Right? Maybe!

But right now that’s not true: Just about every ad you see on YouTube or Hulu, or any other video site, is either an ad that ran on TV, a shorter version of an ad that ran on TV, or an ad that could run on TV.

But there’s a school of thinking that says Web video ads should be their own special thing that takes advantage of the freedom and flexibility that the Internet offers.

And, weirdly enough, lots of people keep pointing to the same clip as an example: A three-minute-28-second mini-documentary from McDonald’s Canada, which explains why the chain’s burgers look better in ads than in real life. (Spoiler: They cheat.)

Last week, before YouTube’s big “brandcast” pitch for advertisers, I met with a bunch of people who are betting big on Web video, and they cited this ad as an example of Web advertising’s future. Then, at YouTube’s event a couple hours later, content boss Robert Kyncl said the same thing onstage. And this morning, BTIG analyst Rich Greenfield makes the same assertion in a research note (registration required).

So here you go:

Scintillating? Nope! And you can certainly think of other Web ads that were a lot glitizer, and got a lot more press. But it takes a lot of money and resources to get Jeff Gordon in costume and behind the wheel, or to drop a dude out of a spaceship. And there’s no way advertisers can treat each Web spot like a summer blockbuster.

Meanwhile, McDonald’s modest ad tells a story, flatters viewers by telling them they’re smart enough to go backstage, and still ends up pushing pretty images of hamburgers in front of them. That’s pretty clever advertising sort-of masquerading as something else but not really.

And people seem to like it: Since last June, it has racked up nearly 8.5 million views.

BTIG analyst Rich Greenfield crunches those numbers (registration required), and concludes that this makes Netflix the equivalent of the most-watched cable TV network: He figures there are 28 million U.S. Netflix subscribers watching an average of 87 minutes of Netflix per day, or 43 hours per month. That puts it on par with the Disney Channel.

Presumably some of those hours were spent watching “House of Cards,” Netflix’s first big-budget foray into original programming. Which leads us to the maybe-not-such-good-news for Netflix: Its next show may be a dud.

You can’t say the reviews are in for “Hemlock Grove,” a horror series from director Eli Roth that debuts next week. But one prominent review is in, from the Hollywood Reporter’s Tim Goodman.

And it is not good at all.

“Here comes the company’s first truly bad series,” Goodman writes, then goes on to complain about the show’s writing, acting, casting and everything else.

Even people who are really, really high may not be satisfied with this one, Goodman says: “Is there a bong big enough for this show?”

If you want to spin this positively on Netflix’s behalf, you can point out that this is a single review. [UPDATE: An eagle-eyed tipster directs me to a much more positive review from People magazine, which gives the show three out of four stars: "Imagine "True Blood" directed by Sofia Coppola". You can see a screenshot of the review below.]

And if you want to keep going, you can argue that there are lots of popular TV shows that critics don’t like (though no one was making this argument when “House of Cards” got raves).

Want more? Okay. Even if “Hemlock Grove” is a real stinker, Netflix gets more chances, just like any other TV network. A new season of “Arrested Development,” up next month, is almost certain to succeed, based on the show’s rabid fan base, much of which was cultivated on Netflix in the first place.

* Don’t worry! The SEC has now blessed this form of communication, which is a good thing, since it’s 2013. Phew.

Here’s that People review:

Shares of the social giant’s stock jumped by more than 8 percent on Monday on news of multiple analyst upgrades. Facebook closed at nearly $26 per share, the highest price the stock has seen since the summer.

Carlos Kirjner, a Bernstein Research analyst, gave the most resounding support of Facebook’s stock over the next two years, upgrading the stock to “outperform” from his previous “market perform” rating (as my colleague Peter Kafka noted earlier).

“Facebook probably can increase the number of ad impressions per user per day,” Kirjner said, “with limited chance of seeing material deterioration in user experience.”

It’s especially surprising given that Kirjner, as The Wall Street Journal earlier pointed out, has been bearish on Facebook since its early days on the Nasdaq.

Indeed, many Wall Street analysts are changing their tunes as of late. The outlook on Facebook’s mobile advertising prospects — once considered the most egregious deficiency in Facebook’s overall monetization strategy — is faring much better.

Rich Greenfield, an analyst with BTIG, raised his price target two dollars on Monday, to $36. Greenfield’s main beef with Facebook mobile ads in the past was that they weren’t nearly as relevant as they should be. The sudden optimism stems from Facebook’s uptick in inserting more mobile ads, which he expects will boost short-term revenue throughout Q4 (though that may prove problematic in the long term).

Other promising reasons for the positive outlook include Facebook Gifts, the company’s push into e-commerce, as well as the up-and-coming Facebook Exchange ad-targeting program.

Facebook shouldn’t break out the eggnog-flavored champagne quite yet. The company’s shares are still down 12 points from the debut share price of $38 in May, and have fluctuated (mostly downward) quite a bit since.

But it’s probably a nice change of pace from hearing the Street’s bearish prospects over the last year.

iStockphoto

Facebook thinks it has figured out how to sell mobile ads, after all. And it made sure to tell Wall Street last month.

But at least one analyst isn’t convinced that Facebook has cracked the code. BTIG’s Rich Greenfield has seen a lot of Facebook’s ads on his phone recently, and he is unimpressed.

His main beef: Facebook, which should be armed with an enormous amount of information about him, keeps showing him ads for things he doesn’t care about, like display ads from Target and Samsung. He’s particularly baffled by the ads he keeps seeing from Walmart, because he lives in New York City, where Walmart doesn’t have any stores.

“There simply have to be better brands to promote to us and the daily repetition of the same promoted brands is irritating,” he writes (free but registration required). Then Greenfield suggests Sheryl Sandberg would be better off not running any ads on mobile at all until she can figure out something better.

That’s a non-starter, of course. Especially since Facebook says it’s now generating $500k a day from its mobile ads, just a few months after launch.

I asked Facebook reps for comment and they declined. But if they did have something to say, I imagine it would be something like: “The thing is, part of advertising involves seeing ads for stuff you don’t already like. A pretty big part, actually — that’s the ‘top of the funnel’ branding dollars we’re chasing. And who knows — maybe Walmart knows you live in New York City and still wants you to see its ads? Just like the ones they run on TV? Also, we’re just getting started. So chill out.”

Greenfield put together a video that documents all the ads he doesn’t love — and a few he thinks are okay.

Some of the college basketball tourney’s games will only be available to Web users whose cable providers have deals with Turner Sports, or those who pay a $3.99 one-time fee to access the games on PCs, Google/Android and Apple/iOS devices.

Games that CBS broadcasts, though, will still be available to anyone with a Web browser, through the network’s own site.

Here’s the practical breakdown, nicely summarized by BTIG’s Rich Greenfield (registration required):

• CBS will stream the games airing on the CBS Network throughout the country live on CBSSports.com for free. Consumers will only be able to watch on PCs/Macs, with no tablet/smartphone access.
• TBS, TNT and TruTV will stream the games airing on each network live at TBS.com, TNT.tv and truTV.com for consumers who authenticate their respective MVPD service provider (currently all major MVPDs authenticate these network Web sites, except Time Warner Cable). As with CBS, the games will only be available via PC/Mac (no portability).
• Complete access to March Madness on Demand via PC/Mac, smartphone and tablets with interactive features, regardless of whether you have subscribed to MVPD service, will cost a consumer $3.99 (one-time fee for the whole tournament). Streaming online and across portable devices will be available from the selection show through the championship game.

A few more notes: CBS and Turner split the games, so you won’t run into the paywall every time you want to watch — Turner will have 41 of the games. And as Greenfield notes, most pay-TV operators have deals with Turner, which says that means about 75 million homes will have Web access via “authentication.” That said, if you’re planning on watching the games that way, better prepare now, by hunting down your subscriber info, etc. — the process isn’t nearly as easy as it ought to be.

Big picture: This is a switch from the precedent CBS established in 2006, when it started streaming all of the tournament’s games on the Web for free (for three years before that, it had charged around $15 to watch online).

Each year, the network loudly trumpeted the number of eyeballs and ad dollars that Web streams attracted, while arguing that it didn’t hurt traditional TV ratings at all. Last year, you could even watch the tournament on an iPad for free.

But it’s in keeping with the broader move we’ve seen from big media companies, who are pulling back on free Web video. Back when Hulu launched in 2008, it seemed that most big TV networks were going to put all their shows online, but in the last couple of years, we’ve seen the pendulum swing the other way, as networks tie “free” Web TV to pay-TV subscriptions.

Let’s take another peek, courtesy of SNL Kagan and Barclays analyst Anthony DiClemente, who has an updated list of wholesale prices by channel* (the list on the right is for ad rates, which we can ignore for the purposes of this story):

Takeaway from today’s chart: Nothing has really changed — you’re still paying a lot for sports, and you’re paying a lot for ESPN.

That’s why Disney’s sports channel is the most valuable asset on your cable dial. And it’s also why you’ve been hearing increasing grumbling — from both customers and ESPN’s non-sports cable competitors — about ESPN’s drag on your cable bill. (We’ll talk to new ESPN boss John Skipper about this topic next week at Dive Into Media.)

As I’ve noted before, the odds are that this doesn’t change anytime soon: Disney and ESPN can charge that much because the cable guys, like Comcast, think the programming is worth it to their customer base. And they’re signing up long-term deals that will keep that fee structure in place for the next decade.

But there is a chance that a “virtual” cable operator, using the Web, decides to offer a package that doesn’t include ESPN. They could either use that unspent money to lower customers’ bills, or plow it into other programming.

Again, this will also mean that subscribers couldn’t get any Disney programming, because Bob Iger has zero interest in splitting up the bundle. But I know of a few folks who have at least contemplated the idea.

So what about that “over the top” option, anyway? Some industry observers, like BTIG’s Rich Greenfield, are sure that someone — Apple, Google, Verizon, who knows — will offer one this year. Today, Bernstein’s Craig Moffett has a long essay describing why that won’t happen for a long time, if ever. Netflix CEO Reed Hastings said something similar this week, alluding to the fact that Microsoft has reportedly bailed on its Web TV subscription plans.

*The 2012 chart omits regional cable channels, which is why Fox Sports Net has disappeared in the new chart. I don’t know why the new one includes outliers like 3net, a 3-D channel that isn’t widely available (and/or relevant, as best I can tell).

[Image: ESPN]

Greenfield, a very sharp media analyst at BTIG, says that 2012 will be the first time we’ll see a true “virtual” cable-company offering in the U.S., where consumers can subscribe to TV delivered over the Web. This is different than the on-demand services that currently exist, like Netflix and Hulu, which offer up programming that’s already been on TV. This will give you access to “real” TV, in real time.

His summary: “While [quality] will not match what you are accustomed to from your traditional [cable provider] (due to Internet congestion), virtual MSO pricing to the consumer will be substantially lower, subscribers will receive a significantly better user-interface/navigation across a wide-array of IP-enabled devices in the home and service will be accessible anywhere in the US, rather than being stuck in a certain region.”

Who/what/where/when? Greenfield’s prediction post (registration required) doesn’t commit to any of that. But it does sketch out the basic “how” framework:

• The “virtual” cable company will have to cut distribution deals with all or most of the big TV channels/programmers, just like the satellite TV guys did in the ’90s. It’s possible that some of the programmers won’t want to play along, for fear of upsetting their existing deals with the cable guys. But just like in the ’90s, as long as the “virtual” company is paying market rates (and likely higher) for the programming, the cable guys can’t really do much about it. (And if they do, they’ll have a lot of explaining to do in Washington: Note that when the Feds blessed the Comcast/NBC deal this year, they required the company to make its programming available to this kind of competitor.)
• All those deals mean that this won’t be “a la carte” cable, where you can get ESPN but not the Disney channel, or vice versa — these will be all-or-none deals.
• And all of the above means that you won’t be getting these channels for next to nothing. Greenfield figures the pricing will be “substantially lower” than what the cable guys currently charge. But since he assumes that the “virtual” cable guys will have to pay at least $40 a month per subscriber for the programming, it’s going to cost at least that much for consumers — he envisions the new guys selling this stuff at “razor-thin” margins, but not at a loss.
• Getting your TV programming from a “virtual” cable company doesn’t mean you’ll be able to tell Comcast or Time Warner Cable, etc., to pound sand — you’ll still be paying them, or someone, for broadband. Greenfield thinks this could actually be a good thing for the cable guys in the long run, because the margins on broadband are much better than in the TV business. And they’ll probably be able to force many customers to upgrade their broadband subscriptions to a higher tier, so they can stream all of that video.

OK. So who might do this?

Greenfield runs through a laundry list of every potential player, including Amazon, Apple, Google and Microsoft, even Wal-Mart. I assume that the most logical step would be for someone who’s already in the video business, but with a limited footprint — like Verizon or Dish Network — to try this out.

But over the phone this morning, Greenfield said he thinks the first player will be someone who’s not in there already, but wants to build another platform that gives them direct access to millions of consumers. Start speculating now!

Because right now, things don’t look good at all. BTIG’s Rich Greenfield (registration required) lays it out in this grim chart: In the first half of the year, U.S. spending on home entertainment dropped 5.1 percent.

And it’s not because people don’t like to watch TV shows and movies at home: Spending on rentals, primarily via Netflix and Redbox, is up 10.9 percent. But that’s not enough to counter a 17.2 percent drop in movie and TV show purchases. Note that digital sales, primarily via Apple’s iTunes, barely make a dent.

[Image credit: Fekete Tibor/Shutterstock.]

The big media companies have all failed when it comes to digital … Hulu is the exception to that rule. It has flourished, despite ownership by the major media companies. Yet, this is the business that the media companies are looking to sell — does that make sense?

BTIG analyst Rich Greenfield, in a note urging Hulu’s owners, who have put the site on the auction block, not to go through with the sale

Except for the part about it not working.

On Aug. 15, Fox will stop distributing its shows on Hulu and Fox.com a day after they air, and will make most Web surfers wait eight days to see them. The only legal way around this, for now, is to pay for a subscription to either the Dish Network or Hulu Plus.

Expect ABC to follow suit, and then NBC. CBS is a reasonable bet, too.

I walked through the networks’ rationale for this last month, when word first got out that Hulu’s broadcast owners — Disney, Comcast and News Corp. — were going to start requiring “authentication” in order to watch shows online the next day. You can read an excerpt at the bottom of the post if you don’t want to click through.

The problem with the networks’ logic: Sidereel.com. And Sceper.eu. And Twitter. And Google. Etc.

All those sites will lead you, quite quickly, to anything the networks air, for free, on the Web. And you don’t have to wait eight days to watch them, or even a single day. You can see them within hours, or less, of their original airtime.

Video piracy is nothing new, of course. But if you haven’t tried watching a TV show from a rogue site recently (and I’m not advocating you do so for any reason other than a professional one — I don’t want a “Wolverine” incident) you might be astonished to see just how fast, and easy, it’s become.

As BTIG analyst Rich Greenfield pointed out to Wall Street earlier this year, it’s now a cinch to download pirated copies of any movie you’d like, in very high quality, using free online storage lockers.

But it’s equally easy to grab TV shows, and you don’t have to worry about downloads if you don’t want to clog up your hard drive: Sites like Videobb.com will offer free streams, without commercials, the same night they air on TV.

Here’s a screenshot of last night’s episode of “MasterChef,” available a couple hours after it aired on Fox (which, like this site, is owned by News Corp.).

And here’s a grab of Tuesday night’s “The Daily Show,” which I was able to watch less than 30 minutes after it finished airing on Comedy Central.

Downsides? Sure. The streams aren’t HD quality — if you got it onto your 42-inch LCD, you’d be disappointed. And the sites seem to require Flash, so they won’t work on an iPhone or iPad. And you may still need a bit of trial and error to get a working version.

And they’re illegal, of course.

But again: They are free, totally serviceable, and very easy to find for anyone who’s remotely motivated.

That was the case before the Great Free TV Web Pullback of 2011, too. But back then (as in, now) if you were a middle-of-the-road TV and Web video fan, it was easy enough to head over to Hulu to watch last night’s “MasterChef.” You’d even put up with commercials.

Now Fox, and very likely the rest of the broadcast TV business, are telling non-pirates to go ahead and grab what they like, when they like. I think they’re going to find lots of takers.

—–

So why do the networks think this is a good idea? They probably don’t. But it’s a way to prop the business up in the short term, at the expense of the long run.

From my June 23 piece:

Why would Hulu’s owners push to make the service less attractive? The justification I’ve heard is that most Hulu viewers are paying for TV anyway, so this really wouldn’t be a big deal.

But the real answer is that this is meant to appease cable TV providers who are paying Hulu’s owners — via “retrans” deals — for the rights to provide the shows that Hulu is giving away on the Web. And it’s also meant to protect the value of broadcast TV advertising, since the ad business still doesn’t value a Web eyeball as much as one that watches on a TV.

Again, this is the kind of tension between business models that has been a problem for Hulu almost from the get-go. And it has been the source of many of the disagreements between Hulu CEO Jason Kilar and his owners for some time.

Reed Hastings’ company says it’s a cost issue. If people are going to use both his DVD-by-mail service and his Web video streaming service, he’ll need more money to support both businesses. That’s probably true.

Here’s what’s more true: Reed Hastings doesn’t want most of his customers to pay more. He wants them to pay less, and drop DVDs in favor of a streaming-only service.

To recap: Yesterday, Hastings kept the price of his streaming-only video service at $8 a month. But he raised the price of his companion DVD-by-mail service from $2 a month to $8 month, which will push many subscribers’ monthly fees from $10 a month to $16 a month.

Unless they stop using DVDs. Which seems to be what Netflix wants. Even though they haven’t said so out loud, to date.

Still, the message seems to have gotten through to Wall Street. The move is designed to “further drive streaming-only plans and adoption,” says Barclays’ Anthony DiClemente. Same sentiment, with more flourish, from BTIG’s Rich Greenfield: The price hike “is aimed at killing off the DVD business as fast as possible,” he says.

It is also resonating in Hollywood. A studio boss I talked to yesterday says Hastings instituted the price hike “because people aren’t moving to streaming fast enough. He’s trying to force them to go faster.”

The problem, as every disgruntled Netflix subscriber on the Web can tell you, is that Netflix streaming and Netflix DVD are two different beasts: Netflix on the Web gives you instant gratification, but has less than 20 percent of the content that Netflix DVD-by-mail options give you.

The reason Hastings can offer a much bigger DVD catalog is because he doesn’t have to get permission from Hollywood to rent out its discs — he just needs to buy them. But every movie he streams is licensed from the studios, at a cost that’s only going to get higher.

And while Hastings never has to worry about getting “The Social Network” on disc, streaming deals give Sony the ability to cut off his digital access completely. As has already happened, at least temporarily.

So doesn’t upping the number of streaming subscribers give the studios more leverage?

In the near-term, yes. But Hastings seems to be betting that the studios will continue to give him digital access, as long as he keeps writing them checks, no matter how much they posture.

And every digital deal — and every digital customer — he accumulates gives him that much more bargaining power.

Netflix has lots of potential competitors, but the only service that’s really offering something competitive at the moment is Hulu with its Hulu Plus subscription offering, and that’s on track to accumulate something like a million subscribers this year. Netflix was 24 million last quarter, and will likely report a couple million more during its earnings call this month.

Meanwhile, if Hastings really does convince subscribers to abandon DVDs altogether, he can drop his costs significantly. I’ve been paying for, but not using, his DVD service for the last year. But the fact that I might drop a disc in the mail and ask for another one means Hastings has to keep an expensive infrastructure up and running.

Of course, none of this means anything if Netflix subscribers stop using the service altogether.  Which is the impression you’ll get if you scan the wave of angry commentary on Twitter and the Web (I contributed some mild-mannered grousing myself).

Except that Twitter and the Web are pretty much designed for angry commentary. And measuring discontent via the number of Facebook complaints doesn’t really make a lot of sense, unless those complaints get up into really, really big numbers.

Remember that Netflix is already used to fairly high churn rates of about 4 percent, which means that about a million of its 24 million existing subscribers are going to go anyway. And bear in mind that Netflix takes enormous pride in the data it collects on its users’ behavior. I’d be very surprised if they haven’t modeled a scenario where thousands of people complain about the service change on the Web.

Postscript: Then again, maybe Netflix didn’t model quite as closely as they could have. The company, famed for its excellent customer service, seems unable to handle the volume of calls the price hike has generated. Here, via Greenfield, is the message you’re most likely to get when you call Netflix today.

So even though the Web radio service is in go-go growth mode, the only way it’s going to work is if its ad revenue grows even faster.

And if you want make the bear case against Pandora, which goes public tomorrow, it’s easy enough: Take a look at the clumsy ads it currently runs on its iPhone app.

BTIG’s Rich Greenfield does that in a 10-minute video, which I’ve embedded at the bottom of this post. But here’s the short version:

• There are lots of ads, but most of them won’t be obvious to most users, because they’re visual, not audio, and you don’t spend much time looking at your Pandora app when it’s running.
• There is a whole lot of advertising from LivingSocial, which gives the operation a late ’90s feel — as Danny Sullivan puts it, one “bubblicious” company advertising on another. And those LivingSocial ads are really, really persistent — if you close them out, they’ll pop back up. And even if you give in and sign up, as I’ve done, they won’t stop. Which is especially bothersome on Pandora, since the whole point of the service is that it’s supposed to learn what you like and give you more of it.
• Conventional radio is a local business. But Pandora’s ads are predominantly national.
• Did we mention all those LivingSocial ads? If you use Pandora a lot, it can seem like its primary purpose is to deliver new users to the daily deals service, and that music is a secondary benefit.

Then again, all of this is easy to flip around: Pandora’s ads are crude and clumsy because Pandora is just starting to become a Web media business — up until recently, it was a technology company that didn’t spend much time figuring out how to generate revenue.

Meanwhile revenue is growing very fast — up 131 percent in the last quarter. Think about what could happen when Pandora learns how to make its ads more sophisticated and targeted.

And along those lines, perhaps all those LivingSocial ads can end up working to Pandora’s advantage. Pandora tells investors that it’s going to spend money building out a local sales force, but perhaps there’s a way to piggy back on the huge sales force that LivingSocial (and/or Groupon) is buying.

Remember that the daily deals companies are at a pretty crude stage, too, which is why I keep getting spa ads I’m never ever going to click on. But local ads sold by LivingSocial, and personalized using Pandora’s algorithms? Pretty interesting.

Here’s a start-up that wants to change that: Bamboom says it will let you watch live broadcast TV anywhere you can get a Web connection, on whatever device you want.

We’ve seen versions of this before. FilmOn and Ivi both offered something similar last year, and both tried to argue that they had the same right to distribute broadcast TV signals that cable companies did. And both have been slapped down by the courts.

But Bamboom has a Rube Goldberg-like approach that might hold up to the inevitable legal challenge: The company will assign a tiny broadcast antenna to each customer, and will move the TV signal from the antenna to the cloud, where it can move it to any device with a browser. One customer, one stream.

That seems laborious and expensive, but it’s the same legal construction that Cablevision has used to provide a remote DVR service for its customers, and the Supreme Court has signed off on that idea. (Not coincidentally, that one customer/one use idea is the same one Amazon and Google are using to provide cloud-based music lockers without sign-off from the big labels.)

The company hasn’t discussed pricing yet, but BTIG analyst Rich Greenfield (registration required) thinks it may try a freemium model, where the company offers the broadcast stream for free but charges for a DVR option.

So what does that mean if this works? For Bamboom’s users, depending on the cost, the service could be a nice way to catch live sports and programs like “American Idol” on the go. Nice to have, but not crucial.

But as Greenfield points out, if Bamboom takes off, it could cause big problems for the established TV business.

That’s in part because the service could encourage cord-cutting, though I think that risk is rather minimal–Bamboom’s system can only deliver broadcast TV signals, so dropping your cable subscription still means you won’t be able watch anything on cable TV.

The bigger issue is that over the past few years broadcasters like CBS have been able to get cable providers like Comcast to shell out a lot of money for the right to carry their programming. But if Bamboom is doing the same thing without paying a penny, that’s going to destroy their leverage. Which is why the start-up, which has raised $4.5 million from FirstMark Capital, First Round and others, says they’re saving much of that money for legal fees.

The graphic and the data come from Google, via a research note the search giant published this month. Analyst Rich Greenfield reprinted the report, and if you’ve got time (today could be a very slow work day for many of you), you should register for a free account from Greenfield’s BTIG Research shop so you can check out the whole thing.

A couple notes:

• Google says query volume for “Netflix” peaked in February 2011, but grew more than 90 percent in both 2010 and 2009.
• That growth isn’t simply a result of Netflix adding more subscribers–it’s the result of Netflix subscribers using the Web more frequently. Google says queries per subscriber grew more than 40 percent last year, presumably as people looked to see what they could stream.
• DVD sales finally peaked in 2007, but Google queries kept climbing through 2008. Google’s explanation for this is confusing: “The shift in online behavior driven by the increased ability to buy and research DVDs via the Internet compensated for the decreased desire to own physical DVDs. The result was strong growth in search activity for terms including ‘DVDs,’ ‘new movies on DVD,’ ‘new DVD releases,’ among related other generic DVD terms.”
• Google’s chart also shows “free movie terms” declining after 2009. Does that mean piracy is declining, too? That seems hard to imagine. Here’s Greenfield’s thought: ”We wonder if the key change is that piracy is increasingly being driven by linking sites versus consumers simply searching for torrent links (meaning consumers know to start at a particular site to search for pirated movies versus searching Google to get to the linking page itself). In addition, we suspect social media is increasingly driving piracy as consumers are simply posting links to storage locker locations to stream/download files illegally, mitigating the need to search Google itself.”

Netflix, by the way, reports Q1 earnings on Monday.

We can call this the “cord shaving” argument, and if I could remember where I first saw the term, I’d be happy to give them credit. (My hunch is that it was BTIG Research’s Rich Greenfield. Or maybe digital-media-executive-turned-aggregator Jason Hirschhorn. Or maybe Video Nuze, etc.).

This one has a nice ring of logic to it: You’d have to be a very committed non-cable watcher to dump your entire service and make do with the Web stuff. But depending on your viewing habits, it might be quite easy to substitute, say, Netflix for HBO.

It would be cheaper, too–you’d just have to wait a while to see “Boardwalk Empire” or “Game of Thrones.” (Though I’d still pay a premium to see Kenny Powers.)*

And that may be what we’re starting to see now.

Here, for instance, is a new study from Accenture that draws a connection between Web video watchers and a drop in premium cable: It figures the Internet is responsible for an eight percent drop in subscriptions.

Alas, just as with the cord-cutting debate, we may be stuck, for a while, with competing sets of data.

Market researcher SNL Kagan, for instance, says that in the last quarter of 2010, subscriptions shot up for CBS’ Showtime and Liberty’s Starz, while Time Warner’s HBO stayed steady.

These are apples and oranges data points: The Accenture numbers are taken worldwide, while the Kagan numbers are U.S.-only. And they cover different time periods, too. Etc.

Still, there’s a reason why Time Warner CEO Jeff Bewkes has been so forceful about bashing Netflix publicly. Investors, at least, are concerned that the Web service (and perhaps Web video in general) will indeed cut into HBO’s business. So this won’t be the last we hear about this one.

And here’s one of the least unsafe-for-work Kenny Powers clips I could find. But it is still not going to be safe for some workplaces. It is awesome, though:

* For the concerned reader who inquired: No, you can’t get anything HBO shows via Netflix’ streaming service. But if you’re patient enough, and you subscribe to the DVD tier of the service, you’ll be able to get the shows and movies that way.

At a very first glance, some of the new rules imposed by the feds might seem like they require the new company to offer up programming to any online player that wants to pay up.

And technically, they do. But the new rules have plenty of conditions and limits. So the bottom line is you’re not much more likely to get access to “30 Rock” via YouTube, or CNBC via iTunes, then you were before.

The new FCC and DOJ rules do give, say, Google the ability to buy access to some of NBC U shows or channels. But it would require Comcast’s competitors to do the same thing, first.

That is: Unless the people who are reluctant to put their stuff online because they don’t want to upset Comcast go ahead and put their stuff online, Comcast doesn’t have to, either. So it’s theoretically possible, but not probable.

And if it happens, it will happen haltingly. If Viacom sells someone online access to its MTV lineup of reality shows, that might require Comcast to offer up its reality show lineup on Bravo. But it wouldn’t entitle an online outlet to the police procedurals on USA.

The government also gives the option to, say, Netflix, to set up shop as another cable operator, and buy access to all of NBC Universal’s programming. But it would have to buy all of it–just like Time Warner Cable and Cablevision do when they make a carriage deal for NBC U’s shows.

And again, Comcast wouldn’t have to do that unless its peers did. Which means that if Netflix really wanted to set up shop as a direct competitor of the cable guys, it can do so. But it would have to operate exactly like the cable guys, just like the satellite guys did when they entered the market a couple of decades ago.

So if Netflix, or Apple or whoever really wants to offer a full suite of cable programming, at cable prices, it could. But that would be very, very expensive: Analyst Rich Greenfield estimates that the bill for NBC U’s programming alone would run a new entrant $1 billion a year.

Just as, or even more, important, is that those kind of bundled, take-it-or-leave-it deals are exactly the kind of thing that the cord-cutting crowd complains about.

They don’t want to have to pay for USA and Bravo and Syfy and MSNBC–they want to pick and choose channels, or shows. And pay a lot less.

“I don’t think cord-cutting was a major focus” of negotiations, Comcast EVP David Cohen said during a press conference this afternoon. And that may be true!

But the net result reads very much as if Comcast wanted to make sure the government didn’t force it to break its business model. And if that was the case, it got what it wanted.

And if you don’t want to invest that much time, here’s the super-short version: Head to a pirate review site like Scenesource, look for any movie you want and then look in the comments for links to cloud-based storage lockers where you can grab a copy of the movie, for free.

You may have to try a couple of links, because they eventually get shut down, but it should still be very easy–and more comfortable for mainstream users than dealing with BitTorrent software, which has been the preferred piracy method for some time.

Greenfield’s larger point (registration required) is that the rise of Internet-connected TVs–look around this year’s Consumer Electronics Show and you’ll realize that the next set you buy will almost certainly have a Web connection, whether you want it or not–and cheap bandwidth is going to create a giant headache for big media.

Big media and technology companies can try to fight it with legal and mechanical tactics, or half-steps like UltraViolet, the “everybody but Apple” coalition. But the best long-term answer is to make media consumption incredibly cheap, and incredibly easy, so that it’s more convenient for mainstream users to get it legally than to go through the pirate sites.

That’s an incredibly hard thing to do, because it involves trading big, existing revenue streams for smaller ones down the line. But not doing it can be even more costly: Ask the music labels.

You can get it right now, by heading to FilmOn.com, where you can get streams of several local L.A. TV stations, which means you can get whatever NBC, ABC, CBS and Fox are broadcasting. You can also get a few cable channels, like Time Warner’s CNN International, as well as a couple of porn feeds.

It’s incredibly easy, and it’s a very high-quality feed, with very little lag. This screenshot of NBC’s “Today Show” isn’t very exciting, but it is current–I took it a few minutes ago.

You can also get FilmOn via a conventional PC, but that requires a download, so it’s not quite as convenient. But it’s still very easy, and while FilmOn has said it would charge for the service, it’s free for now.

How is this possible? It shouldn’t be, according to the networks, who are suing FilmOn and founder Alki David. They’re also suing ivi.TV, which is doing something similar with feeds from Seattle TV stations.

Both FilmOn and ivi are arguing that they’re within their rights based on an interpretation of FCC rules that allow “secondary transmissions” of broadcast signals.

The networks, of course, will work very, very hard to shoot down that argument, for obvious reasons. Ivi and FilmOn have been out for several weeks, but a note from industry analyst Rich Greenfield (registration required) this morning is going to increase the attention the two companies have been getting.

Meanwhile, it will be interesting to see how Apple plays this. Steve Jobs has big plans for the TV business, but they generally involve working with the networks and studios so that they can charge money for their shows on his devices.

On the other hand, since FilmOn is getting to the iPad over the free Web, instead of an Apple-approved app, I’m not sure how Jobs could stop the transmission. Even if he wants to.

UPDATE: Ivi’s Hal Bringman wants us to know that in addition to Seattle, his service also offers streams from New York broadcast stations, and will start offering from L.A. this weekend. Up next–Chicago and Philadelphia. Bringman says his company also has an iPad app in the works, but that one will require a $4.95 monthly fee.

Except, says Netflix CEO Reed Hastings, that’s not what his 19.6 million customers are doing.

Responding to a question during yesterday’s earnings call, Hastings told analysts he doesn’t see any evidence that his customers are choosing Netflix instead of cable. They’re using it to augment their cable subscription, he said: “We still see no evidence that our subscribers cut cords at a greater rate than the population.”

That contradicts both popular wisdom, as well as at least one recent survey, which found Netflix subscribers using the service as a cable substitute. Then again, a competing study from BTIG’s Rich Greenfield (registration required) found that hypothetical cord cutters are only slightly more likely–by a margin of 51 percent to 49 percent–to have Netflix.

And the existence of cable-cutting itself is still very much up for debate in the TV business. Cable companies like Comcast insist that they don’t see evidence of it. But Ivan Seidenberg, who runs cable competitor Verizon, says it’s inevitable.

Netflix, meanwhile, has been consistent in arguing that it’s not helping anyone do any snipping. Here’s Hastings answering a similar question during an earnings call three months ago (PDF):

Q: Do you see any evidence that Netflix subscribers are inclined to either cancel multi-channel video subscriptions, or to pare back use of premium services such as Starz, Encore, HBO?

A: No, we haven’t seen any evidence of that and there’s no evidence in the total numbers of those firms in last quarter’s financials and total subscribers, so total multi-channel video subscribers is continuing to grow in the US. Premium subscribers is not showing any decline, so I don’t think there’s any material cord cutting. I think what’s happening is the multi-channel video, such a broad package with an incredible array of products, that we’re a tiny little fraction of that, and our subscribers view us as a supplemental service, and because it’s a modest cost at $9 a month, it works for them and their budget.

The numbers bear Hastings out: In the past year, his service has added 5.8 million subscribers. If, say, 20 percent of those new customers were cord cutters, you would have seen cable rolls drop by more than one million people. But so far we’ve only seen a 200,000-person drop, in the second quarter of 2010. And some analysts think that number will turn positive for the rest of the year.

But that doesn’t mean Hastings doesn’t plan to cut directly into the cable business in the future, when Netflix has a truly comprehensive streaming video catalog. Which means it’s worth asking Hastings about cord-cutting every quarter.

One of these days you might get a different answer.

Netflix (NFLX) wouldn’t release details about the pact, and hasn’t put out a press release announcing it, as it had with earlier deals with Time Warner’s (TWX) Warner Bros, GE’s (GE) Universal and News Corp.’s (NWS) 20th Century Fox.

But spokesman Steve Swasey confirmed that Netflix and Sony have reached another “28-day” arrangement, similar to the ones Netflix has reached with the other three studios.

Swasey wouldn’t release other details, but we can guess that the deal follows the pattern established with the precedent Netflix set in its January deal with Warner: Netflix agrees not to rent Sony’s (SNE) movies for the first 28 days after they go on sale. In return, it will pay the studio a reduced fee when it does rent the discs, and will get more movies to offer via its growing Web streaming service.

This seems like a win-win for the both sides: The studios get to wring every last penny out of their DVD business, and Netflix gets to build up the business it really cares about–delivering movies to your home via the Web.

But analyst Rich Greenfield, who wrote about the Sony deal in a note published Tuesday (registration required), says these deals have only been good for Netflix: Its costs have gone down, and its subscriber base has increased, but the studios have continued to see their DVD sales slip. “Clear victory for Netflix,” he writes.

His logic:

“* The studios have essentially played right into Netflix Founder and CEO Reed Hasting’s plan to reduce DVD costs to fund his company’s aggressive digital media rights acquisition plan.
* Netflix is rapidly bringing down its physical [cost of goods sold] by reaching delayed release window deals with studios and using fresher digital content to shift consumer behavior to streaming, reducing the number of DVDs utilized per customer per month (lowering its mailing costs).
* We suspect the Netflix window needed to be substantially longer than 28 days to justify the price reduction the studios have given Netflix – meaning a six month window might have impacted Netflix subscriber trends, whereas 28 days simply has not. Unfortunately studios were more focused on bolstering sell-through, which is largely complete within the first month of a DVD’s release, rather than damaging the long-term prospects of Netflix.
* Netflix continues to aggressively purchase digital movie rights having recently acquired rights to Relativity Media content and EPIX content, with Starz content increasingly important for Netflix to renew (at far higher costs) when their current agreement ends in 12 months.

The movie studios have worried that Redbox’s $1-a-day rental model, which now accounts for nearly one out every $5 spent on DVDs, undercut every other revenue stream they had. But several big studios–including Sony (SNE), Lionsgate (LGF), Disney (DIS) and Paramount, a unit of Viacom (VIA)–have figured out how to live the company.

Meanwhile, three others–Time Warner’s (TWX) Warner Bros., News Corp.’s (NWS) 20th Century Fox and GE’s (GE) NBC Universal–have been fighting Redbox in court.

Make that two others. Warner Bros. just announced a settlement with Redbox. And given Warner’s size and clout, you have to wonder how much longer the two other studios will need to keep fighting.

This settlement looks an awful lot like the one that Warner and Netflix agreed to earlier this year. Which is to say: Warner got pretty much what it wanted–protection of its 28-day DVD sales “window”–and the other side argues that it’s okay, really.

The theory is that by giving up the ability to get movies to consumers right away, Redbox saves money on the DVDs it does get and will have access to a wider selection. Redbox also says this will help the company if its wants to get into digital distribution. Though unlike Netflix (NFLX), Redbox is a long away from being a plausible player in digital.

But make no mistake. This is a costly window and one that Redbox wouldn’t agree to unless the studios had regained the upper hand. From Pali Research’s Rich Greenfield, via a clairvoyant note (title: “It’s Not Easy Being Redbox, with 2010 Set to Get Even More Challenging; Provides Hope For Movie Biz”):

While Redbox management declined to answer a question related to whether there business would be impacted by 10% from a 30-day window (that Redbox agreed to and stopped pursuing workarounds), we believe 10% is far too low. Redbox relies on the new-release business, if it did not, it would not be suing three studios. We suspect the impact is closer to 35-50% than 10% (albeit Redbox’s cost per DVD would come down), particularly as once a window is established the studios will spend heavily to hammer home to consumers that movies are available other places before Redbox (which generate higher gross profit dollars to the studio per transaction than via Redbox).

Release:

WARNER BROS. HOME ENTERTAINMENT AND REDBOX ANNOUNCE A MULTI-YEAR DISTRIBUTION AGREEMENT

Companies Agree to 28-Day Window for DVD and Blu-ray Titles

BURBANK, Calif. And OAKBROOK TERRACE, Ill, February 16, 2010 – Warner Bros. Home Entertainment Group and redbox today announced a new multi-year distribution agreement that will make Warner Bros. new release DVD and Blu-ray titles available to redbox customers after a 28-day window. The agreement also marks the end of the lawsuit that redbox filed against Warner Home Video in August 2009.

“We are very pleased to have had the opportunity to sit down with redbox and negotiate an arrangement that benefits both parties and allows us to continue making our films available to redbox customers,” said Kevin Tsujihara, president, Warner Bros. Home Entertainment Group. “The 28-day window enables us to get the most from the sales potential of our titles and maximize VOD usage.”

The new arrangement provides redbox with reduced product costs, sufficient quantities of product and optimal stock levels four weeks after street date as well as extends redbox’s access to Blu-ray titles, which redbox is currently testing in select markets. The agreement also provides Warner Bros. the opportunity to maximize the sales of new release titles as well as video on demand and other forms of digital distribution.

“This agreement enables redbox to fulfill our commitment to providing consumers affordable and convenient home entertainment,” said Mitch Lowe, president, redbox. “By agreeing to a delayed release date, redbox can now acquire Warner Home Video titles at a reduced product cost, preserving value for our consumers and increasing customer access to Warner titles at redbox locations nationwide.”

Warner Home Video and redbox will be implementing delayed availability during the month of March and will reach a four-week window by March 23 with the release of The Blind Side. The new agreement will run through January 31, 2012. Redbox has also agreed to destroy Warner Home Video content following its lifespan in kiosks.

“The 28-day window for redbox balances the economics of our relationship while continuing to offer great value to their customers,” said Ron Sanders, president, Warner Home Video. “This accord establishes a mutually beneficial relationship that will foster an ongoing and productive partnership.”

Warner Bros. is currently a leader in many home video categories including total video (DVD and Blu-ray combined), Theatrical Catalog video, TV on DVD, and Blu-ray and will ensure the DVD rental company access to sufficient quantities of Warner Home Video titles including The Time Traveler’s Wife, The Box, The Informant!, Where the Wild Things Are, The Blind Side, and Sherlock Holmes.

But TV executives and advertisers haven’t caught up with you. Advertisers still pay less for a cable TV eyeball than for one watching something from a broadcaster. And programmers still cling to the belief that a broadcast TV viewer has different habits from someone watching cable.

Makes no sense, but there’s a lot about old media that doesn’t make sense and that takes a long time to change. Worth remembering as you watch ad dollars trickle ever so slowly to the Web.

Still, maybe this will help the industry figure it out. Look what happened when GE’s (GE) NBC replaced its 10 pm dramas with Jay Leno. For some reason, executives at CBS (CBS) and Disney’s (DIS) ABC figured viewers who liked to watch stuff like “ER” or even “Southland” would automatically move over to their offerings.

But as Pali Capital’s Rich Greenfield (registration required) points out, citing data from MediaLife, NBC’s viewers didn’t move to other broadcasters when they didn’t like what they saw at 10 pm. They went to the cable guys:

The cable network original programming push continues to gain momentum, with the notable increase in overall cable network ratings at 10 pm so far this TV season likely leading to even more significant programming investment in the year ahead–cannot be viewed positively for broadcast networks as higher quality original cable programming will drive continued viewer fragmentation.

While originally we expected networks such as TNT (TWX) and F/X (NWSA) to be the prime beneficiaries of the Leno move on NBC as they focus on 10pm dramas similar stylistically to what NBC used to air at 10pm, we believe the impact has been quite fragmented, helping a wide array of cable networks that air original programming at 10pm (including networks owned by DIS, DISCA, SNI, VIA/B).

And here, to underscore the point quite nicely, is broadcast’s Jay Leno interviewing the cast of cable’s “Jersey Shore,” the MTV show that, for better or worse, is one of this year’s big hits:

(Quasi-apology for making this the second “Jersey Shore” clip on All Things D today. But then again, The Situation is The Situation.)

That’s the obvious question in light of news that both Terra Firma, the private equity group that bought EMI in 2007, and Citigroup, which funded most of the transaction, have written down most of their investments in the music company.

This isn’t a surprise–the move has been a long time coming–but it does open the door for Warner, which restructured its debt with an eye toward making such a deal earlier this year.

Pali Research’s Rich Greenfield thinks that Citi (C) will push to break up EMI and sell Warner (WMG) the record music group, which tends to lose money, and keep the music publishing business, which has been a reliable money maker, even during the industry’s 10-year freefall.

But at this point, I don’t know why Warner couldn’t try to swallow the whole thing. In the past, that deal would have been scuttled due to antitrust issues (and in fact, it was), but the music industry is a different beast right now–a sick beast–and I think regulators would be a lot more forgiving this time around.

[Image credit: beggs]

As it is, now that investors and analysts have heard the more plausible deal–instead of buying NBCU for $35 billion, the cable giant kicks in up to $6 billion in cash, plus its cable networks, and gets 51 percent of NBCU–they’ve decided they hate that one, too.

Here’s the story in the graphic form (click chart to enlarge):

The Comcast-NBCU story broke after the market closed on Wednesday, in case that wasn’t clear. As I’m typing this, Comcast (CMCSA) is trading around $15.6 a share, down some seven percent since the talks became public.

Pull back a bit and you see that things could be much worse: As recently as March, Comcast was down below $12, and there wasn’t any multibillion dollar deal weighing down the shares then.

If anything, investors are much more forgiving to Comcast here than the professional chattering class of writers and analysts, who hate the deal. The conventional wisdom: Comcast’s dream of marrying cable programming with its cable service is misguided because media conglomerates like Time Warner (TWX) and News Corp (NWS) have already tried it and concluded that it didn’t work. If the Roberts family spends money on anything, they argue, it ought to be on shareholders, either via dividends or by buying back shares.

Here’s a sampling of today’s sentiments:

Pali Capital’s Rich Greenfield:

Comcast is trying to become a massive player in content…a move that investors should be frightened about, regardless of the initial “math” surrounding the transaction.

Barclays Capital Vijay Jayant:

Press reports of this potential transaction give credence to investor concerns that management has empire-building aspirations in general or that they may not believe enough in their own distribution business over the long term and therefore need to diversify their portfolio holdings…fundamentally, we believe that Comcast shareholders would be better served if the company were to invest in its own shares.

So if this is a trial balloon, you wouldn’t say it has been shot down completely. But it’s certainly sagging.

As the intro to the video notes, Huntsberry was delivering his chat at a Federal Communications Commission hearing earlier this month. And as best I can tell, he was trying to alarm the FCC by pointing out just how easy it is to grab this stuff.

Along the way, he notes how many “legitimate” companies participate, in their own way, in the piracy value chain. Everyone from small storage start-up Drop.io, which allows users to host big data files for little or no charge, to Google (GOOG) and Yahoo (YHOO), which can point people toward pirate havens, gets tarred by Huntsberry’s brush.

Not surprisingly, the video inspired all manner of invective from my fellow bloggers, who railed about Huntsberry’s lack of sophistication, his temerity for asking the FCC for help in stopping piracy, and other offenses real and imagined.

I find it hard to get worked up about it, though, since I hear this stuff from media executives all the time. The big difference is that the ones who are most impassioned about it usually don’t want the FCC to stop piracy. They want the industry to offer compelling alternatives to piracy.

For instance, here’s a site someone who works for a very big media company points me to with some regularity. Said executive says it’s the latest and greatest in piracy. I wouldn’t know, because the download scares me off (and in case my employer is wondering, I don’t condone piracy, but I do write about it). So I’ll take said executive’s word for it.

In any case, the idea is not to tip me off about a great place to hoover up a camcorded version of “Pandorum,” but to point out how fast this stuff evolves and how difficult it is stop. I don’t see any harm in noting that, right?