The market is creating interesting experiments for turning file-swapping into advertising dollars.
By Jon Healey
November 5, 2007
One of the sticking points in the contract dispute between Hollywood studios and writers has been how much the latter should be paid when their work is redistributed online. The negotiations have been complicated by the fact that the most vibrant video outlets online have been file–sharing networks, which generate little or no revenue for anyone in the entertainment industry. Even popular paid outlets such as Apple’s iTunes Store have produced comparatively little money for studios, leaving producers and writers with few clues as to which business models will work and how significant the revenue will be.
A handful of start–ups, however, are developing potentially lucrative video distribution systems that put file–sharing networks to work for content owners and consumers alike. These include Hiro Media and YuMe (pronounced "you–me"), whose advertising networks can feed commercials into video files wherever they go online, and Brand Asset Digital, which applies Google–style advertising techniques to file–sharing programs. Their shared goal is to convert the rampant online copying of video files that has plagued Hollywood into revenue–generating commerce that still feels free to consumers.
These companies start from the assumption that people don’t want to have to pay for video online. They then try to find a way to incorporate advertising without driving viewers away.
Hiro, an Israeli start–up, and YuMe, a venture–backed firm in Silicon Valley, insert targeted, interactive advertisements into video files after they’ve been downloaded. Here’s how Hiro’s technology would work for an episode of a TV show. The company would feed authorized copies of the episode onto the major file–sharing networks, using the same format as many bootlegged files. People searching for that episode would find and download the authorized copies, but when they started playing them, they would see a message scrolling across the bottom of the screen prompting them to download Hiro–s software in order to watch the entire episode. As they install the software, they’re asked a few questions about themselves and their interests. The software then downloads a customized set of advertisements to run during the episode. Unlike the rest of the video, the ads cannot be fast–forwarded or removed because they’re protected by digital locks. After the ads play, the software reports back to Hiro so advertisers will know when and where they played, as well as some demographic information about the viewers. If the episode is played again on the same computer, Hiro will download new ads. And as the episode spreads online through file–sharing, each successive viewer receives a new, customized set of ads.
Hiro and YuMe are developing multiple ways to personalize ads, varying pitches according to the viewer’s location, demographics and, eventually, the videos they’re previously downloaded. Their approach offers several advantages over traditional broadcast or embedded advertising techniques, which blast the same pitches to every viewer. The most important is that ads delivered dynamically by Hiro and YuMe are less likely to be ignored or resented, for the simple reason that they’re more timely and relevant to the viewer. “The reality is, if an ad is relevant, you will watch it,” said Thom Kozik, president of the U.S. division of Wazap, a search engine for video games. That translates into higher rates paid by advertisers.
The ability to customize ads by time and place is critical to unleashing the commercial potential of file–sharing networks, which can distribute video files globally at very low cost but with little control. The tools provided by Hiro and YuMe restore the control demanded by advertisers, letting them dictate where their messages are seen and by what demographic group. The revenue generated may not be enough to fulfill Hollywood studios' expectations for new movies, said Ronny Golan, Hiro’s co–founder. But the model works well for full–length TV shows, which have long relied on advertisers to pay the freight.
Advertiser–supported distribution online is winning fans among the studios –– witness what all the major TV networks are doing this season –– but those are based on streaming, not downloading. One well–publicized example is Hulu, the joint venture by News Corp. and NBC Universal. Hulu supplies clips, TV shows and movies with embedded advertising to a handful of major Web sites for streaming, while allowing users to post links to those videos on their own blogs and social network pages. One drawback there is that streaming full–length episodes can be costly, especially when they’re in high definition. Letting users download and redistribute files is much less expensive, which is why Hiro and YuMe’s have developed ways to insert ads into media after it’s been downloaded.
The firms’ strategy is a 180–degree shift for major entertainment companies, which have been playing defense on file–sharing networks. Today, studios and record labels are flooding those networks with bogus files in an attempt to block real copies of their content from spreading online. “Imagine, instead of flooding them with fake files, flooding them with legal ones,” Golan said.
Brand Asset Digital –– the company created by the recent merger between INTENT MediaWorks and Beyond Media, two firms that used file–sharing techniques to distribute media commercially –– also tries to load file–sharing networks with legitimate copies of videos and songs. Instead of dynamically inserting ads, though, Brand Asset Digital treats the content itself as the promotional material. Its slogan – “content is the new store front” – reflects is efforts to intertwine creators and advertisers within digital files.
One technique is to insert advertisers’ promotional messages into music or video files in such a way that the messages appear whenever users search for that content. For example, a search for songs by rapper 50 Cent might return a page or more of results that include the phrase, “free download brought to you by Glaceau’s Vitamin Water,” a beverage that the artist is backing. Search results on file–sharing networks are a rich and largely untapped resource for advertisers; according to Joey Patuleia, vice president of business development for Brand Asset Digital, more searches are done on those networks than on Google and other major Web search engines.
Brand Asset Digital recently announced a strategic partnership with a talent agency representing 50 Cent and several other top hip hop artists. Hiro’s technology is being used by an Israeli TV network and NBC's soon–to–be–defunct DotComedy.com. (Tellingly, perhaps, when I downloaded one of DotComedy’s offerings, Hiro fed me ads for beef jerky.) YuMe is supporting online video efforts by Microsoft, DAVE Networks, BitTorrent, Vuze and Pando.
You don’t see these companies distributing hit TV shows through file–sharing networks yet, but studios and advertisers are much more receptive to the idea now than they used to be. Jayant Kadambi, co–founder and CEO of YuMe, said he found virtually no interest among content owners in advertiser–supported file–sharing three years ago. So his company bought the international rights to a number of Bollywood films and distributed those to theaters and the Net simultaneously. As YouTube rocketed in popularity, a number of smaller content owners, such as San Francisco's Mondo Media, started looking to spread their content as far as possible online –– with YuMe’s help on the advertising side. Today, Kadambi said, even the largest content owners and advertisers are dipping their toes in. “We’re more than past the halfway mark,” he said. “Everyone’s pretty clear that the broadband networks and the Internet, if managed correctly, can be an additional source of revenue for their content.”
Besides, it’s hard to argue with the numbers put up by the file–sharing networks. Just look at the stats recently reported by a single BitTorrent index site, Mininova: 3 million users and 3 million downloads daily. [Not 3 billion downloads daily, as I originally wrote –– that’s the cumulative total.] In plain English, that means people who go to Mininova to search for digital goods (most likely, a bootlegged video, game, album or piece of software ) start downloading files 2 thousand times per minute on average. (Click on these links to see Mininova’s search and download stats. ) It’s safe to say that television programs make up a sizable portion of those downloads; as BayTSP, an anti–piracy firm, points out, one of the fastest growing phenomena in the file–sharing world is index sites dedicated to TV shows.
Just as the demand is enormous, so is the opportunity. And the emergence of companies such as Hiro, YuMe and Brand Asset Digital is a sign that the Internet may soon give producers and writers a pot of cash worth fighting over.