Traditional TV

Which brings us to an excellent point made in comments at Go Into The Story about CBS; it has recently migrated its NCIS programming to episodic content over a season, rather than a seasonal collection of stand-alone programs.

CBS was under increasing pressure creatively from other, newer content episodic in nature. The Killing on AMC is an excellent example, and quite frankly, the only crime programming I'll watch. The writing is marvelous; while it took two entire seasons to solve a single murder, each episode presented a new twist and a cliffhanger in a dark, moody fashion likely true to the original Danish program on which it was based.

As an anecdotal example, I can say AMC hooked me as a viewer for The Killing Season 3 via Netflix — my daughter, son and I binged on all 20+ episodes from Seasons 1 and 2, and now we're addicted. Two generations in one household, and we've recommended this program to friends directly and to strangers through social media. We've provided free promotion to AMC and Netflix both.

This is what CBS hasn't really been able to muster with NCIS' shorter, bite-sized format, at least until now. They haven't been able to use their older programming over VOD to hook new viewers while making money on older programming, even though CBS has sold rights for streaming older broadcasting.

It’s the Long-Tail, Stupid

The "making money on older programming" is a key point broadcast networks will need to grok, and creatives will need to keep in mind as generate new materials.

The money for content will not all be upfront. It will exist over a much longer lifetime, and target small audiences previously marginalized or disenfranchised. The underlying theory can be found in power law distribution, or the long-tail distribution curve. Both Amazon and Google excel at understanding this concept, and Netflix is mastering it as well.

Apple doesn’t appear to be stepping up its game, though this could change rapidly at any time. Hulu is at the center of a bidding war and is not locked into any particular hardware offering; for this reason it’s a weak influencer at the moment. There are other emerging hardware sets and streaming video providers with the potential to throw a wrench in the entire market given the right confluence of circumstances and resources.

The film industry’s focus on blockbusters aimed at the white/male/18-24 year-old demographic represents the left-end of the long-tail, the few that dominate. But the right-hand long-tail still provides excellent opportunity to make money over a longer period of time, as both Amazon and Netflix prove. Creatives need to understand that this portion of the viewing audience has been under-served, and over time the entire long-tail may flatten as the entire demographic ages (more of us will live longer, after all) and broadband as well as devices improve to allow for greater access to content farther to the right of the long-tail.

In other words, content creators should be prepared to think about creative works in extended, convertible formats — as episodes and series, viewed on large and small screens on demand — while the powers-that-be fight over broadcasting’s future. Think about audience now, and the one you’ll have long into the future.

In retrospect, Rolling Stone’s article was a bit thin. As an editor I’d have been tempted to push back on the journalist for more content about the state of the markets in which Netflix was competing.
[photo: Nokia smartphone by Nokia RSA via Flickr.
Use of graphic herein does not connote recommendation.]

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