Disney, Yahoo Look at Internet TV

Walt Disney Co. is discussing making video from some of its television networks available on sets embedded with Yahoo Inc.'s Internet-TV software, people familiar with the matter said.

Such new offerings would propel Yahoo into a broader battle to use the Internet to bring premium content to digital TVs, amping up the competition with traditional cable-TV and satellite operators.

Companies including Apple Inc., Google Inc., and Cisco Systems Inc. have entered the race to combine Internet video and conventional TV in a variety of ways, including selling separate devices that attach to cable boxes and building software into cable boxes and new TV sets

Disney, for instance, is eager to test the water with new digital models for distributing video, according to the people familiar with the matter. And News Corp. is talking with companies including Samsung Electronics Co. about licensing TV shows and movies from 20th Century Fox's library for use on tablet computers and Internet-connected TVs, according to people familiar with the matter.

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Netflix Signs Streaming Deal for ABC, Disney

Netflix Inc. inked a licensing deal with Walt Disney Co. that allows for online video streaming of ABC television network and the Disney and ABC Family channels.

Netflix has been expanding its streaming offerings, signing deals with content providers such as NBC Universal, and has said its members are watching more content streamed over the Internet than on discs delivered by mail. It recently launched its first streaming-only subscription plan in the U.S., continuing its embrace of online streaming as the rise of digital film distribution continues to shake up the industry.

Under the agreement, relevant programming will be available on Netflix no earlier than 15 days after the initial telecast. Disney Channel and ABC 4Family movies such as "High School Musical" will also be available.

Netflix has consistently reported improved profit as it attracts subscribers and expands its library to compete with DVD kiosks and new digital players. In October, it reported third-quarter earnings rose more than it expected. Its stock has more than tripled this year.

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Industry Group Launches Entertainment Registry

A new industry initiative is underway to tag every commercial digital video worldwide, helping group every asset into one catalog with the hopes of streamlining digital delivery and simplify commercial transactions of digital video. The intiative, Entertainment Identifier Registry (EIDR), aims to simplify the task of tracking all of the millions of new videos coming from content companies and distribution channels, making life easier for everyone in the digital entertainment supply chain.

Much like International Standard Book Number (ISBN) for the book industry, the EIDR would assign a single, unique identification code to movie and TV assets. But because of the different versions of single video assets — including different version edits, formats, regions, languages, subtitles, standard definition, high-def and so on — the sheer amount of digital tags EIDR will have to undertake will be much larger than any other media tagging ever undertaken.

The international coalition is being led by MovieLabs, CableLabs, Comcast and Rovi, and four of the six major studios — Warner, Paramount, Disney and Sony — have backed the initiative, with Fox and Paramount in talks with the group, Powers said. The Motion Picture Association of America, Deluxe Digital Studios, Neustar, Civolution and Vobile are also among the industry groups that have also signed on. The service is expected to get off the ground in 2011. The group is an independent nonprofit supported by member dues, and the system is built on an open Digital Object Identifier [DOI] standard. The International DOI Foundation has 10,000 organizations worldwide using its registry system.

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Time Warner Cable-Disney Dispute, Apple's Reported $0.99 TV Rentals, Amazon's Subscription Service, and Sony's Efforts

I wonder if September 1, 2010, will be looked upon as the day in which we witnessed the beginning of the end for traditional pay-TV services. There is an interesting intersection of news today spanning the world of cable TV and Internet TV services, including Apple, Amazon, and Sony. The items:

• Time Warner Cable and Disney are expected to officially announce a new retransmission agreement, preventing Disney programming (including ESPN) from going dark after today. Good thing - you'd have a ton of ticked-off customers wanting ESPN's colllege football coverage starting on Thursday night. Our hometown paper - The Dallas Morning News has a good piece on what the contentious negotiations might mean for consumers. My take is to expect higher cable bills. In recent days, we've been asked a number of times about the pain threshold for consumers as they consider what they're paying for a triple-play service. Our analysis shows that consumers are still finding high value in their pay-TV services, and efforts by operators to increase their video-on-demand and high-definition offerings certainly help. In this recessionary period, we have found that - as consumers moved more entertainment into the home - that cable TV service has been viewed as a lower-cost alternative to paying high movie ticket prices and the babysitter expenses. It will be interesting to see, however, if we start to reach a pain point for consumers in what they're paying each month.
• Apple is expected to announce something today, and the speculation is rampant about new iPod models, a cloud-based iTunes service, an Apple TV remake, and the possibility of the availability of $0.99 TV show rentals.
• Amazon is reported to be launching a subscription video service that could potentially challenge Netflix in streaming older movie titles.
• Sony has launched Qriocity, a cloud-based movie and music service that feeds content into Sony's connected devices - TVs, Blu-ray players, and home theater systems
  
  
  
  
  

Who's going to control the "Digital Locker"?

We've been pleased to have Mitch Singer from Sony Pictures and the Digital Entertainment Content Ecosystem (DECE) coalition speak at our recent CONNECTIONS events and speak about the potential of "digital locker" services. Roughly defined, these would be services that could authenticate and manage a wide variety of user-owned content in a virtual environment. One key element of the digital locker is widely agreed-upon digital rights management protocols, where multiple connected devices across a wide array of platforms can connect to content coming from multiple sources. The other key is the virtual storage and management of content that will become more important as the number of Web-connected media players (smartphones, tablets, TVs, Blu-ray players, etc.) proliferate.

The DECE is not alone in pursuing the development of digital locker solutions. The Walt Disney Company is promoting Keychest, which Disney CEO Robert Iger describes as a way to allow a consumer to purchase content and play it back on multiple platforms without having to worry about interoperability.

Now, there is the report from CNET that Apple is in discussions with the studios to enable iTunes users to store their content on the company's servers. Apple has told the studios that under the plan, iTunes users will access video from various Internet-connected devices.

We've taken an early look at consumer acceptance of a digital locker type of service, and have found that 30% find the idea highly appealing. I think that the trust issue is going to be more of a problem with the studios than the consumer!

Disney is Bullish on BD-Live

Art Hair, Disney Studios CTO, is speaking now at C-Scape. Disney has released a Blu-ray version of Sleeping Beauty that includes the interactive features of BD-Live. There's actually a good video demonstration of the functionality on YouTube. Disney has launched the BD-Live Network that offers chat, gaming, and other interactive features.

Our Digital Media Evolution study, the results of which will be available soon, reveals that consumers are more likely to view such BD-Live features as access to expanded VoD content and trailers are more valuable than other features like chatting or attending virtual watching parties. I talked to Art about this yesterday at lunch, and he acknowledged that for "old people" like he and I, these may not make much sense. However, when you make Hannah Montana a virtual experience (Art mentioned virtual pajama parties), one can only imagine how the younger generation may respond to a feature like this.

Disney vs. Residents of The Virtual Magic Kingdom

Only a few days after Disney Online announced the imminent closure of the online Virtual Magic Kingdom (VMK) there are a number of petitions circulating to try and keep the worlds running. While the effort is commendable and indicative of how powerful virtual worlds have become, it is not going to happen. However, Disney is not entirely off the hook. The manner in which Disney is closing VMK will unravel much of the good will and support it gained from the current user base. Not to mention their parents.

Disney cannot be expected to run the Virtual Magic Kingdom forever. It was a celebratory, gracious, and deep offering to commemorate the 50th anniversary of the Disneyland Theme Park. It was originally intended to run alongside the 18th month celebration from January 2005 to July 2006. VMK made it almost two years past its sell-by date. However, to expect Disney to maintain and support a service that was never built with a sustainable business model is unreasonable and uninformed. VMK was never built to be a long-term virtual world and to turn it into one would require an entirely new world, built to different standards, and constructed outside the existing VMK. Disney is surely contemplating just such a virtual world and with the wealth of Disney IP available to fill a virtual world: even if done poorly, it would surely be a success.

However, Disney must have been losing a lot of money on VMK or the world was taking too much time and effort away from getting a new virtual world off the ground. How else can you explain dropping tens of thousands of users off the deep end? Virtual Magic Kingdom built a lot of good will for Disney. It helped establish the company in the virtual world space and gained a large following in the process. There are a lot of upset children, tweens, and parents glaring at Disney and asking why their world is being taken away from them. Disney’s remaining virtual world offerings in the youth-oriented space are popular and profitable, but do not capitalize on Disney’s IP lineup. Toontown Online and Club Penguin both serve a younger demographic than the typical VMK resident and do not utilize the Disney IP library to engage users.

We realize the technology that VMK was built upon was licensed from Sulake. We realize Sulake’s own Habbo Hotel virtual world has increasing relevance in the North American market and this could have sped up the VMK closure. We realize there are behind-the-scenes details unknown to all but Disney. Regardless, Disney needed an exit strategy; a plan to move these VMK residents into a new virtual world. A virtual world with an economy and a way to pay Disney for all the IP related digital content, social networking features and ways to interact with some of the world’s most recognized characters. Instead the company is looking back at angry residents searching for a new virtual world to inhabit. Hopefully Disney will come back soon with a new neighborhood for its fans to inhabit.

$500 a Penguin

Club Penguin, the popular virtual world targeting 7-15 year old, is now Disney's Club Penguin. The Walt Disney Company announced that it will acquire Club Penguin for $350 million hard cold cash, with another $350 million in sight if the company meets performance expectations. At 700,000 users, that's $500 a penguin. To put the number in perspective, Murdoch bought Myspace for $28 per user ($580 million divided by 21 million users at the time of acquisition). If we consider activated user account instead, it's a little over $29 per account based on 12 million accounts (many users have multiple accounts). Of course, the valuation is based on growth potential, or the so-called castle in the cloud. Club Penguin did have a 300% YOY growth according to Hitwise. Judged from all angles, it's not a bad deal for the three canadian fathers who set up the site a couple of years ago, not a bad deal at all. When I became a father in 2005, I heard new parents lose 10-20% of their IQ. Apparently the same thing did not happen to those three lucky guys.

Club Penguin did not invent virtual world or avatar-based social network but it was successful at targeting its audience and monetize its users. It combines premium subscription ($6 a month) and microtransaction. Kids can purchase both virutal and real-world merchandise within the game. For instance, they can buy furnitures to decorate their space or T-Shirts to wear to school. Such ideas are nothing new. Cyworld, the South Korean sensation pioneered the concept in 1999. 96% of Korean youth are on Cyworld and it is expected to generate $150-250 million for SK Communications, its parent company. People have doubts whether those cutesy avatars will work in North America. Cyworld did make its U.S. entrance in 2006 but it's unclear whether the company will meet its target of amassing 2 million users by the end of 2007. Apparently Disney believes in the model.

Virtual Worlds have been the media sensation for the past 12 months. There were tons of news articles on everything related to Second Life, including a recent one pronouncing the death of Second Life on Wired Magazine (It does not seem that the article had any impact on the valuation of Club Penguin). However, it's the less known worlds, such as Club Penguin, Habbo Hotel, Runescape, and Webkinz, that are making real money. Virtual World is here to stay, even if Second Life dies. At Connections 2006, I posed the question to the audience, will Virtual Worlds become the new model for social networking? Large corporations might be exiting Second Life, but they are setting up their own branded virtual worlds instead. MTV set up Virtual Laguna Beach and Webkinz, a site owned by Ganz, is making those fluffy toys fly off the shelf. Disney itself has also set up virtual worlds such as Virtual Magic Kingdom. We expect such Branded Virtual Worlds to become even more popular in the coming years and in our recently published report on game advertising, we actually forecasted the growth of advergames and adverworlds. It's funny that Disney said there won't be any advertisements in Club Penguin... It's a giant adverworld afterall.

This deal leaves me wondering, what's next? McDonalds buying Habbo Hotel? Sony buying Runescape?