Parks Associates Blog

Monday, September 29, 2008

What is Paramount Thinking?

Last week, Paramount Digital Entertainment (PDE) recruited two Hollywood producers, Alexandra Milchan and David van Eyssen, to create feature-length films for distribution on the internet and presumably mobile platforms.

Upon reading the news, the first question in my mind was: “What is Paramount thinking?” As if reading my thoughts, I found a quote from Thomas Lesinski, PDE’s president, discussing large amount of experimentation with content length online and how people flock by the millions to watch long-form content on sites like Hulu and Joost.

Let’s consider some of the most prominent examples of aforementioned experimentation:
Broadcast and cable networks airing linear TV shows on the web. Shows such as The Office and The Simpsons are readily available on sites like Fox.com and Hulu.com. These shows are not original, however. They have been repurposed from linear TV and linear advertising paid for them.
Content owners creating original, short-form content exclusively for the web. SciFi channel, for example, has been releasing original 5-minute-long webisodes of Battlestar Galactica online to explore plot off-shoots and keep audiences engaged with the show between seasons.
Producers releasing films online instead of directly to DVD. Movies like Incubus and Waterborne premiered online, instead of in the theater, to build awareness prior to movies’ release on DVD.

Really interested readers will notice that all of the above combine original, short-form content or repurposed online long-form content. None of these attempts to distribute original long-form content online. There is a reason for that and we will explore it in a minute.

Meanwhile, Paramount itself has experimented with online video, releasing Jackass 2.5 online in December of 2007, in partnership with Blockbuster. The movie has been dubbed the first feature-length movie released online.

The appeal of feature-length content online is easy to see:
Won’t cannibalize linear audiences. A major issue with repurposing linear TV content online is the fear that viewers will opt to watch online, instead of on linear TV, fragmenting linear audience and draining advertising revenue from linear channel. Original web content is not available on linear TV and thus can’t cannibalize linear audiences.
More premium inventory. A problem with the short-form content is the very small amount of space to insert advertising. Online video still relies predominantly on pre-rolls for monetization. Users are willing to tolerate a few pre-rolls for movies and TV shows, but not for the 5-minute clips. The most egregious offenders insert 1 30-second ad per clip. Average ad insertion rate is 1 ad per 2-3 clips. By comparison, a 2-hour-long feature film will have space for at least 16 ads (assuming 1 pod every 15 minutes and 2 ads per pod).

So, let’s take these benefits and add two Hollywood directors specializing in action flicks and internet shorts. Is this a match filmed in Hollywood Heaven? I don’t think so.

First issue: monetization. There still isn’t a business model for profitable online distribution, especially primary distribution. Almost all of the professional video served online is repurposed and has been paid for through linear windows, including theatrical release, pay-per-view, etc (side note: Kurt Scherf has an excellent report on the topic: Internet Video, Direct to Consumer Services).

Economics of Jackass 2.5 do not apply. The movie was comprised mainly of unreleased Jackass 2 content which has been paid for by linear release of Jackass 2.

To be profit-positive, a movie released exclusively online would have to be one 2-hour-long commercial, have to be released as a pay-per-view or would have to be the lowest-cost Hollywood production known to human kind. None of these options position the movie for success.

Second issue: PC is a secondary screen for the long-form content. Bulk of online viewing of long-form content occurs because viewers want to catch up with a missed episode of a linear show. Even in this instance, the market is TINY. Hulu, one of the most popular full-length programming distributors only clocked 6 million monthly visitors in September of 2008, according to Quantcast.

Bottom line: the internet is not ready for first-run, feature-length, professional content. Neither the audience preferences nor the business models are there for success. If I were Thomas Lesinski, I would focus on two things that internet is good for:
•Augmenting linear revenue with repurposed content (a-la Hulu, etc)
•Augmenting viewer experience with short-form content that markets a show prior to linear launch or keeps viewers engaged with the show while the linear component is on the hiatus (a-la SciFi’s Battlestar Galactica).

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