Hyper-Local Online Video and the Future of TV

by: Diane Mermigas

Broadcasters are about to experience the equivalent of the Big Bang, warns Akamai Technologies (NASDAQ:AKAM) CEO Paul Sagan, a broadcast and cable veteran whose company facilitates more than one-fifth of the world's Web traffic.

The ability to match high-definition TV picture quality with Internet interactivity is creating a sea change for online video that will begin rippling through the television industry in 2010. Only TV station owners that leap to the new arena, playing the strength of their hyper-local connections, will survive.

"The dominos are going to fall. The television industry is going to feel the impact of the Internet that music and print have suffered through," Sagan told me. "It will change everything about television production, distribution, advertising -- where revenues come from and how wealth is created."

Traditional content producers and distributors that are among Akamai's deep client base are in peril; their audiences are rapidly migrating to the Internet. Too many broadcasters are obsessing about cannibalizing their content instead of using the efficiency and convenience of interactivity to expand their local power base.

While increasing numbers of TV stations are going online with real-time and on-demand local news, sports and other live events, they do not have the interactive online advertising in place to fully monetize their content. Some major broadcasters are aggregating their digital spectrum for long-term lease to outside businesses. Or they are creating a virtual DVR-styled content service in order to prevent the Feds from reclaiming it for the national broadband initiative. Many TV broadcasters are paralyzed by debt or a rigid mindset, unable to convert online.

Sagan understands broadcasters' legacy trials better than most.

He was formerly news director at WCBS, a founder of NY1 local 24/7 cable news, and a pioneer of Time Warner's (NYSE:TWX) Line Runner and Full Service Network, which were precursors to broadband becoming a household reality. The state of online video -- 700 million people globally using 70-80 streams per month per home -- is about to explode with a 500 times user increase over the next several years, Sagan says.

Akamai (from the Hawaiian word for "clever") is a $4 billion provider of services for accelerating and improving delivery of content and applications over the Internet, using some 56,000 servers in 70 countries within nearly 1,000 networks. Its nearly $1 billion in annual revenues are evenly split between media and online enterprise applications. Its unique role at the center of the broadband revolution makes Akamai a highly speculated potential acquisition target for Google (NASDAQ:GOOG), analysts say.

With the elimination of previous technical and commercial obstacles to transforming to an online video model, it's time for broadcasters to go for broke.

"The broadcast network model is crumbling, so the only thing left is for TV stations to use their strong local identity and connections to become a 24/7 online video news and information hub for all things local. The Internet is the only source of growth," Sagan said.

"The large portals today have no local capabilities. What they do is global and generic. The window is still open for broadcasters to create long- and short-form programming that -- when expertly presented and searchable -- can be monetized and generate a new audience and new revenues," he said.

Mining interactive advertising is essential for hyperlocal online broadcasting to become a viable business. Accurate metrics must be generated in real-time, in aggregate across all platforms and devices -- a far cry from the current TV ratings. "The longer we wait to get an accurate account, the longer it will take to generate new revenues," Sagan said.

Providing broadcasters and other media-related companies with the tools to create, execute and capitalize on audience geo- and behavioral targeting is one thing. Getting broadcasters to use them to their fullest is another.

In his keynote address to the Monaco Media Forum earlier this month, Sagan said local broadcasters, content providers and advertisers are not embracing interactivity to better connect with consumers and deride new value. These points also were made during a panel on targeting I moderated also at the Monaco Media Forum.

"Digital does level the playing field. In print, it's not just unbundling content -- it's unbundling advertising, and 80% of what's out there isn't really working because it is outmoded," he said.

"There is almost no pure Internet video online; 99% of it is television. That is a gigantic opportunity on all screens that in a new industry can complement, not replace, TV. But the new business models have to follow," Sagan said.

Sagan, whose second cousin was the late celebrated astronomer Carl Sagan, doesn't profess to have all the answers. "Just be aware of unintended consequences. Two of the biggest factors ripping through media and making this transformation happen are broadband Internet access and the widespread use of TiVo (NASDAQ:TIVO) and DVR capabilities. Both were the accidental byproducts of Time Warner's Full Service Network more than a decade ago, which was widely written off as a disaster at the time," Sagan said.

"Today, everyone wants to know what will cause the next phase of the digital revolution. Chances are, it's all around us."

Disclosure: Diane Mermigas does not directly own media or Internet stocks.