When Jordan Hoffner left YouTube last fall, the former head of content partnerships had just begun forging deals with Hollywood studios to provide television and movie clips to the Internet video giant.
The former NBC digital media executive's wrangling with Time Warner Inc., the Walt Disney Co. and Lions Gate Entertainment Corp., among others, took years to conclude because of concerns over cannibalizing existing business relationships and questions about whether the videos would reach the desired audience. One partnership, with Warner Bros. Entertainment, took three years to complete.
"If there ever was a Red Auerbach moment, where you pull out the cigar, that was really it," Hoffner said, referring to the late legendary Boston Celtics coach, who was known for lighting up after victories. "That was my first assignment when I got to Google in 2006 … and it happened in 2009."
After leaving Google, Hoffner joined former NBC Entertainment Co-Chairman Ben Silverman at his new venture, Electus, which is backed by Barry Diller's IAC/InterActiveCorp. Hoffner, president of digital media, spoke to us during a recent media council breakfast sponsored by the Paley Center for Media.
Q: What's Electus?
It is a multimedia studio that's built for the 21st century. We're creating programming for all platforms. The challenge is how do you create asset value when you're new and you don't have any legacy deals?
There are two approaches. You go in and you work digital, because there are no barriers to entry, and you can incubate things, then hope to get enough of an audience or get enough traction that you can then spin out to other platforms. Or you partner with brands and try and create vehicles that brands really like so that you can walk in with a brand through the door. That is exactly what we did with MTV and this show, "Pedro & Maria."
Q: Tell us about this new show, for which Emmy-winning actress America Ferrera will serve as executive producer, and what it says about the future direction of Electus?
It's a television show and it's interactive in terms of audiences choosing endings. Other people have done that, to a degree, but not necessarily all that successfully. We can do it successfully because it really embraces the MTV audience, and the other part is there's a big shift in terms of the demographics of this country moving in a direction of the Latino community.
This is a bilingual telenovela that's set in New York, with a girl who's at the High School of Performing Arts. She's third generation in this country, and her parents speak English at home, although [her grandparents came] from Puerto Rico. She's found a love interest in Pedro, he's Dominican, he's the No. 1 prospect for baseball in the country, with a 98 mile-an-hour fastball.
We were able to partner with Procter & Gamble on that because they want to reach this audience.
Q: Does the traditional television advertising model work for online video?
No. It's simple math. A one-hour show on air is really 44 minutes of programming and 16 minutes worth of ads. These ads sell for $20 or $25 per thousand viewers.
Online, a user would never sit through 16 minutes of ads. [Disney Executive Vice President] Albert Cheng did a study with ABC a couple years ago saying users will tolerate up to eight ads in an hour. That's four minutes. So you're leaving 75% off. I don't think you're going to get an increase in rates on those ads to make up for the 75% loss of inventory.
Q: Which raises the question about whether popular online video sites like Hulu will inevitably force viewers to pay to watch. What does that mean for content creators who might find their content behind pay walls?
If you're a businessperson, you love subscriptions. You love recurring revenue. You love predictability.
The question is if there is enough value [for the consumer] in having another subscription? I pay enough [for TV programming], when you add in my Internet service and you add in the whole shooting match. To say, "OK, you need to pay another $12 a month to view it online." To me, that's just [a non-starter].
I like the way that DirecTV does it with the NFL package. When you get high definition for the NFL package, you get to watch the games online. To me, that's a good value. So it's those bundling and packaging strategies that I don't think have been contemplated yet, or, if they have, I don't know about them.
Q: Will the move from free to pay content fuel piracy? Will that destroy the business model for online video?
As long as I can track how many people are watching stuff on BitTorrent … if I can prove how many people are watching the clips and cumulate it all up and say I've over-delivered on my audience in a very fragmented marketplace, then I think I'm going to have a pretty good conversation with the brands about it.
That's how we avoid that buzz saw.