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In November 2006 WalMart offered a trial program for downloading Superman Returns. It’s been a while since that experiment but today Wal-Mart introduced a demo version of a more comprehensive video download service.  The service has the support of 6 major Hollywood studios and is set to include more than 3,000 TV and film titles at launch from properties held by Viacom’s studio properties, Disney, Warner Brothers, and 20th Century Fox.   Prices of downloads are expected to be similar to the prices of buying a DVD so as not to undercut that market.

The marketplace for downloadable content is crowded.  Among commercial content providers, Wal-Mart will compete against iTunes, Cinemanow, Amazon and others.   Wal-mart’s chances of success are uncertain, and they’ve failed before when experimenting with services outside their traditional core competencies. (A notable effort being their attempt to compete with Netflix which they gave up on.)

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EBay and other companies ambitiously targeted China and drooled over the potential goldmine of revenue to be reaped from its gigantic population base.  Each aspiring effort has proved a costly struggle to realize.   (EBay recently restructured its offerings there.)

Casino Royal was recently released to widescreen audiences in China.   With over a billion potential viewers, Sony aggressively pursued the release which was scheduled for around 1000 screens.  Censors were given early access to review the film for objectionable content (Previous Bond movie Die Another Day (2002) was rejected outright).  Even Danielle Craig, the star, was in Beijing for the premier. 

The James Bond franchise finally making it to Beijing underscores yet again the promise and pitfalls of breaking into new international markets, especially China, where government controls make it among the most extreme environments for any would-be marketer to navigate and profit from.

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Netflix  (NASDAQ: NFLX), reported Q4 earnings.

The company announced earnings of $14.9m ($0.21/share) versus  $3.3m (excluding a $34.9m tax gain) in the prior year.  The returns beat consensus which projected $0.15/share. 

During the period, Netflix added 654k new subscribers.  Revenue was up 44% to $277.2m

More detailed press coverage on Netflix’ finances can be found at:

Yahoo Finance
Google Finance
Marketwatch

I’ve been a long time Netflix customer.  I begrudgingly tolerate Netflix’ well documented throttling practices. (For those unfamiliar: throttling was the name applied to the intentional slow down of deliveries to insure an revenue maximizing ratio of movies delivered per rental fee).  I also tolerate little annoyances like bonus-feature discs (eg/ a disc with nothing on it but directors commentary and deleted scenes) being counted as a separate rental, or the lack of availability of an occasional title.  As a movie fan, I used to hate going to rent a film only to find my local store had none available, nor anything else I wanted to see. Netflix’s larger pool of titles, the convenience of home delivery service and lack of late fees won me over despite the occasional frustrations.

Netflix retains my business today because they have provided the best service of its kind.   They offered a real value. Now, in the increasingly competitive and bloody battles of the movie rental world, that value proposition is degrading.

Netflix is due to announce earnings January 24th.   The expectation is that both subscription and revenue numbers will be up and I imagine, will exceed expectations.  It’s also expected that battles with Blockbuster and ongoing litigation are taking a toll. Operating expenses, including heavy marketing costs (to fight Blockbuster), as well as legal expenses, will be way be up year over year. Whatever the numbers, or the reaction from The Street, Netflix faces a difficult future. In the spirit of analyst’s reviews around earnings announcements, here are three talking points from a list of their troubles:

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Peer to peer architectures can be a very efficient method of sharing content or copying large files across networks.  From Napster to Kazaa to Bit Torrent, their use has been well tested, and proven, for different types of downloads (legality notwithstanding).  Peer to Peer concepts also can be efficient and functional when working with content that is "time present" (e.g. Real Time Streaming as opposed to the delayed use of a file that cannot be accessed until fully downloaded). Skype proved this in the internet telephony marketplace.   

Given peer to peer architecture’s ability to work with both time present and time delayed data, it’s only a small logical leap to envisage peer to peer architecture applied to other arenas.

The previously code named “Venice Project” was recently unveiled as such an application for streaming television content.  Skype founders, Niklas Zennström and Janus Friis, began the project with some of the proceeds following the sale of Skype to EBay for more than $2.5b in 2005.   

The new company, Joost (pronounced "juiced"), is set to allow consumers to watch ad-supported TV online through a downloaded software client.  The underlying architecture is reported to be based on similar peer to peer structures to those the two previously developed for Skype. 

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It’s still very early in the year but today, Cambridge MA based Brightcove announced the closing of the largest venture round of the year.  The two and a half year old Internet TV (and Ad Network) startup closed a $59.5 m series C private placement.  The round added a number of strategic corporate and international investors to Brightcove’s slate of stockholders which now includes:  AOL/Time Warner, General Electric, Accel Partners, Allen & Company, General Catalyst Partners, IAC/Interactive Corp, The New York Times, The Hearst Corporation, Brookside Capital and Transcosmos Investments (Japanese firm which also has money in CinemaNow).

The financing was a private placement in which Morgan Stanley and Allen and Company acted as placement agents. The capital, according to press releases, is earmarked for international expansion.  It may also be used to secure additional partnerships or even efforts toward consolidation in the developing, but crowded Net TV market.  (Brightcove acquired Metastories in March 2006, and could be out to buy up other companies to enhance its offerings).  

Notable to me is not so much the size of the deal (though it’s large) but the involvement from major media companies like the New York Times and Hearst co.  Brightcove has gained the confidence of many traditional media companies and this stands to expand those relationships.

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The end of every year always begs a quick recap summarizing what happened in the prior 12 months.  For these past months: 2006 was the year of Internet Video

YouTube, blogs, and other forms of user-generated content were a major part of what happened in the land between media, entertainment and technology in 2006 but video led the way.  

With activity from startups to conglomerates, somewhere during the course of the year user generated content more than passed in to the mainstream.

An advertisement in today’s Sunday newspaper solidifies just how far things have come.  Dove, the decidedly non-cutting-edge maker of soaps, called for people to go online and submit a homemade 30-second TV spot for Dove’s newest product.   The winning video spot will be aired during a commercial break in the Academy Awards in February. 

The tagline for the ad: “Be real. Go online. Get on air.”

Looking ahead, copyright issues and distribution competition may continue to slow the availability of (legally) downloadable full length movies and video (and cause legal headaches for major players like YouTube who get trapped in copyright issues) .

But, looking back, with user generated content, outtakes and shorts leading the way:  the impact of Internet Video during the past 12 months was unmistakable.