Visit Your Local PBS Station PBS Home PBS Home Programs A-Z TV Schedules Watch Video Donate Shop PBS Search PBS
I, Cringely - The Survival of the Nerdiest with Robert X. Cringely
Search I,Cringely:

The Pulpit
The Pulpit

<< [ Sprint Nextel's Hidden Advantage ]   |  The Frank Caliendo Effect  |   [ Mercury Rising ] >>

Weekly Column

The Frank Caliendo Effect: Sony's purchase of Grouper is about market research, not market share.

Status: [CLOSED]
By Robert X. Cringely

Internet video gets a lot of my attention lately, what with my work on NerdTV (yes, the new season is coming shortly, yes we have already shot some shows including the opener with Apple II designer Steve Wozniak and his 17 Segways). So I found it very interesting this week when Sony Pictures Entertainment bought Grouper, the video sharing site, for $65 million. There is more to this deal -- much more -- than you'd guess at first, and understanding it can give us all a better handle on where the Internet is taking the future of entertainment.

There are a lot of these video sites, all of them losing money like crazy in hopes of becoming the next, which was bought years ago by Yahoo in a $5 billion state of suspended disbelief. The leader in this space is certainly YouTube, but there are many, many others.

This video sharing business fascinates me because right now it is a shell game built on a shell game. The video sharing sites are for the most part losing money -- throwing, HURLING it away in huge wheelbarrows full, rather like the hyperinflation that plagued Germany right after World War I. And these video sharing sites are buying services from content distribution networks (CDNs), many of which are also losing money, especially if you consider the possibility that some sharing companies will undoubtedly go broke with their hosting bills unpaid. The opportunity, then, is for you and me to start a business that further leverages this financially risky double play. One such example is comedian/impressionist Frank Caliendo (it's in this week's links), who sells direct his own very funny DVDs using a simple web site stocked with video hosted for free on YouTube and others. This guy has to be making a killing and it costs him almost nothing. Who needs a studio or network deal with a system like that?

Who, indeed? And that brings us back to Sony Pictures buying Grouper, which some very smart people think is all about technology, but it isn't. Hollywood doesn't understand technology and so tends not to buy it.

Grouper has 1-2 percent of the video sharing market, so it isn't like Sony is making some grab for market share like Rupert Murdoch did buying MySpace. Sony is actually doing something a lot smarter than Murdoch: the studio is buying market research.

Something is wrong with the movie business. Its core market of boys and young men have stopped going to the movies and are, instead, surfing, texting, SMSing, gaming, and making and watching these stupid videos. Time and money previously spent at the multiplex is being spent at home and online and Hollywood is hurting as a result -- hurting not just because of revenue and profit shortfalls, but because the industry no longer has confidence that it knows for sure what its core market wants to see on-screen.

Sony Pictures, like all the other major film studios, is afraid it has lost its mojo and will never get it back.

And it just gets worse. The studios worry about piracy; they hate it that DVDs provide us a lifetime of free replays (my kids are right now on play 299 of Ice Age, with Ray Romano); but they are most of all afraid that they've lost as an audience the very kids they so distrust.

That's where Grouper comes in. The success of YouTube (and Grouper) scares the studios because it shows the market no longer values the slick production values of major films. This, along with global marketing, is the major strength the studios have long thought they brought to the film business. If some kid can get hundreds of thousands of views of a video showing him lighting farts, how can Sony compete with that? They can't.

So Sony is trying to join the enemy. For very little cost, Grouper will help them see what works and what doesn't in this new medium. Grouper can be used to promote Sony properties and, if a real business model emerges, even to sell those properties in some form. Grouper will help Sony find new talent for making good or bad -- but nearly always profitable -- films. And since Grouper can handle just as many videos as YouTube and represents a comparable (if smaller) market slice, there was no point in spending more for market share that could disappear as quickly as it was earned.

Video sharing doesn't bring with it any of the property rights that make a MySpace or FaceBook valuable.

Sony buying Grouper is a Trojan horse strategy, or rather an OPTION on a Trojan horse strategy, because Sony doesn't have to do any of these things if it changes its mind.

Short Internet videos are a new medium added to a growing pile of new media that suck up the time of the youth market. When I was a kid the entertainment industry in rural Ohio meant movies and broadcast TV. There wasn't even a home video market. Today, on top of movies and broadcast TV there is cable and satellite TV, home video, pay-per-view, video on demand, Internet video, video gaming, cell phones, text messaging, web surfing, Internet chat, Skype, and half a dozen smaller applications that each threaten to grow into a further threat to a century of Hollywood dominating our views about what is cool and how to act cool. No wonder smoking is in decline.

In the end, all Sony can do, of course, is try to put off the inevitable. As production and marketing costs and capital requirements decline, the entertainment advantage is being lost to smart kids who are closer to the market and lack mortgages and child support payments. There is no way that Sony, or any major studio, can compete at this point with a Frank Caliendo.

Let's take another look at Frank, an actor some people know best from his appearances on MADtv. How much is his current career based on MADtv and how much is it based on his being among Google Video's Top 100 clips, for example? MADtv is meaningless to his career at this point. And even more importantly, the video sharing market of today would allow a Frank Caliendo to rise to the top and make a good living even if MADtv had never existed, which is the scariest lesson of all for Hollywood's talent gatekeepers.

It isn't that Hollywood is dying, but being reborn with a new skeleton and muscles. And while the studios and networks hope to still provide the brains to drive this new entity, that is very doubtful. Not all smart people drive Range Rovers and live in L.A.

The sad part, of course, is that we have to sit through so much crappy content, but that's yet another market opportunity for companies to harness technology to help us find the stuff we really want.

Of course, the biggest challenge of all is finding a way to make money from this content business, but here Google is again rising to the task. Or at least appears to be doing so, as CEO Eric Schmidt revealed earlier this month that the search giant plans to bring targeted advertising sales to the $74 billion U.S. TV market. This idea, which appeared to shock many people, was covered in considerable detail here back on January 5th. You can bet, though, that the Google solution will be intended as much to nudge the platform off the airwaves and onto the Internet as it is to make money from TV.

Resistance is futile.

Comments from the Tribe

Status: [CLOSED] read all comments (0)