Google Speeds Cable Disintermediation Via YouTube Celebrity Channels

After reading a piece in the Wall Street Journal yesterday concerning Google's $100MM bet on celebrity channels on YouTube. It reminded me of my old mentor, Gerry Weiss' insights into competition and colliding arenas.


Gerry and his colleagues developed the concept as strategic planners at GE under Jack McKittrick. Essentially, a technology that is at the core of one entity in one 'arena,' or business area, uses said technology to expand into a new business. The entity's technological and/or other business model attributes strike at a vulnerability of existing occupants of the new business, causing a radical upheaval.


That's what seems to be about to occur at Google/YouTube.


I've been writing about the disintermediation of cable television for a few years. Now I realize that Google's recent staking of various media celebrities to $100MM worth of channels for their own creative usage will only speed that disintermediation. The Journal article cites several actors having broken into work on cable television programs via viral YouTube videos.


I've contended for several years that a writer/producer like Larry David would be foolish to bother putting his next series on cable. He could easily go right to streaming video from a website.


Then Glenn Beck departed Fox News for his own website-based media empire.

The Journal piece ended on a cautionary tone, noting that Google isn't likely to be earning revenues from any of this YouTube effort anytime soon. But offered a silver lining that in just three years, its Android cell phone alternative has grown to take half of the smart phone market.

My own sense of Google and YouTube is that, in the simplest case, they get eyeballs on which to earn advertising revenues. Then, over time, as viewers are trained to watch streaming web videos as their natural way of viewing heretofore broadcast- and cable-only frequently-aired (i.e., weekly programs) content, the step to paying for new content from a bankable talent like David or some other writer will be simple.

At that point, it wouldn't be a stretch for Google to be straying into signing and backing new talent, would it?

Even if not, just by migrating more and more viewers to their streaming video, they'll drain the last drops of life from broadcast network television, while accelerating the problems at cable providers.

That's one of the hallmarks of arena competition. Whether it's smart or not, the new entrant can afford to subsidize its intrusion into the new business with profits from its existing businesses. In Google's case, they aren't unconnected. But its targets don't really have multiple revenue sources on which to rely in the coming video content sourcing battle.

Murdoch, YouTube and Sensibility

Last week the Wall Street Journal published a special section on digital technology and strategies. Among the stories in the section was an interview with Rupert Murdoch.

In that interview, the following exchange was reported,

"Ms. Swisher: How do you look at a YouTube? Sumner Redstone sued Google. Why didn't you sue them?

Mr. Murdoch: We came down to the view in the end that it was doing more to promote our shows than it was to hurt them."

I loved this short portion of the article. It so typifies wh Murdoch has been so successful.

Back when Google acquired YouTube, and the whole lawsuit issue came up, my consultant friend, S, and I were discussing what Redstone was doing, and who else might sue.

We agreed that, for most older media properties, YouTube actually stimulates new viewing, usage and, ultimately, purchase, at no expense to the owners of the properties.

Redstone clearly did not see it that way. But if you look at Redstone's companies, it's not a really pretty picture.

Over the past five years, as the nearby, Yahoo-sourced chart of prices for News Corp, CBS, Viacom and the S&P500 Index indicates, both pieces of Redstone's empire, split up in late 2005, have done poorly.

While CBS unexpectedly outperformed Viacom, which was supposed to have the better assets, and was still headed by Redstone, it, too, under CEO Les Moonves, has come back down to earth.

While Murdoch's NewsCorp may trail the S&P, it has handsomely outperformed all of Redstone's media properties. Its recent decline, along with CBS and Viacom, has been much milder, and has even turned up again recently.

My guess is that Murdoch's instincts for content media, in which he began, rather than Redstone's self-aggrandizing management style and expansion from movie theaters, accounts for a lot of the performance difference.

Thus, Murdoch's sense of getting something for nothing by letting Google's YouTube use his media content without payment or lawsuits over the whole matter indicate his better feel and touch for new media.

The performance numbers certainly seem to bear this out.

The New Anti-YouTube Consortium

The recent alliance of MySpace (NewsCorp), NBC, AOL, Microsoft and Yahoo for video clip distribution, obviously presents a competitive presence to Google's YouTube unit.

The Wall Street Journal article on the subject, from 23 March, included this passage,

"This is a game changer for Internet video," said News Corp. President Peter Chernin in a statement announcing the deal. "We'll have access to just about the entire U.S. Internet audience at launch." News Corp. and NBC said the four portals account for 96% of the monthly U.S. unique users on the Web.

In the past, I have found Peter Chernin to be distinctly "old media" in his outlook, and I believe that continues here. Despite Chernin's rather pompous statement, I'm not at all sure the alliance is a "game changer."

If anything, YouTube was and is the "game changer." Does anyone seriously think this recently-announced alliance would have occurred, but for the competitive pressure and observed consumer behaviors brought about by YouTube's popularity? When Google bought it, that only added to the sense of urgency on the part of old media interests who own old content. My prior posts about this, found by clicking on the labels for "old media" and "new media," discuss some of these issues. Older, as-yet unlabeled posts, do so as well. Of the newer ones, this one, here, perhaps best reflects my thinking.

That is, this alliance reflects a broad "hunkering down" of old media behind its own walls, hoping to stave off the inevitable move by consumers to view short, compressed video clips of its own choosing. Paul Kedrovsky has likened this to the Napster-originated trends that have eviscerated the music business sector of late.

So, if anything has been game changing, it would seem to be YouTube's allowing consumers to expect short clips to be viewable for free.

However, take a step back, and ask yourself, 'what do the alliance partners stand to gain by their rejection of YouTube, that they could not have had through an alliance with YouTube?'

It seems to me that it is simply advertising revenues. Pure and simple.

Like Amazon, or eBay, YouTube has staked out, developed, and established a single, highly-visible, valuable piece of online real estate. For all Chernin's puffery, consumers go to YouTube for video. They go to the other sites for a plethora of needs, but it's unclear that video is one of them, or a salient one. Visits to the various sites are not all 'equal,' in this sense.

More to the point, do I, or most consumers, really want to have to guess, or try to keep straight, which sites have which content? When visiting YouTube, I just search, and view. Pretty much any significant, recent news clip will be there. Plus much entertainment, as well. How do I determine, in advance, the URLs and specific content type of each of the 'alliance' sites?

I still contend that the networks', and all video library owners,' best alternative was and is to revenue share with YouTube and distribute on that site. It's unclear that the financial economics of all these other video distribution sites will pan out, whereas, when they are concentrated on a provider's site, the content owners simply collect a payment for their share of ad revenue, plus any sales revenues from consumers who choose to buy the clip they are watching on YouTube.

So, in conclusion, I think that I am underwhelmed by the NewsCorp-Yahoo-NBC-MSN-AOL alliance. It smacks, to me, of old media trying, once more, to lasso a consumer behavior trend that is already out of the gate and roaming far afield from the old consumption models for video content.

Viacom v. Google Re: YouTube

Tuesday's announcement of Viacom's $1B suit against Google/YouTube moves the new media challenge to a new plane.

The initial news story in the Wall Street Journal covered the expected terrain. It represented each side's views and legal position. Viacom owns the copyrights, while Google claims fair use doctrine.

Dauman, Redstone's returning lieutenant, has clearly shaken up the sluggish maneuvering between the two giants on this issue.

My consulting friend, S, believes this is simply Viacom's bid to force some sort of fee-based arrangement, and that it will never go to court. Perhaps so.

However, after reading CNBC analyst Paul Kedrosky's excellent editorial this morning in The Wall Street Journal, I am reconsidering my view on that.

Kedrosky feels that this suit is a misguided attempt by Viacom to attempt to stop the onrush of consumer demand to access and buy short clips of the video it wants. He likens it to the original Napster, and eventual legalization of single-song purchases on iTunes.

While S has maintained, and Kedrosky echos, that YouTube's airing of old Viacom material can only be a boon to the latter, the material does belong to Viacom. If they wanted YouTube doing this, they'd have asked.

To me, the reasonable and economic solution is for Viacom to realize two things. First, what most consumers want is an 'honest broker,' independent location on which to view any potential video material. Just as no single record company has ever successfully established a music website, I don't think any video content owner will do so, either.

To realize why, consider what has made Amazon, though profitless, so central to ordering printed media. You can find anything there. I believe the same will hold true for video. Thus, Viacom's best shot is to distribute through YouTube.

Second, all Viacom needs to do is demand a small slice of ad revenues from the pages on which its videos play, plus arrange for an instant, 'push-button purchase' option. Simply locate a "buy this video now" button that takes the viewer to a Viacom or YouTube checkout, and pay YouTube a percentage of the sales price.

Nobody wants to sit in front of a PC viewing endless video clips to approximate a season of any television program. YouTube's clips are for instant gratification, not long-term enjoyment.

Viacom is missing the point here with their lawsuit. As Kedrosky points out, Viacom may well win, if it goes to court, simply on the basis of their undisputed ownership of the material.

But Viacom will lose the war. Google/YouTube will remain a nexus for all sorts of professional and amateur video. But Viacom will have cut off its nose to spite its face, if it boycotts YouTube in the future, after reaping the one-time billion dollar damages.

Video Link Replacement

If you read this recent post on Hillary Clinton's capital markets regulation remarks, you may not have been able to view the CNBC video link.

Here is a YouTube link to the same interview, at the end of my post. Sorry for the inconvenience.

Google & The Networks: Is Content King?

Yesterday's Wall Street Journal featured an article discussing the push back of NBC, CBS and Viacom to YouTube's approach to airing their video libraries. Additionally, Paul Vigna, a writer for Dow Jones, wrote an editorial declaring the networks safe, for now, because content will always be king.

This week's alliance between online video site Joost, and Viacom, is clearly aimed at setting up and reinforcing a competitive threat to Google's YouTube.

Did Google make a mistake buying the best-known piece of online video distribution real estate? Probably not.

Does Google, via YouTube, expect to air all the video content of the networks for free, or just shares of advertising revenues? Again, probably not.

Is Viacom going to get as much viewership for its content at Joost as it has, or would, at YouTube? Once again, probably not.

I don't think the issue here is whether YouTube will successfully deprive owners of existing video content of value for distributing that content directly online at a very popular site. I also think many pundits mistake YouTube as a joke, just full of some home movie producers.

The issue is whether YouTube successfully exemplifies the ability of one or two sites to become so valuable that they will rival the owners of content in importance.

In this regard, I disagree with Mr. Vigna. I don't believe the networks have much time to build any proprietary online distributions sites. YouTube is already pervasive. Why won't some creative production team approach YouTube directly for a distribution deal, and never even stop at the networks? Just release content on their own URL, and via YouTube. Or Joost. Perhaps one or two other sites.

What Mr. Vigna overlooks, a la AOL-TimeWarner, is that nobody has successfully owned distribution pipes and content. Either one may be managed successfully, for a time, to provide consistently superior total returns. But it's doubtful any company can provide both and have that performance.

Other content originators suspect a distributor who also produces content. Other distributors suspect a content provider who also owns distribution.

But, alone, the best-run, most creative distributor or content producer can easily dominate their business, and even fight its functional counterpart to an even revenue-sharing arrangement.

YouTube isn't an empty threat just yet. I think it will simply take a little time for the reality of the new, disintermediating online opportunities to fuel the move of content producers directly online. If so, then Google's bet on YouTube will look smart after all.