Disruption as a Way of Life: NeuLion Opens OTT Floodgates

Chris Wagner, Co-Founder & EVP, NeuLion

Chris Wagner, Co-Founder & EVP, NeuLion

June 14, 2013 – NeuLion’s business as a provider of end-to-end over-the-top distribution services for entities of every description has become a bellwether for the trends in TV. In essence, by enabling virtually any entity with a consumer market base to get into the video distribution business, NeuLion is opening the door to new levels of disruption across the OTT, broadcast network and service provider domains. In this interview with ScreenPlays editor Fred Dawson, NeuLion co-founder and executive vice president Chris Wagner discusses these new directions and how advanced advertising is coming into play to intensify interest in the OTT model.

ScreenPlays – NeuLion seems to have come a long way since you started, with relationship now in play with major program suppliers for over-the-top distribution of their content worldwide. From the standpoint of your initial vision, did you have any idea of what would unfold? Was this part of a roadmap or have you just kind of gone where the opportunities are?

Chris Wagner – We wanted to be an Internet television company when we first started. Watching television over the Internet – everybody said, huh, how are you going to do that? That was back in 2005. With broadband becoming faster and cheaper and HD becoming the standard, television on any kind of device now is really where the whole digital movement is going.
We started out with multicultural delivery of OTT programming. We have a customer called KyLin TV. We have 100 TV channels from China, over 30,000 hours of on-demand programming of Chinese content. That gets marketed through KyLin TV, which is a B2C company, and they market that directly to people interested in Chinese programming. This is a subscription-based product, much like HBO. It does very well.
We kind of grew from that. We went into sports from there. And we’ve gone into entertainment with movie stores. We did 40,000 live sports events last year.

SP – So you have a very strong domestic distribution of international programming, but you’re also sending U.S. sports abroad to people who want to see those things. And that includes the NFL, NHL…

Wagner – NBA, UFC. All the big U.S. sports leagues run a worldwide business. So it’s about being able to offer a premium service to subscribers anywhere in the world, including the United States, under a subscription, being able to take multiple currencies, being able to deliver through CDNs anywhere in the world on any device as we do for the NFL. We’re kind of a Sunday Ticket for the NFL outside of the U.S. NHL – anything that has to do with hockey video we do for them. NBA – 60 percent of NBA’s traffic is actually international. We do a product for them called NBA.tv International League Pass.

SP –It seems there would have been a lot of competition for that business. There’s big money at stake, and the standards would have been set very high by those leagues in terms of what they’re looking for to get the best possible user experience. So how did you get those contracts is the interesting question here. It must be you have something superior to offer.

Wagner – We do. And you’re right. Those leagues are very focused on their brands. The experience of their products is very important. We provide an end-to-end service for them. We take all their TV signals. We handle all the back-office credit card transactions. We have a quality-of-service map that looks at how we’re delivering down to the device anywhere in the world.
So the quality of that delivery, I think, has set us apart from the competition. And because we handle everything end to end, the NFL or the NBA doesn’t have to go out and deal with a number of different companies for an Internet TV service. They just deal with NeuLion. So having that complete end-to-end as well as the high quality is what separated us from the competition.
And all the services are very interactive. You interact and have a conversation with a football game or a basketball game. You can review highlights, big play markings, picture-in-picture, quad view – it’s pretty extensive. Renewal rates for these products are fantastic.

SP – From the quality standpoint, achieving consistent quality across the whole world’s Internet, we saw with the Olympics the massive undertaking that entailed for live programming. It was pretty impressive that things had gotten to the point where something approaching decent quality could be distributed worldwide. But you’re doing it on a regular basis, obviously working through different CDNs and what have you. What would you say is the key to making all that quality come together consistently to meet the standards of these networks?

Wagner – You have to know what’s going on at the device level. You need to know exactly what is the video quality that consumer is getting on their smartphone right now. Our business is primarily live video. Because you’re delivering things live it’s important that it works like TV.
If you can imagine a Google map for traffic, you can see where the road is clogged up with traffic because it shows red. We’ve done the exact same thing in monitoring the delivery of video all the way down to the device. So you can institute rules there that the quality levels and the  service levels are supposed to be X, and if they’re not, these devices can actually glow red or yellow on this Google map, and we can then move the traffic around to get it back to green.

SP – When you say you move it around, you mean you use different CDNs and different caching points?

Wagner – Right.

SP – Do you have to do that manually?

Wagner – It’s automated. On each device we have a little player that feeds back information about what the quality of video is on that device, and if a rule gets triggered where we need better delivery and higher quality video at that time, we can move traffic in an automated way across different CDNs.

SP – What are you finding in terms of the consistency of quality for viewing this kind of content on a new smart TV?

Wagner – The quality levels are pretty high when you look at it in terms of megabits of video delivered. For example, on Xbox. we just rolled out for the NBA and NHL 60 frames-per-second live video product on those devices. The average bitrate for a consumer of those products is around three megabits per second – average global delivery. The Internet is delivering really good quality video. We’re delivering that through multiple CDNs, and we’re monitoring how well that is working.

SP – At three megabits you’re running HD 720p?

Wagner – Correct. We’re doing 720p resolution, an average of three megabits on any device, and we can go higher.

SP – 60 frames per second at 720p at three megabits would seem to be quite a challenge. How do you do that?

Wagner – It’s a combination of NeuLion and Microsoft. The device supports video formats in those frame rates, and the CDNs, with the last-mile service levels consumers get, those pipes are big enough.
Not everywhere in the world has great Internet. So there are places that still struggle for Internet bandwidth. You mentioned the Olympics. We actually signed a five-year contract with China Central Television, CCTV. We did the Olympics in China for them, about 5,600 hundred hours of that.

SP – Some of the connections there aren’t so great.

Wagner – Yeah, the average speeds there are 300 to 500 kilobits, although the broadband penetration and the speeds are getting better.

SP – It’s amazing to be talking about these kinds of capabilities on a worldwide distribution basis without owning any of the networks, with just simply doing distribution deals and having the kind of automated flexibility you’re talking about. So that’s moved you into new arenas as far as what you can talk about with potential customers. Tell us a little bit about what’s going on there with programming networks and content owners who want to get out over the top in a high-quality way.

Wagner – Well, you’ve seen some products do very well in the entertainment space. HBO Go has done very well. Netflix has done well. Apple TV has done well. And I think content owners and rights owners of content for entertainment see the opportunity to sell directly to consumers. That’s the opportunity we see in entertainment.
We’ve launched new services for Univision. We launched a new service called Sundance Now for AMC Networks, as examples. And there are more and more opportunities to create storefronts to deliver digital content OTT whether it gets supported by advertising, it gets supported as electronic sell-through so you can physically own a digital copy, or it gets sold by transaction or subscription. We give content aggregators, the people that own the rights, the ability to create their own brands, get to market really quickly, do it anywhere in the world.
That’s what’s great about the Internet. The Internet makes the world kind of smaller because you can deliver anywhere. You used to have to go country by country and strike a distribution deal. You don’t have to do that anymore.

SP – The question is, are they willing to do that without it being limited to people who are authenticated as subscribers to the local providers, to go straight OTT without that affiliation?

Wagner – Correct. And that’s, I think, the whole opportunity to put TV on multiple screens. HBO and ESPN were the early pioneers of that. Those services you have to authenticate through their affiliates. We’re doing the same thing. So you can either go direct to consumer OTT or you can use the Internet and connect your subscribers who authenticate that they’re active subscribers of a cable or a satellite company. Either business model we can implement.

SP – It gets interesting because there’s this big wall holding everybody back from going directly to the consumer other than as HBO has done by making sure everybody getting that programming is a legitimate subscriber. However, we’ve now seen HBO in the Scandinavian countries go to a 24-hour delay window on a lot of their premium content without requiring that affiliate subscription, and now HBO CEO Richard Plepler has alluded to giving that consideration even in the United States. Do you see that sort of groundswell going on around you where people are thinking we’ve got to take advantage of this market in a more direct way?

Wagner – Absolutely. You know, it’s not really a technology challenge as much as it is a business challenge. So the deals that are getting cut are all being reviewed. Do we offer through our affiliates TV on any device like an HBO Go or go direct to consumer or, in different parts of the world, the model could be different.
In the U.S., I see more of an inclination to work through affiliates and operators. Internationally you could also go B-to-C. You have the same content, by the way. You just apply different business rules depending on where you’re delivering.

SP – You’re taking care of a lot of theft overseas by being able to do that.

Wagner – Exactly.

SP – But the interesting thing is, now everybody can be an HBO Go.

Wagner – True

SP – If you’re an AMC, USA or whatever and you have hit shows and you want to predominantly expose that stuff outside of being channel 121 on somebody’s distribution network, now you can do that because there’s turnkey support out there like you’re providing.

So you’re applying the authentication to allow them to have that flexibility around those business models?

Wagner – Yes. The Big Ten Network is a good example. We do all their distribution digitally. In the U.S., if you want to watch the Big Ten on your smartphone, you’ll be greeted with a menu to find your cable, satellite provider. Log in and you get it for free.
If you’re in London, it’s the same content. You put in a credit card. We deliver ads in the U.S., because that’s an advertising model. So you authenticate through a Big Ten operator, and you see ads. But internationally, they’re not running ads. It’s a B-to-C transaction with credit card. So you pay a subscription fee to watch the same programming.

SP – In mentioning advertising, how do you facilitate that? And is it pretty much very straight-forward advertising or are you getting into anything like dynamic addressability or interactivity?

Wagner – We started out with banners, pre-roll ads. Last year we implemented a complete dynamic advertising capability. If you’re on a smartphone or a tablet and you’re in Colorado, you would see a different ad than if you were in New York or L.A.

SP – Are people taking you up on that opportunity? Have you seen people getting into that sort of granularity?

Wagner – They are. I think what needs to catch up is the counting. How do you count traffic that’s not on traditional television but is on digital devices? The digital audience has to be combined with the broadcast audience. Nielsen is doing some work there. Adobe’s doing some work there with audience measurement. And we’ll partner with companies like that so that you can count that entire audience and use that as the way you go about cutting a deal for advertising.

SP – What do you think is going to happen around this advertising capability? Right now we’re around $3 billion on video advertising over the Internet worldwide, which is just a fraction of what’s generated by television. Do you see these capabilities amounting to something significant in the near term or is it going to be a long, slow ramp-up?

Wagner – I think for the big brands, the big advertisers, certainly advertisers of consumer products, the percentage of their advertising spend, the growth in digital is fast. A bigger percentage of their advertising budget is going toward digital. So it’s happening. The audience right now isn’t the same size on digital as it is on the broadcast side. But the younger audience, that’s where they are.

SP – It feels like something is coming together here that’s going to very much change the business model for the programming industry as they’ve known it.

Wagner – I think so. Digital advertising allows you to get very targeted. With traditional broadcast it’s that old adage: 50 percent of my marketing budget is working, I just don’t know which 50 percent. You can’t count like you can with digital where you can profile and deliver personalized ads that are relevant to what you’re interested in seeing. That’s happening.

SP – As you say, it’s getting agreement on what that’s worth versus the old CPM model.

Wagner- Yes, the counting of that audience and the value of that audience is what’s being worked out.

SP – I want to turn to the recent announcement you made with Deluxe Entertainment, which seems to have a lot to do with getting everybody into this business – retail outlets, anybody who has a shingle who wants to be offering video content, whether it’s for sale, subscription or whatever. Tell us about how you’re setting it up and what Deluxe’s role is in that.

Wagner – I think there’s a tremendous opportunity for companies that have subscribers, whether they’re cable subscribers, satellite subscribers, customers of movie theaters – companies that have a consumer business with an opportunity to offer entertainment, just like Netflix or Apple TV has. If there are subscribers or consumers in your network, and you have an opportunity to market to them from a business-to-consumer standpoint, there’s a great opportunity to leverage entertainment and deliver it digitally. We’ve already won our first company, Sensio Technologies, which delivers 3D movies through a movie store that you can watch on a Vizio TV.
Deluxe works with all the big studios. They have a catalog service of 50,000 movies and TV shows. And that catalog, coupled with what NeuLion has been able to create for how you would merchandise those titles and sell them, makes it easier for people to shop, to search, to find things they want to buy. It simplifies how you package and how you build the business rules around your service. To allow the Deluxe/NeuLion joint customer to market their own service with their own brand to their consumers and do that digitally on any device, that’s a big opportunity.

SP – It occurs to me that everything you’re putting together here with this new storefront concept, there are a lot of smaller distributors out there, Tier 2, Tier 3 cable operators, independent operating companies in the telephone business, who are pretty fed up with trying to deal with the current model. They’re getting squeezed by the programming costs, the costs of maintaining their networks. Are you talking to some of these people about putting this kind of thing together for them?

Wagner – Absolutely, and that’s a very good question, because their broadband networks are basically a highway for companies like Netflix and others to monetize their subscribers with their content. So now the Internet broadband providers, with their own subscribers that are paying for broadband, can easily offer the same titles with their branded storefront on it, put it on one bill, combine these services and take advantage of what others have been doing riding on top of their networks.

SP – And Deluxe brings that good portfolio of movies and TV programs.

Wagner – Deluxe brings the content, they bring all the digital rights management the studios require. They bring all the UltraViolet implementations the studios are interested in. and we bring the ability to create that storefront for our customer so it makes it easy for their subscribers to find and buy movies.

SP – In the vein of the whole licensing process that has to go on, you can’t just go to Deluxe and say, I want your 50,000 movies. You have to negotiate those licenses with the studios. Are you doing anything to facilitate this?

Wagner – You’re right. Deluxe doesn’t own the rights of the catalog they manage for the studios. So, yes, a provider of those movies would have to go back to the studios and work out a deal. But I think more and more of those titles are being offered digitally. Those studios have already worked out deals with Netflix and deals with other aggregators.
It’s becoming faster to get those deals cut. As soon as an arrangement is done with a Disney or a Paramount, the titles are already being managed in the Deluxe catalog, and putting the NeuLion storefront on it can also be done quickly. So it’s faster. It’s less complicated than it has been historically, because the studios are used to providing arrangements to deliver their content in a digital format.

SP – You mentioned Univision and Sundance as two outlets that are using your services. Are there other big-name brands that want to do this kind of thing?

Wagner – I think they’re all serious about it. All the cable networks and all the big programmers in the U.S. are looking for ways to think through their business strategies, whether they go through their traditional operators and affiliates or whether they go B-to-C or some combination. They’re all thinking about it.

SP – Well, we’ll see what those thoughts produce in the next little while.

Wagner – I hope so.

SP – Thank you very much, Chris.

Wagner – Thank you.