Thursday, October 16, 2008

Digital Distribution

By Ricardo Blanco

Welcome to E-commerce and Video distribution, a series of blogs that will serve to inform and foster discussion of the various methods, platforms and issues regarding the impact that e-commerce has had on physical and digital distribution of online download and streaming video media. In this installment we will discuss the download and streaming mediums of digital video distribution (at a non technical level) and how the internet and e-commerce have been embraced to optimize their distribution.

In the initial installment of this blog series physical mediums of video distribution were discussed, also introduced were the newer means of digital media distribution. However reluctant older generations may be to abandon their traditional television sets, DVDs and higher quality Blu-ray discs, younger generations have already largely left them behind; opting for the instantaneous access to content that the internet provides (3). The Hollywood community, television and cable networks, independent film producers, distributors and innovative service providing companies have become aware of this trend and have already(in varying degrees) begun to form business models that incorporate, strategize, invest in, and map out the transition to this new frontier of video distribution. Though this new medium clearly has already demonstrated amazing promise, it is also plagued with the same obstacles that the emerging physical mediums have faced. That is: format disputes, content availability, concerns of security of content rights and how to manage those rights, improving quality, monetization of content distribution and advertisement, and as previously mentioned technology adoption and convergence issues(1, 4).

Digital distribution is the dissemination of content over the internet in the form of products or services, such as software, video games, books, music, television programs, and films(1). Content such as this is easily digitized and cost effectively transferable over the internet and other networks. Digital distribution has increased in popularity and accessibility since the turn of the century, due largely in part to the burgeoning consumer availability of broadband connections (1). Of course underscoring this growing popularity is the improvement in PC technologies. Particularly innovations that have lead to the PC becoming an entertainment platform such as increased processing power, connectivity to a variety of displays and increased compression and decompression of high quality video and audio (4).

Video on Demand, Digital Downloads and Streaming Video

Video on demand (VOD) is the term used to describe means for online and cable/satellite video distribution that allows users to access content at their convenience. As early as 1994, cable companies and the first generation of online digital distribution were set into motion. Content can be purchased on a pay-per-view, micropayment basis and has increasingly become free in many instances. In addition to the convenience of anytime access, the user is provided with familiar functionality such as pause, fast forward and rewind options. Lending to its attractiveness, as this functionality is typically not available with live TV. This emerging industry is quickly becoming saturated with providers yet as with the physical mediums, no clear standardization exists among the competition. While the instantaneous access to plug in players is available, and various set top converter boxes have been manufactured, those who are still turned off by the fact that they must view this content on their PC are holding out for a standardized format(5).

VOD systems either allow users to download content directly to their PC or compatible set top box for later play back, or allow users to stream video live. Downloads have their benefits and disadvantages. For one, typically a higher quality product is obtained and in some instances can be transferred to physical mediums. The downside is the often long periods of time required for downloading the content, and the amount of space that each download requires. Streaming video is a growing method for acquiring multimedia formats quickly, particularly for users who do not have fast enough connections, the patience to download video content in a timely fashion, or the required memory space. Streaming is a technique for transferring data so that it is processed by the receiving application as a steady stream of data. Streaming utilizes a buffer that collects and saves excess data and steadily streams it to a plug in player application that can convert the data to sound and pictures before the entire file is downloaded (2).

For the artist, independent film producer and distributor, the direct nature of the internet has allowed some to bypass the entrenched traditional publishing industry. Providing the opportunity for smaller and largely unfunded artist to implement and in some cases develop new business models to distribute their content. The artist, independent producer or distributor can get their work or product into the public sphere with relatively little cost and despite a lack of industry connections that have traditionally dominated the market. Clearly the obvious advantage of utilizing the established publishing industry is that they have established avenues and capital to fund the creation, as well as the means to advertise and distribute work to retail outlets on behalf of the artist. However, these traditional chains do have some draw backs, for example limited acceptance of artists and genres, decreased profitability, and loss of control over the direction and creativity of content produced. Digital distribution, the Internet, and e-commerce, have opened up the same distribution channels that major publishers and distributors utilize, while also providing new marketing and promotional services. Furthermore, reduced manufacturing costs of media content has the potential of leading to lower prices for the consumer, increased revenues for the artist and subsequently increased freedom of artistic expression.

From consumer and business perspectives, digital distribution has many advantages. One such advantage is the global availability of content (however existing content rights issues limit this international availability). For the consumer, access is granted as long as he or she has an active and sufficient internet connection. Time is no longer an issue, as content is directly transferred at the purchaser’s convenience. For the traditional brink and mortar shopper, time taken and resources needed to obtain products, as well as limited local availability are no longer issues. For the ever growing populace of internet shoppers, time spent in anticipation for the product to arrive (though this may be relative) and the related shipping costs for those products are eliminated. For businesses, costs related to producing, shipping, housing and protecting physical copies of the work are greatly reduced. Another strength of digital distribution is that large back catalog's can be maintained and easily managed as they do not require the immense warehouse, physical shelf space and resources that they would require in traditional brick and mortar retail stores, more innovative click and mortar retailers or solely internet based operations (1). Furthermore, given the nature of the Internet, content is introduced and aimed at a substantially larger market with 24 hour a day, 7 day a week, Year long access. These strengths provide a definite advantage over competition that solely relies on costly constraint of dealing with physical forms of media and who do not embrace the new digital distribution mediums. However as we will later learn, there is substantial reluctance in the industry to promote digital distribution that will in anyway minimize the revenue generated from advertisement and direct sales of video content via physical playback and television distribution.

Digital Distribution and Marketing

The increased popularity and availability of streaming and downloadable content, such as television shows and viral videos, has created a medium or better yet an incentive for advertisers to reach customers who routinely view such content. Undoubtedly for the readers of this blog, the notion that failure to quickly establish standardized formats and platforms from which to distribute and market videos, has created long and costly “format wars” that stifle their penetration into the marketplace and ultimate success, is a well ingrained concept. As a report released by LiveRail indicates, the multitude of formats, video players, reporting methods, and even lack of consensus on terminology in the industry of video advertising has created an environment of confusion that has also stifled the effectiveness and thus the confidence of online advertisers; having a detrimental impact on the ease that they can distribute their content among the various content service providers and vice versa. Ultimately reducing the motivation of content providers to allow free access of to their material, or for that matter for a fee. Another issue, which I will discuss, is the reluctance of many advertisers and networks to fully embrace the potential of online video advertising, particularly with streaming video content, due to the indication of a widespread consumer preference for viewing content on their television sets. In addition is the time honored day/time slots with specific relevancy and demographics that advertisers have traditionally reached and relied upon during normal television cable broadcast times.

A great example of TV preference over online, is that of the 2008 Olympics provided by LiveRail’s report. Interestingly, while they did procure 1.2 billion web page views, this was comparable to sites like Yahoo Sports. Though NBC took it upon themselves to generate buzz about their web coverage of the Olympics, they also feared they would harm their attractiveness toward advertisers and the revenues they could generate via traditional broadcast mediums and so limited the availability of their web content. Undoubtedly hindering the advertising monetization that they could have generated had they not do so. This was quite likely an unwarranted precaution. As LiveRail mentions, surveys of viewer’s usage and preferences would indicate otherwise. Other sources suggest that preference for viewing content on their larger television sets will remain despite the availability of video on demand via web and other sources. One projection estimates that monthly television watching time will remain unchanged and only be augmented by an addition of 38% or nearly two additional hours of viewing time online and via other video on demand sources by 2012.

Although stated earlier as an unwarranted precaution, it is clear that most of network and cable TV broadcasters are reliant on advertising dollars and sales of specific time slots to be viewed on traditional mediums to produce their revenues. Hence they do not want to endanger their longstanding and proven business models. They have come to rely on certain demographics watching on certain days and at certain times and charge for these slots accordingly. There are also time relevant advertisements that attach themselves to certain shows, which attempt to attract customers during normal business hours, sales times, or even the ads to get you into the open till 2am burger joints. It has been a big fear that these ads will not have there relevance if a video can then be viewed at any time the viewer wishes to watch them. It appears that advertisers however have not considered the potential to more efficiently target perspective customers using the data collection tools that things such as individual preferences and search histories provide. They also fear that given the option, viewers will opt to skip advertisements if given the choice. This is simply not the case if the figures presented by LiveRail are accurate. They report that average completion rate of 15 and 30 second in stream pre rolls are 79 and 84%. To clarify stream rolls are advertisements that appear during streaming video content, usually pre (before) mid (during) or post (following). Given these completion rates and the potential there is to produce advertising revenues and as formats become more standardized, advertisements will increase and almost every streaming video will have some sort of advertisement attached to it. The industry will soon reach critical mass as online video advertisement becomes a more effective and efficient medium for reaching a vast number of people that may have been missed on TV or possibly which can be reached on TV and online and whatever other medium they use to advertise. Interestingly Youtube has announced that it will begin to air post roll adds on some of its videos and I am sure others will follow. The finding as reported by LiveRail, that only 20.9% of streaming videos is being monetized by some sort of advertisement will likely increase very soon. This may be specific to their content but they have found that pre rolls and overlays do turn off the viewer and reduce their potential of being viewed, however viewers are more likely to view post rolls.


Most believe that electronic distribution will and to some extent has become a viable and mainstream option for media distribution and acquisition. However the amazing penetration that the DVD market (and likely the Blu-ray market) has had and continues to have in US households cannot be ignored. It is also very evident that digital distribution and its monetization is not immune to the so called format wars and their influence on consumer behavior as well as the rate at which victorious formats and resultant products penetrate the market. It is clear that regardless of format or medium, the power that the internet and e-commerce provide in capitalizing on the video distribution industry is immense. As with other enterprises the success of online digital video distribution is dependent on standardization, leadership and business models that absorb lessons in innovation, in letting the marketplace determine what works and doesn’t work as well as what it wants. The ability to incorporate, anticipate and fearlessly confront technological change in an ever changing industry is essential to the survival of a video distribution company.

Thank you for reading this second installment of the E-commerce and Video Distribution blog series. I hope that it has been and enjoyable experience and that it has informed and fostered some points for discussion. Please feel free to comment and provide additional or updated information, as your participation is crucial for the enlightenment of the author and the readership. Stay tuned to the next installment that will discuss, digital rights management and piracy issues.


(1) Digital distribution. From Wikipedia, the free encyclopedia.
(2) Streaming. Last modified: Thursday, March 28, 2002
(3) Digital Downloads Are Not About To Kill Blu-Ray. Duncan Riley. TechCrunch. February 17, 2008.
(4) Digital Media Distribution Opportunities for the Film Industry. Windows Media Whitepaper. 2002.
(5) Video on Demand. From Wikipedia, the free encyclopedia.