The party line from cable executives is that the “cord-cutting” phenomenon–consumers swapping cable subscriptions for Internet video–is a myth. Or, at best, greatly exaggerated. Not so, says Verizon CEO Ivan Seidenberg.

He told the crowd at Goldman’s media conference this morning that the cable bundle is going to go the way of the wireline telephone business. That is, the next generation of consumers won’t have any interest in paying for it.

“Young people are pretty smart. They’re not going to pay for something they don’t need to,” he said. “Over the top is going to be a pretty big issue for cable.”

But that’s an issue for Verizon (VZ), too, right? Seidenberg’s company sells its own version of the cable bundle, via its Fios service, and it has 3.5 million customers. And Seidenberg noted that the TV bundle isn’t going away immediately. But it will, he said.

“We take the over the top issue with video very seriously,” he said. “I think cable has some life left in its model…but that it is going to get disintermediated over the next several years.”

Seidenberg’s argument is that over the top is a much bigger deal for cable guys like Comcast (CMCSA), who have an entire business built around the bundle, than it will be for his company, which is a relative newcomer to video. Theoretically, he’ll be be able to replace some video subscribers with subs who pay for robust broadband connections. But like it or not, it’s going to happen, he says.

“I’ve seen the movie. If you remain static too long, the technology is going to nibble at you on the edges, and you have to be prepared for it.”

Meanwhile, on the eternal iPhone question: Seidenberg repeated his standard line, which is that he’d very much like to offer Apple’s (AAPL) handset, and hopes to do so one day.

Existing versions of the iPhone won’t work on Verizon’s CDMA network, but he’s hopeful that the launch of its new 4G LTE network this fall will lead Apple to produce a compatible handset. Which it may very well be doing, anyway.

Meantime, he has a business to run, and he’s been activating a lot of Google’s (GOOG) Droids. Warning! Sports metaphor ahead: “This is like the Knicks getting Carmelo Anthony. Like it would be very good if the Knicks got Carmelo Anthony. But they have to play the game whether they get Carmelo Anthony, right?”

A couple of months ago, I wrote a piece called “The Virtual MSO” which described a vision for the Internet video service of the future, the platform that would support it and how the Virtual MSO will fundamentally re-shape the pay television industry. Here, I handicap the winners and losers in that new world order.

The central point I made in “The Virtual MSO” is that the migration of TV to the Internet will pull along attributes from both the traditional cable model (”MSO” or “Multiple System Operator” is the industry term for a cable operator, like Comcast) and the first generation of ad-supported Web video services like YouTube and Hulu.  I refuted the assumption by some that free, ad-supported Web video would displace consumers’ need for pay TV services and cause them to “cut the cord”.  But I hypothesized that if a new type of service (the “Virtual MSO”) offered consumers something that blended the best of both, consumers would embrace it and the traditional pay TV business would be seriously pressed to adapt.

“What if someone offered you a service for, say, $69.99? per month that integrated Web video and pay TV – allowed you to get any Web video (like free broadcast network TV from Hulu), along with a handful of linear channels you select (we really only need linear for sports and breaking news) plus a rich VOD library of premium TV content and movies? And you could access it from anywhere at any time from any device – TV, PC, netbook, smart phone. Streaming or download. No special set top box (Web connected TV’s and open set top devices will leapfrog service-specific boxes), no truck roll, not restricted by geographic footprint or multi-billion dollar infrastructure build outs – because it’s an IP based, broadband distributed, managed service.”

In one sense, this is obvious.  It’s hardly controversial to suggest that there will be Internet distributed pay TV services that follow their cable, satellite and telco predecessors.  Cable came first, DirecTV took the same basic business but used satellite distribution, AT&T, Verizon and others followed with telco IPTV services.  The difference is that the Internet distributers will have the benefit of the lessons of the TV past and the lessons of the Web.  We now know people value an on-demand experience more than linear except in a handful of instances (again, sports, other live events and breaking news).  So the service will have the inverse ratio of linear to on-demand, relative to the traditional MSOs.   The business model will look more like the traditional pay TV dual-stream – subscription and advertising – revenue model. High-quality, high production value content is expensive to produce and advertising alone isn’t likely to be enough.  But the user experience will reflect the best of the Web – largely on-demand, in the cloud and available on any device, Web-like search and discovery, etc.  There will be a huge cost advantage to the operator, which unlike its competitors, would not have to build out its own proprietary network.

Some commentators, like Mark Cuban, have written that the Internet can’t support full-blown Internet TV today. Mark’s right.  Today, it can’t support millions of simultaneous users on linear video streams, but the popularity of premium on-demand content services like Hulu and Internet-distributed live events like March Madness along with technology and equipment advances like Cisco’s new CRS-3 router show that we’re heading there and even Mark acknowledges that it’s a matter of time.  If the capacity is there in a meaningfully disruptive way (and remember, the VMSO is a largely on-demand service with select linear programming) in the next, say, five years that’s a big, big, deal for the $364 billion global pay TV business.  Particularly since five years is plenty of time for agile companies like Apple and Google who are gunning for this business, but may not be enough time for the slower moving pay TV operators who will have to find a way to adapt to save themselves from becoming dumb pipes. And remember, it doesn’t have to be “as good as” it just has to be “good enough”.  The landline voice business laughed at cord cutting for a long time — ‘no one will rely on flaky cellular networks with scratchy quality and dropped calls in lieu of a home landline, ha ha ha’. Then cellular got “good enough”, hit the tipping point, and nobody in the landline business laughs at cord cutting anymore.

So who will be the winners and losers in this new TV world order?

The New Entrants

The best bets among the newcomers are — no surprise — on four large consumer Internet companies – Apple, Google, Microsoft and Amazon.

They all have:

• the ambition
• the experience running consumer-facing services
• the technical/ software leadership (the VMSO won’t be a network or box-centric business, but a software-centric business)
• the very deep pockets needed to get over the content rights hurdles
• staying power (it will be a bumpy road)

Netflix, Hulu, YouTube, Boxee, Sezmi and many other agitators will help drive the movement (and may be acquired by these larger companies to advance their causes in one way or another), but ultimately I think these big four consumer Internet companies – Apple, Google, Microsoft and Amazon — are the most likely to change the pay TV landscape forever and Apple and Google are the clear frontrunners.

Apple is building a subscription video service on its iTunes platform and will likely come out with a living room display device, think an iMac with a 52″ screen built to replace your flat screen on your living room wall with a hybrid remote/keyboard and seamless integration with other Apple devices in your house (like the iPad on the kitchen counter). Apple people will love it and if the premium content library is there (the big “if”), for the first time a meaningful segment of the population will be just fine with Apple (along with the open Internet) as their sole pay video provider.  Another significant development favoring Apple is its recent embrace of advertising. The fact that it has acquired Quattro Wireless to build a mobile ad business is important in many ways not the least of which is that it is a fundamental shift for Apple which has up until now eschewed advertising altogether. People have suggested that the economics of Apple’s planned subscription video service won’t work because it’s a single revenue stream business – well, probably not any more.  Apple is now in the ad business too.

Google has stumbled in its premium video efforts to date (partly as a result of trying to run premium video services under the YouTube brand – obviously a losing battle).  But it seems to now be getting serious about this space and its new Google TV JV with Sony and Intel shows it wants its Android platform to be the OS for the VMSO.  It has suggested that it does not plan to acquire rights and offer the consumer content service as part of this initiative, but that will likely change as Apple and others assemble rights and expand services.  Google’s an ad-driven business.  It built the Adwords/ Adsense cash machine on top of its consumer search service (not on top of platform technologies like Chrome or Android). Google will need to build a premium video service to build the video ad business to which it aspires.

MSFT is building multi-screen video platform capabilities into its Mediaroom IPTV middleware platform as well as in its Silverlight technologies. MSN has aggregated rights for an over-the-top consumer content service offering in Europe.  My guess is that these initiatives will likely come together with some sort of broader based consumer video service in the not too distant future.  Although Microsoft’s opportunity may be challenged by its silo’d culture and it may take the vision and initiative of someone at the top to connect the dots within Microsoft.

Amazon is a little less obvious but I think it should be taken seriously.  Amazon’s video service plus its huge investment in cloud infrastructure provides key building blocks for a VMSO. It has done a lot of legwork on rights acquisition. It could put together a bundled white-label infrastructure with aggregated rights for other aspiring VMSO operators or launch a full-blown consumer VMSO service itself.

Each will need to build (or buy) an online software platform that can manage all the things an MSO does but in an Internet environment – linear and on-demand video, packaging and publishing, entitlement and authentication, subscriber and device management, integration with advertising, transactional and billing platforms, DRM, CRM etc – as well as integrate web video along with social, search and discovery features etc. – and manage all of that across any device (disclosure: this is what my company, Extend Media, does).

The biggest question mark around all of this has to do with the content rights landscape. Each VMSO operator will need to acquire the content rights for its service and will have to write very big checks, but the rights are available. There is Federal law to the effect that cable programmers have to do deals with any operator who is willing to pay their market rates (the result of court battles weighed by the nascent satellite industry years ago).  Right now digital distributors are approaching this by trying to acquire narrow slices of digital rights in a piece meal fashion to satisfy nascent web or mobile services, but before too long, the opportunity will be obvious enough, the Internet capacity problems will have foreseeable solutions and they will start approaching things more like they are aspiring pay TV operators and they will say (in the courts, if they have to) “we are no different from a start up cable, satellite or telco TV company (other than the fact that we will take a different distribution path) and we want the entire bundle of TV rights (linear and VOD) that you license to everyone else in the pay TV business and we’re willing to pay just what a fledgling cable, satellite or telco operator would pay”.  Accordingly, the new VMSO’s will have to adopt the existing pay TV business model (subscription and advertising) to pay the big bucks for subscriber fees to programmers. The costs of entry will be great, but also the potential rewards. That may seem like a reach today, but before long the several hundreds of millions that they will have to pay to get it all (i.e. the full bundle of rights required for the VMSO to be viable) will seem like a good bet and all of Apple, Google, Microsoft and Amazon have the means to do it (for example, my guess is Google could have pre-paid three[?] year’s worth of the full monty of TV/digital rights for a VMSO service for what it paid for YouTube).

I should also mention the CE/ HDTV manufacturers — Vizio, LG, Sony, Samsung, etc.  It’s possible some Web connected TV manufacturers will launch VMSO content services of their own.  More likely, they will become aggregators of services and when you take your web-connected TV home you will plug in a broadband cable, turn it on and see a collection of widgets for a variety of content services aggregated by the TV manufacturer with whom you may have the primary billing relationship.  But some of these guys might also pay up for the full array of content rights and try to displace your current pay TV provider.

The Incumbents

The incumbent pay TV operators are, of course, well equipped to build VMSOs in many ways.  They are in the MSO business already and own many of the broadband connections over which VMSOs would presumably deliver their services (and since we now have complete uncertainty around Net Neutrality this could be very important).  Their biggest problem is that they have the most to lose. So many will only move when newcomers force them to.  Even then, some will stick their heads in the sand (dumb pipes).  Others will try to respond but will be unable to move quickly enough (more dumb pipes).  Others, the survivors and winners in this category, will decide that if anyone is going to cannibalize them, it had better be themselves.  They will launch subscription broadband video services, in and out of footprint, that appeal to the generation that grew up on the web instead of the TV — the real threat to the pay TV  industry is less cord cutting than it is a whole generation that may not care to buy the cord in the first place — and position it as a compatible entry level tier alongside their full service cable, satellite or telco TV offerings.

I think Comcast is the only operator that is currently adequately prepared and positioned for the VMSO. In 2006 Comcast bought the software capabilities (its acquisition of thePlatform), and then it launched an aggressive IP network infrastructure initiative (Project Excalibur). With the pending NBCU acquisition, it will control a sufficient wealth of premium content that, when combined with web content, will be enough to launch a meaningful consumer offering.  When it can’t grow its traditional business and/or one of the newcomers pushes it, Comcast will have the all the ingredients for a viable VMSO offering – in and outside its cable footprint – and won’t need anyone’s permission. At the outset it might not have all the programming customers want, but it could be “good enough” at the right price point to compete against the newcomers and other operators.

Comcast is the only operator who sees broadband video as both a threat and an opportunity and understands that its TV Everywhere efforts have a dual purpose — preserve the status quo as long as possible but also build the offering (they are getting the digital rights to content now) and be ready to offer a national broadband subscription service when the time comes.

The other big challenge for incumbents is technology.  They have a lot of it for their current pay TV services but not the kind they need for the VMSO.  They will need to develop a software platform with capabilities that can run a service on and over any network and the old approaches of hardware and network based solutions won’t be particularly relevant. The telco operators will be a little better off with their more modern IPTV infrastructures and platforms but unfortunately they used a lot of legacy cable technology in many of those buildouts.

Content

We’re hitting a ceiling on free ad-supported premium content on the Web. The pendulum is swinging back. Free ad-supported premium sites, namely Hulu, are having trouble growing their free libraries and are being pushed to add subscription services to expand their offerings. Content owners and TV distributors are successfully collaborating to stop the bleeding with efforts like the cable-industry’s TV Everywhere (where cable programming is made available for free online only after a consumer “authenticates” that he/she is a cable TV subscriber). It’s in both the content companies’ and operators’ interests to preserve the status-quo dual revenue stream business model for television and I think that will continue to shape the landscape.  So, I think premium content creators will fare relatively well in the VMSO world.   That industry is going through a revolution of its own partly in response to the rise of Internet video but also as a part of a long-overdue right-sizing of the cost side of the business.  But more importantly, the broader industry is recognizing that the economics of premium content – high production value, high quality TV and film content, which the US does better than anyone else in the world — does not match well with the economics of free ad-supported Web video.  Eventually the content companies will embrace the VMSO as just another pay TV business with a dual subscription and ad business model that can expand access to their content.

Conclusion

As I said upfront, Internet distributed subscription video services (VMSOs) are as natural an outgrowth from the cable seed as the satellite and telco TV businesses were.  I’m not saying it will happen overnight.  As I said earlier, I think this is a five year evolution.  And I’m not saying it will necessarily destroy its predecessors, just as satellite and telco TV haven’t killed cable.  But it will change everything and for the less agile in the pay TV business there may not be enough time to adapt, even if they start now.

By Jan Ozer
Posted on September 2, 2010

I was preparing for a webinar last week and scanned 46 websites to see how many used HTML5 as the primary playback option for video. This was a mix of media sites (14), business to consumer sites (22) and business to business sites (10). The answer was 1 – Wikipedia – with YouTube offering HTML5 as an alternative to Flash. Even Apple – the sugar doesn’t melt in my mouth, we believe in open standards — poster child for HTML5 uses the QuickTime plug-in for displaying video on Apple.com.

That got me thinking; why would any site where video was mission critical use HTML5 today, or even in the near term? There’s no standardized way to protect their content, no streaming server that can efficiently dole the content out to multiple viewers on different browsers and no scheme for adaptive streaming. There isn’t even full support for all advertising servers.

Looking at it from the other direction, the installed base of HTML5 compatible browsers is only around 40-50%, depending upon who you ask, and you need to produce using at least two, perhaps three codecs to service those browsers. That made me realize that HTML5 is a FUD and media driven fiction that won’t be widely relevant for at least three or four years, and then only if the relevant parties make some hard decisions that they’ve as of yet shied away from.

So here are my five key myths about HTML5. See here for the detailed explanation behind each.

Myth 1. Current Producers Hate Flash

Myth 2. HTML5 is Ready for Prime Time

Myth 3. Group Standards are the Best Way to Advance Technology Development

Myth 4. iPad Compatibility Equals HTML5 Compatibility

Myth 5. H.264 Video Equals HTML5-Compatible Video

HTML5 came to prominence with Apple’s decision to exclude Flash from the iPad. As part of that furor, HTML5 become the flavor of the month, and has garnered significant press and developer attention that far exceed its short term usability for most sites that don’t simply adopt technology for technology’s sake. HTML5′s value proposition today, and for the foreseeable future, is “encode in more formats that offer no advantage over H.264, and play on fewer computers, and distribute your on-demand video with less quality of service, fewer features and less ability to monetize than you can with Flash or Silverlight. Oh, and forget live.”

Wake me up when HTML5 is ready for prime time.

BY TROY DREIER ⋅ AUGUST 11, 2010 ⋅  PRINT THIS POST ⋅ POST A COMMENT

Getting your videos online isn’t enough anymore. Now you need a service that makes it simple to manage your library of videos, and that delivers great-looking high-definition content that won’t stop or stutter.

Brightcove, the largest online video platform, and Akamai, the largest content delivery network, made waves this morning with news of a partnership that would extend Akamai’s global HD Network to Brightcove’s clients.

Brightcove had previously been partnering with CDN Limelight for bundled services, but is now switching to Akamai. Acccording to Jeff Whatcott, Brightcove’s senior vice president of marketing, Brightcove made the switch because Akamai’s HD network, which was launched in September, 2009, offers global adaptive bitrate HD streaming that others can’t match. Akamai also offers rich APIs, he notes, that allow both companies to create a tight integration for a seamless customer experience. Akamai also offers unique features, such as Live DVR, which allows viewers of live events to jump back and re-watch any portion of an event that they choose.

Brightcove currently has over 1,500 customers around the world, and approximately 80 percent of them use Brightcove’s bundled services. Brightcove will begin transitioning major clients to Akamai this fall, with others following after.

Customers will still be able to use other CDNs through Brightcove, if they prefer. Those happy with Limelight can stay with Limelight.

That partnership is an important step, says Whatcott, because deploying Akamai’s HD Network is tricky without an OVP in the middle. Thanks to the integration, the complexity should “melt away.”

“Our alliance with Brightcove is important because it is designed to enable companies to have easy access to the high quality delivery made possible by the Akamai HD Network, and they will now have it instantly and around the world,” says Paul Sagan, Akamai’s president and CEO.

Google’s decision to open source VP8 in the form of WebM was the opening salvo in yet another codec war. We take a look at encoding efficiency, output quality, and CPU horsepower required for playback of both WebM and H.264.

This article compares H.264 to WebM, Google’s implementation of the VP8 codec, using three variables, encoding time, compressed quality and CPU requirements for playback on three personal computers. Here’s the Cliff’s Notes version of the results: Using Sorenson Squeeze to produce both H.264 and WebM, the latter definitely took longer, but there are techniques that you can use to reduce the spread to under 25%, which is pretty much irrelevant. Though H.264 offers slightly higher quality than the VP8 codec used by WebM using the aggressive (e.g. very low data rate) parameters that I tested, at normal web parameters, you couldn’t tell the difference without a scorecard. Even as compared to H.264 files produces with x264, VP8 holds its own.

The most significant difference between the technologies is the required CPU horsepower to play back the respective files, as shown in Table 1, which contains the results from four different computers. All numbers are “best case,” or the lowest CPU utilization in any of the tested browsers. More on test procedures below.

On a MacBook Pro with GPU acceleration for H.264 decoding, WebM took 38% of total CPU to play back a 720p file, compared to 24% for H.264 played via Flash, and 15% via HTML5 in Apple Safari. On an Acer Aspire One Netbook without GPU acceleration for H.264, WebM was actually slightly more efficient than H.264 played back either via Flash or HTML5, though the difference wasn’t significant. Note that the tests on this small screen netbook involved an 640×480 file, not 720p.

On a Hewlett Packard 8710w mobile workstation with GPU acceleration for H.264 playback, H.264 via Flash required 70% less CPU power than WebM to play back the 720p file, and H.264 via HTML5 took 47% less CPU power. On my daughter’s iMac, WebM and non-accelerated Flash-based H.264 based playback ran neck and neck, while Apple’s Safari, presumably with hardware acceleration, proved 54% more efficient than WebM.

Basically, though there are huge swings with the individual browsers, where GPU acceleration exists for H.264, it’s significantly more efficient than WebM; where it doesn’t, they’re neck and neck. At this point, between Flash Player 10.1 with hardware acceleration on supported graphics cards and platforms, and Apple’s own Safari browser, there’s a lot of hardware-accelerated platforms for H.264 playback, and few if any for WebM, though there may come in time.

Interestingly, on the WebM website, Google says “Note: The initial developer preview releases of browsers supporting WebM are not yet fully optimized and therefore have a higher computational footprint for screen rendering than we expect for the general releases. The computational efficiencies of WebM are more accurately measured today using thedevelopment tools in the VP8 SDKs. Optimizations of the browser implementations are forthcoming.”

While everyone and their mother has an app these days, Google’s decided to emphasize YouTube’s mobile site as the wave of the future. It’s faster and more feature-filled than the YouTube app; they even made a video to prove it.

Crucially, the video quality is much better. There are also features packed into the mobile site that aren’t available on the app, including the option to like or dislike a video, suggested search results, and the ability to create playlists. According to Google, the YouTube site can also be updated more quickly and frequently than native apps, meaning that mobile browser users will get the best of YouTube first.

It’s clearly a bid by Google to acclimate people to web-based apps, and why shouldn’t they? A native app like YouTube on the iPhone is subject to the whims of Apple—as a small for instance, the YouTube app still uses the five-star rating instead of thumbs up or thumbs down—while on the web Google is master of its own domain. It also, as Google points out in its own blog post on the subject, allows for a more consistent YouTube experience across platforms.

Will it be enough to get people firing up their mobile browser instead of tapping their adorable YouTube app icon? I’m guessing no, not yet. But if the quality and feature gap continues to grow, it’s only a matter of time.

Google TV Is A Bigger Deal Than You Think

by Jeff Malkin

For content publishers and consumers, there is chaos in the video ecosystem, and it’s going to get worse before it gets better. No doubt you’ve been reading about HTML5 vs. Flash vs. Silverlight (and recently, WebM), Apple vs. Adobe, H.264 vs. VP8, iPhone vs. Android, Do-it-Yourself vs. OVP.

Whether serving tens or thousands of videos, maximizing viewership with reasonably high-quality videos across web and mobile devices is the new imperative.  With so many permutations of video codecs, formats, containers and features, it’s confusing to design a video workflow that’s cost-effective, flexible to change with the evolving formats and scalable to meet your growth requirements.  With this post, I offer a couple of recommendations to help simplify the array of options currently available.

Case in point: Just when it appeared that H.264 was emerging as the video codec leader, primarily because of YouTube support and strong backing by Apple on its devices, Google went and threw an open-sourced VP8 codec into the ring via the recently announced WebM project, a new video format launched by Google with support from other leading industry players such as Mozilla, Opera Software, Brightcove and Encoding.com.

While both H.264 and VP8 are good quality codecs, only VP8 is currently royalty-free and therefore has a great opportunity to emerge as the new leader within the next year or two.  However, for web distribution today, we recommend encoding your videos using the H.264 video codec in an .mp4 container.  This is a high-quality output format already supported by Flash, and the leading HTML5 browsers including Firefox, Chrome, Safari and Internet Explorer v9.

WebM is a great shot in the arm for proponents of HTML5 who are pushing for plugin-less video viewing and a more seamless integration with rich media web applications.   But the lack of unified HTML5 standards across browsers has hampered its growth.  Adobe’s Flash, on the other hand, with deep market penetration and a robust feature set, remains the dominant technology for consuming web-based video.

Our recommended approach for HTML5 supporters who want to ensure users can view your videos via a slick user experience is to write code, or utilize a commercial platform, to detect the user’s browser for HTML5 compatibility, and if not supported, launches a Flash player.  If you want to get fancy, you can utilize the Flash Media Server to detect your users’ bandwidth connections during video playback and switch to a higher or lower bit-rate version mid-stream to ensure the highest quality video is being served without causing buffering issues.

Adding to the complexity of video format options are the various mobile device requirements.  Yes, Apple’s iPhone OS and Google’s Android OS – the dominant mobile platforms for mobile video consumption – support our recommended encode format using the H.264 codec in an .mp4 container delivered via HTML5 in Safari and Chrome.  However, if you’re delivering video via applications on the iPhone / iPad, Apple now requires publishers to prepare video in its proprietary and complex HTTP Streaming format.  For this, we suggest utilizing a video encoding service or video platform to manage.  To support the plethora of feature-phones already in the market, videos should be encoded to the 3GP format for the most universal coverage.

The “winners” in the video format battle will reap billions of dollars as their influence and market dominance in the video ecosystem rises.  This simple truth means the utopia of a single, standardized video format across all web and mobile devices will not be realized – not soon, not ever.  In other words, for the foreseeable future, you will need to support multiple video formats to capitalize on your revenue potential across the various internet-connected devices.

The good news is that there is a mature ecosystem of video tools and service providers that can help.  The availability of open-source content management systems, video encoding services and cloud storage providers has dramatically simplified the development effort required to create and manage a powerful, flexible and cost-efficient video workflow.