All Skyped Up!

I don't know about you, but I'm very intrigued by Skype's recent announcements.  Its clear their strategy is to move away from voice communication via computer and onto mobile devices.  Besides the app for the iPhone they already offer software for smart phones running Windows Mobile OS and for the Android G1 phone.  The software is also able to make calls over 3G networks of T-Mobile using the G1 platform and using the HTC's Touch Pro on VZW.  AT&T terms of service block use of its 3G network using the iPhone. But isn't it just a matter of time before all mobile communication goes VoIP?  The current carriers will slow roll this to protect their investment in infrastructure AND to achieve some sort of payback on their investments in wireless licenses.  At some point in time the volume of wireless mobile activity using the cheaper VoIP services, like Skype, will just eat away the margins of the existing mobile providers and bring about a dramatic change in how consumers communicate wirelessly.  Its similar to how the existing land lines are disappearing in favor of mobile.  The carriers are still "milking the cow" and offering pricing plans to entice consumers to hang onto their land lines, but for how long?  I'm not suggesting this will happen overnight, but it will happen.  Which begs the question, why would Cox Communications make the investment to launch their own wireless network in their service areas (just announced this week)?  I'm not sure this is the best use of corporate funds, or that it will provide the best return for investors over the long term, given the move to VoIP on mobile phones.  Using a VoIP based mobile untangles the phone from the network and gives the consumer freedom to choose additional apps, music, video or other, from their vendor of choice.  Is there a play for a Qualcomm branded VoIP phone that includes its MediaFLO service?  Why not?  Again, not tomorrow, but the evolution to this model is slowly taking shape.  And how would a nationwide WiMAX service fit into the equation (Clearwire)?  I guess we'll all just have to stay tuned, or connected.

MediaFLO and Branding

I had the occasion in the past several months to visit Qualcomm in San Diego.  I met with several executives in the MediaFLO group which provides the underlying video distribution platform for the VCast service of Verizon Wireless and the Mobile TV service of AT&T.  Did you know this fact?  Probably not.  You see, Qualcomm's deals with the mobile TV providers prevents them from co-branding the service on the phone or any literature.  Think "Intel Inside".  Understandable from Verizon and AT&T's perspective since they own the customer relationship.  But if Qualcomm desires to enter the market with its own consumer device, or to use its impressive network to deliver content to other viewing environments, like automobiles, commuter trains or even airplanes, money spent on a branding or consumer awareness campaign is money well spent (think "Powered by MediaFLO!").  Especially after spending upwards of $1.0B to build the MediaFLO operation and infrastructure.  Another value of a branding and awareness campaign would be to create a "push" sales initiative.  Let me explain.  If I were to visit a local Verizon Wireless store in the nearest mall do you think the sales person will be effusive in telling me about the VCast service if he is being spiffed to upsell the new Real Rhapsody service, which already has name recognition with digital audio fans?  Both cost the same amount of money on a monthly basis so if you purchased phone service, data service, SMS, mobile video AND Real Rhapsody your mobile phone bill now looks like your cable TV bill!.  Creating buzz around the brand and the service may help consumers discover the value of the offering, prompting them to ask about it when they visit the local VZW store.  It would make sense to spend money on more than co-op advertising with VZW or AT&T if you plan to expand the scope of the media distribution to other environments and markets.

The other thing that would drive buzz and awareness is breadth of content.  But that's for another post.

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.

Another Box Bites the Dust

Did anyone else see this coming?   I just read that Akimbo, the manufacturer of the Akimbo set top box, and video service provider to said box, has laid off all but a handfull of staff in the hopes of selling their platform and/or technology to recoup a portion of the estimated $47M (I've also read the total is $56M) investors have given to this enterprise.  Has an independent service that requires a consumer to purchase a box to download and view videos been successful?  Does anyone remember Moviebeam, another venture that closed $50M+ in money only for the assets to be sold for approximately $10M and the service shuttered, and now those same assets are back on the block for less than $5M?  I offer the following for the next entrepreneur who thinks they can build a new box that consumers will purchase to dowload and view video content:

1. Consumers do not want another box to connect to the myriad of boxes they already have in their entertainment centers;

2. Consumers will not be interested in a service that has limited offerings and no recent titles.  Ask Apple about their foray into this space with a limited suite of content;

3. If you think you need a set top box to demonstrate a slick new User Inteface that will transform how consumers interact with cable content and other digital media, think again.  Your solution is a software platform that will end up in a Cable STB, if you can convince the cable operators to use your platform, and that will take several years of discussion and testing.  Longer with CE companies.  I offer Moxi's Digeo platform, Ucentric (now owned by Motorola) and even Hillcrest Lab's "Loop" as evidence. 

 I am still waiting for the day when the HDTV has the components inside that permit navigation of web sites to view, select, download and play any video content from any web site.  If Apple can condense the components to operate an iMac into the back of a monitor, surely the CE companies can do the same with an HDTV set.  I understand some models were displayed at the CE Show in January.  On the content side, all of the broadcast networks offer their programming for FREE on several web sites, so the content is available.  Just waiting for the CE companies to catch up, as usual.  It still astounds me that it took Sony so long to link video content to its Playstation device.