VIDEO: Robert Tercek at PrimeTime on “TV’s New Ecosystem” with transcript

In my previous post, I shared the first half of the transcript for my opening keynote speech about the future of television at the PrimeTime conference in Ottawa in March. Below you will find the text for the second half of the complete transcript for my speech. This section focuses on Facebook’s impact on social media, Google’s impressive collection of video properties, and it concludes with speculation about how the future media landscape will be controlled. The final section includes a quick survey of the amazing diversity of original video content on digital platforms. Enjoy.

THE FOLLOWING IS THE SECOND HALF OF THE TRANSCRIPT.
To read the first half, click here.

(Continued): Now let me talk to you a little bit about the “Facebook effect” because there’s been so much chatter about their targeted social media advertising. Facebook is truly staggering. A fellow named Ben Elowitz is the CEO of a company called Wetpaint and he also happens to be a blogger who writes very provocative and interesting thoughts about trends in digital media. And last year he posted this chart that you can see on the screen right now. And this chart shows you in the blue the growth of time spent on Facebook and in red, the decline of the rest of the web. The time spent on the rest of the Web has gone down 9% … and this was in the early part of last year. Effectively Facebook was absorbing activity from around the web. Facebook is like a black hole. Or a roach motel. People go into Facebook and they don’t come back out. They spend a huge amount of time there.

Last fall Ben Elowitz published this updated chart which actually was even more shocking because the contrast is so sharp. The red in this picture shows the amount of time we spend on Facebook compared to all other social networking sites. We spend 95% of all of our social networking time on Facebook. All the other colors in that narrow 5% sliver are all the other social networks of significance.

And as you can see Facebook accounts for 95% of the time that we spend on social networks. This is again a chart from Ben Elowitz using Comscore data. Its quite astonishing because this activity that’s going into this world it’s not viewable by Google, its not viewable by search engines. It is entirely proprietary to Facebook.

There was recent research from Nielsen that said the average person in the United States looks at about 95 websites in a given month (so let’s call it almost 100 websites) and in that we will look at about 2800 (say 3000) pages of content on the internet. 800 of those page views happen inside of Facebook. So about a third of what we’re looking at on the web is happening inside of Facebook. And all of that information is posted by our friends and the people we are connected to. That’s what social discovery is about: posting, linking and sharing and talking about content. Inside the social network is where we are finding and experiencing these new kinds of content.

So it’s no surprise then that online video companies are rushing to embrace Facebook. They’re rushing to find a way to put their wares where the audience already is. Here, for instance, is Hulu which has enabled a social viewing experience whereby a viewer can post comments as they watch a TV show on Hulu in Facebook: when other people who you’re connected to watch that show they can see your comments, right in sync with the program, even if they happen to be watching the video on a different day. It’s a cool idea, isn’t it? It’s like having a watercooler conversation as you watch the show…except you don’t need to be in the same place or even in the same time. It’s a virtual watercooler.

They’ve uncoupled the social experience around TV shows and have found a way to recreate it, independent of time and physical location of the viewing audience.
And of course this is appealing for advertisers because they can now insert an ad that is targeted precisely to you, your social graph, your interest graph and the specific topic of the content in the exact moment that you are watching that video program. No matter when or where you happen to be viewing it.
Now let’s consider Google. Of course they are Facebook’s big crosstown rival. So they felt they an obligation to respond to this development and so there were some controversy recently about Google’s moves in this arena. Let’s take a closer look.

[0:35:05]

Here is a typical Google search results page that you are all familiar with. I was looking for information for you about SOPA so I did that search. This is my search results on screen now.

But then I logged into Google+, which is Google’s new social network and now notice how this changed the way my search results page looks. This is the exact same search: all I did is log into Google+ and suddenly all these new things appeared on the screen. 90 personal results from my friends who have posted on this topic! So these are things that other people who I’m connected to on Google+ had already posted and on the right side you could see that Google is offering me things that were already active topics, trending topics inside of their social network and even under some of the search results you could see see for instance my friend Reece Jones shared this article, and you could see that some of my friends, some of the people I’m connected to had already noted the story. And you know something? That activity actually does make me more interested! I am interested to know what my friends are looking at. It’s kind of a validation of my own interest.

This move by Google to incorporate social news results was tremendously controversial. Facebook and Twitter immediately objected. They filed a complaint with the Federal Trade Commission because they said, “Gee, no fair, Google is now gaming its search results to favor its own social network. Well of course they are. Google would love to get access to the data that Facebook have and Twitter have…. But those companies won’t give it to Google. They won’t license it to Google. And because Google is the leader in online advertising, they are obligated to cultivate a strategy for this new trend of social media advertising. So Google in effect had no choice: they had to launch their own social network in order to start to mine the results from the social graph and present results of social discoveries. That’s how important social discovery is becoming.

Let’s take a moment now and talk about Google TV. The comments I’m about to share you are not official Google comments: I haven’t spoken to anyone at Google about this this subject. The following is my own speculation… but I want to take you through this as a thought experiment.

Let’s start with Google’s foray into the consumer electronics business. A little bit more than a year ago Google bought a company called Sage TV. They design Linux-based set top boxes. It was a little known company with a very a small team, but then again so was Andy Rubin’s company when Google acquired Android. Really it was one of those hire/acquisitions where it would appear that Google was buying the software team, not necessarily the product, because they wanted that expertise internally. But I paid attention to that acquisition because I thought that might prove useful when Google turned their focus to television. Then, of course, last year Google acquired Motorola, a deal that was on the front page of every business publication in the world. The Motorola acquisition is not quite complete yet: it has passed regulatory review in the United States and in Europe but the Chinese government hasn’t yet given its approval yet. And the Chinese government is no friend of Google so no one knows how that will play out. But my expectation is that the acquisition of Motorola will be approved eventually.

In buying Motorola, Google gets not only one of the biggest makers of cell phones running the Android operating system. They also get one of the biggest setup box manufacturers, one of the biggest two suppliers of set top boxes to the Pay TV industry.. So it’s quite clear that Google TV will be a part of future offerings from Motorola. But Google TV is not limited to just Motorola. Google has done a great job of building an ecosystem for smart TV. Take a look at this slide.

At CES, the giant Consumer Electronics Show that took place in Las Vegas in January, Google TV announced partnerships with Sony, LG, Samsung and Vizio and the semiconductor company Marvell to produce a whole new range of devices powered by Google TV. There has been a lot of discussion about Google TV: the first release wasn’t successful and so the whole industry kind of reacted with derisive laughter about it and said, “You know, this isn’t working very well. It’s not going to happen.” Logitech was an early proponent of Google TV: they dropped out of the alliance, complaining that they had lost $100 million on a device that no one wanted.

And so the TV people let down their guard. They laughed it off. I think they’re missing the point. They ignore Google at their own peril. Google is not stopping. They are the company that invented the concept of the “permanent beta”, which means a product that continues to improve in constant never-ending iterative cycles. And they are in the hardware business in a very big way now: they bought Motorola. They must make it work.

And its not just about TV hardware. Think about the advertising ecosystem that Google has already built on the Internet. It is massive. Google owns DoubleClick, which gives them a dominant position in online advertising.

If you publish content on the web its almost impossible to avoid doing business with DoubleClick. That’s how dominant Google DoubleClick is. Moreover, some estimates suggest that 70% of pay-per-click advertising runs through Google’s system. And recently Google has made even more acquisitions: they’ve spent about $8 billion buying advertising technologies including these two companies: InviteMedia and AdMeld, which gives Google the leading supply-side platform and demand-side platform for real time bidding of behaviorally-targeted advertising. Google is building and acquiring deep expertise in the real-time insertion of advertising. This is a crucial thing that you must understand if you’re in the TV business: Google is not going to be limited solely to pay-per-click advertising. They are moving into display advertising. Current Google represents approximately 15 or 20% of display advertising inventory sold on the web and they are not going to stop. They will grow to a dominant position in display advertising. And they are going to bring their expertise in real-time dynamically-inserted display advertising to television via Google TV. I am confident of that.

And finally let’s think about the third part of Google’s TV strategy which involves content. We all know about YouTube. Many people look at YouTube and think that is the whole video content story for Google. But you might not know about all these other content acquisitions on the left side of the diagram that Google has made and all these content technology acquisitions on the right side of the diagram that Google has done (pointing to diagram with logos of companies acquired by Google). These are technologies that are involved with distribution of video, the encryption, access control for premium video. In other words Google is building all the components that they need to replicate pay TV over an IP network. That’s what’s happening.

And then recently YouTube announced some spectacular information.

First of all there is rapid growth in content uploading. It’s an ugly chart, let me explain what this chart is about. This chart shows how much content is being uploaded to YouTube per minute. As you can see back in 2007 people were uploading about eight hours of video every minute and by last year in 2011, 48 hours of video was uploaded every minute to YouTube. That was two days of video uploaded each minute! That is spectacular growth. Well it hasn’t slowed down at all. In January YouTube announced that today 60 yours of video is uploaded every minute of every day. In 2011 YouTube had one trillion views of video, in January four billion views of video, four billion individual video clips were played and now one hour of content is uploaded every second of the day to YouTube. They currently serve half of the video that is viewed on the Internet. And YouTube is the second largest search engine (after Google).

[0:40:07]

Let’s put this into perspective: in a single month more content is uploaded to YouTube than all four broadcast networks have ever aired since they launched broadcasting in the United States. Every single month that much content is introduced to YouTube. It is staggering. Just extraordinary.

Now a lot of people in the audience might be thinking the way some TV programming executives tend to think, like this: “Well, sure, yeah but YouTube is a just web junk. It’s a bunch of skateboard tricks and people teaching their pet to sing or something like that.” Alright. Sure there’s a lot of that kind of low-grade content on YouTube. But remember the sheer scale of this vast content library and think about how big the top 10% is, the videos of highest quality. And if you have not paid attention to YouTube lately, that top 10% has gotten to be extraordinarily good in terms of quality. It rivals broadcast television in its quality.

And YouTube is not done yet. They understand that there is a lingering perception of poor quality. Especially among advertisers. And that must cause concern there because their owner Google is an advertising company.

So they have a new project underway. They are striving to reshape that perception. They want to reshape the perception that YouTube is low-end user-generated content. So what they’ve done is they’ve started to seed the market for real channels of professionally-produced content. These are the new YouTube channels. About 700 concepts were pitched last autumn and YouTube accepted about 100 of those pitches. And soon we’ll start to see those channels come online now. These are new kinds of channels featuring celebrity talent, famous talent from real TV production companies and some entirely new companies that you might not have heard of before. And YouTube offered these producers some seed money to get started. In some cases the grants were small, approximately $500,000 and in some cases they were as high as 2 to $5 million. This is seed money to produce 100 new channels of programming.
In other words Google is taking the same amount of money that we in Hollywood spend each year on TV pilots… most of which never are seen on television. Google is taking that same amount of money but every single frame of that video will be monetized on their platform. It’s a highly efficient way for them to launch new channels. You will see this content coming soon. And the content will be coming from channels you may never have heard of.

I’m guessing that many people in the room have not paid attention to Vevo, Machinima, Maker Studios or ShmooRu. These are among the top current channels on YouTube and they are also some of the recipients of this new funding as well. You will soon see them offering brand new programming services.

And if you happen to be thinking, “Well, okay, but seriously, what kind of channel is that? What is Machinima? What a weird name.” Let’s take a closer look. Here’s Machinima’s home page. Look at the numbers at the bottom of the screen. This is a channel that is dedicated to the gamer audience and they are not bound by any geography: they reach their gamer audience on a worldwide basis. Last year they served 10 billion videos, in January 1.3 billion video sessions to 150 million unique viewers in a time when very successful TV show in the United States struggles to reach an audience of 15 million, an audience of 10% of that size.

This company that no one has ever heard of, this Machinima, I think they are the best kept secret in Hollywood. They’ve garnered that Gamer audience. It may be considered an ultra-niche audience in most countries, but when you take the viewership aggregated on a global scale, it’s a very large number. 150 million. And it turns out that there are a great many advertisers who crave that audience: they are willing to spend real money reaching them. And so Machinima is a company that’s making millions and millions of dollars in advertising with YouTube video.

Final thought for you on Google’s ambitions in television: Google fiber to the home. Google has been experimenting quietly by building a fiber optic network that will serve data at 1GB per second. It’s extraordinarily fast. They are developing this testbed network in Kansas City. It’s top secret and no one really knows what they are doing they haven’t released a great deal of information about it but it is going into test. And they’ve already notified the FCC that they plan to test audio-visual devices on this network.

You can imagine that this sends called chill down the spine of all the Telcos and all the cable companies in America. The thought that Google might start to roll out ultra high-speed fiberoptic pipes to the home is chilling to them. And they know that Google is not doing that in order to serve up web pages and they are not doing that for pay-per-click advertising and search. Google is clearly building that infrastructure to deliver rich media content.

So my belief is that Google is in this game to win. It’s worth paying attention to the whole scope of the Google TV strategy.

The future media landscape is going to be defined by relatively new things; I would say a new set of value control points.

Our current video landscape our media landscape typically is controlled by the value control points shown on the slide here. These are: Access to talent (that’s what makes the talent agency so powerful), access to financing (that’s why we need studios and networks to fund production), access to distribution is another form of control and of course access to marketing [0:44:09] so that people can find out about your film or your TV show.

By controlling these choke points, the major companies are able to extract value out of the existing television ecosystem. But these control points may be changing, becoming less important. In a two way network these old control points are far less effective.

In a two way network it appears to me that the companies that will succeed are those that build an entirely new ecosystem. And in that system, there will be entirely new control points where value can be extracted from the system.
The new value control points for digital content are: tools for content creation, platforms for monetization of content, new devices optimized for content consumption and new methods of content discovery (including the social discovery that I referred to just a moment ago).

I wanted to see how this might map against some of the companies we are very familiar with, so I created a grid with four quadrants labelled create, discover, monetize and consume. And this is a useful way for you to think about the companies that you may be doing business with in the future.
[0:44:59]

When you contemplate the future of media distribution and consumption, it makes sense to think about who controls the ecosystem. Producers need to be sure that their content offering conforms to these four value control points. You can learn a lot about a company’s vision for the future by studying this diagram to see how they line up against it.

Take a look at Apple for instance. They map perfectly to this diagram. Up in the top left every Apple computer ships with great tools for consumers to create content and of course they have a terrific developer program for professional content creative’s. On the right side in discovery Apple is weak in social media. They realized it … and that’s why they partnered with Twitter. They integrated Twitter into their new operating system but they do also have a fledgling social network for music called Ping that they acquired for iTunes. And number of tools for communication they’ve already built a kind of messaging platform that’s integrated in all their devices. In terms of monetization Apple rocks! First with iTunes and then with the App Store and then with their Game Center and also they have iAds which will create unique advertising experiences for the Apple platform. And then on the bottom right consumption where here Apple is truly world class. Their newest devices are are setting the pace for the entire CE industry.

Apple continue to deliver devices that amaze and delight audiences, people are willing to pay a premium for these great experiences on the iPad the apple TV and the iPhone. And watch this space on March 7th Apple will do an announcement and it’s probably going to be an announcement about a new iPad and immediately about that you will hear an announcement about Apple TV. I don’t know quite what to expect. There will be probably the new Apple TV that will handle 1080p video so it’ll be designed for those great big screens that we have.

Apple is not the only player in this space. For instance, earlier, I talked about Google of course.

Let’s take a look at Google on this grid. You see, they also create tools for consumers to create content and tools for developers. They also have a social network for discovery Google+. It’s a fledgling project but its coming on strong. And of course they dominate search, and that’s another form of discovery. That’s one of Google’s great strengths. If you look at monetization well they’ve got their android app store but that’s not really their strength, their real powerhouse here is monetization via their advertising business and they are clearly doing everything they can to get into rich media display advertising. And then in terms of devices for consumption well they are following the lead from Apple. Google is now building devices powered with the Android operating system and I mentioned a minute ago some speculation about the Google TV initiative. So currently that’s a similar template.

I don’t have time to get into this but today we could also talk about Facebook, Microsoft and Amazon. Each of those companies map to that grid diagram as well.

What you don’t see, however, is a lot of traditional media companies that map to that diagram. Traditional media companies haven’t been focused on building a vibrant ecosystem where they take care of developers and make sure that the developers are profitable by giving them great tools and ways to monetize their content. This is something to think about carefully as you evolve your own business in the future. Are you building a business for the new information economy, or for the old mechanical economy?

There is a theme going around the web right now: is the web dead? And there is a lot of chatter about this notion that the Commons, this open area of innovation and exchange, is vanishing. During the last 20 years the open commons of the Web was the catalyst for such great growth in the exchange of information. This explosive growth depended on a few key attributes of the word wide web that we’ve come to take for granted: open standards; open software then anyone can freely use to develop a new experience; the idea that all these sites were interoperable such that no matter what device or browser you were using you could see the content, you could access it. And also the idea that every kind of content was linked so that you could jump from one publisher’s content to another with a hyperlink; and the idea that all of this web content was searchable so that things could be found, that we had a common way to define things and make them findable. Those are attributes that we almost take for granted today. They have been the attributes that fostered the great explosion of information that we’ve experienced in the last few decades.

But now there is speculation in many corners of Silicon Valley that this era is coming to an end and we are starting to see people erect fences on the great open Commons of the World Wide Web. Some companies are starting to put fences around certain types of data. For instance, consider social media: all the activity that happens inside of Facebook is not viewable by a search engine. Facebook pages can’t be spidered by Google’s crawlers. Likewise video. All the video and all the activity that happens inside of Netflix, well, that’s not going to show up in the search either . Netflix is entirely separate even though it runs on the Internet protocols and relies on those Internet standards. Netflix is like a separate universe that isn’t visible to other companies and it doesn’t link out its kind of enclosed universe.

Also every single one of those apps that you’ve downloaded to your Apple iPad or iPhone those run on top of internet standards as well but they don’t link back out to the web and they are not searchable, they are not findable. So with all the activity that occurs inside of Apple’s at world and that’s not something that the rest of the World Wide Web knows about. That data is kept proprietary to Apple for their own advantage. And of course real time data. I spoke to you about Twitter the information that happens in the real time web where people are chattering about a breaking news of interest, celebrity gossip and so on. That data too does not show up in a normal search.

And so what we are starting to see is parts of the Internet are being fenced off by the new media companies.

So we are moving from a world of openness to a world of closedness that might resemble that all media world that we’ve talked about but with entirely new gatekeepers.

Now I want to end with some thoughts for producers here. My goal today was to share with you my vision of this new ecosystem that is coming. I have done that, I have shared some thoughts with you about that. And now some of you may be concerned. Some people may think “Well, gosh, is that bad news for us? Is it bad news for the television producers?” It’s good news. The good news is that we have a era now of Platform Wars where the old companies are scrambling to create a new digital offering and, in addition, a lot of new and exciting companies are springing up and all of these companies are willing to pay fees or share revenue with content companies. They all need content for their distribution platforms. So it’s actually a great time to be in the content business because whenever there are a lot of buyers prices tend to go up. [0:50:00]
So that’s great. Media companies are going to start to see big dollars roll in. This outdated notion of “digital dimes versus analogue dollars”, well, that’s over. Netflix spend close to $2 billion on content acquisition: that’s real money and every Netflix rival is going to have to step up to that level of spending. So this is good news for TV producers. This revenue from digital services might start to replace some of the lost DVD revenue for the major studios. We’ve become accustomed to companies like HBO developing fantastic programs that are almost like a grand movie. But it’s a movie on an epic scale that runs for an entire season starting with The Sopranos and continuing more recently with great shows like Broadwalk Empire, Game of Thrones and now most recently with Luck. Well now what’s happening is Netflix is starting to follow that plan. They are doing something very similar to HBO. They have a show now available called Lillyhammer they bought in a competitive auction environment to get the rights to and they have two new series coming out that will be exclusive to their platform. So in a way they are kind of taking a page from a strategy that HBO executed so successfully.

They are not the only ones. Amazon now also offers streaming video services. Amazon Studios has this offer that most people don’t know about. There is the new Amazon Studios program which will actually grant money for people who want to make films and to screenwriters as well.

I mentioned Machinima earlier. Here is one of their hit shows. It features an individual person whose name is F.P.S Russia. That’s his program on YouTube. He’s a Russian fellow who lives in the USA in Georgia and he likes to blow things up. He has a show that’s incredibly popular. And this is a single show made by one individual person who is making millions of dollars with advertising that reaches Machinima’s audience of young teenage boys around the world. So, contrary to popular belief, it is possible to make money on YouTube!
Another important trend is crowdsourcing. Kickstarter is a crowdsourced funding or “crowdfunding” company . This is a web company where people can post a project that’s they want to start and they solicit donations from people who want to support it, those who want to see their project happen. Well Kickstarter is quickly becoming a source for independent film makers to raise funding for their films people who say “Yeah, that’s a movie I would like to see I will give that person some money to make it!”

And what happened now this year at Sundance just a few weeks ago? 10% of the films in the festival were funded by Kickstarter. Seventeen films made it into the festival that were funded by Kickstarter, and four of them ended up as finalists. This is really quite interesting as it’s a very untraditional source of funding for creators.

And then there are individual creative people now have the opportunity to garner an audience by going direct. So here is Louis C.K, the comedian. You may have heard about this very interesting comedy special he created, his very own comedy special. It’s the kind of special you would typically see on HBO. He spent $175,000 of his own money to rent a studio facility and hire a crew and he shot a comedy special and then he put it up on a website for $5 with no encryption and no rules around the usage. Louis CK just said “look, you can download it, you can burn it to a DVD you can use it watch it as many times as you like. Just please don’t torrent it.”

That’s how he spoke to people. Customers. With honesty. Directly. He didn’t treat them like criminals. If you look at his site its quite extraordinary. So he spent $175,000 on the production. Within four hours he made that money back, within four days he made $500,000 and by the end of the week he had made a million dollars on that program. One creator reaching into his own pocket to take the risk on the production cost and he was rewarded with $1 million. Now Jim Gaffigan is another comedian who has announced he is going to do something similar. So I think we will start to see a pattern emerge here. We’ve also seen that music industry groups like Radiohead have pioneered this approach by allowing people to download their content in exchange for a fee that the audience determined by themselves.

This creative process is not limited to traditional media. For instance, here is Experts Academy run by a fellow named Brendan Bouchard. He’s leading a new movement of experts who publish directly onto the internet. So even authors and experts are producing original video that they distribute directly to end users.

These are people who are experts in some subject or another they might be self-help authors or people who have information to share. And these programs — though you’re not going to see them show up in anyone’s media analysis of the sector because it looks like education programming or continuing education in some fashion — these companies are making millions of dollars as well. They are all privately held. There is no data on this but there are a number of experts that I have spoken to who are making a fortune. You can’t make money selling self-help books anymore. Self-help books have become a loss leader that drives customers to the online program where experts use video to teach people.
And of course we are also starting to see universities follow suit. MIT has a program called MITX where they are putting up all their content to audiences around the world you can’t get a diploma from MIT but you can get their point of view you can actually audit the course. Stanford did something similar with their AI course.

And so we are entering this bold new era where the definition of what a “content company” is or what a “content creator” is has expanded greatly to cover many other types of companies and organizations and individuals. And there really are no barriers to those who want to create video anymore.

And the really good news is that there is actually money out there. Finally! There is revenue out there finally for you and a number of companies that look for your great programming ideas. And so I invite you to embrace this new ecosystem.
I wish you the best of possible luck and thank you for your time this morning. It’s been a pleasure to have been here with you once again.

[0:54:28] End of Audio