PASADENA, Calif.--Disney CEO Robert Iger said he appreciates the fact that his company helped pioneer user-generated video with "America's Funniest Home Videos," but acknowledges he missed a big opportunity.
"Unfortunately, I didn't come up with YouTube," Iger said Wednesday during the opening interview at Fortune's Brainstorm: Tech conference here. Although it has yet to be profitable, he noted that those who created the site did sell it for a "chunk of change."
Fortune's Richard Siklos interviews Disney CEO Robert Iger as the Brainstorm:Tech conference kicks off in Pasadena, Calif., Wednesday.
(Credit: Ina Fried/CNET)But, Iger insisted that free content isn't going to be the only game in town.
"People are willing to pay for quality," he said. "They are willing to pay for choice. They are willing to pay for convenience."
He noted that people still pay $5 an hour to go to the movies, 75 cents an hour to read books and magazines, 50 cents an hour to watch cable, but just 25 cents an hour to use the Internet, in terms of the amount they pay their Internet service provider.
"There's plenty of room for people to spend more money on for things they are doing online," Iger said. "I think it is wrong to assume that because there is a lot on the Internet that is free that it is going to be impossible to monetize" content.
Iger acknowledged that the company still makes far less online than it does from traditional broadcast means.
"We're not monetizing as much as we do in our traditional business," he said. "It's very early in the timeline. I think there is going to be ample opportunity to improve monetization from advertising online."
When moderator Richard Siklos pointed out that he had a fairly optimistic take on things, Iger noted that's part of his job.
"If you are trying to lead anybody, you better be an optimist," he said. "Not too many people follow pessimists."
He said his job as CEO is to make sure everyone at his company has one hand in the present and one hand in the future--essentially aware of where his bread is buttered but also with an eye toward where that next meal is coming from.
As for privacy concerns, he notes that most of the issues come from "older people," saying that when he talks to his daughters they show little concern for those issues.
"I've learned more about my daughters on Facebook than I did when I was raising them," Iger said.
It's here, sort of. Several months after the big announcement that content from Disney's ABC Entertainment division would be coming to Hulu, the entertainment conglomerate's shows have started arriving.
The primetime drama "Grey's Anatomy" debuted on the video hub Monday, and more shows will roll out over the next two weeks.
These include, according to Hulu, consistent hits like "Desperate Housewives" and "Scrubs," along with more recent additions to the network such as "I Survived A Japanese Game Show."
Disney joined Hulu in April, giving it a joint stake in the company alongside NBC Universal, News Corp., and investor Providence Equity Partners. Shows from ABC as well as ABC-owned cable channels like SoapNet and ABC Family are on the way, along with movies from Disney (though no titles have been made available yet).
Would-be Hulu rival Joost closed its consumer video service last month after its peer-to-peer technology failed to make up for its tepid content offering.
My big question: When will we see episodes of my favorite ABC show, "Lost," on Hulu? I've e-mailed a company representative to find out.
Seriously?
(Credit: Matt Hickey)Go to ESPN360.com. Click on the link at the top that says "Watch Now," and see what happens. You'll either be let in to the viewing area or, more likely, told that you can't access the content because of your Internet service provider.
Why? Ars has it that Disney, the parent company of ESPN360.com, has partnered with certain ISPs to provide exclusive access to its premium content. If your ISP isn't a Disney/ESPN partner, tough luck. This, of course, violates the ideals of Net neutrality.
The Net neutrality position is, in a nutshell, that no matter who you get your Internet access through you should have access to the same Internet as everyone else.
But the large corporations have started using their influence to sell features to the large ISPs at prices that smaller ISPs can't match. Besides the Net neutrality issues, this is troubling.
And not just for the customers: A pop-up actually recommends to customers who don't match the viewing criteria that they change their ISP to one of its partner providers so they can. It actually says:
ESPN360.com is available at no charge to fans who receive their high-speed Internet connection from an ESPN360.com-affiliated Internet service provider. ESPN360.com is also available to fans that access the Internet from U.S. college campuses and U.S. military bases.Your current computer network falls outside of these categories. Here's how you can get access to ESPN360.com...Switch to an ESPN360.com affiliated Internet service provider or to contact your Internet service provider and request ESPN360.com. Click here to enter your ZIP code and find out which providers in your area carry offer ESPN360.com
With the exception of college students and the military, Disney wants you to switch your ISP to get full content. This blatant throwing of corporate weight has gained the attention, though, of an unlikely group: the American Cable Association, a group that has historically been against Net neutrality is lobbying the FCC to intervene on their behalf. Now that the mega-corps are using their power to push the smaller cable providers aside, it seems they've realized the threat, and have asked the FCC to investigate such actions.
On the surface this seems like a fairly small issue. One site working with a handful of large providers will not kill the Web as we know it. That being said, this kind of thing is a slippery slope, and Net neutrality proponents often point out that if this kind of behavior is tolerated now, it will make laws to curtail acts like this harder to enforce in the future. We'll follow this story and keep abreast of any others like it that pop up.
The fight for Net neutrality is young, and this particular action might end up being an important precedent. Content partners offering special services depending on which provider customers use hasn't worked well in the cell phone industry and nothing points to it working in the cable industry, either.
Sure, for a year now, YouTube has trailed Hulu in the number of TV shows and films it offers, but in recent months all the momentum appeared to be with Google's video site.
That was until Thursday, when Hulu announced a partnership with Disney that at least one industry analyst believes has smashed YouTube's chances of becoming an online hub for top TV shows and feature films.
Disney will provide Hulu with full-length ad-supported episodes from ABC, SoapNet, and ABC Family. Some of the shows include "Lost," "Grey's Anatomy," "Ugly Betty," and "Scrubs." Some Disney films will also appear on Hulu, the ad-supported streaming video site formed by News Corp. and NBC Universal. Hulu has now locked up content from three of the largest six film studios.
As for the other three, Sony Pictures has deals to provide a small amount of long-form, ad-supported content with both Hulu and YouTube. Warner Bros. has largely kept long-form content off the Web, and Paramount, which provides Hulu with some TV shows and a smattering of films, is unlikely to join Google-owned YouTube anytime soon. Paramount's parent company, Viacom, has a $1 billion copyright suit pending against YouTube.
What this all means is there just aren't that many other places for YouTube to acquire high-end content.
"(The Disney-Hulu deal) is not good news for YouTube," said James McQuivey, an analyst at Forrester Research. "Any hope of creating a professional-content business has probably disappeared."
A YouTube spokesman issued this positive-spin statement: "More content coming online in more places is a win for consumers and provides further validation of the growth of the online video market."
Cable sector should jump on Hulu
Besides Hulu, the big winners in the Disney partnership--which also involves Disney taking an unspecified equity stake in the video site--could be Comcast, Time Warner, and the cable industry.
Some of the major cable operators have griped in recent months that some of their subscribers are dropping cable in favor of watching TV shows and films online. Now, according to reports, the cable guys are seeking ways to compete on the Web.
Up until now the cable companies have had to negotiate with individual studios. Hulu potentially provides a way, according to McQuivey, to obtain a wide swath of TV shows and films with a single handshake. He also sees the opportunity for offering premium Hulu services, which might make sense at a time when Hulu continues to offer fewer and fewer episodes from popular shows.
Man of the hour: After signing blockbuster deal with Disney, will Hulu CEO Jason Kilar partner with cable industry?
(Credit: Greg Sandoval/CNET Networks)"Comcast can tell NBC and News Corp., 'We want to put your Hulu system in front of our subscribers'," McQuivey said. "'But we want to give our customers more. If Hulu is posting four episodes of a show online we want our subscribers to have 12 episodes.' I'm 90 percent certain sure these conversations are already happening."
"In order to get Hulu," McQuivey continued, "you have to be high-speed broadband customer and maybe also spending top dollar on TV services."
What would Hulu receive in return? McQuivey said maybe the cable companies would share subscriber revenue with the site. He added that Hulu is probably making decent revenue on ads, but advertising is tougher online. Hulu, he said, "might look at cable to help accelerate some of their revenue potential."
Tougher to sell ads online? McQuivey might be guilty of a gross understatement. Anybody who spends any time on Hulu has noticed the growing number of paid service announcements. Last year at this time, site managers trumpeted that they had sold out of ad inventory. Hulu hasn't made any such announcements lately.
While advertising is down for nearly everyone in media, there is a growing skepticism in Hollywood that the ad-supported online model can generate the kind of revenue the studios see from broadcast, cable or DVD sales. One industry source told me that "to generate a worthwhile profit from an online broadcast, you have to throw in lots of ads, and that will only prompt viewers to log off."
As for McQuivey's idea that Comcast could negotiate to obtain more shows, the studio source said that there's a reason why Hulu is carrying fewer episodes from shows than it once did. There's concern in Hollywood that offering too many episodes may cut into DVD sales. The source said the studios see big revenue from the sale of DVD versions of TV shows. Asked whether the studios have seen a sales drop-off yet, the executive said, "No."
Of all the major studios, only Sony Pictures appears willing to offer consumers access to a wide variety of full-length feature films on an ad-supported basis. This week, the studio announced that more than 100 movies, including "Spiderman 2," "La Femme Nikita," and "Candyman," were available at Crackle.com, the studio's online video site.
McQuivey said that after doing an analysis on the problem, he's also doubtful ad sales can generate meaningful profits. Ads alone won't make the Internet a "replacement model," he said. "You're going to have to look at some kind of subscription model."
Maybe he's on to something. "With respect to how (YouTube) will get monetized, our first priority is on the advertising side," Eric Schmidt, Google's CEO, said after Google reported first-quarter profits earlier this month. "We do expect over time to see micropayments and other forms of subscription models."
Disney's ABC Enterprises announced Thursday that it has entered into online-video joint venture Hulu, currently a partnership between NBC Universal, News Corp., and investor Providence Equity Partners.
This means that TV shows from Disney-owned channels like ABC, SoapNet, and ABC Family will be coming to Hulu. Among them are "Lost," "Grey's Anatomy," "Ugly Betty," and "Scrubs." There will also be Disney movies available on the ad-supported streaming video site, but a press release did not name any of them. Content will be available "soon," the press release explained.
Reports started to surface about a month ago that Disney was in talks to join Hulu.
Robert Iger, president and CEO of the Walt Disney Company, will take a seat on Hulu's board of directors, along with Anne Sweeney, co-chair of Disney Media Networks and president of the Disney/ABC Television Group, and Kevin Mayer, executive vice president of corporate strategy, business development, and technology at Disney.
ABC already streams a significant amount of television content on ABC.com, and Disney-owned television and video content was some of the first to make an appearance in the iTunes Store's video download section.
Apple CEO Steve Jobs is Disney's single biggest shareholder, having sold animation studio Pixar to the company in 2006.
This post was expanded at 8:15 a.m. PT.
YouTube is in negotiations with Sony Pictures to get licensing rights to some of the studio's movies. 'The Professional' is from Sony Pictures and is available at Crackle.com.
(Credit: Crackle.com)YouTube is in talks to acquire licensing rights to full-length content from Sony Pictures, home of such films as "The International" and "Spider-Man," sources familiar with the negotiations told CNET News. Details about what a final agreement could look like are sparse, but any partnership between the two powerhouses would likely benefit both.
Representatives from both companies declined to comment.
Word of the negotiations comes a week after Disney announced it had licensed short-form content to YouTube. Those clips will come from a range of Disney brands, including ABC and ESPN. For YouTube, obtaining short-form clips from Disney is an important step but still doesn't provide what YouTube needs most.
Founded in 2005, YouTube made a name for itself by showcasing amateur-made snippets as well as hosting scores of illegally posted clips from the best TV shows and films. YouTube has done much to rid the site of pirated content, but the flip side is that most of the hot shows and films that generated big viewership are gone. At the same time, a host of Web video services are offering full-length films and TV episodes online. To compete, YouTube is trying to get access to the same premium content but has so far only acquired a handful of films from the archives of Metro-Goldwyn-Mayer.
Sony Pictures' Web video property, Crackle, could mean a major boost to YouTube's long-form hopes.
Is YouTube a movie channel?
YouTube is trying to become a player in Hollywood at a time when the online video sector is bursting with an increasing number of savvy and very watchable Web video services. YouTube, which did more than any company to create the online video sector, is at risk of falling behind when it comes to offering the kind of content most sought after by audiences as well as advertisers.
Hulu, the ad-supported video portal formed by News Corp. and NBC Universal, has become synonymous with long-form content. The service is easy to use and provides a high-quality viewing experience. Netflix's Web streaming requires a monthly subscription fee to access movies but can boast a much larger movie-library than Hulu. Netflix has also made the all-important jump from showing films on a PC to delivering streaming video to a TV, via set-top boxes, such as Roku and Xbox 360. Apple can offer mobility to those who download movies and TV shows to iPhones and iPods.
The cable companies are also talking up their own online-video plans. After decades of pumping money into Hollywood, the cable operators and premium movie channels could have an advantage when it comes to acquiring studio content.
Here's where Crackle and YouTube can help each other. Sony Pictures presumably wants to promote Crackle, so it needs to get in front of a large audience. YouTube needs popular movies and TV shows and that means striking deals with studio and networks willing to post long-form content on the Web. Not all of them are.
Some studio executives have told CNET that they don't believe full-length movies can make money online. To generate a decent return, a large number of ads must accompany a film. Tests show Internet viewers resent this, according to film-industry sources.
The good news is that at this early stage at least, managers at Sony Pictures' digital unit appear to believe in long-form Web video.
Sony Pictures embraces long-form Web video
Sony Pictures acquired Crackle for $65 million in 2006, shortly before Google paid $1.65 billion for YouTube. The site began as Grouper, a video-sharing site and YouTube rival. In July 2007, the studio swapped business models and names after it became obvious YouTube had locked up the video-sharing market.
A visit to Crackle shows Sony Pictures is a trailblazer when it comes to posting movies online. Not only is the studio posting more full-length films on the Web (more than 60) than competitors but the quality of the movies appears to be better. At Crackle are such films as "The Opposite of Sex", "Groundhog Day," "El Mariachi," "Go," "Tommy," and "The Professional."
The studio has also been very willing to license content to such outlets as Hulu, Gaia, Sprint and AOL. Hulu has a deal to showcase nine films, including "In the Line of Fire" and "Single White Female."
Here's the catch: judging from the other distribution deals Sony Pictures has struck, it probably wouldn't give YouTube access to more than 15 movies. The studio has also asked some partners to display films using the Crackle video player, a request that undoubtedly is designed to give Sony Pictures control of advertising and to direct people back to Crackle. The studio also doesn't allow partners to syndicate its content, which means YouTube users won't be able to embed Sony films on their blogs or personal Web sites.
If you're YouTube, you shouldn't care. If you want to become the place for all things video--user-generated as well as films and TV shows--and if you believe your audience is too big for Hollywood to ignore and that eventually advertisers will pay a premium to get in front of that audience, then at this point you jump through hoops to get the best content.
YouTube and Google can't be too choosy. The truth is that two years ago they miscalculated how much they needed Hollywood. YouTube frustrated some studio and TV executives by saying "we're not responsible for the actions of our users."
Since then, YouTube managers have changed their attitude and have focused on making the site more appealing to big entertainment companies, such as offering better-quality streams, and filtering for pirated content. Still, what was true two years ago is true now: none of the big entertainment companies is going to allow Google to build YouTube's business on their content without getting something in return.
There's also the question of what the studios intend to do with the traditional distribution model. Hollywood has long had agreements in place to release films through a complex assortment of channels, including theatrical release, DVD sales, and cable, premium, and broadcast outlets. For example, film-industry sources say the money Hollywood earns from the Web is a trickle compared with the ocean of cash it receives each year from cable providers.
Nonetheless, more and more people are canceling their cable subscriptions and turning to the Web for entertainment. Even execs from the cable companies have acknowledged this. Last week, after Disney announced the agreement with YouTube, I asked Jordan Hoffner, YouTube's chief of content partnerships, whether YouTube, Hulu, and the other Web video services can convince Hollywood to wean itself off these other distribution channels.
"I think that what we're doing is we're dealing with a fragmented world," Hoffner said. "You can't just say you're going to count out any distribution channel and focus on one because audiences are moving to other places. We're one of the places they're moving to."
If YouTube only gets a handful of Sony movies and if they aren't the best and if there's lots of strings attached, YouTube should still go ahead. Sony and Disney are worth twisting yourself in knots for.
YouTube's decision makers should remember that Crackle currently hosts 60 movies but that is a drop in the bucket compared to what's available in Sony Pictures' vast film library, one of Hollywood's biggest treasure troves of film content.
Update 4:50 p.m. PDT: To include comment from entertainment industry source on YouTube's DRM issues.
Disney has agreed to post short-form video content on YouTube, a deal that might come as a bit of a disappointment to those who had hoped to watch full-length ESPN sporting events or episodes of ABC's "Gray's Anatomy" on YouTube.
But those people shouldn't lose heart. This could be the start of something bigger.
Disney announced on Monday that it would launch "multiple ad-supported channels featuring short-form content from ESPN and the Disney/ABC Television Group." Under the terms of the deal, Disney can sell its own ads that run with its content if the company chooses. Disney's material will begin showing up at YouTube sometime in April.
PaidContent broke the news. The news blog's Staci Kramer wrote that YouTube and Disney are discussing long-form content but that a deal is not yet done. Hulu, the video portal owned by NBC Universal and News Corp., is trying to secure Disney material.
What's interesting is that it appears YouTube's long-form deal would eliminate Hulu's chances of landing full-length Disney shows, according to PaidContent.
CNET reported late last year that YouTube had shed its image in Hollywood as an enemy to copyright content and was in a position to obtain long-form content. MGM has already begun posting a few feature films on YouTube.
As for the short-form deal with Disney, I'm not sure having ESPN and ABC channels advances the ball much. Many of Disney's competitors already operate YouTube channels. The move appears to be more of a test. YouTube's hopes of becoming more Hulu-esque and becoming a platform for full-length features and TV shows could be threatened if the big film studios and TV networks retreat from the Web. Much has been written lately about whether the major entertainment conglomerates are being pressured by cable companies to cut back the amount of ad-supported content they post online.
The cable companies say this is contributing to the decline of cable subscribers.
Another concern of network and studio suits is whether it's possible to generate a reasonable return from Web ads while managing to avoid overloading viewers with commercials.
Some studios are also concerned about YouTube's ability to protect full-length features from piracy. An entertainment industry source said some studio heads worry that YouTube lacks any copy protections on its video streams. The source said once the DRM issues are solved, YouTube could be "a real competitor for the likes of Hulu."
The Walt Disney Company is discussing a deal to take an equity stake in Hulu in exchange for providing the video portal with ABC programming, according to a published report.
Citing unnamed sources, news blog PaidContent says that it's not clear how much of ABC's content would be involved, but a final deal could include ESPN, the sports cable behemoth that has been a goldmine for Disney.
Representatives from Disney and Hulu were not immediately available.
The talks between the two companies reportedly are "serious," but a final deal has not been reached, according to two of PaidContent's sources.
In the year since launching, Hulu has quickly risen to the top ranks of online video. The site is currently backed by News Corp., parent company of Fox and NBC Universal.
More to come
Universal Pictures and Walt Disney are close to finalizing a deal that would all but guarantee the digitizing of the nation's movie theaters, sources told CNET News.
Universal and Disney have agreed in principle to join a consortium of theater chains and motion picture studios that will finance the cost of modernizing movie houses, the sources said.
The sources were commenting on news of the deal, first reported by The Wall Street Journal.
For years, the high costs of outfitting theaters with digital projectors, servers, and other technology stymied modernization efforts. It was always believed that it would take the backing of four major studios to get a deal done.
News Corp., parent company of 20th Century Fox, and Viacom's Paramount Pictures have already signed on. The addition of Universal and Disney will help the consortium, called Digital Cinema Implementation Partners, reach its goal, according to the sources.
The Journal reported that only 5,000 of the 40,000 screens in the U.S. and Canada are outfitted with digital technology. It will take several years after Universal and Disney sign on, which could happen as early as this week, for the transition to be complete, the sources said.
Most of the largest motion picture studios are backing a plan that would create interoperability among digital rights management schemes.
TechCrunch is reporting that Sony Pictures is behind the plan that has the support of most of the top film companies--other than those backed by Walt Disney. A Sony spokesman could not be reached for comment Tuesday evening.
According to Michael Arrington, the plan calls for "a set of policy decisions and a software and services framework that will allow interoperability of various formats and DRM schemes that are currently splintering the market."
The plan also calls for a neutral party to manage a central registry where users would register their devices. Movies purchased from participating services would then play on devices from participating manufacturers.
OK, while acknowledging I haven't heard all the details, the plan at this point sounds complicated and it also calls for competitors to cooperate. This is not an easy thing in Hollywood.
I'm always skeptical of any proposition that requires the studios to agree on standards. Hollywood should also learn from the music industry and abandon DRM now. Consumers have already rendered a verdict on DRM: death.
