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A year ago, the Internet was abuzz with new streaming video ventures gathering fistfuls of cash on the promise of building a field of dreams for hungry Internet video fans using a broadband connection.
They built it, but unfortunately hardly anyone came. Notable recent failures including DEN, Pseudo.com, fastv.com and the stillborn Pop.com are victims of a drought spreading across Internet content sites-particularly those emphasizing streaming video-and the forecast has turned from sun to glum.
So what went wrong?
Experts are pointing to a number of faults, ranging from high costs to an inefficient Internet and simply bad business strategies. The common conclusion is that while video streaming still promises to gain popularity as broadband connections proliferate, content providers will have to play smart to survive a harsh early market climate.
Ahead of their time?
As with others, Jerry Giganti sees the recent failure of several rich media sites as early to rise, quick in demise. Giganti is an analyst for PC Data Inc., which tracks Internet trends.
"I don't necessarily think they were doing anything wrong-I think they may have been just ahead of their time," he says.
With their video-heavy approach, depending on the mere 13 percent of all Web surfers who have broadband connections may have set too narrow of a customer base, he says. "That first entry advantage was so important," Giganti adds. "They really wanted to jump in and get that first. But the infrastructure just wasn't there to support it. Even if the content was there, the pictures were jerky."
Dylan Brooks, analyst at Jupiter Research, thinks the failed sites may have been counting on the big content collectors such as AOL and Yahoo! to buy into their concept and take up some of the cost burden. So even as the number of broadband subscribers started rising from its lowly 1.8 million mark last year toward 5 million by the end of 2000, these sites found their prospects as acquisition bait had cooled dramatically.
"All of a sudden these pioneers felt like they had staked a claim to Antarctica," Brooks notes. "It's quite funny it happened now, as arguably you begin to approach a sizeable number."
Where's the money?
Despite its promise, the Internet is not short on red ink these days. A recent survey in Barron's magazine found that of 339 Internet companies found 273 were losing more cash than they were gaining. In total, the companies had burned up $1.7 billion during the first quarter 2000, and 86 were on track to run out of money in the next year.
To add to the problem, after a fleeting honeymoon investors have become more than a little jaded on Internet content promises. Now they are growing frustrated at the losses and don't want to throw in more money. "Right now, nobody is doing really well any more," Giganti says. "None of these sites are bringing in boatloads of money."
For those sites still alive and kicking, the recent failures are useful financial object lessons. Jonathan Klein, president of broadband news video site TheFeedroom.com, says his company has $30 million in the bank, good for about two years of operation. But there are no lavish parties or first-class airfares. "We've taken that message loud and clear," Klein says. "We are going to be extremely careful about how much we spend."
With investment money scarce, most sites are turning to advertising to bolster their bottom lines. But with the steep cost to convert and encode video, Miller and Brooks both say that for now, depending on Web site advertising alone won't work.
"It's expensive to do with very little revenue coming in right now," Brooks says. The fact most sites are offering video for free "is certainly part of it. The cost of streaming media has come down, but it is still too high to be advertising supported. You are between a rock and a hard place there. So the strategy has been to imitate a broadcast model when they'd be better off imitating HBO."
Although early dabbling in subscription content has not been wildly successful, Brooks thinks the audience may be growing more sophisticated and therefore more willing to pay to watch. "As the audience has matured, the environment for paid content has improved," he says. "There may be a place for paid content, but the drop in cost for streaming media in the next few years and an improvement in ad rates may make things easier."
The Information Superhighway has potholes
Relying on the laissez faire, best-effort driven Internet as a delivery pipe also doesn't do a broadband video site any favors. With inefficient transport across the 7,000 networks that make up the Web, the common conclusion is you simply can't reliably deliver much more than a two-minute video reliably.
"You cannot get quality video going across the Internet," says Adam Miller, CEO of KORE, a consulting company that helps Web sites forge their content and e-commerce strategies. "That's one of the biggest problems because people don't want to pay for bad quality content."
Miller says peering at plenty of examples of spastic video jerking across a postage-stamp-sized frame has damped user enthusiasm for video, so "there isn't a good mindset to find good streaming media on the Web. People don't know to look for it."
Jeffrey Huppertz, vice president of marketing for streaming video startup Clearband, sees the same thing. That's the reason Clearband is now trying to set up business with cable networks, using dedicated bandwidth to transmit streaming video of TV programming directly to the PC.
"This bits and pieces format is a byproduct of the open Internet," he says. "They were trying to stream over the open Internet. That's a very big problem for providing subscription service for video."
That problem magnifies for broadband users, who buy in for high-speed connections but are often frustrated by languid bit rates. Much of the problem centers on the Internet architecture, which forces content to take a winding route in and out of network routers before arriving at the user's computer. And only a relative fraction of the available content takes advantage of "edge" storage and delivery networks aimed at sidestepping the Internet bottleneck (see related story p. xx).
"Broadband is basically only as fast as the slowest piece, so right now broadband is a misnomer on the Web," Miller asserts.
Klein, however, disagrees that bad video quality is a given. Banking on shorter-form video clips, his service has worked hard to offer well-encoded, high-quality clips with good distribution.
"I think that's a straw man," he says. "I think that streaming video quality is excellent, and the doubters are people who would maybe like to compare streaming video with television. But again, we are not competing with television for quality. We're competing with those tiny Real Player windows that pop up. We just have to offer a better experience than you commonly get on the computer."
Content rules
Another failing common among content sites is in banking too much on the gimmick of video rather than the value of the content. Pop.com never really got off the ground despite intense hype about backers that included Dreamworks SKG and director Ron Howard's Imagine Entertainment. In the case of Pseudo, the site appeared quickly and tried to bank on celebrities to lure users. But in the end, it was more glitz than good content, so it lost investor support, Giganti says. "I think there are better places to invest in right now in terms of broadband content," he says.
Huppertz thinks many of the failed sites tried to simply resell available content, but that wasn't something the original providers couldn't do themselves. So the sites essentially became unnecessary middlemen.
"The problem was they didn't have the ability to bring compelling content to the Web," Huppertz adds. "Video can't be made simply of poor quality clips of some college student's film. It has to be 'Survivor.'"
Others point to the idea video content needs to be unique and exclusive-something you can't find anywhere else. That may have been part of the problem with failed sites such Pseudo, which didn't offer the must-see content anyone wanted to see. "I think the key with big name players out there is they were able to form a company based on hype, but they weren't able to sustain themselves," Miller says.
Klein, meanwhile, is confident his FeedRoom.com does offer something different, targeting among other things the 17 million office workers with broadband connections who can't run to a TV when news breaks. For example, when a U.S. Navy destroyer was bombed in Yemen last month, FeedRoom.com was able to post the video clips within five minutes of the initial news reports.
"That means that 17 million people who were at their office-who don't have access to TV sets-were able to watch the latest news video and monitor development throughout the day," Klein says.
For other sites such as Ifilm.com and Atomfilms.com, access to alternative or "underground" content has proven a modestly workable strategy, although with 723,000 and 794,000 monthly unique visitors respectively in August they are far from mainstream hits. "They are trying to see if you an drive people to the Internet to find content only dispensed there, and that has proven pretty successful," Miller observes. "It's much more underground, and I think that's why the DENs and Pseudos were not able to take over the world yet because it is still underground, and they tried to extend it to the public."
Video's future
So with all of these pitfalls, a high casualty rate shouldn't be surprising as the world of broadband streaming video begins to form. "Rather than think of these as individual companies that may have failed, think of them as TV shows," Klein says. "Think of how many tens of thousands of television shows that have been trotted out before the public over the last 50 years, and have died a sudden death-or in every case they died an eventual death. So that's not surprising that four or five companies have come out trying to introduce a broadband TV show that hasn't caught on with the public."
Miller's advice to up-and-coming video Web sites is to pay attention to the bottom line, not your own marketing play. "I'd say be sure you have a successful business model that's not about video only," he advises. "They need to keep in mind video is an auxiliary that is part of a successful business model. They also need to be real about what the Internet offers right now."
And what the Internet offers streaming video ventures today is a potential for success but no guarantees. "It's coming. It's the tide that you can see forming," Klein says. "All you have to do is stand firm and be sure that when it gets here, you're here. That's the whole trick."
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