YouTube’s live sports broadcast deal is watershed moment for online video

This post first appeared in VentureBeat

YouTube is taking a major step today with its first live sports broadcast deal. It will be streaming live the Indian Premier League Championships. Such live broadcast deals have hitherto been the bastion of traditional pay TV operators. The Google-owned site signed an agreement with the organizers back in January and retains rights for two seasons.

The IPL is a tournament of a short-form of cricket that has become extremely popular in the last couple of years. The tournament spans 60 matches over the next 45 days. The IPL is currently in its third season, and has already seen runaway success in attracting eyeballs. By acquiring global rights (other than the US market, where Willow TV has the rights) for online streaming, YouTube is testing out a whole new business territory.

The IPL constitutes what are called Twenty20 cricket matches between eight teams made up of players from multiple cricket-playing nations. Revenues from advertising and sponsorship will be shared between Google and IPL, with YouTube offering the content free to consumers. The tournament itself is big money. TV broadcasting rights for 10 years were reportedly purchased by India’s Sony Television Network and Singapore’s World Sports Group for over $ 1 billion. In previous years, while online streaming was available on the official website of the tournament, however, it was geo-blocked in nations where the IPL had TV broadcast deals. That is changing this year. YouTube’s deal with IPL requires them to delay the stream by 5 minutes in countries where they have simultaneous TV broadcasting. Moreover, the online streams promise significant interactivity and customization. Viewers will be able to select their camera choice and freeze and fast-forward footage.

YouTube is reportedly going to stream the match at four quality levels. Google is also bringing its social network Orkut into play here through IPL-branded communities while engaging in both print and outdoor advertising promoting the event.

The timing also appears to be right. Comscore reports that by end of January 2010, over 10 million Indians had visited a sports site in the month, an increase of over 97% year-on-year. Viewer engagement also recorded strong figures, with both total minutes spent and total visits recording growth in excess of 100%. Google is expecting over 10 million unique visitors, and over 40 million cumulative viewers through the duration of the IPL. To put this in context, India had over 8 million broadband subscribers [PDF] (defined as speeds >256 Kbps) at the end of January 2010. Sponsors too are looking to cash in on the latent demand. One of the sponsors on YouTube, telecom operator Airtel is upgrading the access speeds of all its fixed broadband subscribers who wish to watch the matches to 2 Mbps, although fair usage/tiered limits still apply.

What does this deal mean for YouTube? Google is stepping on the pedal when it comes to generating revenue streams on YouTube. This tournament, when viewed in the context of YouTube’s tryst with legal content is interesting. YouTube has, to date, been primarily a forum for user-generated content, but it’s been trying for a while to increase the proportion of content that it can sell advertising on. User-generated content is great for pulling in the numbers, but it is deals such as this that will likely help YouTube make money. Already, large name-brand advertisers including Coca Cola, Samsung, HSBC, and HP are said to have signed up for advertising in India, with each of them said to be purchasing between 5-10 million ad impressions. YouTube will also be producing over 20 clips per match, which will be up for sponsorship, and it is likely to deploy several ad formats including homepage ads, pre-roll and mid-roll ads, and banner ads next to the video player. Advertisers get an opportunity to target a global audience. In the UK, which has a sizable cricket audience as well, local advertisers are being brought aboard.

YouTube is no stranger to live/high-traffic events. Its live streaming of U2’s concert last year attracted over 10 million viewers. The site had also hosted highlights of the Beijing 2008 Olympics, but only in geographies where digital rights could not be negotiated. Experience from such major events could ideally help YouTube refine its pitch for streaming other sporting events. While the current agreement offers content free, YouTube could indeed explore paid subscriptions of such events at a future date. Again, all of this depends on how successful the company is at hosting the event without technical hiccups.

For pay TV operators, who traditionally have paid significant broadcasting license fees to gain exclusive access to sporting events, YouTube’s entry is sure to shake up the scene. There are not many ways in which broadcast TV can compete with the interactivity offered by online viewing. In markets such as India, where cable and satellite subscription is still growing and broadband penetration is very low, migration of ad dollars might be limited. However, in a market such as the UK, YouTube will likely eat into the potential ad revenues that ITV4 (incidentally, a free-to-air channel) looks to generate. And if you take into account that set top boxes that allow YouTube content to be streamed to large-screen TVs are also making their presence felt, pay TV operators, such as Sky, that have traditionally relied on exclusive sports content definitely have reason to be concerned.

For Google, the imperative of making YouTube profitable is becoming more pressing with every passing day. By gaining rights for online streaming of major sporting events, YouTube gets a solid chance of trying to position itself as a comprehensive online video destination. One comprised of user-generated content, video rentals, on-demand premium clips, and live events. Viewed in that context, YouTube’s current deal with the IPL indeed appears a step in the right direction. If YouTube succeeds in creating a compelling usage experience for the viewer, one that betters broadcast TV, then rest assured, Google is going to be a regular fixture at event rights auctions around the world.

For those of you based in the US that want to watch the IPL matches, YouTube has clarified that you’ll be able to view them 15 minutes after they have ended.

Online Video...A Quick Update

Online video continues to make waves. Be it Veoh shutting shop or that giant of a company, Walmart purchasing Vudu. User interest in consuming online video also shows no signs of abating. Indeed, stats released from the BBC iPlayer confirm the same, with video streams more than doubling year-on-year. The reports reveal some interesting new trends, while validating a few existing ones. Consumption is increasing, albeit slowly, on platforms beyond the desktop, and streaming is increasingly the choice mode of viewing. That viewing patterns replicate broadcast TV in terms of time-of-day should drive broadcasters to understand that linear TV in its present form is rapidly getting out of fashion. Consumers are open to the idea of viewing TV content on other platforms, while it might be low in absolute terms, however, the larger trends are clearly making themselves obvious.

The BBC sure appears to have hit the right chords when it comes to new media delivery. They have also recently unveiled a plan to launch a series of mobile applications for smartphones that will enable them to offer content from their stable. However, as is typical of a public sector undertaking, even this initiative has met with  resistance from newspaper organizations who take issue with BBC's pricing of the apps. They are priced zero pounds. The BBC is not new to this kind of protests. The iPlayer has been a constant target of ISPs who contend that the service chokes bandwidth without monetizing them.

Anyway, take a look at the iPlayer report embedded below. Some neat tidbits.

BBC iPlayer Statistics - January 2010

View more presentations from Subrahmanyam KVJ.

This Apple Defies Newton's Laws

The title sure seems apposite when viewed in light of Apple's latest quarterly results. Despite the all-round depressed economic environment, and declining consumer spend on TME products and services, Apple has managed to drive both top-line and bottom-line growth significantly. That such stellar results have come in what is usually considered a soft quarter of the year is testament to the twin growth engines of Macs and iPhones. With the iPhone having established itself as the benchmark in the smartphone space, and Macs increasingly finding mainstream acceptance, Apple now appears to be setting sights on creating future revenue streams.

In this backdrop, it is interesting to see how Apple is increasingly using content to create and sustain its future growth. While the iPhone with its staggering 100 K+ apps (leaving aside the quality/quantity debate) forms a key part of Apple's long-term competitive edge in the smartphone space, its attempts to use the iTunes platform as the gateway for digital content into the home merits a deeper look.

Recent reports indicate that Apple is now negotiating with TV networks on introducing a monthly subscription product. The idea being that for an amount of ~$30, consumers could get access to TV content through iTunes. Internet TV is steadily raising its profile, with the rising success of Hulu. However, treating it at par with traditional TV platforms is some time away. Broadcasters and cablecos have begun to feel threatened over such over the top services. However, Apple's entry has the potential to raise the stakes and enhance the reach of Internet TV services. Unlike a Hulu, which is largely viewed on PC (forgetting the Rokus of the world), the prospect of using iTunes as the enabling platform, as opposed to a device, poses a tricky situation for the TV networks. In putting iTunes as its front. Apple's leaving the door open for a device-agnostic future, where content can be viewed/purchased on PC/mobile/E-book/Netbook/what-have-you. With a rising interest from both device vendors and software players in embedding applications directly into next-generation large-screen TVs, the prospect of Apple embedding iTunes in to a TV doesn't sound that much more preposterous. Now compare this offering from Apple with that of a traditional operator like Comcast. And suddenly, Comcast's digital TV offerings sound obscene with monthly rentals of over $60! And yes, out goes the "TV Everywhere" initiative as well, given the fact that it requires customers to have a regular cable subscription in order to view the content on PC.

iTunes has had a more than significant role in hastening the demise of the traditional music labels, with its a la carte pricing model. If Apple is able to bring a similar proposition to the TV space, that could significantly impact cablecos who thrive on creating bundles and where a host of also-rans piggyback on one or two premium channels. Of course, there is the key issue of one of the large networks actually signing up with Apple, but it is more likely a question of when and not if anymore. Internet TV of course has still to better its overall user experience, given the significant bandwidth requirements, and the renewed debate in US and other developed economies on metering usage. And there's also the issue of shifting consumers to a different screen other than the TV. However, Apple does have a dark horse in there in the form of its relatively-neglected Apple TV line of products. A la carte pricing of TV channels, and a more robust Apple TV can precisely replicate Apple's success in the music business in TV content. And Apple's success is defined not by the margins that it is making in its music sales, but by the strong vertical control that it has over the customer experience, including billing and provisioning. Music labels who initially treated iTunes as just another distribution platform are now realizing that the middleman (Apple) today exerts more influence over the consumer, than them. Video could be the next market.

The Online Video Shakeout

Online video is a great service offering. That Google continues to plough money into YouTube is more than enough validation for many that online video is the way to go for the future. Club that with rising viewership online, and you have a potent combo of an online service. However, the troubling part is, online video is not a great business to be in, at least currently.

The recent demise of Joost should serve as a warning to the fledgling industry that all's not well. Despite having a top-notch starcast (started by Kazaa & Skype founders), and being pre-funded to the tune of $45 million, Joost has consistently struggled to make the cut, be it in terms of being a preferred destination for the viewer or for the advertiser. The company has now decided to shut down its consumer offering and offer 'white-label' services to other content providers (a fiercely competitive space where Yahoo! just ditched its $160 million acquisition of Maven Networks). So, what did it in? While there are a lot of reasons, in a nutshell, lack of compelling content. Hulu, on the other hand, has consistently ensured that content is something that it doesn't lack. Luring away Disney from a possible Joost deal was probably the last nail in the coffin for Joost. Likewise, Veoh, another video aggregator that topped $70 million in funding, recently cut its staff and changed its focus to a browser-based plug-in. Other aggregators such as Metacafe have moved on to focus on professionally-produced content, while Crackle cut off user-uploads a couple of months back. And Microsoft, of 'em all, has acknowledged that user-generated content might not really have a major role to play in the future. The Redmond giant has decided to re-focus Soapbox, its long-time also-ran in the online video space.

There appears to be a tangible shift away from user-generated content towards professionally produced content. The success that Hulu is seeing, it is estimated to now account for over 10% of all online video ad revenues, coupled with YouTube's losses, is encouraging video aggregators to move towards professionally produced content. It also helps that consumers are increasingly showing clear preference to consuming long-form video content on the Internet. Media companies are increasingly watching the action unfold with glee. Unlike the long-drawn battle that music labels have been having with online music streaming, large media houses are increasingly preparing for a future where they are the distributors themselves, or own portions of aggregators such as Hulu. And till the time that Google or anyone else can figure out an easy, and inexpensive way of monetizing user-generated content, and compelling content is made available by large media players at a fair revenue-share, online video sites will continue to flounder.

Whose content is it anyway?

Hulu's snagging up of Disney network as an equity partner begs that question. Whose content is considered more exclusive, more desirable, and consequently, more monetizable?

While youtube has always led the numbers game, in terms of all kinds of user-driven metrics, however, Hulu appears to be fast catching up on the more-important financial metric of bringing in monies. While ever-rising traffic at Youtube only leads Google to mounting operational expenses in terms of hosting and streaming costs, the converse appears to be true at Hulu. With all of its content monetizable, without legal baggage, Hulu offers advertisers a far more compelling proposition, and naturally, has been on a high. It doesn't help that under 10% (far less than this by other estimates) of videos at youtube are deemed monetizable.

What does this show? Well, for starters, that content continues to be king. And that's the good news.However, that doesn't mean that there is no space for user-generated content and scope for commercial exploitation of the same. UGC has been a hallmark of web 2.0 and will continue to remain so. However, online video sites as well as media players have to look beyond a model where there's a straight-forward content-advertiser relation. The Hulu model, for instance, seems atavistic for reasons more than one. It continues to build on the traditional advertiser-content owner angle and basically extends that practice from the Television on to the web. While the system in itself is a fine example of how the web can create all-round value, for all parties involved, yet, through its inherent reliance on large content companies, it fails to recognize the power of the web.

Youtube showcases all that is representative of the future state of the web, albeit at a staggering cost, and how UGC will continue to be one of the key producers of content. However, it has to make out a compelling case for a model where UGC can harmoniously exist along with professionally-produced content. The media players, and the UGC community, have to recognize the fact that compelling UGC has almost always come out of a right mix of both forms of content, and to that extent, neither is dispensable nor can be wished away and same goes for legalese involved in it all. All stakeholders involved need to recognize and appreciate the contribution of each of the parties involved, and build ad-supported/subscription models that are more reflective of the changed realities. Until that happens, it is going to remain a messy road for Youtube, while others such as Hulu will continue converting the web into a Television.