Ooyala: The Online Video Startup That Isn’t Out to Destroy Hollywood

7/18/12Follow @wroush

“Ultimately, Silicon Valley has to stop trying to kill Hollywood and start helping it evolve.”

So says Sean Knapp, co-founder and chief technology officer at Mountain View, CA-based video management startup Ooyala. It’s not a common viewpoint among Silicon Valley entrepreneurs, who are usually pretty blunt about their disdain for the movie and TV industries. It would be “a good thing if competitors hastened their demise,” Y Combinator founder Paul Graham wrote in a notorious January 2012 post entitled Kill Hollywood.

Graham is hardly alone in that sentiment. This is a crowd that rooted for the murderous aliens in Battle: LA and cheered when a tornado destroyed the Hollywood sign in The Day After Tomorrow. Taking up positions in foxholes first dug during the file-sharing wars of the 1990s, tech entrepreneurs seem intent on proving that code ultimately vanquishes content, and that knowing how to move bits around entitles you to judge which ones are valuable.

“The classic tech-company approach [to the TV industry] has been the inevitability speech,” says Knapp. The speech goes like this: Internet-based video delivery offers viewers far more choice, convenience, access, and interactivity than analog delivery. Therefore, the big studios and networks will eventually see their audiences flee traditional appointment-based, one-to-many delivery media (i.e. broadcast, cable, and theaters) in favor of video streamed on demand to their PCs, mobile devices, and connected TVs. Adapt or die!

It’s the speech that executives at companies like Netflix, Hulu, Boxee, Roku, Apple, and Google have been giving for years. Knapp should know—he and his fellow Ooyala co-founders, Bismarck Lepe and Belsasar Lepe, all came from Google, where YouTube is now busy launching dozens of independent content channels intended to draw viewers away from cable and broadcast TV.

From a technology perspective, the inevitability speech is probably correct. But there’s a big problem: great shows still cost a bundle to make—way more than Hollywood is currently collecting through digital channels. Even if all video went online, Knapp points out, consumers would still want to watch premium, long-form content of the kind that only the big networks and studios can afford to produce.

Ooyala co-founders Sean Knapp, Belsasar Lepe, and Bismarck Lepe smashing a server at an Amazon event.

So from Knapp’s point of view, the main question isn’t how to gin up new indie content. It’s how to get more broadcast-quality shows onto the net—which means helping Hollywood find ways to make online distribution pay. “We fundamentally agree” with the inevitability speech, he says. “But we think it misses the key point, which is that the business needs to evolve and be stronger at the end of the path.”

That’s what Ooyala is all about. I’ve visited the startup’s office in downtown Mountain View twice this year, and while the company is only a couple of miles away from the Googleplex, I can tell that it has a mentality about the video industry that’s light-years away from Google’s. “We fundamentally believe that online video is about premium content moving online,” Knapp emphasizes. “This is something Google and YouTube have not articulated.”

The opportunity to build technology to help studios with monetization was the reason Ooyala’s founders left Google in 2007, even though the search-and-advertising giant asked them to stay. “They said ‘You guys can have your own office off campus, and have as many engineers as you want, and we won’t bug you,’” says Bismarck Lepe, who’s now Ooyala’s president of products. “But at the end of the day it was going to be a Google project and Google’s ideas. We wanted to start something on our own.”

What Ooyala has built is this: A video hosting cloud that can store and stream customers’ high-definition digital video to any screen, whatever the available bandwidth; a big-data backend that can track and analyze viewers’ usage patterns in real time; a personalization system that suggests new content based on what viewers just watched; and perhaps most importantly, monetization software, including paywalls and controls for inserting and tracking advertisements such as pre-roll, post-roll, and banner ads.

Much of this tech is also available from Ooyala competitors such as Brightcove, Move Networks, a Comcast subsidiary called The Platform, and open-source software maker Kaltura. But Lepe and Knapp say Ooyala designed its platform with studios and corporate brands in mind, a strategy that has helped to attract big customers such as ESPN, Miramax, Bloomberg, Telstra, Virgin Media, News Corp., Yahoo Japan, and NetMovies (the Netflix of Brazil).

The three ex-Google founders—Knapp and the Lepe brothers—brought in former Agile Software CEO Jay Fulcher to run the company in 2009, and so far they’ve raised $79 million in venture funding, with Sierra Ventures, Rembrandt Venture Partners, CID Group, and Telstra Applications and Ventures Group as the biggest backers. The company has 230 employees and continues to grow.

In Knapp’s view, the big mistake most video hosting companies have made—and the reason there isn’t more premium video on the Internet already—is thinking of online video as a new market. “If it were a green field, we could approach it as a classic tech company and simply offer bigger scale and lower unit economics,” he says. “You do see a few online-only media companies able to operate this way—if you are Machinima [which distributes short-form video entertainment for video gamers] it is all new revenue, since there is no offline business.” But for most media companies, Knapp says, online video is additive, meaning it’s not worth the bother unless it can bring in revenue comparable to existing licensing and distribution deals.

What’s truly new today is that consumers want to watch shows on their tablets, PCs, and smartphones, not just on their TVs. “The consumer doesn’t care about the medium, they just care about the access,” says Knapp. “This means it’s not a new market, it’s simply the existing video industry evolving and expanding across more screens. But to support the existing industry we have to be able to better monetize. There is that old analogy of analog dollars turning into digital pennies. We’re getting it back up to dimes or quarters.”

To really understand everything Ooyala can do to increase online video revenue, you need to look at ESPN, one of its flagship customers and the one that’s probably making most aggressive use of the company’s technology. Disney-owned ESPN shares over a billion video streams per month online, according to Bismarck Lepe.

Last year, the company ditched Disney’s own in-house video hosting system in favor of Ooyala’s content management system and player software, which loads videos faster at higher playback quality. The sports network has used the Ooyala system to do things like breaking down college football games into “top play” lists that fans can view during or after a game, and creating a lineup of video highlights from the Winter X Games for delivery via Shazam’s mobile app.

ESPN also makes full use of Ooyala’s personalization service, which analyzes a viewer’s history and follows every video with customized suggestions. “With most publishers, I finish a video and then I’m on my own, or maybe they give me something that’s loosely curated, but it has nothing to do with what I watched today or what I have seen before,” says Knapp. “That is a huge missed opportunity. With ESPN, when I finish one video they give me 10 seconds to pick which of four customized options I like the best.” Requests for follow-up videos are up 40 percent since ESPN implemented the recommendation engine, Bismarck Lepe says.

Of course, every online video ESPN shows comes with ads—that’s sort of the point. Ooyala is able to apply its data-gathering and testing tools to help the network figure out how many ads it can safely show. That number might vary based on the individual viewer. With a brand-new visitor, or one who has never clicked on an ad, it’s better to show fewer ads for fear of annoying them, Knapp says. But with a diehard sports fan who’s watching his 600th video, or for someone who has engaged with ads in the past, it’s probably safe to insert more ads—they’re hooked and they’re going to stick around.

“The question is, how many ads are consumers willing to sit through?” Knapp says. “How much is it worth to them, and how do we strike that balance?” Using Ooyala’s technology, ESPN has been able to increase the overall ad load for its online video—the minutes of advertising per hour of video viewed—-to a point that’s even higher than its on-air load, according to Lepe.

ESPN can’t charge as much for online pre-roll or post-roll ads as it can for TV commercials—but increasingly, it can use the engagement statistics it gathers from its Web and mobile channels to sell sponsorships across TV, Web, mobile, and print (yes, ESPN has a dead-tree magazine).

Lepe and Knapp say Ooyala’s long-term vision is about making the online video viewing experience just as smooth as broadcast television—with no buffering or dropped frames—and enabling media companies to offer fully personalized video streams to every user, based on their viewing preferences and the device they’re using at any given moment.

“It’s not about having 500 channels of niche content,” Lepe says. “It’s about having one channel that understands you. My own ideal channel would be primarily financial information in the morning, coming from CNBC and Bloomberg and Forbes. Then in the evening it should be cooking shows. I shouldn’t have to go out scouting for it. To me, that is the ideal model, and it’s one of the primary reasons that companies are willing to pay a premium to buy our stuff.”

For all this talk, though, online video still represents only 10 percent of overall video consumption. (And at the moment, the Internet simply isn’t a plausible replacement for video delivery via the cable and broadcast networks: aside from the monetization challenge, the pipes just aren’t fat enough.) So offering an alternative content ecosystem, as Google is attempting to do, is an interesting exercise, and it may result in some fascinating new programs. But it won’t sate viewers’ hunger for live sports and expensive shows like Mad Men and Breaking Bad.

“The philosophy at Google obviously works phenomenally well for YouTube, but we’re not convinced it works for TV as it evolves,” says Knapp. “Consumers’ need to suspend reality and sit back for a few hours a day is not going to change. The producers will change—we have already seen an evolution toward lower-cost content à la Machinima. But that’s fantastic [for Ooyala], because guess what? They have the same problem. They want to reach more users and monetize better.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • Deepti

    Today, most forward looking organizations understand the power their content carries and the worth is well accumulated, once it is monetized well.
    Personalization & recommendation helps a user stay tuned and with features like continuous playback and power packed analytic, its best of worlds.

  • David

    It’s interesting that ESPN is their biggest customer, yet the reason most people go to ESPN is actually not available via Ooyala: To watch live professional sports in real time.

    Clips and recordings are great for those who seek that content. But until one can legally watch live NBA, MLB, and NFL via the Internet on a 60″ screen @ 1080p with no buffering delays (and at a reasonable price), cable and satellite companies will continue to rule rule the control of television consumption.

    Then there is this statement:
    What’s truly new today is that consumers want to watch shows on their tablets, PCs, and smartphones, not just on their TVs. “The consumer doesn’t care about the medium, they just care about the access,” says Knapp

    I would reword it to say this:
    “Techies and people under the age of 30 want to watch shows on their tablets, PCs, and smartphones, not just on their TVs”

    There remain millions of people in this country who have no interest in watching TV on a 4-15 inch screen. This goes back largely to sports fans. The only time sports fan would choose to watch a key game on a small device is if they’re stuck someplace where there is no full-sized TV. I hope that the Ooyala guys don’t forget about this market (the live sports fan). When you look at the amount of revenue that live sports generate for TV, you have to seek accommodation for this group or you will make no headway with the cable and satellite TV providers.