Bill Gurley on Online Video: Snapshot of a Speeding Train

Published on 04/29/2009

By Ravit Lichtenberg (blog)

Bill Gurley, General Partner, Benchmark capital gave the Keynote address at the OnHollywood conference this morning. Bill is the author of Above the Crowd; coming from design engineering and analyst background; he brings a truly unique perspective to his VC role at Benchmark. Within a matter of 15 minutes, Bill articulated the key trends, barriers, and success factors in the video tornado. Below is a summary of Bill’s talk.

The video market is in tremendous transition:

• The playing field is being defined right now!
• Silicon valley has misconception about Hollywood—a naiveté—while Hollywood is well aware of what’s happening; boardroom meetings are happening as we speak.
• Great content is expensive: over the past 20 years, user expectations of their TV experience has come close to their expectations of feature films. A single episode of Lost costs around $1mil.
• Affiliate fees is a huge deal. Right now people have unlimited access to all DVDs but it’s not going to be the same with online content. The $25 all you can eat model isn’t going to exist for online content. Studios are either not making content available on line or they sold it already.
• DRM was a speed bump; Blue-Ray is a smaller speed bump.
• TV and online used to be thought of as two separate worlds but Hulu showed up on Boxee and blew that model away.
• The incumbents will use their strength to compete with Hulu: Cox, Comcast, Time Warner will continue to do what they can.

Two key issues to watch for:

• The single most important thing that’s going to shape things is metered internet pricing. It is the most important issue to watch. If ISPs can’t compete on innovation and user experience, they will compete on pricing.
• The second most important issue to look for is User Interface and User Experience.
• User interface will really matter!
• Customer needs to know what to watch
• Companies need to know how to encourage conversion at the menu level: Hulu sees a $20 VRD compared to $1-$2 on Comcast.
• iPhone is the right way to think about it…it broke the cell phone model with its UI and ability to monetize using micro-transactions. It proved micro-transactions can happen in the US.

Aggregation:

• Aggregation could evolve into a financier’s game. Very deep pockets. Hulu, Netflix, Google could become the next Sirius Radio-XM Satellite deal.
• NFL and HBO are in the fundamentally positive position. They have content people want to watch and are willing to pay for.

Beyond the Traditional TV model:

• Opportunities beyond traditional TV: people will be looking for non-traditional content relevant and specific to their interests.
• Interactive TV is a term often used but it is not clear what it means. It is a great area for startups who can innovate but it will only happen after the platforms solidify.
• The internet is coming to TV NOW. Companies are working fast and furious to understand, develop, capture the TV OS/Deck models.

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