Rupert Murdoch is launching a global war on Google.
Hostilities commence in March. The prize is global Internet video search and with it the next generation of online advertising revenue.
Murdoch’s main weapon is his new video search engine, Hulu.
Video is the next major form of online content. Video streams overtook search queries in the US market at the end of 2007. Research company Forrester predicts that US online video ad spending will rocket to $7.1 billion by 2012.
Text as an online medium is already dominated by Google: their search engine is the main gatekeeper to finding all text content, such as newspaper articles, while Google’s AdWords / AdSense advertising platform has created an incredibly profitable revenue stream that has mainly bypassed the content owners.
However, video search is still at an early stage of its development, as is online video advertising. Murdoch and his Hulu partners can see the opportunity to both defend themselves from Google, by building up Hulu as a distributor of their own content, and also to attack Google, by launching Hulu as a video search engine before Google has a stranglehold over that area of search, too.
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Hulu? Who knew?
Yes, Hulu. The News Corp / NBCU video distribution network that matches major video content owners – their own studios and networks, plus third-parties (Warner Bros is poised to sign up) – with distribution owners, such as AOL and Yahoo! So how is it about to attack Google?
Kevin McGurn, VP national sales at Hulu, made the official declaration of war on Wednesday February 12, 2008 (emphases added):
“And while the end game may be to push traffic to NBC Universal's, News Corp. and their various partners' content, McGurn said Hulu is in the process of indexing all video content on the Internet, with the goal of providing links to video content that isn't licensed to play on Hulu, including programming from rival CBS, which has distribution deals with competing video aggregators such as Veoh.
“[Hulu] wants to become the Google of online video. In fact, [McGurn] noted that the design of Hulu – stark and minimalist – is more akin to Google's interface than the cluttered, portal-like designs popular on other video aggregation sites.
“But McGurn said Hulu's site is but one entry point for users, and that the real goal of the venture is to ‘give users a curated environment’ to find, watch and manage online video content wherever it comes from, or wherever it is. Among other places, he said that might be on embedded video players located on a user's own page.”
McGurn was speaking at the Next Gen Video seminar hosted by Media Contacts, the digital media unit of ad giant Havas, where “top executives of the major networks and online video portals [Hulu, Veoh, Heavy] debated the status of the business overall.” All quotes are from the coverage by MediaPost editor Joe Mandese.
Video – where the big bucks are
Making online text searchable and then building an advertising platform on top of the search engine has transformed Google into one of wealthiest and most powerful corporations ever. However, as Wall Street analysts continually observe, it’s also a one-trick pony. None of the many new businesses that Google has incubated from within (news, maps, shopping, Orkut) has yet significantly contributed to the bottom line. Neither has its purchases, such as YouTube. Take away the AdWords / AdSense platform and Google would be broke.
The Internet has reached a stage in its development where video is poised to become the future of Internet content. We argue this more fully in our new report 2008: The Birth of Online TV, but briefly:
• Most online households have broadband capable of receiving watchable quality video
• Broadcasters and other professional sources are making more video available
• Video aggregators such as YouTube as making video easier to find and search
• Audience aggregators, such as MySpace and Bebo, are connecting video with communities of potential viewers
• Technical platforms and distributors, such as Brightcove and Joost, are providing solutions to links in the chain from content owner to viewer
In fact, the moment at which video became the dominant force online may have just happened. According to online analytics company comScore, December 2007 was the month when video viewing overtook searches.
“US Internet users watched more than 10 billion videos online during the month, representing the single heaviest month for online video consumption since comScore initiated its tracking service.” The same month, “Americans conducted 9.6 billion searches at the core search engines.” (comScore press releases Feb 8 and Jan 23.)
Google sites were by far the biggest source of video views, taking 32.6%, with Murdoch’s Fox Interactive Media (which includes MySpaceTV) a distant second with only 3.5% of views.
And search itself is now the main means for online users to find videos, rather than through recommendations from friends via social networking sites such as MySpace.
“Search has become the predominant method to find video,” said Bill Tancer, global head of research at Hitwise. “People are now looking for the videos in search. It’s gone from serendipitously finding videos or someone forwarding it to you, to actively going out and searching for it” (via Daisy Whitney at TV Week).
So the challenge is for Google to extend its dominance of text search and advertising into video search and advertising. Murdoch and his allies urgently need to enable more Internet users to find their video if they want any of the $7.1 billion ad revenue that Forrester is predicting for 2012.
The major networks claim that there’s still everything to play for. Also speaking at the Next Gen Video seminar was CBS Interactive EVP Patrick Keane who says “the video market of 2008 ‘feels like search did in 2002.’ That is, it's still in a ‘primordial’ stage.”
Just as Google toppled its text search competitors, such as Yahoo! and AltaVista, could a well-funded and determined new entrant – supported by major content owners – do the same in video?
Everyone hates Google
An anti-Google coalition in online video is entirely reasonable from a video content owner’s point of view. Google disdains copyright and is a massively well-funded competitor that is variously “disrupting” (destroying) or competing with or gaining entry into other companies’ businesses. From its dominant position as the major pay-per-click text advertising operator, it is now looking to muscle into other markets. Television advertising, for instance:
Media incumbents already understand how Google has the potential to open up new revenue sources and act as a catalyst in destroying existing ones by competing for ad revenue. Ask anyone in the newspaper industry. Ask News Corp founder Rupert Murdoch, owner of The Times and The New York Post.
Incumbents see Google as an alien invader. Video content owners that have not yet signed up with Hulu are likely to do so because it follows the established rules and Murdoch is “someone we can do business with” (Margaret Thatcher on Mikhail Gorbachev).
Hulu the distributor
Before we analyse Hulu as a Google video killer in the making, let’s take stock of its current state of development. With the roll-out of its beta test in late October 2007, Hulu announced that:
“It has signed licensing deals with MGM Studios and Sony Pictures Television... over 40 television shows from Sony will be made available at Hulu.com, [and] full-length television shows and feature films from MGM.
“Hulu will also offer content from two leading broadcast networks (Fox and NBC), over 15 cable networks (Bravo, E! Entertainment, FX, Sci Fi, USA, and more), four of the largest studios (Fox, MGM, Sony and Universal) and a broad array of independent, web-centric content providers.”
More content is likely to arrive in forthcoming deals with Time Warner and Viacom.
Distribution partners include AOL, Comcast's Fancast.com, MSN, MySpace and Yahoo!
Advertisers include Cadbury-Schweppes, Cisco, Esurance, Intel, GM and Royal Carribean.
And although Hulu.com is still in beta and adding features on a regular basis (the latest is trialling HD quality video – see the blog), the platform has been already running the MySpaceTV Primetime service since mid-December 2007.
And as well as all those content and distribution deals, it has plenty of funding to start the war – and not only from the founders. “Hulu also announced it has closed a $100 million investment from private equity firm Providence Equity Partners, the leading global private equity firm specializing in media, entertainment, communications and information companies.”
As a distribution platform alone, Hulu looks like – and has been criticised as – no more than mainstream entertainment and media companies getting together to squeeze as much additional revenue as they can from their existing businesses. There are no copyright violations of course and the system already blocks users from viewing video if they’re not in an approved region (eg UK users cannot see much of the video, which appears to be for US users only).
There’s nothing inherently wrong with any of this, but nothing particularly innovative or disruptive either. It fails to meet the more radical challenge of Google and YouTube, that are aiming to make video search and discovery available globally and for free.
But a Hulu search engine could be a very different proposition...
Hulu the search engine
Here is how Hulu itself describes their targets for a search service (from the About Hulu Engineering page, with emphases added):
“Hulu, at its heart, is a tech company trying to tackle a big problem – how do we give the world premium video content, when, where, and how they want it? We are... trying to solve a variety of challenging technical problems in a relatively unexplored problem space – internet video. Hulu has access to some of the best video content out there, and we're trying to figure out how to best help people find and enjoy that content.”
“We are trying to solve a whole series of interesting problems in the content management, video advertising, and content distribution spaces. Here's a short list:
• Develop breakthrough search technologies
• Process, analyze, and correct huge amounts of video data and metadata
• Design new ways for interacting with video
• Invent new algorithms for video recommendations
• Design cutting-edge user interfaces for the web
• Mine vast amounts of user data”
No lack of ambition here – this is exactly the technical development required for what McGurn described:
• Become the Google of online video
• Indexing all video content on the Internet
• Goal of providing links to video content that isn't licensed to play on Hulu
And if it weren’t already clear enough that Google is the target, McGurn even takes a sideswipe at YouTube: “The design of Hulu – stark and minimalist – is more akin to Google's interface than the cluttered, portal-like designs popular on other video aggregation sites.”
Here are more details from a January 2008 Techcrunch interview with Hulu CTO Eric Feng, who joined with a complete technical team when Hulu acquired the Mojiti, a Chinese video indexing startup. (Emphases added.)
Hulu is not only a place to view Hulu-hosted video but one to find video hosted elsewhere on the net; the service actually scrapes ABC’s websites so that it can provide deep links to that network’s content.
Hulu’s private beta has been a technical one... improving the user interface (search has been enhanced in particular).
The company is experimenting with different forms of advertising, including overlay ads and trailers for movies.
Hulu actually has a blacklist of sites where people can’t embed videos. These are mainly sites that host content, such as pornography, that content providers don’t want their content displayed alongside. In general, Hulu can monitor where people embed its videos, and it withholds the right to deactivate any embeds. That said, it strongly supports the syndication of its content across the web.
Hulu is working on providing its videos internationally but content rights issues will take time to work through.
The public launch should come probably around the end of March.
It’s the data, stupid
But even with Hulu taking aim square at video search, how can it compete with Google? The Google search engine already indexes some third-party video aggregators – as well as its own YouTube and the unsuccessful Google Video service – and presents video thumbnails in its universal search results.
The competitive advantage for Hulu is the data it can access. What are usually called video search engines still mainly rely on searching text data about an associated video.
Where does the data come from? Says Google: “Advanced spidering technology analyzes the text on the page adjacent to the video, the video caption, and dozens of other factors to determine the video content.” (Video closed captioning is the system that adds optional text to television shows for deaf viewers.)
Many of these are effectively workarounds, methods of inferring what a video contains, and so liable to error. How much more effective would a video search engine be that can access canonical information about the video that it is indexing?
A Hulu search engine can build an internal database – call it the Hulubase – from official sources of information. Authoritative cast lists, episode synopses, press releases and much more can be provided by the content owners directly to Hulu (and that’s consumer-facing data – we’re not even getting into the level of data available to someone that owns the master copy of a video tape).
Add to that the penumbra of additional relevant text content, such as movie and television reviews from New Corp’s international newspaper titles.
It’s very much in the interests of the partners to provide the data: the better Hulu delivers up search results, the more likely prospective online viewers are to find what they want and either watch the ads or (eventually) pay for an ad-free version.
And what’s more, the Hulubase itself would ideally be an internal database, accessed only by the Hulu search engine and not available to Google.
The nearest equivalent that Google has is the information officially supplied to YouTube from its content partners, plus all the tagging done for free by YouTubers uploading content without the owners’ permission. It’s a big chunk of data, but Hulu can count on quality over quantity and quality trumps quantity in delivering the best search results, at least for the video supplied to Hulu by its partners.
And New Corp has considerable experience in running broadcast digital television platforms. Its BSkyB service is the dominant pay-TV operator in the UK, having seen off massively well-funded competition from satellite rival BSB in the early 1990s and reduced the entire cable industry to one big pipe for its channel packages.
That gives Hulu, via BSkyB, access to deep expertise in television electronic programme guides (EPGs) that will be invaluable in porting a Hulu-type service onto other distribution outlets, such as IPTV.
Hulu as a brand
Hulu is with the name that the Wall Street analysts all made fun of when it was launched. But that same name that sounds friendly and funny and memorable and easy to spell and ready-made for consumer marketing. (How do you say and spell “Blinkx”?)
In the UK, the brand name “Sky” is synonymous with multi-channel television. For many millions of British viewers, Sky is television. BBC research has discovered that the brand is so dominant that when they ask soap fans where they see the BBC’s top soap, Eastenders, a very common reply is “I see it on Sky” even when the viewers are actually watching it on the BBC1 channel (delivered by the Sky satellite service).
As we enter an era when channel brands are dying – viewers only care about shows – the brand that can imprint itself on the mind of viewers as the place to find a show is the brand that wins.
Sky have done this in the UK. News Corp will make Hulu the first name you think of when you want video search, discovery and recommendation.
Murdoch vs Google – global war
Hulu is already taking a territory-based approach that currently excludes non-US Internet users from seeing the actual video (though they can still access the site). As Feng has pointed out, the international rights will take time to sort out. However, this is essentially an administrative formality and the negotiations can be based on existing broadcast television rights deals, such as those that Sky has to broadcast US shows in the UK.
One of the massive advantages that News Corp enjoys is that, unlike Google and most US-based media and entertainment companies, it is inherently global. Being international is in its corporate DNA. Launching a global video search service is a concept that the whole corporation and its shareholders will be entirely comfortable with, particularly with $100m of someone else’s money behind it.
It is also aggressive and future-focused. James Murdoch, chief executive of News Corp Europe and Asia, described this attitude as it manifests itself in BSKyB. “I'd like to think we do the future well. It's cultural. For us management teams the key thing is... to make bets that create exposure to emerging waves.
“For example, we made a bet that people would consume more bandwidth and would want high definition [television] and that wave is now driving forward a new broadband business for us. You have to be willing to orient your whole business to those trends, have a bigger appetite for risk, a willingness to fail and an appetite for bringing change.”
News Corp is a major presence in all the largest Anglophone nations. Rolling out Hulu into the UK and Australia – and of course to the millions who speaking English as a second language – will be well-supported by News Corp media outlets.
After that, China is a tempting target, despite Murdoch’s previous difficulties in launching television services there (see this Economist review of the new book Rupert’s Adventures in China). The combination of Wendi Deng, Rupert Murdoch’s Chinese-born wife and Yale University MBA who currently runs MySpace China, and the Hulu technical team, many of whom are ex-Mojiti staff and remain based in Beijing, could well pave the way for a Chinese language video search service. Note also that Google has not done well so far in the Chinese market and remains vulnerable there to a determined competitor aiming only at video search and willing to cut deals with the Chiinese government.
And in Chinese, “Hulu” can mean either “interactive recording” (Hu + Lu) or a Chinese gourd that holds precious things.
The onset of hostilities
Hulu is due to come out of beta later in March. And CEO Jason Kilar is lined up to deliver a keynote speech at the high-profile National Association of Broadcasters trade show on April 16.
So, Hulu vs Google – who’s the winner? Comment below....