Several significant media news stories have emerged in the last month that grabbed my attention and really drove home the extent to which Hollywood’s traditional distribution windows are being shattered.

The first, and perhaps most intriguing of these stories,  focused on the desire of several major studios (including Disney) to make new movies available to cable and satellite TV operators as early as 30 to 60 days after their theatrical debuts – for a premium price. The second involved the deal between NetFlix and the recently launched EPIX pay TV channel  allowing Netflix to stream feature films from Paramount, MGM and Lionsgate 90 days after they debut on the premium pay-tv and subscription VOD services. Finally, proponents of the cable TV industry’s “TV Everywhere” approach have upped the ante by announcing that at least seven of the ten largest subscription-TV providers in the U.S. are planning to launch new tablet-computer applications in the next six months that will provide mobile access to premium pay content from HBO and other providers.

Now, it must be pointed out that each of these initiatives come with some significant caveats. For example, the studios are proposing to charge a whopping $25-$50 for “premium” VOD content, Netflix’s new content will be SD only and will lack contributions from many premium content owners like HBO, and cable’s tablet app offers will, of course, only be available to existing cable subscribers.

Despite these limitations, the announcement of so many paradigm breaking initiatives in a single month, demonstrates that the pace of innovation in online media has accelerated to such a degree that traditional distribution windows are quite close to disappearing altogether. Although the various industry players seem to be pursuing very different philosophies and approaches, it is clear that the major content providers and publishers have realized that they can no longer afford to take a wait and see approach to adopting new platforms and formats. Action must be taken today to meet a large and growing demand for immediately available online and mobile content – and traditional video processing platforms are just not up to the challenge.

The Hollywood practice of media release windows – with prescribed time gaps between which films and television shows are aired over different media – has remained largely unchanged for several decades. Films are launched with a theatrical release, followed after a few months by a home video release. Once the retail market is served, films  gradually make their way to VOD, Pay-per-view, and hospitality markets, before finally making their way to premium cable. Last on the list is basic cable and broadcast TV.

Hollywood’s adherence to these traditional distribution windows and the business models that go along with them has meant that emerging online video providers such as NetFlix, iTunes, Hulu, or Amazon OnDemand have struggled to provide their viewers with premium content and often cannot get a popular movie or TV show until long after it has been shown on pay TV or been made available on DVD.

But as an increasing number of video consumers reject traditional pay channels or DVDs in favor of online and mobile video, content owners have had to contend with growing consumer frustration over the lack of premium content online. A vocal minority of viewers is unwilling to wait months for a favorite show to make it online and many are willing to pursue illegal options to obtain the content.

When you combine this with the threat of competition from YouTube and recently resurgent Web-only content companies such as Next New Networks, My Damn Channel, or Michael Eisner’s Vuguru, it is clear that a shift is taking place.

According to the measurement firm comScore, 86 percent of Internet users in the United States now watch at least one online video a month.  In the month of July 2010, 178 million U.S. Internet users watched online video content during the month for an average of 14.7 hours per viewer. As more video is available online, it is becoming the defacto video source for a growing number of viewers, particularly those in younger demographics.

As these initiatives show, Hollywood and the cable industry is feeling the winds of change and are beginning to take some steps to respond. Obviously, this isn’t the first time that Hollywood has experimented with radical changes to its traditional windows. Back in 2006, director Steven Soderbergh worked out a deal with Mark Cuban of Landmark Theatres and HDNet to simultaneously release his low budget indie film, Bubble, to theatre screens and cable TV simultaneously – with a DVD release a few days later.  But this experiment – which significantly did not include an online release – was only a drop in the bucket compared to what’s happening today.

But what does this mean to content owners and publishers. Well, for one thing, it means that content repurposing for the web or mobile devices can no longer be seen as an afterthought. Producers will need to factor in the costs and difficulties of multi-platform distribution right from the start. It also shortens the time frame available for video processing. Content owners will not have the luxury of taking months to prepare content. Finally, content owners will need to be prepared to support a much broader range of platforms and formats – at least in the near term.

In an environment such as this – where response time, cost, scalability and quality are all critical factors – traditional server based solutions are not going to work. They are too expense, too hard to scale, and too expensive to maintain. Likewise, traditional service providers such as post production houses – which are tied to highly manual, craft-based processes and expensive in-house data centers – are unable to respond in a cost effective manner. Only a cloud based provider will be able to meet the requirements of the new distribution model.  And, we believe, only Panvidea can meet the quality and scalability requirements of professional media.

A lot of virtual ink has been spilled in recent years promoting the idea that using public, cloud-based tools to replace or augment data centers can save companies considerable amounts of time and money. The case for these benefits is by now well established. What is less often pointed out, however, are the many ways in which the cloud can help you increase revenue by boosting productivity, lowering the barriers to entry for new business opportunities, reducing risk, and freeing up resources for more lucrative pursuits. The increase in overall content monetization from switching to the cloud is significant. We’re not talking incremental improvements; we’re talking several orders of magnitude bigger.

We recently spent some time comparing our costs for video encoding and post-production services to those of some of our more prominent server-based competitors – companies who require you to install dedicated hardware and software-based systems.

Our model is based entirely on publically available rate charts and hardware performance benchmarks. We determine how much content different size business could process in a given period of time with a single encoding box and reasonable time requirements, and scaled up the costs based on encoding volumes.

Keep in mind, however, that the cost of building and maintaining a data center includes much more than just the continued capital investment in software and hardware. There are significant operational expenditures as well. Such setups also require an extensive IT support staff and facilities investments to build, host, and maintain the infrastructure. The value of this infrastructure depreciates rapidly. Hardware and software becomes obsolete, requiring expensive upgrades. Companies have to build a system capable of meeting their peak requirements – even if that means that the system sits idle most of the time.

Aren’t convinced? Let’s take a look at the numbers.

We started with what we took to be the typical processing requirements of a very large content producer: encoding approximately 1,500 video files a month, with an average length of 22 minutes each, into a range of mobile, broadcast, and broadband formats. We also assumed that the output files would include a mix of clips and full length files in both HD and SD.

Over a five year period, we predicted that the cumulative video processing costs for a typical in-house data center would exceed $25 million. Processing the same amount of content using Panvidea would cost that producer slightly more than $8 million. That’s nearly a 70% decrease in total costs.

And the numbers are similar for smaller implementations. We also modeled a “medium” size company (750 files per month) and a “small” company (100 files per month, clips only). The five year Panvidea costs for these scenarios were 65% and 55% less respectively.

The chart below tells the story in more detail.

For anyone familiar with the economics of the cloud, these kinds of numbers aren’t all that surprising. What may be surprising to some people, however, is the scale of the potential boost in productivity and revenue.

To estimate the productivity increase, we switched the terms of the equations. Rather than trying to calculate how much money a company could save by switching to Panvidea, we decided to calculate how much more content they could process with Panvidea if they spent the same amount of money they would have spent on an old fashioned, server-based system. The results were jaw dropping.

Assuming the same large processing requirements cited above, a company could increase their media processing output from 1.8 million content hours to over 7 million content hours. This represents a productivity boost of almost 300%. The increase for a medium sized company was just slightly less at about 280%.

The biggest surprise, however, came when we looked at the small company scenario. In that case, the potential productivity boost for switching to Panvidea was over 980%!

We chose to represent this increased productivity in terms of increased output based on the assumption that the demand for content these days is great enough that most companies are being held back by high opportunity costs rather than lack of demand. But even if that isn’t the case, the Panvidea approach gives media companies many reasons to rejoice because they can channel those freed up resources into the business of generating demand for their content without the fear and risk associated with the crushing overhead of maintaining a data center.

One might say that building even a small data center is an expensive proposition and it probably wouldn’t make sense for a small content company to make this kind of an investment. But the fact is that many companies do just this, in the hopes that the investment will pay off over time as their company grows. Even if they decide not to build their own data center, they are probably paying a hosting company which has these costs built in.

But here’s the catch. It doesn’t pay off. And it will never pay off, because costs in the old model scale incrementally with capacity. But not with Panvidea.

When you manage your own data center, or pay a hosting company to do it for you, it is extremely difficult to achieve any economies of scale or profit from an increasing number of licensing and distribution deals. Companies are literally forced to walk away from potentially lucrative content deals when the costs of fulfillment threaten to exceed the potential revenue or when the delays caused by overloaded operational queues result in missed opportunities.

Panvidea lets content companies get out of the IT business. By freeing up staff and resources, customers can focus on the core creative and business activities that contribute to their unique competitive advantage. On-demand solutions also enable much shorter deployment times – potentially minutes as opposed to a phased implementation that could take months.  Upgrades follow the same assumptions.

In summary, content producers who choose to build server-based infrastructures are faced with:

• Spiraling ownership costs
• Resources wasting time juggling codecs, wrangling metadata, maintaining infrastructure
• Inability to grow or to profit from economies of scale
• Inability to fully monetize new or long tail content
• Persistent threat of obsolescence and lack of future-proofing
• No means to keep pace with online and mobile innovation
• Deals left on the table and profits forfeited

Cloud-based encoding and video processing services allow companies to:

• Significantly reduce up-front and ongoing costs
• Gain increased transparency and predictability of costs over time
• Shift software expenditures from a capex to an opex model
• Take advantage of the economies of scale enabled by multi-tenancy
• Pay only for the capacity that they use
• Spend 50% – 70% less than comparable on-premise solutions
• Increase productivity (and potential revenue) by as much as 300% on average, but potentially much, much more

It has become very clear that Internet and, more importantly, the convergence of IT and broadcast technologies have radically altered the way in which consumers discover, purchase, and experience media. The introduction of the Apple iPad and transformation of Hulu into a subscription service for professional content are just the latest chapters in an ever accelerating narrative of digital transformation.

Hulu’s recent official announcement of its Hulu Plus service raises the stakes by offering consumers a library of over 2,000 previously broadcast network shows as well as access to all new network programming from NBC, ABC, and FOX. The programs will be viewable across a striking array of platforms including PCs, TVs, gaming consoles, Blu-ray players, tablets, and mobile devices. Even Apple’s Flash-resistant mobile devices will be fully supported. 

But as consumers flock to new over-the-top media services, content owners are often stumbling in their efforts to provide content to these new services. Challenges include barriers imposed by out-of-date, entrenched business models as well as the time and costs associated with content preparation itself.

So, in this new era of digital ubiquity and high speed networks, why is the business of preparing and packaging content for distribution still stuck in the dark ages?
 
As consumers rush to embrace new platforms, devices and experiences, media producers are increasing trapped in the past, unable or unwilling to capitalize on the potential cost savings and new revenue opportunities that digital technology allows.

This story is not new. Human behavior is driven by habit and even individual consumers can be slow to embrace change. But when habit becomes frozen on an industrial scale in the form of industry-wide business models and billions of dollars in revenue is at stake, change can seem impossibly complicated. Sometimes it can take a near catastrophe to get thing moving in the right direction. Just ask anyone who worked in the music industry 10 years ago.

Some of the problems are, of course, business-related. The cable networks, which rely on their share of subscriber fees from the major cable providers such as Comcast, are understandably reluctant to hand their content over to an over-the-top service. And studios are reluctant to mess with the old theatrical release windows which retails and other distributors have relied upon for decades.

But entrenched business models are only part of the problem. Another big piece of the puzzle has to do with the current methods for packaging and preparing content for distribution. So, what’s wrong with current media preparation processes?
 
Well, for one thing, they were created to serve the needs of a much simpler and smaller marketplace. The traditional media supply chain began with the need to deliver content for theatrical exhibition, which had established release windows and a dedicated distribution network. As broadcast television, then home video and cable emerged, this model was replicated, resulting in a series of parallel and more-or-less independent, business units, processes, and supply chains.
 
When media companies began repurposing content for the web and mobile platforms beginning in the late nineties, their initial impulse was to treat these digital file-based networks as just another channel, creating a unique path through the value network for each new entertainment product that was created. They simply created an “Online” division to supplement their “Home Entertainment” or “Broadcast” divisions.
 
But, digital media is not just a new form factor or method of packaging content. Digital content is liquid and fungible; it can be transformed, repackaged, and personalized. And global high speed networks are not just a new channel for media distribution. The network is a multi-lane highway not a one way street. It is about push and pull – delivery and response. And it is capable of carrying an enormous amount of data along with the content itself.
 
All of this represents a completely new way of discovering, purchasing, experiencing content which demands entirely new business models, new supply chains, new skills, and new attitudes. Digital media production and distribution are dynamic and cyclical, not linear. Any attempt to apply the old models to this new reality is bound to fail.
 
As the number of delivery options grow, the complexity and cost of fulfillment within the current media supply chain is exploding exponentially. Increased complexity results in lost time, duplication of effort, wasted investments, lost productivity, and missed opportunities as workers juggle spreadsheets and struggle to keep up with the latest formats and codecs.
 
Faced with this dilemma, however, technology vendors responsible for helping media companies prepare content for multi-platform distribution focus too narrowly on the technical challenges of transcoding and file transport and ignore the business side.
 
What is required is more than just new transcoding tools, we need a complete reinvention of the traditional B2B media distribution ecosystem. Media companies need industry-specific, value-added business applications (specific tools for broadcast, advertising, publishing, direct response, stock media, etc.), automated supply chain workflows, separation of creative and manufacturing tasks, public/private cloud hybrids, media and metadata exchange standards, and more.
 
Panvidea is leading the way in providing flexible, business-centric tools for media providers and their distribution partners. Tools that help them handle the business challenges of distribution as well as the technical challenges. Tools that help them generate new revenue and transform their business.

Video content companies in every industry have essentially the same goal: to provide the best possible media experience to their chosen audience, regardless of the platform, device, or business model.

A key aspect of this experience is video quality. If the image is hard to see clearly, or the motion isn’t smooth and fluid, it’s impossible to become truly engaged in the content, regardless of the size of the screen. Formats, codecs, and compression standards may vary, but one thing remains constant – the higher the quality of your master source file – the better the quality of the transcoded distribution file.

There are many factors that impact the quality of the master file – including frame rate, color depth, aspect ratio, as well as more subjective characteristics such as composition, lighting, and subject matter. One thing is certain, however: the higher the quality of the video, the bigger the master file.

Given all of this, why do so many hosted or cloud-based video processing services continue to charge their clients based on a gigabytes in/out model. This CDN-inspired approach does not make sense for content preparation as it effectively penalizes media companies for attempting to provide their viewers with the best media experience. It becomes one more reason for enterprise players to dismiss the cloud approach without really investigating its strengths.

The traditional pricing model for cloud-based video services works like this:  say a client uploads a 6 GB master file and wants to encode 3 different versions: a 3 GB file, a 1.5 GB file, and a 500 MB version. Under a GB pricing model, the client will have to pay a flat per-GB fee for the combined size of all of the resulting output files PLUS the size of the input file. So, if the rate is $3 per GB, the client would have to pay $3 x 11 GB or $33. More than half of the fee in this case is associated with the input file. If this operation were performed in-house within a finite encoding farm, the size of the input file would have no bearing on the cost of the job. If cloud providers penalize content owners for sending higher quality files as input, some of the cloud value proposition is ruined as content owners will most likely generate lower-quality mezzanine masters in order to keep costs down.

The GB model is even more confounding when you consider the fact that most cloud infrastructure providers (Amazon Elastic Compute Cloud, for example) charge per hour of processing time along with a minimal transfer charge (currently free or heavily discounted). A far more sensible approach is to charge clients based solely on the number of content hours out. So, let’s assume a content owner want to produce 3 different distribution versions of a single 60 minute television program. In this model, the customer pays a flat per hour fee for the total time of all output files. Assuming a rate of $5 per content hour out, the resulting fee would be $15 and the content owner is free to send the best quality master file without fear of paying more.

To make this model workable for enterprise clients, however, the service must also dispense with arbitrary limits on file sizes and hourly volume. Clients should be able to send as many files of whatever size they want without being forced to wait in processing queues. Isn’t that the real value proposition of the cloud?

Only Panvidea currently provides this kind of instantly scalable, enterprise-ready encoding and processing engine. We are breaking with convention to provide an architecture and pricing model that are more aligned with our clients’ needs and aspirations.

This is part of a broader effort on our part to provide a service that can satisfy the requirements of all players in the media space from small business to global conglomerates.

The business of distributing, consuming, and monetizing content is undergoing a radical transformation. As consumers embrace new devices and delivery options to satisfy their hunger for content anytime, anywhere, there have never been so many ways to sell new and existing assets.

However, it’s becoming increasingly clear that the traditional methods for editing, encoding, processing, and packaging professional video content for distribution are permanently broken. On-premise, hardware and software based solutions are expensive to build and difficult to maintain. Manual processes don’t scale and it is becoming increasingly difficult to accurately predict required processing capacity. Media providers can easily overspend for capacity they don’t need or get caught unprepared when demand for content suddenly spikes.

Fortunately, there is now an easy-to-use, professional-grade alternative to these slow, expensive, and risky approaches. With the arrival of secure, scalable cloud technologies and on-demand applications it’s no longer necessary to waste money on expensive capital infrastructure or pay expensive hourly rates for slow, manual workstation-based dubs.

Cloud-based post production and encoding technology allows producers of professional entertainment and advertising to take control of their video assets – with increased speed, broadcast quality content, and significantly reduced costs. And best of all, you pay only for what you need, when you need it. You never have to worry about capacity planning or processing delays ever again.

Panvidea’s new white paper, “Conquering the Convergent Media Challenge,” provides a detailed tutorial on the benefits of cloud technology for media production and demonstrates how you can significantly reduce your video processing and delivery costs by adopting secure, scalable cloud-based media solutions.

Visit www.panvidea.com/whitepaper/ to download your free copy today.  Or call us at 212.967.9613 to find out how Panvidea can help you take control of your content.