Online Video vs. Music – Different Game, Same Rules

Editor’s note: Peter Csathy is President & CEO of online video technology company Sorenson Media and is a frequent guest blogger for TechCrunch, as well as his own “Digital Media Update” blog. Csathy previously was President & COO of online music pioneer Musicmatch (acquired by Yahoo!) and spent 10 years in the “traditional” media world, including stints at Universal Studios and representation of the rap group N.W.A. Follow him on Twitter @pcsathy.

Netflix — the poster child for premium Internet video services — was birthed by iTunes and other online music services before it. Yes, movies and music are fundamentally different forms of media. Apart from the obvious, in the online world, music tracks can be unbundled from albums (movies can’t), and the number of movies produced in any given year represents a small fraction of the total volume of recorded music (and these differences directly impact business models).

Nevertheless, despite these differences, three ingredients that have proven to be essential for the success of any online music service apply equally to the premium online video world. This trilogy represents the “Sacred Tenets of Online Media” that apply to any service provider. Apple was the first to get it right in the online music world with iTunes. Who will first get it right at massive scale for online video? Netflix may have the lead, but the game is still early. So, game on.

Sacred Tenet #1 – Quality, Quality, Quality.

I know this sounds trite, trite, trite, but how many service providers really get it right? Remember the early online music services (both legitimate and not)? Audio quality was frequently abysmal. The overall experiences were usually empty (meta-data, what meta-data?), and the bad guys infected you with viruses. Enter iTunes, which offered a healthier, better sounding product and far richer overall experience. That mattered. That was a game changer.

The same applies, of course, for online video viewing, no matter how big or small the screen. To “win,” service providers must ensure that movies and television shows look good on every device regardless of the explosion of new devices, form factors, endless specs, new formats (MPEG-Dash, UltraViolet) and variable network conditions. Consumers don’t care, and they aren’t patient. Not anymore. They just want the stuff to work. And, that ain’t easy. That’s why Netflix transforms each movie into over 100 renditions to account for different devices, formats, and network conditions. THAT’s a commitment to quality.

Here’s further proof that service providers are finding a commitment to overall quality (essentially user experience or U/X) increasingly critical. My company, Sorenson Media, provides video encoding solutions for video professionals to solve the fundamental problem of transforming video for optimized delivery over the Internet. We just recently surveyed our user base of 100,000+ video professionals (the full survey results were just recently reported in TechCrunch). Our users both confirmed what we already suspected, but also surprised us with what we didn’t. Not surprisingly, 75% of video professionals encode regularly (at least weekly), and no output format is unimportant as multiple formats are heavily used (although MP4 and H.264 lead the pack for both web and mobile).

Surprisingly, however, even though our product ships with over 200 encoding recipes (presets), a whopping 80% either tweak those presets or create their own. That’s how complex this stuff is. Our customers find it necessary to dial in video quality even further! Why? Because you gotta get it right, or the U/X is wrong. And, if you got it wrong, then your customers look elsewhere.

Sacred Tenet #2 – Deep Content.

We live in a world where iTunes, Rhapsody and Spotify offer virtually any music track you could ever think of – 15 million of them! We take that for granted. We expect it. But remember, it wasn’t that long ago when that wasn’t the case.

In the earliest days of legitimate online music services, music libraries were small and filled with gaping holes (how’s that for an oxymoron?). iTunes launched with a scant 200,000 tracks back in April 2003, and my former company, Musicmatch, launched its then-revolutionary music on-demand subscription service with 250,000 tracks later that same year. Think about that. Those numbers, of course, represent only about 1.5% of the total number of tracks now offered today. Ultimately, once customers got over the novelty factor of new music services, that paucity of content led to frustration – and opportunities to differentiate based purely on size. We at Musicmatch – and all others – soon realized that those gaps had to be filled as quickly as possible. And, the arms race was on to sign up the most record labels the fastest – and then boast about it as a major differentiator (which it was). I was there – I remember camping out in New York City for a week just so that I could pounce on any indie label I could to add “0’s” to our library (with the goal of ultimately adding “0’s” to our topline).

This same basic truth applies to premium online video services of course. What happens when you can’t find the movie you want? You bolt and look elsewhere. Well, none of the service providers want that to happen, so each of them is feverishly racing to expand its cache of movies and television shows. That’s why you read about deal after deal after deal. It’s the quest to get the critical mass they need for their customers to stay. At this point, since online video libraries are still relatively thin, deal scrambling will continue at a feverish pace and media companies (licensors) should have the upper hand. (For a further detailed discussion of the power media companies hold in these online movie licensing discussions, check out my earlier TechCrunch guest post on the subject.)

Sacred Tenet #3 – Discovery & Navigation.

It’s essential for online movie customers to easily find the premium content they want, when they want it. But, it’s also essential for them to find a way to intelligently and easily navigate the vast expanding universe of other content that they don’t necessarily know they want – until it “finds” them and they experience it. That is the fundamental role of discovery.

Back in my Musicmatch days, we offered a music discovery engine based on the tastes of other listeners. If you liked Arcade Fire, The Decemberists, and the Shins, then you would be introduced to other music that other artsy indie-types like you liked. (By the way, for you music fans, Pandora recommends Bloc Party and the XX if you plug-in those three bands.) Effective discovery enhances the user experience – and leads to more content consumption (meaning more opportunities to monetize).

The same holds true for premium video. As movie libraries expand online (which they absolutely must do since we are still in 2003-like online music numbers), it is essential to give the consumer powerful tools to make sense of it all. Many flavors of discovery exist, including social. Service providers will look to differentiate themselves here too as music services, like Pandora, do in the online music world.

iTunes got it right 10 years ago – and rules the online music world still to this day. But, things are very different in the online video world. Many hats are in the ring this time around. Netflix is the leader, but certainly isn’t a lock. And, Apple isn’t a significant player (yet). The players who pay homage to the Sacred Trilogy will best position themselves to be the big winners tomorrow.

As fundamentally different as the two different forms of media are, the recipes for success in the online media service provider world largely stay the same …