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. 

Clearwire - is it really that Clear?

I have enjoyed reading the articles and comments by pundits about the recent Clearwire:Sprint, et.al. hook-up to create a national WiMax network.  Other participants in this love fest include Google, Comcast, Time Warner and Intel.  Hope I haven't forgotten anyone.  The pundits, news media and bloggers talk about data speeds, 3G Vs 4G, LTE Vs WiMax and a variety of other factors one can analyze.  While this is all well and good let's put out there the obvious - how will these prima donna's of their respective industries ever agree on a strategy and business plan that meets everyone's objectives?  The cable companies are investing $1.0B each, Google about a half billion and Intel somewhere in the same range.  On paper the combination makes sense.  In reality the self-interests of the participants will overshadow the execution of the business strategy.  I harken back to my days working for the Tele-TV JV between 3 RBOCS and Creative Artisits Agency.  The JV was formed to develop a service for one platform and to take advantage of economies of scale in developing and rolling out the service.  Almost immediately issues arose with the ability to execute the business plan on that platform.  Within one year tests were being performed to evaluate wireless MMDS and advanced fiber technologies while the partners battled other issues in the respective markets and with each other, creating diverging objectives and eliminating the economies of scale the venture was formed to achieve.

As in the TTV JV, this WiMax venture includes participants who are monopolists in their markets, and market leaders in other industries, who are used to getting their way.  Stories about the venture never getting off the ground because competing interests could not be resolved have appeared in several industry blogs.  Not to mention that by the time this JV rolls out its service (2010 nationwide?) technology will have advanced, that Moore's Law thing, that will undoubtedly force the partners to revisit the business model and their positions/objectives in the JV.  Case in point, ask Earthlink about the muni-wifi services they rolled out in several cities, like Philadelphia (look out Anaheim!), that they are now exiting.  Maybe it was foolish to think an advertising based model would fund the capital requirements and operating costs of the muni-wifi network.  As I always say, financial modeling is an art, not a science.  Tell me what picture you want to paint and I can create a model to support it!

I don't mean to be douse the fire with water.  I wish the partners the best of luck, especially if they create a viable service that creates competition in the marketplace.  I'd just love to be a fly on the wall at the Board meetings of the venture as the partners work to protect their interest and insure they maximize their ROI in this JV.

And the Winner is...

...not Google.  Or is it?  The Spectrum auction has concluded with total bids in excess of $19.0B.  Verizon Wireless (VZW)and AT&T appear to have been the high bidders, with VZW bidding $4.7B for the entire C block of spectrum.  While Google did not "win" any spectrum bids, their efforts certainly helped to shape the bidding process and the open-access provisions of the auction.  VZW, just this week, held a conference where they discussed their vision of open-access on their network.  Time will tell if their vision and that of the FCC, and Google, align.  Goes back to that old saying, it depends on what your definition of open-access is.  Kind of like is, is?  Let's hope it turns out to be a true step forward in the development of an open platform that enables the creation of the next generation of mobile applications and services, unlike Apple's platform and SDK for the iPhone, accessed only via the walled garden known as the iStore.  Does Apple understand their is no "i" in open?  But their is in capitalism!  Two, in fact. 

VZW's Open Network - You Buying The Hype?

I've been reading as many articles and comments as I can about the intent of Verizon Wireless to "open" its network to outside devices that meet the appropriate standards and have been approved for use by VZW.  Having operated a closed network for so long, as many others in the wireless industry in the USA do, are you buying this?  There must be a catch somewhere and, since all of the details of the plan have yet to be divulged, the proverbial other shoe has to drop sometime, doesn't it? I hate to be skeptical, but experience requires further investigation.  Just look at the timing of the announcement.  VZW has been promoting its position on the upcoming spectrum sale that has been anti-open, which is the exact opposite of the position taken by Google and others who believe the spectrum, or a portion thereof, should be made available to companies offering applications for the benefit of ANY device that can connect with the network.  Google has made statements about participating in the spectrum auction.  It has even been rumored that Google has developed a wireless network in Silicon Valley to test the applications it is developing for mobile devices.  Has VZW capitulated to a perceived threat by Google in an attempt to eliminate Google and its vast financial resources from the bidding process?  Does anyone really think Google, whose business model is driven by advertising revenues, wants to operate a fixed asset based nationwide wireless network?  If you do I have some land to sell you in Florida.

Frankly, I've seen this move before from the Telecom industry when an apparent threat to its "turf" was presented.  Let me take you back to the early 1990s, when the Cable industry was making pronouncements about its desire to offer consumer telephony services to its subscribers.  In response the phone companies, all six of them at the time, began their own series of press releases claiming they would offer video over their telephony platforms using a new technology called ADSL. The phone companies did not know the extent to which the cable companies could offer telephony services and, frankly, the cable companies did not know if the phone companies could offer video services.  It was a novel idea, a way to create buzz in the marketplace and nothing more than a smoke screen while each industry evaluated whether it was technically feasible to deliver the other industry's service.  Hundreds of millions of dollars were spent investigating the technology and business models to make the "double play" a reality.  Joint Ventures like Tele-TV and Americast were formed to pool resources by separate RBOC groups to further evaluate the potential of video delivery over twisted pair copper, FTTC and Wireless MMDS technologies.  Cable companies realized they would have to invest hundreds of millions of dollars in network and physical plant upgrades to enable voice services.  This dance went on for several years before reality set in and each companies backed off their initial proclamations.  Oh, the industries slowly moved toward identical service capabilities, but more than 10 years later!

What we are witnessing between VZW and Google is yet another dance between industry giants, perhaps round 1 of a boxing match, where each company is feeling the other out.  Google, like the cable companies of yore, has the financial wherewithall and political connections to be a formidable opponent to the wireless industry "norm".  By communicating its position on the spectrum auction early on, including their intent to bid, they have been able to engage the wireless industry, VZW initially, and the FCC, in an open discussion about the use of this wireless spectrum.  The result of these actions will partially modify the business model of another industry for its own benefit, delivering advertising based services to users of Google's applications on any connected mobile device.  Without an "open" network each wireless network operator can determine which, if any, application could be used by its consumers.  Doesn't VZW already turn off certain applications on several mobile phone models because it wants the consumer to use the applications where it generates more revenue?  This does not benefit Google or any other application developer who wishes to drive revenues from mobile services.

Who knows how long this will take, and what other pronouncements will be made, but Google is smart enough to know the next big area of opportunity for their continued exponential growth is in the mobile device marketplace.   And VZW knows its core competency is operating a nationwide wireless network.  The more traffic on the network, from any source, the more revenue for VZW. 

So don't be fooled by the hype and positioning.   Offering to "open" their network is a defensive strategy by VZW.  It keeps Google from actually exploring the development of a nationwide wireless network, for now, and it gives the perception that VZW is taking this action for the benefit of all mobile consumers.  Who knows where the hype and positioning will lead.  Perhaps we will know in another 10 years.

Un-Interactive TV

The latest issue of Business Week included an article updating the status of Interactive TV (iTV) or, as the article states, the lack thereof.  Its not surprising this conclusion is the same as it was several years ago.  Technically the ability to create a pure iTV experience exists.  Economically it does not.  True iTV is predicated on the ability to develop a business model that provides economic incentive for all participants and a technological solution that protects content from piracy or illegal distribution.  A broad, integrated, service has yet to be developed that meets the requirements of all constituents of the business model.  Movielink has stumbled.  Moviebeam has failed (one of the backers of this idea, a former Disney exec, will now lead Bus Dev at NBCU).  A littany of devices has been developed that connect to the TV that lack the video library to gain traction.  Even the vaunted Apple's iTV product has failed due to a lack of content.  The Slingbox is a great idea but has not gained critical mass, and hence their tie-up with Echostar.

I wonder why the CE manufacturers have yet to build a TV set that includes the technology, and a User Interface, that would permit downloads from sites like Joost, Netflix, or other media aggregators.  It seems feasible to include a broadband connection and the internal hardware in a flat panel TV to permit such a service.  If Apple can build a computer with all of the components in the screen (iMac) shouldn't a TV manufacturer have the same capability?  One would think a business model for such an Alliance could be accomplished.  Doesn't Sony own both content AND a TV factory?  The problem is CE manufacturers are just that, manufacturers.  My experience with them is they are not the ones to proactively pursue relationships to develop end-to-end consumer "solutions".  They have historically let others build the solution and have waited for someone to present them with the opportunity or technology to participate, with little ability to drive the business model.

Apple's success with the iPod and the iPod store have scared the bejesus out of the video industry, and their attempts to create an online video distribution business have failed as well.  Until the content owners are comfortable with a business model and service that protects their revenue streams and distribution cycles, and CE manufacturers wake up, iTV will remain a pipe-dream.

Overt Benefits of Subscription Music Services

On this, the 25th anniversary of the CD, I contemplate a conversation I had two weeks ago with executives of Universal Music Group.  In separate conversations, the executives and I discussed and debated why more people are not subscribing to music download services, like Real's Rhapsody or Yahoo! Music, where you can have millions of songs at your fingertips, rather than buying them in CD form (at least for now) or as digital files.  One interesting point made was how consumers perceive music acquisiton.  For years consumers have been conditioned, and the business model has been, that one purchases an album or CD for their personal collection and has the right to play this physical form factor wherever they can or desire.  While some individuals have slowly moved to the concept of "renting" music the music industry, and its digital media distribution partners, have done little to market this paradigm shift to the vast majority of consumers who still think they should own a physical form factor for their collection.  Think of the benefits of having access to millions of songs in an instant with the ability to download them to any device that uses a standard DRM, like Windows Media.  Think about the economics.  It would cost $1.0M to download and OWN 1 million songs (not that many people would do this, but bear with me).  At $15 per month, one could rent this many songs for 5,555 YEARS before they reached $1.0M.  So why not rent?  If you rented music for 55 years of your life (ages 15 - 70) you would only spend $9,900 (not adjusted for inflation).  Sounds like a bargain!  Of course, most consumers would ague that they do NOT own or plan to own 1.0M songs, but the point is there is a plethora of music that consumers listen to, even if they do not purchase it, that they would probably listen to during certain events, activities in their home while entertaining, or athletic activities, for example, if it were available.

I entered the discussions with the UMG executives from the perspective that a consumer OWNS the music he/she buys.  I left thinking, hmmm, maybe there is a better way.  It would benefit the music industry and its partners to educate consumers on the economics, "Overt Benefits" and "Dramatic Difference", quoting from Doug Hall's Laws of Marketing Physics, of a consumer service of this nature.  As Mr. Hall states in his book, Jumpstart Your Business Brain, "customers can not and will not read your mind.  If the benefit is not overtly articulated, it isn't there." 

Its hard for consumers of traditional form factors (e.g CDs) to understand the value of converting to a music service when the Labels keep marketing, distributing and investing in physical media over digital subscription services.  If subscription services are a key point in the Music Industry's strategy for driving new revenue streams, its time to overtly articulate the benefits to consumers.

Cable Cards

Its been a busy few weeks since my last post.  Paris Hilton was sprung from the big house, twice, the iPhone was finally launched, albeit to the displeasure of purchasers who had difficulty connecting to the AT&T service (is anyone surprised?) and the Cable and CE industries continue to face off over the issue of cable cards.  Ok, so the first two received more press than the last, but the latter could be more important.  Why? Cable Cards are the solution reached between the CE and Cable industries, at the behest of the FCC, to separate the security and program guide functions of the traditional set top box (STB).  The CE industry has clamored for the right to provide a set top box and the program guide, often referred to as the EPG, to consumers through their traditional CE distribution channels.  All the while the cable MSOs have countered that the impact of separating the program and channel control functions from the security, or conditional access, functions would increase the cost of STBs to consumers.  Many pundits believe this to be another attempt by the Cable companies to thwart the efforts of the FCC and the CE Industry and to blame the FCC for the increased cost of STBS, in what they are calling a "tax" on consumers.  So what's the real deal?   The first screen a consumer sees when they turn on the TV, and the billions of dollars of advertising and transaction fees that this real estate can produce via a service tied to this "home page", like VOD, PPV and other impulse purchases by consumers.

The cable industry has claimed this as their own even though the physical asset used to view programming is manufactured by the CE industry.  There has never been a debate as to who owns the customer as the Cable industry has provided the digital cable service into the home AND the STB.  The Digital STB is the key to incremental revenue generating services like VOD and SVOD programming.  It also controls access to pay cable services like HBO.  Separating the security function from the program guide function opens the door for CE and other STB, or Home Media Center, manufacturers to offer a CE Device for the home to compete with the Cable STB.  I have only read of one company planning to enter this market, Digeo, but I imagine the CE Manufacturers and companies like TiVo have plans to offer a retail device.  The Digeo service claims it will provide movie downloads via internet services as well as other revenue generating features.  You can be sure the first screen to appear when a consumer turns on their TV will not have a cable company's logo affixed.  And thus, the battle for the "little screen" will commence.

The dance with the FCC also continues.  Cable companies continue to ask for waivers to delay the implementation of the cable card in their markets and the phone companies, especially Verizon, are petitioning the FCC to be excluded as they claim their STB and service is "different" and a competing service to the encumbent cable operator.  All the while the CE industry sits on the sidelines waiting patiently for their opportunity to participate and offer product through the traditional CE retailers.  While the FCC has the best interest of the consumer in mind, or is supposed to, in the end its usually the little guy who gets hurt by the turf wars of the major corporations and government regulatory bodies.  Can't wait to see what my cable bill looks like when the dust settles.  I'm sure the Cable industry will use the FCC mandate as the rationale for their next round of price increases instead of the exhorbitant cost of cable programming for channels many consumers don't even know exist.  What happened to the a la carte pricing initiative anyway?

Downbound DRM Train

It seems everyone has an opinion on how the Music Industry should solve the problem of eroding CD sales and the fact that online sales of digital files are not filling the revenue gap this is creating.  I've read several articles in the past week on the subject, including excerpts from a few blogs on the topic.  Perhaps the most interesting was the blog of Dallas Maverick's owner Mark Cuban who suggests the way to solve the problem is to make the purchase of music as ubiquitous as buying Starbucks coffee by putting kiosks in every location one can imagine to give consumers access to digital downloads anytime, anywhere.  This might be an element of a broader solution but it doesn't solve the problem of "social" ripping or burning of CDs among friends.  The NY Times article by Jeff Leeds (The Plunge of CD Sales Shakes up Big Labels, May 28, 2007) offered research performed by the NPD Group indicating that social ripping accounted for 37% of all music consumption, even more than file sharing.  Thus, while placing kiosks in every possible location may increase consumer opportunities to purchase digital media, this will not solve the issue created by social ripping unless the CD, as a form factor, is either eliminated or coded in some way to prevent distribution to devices not owned by the buyer.  This harkens back to an earlier post where I discussed the concept of licensing the content to a USER, not a device, for playback only on devices authenticated as owned by the same person who purchased the digital file.  State DMVs have massive, secure, databases of user licenses, and banks have massive, secure (I hope!) databases of user information linked to credit and debit cards.  Why couldn't a massive, secure, database of consumer digital certficates, watermarks or some other identifying monikor be feasible?  This system would work in concert with the kiosk concept offered by Mr. Cuban.  The Labels realize going completely free of some method of tracking purchase and use by each consumer is suicide for the their existing business model.

The Labels have had a long time to digest this issue and seek alternatives.  Unfortunately most of the executives of these companies are goaled on short term financial performance and have taken a short term approach to solving the problem, usually "dropping" a new CD by one of their hot artists to meet quarterly targets and objectives.  All the while a core revenue source, the sale of CDs, has eroded as the consumption of music by other means has risen.  If you're at a Label fighting this battle, don't it feel like you're riding, on a downbound train?

Is it the end of DRM as we know it?

Amazon.com's announcement of its intentions to sell music online free of DRM certainly made a splash in the press last week.  12,000 Labels (who KNEW there were 12,000 labels!) reportedly are offering their content for sale, excluding the Big 3 - Universal, Sony/BMG and Warner.  EMI is on board.  The deal is similar to the deal EMI cut with Apple - $0.99 for songs that include DRM, $1.29 for songs without DRM and in a larger file format that is reported to offer higher sound quality.  So this is good for consumers as it clears up the issue of interoperability of content on any media playback device, right? Perhaps.  If the Big 3 are not on board consumers still do not have access to most of the music of major artists.  The Labels have been struggling with the issue of music downloads for some time, trying to determine how best to offer downloads that preserve their business model.  One company I worked with developed what I thought was a novel idea to resolve the issue of interoperability.  The concept, in very layman's terms, was to attach the content license to the CONSUMER, not the device.  This would allow the consumer to play the music on any device they own but prohibit the illegal redistribution of the music.  Functionality was being developed that would enable the friends of the owner of a piece of content to "sample" a song and, if they liked it, buy it from the friend (using the interoperability service to facilitate the transaction) under the same rules as the original purchase.  Viral Marketing.  Legal Super Distribution.  What's not to like?  Any marketer will tell you how the opinions of peers have a big impact in the purchase decisions of others. 

This service requires the user to register their audio playback devices with the behind the scenes platform, which can easily be done since each portable device manufactured has a unique identification code.  When the consumer purchases music online or buys a CD the song or CD must first be registered with the service prior to being downloaded to a playback device.  The consumer is then issued a digital "license" to the content.  When the consumer wishes to download the music to one of their playback devices, the system checks the consumer's online license library to insure ownership and then downloads the song to the desired, authorized, portable device, applying the correct DRM, CODEC and security features to the content as prescribed by the Label.  This is similar to the concept of driving a car, somewhat.  You have to obtain a license to drive a car, but it does not limit you to the type of car you can drive (within car class, of course - you aren't licensed to drive a semi or a motorcycle).  One can drive their car to the airport and then rent a car at their destination without having to have a separate driver's license.  They can then return home, drive their car from the airport to their home and, perhaps, drive their spouses car to run errands.  No problem.  Same concept.  You have a license to the particular piece of content, and should be able to play it in any car you drive.  In this case, on any device you own.

The company who developed this technology platform is Ardtully Technologies, Inc (www.ardtully.com).  They have worked closely with the CORAL Consortium and it's members (including the Big 4 Music Labels, the MPAA, RIAA, and most of the major Movie Studios and CE manufacturers) on interoperability issues and have designed the platform with the CORAL standards in mind.  I doubt that it will ever see the light of day as the Labels, according to my sources, have abandoned discussion of platforms of this nature and are engaged in discussions of whether or not to go DRM naked for digital downloads. 

Fundamentally, its all about the business model.  How do the labels maintain a core revenue source and minimize the risk of illegal super distribution?  They have leverage over their artists if they own the copyright to the artist's work.  But what's to stop artists in the future, once their agreements with the Labels expire, from offering their music for free online and hiring their own PR agency to promote their work and to establish tour dates for concerts.  Some artists are already doing this.  The business model is changing for the artist as well, potentially in their favor.

So, is it the end of DRM as we know it?  Not in the near term.  But in time all indications are it will be.  And I feel fine.

The Digital Home

I read an interesting article by Erica Ogg of CNET yesterday about the digital home (The Digital Home: Still a Handyman's Special? Wednesday May 9, 2007)).  The premise of the article was although advances have been made in technology, devices and broadband adoption the digital home "puzzle" is still missing some pieces.   The article listed several the devices for delivering digital content to the "centerpiece of the connected-home", video, including the new Apple TV box and the SlingCatcher from Sling Media.  One company with whom I am working may have a solution.  The Company, Digital Media Research (www.dmrworld.com), has developed a device, called the Personal Digital Hub (PDH) that wirelessly controls the digital home, including moving digital content from the device to TVs connected to the network in other rooms.  The device uses the ZWave Alliance Protocol as the basis for wirelessly distributing digital media.  The device has massive storage capability for one's library of movies and music, is easy to set up and use - an important feature for consumer adoption - and also wirelessly controls home automation features, like lighting and blinds.  The GUI is being redesigned by the award winning team who developed the user interface for Digeo's Moxi Set Top Box/Media Center.  The timing of the introduction of the PDH could be right as the FCC continues its campaign for the set top box to be as ubiquitous in CE Stores as the TV. 

Perhaps the most interesting aspect of the device is the impulse purchase funtionality that is being developed.  Suppose you are watching your favorite movie and decide you'd like to own the soundtrack, or even purchase the title for your personal library.  DMR's platform is being designed to enable you to make such a purchase without leaving your chair.  This feature should be one the Movie Studios and Music Labels will love!   

DMR is currently in discussions with several major CE companies to license the device for manufacture and merchandising under existing consumer brands.  DMR's business model is to be the ASP providing the impulse purchases and other commerce, having learned a lesson from other companies who have developed and marketed a "new consumer device" when the real benefit of the device was the software platform that managed a consumer's content (e.g. ReplayTV).

There's much more information about the device than I can describe here, so I invite you to check out the PDH at www.dmrworld.com.  Its a clever idea that could be a key piece to the "puzzle" enabling a true digital home.