The Growth of Video on The Internet is Great News for Reuters and AP – They May Start, Finally, to See Some Sustained Profits From Their TV Operations

Philip Stone July 27, 2005

For Reuters Television and Associated Press Television News (APTN) the growing use of broadband and its increased demand for on-the-spot video is a need come true. Both companies have suffered severe loses over the years on their television video activities and new outlets were desperately needed. And it seems they are now here.

Reuters and APTN have been locked in a competitive battle for years to master the global television video market but neither could succeed financially. The pie was just too small for the costs involved in a global TV operation. In order to gain market share each reduced prices to levels that really were not sustainable, and television stations learned how to play one agency against the other – threaten to go down to one agency instead of subscribing to both – unless a rock bottom financial deal was put on the table.

It was a good strategy for television news operations that were continually fighting battles with their accountants to lower costs.  Many television networks, particularly the Americans, cut way back on their own television crews based around the world and depended more and more on either Reuters or APTN for their foreign footage, but even that scenario did not really improve the television agency bottom line.

Even the development of national 24-hour television news networks (Rai in Italy, the BBC’s News 24 in the UK) failed to boost revenues very much since those ventures were set up on shoestring budgets, and there wasn’t much additional money to be spent.

No, an entirely new client had to be found and eyes turned to the Internet.

It was during this time that this writer was the commercial director for Reuters Television. It was obvious that continuing to cut costs could not be the only answer – it had to be combined with finding new markets. New voice-over and natural sound products were created, mainly for Internet usage, but the problem was the marketing scheming was ahead of its technological time. Broadband was not prevalent and running video on dial-up speeds really wasn’t too cool!

But now times have changed. Broadband is more prevalent in UK homes today than is dial-up. In the US, where President Bush has said every home should be able to afford high-speed Internet access by the year 2007, the number of connections rose in 2004 by 39%, but that still leaves the US 16th in terms of broadband availability per 100 residents. 

But it not just the technology that is now works in favor of the television news agencies. The Internet has brought with it new needs. 

Young people flock to Internet video usage. Newspapers have seen large numbers of its young readers leave print for the Internet. Newspapers know that in order to get them back their products need to be available on multiple platforms and although video obviously doesn’t work in a newspaper, it definitely works very well on the newspaper’s Internet platform.

And that’s where AP has just made its move. AP is a co-operative owned by US newspapers and broadcasters. Those owners desperately need a world-class international video product for their web sites. And there is AP sitting with its loss-making APTN that is already making good money on some commercial web sites, such as its new deal with Critical Mention that allows companies to monitor APTN video to see if their names, products, services, competitors etc., are mentioned.

It wasn’t rocket science to figure out how to extend video services so its individual co-op members could also really benefit. AP has announced it is developing its own video player that members and clients can use to display AP and other video on their web sites. For the video APTN makes available to the newspaper, there will be a 50-50 split of advertising revenue gained by that video, but for video produced locally also using the AP video player the newspaper/client keeps all the revenue.

The licensing plan should be available January 1, 2006. And if the newspapers can be only half as successful as television companies in bringing in the video enthusiast then there is big revenue at stake.  For instance, Nielsen/NetRatings reported that for June MSNBC.com drew 23.8 million unique visitors and, according to MSNBC, one of every five of those visitors accessed video.

It’s a clever move for AP that has had a long history in the US of not making the most obvious commercial moves for its products because they could conflict competitively with its ownership.

At Reuters, a publicly-traded company, the problem is not whether it might offend any particular group of users but rather Reuters Media is in the midst of redefining itself – trying to remain a wholesaler but also eating its cake by getting heavily into retail, too.

Reuters until recently was just a wholesaler. For television, for instance, there were those who years ago thought it should have competed with CNN (when it was still fledgling) rather than supplying the CNN with the raw material that made it so successful, but Reuters decided it should be solely a supplier of news and information to the business and forgo all that building the brand could have meant. It was just one of many lost opportunities.

Times have now changed. Reuters is building up its reuters.com web site in the full desire to become a truly global household name. And part of the strategy has meant withdrawing from some of its online business to keep some news just for publication on its own web site.

The company’s half-year report indicated the advertising growth from reuters.com and the loss of revenue by withdrawing news from some web sites such as Yahoo are basically a wash, but that is probably positive for the future since advertising rates at major news sites are moving ever upwards as advertising agencies report a shortage of inventory at quality sites.

Reuters has greatly expanded the video portion of its web site and at the same time it has been signing deals with the major online players – AOL’s Singfish, Blinkx TV, Topix and the Microsoft Media Center.  The television business itself also seems to be picking up, and the half-year report said TV-based usage revenue was up 38% based of a lot of major news events of the past six months.

Thus, video – long a loss maker – now looks as though it can become a major moneymaker for both agencies.

One last point about the AP. Last April it announced it was going to license and charge additionally to its members the AP news and information they had been using at no additional cost on their own web sites. It was a move that Reuters and other agencies had implemented long ago, but it was quite a shock when AP announced its move, especially because it said it would result in an underlying cost factor to its members.

But we really should have known better.

AP last week announced its assessment for 2006 would be just 2.2%, the lowest for 35 years except in 1999 when the assessment was the same. Although the AP increased revenues in 2004, it still reported a $728,000 loss – a big improvement over the $11 million of a year earlier.

And what of the additional license charge for online usage. The official line is that the AP Board decided it was too difficult to set up a separate fee structure and they rolled it into that very same annual assessment that equals a 35-year low even though the organization still reports a loss. Translation of all that is that the membership made clear to the Board it was in no mood for increased costs, and the AP buckled.

But the exercise was not a complete lost cause. It is important that AP has established the precedent that web usage of its material requires additional licensing, and if it can’t get its money worth this time around, it has at least established the principal and can try for the money when times are somewhat better.

In that regard, some things in the AP don’t change at all!

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