The FCC and Yahoo (YHOO) bring up an interesting investment question today.
How much of tomorrow's Web will be video?
If you think most of it will be video, then by all means buy Yahoo. And buy Comcast (CMCSA), which will act as a gatekeeper for Web video. If, on the other hand, you see video as just a minor part of the mix, then just grab some popcorn and get some Netflix (NFLX), which has a working business model for the stuff.
The FCC may even make you more bullish on NFLX, since it's now investigating Comcast's discriminatory policy in delivering video streams to consumers. That investigation may help the store compete with the last-mile operators.
Comcast claims it runs video requests on its Infinity service through its own infrastructure, not the Internet, and thus it can do that for free while charging when someone orders video from Netflix. It makes the same claim for gaming streams it runs for Microsoft (MSFT) Xbox, leading some to believe it's violating the agency's net neutrality rules.
The Wall Street Journal, never letting a chance to bash government go by, predicts this means you'll be paying more for Web video.
Maybe. But how much of your Web usage will be video at all?
The same question occurs with Yahoo partnering with CNBC on financial videos. How much of your financial research are you doing on the TV? How much of your investment advice is coming in the form of entertainment?
My guess is, not as much as people think.
Having played around with video off-and-on for decades, I can tell you a few things for sure:
It costs money to do it right, even when you're using Web tools.
Video is a bandwidth hog. The better the quality of the video, the more bandwidth it hogs.
Not every bright person has the qualities of video stardom. Personally I have a face for radio and a voice for print.
Video is one-way.
You can do meetings on video, but you're not going to watch them later, even if they have high production values. Production values are required for watchable video. That's why most video is done in a studio. People wear make-up, they have a script or at least a set of talking points, and we all know that you need good acting chops, presentation skills or improvisational brilliance to be a TV star.
The Internet is not, by and large, an entertainment medium. It's not, by and large, a one-way medium. It is an interactive medium, in which everyone, behind every screen, is an active participant. It's a medium where you can switch channels at the click of a mouse, where depth counts over breadth, and where the fastest way to get data through your eyes to your head is by reading it, not watching someone else read it.
As Comcast's Xbox deal makes clear, interactivity can also be high-bandwidth and benefit from low-latency. But there are ways to deal with both that and the real cost of streaming. You can cache content close to the customer or maintain most of it on their local device and deliver only the changes. You can schedule content deliveries for when contention is low, as with a DVR, and store it until it's needed.
The real problem with video is its production cost. Good video costs real money to make. As TV and movie companies approach the Web they want guarantees these costs will be recouped. A quality video seen by just a few hundred, or a few thousand people is a money-loser, and video producers don't want to be money losers.
But an investment insight seen by just a few thousand, or a few hundred people, can be a nugget that gets you into a deal ahead of the pack, or that warns you of trouble. And we rely, as investors, on dozens or hundreds of such data points in making decisions. Most don't come in the form of a talking head on an idiot box.
The bottom line, for me, is that the future will not be televised. There will be television in it, but the future will be interactive, most of us aren't TV stars, and thus video is less of an issue than many suggest.
If you're looking for Internet stocks, in other words, look for Internet results.
Disclosure: I am long MSFT.
