At the 2009 Future of Hollywood conference, held at the Roosevelt Hotel in Hollywood, California, Blair Westlake, Corporate Vice President of Microsoft’s Media & Entertainment Group was interviewed by Tom Adams, President of Adams Media Research.

Hulu has been a great consumer success. But it’s not clear how it plays out for the traditional distributors like cable and the content producers.

The traditional distributors are saying hold on, we’re paying to distribute this content and you are giving it away for free online.

The content producers are used to the TV load of advertising revenues which is much higher than the ad load at Hulu. We may not be talking about trading analog dollars for digital pennies, but it may be analog dollars for digital dimes.

If the cost per thousand impressions doesn’t change, it’s a hard to see how things progress quickly. It just doesn’t make economic sense for Madison Avenue.

One of the things that technology allows to do is to target ads much more effectively, which may be a way to increase the digital revenue without the same advertising load. There is some certainty that advertising will remain a major component of the revenue model.

There’s a tendency to lump music, TV and movies into an entertainment bucket. Movies have two primary sources of revenue. Renting a night at the movies which represent about 30% of revenues and then the sales of DVDs and the like representing the bulk of the revenue.

Cloud computing based movie distribution will begin to substitute for DVD’s as rental on demand grows. For example, while DVD sales may be down 30%, Xbox video on demand revenues have roughly doubled.

Looking at TV, before DVRs, TV viewers would watch about 2 out of 4 episodes of shows. With DVRs, that number has increased to the average viewer watching 3 out of 4 episodes. Cloud based access could play a role in further increasing the viewing ratio.

Is the next step the Netflix subscription model? Fewer and fewer movies are being distributed via the ad supported model. The Netflix model is not new. HBO has been around for a long time and is the premier movie channel. Netflix is a different time window than HBO. It’s offering access to the library. One in ten Netflix subscribers use the Xbox Live service to access movies to consume billions of minutes of media.

The two models that seem to make the most sense are subscription and ad supported distribution.

What’s been the impact on the rental market? The VOD market should see strong growth. The average consumer only watches a movie a couple of times which makes rental a sensible alternative.

However, the switch to online will take longer than people expect. It won’t be one model for everyone.

Westlake looks at the audience and see different segments. The older audiences will be stay wedded to the traditional channels. The younger generation will be different. Just like they prefer cell phones, they will be looking at it with a very different set of eyes. They will drive the change.

Chris Early, General Manager, Windows Gaming, Microsoft gave the end of day keynote at the LA Games Conference 2008 talking about Connected Gaming.

Chris describes himself as the Windows guy in the Xbox division. His talk focuses on connected gaming. Connected gaming has evolved from single device to cross platform connected games. That is being able to play Xbox games vs. people on the Windows platform. He points to ShadowRun as an example of this type of game.

It’s not just multi-player, multi-platform, it’s playing with friends. He says that people want to watch their friends play, to talk with friends while they play.

Why can’t all platforms, the phone, the PSP and the other platforms all work together? Why can’t my networks work together? If I have a great reputation on a Windows network, why can’t I have a great reputation on a Sony network?

Why do we want to connect? We want to play, watch, compare, share ,communicate , differentiate, group/belong. Why don’t we have that game? Why hasn’t Microsoft made a game with all these pieces? Chris says its brain melting hard to do this. It’s hard on the order of whether you can make money on putting all this together.

It’s really hard just to make a game that works between the Xbox and the PC. Mice are much better pointing devices the console handsets though are much better at managing movement. How do we make this kind of thing work across all platforms. It’s really hard.

The game companies are islands. The net result is that we all end up with fragmented communities.

Chris says that what the world wants is connected gaming, companion gaming, asynchronous gaming, to make my play valuable and persistent of data and character.

Most of all we want fun. We want to have fun with whatever device we have or platform we use.

[tags]LA Games Conference 2008, Chris Early, Microsoft[/tags]

Microsoft has officially dropped it’s bid to buy Yahoo. It took quite a long time for Microsoft to see the light and it may only have been Yahoo holding out for a higher price that finally killed the deal.

I was quite skeptical that this deal wood be good for Microsoft or Yahoo, and believe the major beneficiary of it would have been Google. Neither Microsoft or Yahoo has a product that effectively competes with Google’s search and advertising products. Combining two huge computer systems or choosing between the two would have tied them up in knots for years.

Yahoo has some great potential if they can truly integrate their social assets and open them up as a new type of application platform. Perhaps the Microsoft bid was the spur that Yahoo needed to get it’s act together.

Yahoo’s shares will drop on Monday and Yahoo will be sued by shareholders who are frustrated by their inability to close a deal. It will be interesting to see if Yahoo continues to pursue the Google deal and if Microsoft emerges as competition for an AOL deal.

If Yahoo doesn’t take this chance and start delivering performance, then Microsoft or someone else will be back and buy them for much less than the $37 per share Yahoo wanted to agree to the deal.

[tags]Microsoft, Yahoo[/tags]

Microsoft announced that it is acquiring Rapt, a provider of advertising yield management solutions for digital media publishers. Rapt’s system is used by a number of big players like Microsoft, Yahoo, CNET Networks, Dow Jones & Company, Expedia, Fox Interactive Media and a number of well recognized web properties.

So what is Rapt and why is this a smart acquisition?

I came across Rapt last week while I was looking for solutions that help companies manage what could be called the advertising supply chain. And to understand Rapt, I think helps to a have a perspective on sales and operations planning and supply chain optimization. (which is something we have done a lot of)

Putting it simply, sales and operations planning is all about coordinating sales efforts with production. In the case of advertising, it means projecting how much inventory of what type (eg units, demos, etc) will be available looking out into the future and what that means for sales goals. It also includes the sales force communicating the markets demand for inventory of different types and the ongoing process of trying to match demand with supply. Once we have a sales and operations plan, its up to the sales force to sell and the supply chain to deliver.

Arming the sales force with the right information about what promises they can make to customers can make an enormous difference in terms of sell through and in terms of price realization.

On supply chain side, supply chain optimization means serving the right advertisement in the right place at the right time in a way that maximizes the revenue that can be produced on an ongoing basis. Doing this requires balancing the number of ads, placement of ads and a whole bunch of other factors. Doing this at large scale is not easy. Doing it well is worth a lot in terms of extra revenue capture.

From what I can tell, this is what Rapt’s solution helps companies manage.

This capability is at the heart of the advertising supply chain for any large publisher. And that’s why I think this is a very smart acquisition by Microsoft. The combination of Rapt’s ability to plan, coordinate and optimize the advertising supply chain and Atlas’ campaign management and ad serving capabilities should be a very compelling solution that will help Microsoft be a central player in the advertising supply chain.

And the icing on the cake is that this system is being used by both Microsoft and by Yahoo for managing their respective advertising sales and supply chains. Strategically, Microsoft blocks someone else from acquiring Rapt and screwing up their ability to integrate Yahoo and Microsoft’s ad sales and supply chain operations.

More discussion of this acquisition can be found here, here, here and here.

If you know more about Rapt, leave us a comment.

Click here follow me on Twitter at http://twitter.com/alexnesbitt

[tags]Microsoft, Rapt, advertising supply chain[/tags]

Yahoo told Microsoft to pony up a few more bucks if they really want the deal to go through. I hope for both Yahoo and MS that MS gets a clue. Microsoft has been hit hard in the market since the Yahoo bid with it’s stock down from $32 to $28 which is about a $30 Billion drop. The street is smart enough to know this deal is a bad deal, I hope MS gets the message. Although if I was some big fund with a bunch of Yahoo stock I’d be pushing hard for a sale, so Yahoo better get a clue about what it needs to do to stay independent. If these guys don’t get a clue Google will clean up big time.

If Yahoo wants to survive here are five things that would make some sense:

1) Either announce some grand social strategy that takes advantage of things like flickr or announce that that all these money losers are up for sale/spin off/close down.

2) Start thinking of advertisers as customers and make employees understand they are at Yahoo to make $$ for shareholders.

3) Hire someone who knows how to manage a sales force for sell through. Yahoo has way too much remnant inventory and sell through will all drop to the bottom line and be good.

4) Decide it’s ok to be a really successful media company and get rid of the Google envy.

5) Fire the Panama team and announce that they will partner with best bidder.

[tags]Yahoo, Microsoft[/tags]

As part of our Super Fan series, we interviewed Dean Carignan. Dean is Director, Advertising Business Strategy for Microsoft’s Entertainment & Devices Division. In this role, he develops long-range strategic plans for investments in streaming video advertising, mobile marketing, and game-based advertising. Dean also spent several years with Microsoft’s adCenter group, where he drove product strategy for Paid Search, Display Ads, and Contextual Advertising.

Dean was able to provide us with some excellent perspective on these new advertising opportunities. He is part of a group that looks at opportunities to advertise via the Xbox, Media Center, Zune and mobile platforms. We go into depth on in game advertising and how important this new segment will be. He walked us through case studies of Domino’s Pizza and P&G that describe how a well designed campaign can add to the realism of the game experience and yield results for the advertiser.

This is a must listen podcast for advertisers who are struggling to break through on television and are looking for new ways to market their products using these rapidly growing platforms.

 

 Digital Podcast 37 [49:50m]: Play Now | Play in Popup | Download

[tags]Dean Carignan, Microsoft, in game advertising, gaming, social media, super fans[/tags]

The folks at Google must be smiling tonight. Microsoft has been lured into putting a bid in for Yahoo. This is a waste of time, money and energy by Microsoft and that should make the Google folks more confident that they are on their way to overtaking Microsoft in the battle for leading technology company on the planet.

Combining two companies that DO NOT GET IT is NOT a recipe for competing with one that does. So let me get specific about what I mean by NOT GETTING IT as it relates to Microsoft and Yahoo. Anyone who has used Google Adwords as an advertiser and Google Adsense as a publisher and done the tests on the competitive products from Microsoft and Yahoo knows what I’m about to describe.

When I set up a campaign at Google Adwords, it is an automated process that is rich with interaction and feedback. I can test a campaign, keywords and ads in a very responsive manner that allows me to set it up, test it and optimize it quickly. Yahoo’s equivalent service was a captive to the belief that permeated Overture/Goto that only human editors could screen ads to make sure that they were relevant. It would take days under that process to do what Google did in minutes As a result, I advertise at Google and do so with Yahoo when I get around to it, if ever. (BTW I told this to the senior team at Yahoo’s search marketing group, but they either didn’t want to hear it or could not change the business process that had been set in place 4-5 years before) Since then, Yahoo has tried to reinvent its ad platform and Microsoft has launched their own version, but both still lag way, way behind Google.

How will Microsoft be able to merge two hugely expensive computer platforms when neither is yet good enough to compete with Google’s ad platform? And the same problem exists when you look at it from the publisher side. Google’s Adsense delivers better ads than does the equivalent Yahoo product despite huge investment by Yahoo. What will Microsoft do, scrap one deficient set of systems for another or try to make both work? Either way, the path leads to doom and gloom for both Microsoft and Yahoo.

There is obviously much more to both Microsoft and Yahoo than search and search advertising, but let’s be clear. Search based advertising is the engine that powers Google and everything it does. Social networking/media, a la MySpace and Facebook, has huge potential and Yahoo should have been the king of that domain given all their acquisitions in that arena over the years, but if Yahoo can’t turn My Yahoo, Flickr, GeoCities, De.licio.us etc. into a Social Media powerhouse how can we expect Microsoft to do so.

I can only hope Yahoo turns down Microsoft and they come to their senses. Yahoo can still do great things with the audience and assets it owns by changing its focus to become the queen of social, instead of the king of search. Microsoft should stop listening to bankers and get back to making products that work well and can out perform the competition.

[tags]Yahoo, Microsoft, Google, social networking, social media, search[/tags]

I just checked Google analytics for the daily stats at Digital Podcast and I saw the biggest one time increase in daily visitors and page views. Digital Podcast’s traffic jumped up by 80% on Christmas day. I looked at the distribution of search terms for some anomaly, but it wasn’t there. Search terms remained consistent in their distribution.

I think that people got lots of iPods, Zunes and the like for Christmas and went looking for content.

I also think that Christmas day has probably become the biggest day ever for the music industry thanks to iTunes cards. I know for sure that’s the case in my home as my daughter spent her $30 iTunes gift cards before noon and my son spent his by 4pm. That’s the first time either of them has bought music online and it didn’t take long.

No wonder Apple’s stock almost hit $200 per share.

[tags]ipod, Apple, iTunes, Zune, Microsoft[/tags]