How Netflix and Google Will Dominate Mobile Video

The big media companies are hastily boxing up their content for users on the go -- and in the process, they're being forced to make tough technological choices. In this new and fickle field of locked-down devices and diverging standards, Google (GOOG), Netflix (NFLX) and ABC (DIS) are making smarter bets than the competition.

Why does all this mobile usage matter? After all, it doesn't necessarily follow that a mobile-consumption revolution will breed new, unfettered profitability for anyone but the device-makers. Advertising units -- the only reliable vector for revenue on the Web -- remain small, impotent and easily ignored on mobile devices (though Apple (AAPL) may be trying to change that). That's why the explosion of the smartphone hasn't yet spawned a new ad goldrush.

But big-screen mobile devices like the iPad (and the copycats that will surely follow) change the equation by opening up richer possibilities: they're purpose-built for consumption of media. The Harvard-Neiman Journalism Lab says the iPad's larger screen "opens up a world of new possibilities" including sensible text ads, gorgeous site takeovers, and more creative interstitial ads. Since rich video ads pay much more than simple textual ads, there may be a bigger vein of gold here than any smartphone-wielding analyst has ever dreamed of (much to the consternation of the poor, ad-inundated user).

The television networks and publishing companies are galloping towards this new market with new products meant to help them cash in and (in the case of print media companies) stave off death. But as plenty of outlets have pointed out, most of the iPad prototypes we're seeing are surprisingly conservative. Why aren't these companies seizing the opportunity to reinvent themselves? Why are they, as GigaOm says, simply "paving the cow paths" instead of experimenting like Wired has? (Their iPad app prototype, below.)

The answer: there are too many forks in the road, and the costs of investment and alliance are too high to allow for mulligans. That makes mobile video a very high-stakes game.

Let's say you're a video or TV content provider. Do you build an app or a mobile website? Do you use Flash, Microsoft (MSFT) Silverlight or HTML5 to present video? Other questions are strategic. Because of the locked-down nature of the devices, e-stores and carriers in question, mobile success is increasingly a non-zero-sum game: profitability is built on smart (and often exclusive) alliances. Join up with the wrong crowd -- Apple or Amazon (AMZN)? Android phone or Windows Phone? -- and you may find yourself locked out of a winning environment, backtracking at tremendous cost. And that's to say nothing of the actual design of the app or mobile site: how do you present ads without pissing off users? Do you build in a pay wall? Do you partner for more content, or go it alone? Listen closely: you can almost hear the heads spinning in so many New York and LA boardrooms.

The iPad is being touted by Apple as a video machine, but the television/video companies (who stand to make the more money from tablets than the print media, thanks to video ads) are taking drastically different approaches. As the New York Times reports, ABC is launching a native app to stream shows, and its parent, the Walt Disney Company (DIS), is releasing several video apps (Steve Jobs draws water at both).

Other networks are less enthusiastic. CBS (CBS), which owns Bnet.com, is choosing to stream just one show, Survivor, on its mobile website, but says it will roll out more shows eventually. NBC (CMCSA) has decided to ditch plans to allow Web-based videos on the iPad, even after showing iPad prototype videos last week. Fox (NWS) isn't playing ball either. They won't say why.

Hulu is said to be planning an iPad app, possibly yoked to a paid subscription plan, and Netflix is launching an app too. Now that the cards on the table, you'd think it'd be easy to guess which companies are set to cash in. But their respective technological choices tell a different story.

Most of these companies are relying on Adobe (ADBE) Flash, a ubiquitous if buggy video technology that has become something of a Web standard. But Apple isn't so big on common standards it thinks are antiquated, whether it's serial ports (ditched by the iMac) or DVD drives (ditched by the MacBook Air.) Accordingly, Jobs and his engineers seem to have a passionate hatred for Flash; it's not built in to the iPad, iPhone or iPod Touch. That means that companies relying on Flash for video -- like ABC and Hulu -- need to rely on native apps, sold via the iTunes App Store, because those apps are the only way to convert Flash videos to be playable on Apple devices. This is something of a liability, because it puts them at the mercy of the App Store and an arguably dying standard. It also means that if non-Apple users want to watch, they'll need mobile browsers equipped with Flash or Silverlight plug-ins, which come with complications like software updates, bugs, hardware acceleration and so on.

CBS, Google (GOOG) and Wikipedia are making smarter moves by switching their video delivery to HTML5, a new Web standard being written by (surprise!) two guys from Apple and Google. HTML5 boasts high quality video, efficient power use for battery-powered devices, and no need for special plug-ins or software. It's generally expected that HTML5 will become the lingua franca of the Web in the next few years, albeit slowly.

Google is well-positioned in other ways. With its acquisition of Episodic, it may be planning to turn YouTube from happy-go-lucky homemade video site into a weapon against Hulu, as my colleague Erik Sherman argues here. Hulu didn't need any more bad news; it's already suffering tremendous pressure from its content partners, dithering over a pay wall plan, and reeling from the pull-out of popular programs like The Daily Show. Hulu may have a lot of traffic -- it's #2 in video behind YouTube -- but it is, otherwise, kind of a mess.

Netflix may have the winningest formula, despite its reliance on Microsoft's proprietary Silverlight plug-in, thanks to the tremendous foresight of its "Watch Instantly" feature. Sure, YouTube is busy striking streaming-movie deals with studios like Sony Pictures and Lions Gate (LGF), but Netflix already has 11 million subscribers on the books and legions of devoted Watch Instantly fans who know they can watch movies reliably on their computers. The rest of the video companies are trying to goad viewers into equating computing devices like the iPad with a television or DVD player; Netflix has had people glowing in laptop-light of hundreds of Watch Instantly movies for years, priming them to switch to Netflix's just-announced iPad app. YouTube, too, has primed its mobile users well with an excellent mobile site and a pre-loaded iPhone app. All that's left is for the users to decide the winners.