Web TV Business Booms in Silicon Valley

As the cost of producing online TV shows declines, companies are investing more in original video to boost their brands, while Silicon Valley businesses launch a new wave of video services to compete for digital advertising and subscription dollars. According to reports, both Yahoo! and Microsoft are planning to produce their own Web series, but as competition increases for online shows they and other businesses will have to be wary that the costs of original programs do not outweigh the benefits.

The benefits of producing online TV are greater than ever, as Internet advertising revenue surpassed ads on broadcast TV for the first time in 2013 in the U.S. Internet advertising rose 17 percent to a record $42.8 billion in 2013, compared with $40.1 billion for broadcast TV ad revenue, according to the Interactive Advertising Bureau.

Lower costs for cameras and Internet distribution have torn down the boundaries of making a show once limited to broadcast and movie studios. Companies such as Red Bull have jumped into the market in recent years following Hulu and Netflix, which developed their own programs to augment their online distribution of Hollywood-produced TV and movies, says Mike McGuire, media and digital marketing analyst at Gartner, an information technology research firm.

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"It's not like building a cable network 10 years ago; you can simply make an app and allow people access to content," McGuire says. "You may see a number of other brands that will start looking at that option, since they have events and they are already shooting a lot of video."

Yahoo is close to ordering four new Web series similar to the 10-episode shows that run on cable networks or Netflix, The Wall Street Journal reports. Yahoo CEO Marissa Mayer mayight have new programs ready to showcase in Yahoo!'s inventory during its "NewFront" event to exhibit the company's media efforts and opportunities for advertisers on April 28, The Journal reports.

Mayer has worked to boost the company's video, news and advertising content since becoming CEO in July 2012. She, and has already brokered deals to distribute programming including old episodes of "Saturday Night Live," and hasalso hired ABC News anchor Katie Couric to anchor Yahoo! News.

Yahoo! is also trying to hire YouTube performers to make content on that new video service and bring their online audiences with them, tech blog Re/code reports. Google's YouTube faces increasing competition as The Walt Disney Company has also bought Maker Studios, a YouTube network that generates 5.5 billion page views a month, for $500 million. Disney, one of the world's largest owners of content including "Star Wars" and Marvel Comics, recently announced a partnership to distribute its programming on digital channels through DISH Network.

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Microsoft is also planning to produce original programming to augment its Xbox Live cloud service, including a sports reality show called "Every Street United," timed for the upcoming World Cup, and comedies featuring Seth Green and Sarah Silverman, Bloomberg reports. Microsoft has six Web series lined up, including a science-fiction thriller called "Humans" about humanoid robot workers, and more than a dozen other projects in development, Bloomberg reports.

Amazon already produces Web shows including "Alpha House" on its Amazon Prime service but created its own Fire TV digital video set-top box to distribute that content, in a direct challenge to the Apple TV set- top boxes, which sell for the same $99 price as Fire TV.

Apple has partnerships with programmers and music groups through iTunes but the company is likely to keep its focus on luxury electronics rather than branch out into original programming, McGuire says.

Web series can be expensive -- "House of Cards" produced by Netflix costs approximately $3 million per episode -- so companies will have to "choose wisely how to invest money in original content," says Greg Ireland, research manager for multi-screen video at International Data Corporation, a market research firm.

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Web shows are becoming a way for Silicon Valley companies to "differentiate from and compete with each other," but they have to keep the benefits outweighing the costs of production with digital advertising and subscription revenues, Ireland says.

"Netflix did a licensing deal for 'Breaking Bad' that worked out to be about $1 million per episode, but it's not nearly what they would be paying for original content," Ireland says.

This boom in digital video may change the way programming is designed, compared with broadcast TV companies that in recent decades had "tent- pole properties of shows that ran for years," McGuire says. As digital video becomes more mainstream, the costs might rise, including Web stars demanding more money from Internet companies to reward their success, he adds.

"'Deadwood' went off the air [on HBO] because it got too expensive to produce," McGuire says.