Is the Fancast Store a Mistake?

In the age of online entertainment, consumers get virtually unlimited choice of content and unlimited means to entertain themselves. They can stream their favorite episode of Lost from ABC.com, watch full-length movies on Hulu or even download episodes of shows like the The Office from NBCDirect and they can do it all for free.

These choices offer consumers unprecedented amount of control over their entertainment experience, which is bad news for incumbent content aggregators: cable, satellite and IPTV companies. The incumbents have to create a way to deliver increasingly-sophisticated entertainment to consumers for free.

Amy Banse, the president of Comcast Interactive Media, alluded to some of these
challenges during her keynote at the Parks Associates CONNECTIONS™ event in July
(http://parksassociates.com/events/connections/2008/attendees/materials.htm).

Comcast is a great example of an incumbent provider working hard at establishing new entertainment avenues for consumers. In 2006, it launched Ziddio, a user-generated portal similar to YouTube. It followed up with FearNET.com, a horror movie and community site. In 2008, it launched Fancast, a video aggregation and streaming site.

Not all its experiments have been a success. In August, Ziddio has closed its doors (or shut down its servers) for good. FearNET, on the other hand, is alive and growing. In 2007, Comcast expanded it onto the video-on-demand (VoD) platform. This is a critical step for Comcast, as it is trying to build a holistic consumer experience, linking TV, internet and mobile into one.

Comcast’s latest foray into the digital media distribution is the launch of it’s Fancast store in September of 2008. Using the store, any broadband customer in the US can download from over 3,000 titles. Comcast plans to expand the library to 10,000 by the end of 2008. With the new store, users will have an option to buy or rent the video and download it to their PC at prices comparable to Amazons: $10-15 to buy and $4 to rent.

This latest expansion makes me pause to think about what Comcast is trying to accomplish. Have they not learned from iTunes, Hulu and Veoh? What about Netflix and Walmart, who got their own bruises trying to set up digital distribution?

Without a doubt, Comcast will face many of the same challenges as distributors listed above, however, in Comcast’s case, there are significant benefits that would make this strategy worth the risk and give Comcast a chance to succeed. Let’s take a look at each in greater detail. First, let’s consider the challenges:

•Unfavorable economics. Same argument as applied to Hulu and Veoh and Joost applies to Comcast: content owners keep the bulk of the video advertising revenue. Although Comcast did not comment on the revenue arrangements, it did admit that content owners sell ads in the videos featured on Fancast, which usually means that content owner retains 70-90% of the revenue. With the launch of the Fancast store, Comcast acquires an additional revenue source: consumer purchase and rental fees, however, it is also likely that content owners keep the bulk of those.

•Digital rights ruin consumer experience. Content owners manage media rights very carefully, to ensure revenue maximization. This would hinder the delivery of the holistic consumer experience mentioned above. For example, a movie, or a TV episode may be available on Fancast site, but not available on VoD.
Additionally, content owners are adamant about protecting their content with the Digital Rights Management (DRM) software. Fancast is no exception, using Windows Media DRM. DRM further restricts how viewers can enjoy video, for example, consumers can only watch video on a PC, not a Mac, mobile device or a TV.
Such limitations also interfere with “for pay” business models outlined above. Rather than downloading a heavily-protected video file that can only be watched on a PC, consumers will opt to buy (or rent) a DVD, which can be watched on TV or PC and now even on a mobile device as some DVDs include digital versions.

•Competition will hinder success. Online video field is extremely hot with many hands reaching for very little revenue. From the broadcast networks to the device manufacturers, companies like ABC, NBC, Apple, and Microsoft are all striving to deliver the next generation of the consumer entertainment experience. Standing out in this crowd will require an exceptional product with clear differentiation.

There are, however, opportunities for Comcast in pursuing this strategy:

•Content owners crave secure, multi-platform distribution. As consumers increasingly engage in concurrent media consumption and ad avoidance, the effectiveness of advertising in media decreases. Advertising revenues pose the bulk of revenue for many content owners and they want to ensure that if effectiveness of one channel, such as TV, diminishes, they have another channel, such as internet to supplant it with. Service providers such as Comcast make very good partners for media companies, potentially yielding better revenue splits and more lenient distribution rights.
According to Alix Cottrell, general manager of Fancast, this is the route that Comcast intends to follow. Current plans will allow Comcast customers with VoD or DVR to either copy online content into their VoD folder or have it recorded on their DVR (if the show is only available on linear TV). Comcast plans to implement this service within 12 months. In the next 24-48 months, Fancast also plans to launch a mobile component. Initially, consumers will still have to download content to PC and then port it to a mobile device. If the Clearwire partnership is successful, however, Comcast may also launch a direct-to-device service on par with at&t’s Mediaflo or Verizon’s VCAST. Finally, thePlatform, Comcast’s video delivery arm, has recently acquired Chirp, a social application developer, suggesting that Comcast is gearing to dramatically expand social features of its Fancast service.

•Can build biggest libraries. As a media aggregator and distributor, it is easier for Comcast (and most service providers) to build large video libraries. It can leverage its linear distribution relationships to secure content from many providers. It is also not bound by the media ownership regulations that restrict some of the other aggregators. For example, Hulu still doesn’t have ABC’s and CBS’ content in its libraries and it likely never will. Even if the ideological differences between partners get resolved, media ownership regulations will preclude Hulu from adding more content partners.

So does Comcast’s launch of the Fancast store make sense? Will the store succeed? I think it’s safe to say that it does and it will. Of course it is important to keep in mind that success will NOT be measured by revenue or profitability of an individual property like Fancast. Fancast will, however, condition consumers to seek video online and will also build stronger links in consumers’ minds between internet video and traditional TV. As content owners relax their rights requirements, Comcast will be in the position to deliver the holistic consumer experience, which envelops consumers in content (and advertising) regardless of where they are or which device they are using. That service may even be compelling enough for consumers to consider opening their wallets!

Comcast's Fancast Goes Transactional

We had the opportunity today to brief with Alix Cottrell, who is the general manager for Comcast's Fancast service. As has been reported, Fancast has now opened up a store where TV episodes and movies can be purchased or rented. The numbers of titles (3,000) and features of the service are similar to those to which we’ve grown accustomed – iTunes, Unbox, CinemaNow, etc. So, while it’s interesting that Comcast is getting into the transactional business for online videos, our key takeaways from the conversation is how Comcast is taking “over-the-top” video and really making it a strategic asset to build their core broadband and television services. This was a key point that was stressed by Amy Banse, the president of Comcast Interactive Media, during a keynote at our CONNECTIONS™ 2008 conference in Santa Clara.

The key to Fancast’s success isn’t going to be how profitable its movie rental business is; it’s how well it can serve to point viewers (Comcast subscribers or not) to relevant content. The extra benefit of the service – if you’re a Comcast subscriber – are the features that will:

• Allow you to remotely program your DVR (a feature that should be rolled out in some form later this year but fully deployed in 2009); and
• Set up “favorite” folders of content that can then be viewed at the TV; and
• Help direct users to all of the ways in which a Comcast subscriber can view the content – online, live, in VoD, etc.

With Fancast’s free content, there are some interesting tools that allow users to share content with friends or set notification reminders where they are e-mailed when new content is available to view. This isn’t particularly unique; many of the online video services offer this. It’s just a nice tool to have, and a new feature that Comcast is touting.

One area of electronic movie distribution that we’ve covered extensively in our blog and in reports such as the newly-released Internet Video: Direct-to-Consumer Services (Second Edition) is the struggle that online movie services have in dealing with Hollywood’s “sequential distribution” or “windowing” of content. Basically, it’s the rules that govern premium Hollywood content’s availability to certain distributors, whether they’re theaters, DVD rental stores, airlines and hotels, pay-per-view/video-on-demand, and syndication.

The folks at Comcast aren’t making claims that Fancast is going to shatter the windows, but there are some nice features that Fancast delivers in terms of setting consumer expectations to when and where content can be viewed. I think that’s a really important aspect to note. Comcast likes to think that consumers will get accustomed to “Fancasting” content to check how they can view it. They also refer to it as “creating the impression of a windowless world,” when in fact there are strict rules that will limit the ubiquitous access to all content. Better to set the expectations early and offer consumers additional options (ordering the DVD through Amazon, for example) than to disappoint them in the long run.