How big, how soon?
One question e-business managers will have to answer is how fast the universe of broadband users is growing. The answer depends on whom you ask. While analysts typically agree on the definition of what a broadband connection isâ€"DSL (digital subscriber line) and cable modem connections at speeds of 128K bps or higherâ€"they disagree on the pace of broadband penetration. According to Jupiter Media Metrix, 36 percent of U.S. online households, or 28.8 million, will connect to the Internet through broadband in 2005 compared with 9 percent, or 4.8 million, this year. Others are more bullish. Forrester Research estimates that 64 percent of U.S. online households, or 46.7 million, will have broadband connections by 2005.
Despite the uncertainty, most e-business managers are at least beginning to chart broadband strategies. About 90 percent of companies surveyed by Jupiter either had begun offering broadband features on their Web sites or had plans to in two years or less. The majority of sites are initially targeting video.
Besides attempting to determine the potential audience of broadband users, e-business managers should be investigating whether they can justify the often considerable cost of creating and distributing content for broadband. For the majority of Web sites, unless they're in industries such as entertainment or media, broadband features shouldn't be a top priority, said Robert Hertzberg, an analyst at Jupiter. Web sites considering streaming video, for instance, should be leery of jumping into it if they'll have to produce video content from scratch, Hertzberg said.
Why? The short but sad histories of a few of the pure-play broadband content sites tell a clear story. Many have been undone in part because of high production costs and the lack of a large broadband audience, according to a Forrester report. Failed sites include those of Digital Entertainment Network, Pseudo Programs and Pop.com. Now-defunct Digital Entertainment Network, for example, spent more than US$60 million in a year to make $370,000 in revenues, Forrester reported. The cost of producing Webcasting shows in some cases was said to have run companies as much as $100,000 for a 6-minute episode. Expensive video equipment, production talent, the need to encode video for multiple Web formats and content distribution all drive up costs, experts say.
The potential for high startup costs worried executives at financial services company Morningstar when, a year ago, they began to investigate incorporating broadband features into the company's site, Morningstar.com, under a directive from CEO and founder Joe Mansueto. They were able to avoid most of the costs of producing and delivering streaming video by partnering with a video technology provider.
Morningstar in October launched video content on its site through a partnership with a startup streaming video syndicator in Chicago, TV House. As part of the deal, TV House handles the encoding and streaming of video for free but receives a share of any revenues Morningstar receives from syndication of its video content to other sites, said Cathy Odelbo, president of Morningstar.com. Prior to cutting the deal with TV House, Morningstar opened its own television studio, where its 50 analysts conduct interviews with financial news outlets. Morningstar now also uses the space and equipment to film three daily Web segments featuring analysts' opinions on markets and investing. Odelbo said Morningstar.com hopes to increase that frequency to five programs in the next couple of months. So far, the video content is available only on the Morningstar site. No syndication deals have been signed.
With hardly any cost, Morningstar. com was able to begin experimenting with streaming video. At the same time, it stands to gain a return from any revenues generated through TV House's syndication of its content to other sites. But Morningstar expects that the bigger return will come from learning what it can do with broadband content. So far, the number of viewers of its video streams is relatively low, with about 1,500 unique viewers on an average day compared with an average of 180,000 unique visitors to its overall site each day.
"As video on the Web gets better, it will create more of an experience customers will want to come back to," Odelbo said. "Creating an experience that makes customers want to come back time and time again is what will give us our return on investment."
Production costs aren't much of an issue for sites affiliated with broadcasters, such as BET.com or the sites of CNN Interactive, a division of Time Warner's Turner Broadcasting Systems unit. Instead, at CNN, the biggest cost hurdle is paying to distribute its broadband content to online viewers, said Monty Mullig, senior vice president of CNN Internet Technologies.
"We would more aggressively use more high-bit-rate video if the bandwidth costs were lower," Mullig said. "We spend a lot of energy trying to drive costs down."
CNN, Mullig said, is negotiating with its distribution providersâ€"which include Akamai Technologies â€"in an attempt to cut those costs in half over the next year and by a factor of 10 within the next 18 months to two years, Mullig said. He declined to specify CNN's streaming media distribution costs. Akamai charges customers based on the number of megabits delivered each month, with a minimum charge of $2,000 a month.
Once distribution costs are cut, Mullig hopes CNN can expand the amount of higher-bit-rate video its sites offer. Right now, 300K bps video, the highest it offers, is limited to the CNNSI.com sports site and to news, sports and financial information video streams provided as part of nine broadband alliances with ISPs (Internet service providers). Those ISPs handle the streaming on their own networks, rather than the open Internet, saving CNN the cost of distribution and providing a higher-quality feed.
Putting more high-bit-rate video in place, according to Mullig, will give CNN a competitive advantage over its online competitors because the network will be better able to showcase the dozens of live video feeds it has at any one time.
In addition to cutting broadband costs and using video and other broadband-oriented features to attract visitors, some sites are experimenting with ways to generate more revenue from video and other broadband content. Both Morningstar and CNN, for example, said they hope they will be able to charge more for ads that run with streaming video content. While few sites have demonstrated that advertisers will pay more for placement with video content, experts say they may be willing to. That's because the broadband audience is likely to be more coveted by advertisers. Zia Daniell Wigder, an analyst at Jupiter, in New York, said that, by most estimates, broadband users are online four times longer than narrowband users. They also tend to be wealthier and more tech-savvy.
Those kinds of demographics have allowed at least one site, NBC Internet's portal site NBCi, to charge a premium to advertisers on its broadband portal, according to Benjamin Feinman, vice president of publishing and media products at NBCi, in San Francisco. A $20 ad on the regular portal site could cost $75 on the broadband site, Feinman said.
Sites are examining other revenue models as well. WWF New Media Network, the online division of the World Wrestling Federation Entertainment, conducted limited pilot tests last year of pay-per-view wrestling events streamed over the Internet at 650K bps. This year, it is aiming to launch a full-blown pay-per-view offering that could include income from sponsorships, along with the paying viewers, said Gerry Louw, chief technology officer at WWF New Media.
Louw plans this year to offer a subscription model for some premium video content, like archives of past special WWF events.
