Billion-dollar-plus price tag? Check!

Yes, all of that describes the Yahoo-Tumblr deal. And it also describes Google’s move to buy YouTube in the fall of 2006.

Which doesn’t mean the two deals are parallel, of course. For starters, the $1.6 billion Google spent on YouTube was a drop in the bucket for the search engine. But $1.1 billion is spending is a very big chunk of Yahoo’s cash pile.

And even back in 2006 it was clear that video would be a crucial part of the Web. You can’t use the same certainty when you talk about cat GIFs.

More important is that, then and now, Google viewed YouTube as a nice complement to its core business, which has never flagged. For Marissa Mayer, it’s a crucial part of her strategy to bring new eyeballs to a faded brand.

Still! Fun to compare and contrast.

Here’s what we know about Tumblr: It’s seven years old, has a lot of users, and last year it lost money on $13 million in revenue. And for YouTube: It turns eight tomorrow, is reportedly on track to generate $4 billion in revenue this year*, and Google executives keep murmuring that it either is or could be profitable.

More interesting for today: Here’s what YouTube’s financials looked like for a two-year period ending August 2006 — shortly before Google bought it (the document comes courtesy of the never-ending Viacom-YouTube copyright fight). Note the sharp uptick in revenue, users and costs at the end. Perhaps Yahoo saw something similar:

youtube pl

*As with all YouTube revenue estimates, take Morgan Stanley’s most recent one with a big chunk of salt.

Netflix is adding “Jake and the Never Land Pirates” and “Tron: Uprising” today; later this month they will be joined by “Handy Manny,” “Special Agent Oso” and “JoJo’s Circus.” As with all of Netflix’s TV deals, this is a catalog pact, which means the service won’t get its hands on shows until after they’ve aired at least once on regular TV.

Netflix has had other deals with Disney for many years, and late last year announced its most significant one, which will bring the company’s most prominent movies, including its Pixar films and its “Star Wars” sequels, to the service. So there’s nothing dramatically different here.

What is of interest is the timing of the deal: It comes as Netflix’s current deal with Viacom, which provides the service with a ton of kids’ programming, is about to expire.

Netflix has already announced that it intends to let the Viacom deal lapse at the end of this month, and wants to replace it with deals for individual shows (just like the Disney deal). Neither company had any comment today on the status of those negotiations. But I’m guessing that Netflix thinks this deal strengthens its hand.

DreamWorks Animation is close to a deal to acquire AwesomenessTV, a YouTube network aimed squarely at teens and tweens, according to people familiar with the proposed transaction.

I don’t have a purchase price for Awesomeness, which launched last June and rounded up $3.5 million in funding, most of it from MK Capital. DreamWorks, which announced Q1 earnings earlier today, declined to comment. I haven’t heard back from Awesomeness’s reps.

Conceptually, the deal makes sense. Awesomeness, created by former child star Brian Robbins, was positioned as a next-generation version of Viacom’s Nickelodeon, targeting the kids who make up the core of YouTube’s audience.

YouTube featured Robbins prominently during its “brandcast” presentation for advertisers a year ago. And while many of the video makers who have tried launching “channels” on the site in the last year have struggled, Awesomeness has continued to generate a good buzz.

The channel has nearly 500,000 subscribers. Last month it said it had generated more than 80 million video views, and at the time was planning on a show slated to run on Nickelodeon itself.

DreamWorks, meanwhile, has been spending time talking about its ambitions to create its own cable channel and to expand its online presence. You could see Awesomeness and Robbins fitting nicely into those plans.

If the deal goes through, it will be one of several big media bets on YouTube. Late last year Time Warner put money into YouTube network Maker Studios; Bertelsmann followed with an investment in StyleHaul in March. And Comcast and the Chernin Group are set to announce an investment in Fullscreen, a combination video network and YouTube tools startup.

Here’s an example of what Awesomeness is up to:

Things are different now.

Reed Hastings made a point of that yesterday when he used his quarterly investors’ letter to announce that Netflix was letting a “broad” programing deal with Viacom expire.

Netflix might still end up with some Viacom content, Hastings explained, but he only wants to buy particular shows from the cable giant.

My hunch is that Hastings cares a lot about Nickelodeon mainstays like “Dora the Explorer” — because kids love Netflix, and parents love to shove their kids in front a Netflix screen.* And not at all about MTV reruns like “Laguna Beach” — because who loves a nine-year-old reality TV series?

But Hastings doesn’t care enough about Dora to buy shows about Kristin Cavallari, too. And if he can’t get them separately, he may not buy them at all.

That is: Just like lots of TV viewers, Netflix wants to buy its programming a la carte.

Netflix’s pronouncement didn’t seem to be a surprise to Viacom. I asked the cable network for a response to Hastings’s letter a few minutes after he published it, and they had a statement in my inbox nine minutes later. By corporate PR standards, that’s basically simultaneous.

And it shouldn’t have been a surprise for the content industry in general.

Hollywood has enjoyed a very nice run for the last few years, where it could essentially take any old TV show or movie that it couldn’t sell anywhere else, and unload it on Hastings.

The deals were high-margin windfalls for the networks and studios. A network guy once chortled when he told me about a deal he had struck that would force Hastings to “gag” on his reruns, whether he wanted to buy them or not. But they couldn’t last.

And it’s been easy to see why in retrospect: Success and competition.

When Amazon joined Netflix in the digital streaming business, things got even better for studios, because they could sell the same shows to everyone. But now that the Amazon and Netflix catalogs look so similar, both services have started trying to distinguish themselves, just like HBO and Showtime.

They’re creating their own exclusive programming (Hulu is trying to do the same), which reduces their dependence on other people’s stuff. And when it comes to other people’s stuff, they’re much more particular, because they have a data set that gives them a pretty good idea of what their customers want to watch.

This doesn’t have to be bad news for the TV and movie guys. Hastings suggested on yesterday’s earnings call that any money he doesn’t spend on Viacom shows he doesn’t want could go right into Viacom shows he does want.

And for certain titles that the streamers really want, they may pay extraordinary prices. I’ve heard Amazon beat out Netflix for exclusive rights to “Downton Abbey” this year by paying PBS an eye-popping sum.

If Netflix keeps growing (quite possible — they are at 30 million U.S. subscribers right now, and Hastings says he’s aiming for 60 million to 90 million) and Amazon keeps chasing them (also very possible, since Jeff Bezos isn’t hung up on profits), then Big Media may continue to see their aggregate digital rerun dollars increase, because their buyers’ budgets are increasing, too.

But individual content owners who used to be able to unload anything, at any price, may find their pool of buyers is shrinking. It was good while it lasted.

* Guilty as charged!

Revenue came in at the billion-dollar mark that analysts were looking for, and the company’s U.S. streaming subscriber total hit 29.2 million — also around consensus. The big win was a net income number (after adjusting for one-time hits) of 31 cents per share, well above the 18 cents or 19 cents per share the Street expected.

What about everything else? As usual, Reed Hastings’s shareholder letter is filled with interesting nuggets. Here are some of them:

• As predicted, Hastings doesn’t offer any real numbers for “House of Cards,” the company’s much-hyped foray into original productions. But he does take credit for building big buzz with “House of Cards” via its decision to release all 13 episodes at once. If Netflix had followed a standard release schedule, you’d be watching the last episode of the series this week, and presumably more people you know would be talking about the show right now. But Hastings says the big bang worked just fine: It ended up “reinforcing our brand attribute of giving consumers complete control over how and when they enjoy their entertainment.”
• Hastings also says that almost no one signed up — for free, for a month-long trial — to watch the show and then left Netflix afterward. “There was very little free-trial gaming — less than 8,000 people did this, out of millions of free trials in the quarter.”
• Those less-than-stellar reviews for “Hemlock Grove,” the new horror show Netflix put out this month? No biggie: “Hemlock Grove” was viewed by more members globally in its first weekend than was “House of Cards” and has been a particular hit among young adults.
• Though Netflix is paying up for originals and certain stuff it values a lot, like its recent Disney deal, it is going to stop buying other stuff from the networks, especially when other people can get the same stuff. For instance: Hastings says the company will let a “broad” deal for Viacom content lapse in May, but that the two companies may negotiate licenses for specific shows. (Translation to parents: May want to have your kids binge on Dora and Diego right now).
• Here’s what Viacom has to say about that, by the way: “We continue to be in discussion with several parties, including Netflix, on distribution of our content.”
• Speaking of kids: You may at long last stop seeing Dora show up next to Kevin Spacey in your Netflix history: The company says it will finally start rolling out a “profiles” feature “in the coming months” that will let different family members track their own viewing habits and make specific recommendations.
• And along those lines, Netflix will offer a family pricing plan for people who want to run multiple Netflix streams at the same time: “A few members with large families run into our 2-simultaneous-stream limit. To best serve these members, we’re shortly adding a 4-stream plan, at $11.99 in the U.S., and we expect fewer than 1% of members to take it.” (Note: An earlier version of this story incorrectly reported that Netflix wasn’t offering this plan.)

Details in a second, but for the shortest attention spans, check out YouTube co-founder Chad Hurley’s victory dance, directed at Viacom CEO Philippe Dauman, on Twitter:

Hey Philippe, wanna grab a beer to celebrate?! YouTube Again Beats Viacom’s Massive Copyright Infringement Lawsuitj.mp/ZCuWCQ

— Chad Hurley (@Chad_Hurley) April 18, 2013

Shortish version: Last year, Viacom convinced the Second Circuit Court of Appeals to make U.S. District Court Judge Louis Stanton review his 2010 ruling. He did, and finds that YouTube is still in the clear.

In essence, he argues that YouTube and its corporate owner Google enjoy broad protection against copyright violation claims because of the Digital Millennium Copyright Act — just like YouTube and Google have argued. Not surprisingly, Viacom says it will appeal.

Stanton’s decision is quite emphatic. In one of his choicest quotes, he dings Viacom for making its case based on “an anachronist, pre Digital Millennium Copyright Act concept.”

Also of note: Stanton’s decision frequently cites a different but parallel set of copyright case suits by Universal Music Group against Veoh, a now-defunct video service; judges in those cases have also sided in favor of Web aggregators versus copyright owners.

Here’s YouTube’s initial comment: “The court correctly rejected Viacom’s lawsuit against YouTube, reaffirming that Congress got it right when it comes to copyright on the Internet. This is a win not just for YouTube, but for people everywhere who depend on the Internet to exchange ideas and information.” (Update: Here’s a YouTube blog post that says the same thing with more words.)

And here’s Viacom’s: “This ruling ignores the opinions of the higher courts and completely disregards the rights of creative artists. We continue to believe that a jury should weigh the facts of this case and the overwhelming evidence that YouTube willfully infringed on our rights, and we intend to appeal the decision.”

Here’s the ruling:

Viacom v. YouTube

At first blush this seems like the best-case scenario for Viacom and every other Big Media player: Netflix, et al, pay a lot of money for shows the networks have already aired, and that money is almost pure profit.

And in some cases the story gets even better, as Netflix claims that for shows like AMC’s “Mad Men,” the reruns it carries boost the ratings for the show’s new episodes, as binge watchers/catch-up watchers become new fans.

But Bernstein analyst Todd Juenger is convinced that, at least for kids’ programmers, and Viacom in particular, the Netflix deals are bad ones, because they train Netflix subscribers and their kids to watch the shows on the Internet instead of on TV.

This makes intuitive sense to people like me, who have kids who watch a ton of Viacom shows — and almost never watch them on TV. Viacom has said that this isn’t the case, but today Juenger has a new note making the same argument, with new data.

Here’s what happened to ratings for kids’ programming last year, split up by homes that have Netflix and those without. Note that the only case where a network did better in a non-Netflix household was Time Warner’s Cartoon Network, which didn’t have a syndication deal with Netflix until January 2013:

That’s the snappy line Rovio strategist Andrew Stalbow is using to talk about the company’s forthcoming animated series, “Angry Birds Toons.” The show, first announced nearly a year ago, will be distributed primarily through an update to the Angry Birds game for smartphones and tablets.

The cartoons will also be available on Comcast’s on-demand services, Roku’s set-top boxes and Samsung’s smart TVs, and will be broadcast on TV in 12 countries — but not the U.S. — one day before each new episode comes to the apps.

Why is American broadcast TV not getting the show? It seemed like a natural fit, especially since Nickelodeon aired one of the first pre-series shorts in the run-up to Angry Birds: Space. The absence of Nick (or any other American station aimed at the younger set) from Rovio’s press release this morning was conspicuous.

Parents who would rather park Junior in front of the tube and keep the iPad for Mommy and Daddy, don’t despair. Stalbow left the door wide open for a future TV run in the States, even if initial talks didn’t result in a deal.

Andrew Stalbow

Rovio will roll out one new episode of “Angry Birds Toons” per week, with 52 of the three-minute to five-minute shorts planned so far. Unlike Netflix’s “House of Cards” episode dump, serialized installments will give players a reason to open the app more frequently over a longer period of time, and will likely expose them to new game features and cross-promotions for other games.

And even though downloads of Rovio’s games still tick up and up and up (crossing the 1.7 billion mark recently), engagement seems to be dropping: Onavo Insights estimates that active iPhone users of the original Angry Birds app dropped 22 percent in January.

After all, there are only so many ways to kill a pig.

Stalbow called the new series Rovio’s “transition from being a mobile games company to a fully-fledged entertainment company.” That’s markedly different from Cut the Rope makers ZeptoLab’s claim that “we’re a gaming company first,” in spite of a planned TV show of its own.

Stalbow said, though, that games are still the “engine driver” of Rovio’s IP.

So, what about those other games: Bad Piggies, which stars the villains from Angry Birds, and Amazing Alex, which takes place in a different world? I asked if they, too, would get the animation treatment, and again Stalbow left the possibilities open.

Stalbow said the focus right now is on the Angry Birds “classic world” (read: sorry, Bad Piggies fans), but that he expects animation to have some staying power within the company — it’s already one of the three pillars of Rovio’s new business, the other two being games and merchandise.

The first episode of “Angry Birds Toons” hits international TV on March 16, and games and on-demand services on March 17. Plus, Rovio is still working on that Angry Birds movie, now slated for a summer 2016 release.

Scintillating, right?

This isn’t the equivalent of the Viacom/Google data dump, where people like me got to wallow in all kinds of juicy notes, emails and spreadsheets that had previously been private.

Instead, this is just a more formalized version of the argument Cablevision made last week, when it said Viacom had illegally forced it to take lots of crappy Viacom channels in order to get the ones it really wanted, like MTV and Comedy Central. You can read the whole thing, and/or peruse a highlight compilation the pay TV provider put together, at the bottom of this post.

The one really interesting part in here should be where Cablevision explains just how much more expensive it is for them to buy a handful of channels instead of taking the whole package. Their contention is that while Viacom theoretically offers its channels to distributors on an a la carte basis, it charges so much for them that there’s no practical way anyone would do that, because it’s much cheaper to take the bundle. That is, it’s a choice without a choice.

But at Viacom’s request, all the pricing information has been redacted from the complaint. So Cablevision can only say that the price difference between Viacom’s a la carte option and the bundle is something between $1 billion and $9 billion, and that that number is “more than Cablevision’s entire programming budget” for 2013.

That sounds pretty eye-popping. But without a full look at the numbers it’s hard to place that in proper context. For starters, the price difference would apply to the length of the contract, and while I think even the length of the deal may be redacted, it is almost certainly five years or more.

So whatever the price difference is, you’d need to divide it by five, or seven, or whatever, to figure out what it would actually mean to Cablevision.

Here’s what Viacom’s PR team has to say about that one, by the way:

“That figure is nothing more than rhetorical math, an inflated, irrelevant number manufactured to create artificial sticker shock. As Cablevision admits in its own filing, these numbers “do not concern actual ‘deal’ terms, but only Viacom’s initial offers” which were made at the request of Cablevision. Viacom’s ‘rate card’ prices are paid by hundreds of distributors — but never by Cablevision, which has always exploited its market clout to extract deep discounts in every contract negotiation with Viacom and every other programmer.“

Want to hear more from Viacom? Okay.

“This suit is nothing more than a hypocritical attempt by Cablevision to void a long term carriage deal they agreed to only two months ago. Cablevision is crying foul over a standard business practice that expands choice and lowers cost for consumers – a practice they use extensively to sell their own services. Cablevision received significant discount on a package of networks that account for nearly 20% of the total viewing audience. Now they want the lower price without the obligation to offer our networks to their customers. For Cablevision it’s ‘do as we say and not as we do’ – an arrogant approach all too familiar to its customers.”

But wait! There’s more!

“Although they have lower viewership than almost all of Viacom’s smaller networks, the three bundled Cablevision-controlled MSG networks cost Cablevision customers significantly more per month than Viacom’s entire offering.”

I’ll go through the complaint itself, but my hunch is there isn’t anything more revelatory in here, or Cablevision would have already made a big deal about it. I also believe that Cablevision thinks it has much more exciting stuff to show, but isn’t wheeling it out until later in the legal process. Which could take quite a while.

Again, the big picture here: If you take Cablevision at their word, they’re trying to blow up the bundling system that pay TV has used for decades (at least when it comes to wholesale deals with programmers — Cablevision says bundling TV channels it sells to retailers is a great idea). Viacom says it’s a rate negotiation.

If this thing goes all the way through the courts and Cablevision wins, it could re-order the TV business. But that scenario is going to take an awfully long time to play out, so if you’re looking for change in the TV Industrial Complex, you’re going to have to hope for someone else to make that happen. What do you say, Netflix? Apple? Google?

Here is Cablevision’s highlight reel for the complaint:

Complaint Highlights 03.07.13

Cablevision v Viacom 13 CIV 1278 Public Redacted Complaint

The question is taking on intense importance for the cable-TV business, which for decades has forced customers to subscribe to groups, or bundles, of channels — whether they wanted them or not.

Read the rest of this post on the original site »

Now one cable provider says it will try to break up the bundle: Cablevision has sued Viacom for “illegally forcing Cablevision to carry and pay for 14 lesser-watched ancillary networks its customers do not want.”

On the face of it, Cablevision is directly attacking the core bundling principle the industry has used for years, and continues to implement as pay-TV providers and programmers sign new, long-term deals. It is accusing Viacom of an “illegal tying arrangement in violation of the federal antitrust laws,” and if it is successful, the repercussions could be widespread and significant.

But note that the conventional wisdom in the pay-TV industry is that “tying” rules aren’t applicable to cable bundles — people have tried repeatedly to break the bundle using the courts and failed (here’s the most recent attempt, from last year). And the main remedy Cablevision seems to be seeking is to get out of a carriage agreement it signed with Viacom a few months ago, in December 2012.

If that’s the case, the suit would fit into a familiar pattern in the pay-TV business, where programmers and pay-TV providers joust with lawyers and press releases before agreeing to keep the status quo.

That seems to be what Viacom is suggesting with its response:

“At the request of distributors, Viacom and other programmers have long offered discounts to those who agree to provide additional network distribution. Many distributors take advantage of these win-win and pro-consumer arrangements. Reflecting the highly competitive cable programming business, these arrangements have been upheld by a number of federal courts and on appeal. Viacom will vigorously defend this transparent attempt by Cablevision to use the courts to renegotiate our existing two month old agreement.”

All that said, if the case does go all the way through the court system and ends up in Cablevision’s favor, then we might finally see real change in the pay-TV world: You could imagine a scenario where pay-TV providers and their customers end up paying Disney for ESPN, but not ESPN 2 or ESPN3. Or the Disney channel. Or where News Corp. (which owns this website) wouldn’t be able to require Fox News viewers to take the FX channel as well.

It’s also possible that, given all those choices, consumers might end up choosing the bundles anyway, since pay-TV buyers could experience sticker shock when they see the “real” price of unbundled programming. If ESPN is currently getting more than $5 per subscriber when it sells as part of Disney’s bundle, it’s going to have to charge a multiple of that in an on-demand world — or cut its programming costs way, way, way down.

And even that scenario will take years to play out. Which means that, in the meantime, anyone who’s looking to get into the pay-TV business right now — like, say, an Apple — is still going to have work with the bundle. That’s what Google has already worked out as it steps cautiously into the pay-TV world, and that’s what Intel is doing as it prepares its Web TV subscription service.

Here’s Cablevision’s press release:

CABLEVISION FILES FEDERAL ANTITRUST LAWSUIT AGAINST VIACOM FOR ILLEGALLY FORCING PURCHASE OF PROGRAMMING SERVICES

BETHPAGE, NY, February 26, 2013 – Cablevision Systems Corporation (NYSE: CVC) filed an antitrust lawsuit today against Viacom (NYSE: VIA), in federal court in Manhattan, for illegally forcing Cablevision to carry and pay for 14 lesser-watched ancillary networks its customers do not want, such as Palladia, MTV Hits and VH1 Classic, in order to carry must-have networks such as Nickelodeon, MTV and Comedy Central.

Commenting on the lawsuit and Viacom, Cablevision offered the following statement:

“The manner in which Viacom sells its programming is illegal, anti-consumer, and wrong. Viacom effectively forces Cablevision’s customers to pay for and receive little-watched channels in order to get the channels they actually want. Viacom’s abuse of its market power is not only illegal, but also prevents Cablevision from delivering the programming that its customers want and that competes with Viacom’s less popular channels.”

Cablevision’s suit contends that:

[-] Viacom abused its market power over commercially critical networks, including must-have networks such as Nickelodeon, Comedy Central, and MTV, to coerce Cablevision into carrying the 14 far less popular ancillary channels.

[-] Viacom coerced Cablevision by threatening to impose massive financial penalties unless Cablevision complied with Viacom’s demands.

[-] Viacom’s conduct harms Cablevision and its customers, and impairs competition by making Cablevision pay for and carry networks that many subscribers do not want to watch, while other networks are excluded from distribution, preventing Cablevision from being able to differentiate its services and harming subscribers.

Cablevision’s complaint asserts that Viacom engaged in a “per se” illegal tying arrangement in violation of the federal antitrust laws. Cablevision’s antitrust lawsuit also asserts that Viacom has engaged in unlawful “block booking,” which is a form of tying that conditions the sale of a package of rights on the purchaser’s taking of other rights. Viacom’s conduct also violates the Donnelly Act in New York State Law, which parallels federal anti-trust laws.

The complaint was filed under seal and a public version is not yet available.

Cablevision is seeking a number of remedies including:

[-] Declaratory relief voiding the December 2012 carriage agreement.

[-] A permanent injunction barring Viacom from conditioning carriage of any or all of its Core networks on Cablevision’s licensing any or all of Viacom’s ancillary networks.

[-] To effectuate the permanent relief, a requirement that Viacom permit Cablevision to carry the Core networks and ancillary products on terms pending negotiation of a new, lawful agreement

[-] Treble damages and legal fees.

Viacom’s eight core networks:

MTV
MTV2
Nickelodeon
VH1
Spike
TV Land
Comedy Central
BET

Viacom’s 14 ancillary networks:

Centric
CMT
MTV Hits
MTV Tr3s
Nick Jr.
Nicktoons
Palladia
Teen Nick
VH1 Classic
VH1 Soul
Logo*
CMT Pure Country**
Nick 2**
MTV Jams**

*Optimum East Only
**Optimum West Only

Antitrust Legal Background
[-] Federal antitrust laws protect competition. By protecting competition, antitrust laws secure lower prices, higher quality, and other benefits for consumers.

[-] The antitrust laws prohibit tying, where a powerful firm wields its leverage from a product in one market, called the “tying” product, to compel a customer to take another product, called the “tied” product, when that customer would have preferred instead to take a product that competes with the “tied” product.

[-] The reason antitrust law prohibits such tie-ins is to protect competition and consumers. If powerful firms can leverage their power from one market to another, they can insulate the tied product from competition. Forcing customers such as Cablevision to take Viacom networks instead of competing networks, in turn, hurts consumers because they get less for what they pay for video services.

Cablevision officials indicated that there would be no immediate disruption in programming offerings pending the resolution of this matter.

FreeWheel won’t spell out the funding amount for this round, but says that it’s less than the $17 million round it raised in 2010, and that it doesn’t need as much money now, because it is “closing in on profitability.”

Prior to this round, FreeWheel had raised about $30 million over the last four years.

DirecTV has also signed on as a FreeWheel customer, which means it is one of the many big broadcasters, cable networks and Web companies that use FreeWheel to manage their video ad business, like Comcast, AOL, Viacom, etc. DirecTV will use FreeWheel to manage the ads it runs on its “TV Everywhere” services.

Over time, FreeWheel has also moved into display advertising, which means it’s not only the “DoubleClick of Web video,” but is often competing with Google’s DoubleClick, as well.

Not coincidentally, FreeWheel’s founding team, lead by CEO Doug Knopper, are DoubleClick veterans.

YouTube and its owner Google have agreed to buy a minority stake in Vevo, according to people familiar with the deal, which hasn’t been finalized.

If it happens, it will be the second time in the last year that Google has invested directly in a video company that relies on YouTube for distribution. In May, Google put money into Machinima, the Web video network aimed at gamers.

If the deal does get done, it will allow the two sides to continue with a symbiotic — and at times contentious — relationship that has gone on for three years: Vevo gets to distribute its clips on the world’s largest video site, and YouTube gets to keep showing music videos from the big labels, which account for many of its most popular clips.

I don’t know the size of the planned transaction, but I’m told it will be bigger than the $35 million funding round Google and YouTube led in Machinima last year. Like Hulu, the TV site, Vevo is a complicated joint venture between content owners — in this case Universal Music and Sony Music — and an outside investor — in this case Abu Dhabi Media.

But while both YouTube and Vevo have signed off on the investment and a renewed distribution deal that includes long-term licenses for the videos, the deal hasn’t closed and could still be derailed.

For starters, the deal is supposed to get done at the same time that YouTube signs separate agreements with Sony and Universal, which cover subjects like user-uploaded videos that incorporate music the labels own. And relationships between the two labels — and between the labels and YouTube — have been rocky at times.

That’s one of the reasons Vevo had previously explored alternate distribution deals with Facebook and Viacom’s MTV over the past year.

But it makes the most sense for YouTube and the labels to work together. The labels would like to see more money than they currently get from YouTube, but it would be hard for them to walk away from the revenue they’re already getting.

And while YouTube has worked hard to attract more “professional” content on the site — which is why it has been writing advances to video makers to create “channels” on the site — the labels’ videos remain enormously popular with its young audience.

Meanwhile, both the distribution and the investment will be crucial for Vevo, which operates a very thin-margin business.

Under both the old deal and the new one the company is set to strike, Vevo hands over about a third of its revenue to YouTube, and more than 50 percent of its revenue to the labels, which doesn’t leave it much in the way of an operating budget. Last year, Vevo CEO Rio Caraeff said his company was doing more than $150 million a year.

The two companies announced a new pact today that will move more Time Warner shows to Netflix: Animated stuff from Turner’s Cartoon Network and Adult Swim, along with TNT’s “Dallas.”

As with every other Netflix TV deal, these are all repeats: No one is selling Netflix stuff that they’re still running on their own network.

But, at the right price, the deal is a nice addition for Netflix, particularly the Cartoon Network stuff, which bolsters a kids lineup that’s already a key part of the service.

It also helps buffer Netflix in case Viacom gets itchy and ends up taking away its Nickelodeon programming when that deal ends. And the Adult Swim stuff is great for stoners.

Bigger picture: This is the third deal Netflix has made to get its hands on Time Warner programming. In October 2011, it paid up big for stuff that used to run on the CW Network, which is jointly owned by Time Warner and CBS. Last week, it struck another deal for shows made by Warner Bros. studio, including NBC’s “Revolution.”

Biggest picture: This doesn’t mean that you’re going to get the video stuff Time Warner values the most — its movies and its HBO shows — on Netflix, now or ever.

Jeff Bewkes has made it quite clear that he’s happy to use Netflix as a syndication outlet for stuff he’s already gotten maximum value from. If Reed Hastings thinks he can make money with Bewkes’s leftovers, he is happy to sell them.

Now Walmart says it has solved that one, more or less, with software that will let most users handle the “disc to digital” process at home.

Walmart says that, starting this month, users can start storing copies of some of the movies they’ve already purchased on DVDs, using Macs and PCs and its Vudu.com movie service.

You’ll need a computer that still has an optical disc drive for this. So, if you’re working on, say, a MacBook Air, you’re going to have to dig up an older PC, or forage for an external drive.

And you’ll still need to pay for the privilege of using Walmart’s cloud: $2 to convert a standard DVD or Blu-ray, or $5 if you want to convert a standard DVD into an HD copy. That may turn off some people who believe that paying extra for digital copies of stuff they own doesn’t make any sense.

Also note that while many of the big studios, including Sony, Warner Bros, Fox (which, like this site, is owned by News Corp.) and Paramount are in, not all of their films are available for digital storage and playback. So in some cases this will still be a moot point.

Still, the notion of hauling your discs to a store in order to move them onto the Internet made zero sense in 2012. Nice to know that Walmart has caught up in 2013.

Walmart has made other strides, as well. It recently started letting Android users download digital copies of their movies on their devices, instead of requiring them to stream them. And it says that, next month, Apple iOS users will be able to do the same.

Walmart is pushing the service in conjunction with UltraViolet, the Hollywood + tech consortium that’s trying to push movie ownership via a system that’s supposed to let users access any film they buy, on any device. And since Disney isn’t an UltraViolet member, that means none of this applies to Disney and Pixar films, which means a key demographic that would value having multiple copies of the same movie — parents with kids — won’t get as much out of this as Walmart would like.

Still, when Walmart rolled this thing out last March, it looked DOA, and UltraViolet backers have conceded to me privately that it has underwhelmed them, too. Maybe the retailer has done enough to give this thing a second chance.

So here’s a good person to ask for advice: Former MTV boss Judy McGrath, who has signed on as an adviser for the video start-up.

McGrath gets a lot of credit for turning MTV, and later MTV Networks, into a cultural and commercial powerhouse for Viacom. But she left the cable giant in 2011, after a 30-year career. So she had some time available when NowThisNews backer Ken Lerer asked her to take a look at his new project this fall.

Now McGrath will offer her advice on a more formal basis. She says she’ll weigh in on stuff like on-air talent and presentation. “I find the whole project kind of relevant and compelling,” she said.

Meanwhile, you can play armchair adviser, without getting paid: NowThisNews is up and running, and you can watch the start-up try to find its footing in real time, as it produces 10 one-minute clips a day.

For the last month or so, the start-up, which has a couple dozen employees, has been all over the map with the stuff it produces — sometimes it sends a camera crew out to document destruction in the Rockaways; often it uses a gum-snapping, OMG! tone to summarize both hard news and click-bait ephemera.

So far, the stuff that seems the most successful, both editorially and in terms of views, is stuff like this Petraeus scandal explainer:

The other interesting note so far from NTN’s early efforts is about where you’re likely to find them. While the company has a bare-bones Web site — it’s produced via Rebel Mouse, another Lerer-backed start-up — it really wants users to watch the show on iPhones, via a dedicated app. Or on the Web, when it’s embedded/distributed on other sites, like Facebook or BuzzFeed (yes, another Lerer project).

For the time being, at least, they’re even forgoing YouTube, which seems like an odd choice for anyone who wants people to watch their video. But the NTN guys insist that there’s a method to this, so we’ll see.

Well, almost ready: “Redbox Instant by Verizon” will go into an invitation-only beta launch this month, and the official push won’t start until next year.

Still, this means the company is officially unveiling its offering. Which is exactly what we told you it would be: A service that’s supposed to offer some streaming video, a la Netflix, and some movies via DVD, a la the old Netflix and the curent RedBox. And the ability to buy and rent individual movies online, like iTunes and Amazon.

The basic offer: $8 a month for a selection of streaming movies and the ability to rent up to 4 DVDs a month from Redboxes’ kiosks, plus an online store where you can buy or rent newer movies.

If you don’t want to or can’t use the Redbox kiosks, you can go for a streaming-only option for $6. If you want to rent Blu-ray discs, that’s $9 a month.

Like Netflix and Amazon, Redbox has a deal with Epix, which means you’ll get newish movies like “Thor,” along with some big titles like “The Hunger Games,” after they’ve been available for rental and on pay TV. It also has a similar deal for older movies from Warner Bros., which hasn’t cut deals with Netflix or Amazon (yet).

But the joint venture won’t have the deeper catalog titles its competitors have built up. And it has pretty much ignored the TV titles that Netflix in particular has concentrated on in recent years.

On the other hand, it will have an online store where you can rent and buy movies, which Netflix doesn’t offer — because, says CEO Reed Hastings, everyone else does. Though this store will be different from those run by other online retailers like Amazon and iTunes: For whatever reason, the company hasn’t signed on all of the studios, so there will be notable gaps from the likes of Disney and Sony. (Update: Redbox Instant says it does have a deal with Sony, after all.)

So basically: Costs about the same as Netflix, without some of the stuff people like about Netflix, with other stuff Netflix doesn’t have.

Is that compelling enough to take market share away from Hastings? We’ll have to wait some time to see, but it’s worth noting that Amazon and Hulu, which have been at this for a while, have yet to make a real dent.

In the meantime, the most interesting thing about Redbox Instant is what it could be, one day, if Verzion wants to push it. The service isn’t confined to Verizon’s fiber or wireless footprint, which means it could truly make it a national video service, if it wants to commit the resources. So far this looks more like a toe in the water than anything else.

You can’t check a box in social media and be done. It’s a 24/7 job and it’s really hard. It’s alchemy of science, technology and creativity and a degree of magic. If you don’t have them all you will fail.

– Ross Martin, executive vice-president of Viacom creative company Scratch

CEO Chet Kanojia says his IAC-backed company will soon start offering programming that doesn’t come from local TV stations, which he’ll sell for an additional fee.

“We have done a few deals” with content owners, Kanojia said during an interview at a Goldman Sachs media conference this morning. “You’ll see us publicize those at some point soon.”

Kanojia didn’t offer much more detail. But asked if the deals he had struck were with “household name cable networks,” he answered: “Generally speaking, yes.”

So what does that mean? There’s no way Kanojia is working with any network affiliated with any of the four major broadcasters. They are suing his company for copyright violation, because it distributes their over-the-air programming without paying for it. So that rules out anything from News Corp. (which also owns this Web site), Disney, Comcast or CBS.

I would also be surprised if he has struck deals with any of the established cable programming giants who aren’t in the broadcast TV business, like Viacom or Discovery. Because it seems unlikely that Aereo would want to resell the all-or-nothing bundles the cable guys insist on.

More likely would be deals with programmers that don’t have full cable distribution in the U.S. I could imagine a theoretical deal with someone like Bloomberg TV, for instance, or Al Jazeera English. Asked to provide additional clarification, Aereo PR head Virginia Lam writes: “We have had conversations with a variety of content providers, including some cable networks.”

Kanojia also said his company would soon start streaming programming to PCs and laptops. Right now, users can only watch Aereo on Apple’s iPhones and iPads, and on their TV sets via Roku boxes and Apple TV. The company is also limited to the New York City area, but has already said it plans to expand to other cities.

So, here comes another option: M-Go, a cloud/locker app/service backed by DreamWorks Animation and Technicolor, that will be part digital storefront, part digital “discovery” service.

M-Go won’t launch until later this fall, but today the company is announcing that it has distribution deals with most of Hollywood’s biggest studios: Sony, NBCUniversal, Paramount, Warner Bros. and 20th Century Fox (Fox is owned by News Corp, as is this Web site).

The pitch: Consumers will be able to use M-Go to purchase movies (and eventually TV shows, and perhaps, one day, music) and watch them wherever they’d like — on connected TVs, PCs and mobile phones.

M-Go will have dedicated apps for some TVs and PCs, like Intel Ultrabooks; for other platforms, like Apple’s iOS, the movies will be available on a Web browser. M-Go will also link consumers to other digital storefronts, like Apple’s iTunes, though movies purchased there won’t work on M-Go.

Nothing wrong with that, in concept. The question is whether consumers aren’t buying movies because they’re worried that they won’t work on multiple devices, or because they’ve concluded that they really don’t need to own most movies.

Studios are hoping it’s the former, which is why they’ve already backed UltraViolet, a consortium of tech and media companies that’s trying to solve the same problem. M-Go will be compatible with UltraViolet titles, so that’s good.

Less good is the fact that Disney, which isn’t part of the UltraViolet coalition, isn’t a part of M-Go, either. And Disney/Pixar’s kids’ movies are the kind of movies consumers are most likely to decide they need to own — which may be why Disney is approaching the cloud/locker question with its own Keystone technology.

And now, if you watch movies from Amazon’s “Prime Instant Video” service, you can see the same movies, including hits like “Iron Man 2,” “Thor” and “Captain America.”

Amazon announced a new “multi-year licensing agreement” today, just a few days after Netflix’s exclusive deal with Epix expired.

Netflix has already made Wall Street well aware that it was losing its exclusive, while downplaying the importance of the deal. Of course, it was more excited about it a couple years ago.

Netflix still gets its hands on the same movies, and will likely have them through 2015.

Epix, controlled by cable giant Viacom, is likely to be as promiscuous as it can with its newfound freedom. Look for the same movies to play a major role in the Verizon/Redbox video service set to launch this fall.

Meanwhile, Amazon, as you may have heard, has an event coming up on Thursday, where it will have new hardware to show off. Nice to have new content to play on those boxes, too.

PS: Since it’s the season, here’s some bonus fact-checking for you:
Claim:Amazon’s release says the deal brings “popular new release movies including The Avengers, Iron Man 2, The Hunger Games, Super 8, Thor, True Grit and more for Prime members to instantly stream at no addition cost.”
Truth: Almost, but not quite. Lionsgate’s megahit “The Hunger Games” will eventually get to Amazon Prime, as well as Netflix. But right now the only way to get your hands on the movie (legally) is to buy or rent it. Meanwhile, you can’t get “The Avengers” anywhere.

But the bottom line hasn’t changed. Apple keeps poking at the TV industrial complex, and keeps concluding that it’s better off playing along than playing a new game.

To spell that out: If Apple really wanted to change the way people watched TV, it would change the way people paid for TV. And that would involve setting up new arrangements with the people who make TV content.

But Apple can’t do that — either because the content guys don’t want to change the way their business works, or Apple isn’t willing to pay enough to make them change. Or both.

The result is the same: If you want to use a theoretical Apple TV of the future, you’re still going to end up paying someone a monthly fee for a bundle of channels, the majority of which you don’t watch.

Depending on how the deal works out, you may end up paying a pay-TV provider, or paying a broadband provider plus a programming provider. But the results will effectively be the same — and your checks will probably end up getting cashed by the same people, regardless, since there’s little to no competition for the pipe that goes into your living room.

You can argue that this is terrible for consumers (because they subsidize waste), or that it’s great for consumers (because all the other consumers subsidize their favorite programs). But it’s a model that has proven very hard to dislodge.

If Apple — or anyone else — wants to blow it up, they’re going to have to find a way to get people the stuff they want without paying for everything else.

There are a couple ways of going about that:

• You could drive very big trucks full of cash up to the existing content guys, and pay them a ginormous amount of money to sell their stuff — say, pro football — directly to your new TV business, with the understanding that they might lose their existing deals with everyone else. Apple, Google and a handful of other big tech companies could afford to do this, but they have yet to do so.
• Or you could build up a whole lot of stuff that people end up valuing as much or more than the stuff they’re already paying for, and deliver that to your customers directly. Google and YouTube are playing with this, but the $200-million-plus they’re betting on “channels” isn’t an all-in bet. It’s just a test.

Meanwhile, if you want to play by the TV industrial complex’s rules, those guys are happy to play along. See: Google, which is in the process of competing directly with the established cable providers, but is still able to get cable TV programming — even from from Viacom, which is still suing Google — because it is acting just like any other pay-TV provider.

It’s fun to imagine a world where Apple helps get you your TV, and it’s very likely that an Apple TV experience would be much better than the cable TV experience you have now. Imagine ditching that craptastic TV guide for a sleek one designed by Jony Ive!

But unless Apple TV is going to offer something fundamentally different than the choice consumers have today, it’s hard to get riled up about this stuff.

——

For the record: So what does Tim Cook have to say about all this? Here’s the most specific answer he gave about Apple TV’s answer at the D10 conference in May – which is to say, a very oblique answer:

Walt Mossberg: As you think about improving the television experience, because you just said you’re thinking about that, can it be done with a box and leave the kind of big panel and everything to other people, and just really build a lot of smarts and software and other things into a box and not build the whole thing?
Tim Cook: Here’s the way, Walt, we would look at that is –
Mossberg: Whether it’s you or anybody.
Cook: We would look not just at this area but other areas and ask: can we control the key technology? Can we make a significant contribution, far beyond what others have done in this area? Can we make a product that we all want, because we think we’re reasonably good proxies for others? And so, those are all the things that we would ask about any new product category. It’s the ones we ask about products within families that we’re already announced. And so this is sort of how we think about it and how we look at it.

]]> http://allthingsd.com/20120816/apples-new-tv-plan-same-tv-different-box/feed/ 0 http://allthingsd.com/20120803/viacom-earnings-drop-7/ http://allthingsd.com/20120803/viacom-earnings-drop-7/#comments Fri, 03 Aug 2012 15:03:34 +0000 John Jannarone http://allthingsd.com/?p=237624 Viacom Inc.’s earnings fell 7% for its fiscal third quarter as it continued to suffer from weak ratings, particularly on its Nickelodeon children’s network.

The media conglomerate on Friday reported a $534 million profit for the period ended June 30, compared with $574 million a year earlier. Revenue fell 14% to $3.2 billion.

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]]> http://allthingsd.com/20120803/viacom-earnings-drop-7/feed/ 0 http://allthingsd.com/20120727/google-fiber-amazing-internet-same-old-tv/ http://allthingsd.com/20120727/google-fiber-amazing-internet-same-old-tv/#comments Fri, 27 Jul 2012 10:00:43 +0000 Peter Kafka http://allthingsd.com/?p=234646 The Kansas City fiber project that Google announced yesterday is going to give customers broadband like they’ve never seen before.

The pay-TV part, though, is going to seem very familiar: They’ll pay Google $120 a month, and they’ll get a bunch of TV channels, whether they want all of them or not.

Which isn’t to say it won’t be cool. The TV service should offer a bunch of nifty features that will make it easier to find and watch what you want.* And it comes with a free Nexus 7 tablet. And unlike the cable box you have now, it should get better with some frequency, via software updates. Etc.**

But if you were hoping that Google was going to use its fiber project to reorder the TV landscape, you’re going to be disappointed. At least in this incarnation, Google is playing by the TV establishment’s rules.

That is, if you want to get stuff from the cable guys, you have to buy everything they bundle. Discovery’s TLC comes with Animal Planet and the Science Channel. NBCUniversal’s CNBC comes with Bravo, Oxygen and the USA Network. Etc.

And the cable guys are happy to sell Google their shows, because they love having more buyers for their stuff, as long as they don’t break the bundle model they love so much.

Just like they were happy to sell TV to the satellite guys and telco guys. “We view them the way we view [Verizon’s] Fios,” says one programmer who’s working with Google.

Not everyone is in, yet. Time Warner (TNT, TBS, HBO), Disney (ESPN, Disney Channel), News Corp. (Fox News, FX) and AMC Networks (AMC, IFC) don’t have deals with Google. And if Google launches without all of them, the service will look crippled. But the Google folks are saying positive things about getting deals done, and I’ve heard similar murmurs from some of the TV guys.

One exception to the happy talk: News Corp., which owns this Web site, has butted heads with Google repeatedly. The two sides had a particularly unsuccessful discussion about Google TV at CES in January, which led to a Twitter outburst from Rupert Murdoch. So that deal could be extra-hard to nail down.

Then again, Viacom also has problems with Google — you may recall they are still suing them over YouTube. And Viacom has signed on for Google Fiber, too.***

Money solves all sorts of problems, especially when it comes with a promise not to screw up the ecosystem that makes the cable guys fat and happy. Right now, Google’s willing to offer both.

*A lot of these features, by the way, are similar to features Google has been showing off with its latest version of its Google TV software. But this being Google, the Google Fiber service is completely separate from Google TV — they’re handled by different teams, using different hardware, different software. So odd. So Googley.

**You can watch the Google guys pitch this themselves, by checking out yesterday’s demo video, starting at the 25-minute mark.

***Boy, did this dummy get that one wrong. Sorry!

(Image courtesy of Shutterstock/BortN66)

]]> http://allthingsd.com/20120727/google-fiber-amazing-internet-same-old-tv/feed/ 0 http://allthingsd.com/20120725/netflix-epix-and-the-end-of-the-exclusive-why-reed-hastingss-competitors-will-get-their-hands-on-some-of-his-biggest-movies/ http://allthingsd.com/20120725/netflix-epix-and-the-end-of-the-exclusive-why-reed-hastingss-competitors-will-get-their-hands-on-some-of-his-biggest-movies/#comments Wed, 25 Jul 2012 18:00:31 +0000 Peter Kafka http://allthingsd.com/?p=233721 Netflix has a lot of TV shows, a lot of old movies and a lot of kids’ stuff on its digital service. New movies? Not so much. Most Hollywood studios keep their recent releases away from Reed Hastings.

One big exception: Netflix does get newish movies from Paramount, Lionsgate and MGM, via Epix, the pay-TV channel Viacom controls. So when you’re cruising the Netflix streaming menu and see titles you recall hitting the theaters in the last couple years, there’s a very good chance they came from Epix.

Right now, for instance, Netflix subscribers can watch “Thor” and the most recent “Transformers” movie, both put out last year via Paramount. Coming up, “Captain America.” Next year, they’ll get “The Hunger Games” and “The Avengers.” All from Epix.

Right now, Netflix is the only online subscription service that offers Epix movies. But that exclusivity goes away at the end of August. Redbox Instant, for instance, will feature Epix movies when it launches later this year. Viacom would love to convince someone like Amazon to carry the movies, too.

So what does that mean for Netflix, which makes a big deal about paying for exclusive content? No big deal, says Hastings. “Epix is not a particularly large source of total viewing,” he told analysts on his earnings call last night. (That call didn’t go too well: Netflix shares are down more than 25 percent today after yesterday’s earnings report.)

But in Hastings’s most recent letter to investors, he’s more enthusiastic about Epix. “Our current feature film offering is better than ever,” he told shareholders, citing “Thor” and “Transformers,” along with non-Epix movies. And my Netflix home screen designates the new “Transformers” as “most popular,” so I guess someone’s watching it.

We’ve seen Hastings try to straddle the fence like this in the past, when Netflix lost its access to the Starz pay channel, and with it, the ability to show movies from Sony and Disney. Netflix said it was willing to pay big money to keep Starz. But when it didn’t get the deal, it told investors that few people watched the movies anyway.

My gut: It really does work both ways for Netflix. Hastings’s users may not spend a ton of time with “Thor” and his super-friends. But I bet their presence on the Netflix menu helps reassure users — See? We really do have big Hollywood movies! — and that’s probably worth quite a bit to them.

If so, Netflix users will be reassured for a while, whether Hastings likes it or not. Netflix has a five-year deal with Viacom that runs through the middle of 2015.

That agreement has to be extended every year, but it’s not a negotiation: People familiar with the deal tell me it has a “put” mechanism, which means it’s up to Viacom to decide whether Netflix gets Epix, at a prearranged price. My hunch is that they will keep cashing Hastings’s checks.

]]> http://allthingsd.com/20120725/netflix-epix-and-the-end-of-the-exclusive-why-reed-hastingss-competitors-will-get-their-hands-on-some-of-his-biggest-movies/feed/ 0