SezWho?

SezMi.  That's the name of the latest service, yet to launch, that promises to deliver Digital TV and on demand services over a combination of the excess digital spectrum of its broadcast partner and a user's broadband connection.  SezMi is the brainchild of Phil Wiser, founder of Liquid Audio and former CTO of SONY Corp of America, and Dr. Buno Pati, founder of Numerical Technologies who guided the company through its IPO and subsequent sale to Synopsys. The gyst of the offering is this - SezMi offers one digital media box, with one terabyte of storage, plus a DTV receiver that replaces your existing cable or satellite box.  The service is expected to be co-branded with ISPs, Telcos without a DTV solution and, potentially, retailers.  The service can be personalized for up to 5 users by establishing separate profiles on the remote control.  The digital broadcast channels (NBC, CBS, ABC, etc.) are captured by the DTV tuner that comes with the service with the cable and special channels served via the spare spectrum leased from SezMi's broadcast partners, at the moment Harris Corp.  The on-demand content is stored on the terabyte of space on the hard disk and served via the consumer's broadband internet connection.

Got all of that?  Here's what caught my attention.  SezMi's management claims the service will cost about 50% of the existing tier of the average cable service.  That tier on my home service (Cablevision) retails for $50 without discounts for a subscription to Cablevision's high speed internet service.  Does that mean Sezmi's service will cost me $25 with the same level of quality and service?  If so, sign me up!!  Cablevision's latest 10Q claims their average revenue per video subscriber is $78.45, which includes VOD and other on-demand revenues.  Comcast claims their average revenue per sub to be $63.00 in its latest 10Q.   Even at 50% of these rates can SezMi be profitable?

On the cost side of the equation SezMi will not require a field operations network a la the traditional cable system to perform installations and repairs.  It will not require a head end in each market since it will, most likely, co-locate its broadast equipment with its local broadcast partner.  Its subscriber acquisition cost may be similar ($300/sub+) as it still needs to advertise for product and service awareness, but that cost could be shared with its local partner (i.e. telco, ISP, etc.).  No word on the retail cost of the digital media box, but all CE product managers know the key price point for mass consumer adoption is $299.  Cable programming costs will, most likely, still be per sub driven and, as a new service with only projections and not an exact number of subs or homes passed, the entry cost will be higher than the encumbents.  Cablevision's latest 10Q suggests, using their revenue generating units (sum of users of all services, so someone who has the "triple play" creates 3 RGUs) as a divisor, the operating cost and SG&A per RGU to be just shy of $35.00. 

Thus, at somewhere between $25 and $35 revenue per sub can SezMi make money?  Seems like breakeven at best, not factoring in advertising revenue and revenue from other on-demand services.  Perhaps the lease costs paid to the broadcast partners will be significantly less than the equivalent cost to build and operate a head end and to have a field operations staff.  But the programmers are relentless, so expect these costs to be greater than average at first until scale is reached. 

One thing SezMi has going against it is the lack of success of others who have built a business model around distribution of video content using the excess DTV capacity of local broadcasters.  US DTV had limited success in the few markets in which it operates (ed) (I believe a few former US DTV employees are now members of the SezMi team, according to the SezMi web site).  Disney's Moviebeam service has been discussed in previous posts with its remaining assets again for sale for less than $5M.  Perhaps learnings from these experiences can be applied to SezMi to make the service a success.  A DTV service priced between $25 - $35 dollars, with on-demand and DVR functionality, will certainly get consumer's attention, if it works.