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June 8, 2007 7:21 pm

Cody Willard: King consumer in full charge of future

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The endgame for internet video is total empowerment of the end user. Here is how we can make some big money applying these principles to the way the world will consume video.

Fifty years ago there were three networks, ABC, CBS and NBC, broadcasting their selected content to your television set, a cookie- cutter oligopoly that controlled the distribution of video into the consumer’s home.

Ten years ago there were 100 stations, from Comedy Central to C-Span and the History Channel, broadcasting their selected content to your TV set,
a slightly more diverse group that controlled the distribution of video into the consumer’s home. If you wanted fresh content you had to watch the broadcasts at night, because that was the only time the distributors felt they could economically deliver that content to you.

Today there are hundreds of channels, from HDNet to 11 different flavours of ESPN, to go with 40 other sports channels such as Fox Sports, the NFL network and so on, broadcasting their selected content.

Furthermore, the differentiation is no longer just about finding further niches and long-tails. You can also choose what quality of picture you want (though high-definition TV). You even have some control over what time you watch the content. If you tell your digital video recorder to record the show when the network broadcasts it to you, you can just pull it off your set-top box. Some shows “allow” their consumers to pull their content from a central library controlled by a cable company, also known as “video on demand”. Some shows also “allow” their consumers to pull their content from the internet using iTunes or other video-playing PC technologies.

And you can now visit sites such as YouTube using any browser connected to the internet, and choose from hundreds of millions of user-generated videos. Or (dare I say it) you can visit my RevolutioNetwork.com and pull from hundreds of thousands of broadcasted TV and movie videos.

So there is a clear and accelerating trend of increasing end-user video consumption empowerment. I always try to invest in secularly growing industries, and video consumption is going to be a secular grower for many years to come. Video ownership is more important than ever. Indeed, if content is king, television and film
quality content is Charlemagne.

You can invest in this video revolution in many ways. Secularly growing industries lift a lot of boats. Content owners such as Disney and Lion’s Gate, which I’ve highlighted before in the FT at much lower prices, are owners of increasingly valuable video libraries. Their addressable audience is exploding in size, and is tapping their content using ever easier and faster methods.

You also can look at the shovel suppliers to this gold rush. I recently added Riverbed Networks to my sheets, as the company enables easy trading and storage of large files such as video. We’ll all be increasingly trading video files in our e-mails and on our chat programmes, and those video files should be cached when possible so that they don’t have to be sent in their entirety each time. Riverbed is the Akamai of that enterprise.

Speaking of Akamai, which has been a dominant player in enabling e-commerce companies to operate over the web, that company is also a great play on internet video growth, although it’s an expensive name and the upside growth has been tempered of late.

I still like F5 here too; its technology balances internet-based networks so they can play video better.
I had owned it from 2003 until last year, when it became one of those companies in the backdating option scam.
I still try to avoid companies that got involved in options-backdating – just as Tony’s soldiers avoid asbestos in this season’s Sopranos.

Adobe is another shovel supplier, as the company’s Flash technology is the de facto standard browser- based video technology. As a rule of thumb, a de facto technology can be supplanted only by a technology that’s 10 times more empowering. There’s nothing out there that even comes close to being that much better than Flash. De facto standards in secular growing industries are crucial to life.

And of course, I still own my Apple and my Google, which remain two of the best plays on video distribution over the internet, through iTunes and YouTube.

The writer is a hedge fund manager at CL Willard Capital
www.codywillard.com

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