YouTube film service unlikely to be as profitable as iTunes
If YouTube and Hulu are to become Web movie houses, will they be the online equivalents of those gleaming multiplexes where all the latest releases appear? Or will they be the revival houses that screen only outdated flicks?
Metro Goldwyn Mayer (MGM) caused a stir on Monday by announcing it will become the first Hollywood studio to post full-length feature films to YouTube. But while long-form movies are unprecedented for YouTube, MGM has plans to offer only a handful of older titles, such as Bulletproof Monk and The Magnificent Seven.
Some of the studios are easing their way into YouTube and Hulu, the video portal formed by NBC Universal and News Corp., because of doubts about whether ad-supported business models will ever generate the kind of returns the studios see from pay-TV channels, DVD sales, and iTunes, which charges for movie downloads. One of the hurdles ad-supported movie sites face is that many people don't want to watch two-hour long films on a PC; in the case of Hulu, revenue has to be split with the site's distributors--such as Yahoo and AOL; and perhaps most importantly, Web users will click away if asked to watch the same number of commercials online that is shown on traditional TV.
It's just not worth it for the studios to throw their support behind ad-supported sites, according to Tom Adams, one of Hollywood's most-respected researchers and the owner of Adams Media Research, an entertainment industry research and consulting firm.
Last week, in reporting a story as I reported a story about YouTube's plans to build a feature-film service, I asked an executive at a large media company why his company wasn't being more aggressive in posting long-form content to the Web. He told me to talk to Adams and that his company thought his research on the subject was correct. On Monday, Adams told me the paid model is a clear winner over ad-supported.
"The issue comes down to ad-supported versus the paid model," Adams said. "For ad supported, the question is how many ads can you run and how much money can you generate per viewing? That has to be compared with the money made from rental or movie purchases. The content companies have all their content on iTunes and have shown complete support for the site despite their worries about Apple dominating the market. The studios aren't making the same content available for ad-supported services."
YouTube disagrees that ad-supported film sites are at a disadvantage and so does a one high-ranking studio executive, who told me last week that he was convinced long-form video has a place on the Web and was looking forward to having the studio's content in front of YouTube's 80 million monthly visitors.
"We think that content creators will continue to benefit from engaging with the YouTube community, the largest audience for video in the world," said Aaron Zamost, a YouTube spokesman. Representatives from Hulu could not be reached for comment.
Nonetheless, it's easy to spot the differences in the way the studios treat iTunes compared with Hulu or YouTube. For example, Lionsgate has been selling full-length features off iTunes since February 2007. Last summer, the Canadian studio agreed to give YouTube users access to only snippets from its films.
Disney has yet to post films to YouTube or Hulu and Paramount has no films on YouTube and just six on Hulu. Compare that to iTunes, which has inked distribution deals with all the major studios.
Adams tempers his gloomy outlook for ad-supported Web movie services by acknowledging that this is just the beginning of their development. He argues, however, that the services will always be less important to the studios than DVDs or paid services because the public has for the most part rejected films that are interrupted by commercials. His firm expects revenue from Internet film rentals and paid downloads to double this year.
"We have a 30-year history where all of the growth in movie revenues has come from commercial-free options," Adams said. "First came pay TV in the 1970s with HBO, then VHS and then DVD. Consumers have made it clear they will gladly pay up for commercial-free movies. Of course, they consume a ton of movies now on TV, at places like Turner Broadcasting. Our last study we found 15 or 20 cable networks that dedicate a lot of their programming hours to movies and make money. But they generate very little money per viewing (for the studios) as opposed to the $4 rental or $20 DVD sale. That's where you're talking real money per transaction.
"(Ad-supported movies) are a nice revenue stream but it's shrinking," Adams continued. "The networks have gotten rid of movies for the most part. The fact is, consumers love commercial-free films and can get them that way in lots of different forms."
To illustrate the difficulties in advertising to Web users, Adams focused on Hulu.
Hulu, the year-old Web portal formed by NBC Universal and News Corp., has won accolades for offering full-length TV shows and films in high-quality video. In addition to Universal and Fox, the site offers feature films from Sony and Warner Bros and offers hundreds of catalog titles. The site generated splashy headlines this year by announcing that it had sold out of ad inventory. Adams said Hulu likely sold out because it doesn't have that much to offer.
Hulu runs four 30-second commercials every half hour, Adams said. This is about four minutes of ads for every hour. That is four times less than the 16 minutes of commercials typically found on broadcast or cable TV, Adams said
"Maybe the Internet guys can cram some more in there eventually," he said. "But they have a pretty instant feedback loop with their viewers. This is as much as they can push it at this point it looks like. You can tell they are pushing it as far as they can because the CPMs (cost per thousand impressions) for the site are pretty high. This indicates that there is limited inventory...clearly they are finding that adding more ads causes people to click away."
Hulu has disclosed little about ad inventory, user habits or revenue figures other than to say it gets a higher CPM rate than traditional TV broadcasters. But if Hulu is limited in the number of ads it can sell, the site may not be making much money, Adams said.
Even after coming down hard on ad-supported services, Adams says the studios are wise to offer some film content online. He thinks it helps combat piracy by offering films to the niche market who prefer watching films online and this generates incremental revenue he called "found money." So does he think there's a future for Internet movies?
"The key to Web movies is TV connectivity," Adams said. "The Netflix Player (a set-top box from Roku that connects to the Web and streams movies from Netflix) is a value-added proposition. It's kind of the best of the paid model and the ad-supported model. You have to pay for your Netflix subscription but you don't have to inject a lot of ads into the films.
"We think Netflix is on to something."
Greg Sandoval covers media and digital entertainment for CNET News. He is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at http://twitter.com/sandoCNET.
You're comment doesn't seem to recognize that - you CAN watch you tube from your couch with Apple TV...
there is a massive level of eagerness to watch films/tv via the web. so it's time to move into the digital age rather than dragging tech into the analog age (price wise).
That's a great question. I'm at YouTube today so I just asked. Staff is trying to find out. I'll give you an answer as soon as they give one to me.
YouTube staffers say you can't right now watch feature films on YouTube at this time but these deals are still evolving. Thanks
That's a problem. I'm not buying on iTunes. I don't like how it works, I don't like the prices, and these days I'm not liking apple much. Translated. I'll just watch something else and whoever is an 'itunes only' outfit, will have one less viewer and just a little less revenue.
You can ignore all that and realize that media only has value if enjoyed for a reasonable fee. If they limit their market, they limit the number of folks who can enjoy it. They need to reach out to all markets to capture the widest audience. In digital this is cheap enough to do.
At the same time, ad-supported sites will show more and more volume. Yes some people still buy them at $20, but the ad-supported sites will soon have orders of magnitude more downloads.
We dislike Apple's iTunes model - not merely because of the DRM issues (which surpass WMP's DRM issues by a mile) and not merely because of the other non-DRM-related security issues and constant critical patches to iTunes, but mostly because we stopped paying that kind of money for recently released films more than a decade ago.
The Hollywood studios - an industry full of marketing clowns who traditionally have not been the sharpest knives in the drawer - must accept the fact that the value of their efforts to intervene in the internet models of content delivery have been a failure, like most other things the stick their noses into.
They clearly wish to play on the internet, but haven't figured out how to do it yet. Over a decade ago, they put their financial destiny in the hands of deep discounter national retail chains such as Best Buy. For this, I'm thankful to Hollywood for giving us recently released movies for $4.99 for those of us who couldn't care less about watching just-released-to-theaters films. We live in one of the biggest cities in the US and most of the theaters have closed anyway.
This guy is making stuff up. Most of his comments are not backed up. People want to watch shows when they want, or to see back episodes, and the most reliable and compete way to do that is to buy it.
Like when Family Guy was going off-air. There was no choice buy to buy the DVD if you wanted to watch it.
If a TV show is past the 1st season, but I didn't watch it from the beginning and want to catch up, where can I see the 1st season? Hulu and network places keep deleting online shows. I might catch random episodes on TV over the next year. But then I'd have to record all of the current season if I want to see the 1st season 1st. The only resort is to buy the DVD.
Yes, some people just like to own the DVD for TV shows, and movies. But some people don't.
What is that study based on? The fact I really want to watch Indian Jones, but when it's on TV at 3pm and I'm at work I don't watch it? So I buy the DVD so I can watch it when I get home?
Or that on the weekend when a station show the same movie 3 times in 24 hours, I don't watch it 3 times?
There is a reason Prime Time is prime time. When there are a billion hours of shows available, but only 2-4 hours that are convenient, there's no way.
So now that TV exec can actually tell what ads people will pay attention to, they decide to keep the false reality that people stay glued to the TV for 4 min of commercials? With only 15-30 seconds for an ad online, I will stay there and probably end up seeing the ad. When I have 4 min to kill, I'm going to the bathroom, or getting a snack, or using the phone, or reading the paper, or flipping channels.
So the same logic says that American's won't buy German cars, and so the manufacturers can't build large enough factories to reduce the cost of a BMW or Mercedes.
Or maybe an ad on Hulu costs more because it is worth more and it gets a better response. Maybe people will easily sit through a 15-30 second ad. And with only 1 ad per break, it is easier to remember that one ad. And if that ad is interesting, the viewer can click and instantly be connected to an online store.
On TV, many people leave to room, do something else, turn down the volume, flip channels, and so maybe very few people see that TV ad. Plus, most people won't write down the product if they are possibly interested, and thus they forget the product quickly. Plus, each TV break has so many ads it is hard to remember all the products they just saw. So most people would have to see an ad many times before it makes a lasting impression on them. And the viewer has to make a lot of extra effort to find out about that product (remember it, still feel interested later, turn on the computer later - if they have one, possibly go to a store) compared to the online ad (click - that's it).
And one last point. According to this guy, people start watching a show on Hulu, see an ad, and then close Hulu without finishing the show. What is this guy smoking? He doesn't appear to have any knowledge about the viewer stats, just making up stuff.
By his logic, the cost of a Mercedes is high because a Mercedes is a crappy car. What happens is that people buy a Mercedes on a loan, then they find out that car is really horrible and falling apart, so that person just abandons the car on the side of the road, and refuses to pay the balance of the loan. Thus, Mercedes has to raise the cost of their cars so they can cover all of the people refusing to finish paying their car loan.
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by galacticgufus
January 1, 2009 3:35 AM PST
- as more people begin using the 'net, unfortunately less people will buy or watch ad-supported drivel from the hollywood studios. it's a whole internet out there.
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