Great job, online video! Don't get cocky

Samantha Bookman, FierceOnlineVideo

Online video players sounded confident and, dare I say, cocky at this week's MIPCOM event in Cannes.

At a panel session on Monday, Maker Studios CEO Ynon Kaiz said without a trace of irony that Disney had to buy his MCN in order "to remain relevant." Meanwhile, Charles Zhang, the founder of Sohu.com, China's answer to Netflix (NASDAQ: NFLX), urged broadcasters to quit their day jobs and start producing online video content.

Netflix head of content Ted Sarandos called movie theaters' distribution models "antiquated" and said that the SVOD provider's latest deal--the one with Weinstein Co. and its Crouching Tiger, Hidden Dragon sequel that has theater owners in the U.S. howling--is not designed to kill windowing, but to "restore choice and options" to viewers.

"The current distribution model for movies in the U.S. particularly, but also around the entire world is pretty antiquated relative to the on-demand generation we are trying to serve…," Sarandos said. (reg. req.) "If people are choosing to watch on Netflix they don't want to wait a year or maybe 10 years to get that movie."

While Zhang's comments were somewhat tongue-in-cheek, there was a challenge within them. None of the three--not Kaiz, Sarandos or Zhang--were prefacing their statements, nor were they backing down from their view that the old way of doing business in media and entertainment just won't work. The online video industry, they were saying, is no longer just an upstart disrupter. It's the king of the hill.

But that's a dangerous position to be in, and online video still has some technological hurdles to cross--as well as competition charging in from all sides.

Advertising online, while seeing quite a bit of growth, is still plagued by less-than-ideal viewability standards, unscrupulous websites taking advantage of automated ad buying, and unbalanced revenue models (like YouTube's 45 percent cut of ad revenues).

Meanwhile, the content creation model hasn't really changed, even if Sarandos is working to change the distribution model. Analyst Tom Dotan said in a recent article for The Information that despite Amazon's innovative pilot episode program, both it and Netflix followed an "old school" path, bringing in outside studios, writers and actors to create their series. Being locked into Hollywood's creation model means continuing to lay out millions of dollars to develop original programming.

AOL On Originals VP Nate Hayden fretted in a TechCrunch op-ed that while online video has proven that it's no longer just the "kid brother" to television, "we risk losing sight of what makes online video great in its own right and instead revert to defining our success on TV's terms."

Much of online video providers' discussions around original content draw too much from the TV playbook, he wrote. Because OTT isn't constrained by the broadcast model, it should take advantage of the freedoms afforded to it by online technologies. Styles, formats, episode lengths--Hayden feels online video creators should be experimenting across the board.

There's also the continuing push to bring linear content to OTT. Aereo's play to urge the FCC to designate some OTT providers as MVPD-like shouldn't be so unexpected, especially as satellite and cable operators including Dish Network (NASDAQ: DISH) and Comcast (NASDAQ: CMCSA) prepare to roll out their own OTT offerings.

But the biggest danger comes from the oldest lion on the savannah: traditional broadcasters, which have the capital, the content, and--thanks to the threat from OTT providers--the motive to jump in anytime.

"A (new) streaming service doesn't need many subscribers to break even if consumers are willing to buy  $5 or $10 (monthly) subscriptions. In fact a streaming service is easier to launch than a cable channel, which is labor intensive. Expect big brands to jump in," said Kevin Beggs, chairman of Lionsgate TV Group, in a Wednesday morning MIPCOM keynote, according to Deadline Hollywood.

And broadcasters appear to be preparing to do so.

James Murdoch, co-chief operating officer of 21st Century Fox, told a panel audience that there was an "incredible shift going on in the business," where the value of content was transitioning from a downstream margin business, to creators upstream, BTIG Research reported. Established, traditional broadcasters, studios and distributors have the resources at their disposal to take the lead online.

But they'll have to contend with one challenge that online video providers have laid at their feet: Emmy-quality original content.

"What we really need in an environment like this is to have big brands, really distinctive high-quality, differentiated programming--storytelling of a very high order, be it scripted drama or sports with all of the wonder and excitement and jeopardy and all of that," Murdoch said. "We need things that can really stand out and that are discoverable by customers in a meaningful way.  I think that's really where this is going."--Sam

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