General

Single Malt Internet Television — continued

The business models
ISPs who have read this far may want to shout, "Show me the money!" Unfortunately, most of the money to be made directly from internet TV—how much money remains unclear—goes to Narrowstep and its clients.

The Narrowstep platform supports a number of business models. Clients can sell their own advertising and insert it into video streams. Narrowstep also sells advertising which it will insert in a number of customers' streams. There are sponsorship deals and banner advertising on pages. And some customers with high-value content and niche audiences are using a subscription or pay-per-view model.

Narrowstep's business is apparently booming. Beaumont says revenues from software license fees, just one component of what it sells, jumped by 288 percent in the first quarter this year and 308 percent in the second quarter. The company is adding about six new channels per month on average.

Customers are buying a bundle of software and services that gives them everything they need to launch an Internet TV channel. The software is Narrowstep's TelvOS (television operating system). It includes modules for encoding, managing and protecting content; streaming video on a schedule, providing video on demand, searchable video and live feeds; charging for content on a pay-per-view or subscription basis; dynamically adding advertising to a stream; managing e-commerce functions; and reporting. Narrowstep hosts all but one of its 60 or so customers' channels and also provides professional services.

Customers pay between $10,000 and $50,000 for initial set-up and software licenses. The cost depends on the complexity of the site, how much of the development work customers expect Narrowstep to do, and whether they buy premium features such as nBed. They then pay monthly fees ranging from $5,000 to $20,000 depending on which software modules they use. Plus there is revenue sharing on some advertising.

Beaumont believes most of the company's customers are recouping the money they pay Narrowstep. Even if true, this is only a small part of their costs. They also have to pay for or pay to produce content. Few have given up on their initiatives at this point, though. The churn rate since Beaumont became CEO a year ago is an astonishing 0 percent. Not one customer has cut and run.

This doesn't prove they're all making money hand over fist, but there are some signal success stories. Cycling.tv, for example, sold 11 sponsorship deals in its first month. Its business plan called for selling 25 all year. ITV has expanded its channel offerings and will continue to expand.

Beaumont says companies that advertise to consumers in the mass media assume as a matter of course that they are wasting half their advertising spend because the message doesn't reach the intended audience. "But that [concern] disappears with internet TV because very precise targeting now becomes a reality," he says. This may be why narrowcasters like Cycling.tv are seeing some success, despite low viewership. Or it may at least be their hope for future success.

But what's in it for ISPs?
ISPs and telcos, Beaumont says, can become Narrowstep customers and mount channels with premium content to attract new audiences, keep customers loyal and provide an incentive to upgrade to faster service. That's what Blueyonder, a British ISP, is doing. It offers Blueyonder TV using the Narrowstep technology and runs not-so-subtle ads pointing out that broadband TV looks better when you have a faster connection, "so why not upgrade today?"

Telefonica, a Spain-based ISP/telco that is also active in Latin America, plans to offer several Narrowstep TV channels, including music channels, as a come-on "to gain access to new, younger clients," Beaumont says.

It's not the most compelling proposition we've ever heard for investing in new technology, but then the huge success of YouTube may have ISPs wondering how they can exploit the broadband TV craze. This could be it.

—End

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