New Media and the Future of Television

I’ve spent the last few months doing research on interactive television and will shortly be publishing a case with Kavita Shukla and Professor Sunil Gupta, Head of Harvard Business School’s Marketing Department.   More to come…

In the meantime, I recently attended a great panel at Harvard’s Media & Entertainment Conference on new media and the future of TV.  Prof. Andrew McAfee moderated these panelists: Mike Lang, EVP of Business Development at Fox Entertainment Group; Jesse Haines, Head of Marketing at Google TV; Dominic Venuto, SVP of Media and Entertainment at Razorfish; Andrew Steele, Creative Director at Funny or Die. 

The panelists all agreed that new media presented a fundamental disruption to their business model.  But all of them were intent on embracing new media as a new distribution channel largely within the existing model.  Lang was particularly strong, connecting the dots between Hulu, FOX’s content creation strategy, and how FOX would continue to evolve its model with advertisers to better meet their needs. 

The one disappointment of the panel was Jesse Haines.  She seemed as scattered as GOOG’s video strategy.  “Maybe pre-rolls will help monetize YouTube content.”  “Maybe we’ll just insert 60-second ads and hope people will watch them.”  “Please click on ads when you watch YouTube.”  Etc. Etc. Etc.  Sorry Jesse, you’re not going to sell 30-second ads that pre-roll a two minute video of my roommate’s cat dancing to a consumer packaged goods company.  That model just isn’t your model.  You’re serving a lot of video, but it’s not “brand-able.”  Let’s discuss. 

Apart from this missed opportunity to talk about connecting the power of interactive television with the ability to served highly targeted ads, the panel was great.  Some hastily transcribed highlights from the discussion:

McAfee: Is this a bad time to be an incumbent?

Steele: “Definitely a bad time for that.  I was at SNL for 13 years.  Budget cuts happened every year.  Right now in LA, walk into a bar on Monday night and you’ll see depressed sitcom writers who are out of work.”

Lang: “Everything is about trying to build content in the most extensive way and exploit it wherever you can.  The one silver lining: there has been a renaissance with cable channels because they can afford to create more expensive content, in part because there are dual revenue streams.  That business model works a lot better than network shows.  Network shows used to get cancelled if they didn’t have a 20 share.  Only one has a 20 share today: American Idol.”

Venuto: “Executives are terrified, and they are calling on us to provide advice that they aren’t listening to.  These companies are having trouble making a decision and advancing it forward.”

Haines: “People are watching TV more than ever.  We shut down Google Print and Google Audio, and we shut down those businesses.  There is convergence between TV and online.  Traditional advertising agencies have a clear, rigid mindset about how to buy advertising.   There is opportunity for those who get into the mix and innovate.”

McAfee: “Are we still watching the kind of TV that comes with advertisements?”

Venuto: “Yes.  Look at Hulu.  It streams long-form content and inserts ads.”

Lang: “Traditional television has smaller audiences but it’s still the best place to get a big audience.  Especially if it’s life, you can’t DVR it.  That is the biggest threat to the traditional model.  That is the biggest risk factor to our business: the ability to monetize through advertising... We are just in the very first innings of trying to figure out what type of advertising works on the Internet.  We’re still a long way to go.” 

Haines: “We think [DVR] puts more of an onus on advertisers to make their ads relevant to consumers.  We are already doing this online, and it needs to happen on TV.  There is a development of a long-tail of television with more content, and they’re watching more niche content.  So it’s very hard to get a 40 share.  But, people will watch ads that they’re interested in.”

Lang: “In every media company, we ask ‘does the DVR help?’  Does it make ads more relevant?  People skip through every ad.  But the reality is that in an hour there are 25 ads on TV and only four on Hulu.”

Steele: “You don’t skip through the ads on 30 Rock, and that’s because they’re in the show.”

Venuto: “Creating a platform to interact with the advertisement, with targeted ads, has higher potential. Like a car ad?  Have a sales rep give you a call.  That’s a different type of value.”

McAfee: “What revenue models get content paid for?”

Steele: “Every segment on ESPN is produced by someone.  It’s the ‘Budweiser Hotseat.’  This matters even more on the Internet because nobody will watch an ad on the Internet.  Except maybe Hulu if you have a great show.”

Lang: “That’s why we have fewer commercials.  But I think we all believe there will be a mix of advertising and some subscription.  It would be very difficult to open up our library aggressively (given the cannibalization risk) without subscription revenue.  There are so many complexities of windowing that we do believe subscription will be some part of the mix.”

Haines: “Hulu has proven that people are willing to watch ads in the right format.  Overlaps, and pre-rolls are working, and there are opportunities in branded entertainment, like creating YouTube ad channels.  I’m in a business where we’re all about 30-second and 60-second ads.  For the foreseeable future, advertisers want those ads, but need to find the right place for them.”

McAfee: “But why are you excited about that when nobody her (gestures at audience) watches them?”

Haines: “Google is excited for uniform ads to come along.  Whatever works, we’ll run.”

Lang: “Getting the advertising community to get into this.  We just want to be the #1 site, so that when the dynamic changes they must go to Hulu.  For 35 years, the industry has been that we’re going to have a party in May and sell all the advertising for the year.”

Venuto: “We grow up digital, so we’re doing creative and media buys online and we have the technology to execute that, but our advertisers don’t get it.  They don’t get digital.  And it’s more work to do digital campaigns and interactive platforms.  So we need to push the industry a little further.”

Steele: “Funny or die makes money by selling ads.  Hulu is an aggregator.  They sell pre-roll and ads within the shows.  We don’t have that kind of content.  We’re finding little ways to make money, but we don’t really see a model for this.  I’m not sure how anyone is cashing in, I think everyone is just trying to figure out how to make money.”

McAfee: “Why leave SNL then?”

Steele: “Cable took 20 years to come alive.  Now people see Adult Swim and Mad Men.  The Internet is where cable was 40 years ago.  It’s a fun place to play, that is the draw for creative people.”

McAfee: “We have all said that cable is this really nice revenue stream.  But if it won’t for Mad Men or Red Sox, I would cancel it all together.  Isn’t cable ‘great show’ dependent? 

Lang: What will you replace it with?

McAfee: “I will replace it with Netflix, Hulu, spending more time on the Internet.  I’m only willing to pay for really fantastic content.”

Lang: “Sports.  For a company like News Corp. cable is the number one profit driver.  We will protect cable.  We have an authentication idea, that if you are a paid television customer you would be authenticated online.  Then you could watch Stewart or Colbert online.  But only authenticated cable customers could do so.  Whether that works or Project Canoe works, remains to be seen.  But those are the kind of things that will be seen in the next 18 months.”

Venuto: “Many new stations want to launch online, build an audience, then bring their content to a cable company and have negotiating power.”

Steele: “When I see a pre-roll on a 3 minute ad, I’m like ‘oh f*** it, I’m not going to watch it.’  That works with Lost, but not a 3-minute ad.”

Lang: “Typically when we do a venture like Hulu, we have a guy like me go do it.  But with Hulu we hired Bezo’s #2 guy who brought a great product technology focus.”

Haines: “Who uses Apple TV?  (few) Who has cable and feels annoyed with the cable guide? (many)  You will see some interesting things as devices improve, and this will facilitate convergence.”

Lang: “The next 10 years is a great time if you’re really good at developing content.  You no longer have to go through a network executive to get your show on the air.  The good content will rise to the top, because the world is democratized.”

Audience Q&A

Lang, on costs: “We have a group in Bogota, Colombia producing a pilot at 30% of the cost of L.A. because the cost structure is so terrible.  We are flying our people down, paying for hotels and massages, and still saving money.”

Haines, on why Internet company attempts to take over the living room have failed: “We’re developing the technology.”  McAfee: “But convergence is always just around the corner.  Do you have confidence that we’re going to get there anytime?”  Venuto: “X-box is Microsoft’s Trojan Horse.  It’s not designed to stream TV content, but it’s basically a computer and they’re redesigned the interface to take advantage of the penetration.  X-box is an excellent strategy.”

Steele, on whether studios will fund smaller projects like Funny or Die: “There is some funding but it’s really slow.  I don’t know why NBC doesn’t have an Internet development group.  Why hasn’t Hulu gone down the developmental route.  It’s a way to get around the costs and see if something is working.”  Lang: “Still most of the people pitching studios are pitching television shows, not pitching Internet content.”  Steele: “We’re like one success story way from this model becoming more adopted.”

Lang, on new media and the future of news: “News is very quickly becoming commoditized on the Internet.  It is being driven by blogs and GoogleSearch.  There is a lot of discussion about what we can do on our own to aggregate news, and then super-distribute it on the Internet.  Hulu’s model wasn’t ‘come to Hulu.com’ originally.  It wasn’t AOL 1999.  For Hulu, or news, we want to know what we can do to control our intellectual property then super-distribute them.  The newspaper industry is going.”

Venuto, on why cable isn’t already interactive like Hulu: “All six cable companies have their own opinion about how Project Canoe should work.  Then you have all this data coming from all the different cable companies.  The other issue is having the technology available to serve interactive ads.  That’s really hard.” 

Lang: “We control the inventory on Hulu.  But the cable MOSO has only about 5% of the total inventory of a show.  95% is controlled by ESPN, some channels use GoogleTV.  Until we can prove we’ll make more money, we’re just selling it the old fashioned way.  Venuto: “I think Canoe will make a difference over the next 2 years.”