Bellwether week for online video

It was a big week in the world of online video, particularly among the biggest players. Amazon began posting information on new features it’s planning to add to its video-on-demand service, including a subscription plan. Netflix said it’s planning new features in conjunction with Facebook. And Hulu, a studio-backed site offering a limited range of television shows free of charge, said nearly 1 million people had registered for its relatively new subscription service.

All of this strikes me as clear evidence that more people are spending more and more time watching videos online, and want to integrate this viewing into the rest of their daily routines, which also include more time spent online.

It also reinforces our confidence that our FargoTube online video/music platform will continue to grow and thrive because FargoTube is an online video provider like these large media companies. FargoTube has an especially promising future because of its more extensive interactivity, which is aimed at independent musicians, video producers and their fans.

For me, the week’s most interesting piece of news was from NetFlix. The company, which dominates the U.S. DVD-by-mail market and has become one of the nation’s largest services for streaming Hollywood movies, hasn’t given much detail about the integration with Facebook, but I’m guessing it includes the ability to post movie ratings and comments to users’ Facebook pages, which NetFlix dialed back and then eliminated last year. It was a great feature and I hope it comes back, although it didn’t give users special access to artists the way FargoTube does.

A common thread in the news about these large online media services since last year is that they seem to be moving more and more aggressively onto each others’ turf. That makes me wonder whether any one of them will maintain the uniqueness it needs to retain customers, or whether price competition might hurt one or more of them.

In contrast, FargoTube’s unique format, the social networks centered on its entertainment content – and the resulting digital marketplace experience – are features that aren’t available anywhere else. As using the Internet and enjoying entertainment media become more and more synonymous, FargoTube is right at the intersection of creativity, commerce and fun.

Pew Research Center confirms validity of FargoTube business model

A survey published last week by the Pew Internet & American Life Project found that 65 percent of internet users in the U.S. have paid for news, entertainment and/or other digital media.

That’s crucial for FargoTube because it strongly reinforces our belief that musicians, filmmakers and other content owners deserve to be compensated for their creations that are distributed online just as they’re compensated for tangible products such as CDs and DVDs. More importantly, this is evidence that content owners can profit from their works, which is the central premise of the FargoTube business model. Artists don’t have to post their videos and music for free consumption, merely as an attempt to steer fans to their discs and live performances, and they don’t have to rely on ad-funded sites like YouTube, which share a far smaller portion of their revenue than the 70 percent that FargoTube shares.

The Pew report has drawn extensive news coverage in the last few days, both on tech blogs and in the mainstream media.

This was the first time that Pew surveyed Americans’ spending on online media, but I think it’s safe to assume that 65 percent is a big jump from a couple of years ago. (Taking into account that a quarter of the people in the survey don’t use the internet, only 49 percent of Americans buy online content. That percentage has also surely grown quickly and will continue to do so.)

I think people are becoming more willing to pay for digital content for two main reasons. First, they’re spending more of their time online. It’s worth the investment to them because they know they’ll either be at their computer or have an appropriately equipped mobile device on hand at the moment they want to listen to the music, watch the video or play the game that they download.

The second big reason is that individual online content providers and distributors are differentiating themselves from one another, thanks partly to faster internet connection speeds. They offer a wide range of interactive features, including many that were impossible in the days of dial-up and even DSL. Internet users can no longer drift away to a different site that has exactly the same content and presentation.

I think FargoTube is a great example of this differentiation, especially in terms of presentation. FargoTube’s social-networking format is unique among online video platforms. Subscribers to a FargoTube fan site can interact with each other and with the bands, authors and filmmakers whose works they buy. Subscribers can share their own videos of concert footage with one another and even sell that footage, subject to the approval of the content owner behind the fan site.

Nashville, we’ve had a problem

I decided to tag along with F3’s sales team to NextBigNashville a couple of weeks ago. Paul Campbell, Stephanie Miller, and I busily attended conferences addressing the problems that independent artists — and even signed artists — are still having in distributing their creative works and profiting from them.

 

Performance at the famous Bluebird Cafe!

 

The Nashville scene is very unpretentious when compared to other music scenes I’ve been exposed to. I must admit to being more tuned in to the rock-music industry, but Nashville was a very comfortable place for me, probably because I play guitar and keyboards, and even played professionally for several years in the ’80s. (Look as hard as you want, you won’t find any pictures of me, my clothes, or my hair at the time; thankfully, the internet as we know it was not yet invented , and cameras still had film.)

As I settled in to the conference great room where everyone could meet, relax, eat lunch and socialize, I set out apart from Paul and Stephanie and plopped down at a table with what I thought was a BIG country star, trimmed ShoLo hair, boots, crisp jeans, he had the Country Star look for sure. Others were at the table, too, but I “knew” this was the right guy.

I sat down and introduced myself, which prompted the others at the table to begin introducing themselves; the guy I thought was the BIG country star was actually a BIG Nashville attorney who represents all your favorite country stars; however, the guy to my right, who looked like my last waiter at Chili’s, turned out to be the songwriter Chas Sandford. Admittedly, I had no idea who I was speaking with, but I am a musician and genuinely respect and admire all fellow artists.

 

Chas Sandford (courtsey of chassandford.com)

 

Remember, I told you country music wasn’t my strongest skill set? It turns out that Chas (yes, we’re on a first-name basis now) had not done so badly for himself. I later learned that as a hit songwriter and publisher, he won twelve ASCAP “Most Performed Songs” awards, including John Waite’s “Missing You,” Chicago’s “What Kind of Man Would I Be” and Stevie Nicks’ “Talk To Me.” His songs have also been recorded by Tina Turner, Rod Stewart, Melanie, Roger Daltrey, Berlin, Millie Jackson, Brooks & Dunn, Alison Krauss, Rick Springfield, Sammy Hagar, Jimmy Barnes, Don Johnson, David Wilcox, Tyler Hilton, Sheila B. Devotion and others.

So, I am now speaking with a couple of key people in the music industry – wouldn’t you agree? — and eating lunch (which F3 co-sponsored) with my new friends.  The conversation with Chas and the big Nashville lawyer would be the first of many — with artists from ALL genres —  lamenting over the same problem:

I own this entire library of my music, and I have no idea what to do with it, how to market it, or how to distribute it.

 

Ken Paulson, CEO, First Amendment Center; singer Caleb Folowill, Kings of Leon; Ken Levitan, producer and manager

 

I also attended several sessions of the conference that focused on the issues of digital distribution rights that face these artists and labels. I heard repeatedly that the record companies have not always kept up with the times: Some still do business like they did in the ’70s, and that can be cumbersome, time-consuming, and expensive.  I believe this is one of the reasons why 40 percent of today’s musicians are independent (including some huge players such as Garth Brooks, Kiss, and Kings of Leon). Independent artists organized a conference on their own initiative to try to solve some of the digital-rights issues.

Now, here came my epiphany, after attending the panel discussions and meeting IP attorneys and managers and musicians from the genres of hip hop, rock, country, and alternative. I realized that…

FargoTube solves 95 percent of the digital rights, distribution, and royalties issues that conference attendees had been chewing over for the past two days!

Wow! I was really excited, and since I’ve played music most of my life (yes, even at church as a kid), I had finally grasped the magnitude of F3’s opportunity.

Dozens of musicians at the conference — and indeed the conference itself — were broadcasting the message “Nashville, we’ve had a problem.”

F3’s response: “Don’t worry, Nashville, FargoTube is the solution!”

Coming Soon: Look for my next entries as I explain why 99-cent Itoons (sic) has not been the answer to digital rights management, sales, distribution and marketing, give my report on F3’s top-notch sales-team, as well as introducing you to more of the artists and bands I have met and spoken with. Till then…

Steve Haag handles investor relations for F3 Technologies. He is principal at SmallCap Support Services in Houston. He can be reached at (832) 201-7913 and shaag@smallcapss.com.

A slideshow of Steve’s photos from NBN is below:

This slideshow requires JavaScript.

More revenue for artists

More evidence of FargoTube’s commitment to musicians, filmmakers, and video-based instructors: F3 is sharing 70 percent of the revenue generated by videos and other digital content uploaded to FargoTube between now and the end of the year.

The offer applies to revenue that the content generates between now and the end of 2011. The revenue split will then go back to something closer to 50/50. That, too, is a humongous improvement over what content owners get from the advertisement-supported sites where they post their videos, let alone from sites where their content is posted without their permission.

More details in this morning’s press release.

Half a million musicians

Counting our agreement with Broadcast Music Inc., which we announced this morning, we’ve formally pledged to compensate half a million copyright owners for their music that is uploaded to FargoTube. BMI enforces copyrights on behalf of 400,000 musicians and other owners, and a similar performing rights organization, whose signing we announced last week, represents a significant but smaller number of copyright owners.

This is particularly important for a feature of FargoTube that we haven’t discussed extensively: FargoTube lets users post and share videos in much the same way that free websites allow. While each content owner organizes his or her “tube” around the videos that he or she posts and sells, subscribers can post their own favorite videos to the tube, if the tube owner allows this feature. The feature is part of what makes FargoTube a social network, and not just a distribution platform.

Inevitably, in some cases a user will post a video without the explicit consent of its creator or copyright owner. We’re paying licensing fees to BMI and SESAC to ensure that the artists do get paid for those videos.

Not the same ol’ song and dance

Just following up on yesterday’s press release about hip-hop choreographer and dance instructor Kelly Peters, who recently signed on to use FargoTube to sell his videos and stay in touch with fans.

Kelly’s been in the business for a while, and his first instructional video, “Make it Happen,” has sold more than 15,000 copies. It has been among Amazon.com’s 10 best-selling “dance and DJ” videos for most of the last couple of weeks (fifth when I wrote the press release, #4 last night, and now #8). Kelly’s working on several new videos that will probably be comparable in length to his first one, about an hour.

For us at F3, and probably for Kelly himself, the coolest thing is that FargoTube enables him to start making money on different kinds of videos. He’s been interviewing innovators and stars in various fields of dance — including Rhapsody, Luam and Mr. Wiggles — and offering the interviews free of charge as downloadable podcasts. He recently interviewed an early pioneer of one hip-hop subgenre — I’m dying to tell you who it is, but can’t until it’s uploaded. That’s one of the first videos he plans to upload to his tube, some time in the next few days.

Defending intellectual property, the ground war

Yesterday’s New York Times Magazine had a fascinating, fascinating article about performance rights organizations, which enforce music copyrights.

The article followed Devon Baker, a field agent for BMI, one of the three largest PROs in the United States, as she trekked across the Arizona desert in an effort to wring a few hundred dollars a year from bar after cafe after strip club. I guess you could call her a soldier in the ground war over intellectual property.

Up until yesterday, I had never wondered how many proprietors are out there buying CDs for $9.95 from Amazon and then playing them while selling $2.95 bottles of Bud Light, but I’ll bet it’s a lot, and BMI’s agents are apparently trying to find and charge all of them. It looks like an awfully tough slog.

BMI (Broadcast Music, Inc.) is organized like a nonprofit, and a representative told the magazine that it gives musicians and record labels 89 percent of the fees it collects on their behalf, after subtracting 11 percent for its own costs, including the salaries of Baker and other field agents. BMI employs several hundred agents like her and claims about $1 billion in royalty revenue each year, according to the article. I’m guessing that the other two majors, ASCAP and SESAC, are comparable in size. (The two names are acronyms for the American Society of Composers, Authors and Publishers and the Society of European Stage Authors and Composers, but all three organizations are equally focused on U.S. copyright law).

We at F3 Technologies have been looking at PROs because their mission is complementary and so similar to that of our FargoTube video and entertainment service: helping artists and content owners to regain control over their creations.

There are differences, of course: Whereas Devon Baker begins collecting revenue from heretofore illegal use, FargoTube is a completely new type of platform that can bring new fans to content owners while allowing artists to connect with existing fans more richly.

By “richly,” I mean more profitably, but also through richer content: FargoTube accommodates music, high-definition still images and videos, including exclusive interviews, short video messages, music videos, and movie-length features. And FargoTube is built like a social network, so fans of a particular artist can interact with each other, share videos subject to the artist’s approval, and get information about upcoming tours.

My favorite difference between PROs and FargoTube: F3 employees don’t have to negotiate with screaming bar owners in dusty parking lots.

No free lunch

“There ain’t no such thing as a free lunch” was the first thing I learned in economics class my senior year of high school. I think Mr. Ravenscroft even had “TANSTAAFL” written on the dry-erase board when we were walking in on the first day of the semester.

TANSTAAFL is perhaps the core principle of economics: Anything with value also has a cost to produce, and nobody — a business, especially — gives away anything of value unless they receive something of equal or greater value as a result.

It’s also a core principle for F3 Technologies’s FargoTube online platform: Musicians, filmmakers and other artists are sick of toiling in the dark for years, only to see their creations pirated and posted on websites that don’t share revenue with them. Many artists play along by posting limited content on “free” websites but have grown frustrated that these sites don’t translate into profit. In contrast, FargoTube lets fans subscribe to an artist’s videos and other entertainment and splits the fees with the artist.

One of the most alarming illustrations of TANSTAAFL is unfolding this week in the pages of the Wall Street Journal, which has been running a fascinating series about marketers’ collection and use of personal data. The series started with an article last weekend about increasingly sophisticated cookies, beacons and other tracking programs installed on our computers when we visit “free” websites and that continue to track us even after we browse along to other websites. Most of us are aware to some degree that this has been happening, but not to the extent reported in the Journal. Several popular “free” websites — including dictionary.com (click at your own risk) install hundreds of trackers on visitors’ computers, and the 50 sites most visited from the US installed an average of 64 such trackers in the Journal study. Some of the trackers help create a profile for each internet-protocol address, which marketers assume to represent an individual user.

From an article that ran July 31:

“Hidden inside Ashley Hayes-Beaty’s computer, a tiny file helps gather personal details about her, all to be put up for sale for a tenth of a penny. The file consists of a single code— 4c812db292272995e5416a323e79bd37—that secretly identifies her as a 26-year-old female in Nashville, Tenn. The code knows that her favorite movies include ‘The Princess Bride,’ ’50 First Dates’ and ’10 Things I Hate About You.’ It knows she enjoys the ‘Sex and the City’ series. It knows she browses entertainment news and likes to take quizzes…

Lotame Solutions Inc. … packages that data into profiles about individuals, without determining a person’s name, and sells the profiles to companies seeking customers. Ms. Hayes-Beaty’s tastes can be sold wholesale (a batch of movie lovers is $1 per thousand) or customized (26-year-old Southern fans of ’50 First Dates’). ‘We can segment it all the way down to one person,’ says Eric Porres, Lotame’s chief marketing officer.”

A Journal article this week called the phenomenon “anonymity in name only.”

I’m not prepared to say that this use of personal data is a bad thing on balance and I can’t quite put my finger on why it feels creepy. Nonetheless, I know that a lot of people do find it creepy, and I understand why a lot people want stricter legal protections for their personal data.

Regardless, I think internet users are going to recoil from it and limit their use of websites that don’t guarantee at least a minimum standard of privacy.

In contrast to most video-centric sites, FargoTube users know upfront what they’re going to pay on a monthly or per-video basis. FargoTube and its revenue partners, the content owners, don’t sell personal data to outside marketers, and content owners can choose to offer limited advertising or no advertising at all.

One of the web’s most popular sites for video, Hulu.com, moved away from its all-free model a couple of weeks ago. A new service it’s calling “Hulu Plus” offers an expanded range of television shows to users who subscribe for $9.99 a month. Following the launch of Hulu Plus in June, CBS, the only major broadcasting network that isn’t already affiliated with Hulu, is talking about playing ball.

We think “Plus” validates FargoTube’s business model and will probably show that people are happy to pay for content when they can’t get it anywhere else or when it’s delivered in a unique setting such as FargoTube, which combines video with social networking and other features that fans find useful.

News Corp., which owns the Wall Street Journal and a 30 percent stake in Hulu, has been at the forefront of media industries’ moves to charge for content. The Journal, for example, allows free access only to articles deemed to have significant public service value, like the current series on privacy.

“The argument that information wants to be free is only said by those who want it for free,” News Corp. CEO and Chairman Rupert Murdoch said several days ago. And even they may stop saying it, once they find out what their money can buy.

This post has been updated to include information about Hulu’s ownership, CBS-Hulu discussions and the Wall Street Journal’s revenue model.

Hulu Plus confirms FargoTube’s business model

Hulu LLC announced the imminent launch of a subscriber version earlier this month and has started accepting requests for a preview version of the service, Hulu Plus. “Plus” is a $10/month service that adds older television content to the new episodes already available at hulu.com. The large television conglomerates that co-own Hulu have hinted at such a move since October, without giving a specific timetable for its launch.

We at F3 Technologies see Hulu’s move as confirmation of the general viability of fee-based online video, including our own FargoTube platform. Americans are spending more and more of their time on the internet, and content owners should treat the internet as a source of revenue to take the place of dwindling television viewership and album sales. Hulu, YouTube, musicians, newspapers and countless other media companies have been giving away their creations free of charge for years, and Hulu Plus is an acknowledgement that the free model isn’t sustainable, at least not by itself.

Several aspects of Hulu Plus underscore FargoTube’s advantages for television studios and especially for other content owners.

For one, FargoTube allows content owners to post their videos without advertising, an important choice for owners who believe an ad-free environment facilitates stronger connection with fans. Content owners who do allow advertising typically reap half or more of the ad revenue that FargoTube collects. That’s comparable to what Hulu now collects, based on an estimate by the New York Times in March. Hulu hasn’t said how much of the subscription fees it will share with content owners (Hulu LLC itself is 90 percent-owned by three television companies: NBC-Universal, ABC-Disney and News Corporation, owner of the FX Channel and Fox News Channel). FargoTube shares more than half of subscription revenue with content owners.

Although navigating Hulu may be a bit easier than a DVR/television combo, and though picture quality may be somewhat inferior (Hulu Plus is supposed to feature higher definition), it’s basically the same as TV: a one-way medium that the viewer sits back and watches.

FargoTube is interactive, with video as the center of a social network that we call a “tube”: Viewers can e-mail each other and post comments while watching. They can create networks of online friends with similar entertainmnent interests. They can subscribe to one tube or more than one, or pay a one-time fee for a single video, depending on how the tube owner wants to integrate FargoTube with the rest of his or her online presence. Unlike Hulu and YouTube, FargoTube is primarily a behind-the-scenes solution for owners to monetize their content while maintaining direct contact with viewers and fans. The direct contact allows tube owners to better understand their fans’ buying habits, and to promote other business lines, such as concerts, in-theater premiers, and online sales of merchandise like t-shirts and car accessories.

Financial analysts and tech bloggers have been mostly positive about Hulu Plus.

“They are offering a hybrid approach which I think leverages the Web — some content is free and supported by ads and some content will be paid,” consultant Michael Vorhaus, who has studied online pay models for networks and newspapers, told the New York Times.

Bruce Leichtman of the Leichtman Research Group told the newspaper that he sees “not a lot of interest in paying for Hulu.”

At ITWorld, Peter Smith theorized that Hulu might come up with a Hulu Plus Plus with a higher subscription fee and no advertising at all. The company told him it’s not ruling out such an option.

If people don’t end up being willing to pay for either new option, it may be because they can already get the same or similar television programs free of charge — both on television and online. FargoTube’s situation is a bit different, however: Most of our clients and potential clients are smaller than the giant TV studios. They’ve built up fan bases outside the mass media, and we believe those fans are willing and eager to pay for access to new and original content.

You don’t like me? So will you give me money?

I was checking out comedy skits on FargoTube’s competition — YouTube — yesterday, when I noticed something surprising: A Republican National Congressional Committee ad popped up on a video spoofing Sarah Palin. The RNCC was asking for donations with the tag line “Don’t let Obama and The Left win.”

People who crack up after watching “Sarah Palin” wondering aloud who the first president of the U.S. was — do they really want to see RNCC ads on their screens? And what about people willing to fork over $25 to $30,000? How many of them are happy to see a sliver of their donation going to a website that hosts anti-Palin videos?

The dilemma crops up a lot less often for viewers on FargoTube. Owners can monetize their video content entirely via subscriptions, or choose to allow ads when they believe viewers will tolerate or enjoy them.

As with YouTube, Hulu.com’s primary revenue stream is advertising, albeit video advertising similar to what’s on traditional television. While some financial analysts cheered the launch of a subscription version of Hulu earlier this week, others predicted that the continued ads would repel would-be subscribers.

And of course you may have heard about iOmega’s “Burn, Baby, Burn” ad, which someone appears to have screen-captured alongside an article about a toddler dying in a house fire. I don’t know if it ever happened to appear that way, or if someone got a little crazy with PhotoShop. Either way, it was a public-relations disaster for both iOmega and for the news organization.