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If you would like to learn why the Cable Industry’s effort to provide addressable advertising will fail, this video is for you.

Last year a consortium of six leading CATV operators formed a joint venture termed, Project Canoe, to develop a standard platform to deliver addressable and interactive commercials over cable systems. The industry is abundantly aware of the threat that Internet targeted advertising represents and Canoe is their response.

In our analysis there are five reasons it will fail.

First, video will ultimately migrate to the Internet. Eventually, the TV will evolve into a giant window into the Internet Cloud where video is merely one of many accessible applications. Consumers will favor the Net’s anytime, anywhere access as well as the interactivity. Ultimately even sponsors will prefer the ad flexibility of the Net in terms of addressability, interactivity, and spontaneous e-commerce.

Second, video advertising will evolve more quickly into successful models on the Internet than in within closed networks of CATV systems. Technical standards on the Net are open and well understood by independent developers. Thus it is likely that more of them will focus on Internet advertising innovations than on those governed by Project Canoe where standards have yet to be defined. The trial-and-error process of innovation will be much faster on the Net where consumer reaction can be quickly measured.

Third, cable networks like ESPN and A & E are suspicious of Project Canoe. Perpetual tension exists between cable operators and cable networks over the issue of carriage fees. Project Canoe enables CATV systems to charge a fee to the cable networks for ad targeting which is the reverse of the directional money flow for carriage fees. Although the operators are justified in collecting a fee, it is an unwelcome change in the power dynamics for the cable networks.

Fourth, theoretically the CATV industry could have moved forward with targeted advertising ten or twenty years ago. They’ve certainly talked about it long enough, sometimes in high profile announcements and discussion. Yet in reality they have done very little. Thus, there is reason to question their commitment this time as evidenced by the abandonment of “community level” addressability recently.

Even if the commitment is taken at face value, there is reason to question their technical readiness. Put another way, during all the years of discussing the promise of ad targeting they may have let their systems drift in a sort of entropy toward a technical Tower of Babel that Project Canoe cannot unify.

Finally, just two weeks ago Project Canoe abandoned a much publicized planned feature that would have enabled households to be targeted at a “community level”. The decision is significant for two reasons. First, until now Canoe aggressively promoted the capability in nearly all of its public comments. Second, the Project confessed that the variety of networks and deployed equipment among consortium members was too disparate to unify into a workable technical standard.

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If you would like to know how our market research is different, this video is for you.

One key difference is that our reports are multimedia documents providing numerous embedded links to demonstrate new technologies. Thus, you can print-them-out and read them as conventional paper documents, but you can also use them in a television-like experience to actually watch what video ads will be like in the future.

Inside Digital Media has been creating video and audio podcasts for six years. When it comes to Digital Media, we “walk the walk and talk the talk”.

For example in our new research report, Future Developments in Video Advertising, we provide links to video demonstrations that show you how overlay, interstitial, viral, and other new media ads work. One cannot truly comprehend such things without experiencing them. They cannot be experienced in a paper-only document no matter how many pretty pictures are included. You could read volumes about how to swim, but you’re not going to learn much of anything until you actually get in the water and feel the medium.

Of course, you can print-out our 71-page report to paper. It gives you plenty of charts, tables and analytical commentary. But the added feature which is often not provided by others is the multimedia characteristic. It enables you to comprehend the future of video advertising by actually experiencing it.

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If you would like to learn how ad agencies can prepare for the future of video advertising, this video is for you.

One conclusion from our new research report, Future Developments in Video Advertising, is that sponsors will start competing with the advertising industry.  More specifically, they’ll intensify use of Internet media as a direct channel to their customers. A greater share of their marketing budgets will be allocated to enriching their own websites as interactive, lead-generation properties. Similarly, they will self-manage more of their email marketing and employ embedded video in press releases, product promotions, and corporate communications.

Historically, corporate websites were set-up and managed by an internal staff of IT (Information Technology) experts, or by outside IT contractors. Most such organizations were technically skilled but had little knowledge of marketing. Yet it quickly became apparent that corporate websites were chiefly marketing properties. As a result, the IT staff maintaining the website, and the marketing staff assigned the revenue-generation-responsibilities, understood each other about as well as cows do algebra.

In the typical scenario, eventually the Marketing Department took charge of the website. Unfortunately, it often found that the applications that the IT staff developed to generate sales and leads were not good enough. When the Marketing Department turned to their ad agencies for help, they normally discovered the agencies were bereft of the needed programming skills. Often agencies could help less than the “alien” IT staff.

The foregoing commonly left the Marketing Department with three choices. One was to hire the required technical people. A second was to use an expensive Digital Agency like Razorfish. The third option was to find outside website design firms that possessed excellent programming skills along with artistic capability.

Such firms are numerous around the country, but most are small and privately held. In our analysis, ad agencies would be well advised to seek out the best-of-breed and acquire them. That way they can compete for that portion of a sponsor’s future marketing budget to be allocated for use of the Internet as a direct media channel.

Length: This video is about 5 minutes long.

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If you would like to learn five major conclusions from our new research report entitled Future Developments in Video Advertising, this video is for you.

1. The advertising market will shrink for several years to come. Even five years in the future aggregate advertising spending will be smaller than it was in last year. We project total advertising revenues of $245 billion in 2013 as compared to $285 billion in 2008. Internet advertising will gain share from 8% to 22%.

The Great Recession of 2009 is leading sponsors to radically change long-held assumptions about the use of media in marketing and advertising. In short, advertisers will face new competition from their own sponsors as sponsors intensify use of Internet media as a direct channel to their customers. They will allocate a greater share of marketing budgets to enriching their own websites as interactive, lead-generation properties. Similarly, they will self-manage more of their email marketing and employ embedded video in press releases, product promotions, and corporate communications.

2. Video will migrate to the Internet. Cable and Satellite networks are evolutionary dead-ends that cannot hope to compete with the innovative pace enabled by the Internet.

Consumers are learning to get unlimited Internet access at their TV, most commonly by connecting it to a laptop computer. The computer’s onboard WiFi links over a home network to the Internet thereby transforming the laptop into an Internet Gateway for the TV. The configuration permits users to watch any Internet Video on the TV screen. Given a remote mouse and keyboard consumers get a lean-back viewing experience 15 – 20 feet distant from the screen.

An estimated 10 million Americans watch Internet Video on TV monitors via computers. It is an intermediate forcing factor ultimately leading to two alternatives. One is the browser-centric TV. Second would be something like an Apple TV but with its own Apps Store. Such a store would be similar to the one for the iPhone but instead enable websites like Hulu.com and TV.com to provide simple (typically free) interfaces permitting their programs to be watched on TV via the applicable hardware.

3. Product promotion campaigns will replace product  advertising campaigns. To the detriment of the advertising industry, the Internet will redefine product promotions to fit into a larger context. Historically product promotions were nearly synonymous with product advertising. The applicable marketing budget was allocated to the advertising agencies and media buyers responsible for the creative work and media placement.

Increasingly, sponsors will incorporate their own use of the Internet into product promotion. By enriching their websites, press releases, email marketing, and corporate communications with Digital Media they will trigger transactions and generate leads in activities that bypass the advertising industry.

4. Ad rolls will become shorter. There are three reasons why Internet Video advertisers will be able to cut back on the time designated for commercials.

First, is the avoidance of ad-time allocations for local network affiliates or Cable Systems. For example, websites like Hulu.com that host popular TV shows don’t need a local TV affiliate to stream the shows over the Internet. This frees-up about 4 – 5 minutes per hour. Second, unlike DVR users, viewers of streamed Internet Video cannot fast-forward through the advertisements. Third, Internet Video can employ non-disruptive interactive overlay ads.  As a result, the typical hour-long TV show on Hulu takes only 48 minutes including 6 minutes of ads.

5. Advertising Industry Bypass will promote interactivity. Websites with the highest “click-through” rates are those engaged in triggering transactions. Examples include Amazon.com and iTunes. As sponsors gain experience with using Internet media to connect directly with customers they also will be focused on inducing transactions. Thus, as an indirect consequence of bypassing the advertising industry sponsors will learn how to increase click-through rates thereby advancing the state-of-the-art for interactive advertising.  In short, Internet advertising and Internet retailing will overlap.

Jim Louderback, CEO, Revision3

If you would like learn about the types of advertisements that are effectively generating revenue for long-form video on the Internet, this interview is for you.

Our guest today is Jim Louderback who is the CEO of  Revision3.com. His company is an Internet television network that creates, produces and distributes web television shows on niche topics. Some shows have achieved audience numbers equivalent to popular cult-TV shows. One example is DIGGnation in which two hosts discuss the top weeky topics on the Digg website.  It gets about 200,000 – 300,000 viewers which is equivalent to the TV audience for Dog the Bounty Hunter.

Just like a regular TV network, Revision3 is dependent upon advertising as the primary revenue source. One reason for interviewing Jim was to gain insight into the kinds of ads that will work in an interactive environment.
Revision3 uses all types of ads including video-rolls, overlays, sponsorships, and banners. Sponsorships have been particularly effective. For example, the hosts of DIGGnation typically discuss the sponsor’s products during the show. The objective is to have a deeper “conversation” with the audience about the sponsoring brands. Ordinarily the “conversations” result in a direct or implied endorsement.

The approach is actually an echo of a method effectively used on television 50 – 55 years ago.  Shows such as Schlitz Playhouse 90 and The General Electric Theater had single sponsors that wanted parallel identity with the programs. For example, both put their names in the title and General Electric used a consistent host who for eight years was Ronald Reagan.

As noted in our “Third Generation Television” research report released in February, long-form video will inexorably migrate to the Internet. Furthermore, consumers will exhibit a decided preference for free viewing from ad-supported websites and podcasts. As a result, it is crucial that Internet Video ads generate enough revenue to adequately compensate the program producers.

To learn more about the “Third Generation Television” report click here where you can purchase a copy or download a free Prospectus.

Seth Haberman, CEO, Visible World

If you would like to learn about addressable television advertising, this interview is for you.

Our guest today is Seth Haberman who is the Founder of Visible World.  His company is a leading provider of targeted television advertising. It offers a software platform, termed intelliSpot, that enables advertisers, agencies, and media companies to target, customize and change messages to address diverse audiences, programming, and business situations. Investors include Comcast, Time Warner, Viacom, WPP, and AllianceBernstein, among others.

Visible World has provided addressable advertising for television since 2004. To an important extent, the capability of its intelliSpot platform to is dependent upon the pace at which cable operators roll-out addressable infrastructure. Until the formation of Canoe Venture a year or so ago, this was largely dependent upon the policies of individual systems. Canoe Ventures is an initiative that is backed by all the major CATV operators. Its mission is to roll-out addressable standards for the entire industry thereby avoiding a Balkanization of formats among the various systems.

In our analysis, Canoe and Visible World will be challenged by the rise of Internet Video. As TV shows migrate to the Net advertisers will find that technical standards on the Net are already established. This will enable innovators to try a number of different addressable options thereby enabling them to more quickly identify those that will work. In contrast, Canoe will have to roll-out standards via fiat and test formats that are agreed upon by venture members in advance.  Thus, we conclude that addressable video advertising is likely to first become successful on the Net.

As noted in our Third Generation Television research report released in February we believe that video will inexorably move to the Internet. Furthermore, consumers will exhibit a decided preference for free viewing from ad-supported websites and podcasts. We are currently preparing a research report entitled “Future Developments in Video Advertising” that examines how video will be used for advertising and promotion in the years ahead.

To learn more about our earlier Third Generation Television report click here where you can purchase a copy or download a free Prospectus.

Benjamin Wayne, CEO, Fliqz.com

If you would like to learn how to put video on your website that will stream via a player that has the look-and-feel of your own pages, this interview if for you.

If you host videos at YouTube and have them play through your website the YouTube brand is prominently displayed on the player. Thus, businesses that put video on their websites often prefer to host their own, or use a service that provides an “unbranded” player. One such vendor is Fliqz.com which specializes in white-label video services for businesses. In addition to providing an unbranded player, Fliqz also offers industrial strength streaming and viewer analytics.

Our guest today is Benjamin Wayne who is the CEO of Fliqz. Prior to organizing Fliqz, Ben was the CEO of three other Internet companies. One was a third party lead generation company and another provided price comparison shopping aids. His first job out of college was with a consulting firm in South Korea. Ben holds an undergraduate degree from Princeton and a MBA from Harvard. He was a Fulbright Research Scholar to South Korea.

About 10 – 15 years ago most companies realized the competitive necessity to establish websites. In today’s environment, Ben believes that the “table stakes” now require them to provide online video. However, there is little point in meeting the new requirement with poor quality video that streams sporadically thorough players that indirectly promote their own brands such as the YouTube player. Most successful companies will want the videos to look as though the originated on the corporate website. And they’ll want comprehensive analytical data about those who are watching the videos.

Companies like BrightCove, Fliqz, and Blitp.tv provide such capabilities as applications service providers. They enable your company’s website to reliably stream video to visitors. As such they enable you to communicate with video directly to clients and prospects without having to rely upon an intermediate medium such as television. For example, research at Fliqz concludes that up to 80% of the first clicks visitors make once at a website landing page containing video is on the video itself.

As noted in our Third Generation Television research report released in February we believe that video will inexorably migrate to the Internet. Furthermore, consumers will exhibit a decided preference for free viewing from ad-supported websites and podcasts. We are currently preparing a research report entitled “Future Developments in Video Advertising” that examines how video will be used for advertising and promotion in the years ahead.

To learn more about our earlier Third Generation Television report click here where you can purchase a copy or download a free Prospectus.

Steve Robinson, CEO, Panache

If you would like to learn the latest from an expert about video ads for premium Internet streams such as popular TV shows and movies, this interview is for you.

Our guest today is Steve Robinson who is the CEO of Panache. His company provides an ad-insertion platform that offers media and entertainment companies the infrastructure to generate advertising revenues from their video streams. Representative clients include MTV, VH1, Country Music Channel, and Nickelodeon, among others.

We caught-up with Steve at the Streaming Media East conference where we could get a chance to learn his thoughts on the future of video advertising. Steve emphasized that his company is focused on premium content providers and probably accounts for about 10% – 15% of the business in his industry outside of YouTube.

The advent of websites like Hulu.com and the increasing abundance of popular TV shows and movie streams on the Internet means that it is crucial that the video ads in such streams generate sufficient revenues to adequately compensate the program providers. Steve makes a number of comments to this point.

First, the emergence of an accepted standard will be important because standards drive large scale adoption. For example, should the pre-roll be 15 seconds, or 30 seconds? Should it be interactive or passive?

Second, although standards will help establish scale, the industry is so young that there is likely to also be a lot of innovation. For example, clickable overlays that segue into interactive games have been popular on MTV.

Third, TV and movie producers are going to try and move slowly into Internet distribution because they want to be assured that the revenues generated via the Net are truly incremental. In our analysis, however, they may have to move faster than they want because consumers are connecting laptop computers to flat-panel TVs and thereby getting Internet access on the TV monitor. This is feeding demand for video content from the Net. If premium producers don’t provide it, consumers will find alternate sources. Some may even resort to piracy.

As noted in our Third Generation Television research report released in February we believe that video will inexorably migrate to the Internet. Furthermore, consumers will exhibit a decided preference for free viewing from ad-supported websites and podcasts. As a result, it is crucial that Internet Video ads generate enough revenue to adequately compensate the program producers.

To learn more about Third Generation Television report click here where you can purchase a copy or download a free Prospectus of our research report.

Steve Knopper, Author, Appetitte for Self-Destruction

If you would like to know how the Internet transformed the record label business, this interview is for you.

Our guest today is Steve Knopper who is the author of Appetite for Self-Destruction. Steve’s book is a chronicle and analysis of the spectacular crash of the record industry in the Digital Age. He is a Rolling Stone contributing editor who has covered the business since 2002. Among our conclusions are the following:

First, record label industry leaders during the past 30 years are “larger than life” characters whose stories may be colorful enough to merit retelling as a made-for-TV movie. Technological innovation was far down the list of the skills that made them successful.

Second, the industry has almost always fought against technological change. For example, they resisted the adoption of CDs during the 1980s even though the format provided two great benefits from a financial viewpoint. First, the labels were able to sell CDs at a price premium relative to the LP and also simultaneously charge artists an associated technology adoption fee as an offset to royalty payments. Second, widespread acceptance of the CD led consumers to not only purchase new releases in the format but to often also replace their existing LP library selections with CDs as well.

Third, the Internet has forever changed the record labels. It simply may not be possible for the industry to adapt in a way that enables it to retain its historical prominence. Its situation may be similar to the encyclopedia or newspapers businesses.

For example, no matter what changes Encyclopedia Britannica made, the company simply could not retain its leadership after the advent of the Wikipedia. Similarly, it appears that newspapers could not have avoided losing prominence in classified advertising once Craig’s List gained traction.

Fourth, record labels could be the “canaries in the coal mine” for the video entertainment business. Both industries are characterized by high profile leaders who are unaccustomed to adapting to changes driven by external forces. The labels were impacted first because of the lower bandwidth requirements of audio. But it has been ten years since Shawn Fanning launched Napster and the day of reckoning for entertainment video is fast approaching.

As noted in our Third Generation Television research report released in February we believe that video will inexorably migrate to the Internet. Furthermore, consumers will exhibit a decided preference for free viewing from ad-supported websites and podcasts. As a result, it is crucial that Internet Video ads generate enough revenue to adequately compensate the program producers.

To learn more about the Third Generation Television report click here where you can purchase a copy or download a free Prospectus.

Leslie Laredo, President, The Laredo Group

If you would like to learn how advertising agencies, media buyers and other media professionals learn their ways around new media, this interview is for you.

Our guest today is Leslie Laredo who is the President of The Laredo Group . Her company is a leading training and consulting firm concentrating in online advertising buying and selling, search engine marketing, and site optimization. The Laredo Group provides general sales training for companies and individuals, media training for buyers and sellers, and custom consulting services for traditional, online, and cross-platform sales and marketing activities. 

The client list of The Laredo Group includes many of the world’s largest and most successful companies as well as smaller firms, start-ups and many industry associations. Examples include ABC, AOL, Google, Fox, NBC, NFL, Time, Wall Street Journal, and USA Today, among others. Among her staff are published authors of industry-relevant books and articles. All instructors have real-world, hands-on experience in their fields.

As noted in our Third Generation Television research report released in February we believe that video will inexorably migrate to the Internet. Furthermore, consumers will exhibit a decided preference for free viewing from ad-supported websites and podcasts. As a result, it is crucial that Internet Video ads generate enough revenue to adequately compensate the program producers. Laredo Group training can help advertising agencies, media buyers, and other advertising professionals learn how to be more effective in new media.

To learn more about Third Generation Television report click here where you can purchase a copy or download a free Prospectus of our research report.

Doug Knopper, Co-Founder, FreeWheel.tv

If you would like to learn about a company that aims to become the DoubleClick of Internet Video advertising, this interview is for you.

Our guest today is Doug Knopper who is a Co-Founder of FreeWheel.tv. His company offers a system to account for the monetization rights of online video syndication. Though it may be a bit of an oversimplification, FreeWheel hopes to become the DoubleClick of Internet Video. Doug and his two other Co-Founders worked at DoubleClick prior to organizing FreeWheel.tv in 2007.The FreeWheel service provides four functions.

First, it identifies sales rights. That means that it determines what companies have the right to sell a piece of content. It assures content owners that their ads are not pre-empted by ads sold by others.

Second, it pinpoints the right ad to run. Given a number of ad sellers, CPM rates, and display platforms, FreeWheel pinpoints the ads that will drive the highest possible yield. All this happens in milliseconds.

Third, it serves the ad. The FreeWheel ad server can accommodate any video format and works with any video player.

Fourth, it automates the financial accounting. Content owners, distributors, and third-party sellers are automatically assigned their rightful share of ad revenue.

Waikit Lau, Co-Founder, ScanScout

If you would like to learn what kind of Internet Video ads work best, this interview is for you.

Our guest today is Waikit Lau who is the President and Co-Founder of ScanScout.com. His four-year old company serves ads, such as pre-rolls, mid-rolls, post-rolls, and overlays, to Internet Video websites. Earlier Waikit worked at Scientific-Atlanta and Bessemer Ventures. He holds a BSEE from MIT and a MBA from Harvard.

Waikit slices-and-dices the Internet Video advertising market in multiple ways. He shares his thoughts on the merits and applicability video ad types. Additionally we get a tutorial on the approaches to branding versus transaction advertising. We discuss the likely trends that will emerge once Internet Video gets to be more common on the TV. We also examine the ad characteristics that work best for mobile devices such as the iPhone.

Waikit describes how targeting and accountability is actually implemented. He clears away the “smoke and mirrors” about how it is done and how it can be done even better in the future.

We examine the limitations of the Internet and discuss where improvements are needed. He shares his knowledge of click-through percentages by ad type and describes the trends in CPM rates. Issues are addressed from a variety of perspectives including those of the publisher, advertiser, ad agency, media buyer, and consumer.

As noted in our Third Generation Television research report released in February we believe that video will inexorably migrate to the Internet. Furthermore, consumers will exhibit a decided preference for free viewing from ad-supported websites and podcasts. As a result, it is crucial that Internet Video ads generate enough revenue to adequately compensate the program producers.

To learn more about out Third Generation Television report click here where you can purchase a copy or download a free Prospectus.

If you would like to learn the latest thinking from Parks Associates about Internet-Video-to-the-TV, this interview is for you.

Our guest today is Kurt Scherf who is a Vice President and Principal Analyst at Parks Associates. He narrates a PowerPoint summarizing his latest white paper “From Boob Tube to YouTube”. It is available for free at his website.

We found three of Kurt’s conclusions of particular interest.

First, the two most popular items jacked-into TVs and also connected to the Internet are (1) console video game players and (2) computers. In the United States, about 13 million consoles and 7.5 million computers are thus connected. Inside Digital Media concludes that most of the computers are used for providing unrestricted Internet access to the TV whereas only a minority of the game consoles are accessing Internet Video. Moreover, most of the game consoles are getting videos either via rental or purchase as opposed to free ad-supported web sites.  Consoles are primarily connected in order to enable multiplayer gaming.

Second, Parks surveys conclude that consumers are frustrated by the user interfaces presently available. In our analysis, those using hand-held remotes are more confusing than the familiar web browser that a computer-to-TV connection provides. This is one reason that future TVs may become browser-centric.

Third, consumers want more than mere access to web videos on Internet-connected TVs. In point of fact, Parks surveys reveal that they want (on the TV) email, search, and gaming, more than Internet Video, per se.

This is Third Generation Television.

To learn more click here where you can purchase a copy or our research report or download a free Prospectus.

Timothy Karr, Campaign Director, FreePress.net

If you would like to learn about efforts by Time Warner Cable and other broadband ISPs to test metered-use pricing of Internet service in selected markets, this interview is for you.

Our guest today is Timothy Karr who is the Campaign Director at FreePress.net. His organization is about six years old and is focused on policy issues relating to media. It is funded by various private foundations and individuals and does not take donations from corporations.

Few, if any, achievements exceed Newton’s Three Laws of Physics. But Newton was also a believer in the occult. Similarly, few contributions to electronic networking surpass Bob Metcalf’s invention of Ethernet. But, Metcalf also predicted the impending collapse on the Internet in 1996 owing to characteristic exponential traffic growth. Metcalfe was wrong and modified his prediction to forecast a brownout. He was wrong about that too.

Now Time Warner Cable has updated Metcalfe’s rear-view mirror look and predicts dire consequences if it is not permitted to charge Internet customers a metered rate based upon bandwidth consumed. Their plans to test market a new tariff have sparked a heated debate.

Time Warner and allies argue on one side that higher rates are needed to encourage investment in new facilities. On the other side are those who argue that the move is nothing less than a disguised effort to strangle Internet Video in the cradle and thereby preserve the CATV business model. They note that exponential traffic growth has always been characteristic of the Internet and that adding capacity is not nearly as expensive as Time Warner implies.

In our analysis, the natural evolution of the Internet is toward intelligence at the endpoints. It enables an abundance of future Cloud Computing applications ranging telepresence to routine video phone calls and others that cannot even be predicted. In totality they are likely to become nearly indispensable to consumers and businesses alike. Steps that block such evolution will irreparably damage the United States economy.

Accordingly, it is crucial that monopolies like Time Warner and others convincingly demonstrate that their new rates are merited. The chart below from the Time Warner Cable annual report suggests that skepticism is warranted. Apparently the company’s ISP profit margins exceed 95% and their direct ISP service costs dropped 12% last year even as revenues increased 11%.

Time Warner Cable, ISP Revenue and Costs

There’s a lot to be said for direct experience.

While looking for an advantageous way to attack the Confederates in the Spring of 1862 the commander of the Federal army in Virginia and his staff approached the Chickahominy River. Stopping at the bank, they pondered whether it was too deep for troops to cross. As the group discussed the matter, one of the youngest staff members rode his horse down the bank and into the river. From his dry saddle at midstream he turned around and shouted back, “This is how deep it is General.” *

The officer with wet boots was George Custer, who later became the youngest Brigadier General in the Union army. Years later along the banks of a Montana river incongruously named Little Big Horn he would achieve even greater notoriety. But that’s another story, and a good one.

Getting Internet Video on the television is a similar. Those who have experience unlimited Internet access quickly comprehend the future as though they had a vision on the road to Damascus. For such users the television evolves into a dual function device. In one context it remains a conventional television, but in a second it becomes a giant window into the Internet Cloud. After 10 – 15 years of surfing the Net on their computers, they’ll never be satisfied with a Walled Garden of Internet content on the TV. No matter how beautiful, it will always be perceived as a Walled Prison.

Thus, survey results from conventional TV watchers revealing they want YouTube on their TVs overlooks two bigger points. First, if they are constrained to limit their response to YouTube or other discrete items per se, they are unable to express a desire for unlimited access. But the second point is even more significant. Specifically, many users cannot realize how much they want something until they have experienced it. That’s why auto dealers want you to test drive a car. It’s also why 15 years ago many of us thought the Internet was for geeks only. In our analysis, unrestricted Internet access at the TV is even a more applicable example.

The point is one of the basic conclusions of our earlier “Third Generation Television: Internet-Video-to-the-TV” research report. In short, no matter how much consumers are surveyed about Internet access to the TV, their true reaction cannot be measured until they have experience it. Once they have, a number of points become obvious.

One is their ultimate dissatisfaction with restrictions to Internet access on the TV. Another is that they will have a decided preference for advertising-supported video as opposed to rentals from places like iTunes or Amazon-Video-on-Demand.

The second point leads us to undertake a new research project, “Future Developments in Video Advertising”. The report is currently in preparation and will be released within 2 – 3 months. Advance subscribers get a discount. If you want subscription information, or merely would like to suggest coverage topics, feel welcome to contact me.

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*Catton, Bruce: Mr. Lincoln’s Army, p. 118, Smith Press, 2007

By way of background, netbooks are pint-sized laptop computers. Typically they have nine-inch screens as compared to  fifteen-inches (or bigger) for a conventional laptop. Also netbooks have less powerful processors, smaller memories, and less sophisticated software.  Gartner estimates that they could account for 10% of laptop computer sales by the end of this year.

Netbooks could have a big impact on the streaming video market for three reasons.

First, despite their lower price they are capable of processing streaming video just fine as this video demonstrates. Moreover, the netbooks can be attached to most flat-panel TVs. While few netbooks currently provide the HDMI sockets that would simplify such connections, nearly all offer alternative receptacles such as VGA for video and audio-out jacks for audio.

Second, netbook prices compare favorably to dedicated appliances designed to get Internet Video to the TV. Current units are priced at $200 - $400 and models slated for delivery in a few months are priced even lower. By comparison, the Apple TV is priced at $230 and only permits users to access content from the iTunes store whereas netbooks can stream video from anywhere on the Web.

In Atlanta AT&T is testing a special promotion offering netbooks for $50 to new Internet subscribers. The company may spread the promotion to other cities once the Atlanta test is completed. In short, netbooks could become commonly available for $100 or less if ISPs subsidize the purchase price like the cellular operators do for cell-phones.

Third, as netbooks gain market share they’ll put pricing pressure on laptops. That means that laptop buyers will be able to get units with HDMI sockets that will more easily attach to flat-panel TVs and also accommodate High Definition video. Such units are available for $400 presently and could drop to $300 by year end.

Once netbooks, or laptops, are mated with a flat-panel TV the television becomes a dual function device. In one context it remains a TV as we have always known it, but in a second one it become a giant window into the Internet Cloud. Give a remote mouse and keyboard the user gets a lean-back viewing experience of Internet Video on television 15 – 20 feet distant from the screen.

Ultimately the laptop (or netbook) as Internet-Gateway for the TV will become a forcing factor inducing TV set makers to offer browser-centric televisions as they come off the factory floor.

This is Third Generation Television.

To learn more click here where you can either purchase a copy or our “Third Generation Television: Internet-Video-to-the-TV” research report or download a free copy of the prospectus.

Joe Ambeault, Verizon

What if Verizon FiOS offered a video-centric “apps store” for its television set-top box analogous to the one that Apple has for the iPhone?

The answer depends upon the restrictions that Verizon might impose on third-party developers. For example, if sites like Hulu, TV.com, and Joost are allowed to develop widgets enabling FiOS subscribers to visit the websites to watch TV shows over the Internet, then it would be significant. However, if Verizon moves slowly, or only permits a few applications from those not affiliated with current programmers providing shows for FiOS IPTV service, then it may be relatively inconsequential for two reasons.

First, if they move slowly the Third Generation Television revolution will leave them choking in the dust. It is estimated that over 5 million consumers have already attached laptop computers to flat-panel TVs thereby transforming the TV into a giant window into the Internet Cloud. To such users a Walled Garden of Verizon Widgets will look more like a Walled Prison.

Second, if platform access is limited to content partners then it is likely that a mere handful of widgets will get developed and the pace of introduction will only slightly exceed continental drift. Basically, existing content partners have far less incentive to innovate. The established order is almost always more comfortable with the status quo.

However, you are able to judge for yourself by listening to our interview with Joe Ambeault who is the Director of Interactive TV Applications at Verizon.   In point of fact, his company has decided to move forward by permitting third parties to develop applications for the Verizon FiOS set-top box. Initially it shall be limited to existing content providers. Also, as Joe notes, Verizon itself will be developing more widgets to add to the weather and traffic ones provided to date.

This is Third Generation Television.

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Such a plan seems to be gaining momentum among companies such as Time Warner, Direct TV, and Verizon. They want to discourage subscribers from “cutting the cord” to conventional TV and alternately watching the shows via broadband ISP service at websites like Hulu, Joost, and TV.com. Simultaneously they reason the plan provides added value to conventional subscribers because it gives viewers an alternate way to watch the shows.

The answer to “what would happen?” depends upon a number of contingencies. The two most important are (1) whether it would be free or involve yet another monthly charge and (2) whether the broadcast networks would co-operate.”

As to the first point, it appears that a number of popular cable programmers want to be paid an additional fee thereby requiring the operators to pass along the costs to subscribers. Alternately the operators could “eat” the expense themselves, but there’s not a Saint’s chance at a political convention that they would do that.

Secondly, the broadcast networks (ABC, CBS, Fox, and NBC) are likely to be less co-operative because they generally don’t collect carriage fees from the operators as do the cable networks like ESPN. However, system operators may be able to “buy” broadcast network co-operation by paying them fees similar to those paid to the cable networks.  The broadcast networks would argue, as a matter of parity with the cable networks, that such fees should be based upon the 80 million conventional TV subscribers instead of the nascent subscribers to a restricted “over-the-top” video service.

In short, it appears that getting everyone to agree is like herding cats. Furthermore, the incentives needed for such co-operation may require the operators to pass along the expense in the form of an incremental monthly subscriber fee.

Thus, we come to two conclusions.

First, we don’t think many subscribers will be willing to pay much extra for Internet access to shows that are already available on conventional TV. It is likely to be about as popular as paid online newspaper subscriptions.

Second, the initiative reminds us of the first alternative offerings to Shawn Fanning’s Napster offered by the record label industry, PressPlay and MusicNet. In retrospect it is clear that both were intentionally restrictive in order to minimize the potential adverse impact on CD sales. But the strategy backfired as illegal file sharing ran amok in the absence of a realistic legal alternative.

The situation could be much the same for video. If consumers are confronted with too many obstacles when attempting to watch TV shows and movies on the Internet, they may resort to piracy. Confessedly, the mainstream will be reluctant to access pirated sites as long as they are “geeky” and potential sources of malware. However, recent developments suggest that pirated content is available at websites providing streams as opposed to downloads.

This is important for two reasons. First, anyone skilled enough to watch a YouTube video will understand how to watch a video stream from most any website. Second, streams are less likely to infect the viewer’s computer than are downloads.

This is Third Generation Television.

To learn more click here where you can either purchase a copy or our “Third Generation Television” research report or download a free copy of the prospectus.

Eventually consumers will demand unlimited Internet access on their televisions. But such a scenario is contrary to the perceived interests of CATV operators. They have two concerns. First is that unrestricted access might lead consumers to watch more Internet Video and less conventional television. Second, they want to collect an incremental fee (beyond ISP service) when consumers watch Internet Video on the TV.

Instead CATV operators want the future Internet-Video-to-the-TV circumstances to encompass two characteristics. First, they would like to restrict the Internet content that can be accessed by the TV. Basically, they want to offer a Walled Garden. Second, they want an incremental monthly fee for access to the Garden.   It is similar to the strategy taken by wireless carries prior to the advent of the iPhone.

Put another way, the CATV industry wants to isolate ISP service to computers and manage Internet-Video-on-the-TV as a separate offering. Thus, vendors attempting to provide Internet-Video-to-the-TV via a cable set-top box will discover that operators will enforce such a distinction. However, the attempted restraints are a Fool’s Errand because they will be circumvented.

Inevitably the flat-panel TV shall become a dual function device. In one context it will be a TV as we have always known it. In a second context, it will be a giant monitor for a laptop computer or, later, a browser-centric TV. As illustrated in our March 19th video, it can be easier to connect a laptop computer to a flat-panel TV than to attach a cable-set top box.

This enables the laptop to function as an Internet Gateway for the TV. It is also a forcing-factor leading TV set manufactures to eventually make browser-centric units. If they fail to do so Apple may well take the lead in a future “smart television” market by selling units embedded with iTunes and offering an apps platform for free video websites like YouTube and Hulu.

This is Third Generation television.

To learn more click here where you can purchase a copy or our research report or download a free Prospectus.

Businesses are learning that conventional media advertising is not generating the sales leads like it did in the 20th century. For example, the telephone Yellow Pages cannot be relied upon as the primary lead source for small local businesses. Similarly, larger businesses have noted a sharp decline in the effectiveness of newspaper, radio, and television advertising.

Despite this, most businesses appreciate the value of a media relationship with their clients. As companies augment their websites there is an almost unintended change in the nature of that relationship. Whereas corporate websites were initially brochure-ware they are evolving into media and transactional properties facilitating direct connections to the customer and prospect. When such websites provides blogs, news items, and videos germane to their customers’ interests, they become a media resource hitting the bulls-eye of a targeted audience.  In short, they are bypassing traditional media.

The trend has several implications.

First, companies regard their website development expenses as advertising expenditures even if their traditional media channels, like newspaper, radio, and television, do not. Thus, a company’s overall “advertising” budget can grow even as it’s spending on outside advertising drops.

Second, TV has proven the value of video as a media tool and corporate websites are likely to increasingly employ it.

Third, as Internet Video gets to the TV the value of a video-enabled website increases exponentially. Essentially, each video-centric website can become a specialized channel on our TVs.

Fourth, in order to establish direct ties to a targeted audience companies are likely to invest an ever-growing percentage of their marketing dollars into media-and-transaction-centric websites.

This is Third Generation Television.

To learn more click here where you can purchase a copy or our research report or download a free Prospectus.