i2 Partners: Media and the Internet

“Media Unbundling”… and other matters

2011-03-09T13:32:00.001-05:00

Om Malik was kind enough to ask us to write a guest piece over at GigaOm. It’s a follow-up to some earlier ruminations of his on the direction television and media generally are taking.

We’ll be picking up where our book, Television Everywhere, left off and writing occasional example pieces (here, and possibly elsewhere) building on our core thesis of a viewer-centric strategic direction for TV.

The book is now available in a Kindle edition on Amazon, and should (soon?) be in Apple’s iBook store. If you’d like a complimentary electronic version email us or DM at @i2partners

Starbucks SDN Whaa??

2010-10-20T14:54:00.002-04:00

A while ago we wrote in approving anticipation about Starbucks re-entry into store-based media and entertainment (“Hollywood Meets the Third Place”)

That day has apparently arrived. To quote Starbucks’ 2,000+ word press release:

Serving up a collection of hand-picked premium news, entertainment and lifestyle content along with local insights and events…

The network goes live in nearly 6,800 U.S. company-operated Starbucks on Oct. 20.

Hmmm. Judging from our unscientific scan of our RSS feeds this morning (including Starbucks own blogs), media coverage has been, er, a bit spotty?

We tried a quick walk-by at a local (company-operated) Starbucks with our iPod Touch. Log-in to AT&T Wifi (no reroute to an SDN splash screen). Went to Starbucks site. Much VIA instant coffee promotion:

Fiddled around with the AppStore – nothing SDNish on offer. Downloaded the Starbucks “app”. Ha! “SDN” button in the lower left-hand corner!

Pushed SDN: "View in Safari?” Oh well, sure, why not, guess a real app isn’t ready yet… Tried viewing the movie clip on offer (“Waiting for Superman”). Oops, Flash or something, a play button with a big slash through it. Picked what appeared to be a kids game – unreadable postage stamp view of a web page (wouldn’t most SDN usage at a store be on a mobile device?). Etc., etc.

Perhaps our launch expectations are unduly conditioned by Apple- and Google-style extravaganzas, and perhaps the Yahoo! (Starbucks “media partner”) black cloud hangs a bit too heavily over this undertaking, but really??

When Hulu Went Dark

2010-10-20T11:14:00.001-04:00

Not only did Fox go dark (and as of this moment, still is) during the Newscorp./Cablevision carriage agreement battle but, briefly, so did Fox content on Hulu and Fox.com.

To us it came as a surprise, though in our book Television Everywhere, we speculated on how Hulu might react when subjected to conflicting forces:

The “true” relationship between Hulu and its shareholders remains, externally at least, a mystery.

While very much an independent consumer brand, its current CEO strives to position Hulu within the industry as an entrepreneurial “start up.” This is certainly politic vis-à-vis Hollywood’s relationship with the cable industry.

GigaOm’s Janko Roettgers pointed out:

The whole episode was clearly meant as a show of force — a warning shot, if you will. But this wasn’t just about getting a few extra bucks from Cablevision.
Fox had to know that blocking access to Hulu would raise more than a few eyebrows at the FCC, and cause public interest groups to ring the alarm bells about possible consequences of media concentration. Which is actually quite convenient when one of your biggest competitors is about to enter a huge merger.

In any event, the Hulu incident laid bare the power of its shareholders.

Hulu Reinvents Re-transmission Consent?

2010-10-11T15:53:00.002-04:00

“Unfortunately Hulu is not supported on your platform”

That’s the message that is plainly visible when you attempt to use Logitech’s new Revue set top for Google TV in order to access Hulu videos.

Google TV is launching with a number of video aggregation and streaming services (Netflix, Amazon) and selective content from a few cable players (including TNT, CNBC, etc.), but nary a broadcast network in sight.

It may not be retransmission consent, exactly, but clearly Hulu and its masters would like to see negotiated arrangements with those who aspire to jump the gun and bring Hulu to the living room TV…

Television’s 2010-11 Season: Still Not Dying

2010-09-17T10:55:00.001-04:00

It's all sounds pretty familiar, with an extra dollop of good news for a possibly recovering ad market.

Fox is hosting an event at which the new American Idol judges will be revealed, CBS' Survivor and Big Brother debuted with A18-49 ratings up by high single digits compared to last season's finales, and Veronis Suhler Stevenson is now forecasting a return to about 6% growth in broadcast ad revenues.

Five years go, there was an outburst of near-hysterical "Oh my God, television's gonna die!" amongst experts, with the internet blamed for doing the killing. We expressed our skepticism at the time through a piece called "War of the Worlds: Hollywood Opts Out of the Google Economy"

Since then, all the more remarkably given what Paul Krugman called the economy's "post-Lehman oh-God-we're-gonna-die” period, the television industry has done just fine. Lifting some summary morsels straight from our friends at Ad Contrarian (if click on their link, you'll note that they went to the trouble to actually source these facts) we see that in the US television market:

TV viewership is now at its highest point ever
DVR owners (continue to) watch live TV 95% of the time. 5% of the time they watch recorded material
99% percent of all video viewing is done on a television. 1% is done on line
Since the introduction of TiVo, real time TV viewing has increased over 20%
TV viewers are no more likely to leave the room during a commercial break than they are before or after the break

So now what?

Without a doubt, much has changed in five years. There was no iPhone, no Hulu, no real retrans battle, and no "Television Everywhere" back then. How will we know when these, and other developments, are actually changing the landscape in a competitively material way? We draw your attention to our own recycled list (from the Keeping Score section at the end of 'Hollywood Opts Out...'), reprinted without modification:

Have major independent program developers (e.g. Crown Media, Playboy Enterprises, etc.) made significant library syndication commitments in a broadband-related format? What is the depth of the library under license? How does this deal complement or compete with “linear” exhibition?

Is Big Media adding significant depth to broadband-available libraries, on what terms, for what distributors, across the board or by genre?

Are ads or interstitials being inserted in broadband content? Who are the advertisers? Are these barter, in-kind promotional, or cash deals? What audience measurement and reporting, if any, is being employed?

Is licensed or syndicated broadband-media delivery being linked to a paid-search or internet community model, and if so, how?

Is anyone developing new broadband-specific content supply (either by re-purposing, similar to wireless carrier ‘mobisodes’, or with net new production)? What are the reported production costs, who is financing them and how (brand sponsorship, product placement, etc.)?

Is there any evidence of broadband-related restructuring of rights and windows in lower-profile (cancelled series, cable channel originals, etc.) syndication deals?

Is there any adoption of “programmer neutral”, open devices which can conveniently display broadband content directly on televisions (e.g. TiVo Series2, etc.)?

Is one of broadband media’s potential advantages – à la carte consumption - being eroded by the rise of less-tiered and/or lower-priced subscription services from cable or satellite?

How are broadcast networks planning on using ancillary spectrum at their O&Os once digital terrestrial television is launched?

The more the answer to these questions is “yes” (or a statement about some significant development in the implied direction), the more likely we are to move away from 1% of TV viewing being online.

Clearly, we have some ways to go before still-early and experimental changes around the edges of the industry become …“disruptive.”

Epic Epix?

2010-08-21T08:38:00.007-04:00

Recently, Netflix announced streaming deals with Relativity Media and Epix (the Paramount, Lionsgate, MGM distribution consortium). When we read the press we sort of nodded our head and moved on, slightly rolling our eyes at the purported “$1 billion” value of the five-year deal.

Dismissing this as "just another" expansion of the Netflix library, we got it wrong. We should have paid more attention and stopped to think, as today’s Tom Lowry piece in Variety reminded us.

The Epix deal in particular is significant, not so much for its size, but because it marks a clear, unambiguous definition of a large-scale deal for an entirely new streaming window, 90-days post-Pay TV, as Lowry points out:

The deals of the past few weeks have grabbed the attention of film and TV execs on the distribution side because it establishes a clear market rate for the value of streaming rights for fresh theatrical product. ... the Epix deal is a direct transaction with Par, Lionsgate and MGM for streaming, which sets a market precedent for separating out Web streaming from pay TV rights for a traditional linear channel.

That seems exactly the right way of netting out why these deals are important. In our on-and-off anecdotal conversations with entertainment lawyers (admittedly more about TV and less about theatrical releases) we were left shaking our heads. While we’re hardly insiders in the mix of rights deals, we remained surprised how little attention (still) was being paid by content owners to establishing new, clearly-separated rights classes and windows for web distribution.

Netflix is clearly leading the charge to change this.

Foursquare TV? "We don't need no stinkin' badges..."

2010-07-30T13:23:00.001-04:00

Spinning through the TechCrunch RSS feed the other day we discovered that:

Starting on August 1, when you use GetGlue to check-in watching one of HBO’s hit shows, you’ll earn exclusive stickers designed by HBO.

And later that day, while trying to compare Hulu Plus with NBC's own website, we stumbled across:

Now you can be as proud as a Peacock with historic NBC logos! Collect all seven. NBC's 'N' logo got its start in 1975 and was used through 1979. With two brightly colored trapezoids making the 'N', the design was very much of its time.

We're all in favor of rewards which promote and retain viewer engagement, still we’re skeptical that a badge, mayorship, or other electronic social doodad is going to accomplish much here. Two ideas on how to do better:

rewards have to be integrated into a cycle. TV has for all practical purposes turned into an application with six parts, of which rewarding is a final (and an important) step

instead of badges, give viewers more of what they want – programs. Build points towards a la carte premium viewing (Hulu Plus credits, whatever). This is an opportunity to build and reinforce the six-part cycle above. And it’s also a much more meaningful way to keep viewers connected. To quote one of our favorite parts of the Hoffman|Lewis credo:

"We don’t get them to try our product by convincing them to love our brand. We get them to love our brand by convincing them to try our product." (via The Ad Contrarian)

The Other Long Tail: When Technology Gets MagicJacked

2010-07-26T12:24:00.010-04:00

We noticed the other day that one of our earliest clients, VocalTec Communications, merged with YMAX Communications – purveyor of "MagicJack" via late night infomercials and shopping channels.

With a founding team including Israeli entrepreneurs Alon Cohen, Lior Haramaty, Opher Kahane, and Elon Ganor, by the mid-'90s, VocalTec played a central role as both Voice-over-IP (VoIP) innovator as well as developer of the surrounding "ecosystem" (to use a consulting babble term). VocalTec had a lot to do with creating ITXC, a wholesale VoIP carrier and traffic exchange and was one of its largest shareholders.

Back in 2005, a struggling VocalTec did a reverse merger with Tdsoft, an Israeli softswitch company, and now with the YMAX merger combines softswitches (and their underlying intellectual property), carrier operations, and direct-to-consumer telecom services under an aggregated, but modest-sized (~$100M revenues) umbrella.

It's hard to remember the era before the dotcom/telecom implosion of 2001, but back then, at its peak, chatter about VoIP and its ominously disruptive force took up nearly as much oxygen in the pre-blogosphere of conferences and trade press as, say, iPhone/Android talk does today.

That era was also the beginning of "personal brand"-making, internet sloganeering ("information wants to be free", "Telecosm", etc.), internet personalities, and light futurism-as-entertainment now familiar to any TED-goer. As if to legitimize VoIP's role in the carnival, The Economist's trendspotter Frances Cairncross added gravitas to the topic through various pronouncements about "The Death of Distance."

The expectation was that VoIP would unleash a telecom revolution. Well, it certainly changed telecom, but rather gradually and in a comparatively humdrum way. Hardly the equivalent of the advent of electricity or television, VoIP did greatly accelerate the relentless downward pressure on long-distance pricing, and it enabled "trunking", or bundling together of long-haul traffic, much more economically, often bypassing traditional telecom carriers altogether.

These were the sorts of pressures that, once AT&T was separated from its (original) wireless business, shrank the company to the point the leftovers were remaindered to SBC Communications, ostensibly for the brand value. So perhaps it wasn’t quite as much the Death of Distance as it was simply the withering away of IXCs (inter-exchange carriers), which were a regulatory artifact anyway.

The fact that VoIP is everywhere – a cheap, banal, infomercial-sold commodity – is a good thing: a triumph of packet switching for the masses. It’s simply worth remembering if you’re a purveyor of anything from, say, cloud storage to video streaming, that this other “long tail” – the increasingly rapid, continuous descent into mass commoditization (being “MagicJacked”) – is what awaits many, many innovations.

Hollywood (Cautiously) Tries Internet "Syndication"

2010-07-16T12:33:00.003-04:00

Hollywood is continuing its cautious experiment with establishing cable-independent or at least "complementary" (to quote Hulu CEO Jason Kilar's diplomatic language) distribution deals.

Earlier this week Warners and Netflix announced a quasi-syndication deal for "Nip/Tuck" via Netflix. Though a modest deal in the grand scheme of things, it's potentially an interesting benchmark:

Warner Home Video came to the conclusion that Netflix distribution is a reasonable consolation alternative given their prior struggles trying to syndicate Nip/Tuck’s racy near R-rated, FX-level fare.

The show will still be syndicated on MTV Network's niche, gay-oriented Logo channel, helping avoid too much of an industry precedent in "internet-only" syndication just yet.

If the Variety report is correct, the Netflix dollars/episode are well within a respectable range for second-tier cable syndication

The industry's overall window structure has been preserved, saving precedent-setting confrontations with legacy distributors for another day.

Hulu Plus: the battle is joined

2010-06-29T16:16:00.003-04:00

Launched around two and a half years ago, Hollywood's internet TV consortium, Hulu, has progressively garnered a growing viewer base and is now profitable.

Earlier today, Hulu announced Hulu Plus, its long-awaited next step: a simple, subscription-based, internet-delivered television service which complements the original, free offer.

While it's way too early to tell how well Hulu Plus might do, the explosion of internet-capable mobile devices (triggered by the launch of the original iPhone, nine months before Hulu) is now converging with the first rudiments of a Hollywood-backed alternative distribution model for commercial television.

Hulu Plus sounds like a big step forward in starting to clean up original Hulu's content windowing chaos. Consortium members have agreed to simplify and standardize what have often been confusing policies, while broadening the range of available full-length episodes. And so it's likely that Hulu Plus will please viewers who were often frustrated trying to do more than snack on show clips and highlights or watch shows from a very spotty and unpredictably changing content inventory.

Even more importantly, Hulu Plus is aiming squarely at the "iWorld" of iPhone, iPod Touch, and now iPad devices, not to mention laptops. This will come at an awkward time for the lumbering and clumsy "Television Everywhere" initiatives from television's "frenemy" distributors: cable and to a lesser degree, satellite.

US cable, largely unimpeded by Hollywood so far, has been progressively drifting into new strategic territory with a deeper video-on-demand library, increasing amounts of quasi-VoD "replay/start-over" functionality and, of course, attempts to extend their distribution from the set top box to the laptop and beyond. (see Television Everywhere: strategic view)

Hulu Plus is a next strategic step forward for Hollywood . The 'Plus' makes the potential audience bigger by adding more places (mobile devices) and more shows. And as we've said before, the myth of internet TV delivering "digital dimes" instead of dollars, is just that - a myth. Over time, as the audience gets big enough, there will be plenty of dollars because, as it scales up, internet TV is potentially more profitable than linear TV, not less.

In the long run it's quite possible instead of Television Everywhere as promoted by the cable industry and its suppliers, we can have "Hollywood Everywhere" - a scenario which is great for viewer choice and even better for Hollywood itself (see Hollywood Everywhere: migration and endgame).

The primary ingredients of this strategy are: (1) patience and staying power (something Hulu has already demonstrated), (2) continued control over content (which Hollywood, by definition, has), and (3) completely reinventing how the internet helps viewers find what they want (the so-called "discovery" problem), something no one has yet come remotely close to solving, but which Hollywood could solve better than just about anyone else.

Stay tuned...

Hollywood Meets the "Third Place"

2010-06-28T12:50:00.008-04:00

Can Starbucks replace your cable box?

Starbucks CEO Howard Schultz describes their 10,000 or so US retail stores as "a third place between the office and home." Their purpose: synthetically recreate what used to be (and in other countries, still is) the role of independent coffee shops and pubs. Part community hangout, part momentary oasis in a busy day, these spots are ideal places to go for something more than refreshments, like brief interludes of music and entertainment when winding down and socializing.

With this in mind, Schultz took to the stage next to Steve Jobs in September 2007 at Moscone Center and announced a partnership enabling free access to the iTunes Wi-Fi music store at Starbucks locations. Starbucks subsequently hit a series of operational potholes. The partnership went largely radio silent, Schultz returned to his role as CEO to stem a major decline in sales and, evidently, re-evaluated what to do about music.

A couple of weeks ago he announced another try: Starbucks Digital Network ("in partnership with Yahoo!") arriving in Fall 2010. Speaking about the Starbucks brand and the new portal:

"... [the Starbucks brand was] built quintessentially by the experience, and comes to light every day because of the sense of community and the trust in the physical environment, the coffee, and our people. Free Wi-Fi is, in our view, just the price of admission. What we want to do is create a proprietary way in which we're going to give access and new sources of proprietary information and content that you can only get at Starbucks."

Starbucks Digital Network could help solve a nagging and worsening problem: discovery of and engagement with media and entertainment. Thanks in part to the internet, music and television are massively fragmented markets. There's more content than ever and, Google notwithstanding, it's arguably harder than ever for consumers to make sense of it. Many simply don't bother. Plus there's the "Is Google Making Us Stupid?" problem of fidgety impatience and shortened attention spans, whereby people rapidly give up if they can't instantly find, access and consume media and information.

Starbucks can potentially create an important out-of-home setting which helps consumers in three ways:

(1) right time, place, and duration: at Starbucks, consumers will often be at a time and place in their day, mentally and physically, in which they'd be open to investing a few minutes browsing and sampling a convenient, non-overwhelming list of pre-selected media fare

(2) merchandising: less is actually more. Whether it's browsing hundreds of television channels, or a massive, cluttered iTunes catalog, sometimes consumers want guidance, opinion and fewer, better choices. This is analogous to the way a boutique or even department store pre-selects merchandise with a brand-related point of view. (More pretentiously, this is often known these days as "curating")

(3) simplicity and convenience: a button or app on an iPhone is an even more convenient way of consuming, say, Starbucks "Pick of the Week" music offer
than a small, physical coupon card and is likely to have much higher redemption rates.

Imagine this notion projected to television programming.

A relaxed, out-of-home setting in which a consumer is in the mood to explore and, often, buy.

A trusted, simplified set of current "trend-setting" offers, spanning an array of channels and shows.

The ability to conveniently store, link to, bookmark or even watch a show which, under other circumstances, wouldn't come to the viewers attention or is easily forgotten and ignored.

A setting in which viewers’ undistracted (or at least less-distracted) interest in new media discovery is made available, often more than once a day, and can set the stage for more in-depth media consumption later that day/evening.

Which cable box does this, again?

Technorati Tags: Television,Media,Starbucks,Yahoo,iTunes,iPhone

While Hollywood Slept?

2010-06-21T16:38:00.005-04:00

The FCC wants US television to give up almost half its over-the-air spectrum. Doing so may end up prying away strategic options that are an important part of Hollywood's as-yet-undefined future. The television industry should take a closer look before it's too late, reframing the debate away from technical matters and "broadband strategy" and towards TV's own future.

Somewhat buried in the Federal Communication Commission's National Broadband Plan is a step to "reclaim" about 120MHZ of the 300MHz broadcasters use to distribute television signals over the air.

Positioned as a technical initiative, the government rationale is to make more efficient use of scarce wireless spectrum in the aftermath of the national transition to digital television. The FCC asserts that, after assorted transmission inefficiencies and spectrum housekeeping are taken care of (station "repacking", antenna reconfiguration, selective spectrum sharing, etc.), broadcasters will be left with more than enough spectrum to deliver their signals.

Even with HD broadcasts, goes the story, with a little left over for adjustments to avoid signal interference, broadcasters won't notice the difference and will be compensated by sharing in the proceeds of a national spectrum auction in which their excess and voluntarily-relinquished spectrum is resold. The reclaimed spectrum would then contribute to overall national broadband goodness by significantly increasing wireless broadband capacity.

In a recently released technical paper, the FCC envisions an aggressive schedule in which rulemaking is concluded next year, spectrum is reclaimed and auctioned to new operators in 2012, and the spectrum is cleared for new use in 2015.

To its credit, one of Hollywood's trade associations - the National Association of Broadcasters - has taken a very skeptical view of this agenda. While politically astute enough to praise the overall National Broadband Plan, the NAB has warily questioned the offer-to-good-to-refuse voluntarism of the proposed spectrum measures. The NAB has raised legitimate, albeit vague-sounding concerns about backward-looking government intervention potentially ill-suited to rapidly changing technology.

There are two major premises underlying the government's position that
broadcasters wouldn't really be giving up anything they needed anyway:

it's not like over-the-air TV is going to grow: multi-channel TV is widely available from cable and satellite and (implicitly) will be increasingly accessible via the internet

Mobile TV isn’t your department: you win by letting others have the spectrum and developing those services

If we were sitting in, say, Bob Iger's or Rupert Murdoch's office, we'd make the following counter-argument:

irreversible? Keep in mind that once you give up/sell-off that spectrum, the chances of getting it back aren't very good. So how about we take the time to think through some potentially valuable uses before being railroaded into relinquishing these un-/underused assets?

who says OTA won’t grow? Maybe. Admittedly it’s late, but why completely rule out Freeview-style initiatives in the US?

what’s the rush? You're in the still-early stages of figuring out how TV and the internet fit together - it's quite possible spectrum in your station groups currently being used for unwatched digital subchannels could be
be used to redefine what a "channel" means and, when combined with simple interactive technologies, become a major means for viewers to discover and engage with an increasingly complex and overwhelming array of programming, both “linear” and internet-delivered

phone guys? you’re kidding, right? Why assume "others" should/would be better at implementing mobile TV with your spectrum than you? Maybe if we were talking about Apple, but phone companies? Cable companies? Qualcomm? Cisco? Their sorry multi-decade track record of technology-centric TV futurism is unlikely to produce meaningful advances that viewers and advertisers will value. Why not have people who actually know and run the television business in charge and contract out technology work instead of vice-versa?

Let's not be in such a rush to "reclaim" spectrum before Hollywood has a chance to stake its own strategic claim to television's future.

Technorati Tags: mobile,tv,broadcast

Revenue Requirements: An Idea Whose Time Has Come… Again

2010-06-09T12:19:00.002-04:00

Eons ago when we were new to telecom, the first time we heard the term "revenue requirements" it struck us as kind of odd and presumptuous. A bit like walking into a job interview and steering the subject right off the bat to "salary requirements."

The term is actually commonplace in a variety of regulated utilities and simply refers to an amount that must be recovered from customers in order to cover costs. As you might guess, such numbers were the subject of imaginative and often mind-numbingly complex cost accounting devices, not to mention regulatory negotiation. And revenue requirements went up, not down.

Of course, "revenue requirements" were about much more than cost accounting. They were a mind set. Combine the notion of revenue requirements with "rate base" and you've pretty much mastered, conceptually at least, the business model of a regulated monopoly. In US telecom, this mind set has persisted waaaaay beyond the official end of the Bell System in 1984.

Along came wireless carriers: structurally separate subsidiaries, largely de-regulated, but whose services remained metered and billed on a minute-by-minute basis. When combined with roaming charges, this price structure led to wildly unpredictable and expensive monthly bills.

In 1998, Dan Hesse blew all that up. Then president of AT&T's Wireless Services subsidiary, he instituted "Digital One Rate", and the flat-rate, minute bucket pricing structure which was rapidly copied by everyone else has governed the US wireless industry ever since. Providing price predictability, eliminating roaming charges, when combined with rapidly declining handset prices, the new pricing plans paved the way for the wireless industry's explosive growth.

Back when the only thing subscribers bought were minutes, carriers began creating pricing loopholes in these minute buckets in order to entice customers their way - "rollover" minutes, "nights and weekend" minutes, "friends and family" minutes, and so on. The good news for carriers: preserving the relative stability of their revenues while "giving away" incremental minutes that often cost nothing (low network traffic at night, for example).

And so a new form of revenue requirements was born. Revenues are mixed and managed across a widening set of service categories, but against a fixed target. The goal is to hold "ARPU", or monthly subscriber revenue, constant by providing an assortment of additional services (texting or SMS, 3G data, family plans, multi-device plans, etc.) which, when averaged out across the subscriber base, yield reasonably stable revenue per subscriber.

The wireless industry kind of stumbled its way into this. Somewhat unexpectedly, declining voice revenues were offset by large and hugely profitable revenues for texting, providing the industry with the breathing room it needed until "real" data (e.g. 3G) services took hold driven by the smart phone wave.

The new revenue requirements model is, essentially, "we don't really care what they buy as long as it adds up to $x, or $y, or $z per month depending on the type of subscriber." And so plans are gradually becoming simpler and fewer, varying by how voice- or data-centric they are, or how "unlimited" they are.

On balance, this is good news for both carriers and (despite grumbling about high prices) subscribers as well. Wireless carriers have largely given up on the distracting pretense that they will be "moving up the value chain." The marketplace wave which includes the Apple AppStore , and Android Market and so on have already taken care of that. By focusing on what they're supposed to be good at – running a communications utility – and getting out of the way of wireless innovation, one can only hope that wireless carriers both improve their service and keep up with the onslaught of mobile data traffic (see somewhat dubious exafloody Cisco forecast).

Technorati Tags: wireless,mobile,telecom

The Man Who Invented Television

2010-05-11T14:40:00.001-04:00

In 1949, S. L. “Pat” Weaver joined the National Broadcasting Company as vice-president of television. In addition to innovating a broad range of programming, including Today and the Tonight show, strips which continue to anchor morning and late night dayparts at the network today, he created broadcast television's business model.

When television began in the US, experimental prices for TV time were set in reference to what national radio shows could command, but rapidly became more expensive as television audiences mushroomed.

In fact, early television rapidly threatened to become a victim of its own success. A 1941 pilot of NBC's Truth or Consequences was priced at $120 for an hour of evening prime time. By 1948, a comparable hour sold for around $11,000, by 1951 it was $35,000, by 1956 almost $70,000. By 1954, television broadcaster revenues had gone from negligible to overtaking all of radio, in little more than a decade.

The combination of ever-escalating programming costs (higher production values, more expensive talent, etc.), increased audience expectations, and advertisers' rush to the new medium, all rapidly drove up the price of television airtime. This meant fewer national advertisers could afford the single-sponsor programming model. More ominously for the still-emerging TV business, the more dependent broadcasters became on a small handful of big-spending sponsors, the more the entire programming and broadcasting business model could be controlled by a few powerful advertisers, not the new industry itself.

The Google of its day, in the sense of innovating the industry model for advertising in the new medium, was the National Broadcasting Corporation, partial predecessor of today's NBC Universal unit at General Electric. NBC, specifically Weaver, figured out as early as 1949 how to break the logjam by replacing full sponsorships with alternate arrangements by which companies shared costs from week to week. For example, Philco and Goodyear shared Sunday nights between 1951 and 1955.

From there – and this was the strategic insight – Weaver moved to what he called “participative advertising” in a “magazine format.” This is the structure we know today in which broadcasters or independent producers offer up programming into which a broad array of advertisers insert short commercials. This new structure had several important advantages: it further enlarged an already-growing market by enabling many more sponsors to bid for more affordable slices of advertising, and it shifted the balance of power away from single sponsors and ad agencies back to the broadcaster.

Weaver was also alert to the consequences of a transformational shift away from radio to television. In his memoirs he described it this way:

“Though NBC Television was now operating at a profit, the revenue wasn’t even remotely sufficient to carry the entire network. We were sharply aware of the danger that radio might die before television became big enough to replace it…
“We stressed the fact that radio and television were complementary media. They needed each other. You could advertise on a TV hit that millions of radio listeners would never see. To reach a complete audience, you had to advertise on both.”

Weaver's creativity and growing fame led to increasing conflicts with David Sarnoff, Chairman of NBC parent RCA. Weaver was ultimately ousted in 1956, but not before he had established broadcast television's programming and business model as we still know it today.

Goodbye Android, We Hardly Knew Ye

2010-05-01T19:33:00.001-04:00

Well, it seemed like a good idea at the time.

AT&T service remains as much of a non-starter as ever, iPhone or not, but with Verizon announcing a new HTC Android phone, and with our growing restlessness to move on after a decade of Blackberry, it seemed the moment had come.

And to top it off, we found an opportunity to combine our personal “end of Blackberry” anecdote with a breezy segue into how Google (also via Android) is moving into TV-related devices.

Oops.

Three days later, our HTC Incredible is on its way back to the Verizon Wireless shipping center for a refund. Other than the blazingly fast web surfing, we were left speechless by how bad the user experience was. Since we also own an iPod Touch, the Android experience reminded us of the early '90s ad campaign from Hertz, where the understated punch line about the quality of competitors’ service was (relative to Hertz), “not exactly.”

To give you a small taste of what “the problem” is, let’s take the simple use case of making a phone call.

Touch the phone icon embedded in a touch-screen three button arc-shaped icon at the bottom of the home screen immediately above the hard-wired home, menu, back, and search buttons on the bottom of the unit
Look at a display list of contacts that you have recently called or called you which blends (apparently when the list starts over again alphabetically) with your regular contact list in alphabetical order
In the middle of the screen is a bar directing you to ‘enter name or number Tap to see smart dial tips’ with a vertical bar and left-pointing arrow on the right. Beneath the bar is a phone keypad for dialing. Below that is a grid-like icon, a big green ‘Call’ button, and another icon which is a box with a slanted phone receiver
Since I have over 1,000 contacts, scrolling through the list alphabetically to find who I’m calling isn’t the greatest option. So hit the hard-wired ‘menu’ button below the touch screen and up pops (covering up the bottom part of the phone keypad) a set of icons: people, speed dial, phone settings, call history, tips.
Touch ‘people’ and up comes the contact list again. Then touch the hardwired search (magnifying glass icon) and up pops a new contact list including Google account contacts that weren’t previously displayed, a search box at the top and a qwerty touch keyboard on the bottom

At that point you’re getting tantalizingly close to being able to make an actual phone call. Or on the Blackberry, hit the green ‘phone’ button, up pops a screen, start typing the contact name until it appears, and then call.

The larger Android experience (i.e. using email, SMS, generating speed dial lists, etc.) put us very much in the mind of Louis Menand’s classic take-down of Microsoft Word. We too, with a slip of the finger on the touch screen, found ourselves experiencing a journey through a wormhole, much like Menand on MS-Word keyboard slips:

“Strike the wrong keys in Word and you are suddenly writing in Norwegian Bokmal (Bokmal?). And you have no idea how you got there”

We have only ourselves to blame, having bought the thing sight unseen, pre-ordered over the Verizon website. In hindsight we made three major mistakes:

relying on technical reviews: Reviews in the geeky, but mainstream, sources, like engadget, ZDNet sounded reassuring. We don’t fault these detailed and comprehensive reviews for technical inaccuracies, but when it comes to actual utility and user experience they seem to have completely lost the plot.

relying on the Google brand: We thought, naively, that there’s some sort of Google housekeeping seal of approval implied with these devices. That the somewhat quirky but simple and useful style of Google’s web apps we use on a daily basis (reader, notebook, docs, whatever) would manifest itself in Android.

thinking others “get it” already: During Apple’s translucency and colors phases of Mac design, Dell and HP slapped colored plastic housings on their PCs in a pathetic effort to ape the trend. Or as the Mac OS progressed, Microsoft came out with … Vista. It’s clear that iPhone-“like” functionality still isn’t. Or at least, not exactly.

So, surely the Verizon Wireless iPhone will become a reality this year? Please?

Technorati Tags: android,iphone

Google Everywhere: Android Meets “Dancing With the Stars”?

2010-04-28T20:42:00.001-04:00

We finally abandoned the Blackberry in favor of an Android phone. Our decade-long Blackberry experience dates back to the era when they weren’t phones, used a simple, reliable national Mobitex radio network, and had basic textual email.

Like the Zenith four-button television remote of yore, the old “black brick” Blackberry was simple, reliable, and durable. It ran on AA batteries you could buy at midnight at any convenience store, and was very easy to use.

Over the years, the software and the device merged with the cell phone, accreted more complexity, poorer performance, an ever-changing and incompatible set of expensive accessories and, almost imperceptibly, morphed into an outright disappointment.

The iPhone was the watershed product which reset customer expectations about what a smartphone “user experience” should be. It brought music and media to the handset in a big way and revolutionized feature customization via the App Store. By contrast, RIM’s leadership in important but more boring functionality (security, encryption, and server-synchronized push email) had eroded, partly in perception, partly in reality.

Android devices, the iPhone, and (to a much lesser degree) Windows Phone handsets define the benchmark for today’s expected high-end smartphone functionality. Depending on who you believe, iPhones continue to account for the vast majority of US mobile data traffic, or not. Either way, it’s clear that both Android and iPhone families of devices are the preponderant platform for the foreseeable near-to-medium term future.

Which brings us to Television Everywhere – the general rubric for letting you watch what you want, went you want, wherever and on whatever device you want.

The same Blackberry-like annoying yet imperceptibly gradual creep of complexity and dissatisfaction has infiltrated the TV-watching experience, in lock-step with ever more grandiose cable- and satellite-delivered “digital viewing experiences.” Now, unintelligible 60-button remotes are the norm in a cluster of three or four strewn on the living room coffee table.

Google recently revealed Google TV, a set top box experiment using their Android software platform. Its apparent aim is to deliver and integrate an array of video sources for viewing in the living room. Who knows if anything will come of it, or whether it will fare much better than Apple’s disappointing television offer. What Apple and Google are doing to redefine the handheld communication experience can potentially redefine television as well. There are several points worth considering when thinking about the potential effect of Android, Apple et al on media distribution and consumption:

changing media consumption without altering distribution: plain old TV watching is itself already way too complicated in a 400-channel universe. The new generation of open (compared to cable), multi-device software platforms like Android have the potential to completely reshape how viewers interact with a range of commercial video sources, regardless of how the signal or programming is actually delivered. Barely a third of US television households have DVRs and, we’d argue, about half of those have no idea how to use complex advanced filtering and organizing features. Imagine instead simple and consistent “apps” on handhelds, set top boxes, netbooks, etc. which enable viewers to make sense of the sources of programming they already have from any of the devices they have.
popular platforms beget applications: these platforms bring not only a growing array of supported devices and rich user interfaces but a marketplace of independent application innovation – think of it as “crowd sourcing” with some rules and structure. There’s a higher likelihood of innovating TV-relevant apps vs. legions of cable set top engineers continuing to bang away at… whatever.
reconnecting with the viewer: studios, show runners, etc. have become increasingly distanced from their audiences as television distribution has fragmented over the last several decades. Even channels, their brands eroded, their identities more confused, have a weak and diminishing role in organizing viewing behavior and loyalty. Hulu notwithstanding, the new generation of multi-device software platforms could enable Hollywood to play an important (and we would argue leadership) role in TV’s evolution. Studios’ content ownership combined with new, simple (“there’s an app for that”) technologies could enable the television industry itself to take the lead and modernize television viewing, while extending linear television’s economic life well into the future.

US Mobile TV: Destination Unknown

2010-04-19T09:50:00.000-04:00

“The 12 major TV station groups that announced plans on Tuesday to form a joint venture to pursue the mobile DTV business envision a national service of at least 10 mobile channels and possibly many more.”

At last week’s NAB 2010, something called “Pearl Mobile DTV Co., LLC” was announced. As best we can tell it appears to be a serious, if still very amorphous, studio- and station-led initiative to bring mobile television to the United States.

Today there is an obscure form of mobile TV in the US that virtually no one uses. Marketed by phone companies, Qualcomm’s Media FLO uses a slice of the old UHF television spectrum to deliver a few diluted (time-shifted) channels to hand held devices that have air interfaces to both the TV and respective 3G networks. Qualcomm acts as a programming aggregator and distributor and provides the overlay network infrastructure. Structurally, it’s a bit like the still-born phone company TV consortia of the early ‘90s like Tele-TV or Americast – big ambitions, lots of capital, negligible market traction.

Pearl Mobile might signal the beginning of something viable and different for US mobile television in two important ways: (1) putting people and assets that are actually in the television business into the mobile drivers seat, and (2) putting to rest in practice, not just in theory, the technical question as to which national standard the US mobile TV market will rely on and what spectrum will be required.

The Pearl consortium idea relies on station groups contributing spectrum they already have from digital subchannels no one watches anyway. A slice of that spectrum is allocated to mobile TV, under a standard directly related to the US digital technology which just recently replaced analog TV. Television stations themselves would distribute and broadcast programming.

In a way this model only deepens the intriguing mystery of what, if anything, mobile TV is to become in the US. In Japan, for example, mobile TV penetration has crossed 50%, so television’s net audience reach and time spent viewing have increased. The economic benefits have gone to handset manufacturers, a little bit to advertisers (higher reach, but regulatory restrictions constrain additional mobile advertising), with wireless carriers being excluded. In the US the mobile TV “answer” could simply be the same as in Japan: make the audience bigger, increase out-of-home linear TV viewing time.

But the most interesting long-term answer to US mobile TV would be a combination of bigger audience reach combined with the capabilities of always-in-hand, smart devices to organize and manage TV watching, regardless of the end device. To, in other words, turn watching television into an application, not a passive, hit-or-miss experience in a complex 400-channel multi-device world.

Hulu’s Big “Surprise”

2010-04-01T16:53:00.001-04:00

In a New York Times interview, CEO Jason Kilar let it be known that Hulu is already profitable as it heads into its third year.

For some time, the prevailing view has been that Hulu would never quite scale, never quite get the revenue split it needed, never quite crack the ad problem, etc., and that subpar performance in those and other areas would inevitably consign it to being a marginal undertaking delivering… yes, digital dimes.

Of course, part of the point of having Hulu at all has been as an experiment to see whether, like the bumblebee aerodynamically "proven" not to fly, Hulu might defy traditional calculations and begin proving out an early-stage economic model for internet-delivered, commercially-mainstream video content. This it has done. At Business Insider Henry Blodget does a nice job (with a needlessly apologetic title about eating crow) of itemizing five of the things at Hulu that went better than one might have expected.

We've never believed the "digital dimes" story, and are in less of a rush than most to call the question as to whether Hulu, or commercial online video generally "wins" or "loses." Based on what we've learned so far (and we hope Hulu will disclose more), we continue to see Hulu as an evolving, increasingly-successful experiment, a big plus for Hollywood, and a platform that could protect or even increase traditional TV viewing in addition to supplementing it.

In a short series we did a while ago (the Myth of Digital Dimes) we asserted that digital's problem wasn't really profitability, but scale. Hulu, despite it's success, is still tiny compared to real television (something we pointed out here with three big fat charts showing unequivocally how huge and still-healthy linear TV is.

Based on our forthcoming book (Television Everywhere: How Hollywood Can Reclaim the Internet and Turn Digital Dimes into Dollars) we'll shortly lay out a case for why Hulu is actually a central tool for sustaining linear TV in the internet era, what those combined economics might look like, and how linear and digital scale can be more effectively combined.

Stay tuned...

The Myth of Digital Dimes (Part 3 of 3)

2010-01-20T14:31:00.000-05:00

So far we’ve shown that the digital threat to television is a good deal more distant (Part 1) than ‘experts’ are saying or at least implying. And that threat is very much under Hollywood’s control as they continue to be firmly in charge of content rights. Whatever dollars-to-dimes problem television’s been having has been with us well before the internet in the form of audience fragmentation (Part 2) across a now ~400-channel universe.

The real story remains how cable (hundreds of channels) stole so much broadcast network share. Big Media long ago accommodated itself to this reality by ensuring at least some ownership of both broadcast and cable content, whether at the studio or channel level, or both. And the proposed Comcast/NBCU deal is simply the latest and largest step in that direction.

Despite their substantial decline, broadcast networks are still kings or at least tarnished princes of audience delivery, with reach rarely matched by even top cable channels. Michael Wolff put it aptly in a passing remark during the Conan/Leno drama:

“Networks get you the attention of the nation (true, much less attention than they used to get you, but still the most you can get).”

Oh, and by the way, in the eight-year period before the economic meltdown, weekday primetime broadcast CPMs more than doubled. Boo hoo.

Let’s quickly dispense with where we are today on digital revenues and their impact up or down. It’s complete noise.

Here are two examples – look at the web impact on two shows: CW’s ‘Gossip Girl’, and NBC’s ‘The Office’.

‘The Office’ is mainstream, top-tier broadcast fare, ‘Gossip Girl’ a niche hit with buzz disproportionate to its actual ratings though, to be fair, this one really is a hit “in the demo.” For the “web-equivalent” ratings of an episode we did simple arithmetic on the number of minutes viewed and number of unique viewers. For the revenues we guesstimated CPMs based on our ratings chart and some old prices we have for actual shows – so NBC made around $2.5M per broadcast, CW less than a tenth of that.

We don’t even bother displaying estimated web revenues since in both cases, with audiences so tiny, they would be less than a thousand dollars.

How about some numbers showing what digital could look like if it were a lot bigger and could make money? Would it in fact cannibalize linear TV and turn gold into lead? Let’s assume that:

real “cannibalization” would mean a defection of, say, 25% of the linear audience to digital viewing (20-50x more than today)
linear erosion is much more likely in lower-to-mid-tier cable fare which has smaller/more fragmented audiences
such an audience is likely to be more digital-friendly (affinity between geek/”enthusiast” genre shows, for example, and digital viewing).

In this case dollars don’t turn to dimes, but as the audience shifts from linear to web-based viewing, we incur a net loss of about 12% of our revenue mainly due to lower commercial loads and a conservative view of web-based CPMs (optimists see them being ~2x linear at comparable scale due to higher “engagement”, etc. – we ignored this).

But digital doesn’t exist solely as an alternative option to full-episode viewing. Much, possibly most, of the digital viewer activity will be ancillary views of clips, highlights, etc, whether or not there is any actual defection of linear/analog viewing. So in this example we gain an additional $60K or so.

So the net effect of a massive audience shift even with the CPMs, commercial loads, and incremental clip viewing behavior that prevails today is… a 3% revenue loss.

While we used an underlying model (i.e. the sample segmentation) for looking at audience shifts, at the end of the day this is all just back-of-the-envelope stuff – we don’t want “3% revenue loss” to falsely imply precision when none exists. The real take-aways are:

once you deconstruct the numbers, it’s very difficult to create credible alarmist scenarios of the television business imploding. Long-term erosion – yes. But that’s a story for another day.
As an incremental medium, especially for different viewing behavior digital economics can be a godsend, not a threat. The folks at, say, Discovery, seem to have figured this out a while ago.
Digital’s unexploited value (much more on this theme to come in future posts) is in keeping viewers and getting new ones for the linear TV we have today.

We’ll leave to the futurists and other specialists in the “Death of…” genre as to when linear TV is going out of business. Suffice it to say that it could easily be 2020 before material shifts in audience behavior – shifts perhaps even big enough to warrant the cliché “disruptive” – make themselves felt. The economics of the business continue to suggest an incremental, three-way tug of war. Channels and cable systems will keep trying to have their cake and eat it, while digital distribution partnerships (e.g. Hulu, Netflix) walk on egg shells trying to expand their libraries and their customer base, experiment with a mix of pricing and revenue ideas (ads, a la carte, subscription), all the while hoping to build their negotiating leverage as a next-generation content distributor.

In the meantime, it’s probably best not to count on internet competition driving your cable bill down any time soon.

The Myth of Digital Dimes (Part 2 of 3)

2010-01-18T14:36:00.000-05:00

"We can't replace analog dollars with digital pennies."

Jeff Zucker, CEO of NBC Universal, summarized the conventional view of the internet’s threat to TV about as succinctly as possible back in 2008. By March 2009, in part thanks to Hulu’s success and NBC’s part in it, he’d amended his remarks, replacing “pennies” with “dimes.”

In Part 1, we explained why dollars vs. dimes is a false choice and, even today, with “digital” viewing at 1% or less of linear television, an exaggeration of the economic gap.

Here in Part 2, we look at analog dollars in more detail to demonstrate that the starting point, the “dollars at risk” come in manageable but highly fragmented, chunks. So while television's overall value proposition - mass audience reach - remains solidly in place, it's worth looking inside the black box to see what mass reach means. It rarely means a 31 rating of Tuesday's 'Idol'. Those sorts of ratings are neither the industry norm, nor are they an accurate portrayal of what digital might be “replacing.”

Instead a single-digit primetime ratings average is common (see ‘Audience Tiers’), with the majority of cable channels tailing off fairly quickly into the few hundreds or even tens of thousands of primetime viewers. For purposes of our discussion here, we've divided audience reach into three tiers: half-a-million and under (<0.5 rating), between half a million and one million (>0.5 <1.0), and above one million (1.0+). We’ll use those same tiers and compare them to ad pricing (CPMs) typical for that kind of reach.

By channel count, the vast majority of the 400-channel universe is in the first tier – half-a-million or below. All three tiers produce analog dollars but clearly you'd like to be in the middle or top tier because your ad rates benefit from the scale you deliver. Multiply that by the substantially greater audience reach at the top two tiers and you see the economic role of scale in analog dollars. He who has the biggest audiences wins. The combination of the two charts also explains, by the way, why you see enormous quantities of “paid programming”/infomercials during undesirable or near-remnant dayparts on low-rated cable channels. Shamwow!

Connecting the audience tiers to the ‘TV Ad Pricing’ chart helps you understand that the vast majority of channels combine modest ratings with CPMs well below the rough broadcast network average of $25. The thin slices on the left of the CPM chart align with the bottom two audience tiers in the chart above it. This matrix is where reality is for most of Hollywood, most shows, and most cable channels. This reality is well within the economic range of complementary digital dollars, not dimes, as we’ll demonstrate in Part 3.

To the extent that analog dollars have been turning into dimes, it’s largely because the particular linear shows or channels have failed, not because of any digital “replacement.” Low-rated broadcast network channels (ahem, NBC) with comparatively high programming costs do not compete profitably with cable channels that have significantly better cost structures, are free from the burden of O&Os, enjoy plenty of carriage fees, and much lower programming cost per minute.

In Part 3, we’ll look at the economics of “digital” with respect to the daily reality of modest audience tiers and CPMs – both to debunk the threat, but more importantly to begin understanding how digital economics have a constructive role to play.

The Myth of Digital Dimes (Part 1 of 3)

2009-12-09T14:38:00.000-05:00

"We can't replace analog dollars with digital pennies."

But the point remained the same: “digital” would shift audiences, and therefore advertising dollars, from a still-profitable medium to a different one of unknown, but likely much lower future profitability.

In fact, dollars vs. dimes is both a false choice and a bit of a myth about the comparative economics of linear TV vs. digital. It is also an unhelpful distraction from the real ways in which the internet can be used to strengthen today’s linear television industry.

It’s a false choice because commercial TV isn’t like newspapers where something paid for is easily replaced by something identical or better, and free. Internet-delivered commercial TV, while more convenient than linear programming time-shifted with DVRs, is still far from identical or superior to the real thing – Hulu has a growing library but comparatively few shows and notably very, very few in-season, full episodes.

It’s largely a myth because most run-of-the-mill “analog” TV programming isn’t gushing dollars like ‘American Idol.’ And commercial TV’s digital ads sell at very respectable unit prices with every prospect of significant price premiums for superior demographics, sharper targeting, and greater measurability as the digital audience gradually grows and programmers get a better handle on what do.

So, in television today any gap between analog and digital is one of dollars to, in a worst-case scenario, somewhat fewer dollars. Not pennies. This (smaller) gap’s existence is due not to some inherent “Law of Digital Economics” but to a few practical factors and conditions which prevail in the television business:

It ain’t all ‘American Idol’: Implicit in much of the dollars-to-pennies imagery is a wildly misleading contrast between say, News Corp.’s entire revenue stream from ‘American Idol’ versus the ad revenue from running pre-roll commercials in a YouTube video of dancing cats. Let’s concede that anything with a double-digit rating (i.e. 10+ million viewers) is a non-starter for today’s digital TV to come even remotely close to. YouTube, Hulu, whatever, simply can’t yet aggregate audiences for a specific program at a remotely comparable scale. But that’s a rarified case combining winning broadcast networks (e.g. CBS, Fox), and/or highest-reach cable channels (e.g. USA, TNT, ESPN), day parts (primetime), and shows (e.g. Idol, NCIS, etc.). Take out the top ten broadcast and top ten cable shows and you have thousands of hours of programming where digital can be competitive and/or complementary, not cannibalizing.

Digital is small because it’s, well, small: Most people watch linear TV. On a per capita per month basis, linear beats internet TV by one hundred times, as our Time Spent Viewing chart indicates for even young demographics. That sort of gap will easily take a decade to change materially. But, what digital lacks in scale today, it can partly compensate for in per viewer and/or per minute value. Whoever can increase its scale even modestly will uncover a gold mine. Much of today’s linear TV aggregates audiences at a scale where digital can capture incremental, “linear-averse” audience segments, and make a very material contribution to profitability.

Television Everywhere, internet TV, whatever you’d like to call “digital”, is a strategic development, just not an economically meaningful one as yet. A still tiny digital audience is not yet capable of inflicting actual economic damage on thousands and thousands of hours of programming spread over a ~400-channel linear television universe.

It may become a strategic threat to today’s TV (largely depending on how Hollywood chooses to handle it), but is still far from turning anyone’s dollars into pennies, and is likely to add dollars to the existing television business in the medium term.

In Part 2, we’ll take a look at how audience tiers and ad revenues line up in the day-to-day (i.e. non-‘American Idol’ ) world of the television business. In Part 3, we’ll look at a digital “case study” and see how analog dollars today, under the worst-case conditions could result in fewer dollars, but why that is in fact unlikely.

Comcast/NBCU: Are Those Dimes Really Digital?

2009-12-09T11:56:00.000-05:00

Commenting on internet TV in 2008, Jeff Zucker famously remarked "We can't afford to turn analog dollars into digital pennies." By March 2009, he'd relented a bit, saying "I think we're at digital dimes now."

In The Myth of Digital Dimes (Part 1 of 3), we began looking at today's digital economics and asserted that the "dimes" problem is:

exaggerated: it’s about dollars to somewhat fewer dollars
varies depending on the kind of TV, essentially the ratings tier, we're talking about
is less of a “problem” and more of a medium-term, smallish, profitable, and complementary-to-linear TV business with big picture future still to be determined.

In December 2009, Comcast and NBCU management held the obligatory joint press conference and investor presentation celebrating their proposed deal. Included in their charts was another reminder of the economics of televisions' winners and losers. Very roughly: broadcast a bit more than a third, and cable a bit less than a third of the pie, but cable provides eight times the cash flow.

It's a handy chart because it provides a straightforward snapshot of two extremes - a last-place broadcast network and a rich mix of cable channels - with some presumed scale/cost advantage by being under one roof. If you combined NBCU's declining performance over the last several years with Jeff Z.'s grumbling about "digital" badness, it's almost understandable that you might accidentally attribute NBCU's declining fortunes to things much more internety and complicated-sounding than a losing broadcast network.

So once again we're reminded that broad generalizations about today's television business (it's "dying", or digital "dimes") need some calm deconstruction and inspection. As we enter 2010, it remains the case that:

television is the most popular and still growing mass reach medium
internet video is growing extremely rapidly, yet remains an economically (vs. strategically) negligible factor in the business so far
winning broadcast networks are highly profitable
a good mix of even mid-tier cable channels is highly profitable
mid-tier cable channels in particular have attractive near-term opportunities to enhance audience retention and program profitability by exploiting internet TV

Television Everywhere = Application + Segmentation (Part 2 of 2)

2009-11-23T18:48:00.000-05:00

Television Everywhere - the term now in vogue for internet-delivered TV of various sorts - is making the already-complicated experience of watching TV in a 400-channel world even more so.

In Part 1 we described the reality that underlies the viewer experience in a world of vast channel and program oversupply. Television has morphed from a simple and passive experience to being an application with six elements, each of which creates opportunities to help viewers get what they want, and for suppliers to do better in reaching audiences.

That was the "application" part. In what are still early days for internet-delivered TV, viewer behavior (and audience attractiveness for advertisers) is far from uniform. So whether it's helping viewers find what they want, and advertisers reach audiences, one size won't fit all.

We built some simple models exploring the potential economics of Television Everywhere, and in doing so used a simple segmentation of viewing behavior. Among the two most important variables for looking at "digital" viewing behavior and its economic potential are:

Viewer involvement: what proportion of a viewer's time is spent in digital vs. linear viewing
Format preference: does the viewer use the internet for short clips, highlights, and summaries or watch longer-form units of content?

So in our illustrative segmentation we have a framework with four quadrants that blend the two dimensions above.

So far, we've used the segmentation framework primarily to look at scenarios of future economics - the so called "analog dollars to digital dimes" question. And so, we posited viewing rates by format type, absorption rates of viewer demographics into different segments to calculate hypothetical displacement of time-spent viewing meshed with CPMs, etc. A host of semi-wonkish things that consultants and audience researchers might do.

But back to our Part 1 "Applications" idea, there are a couple of simpler points to make. If viewers are going to get help re-engaging with TV, and suppliers want to help them, it's worth thinking about the behavioral aspects of this sort of segmentation.

For example, 'Casual Snackers' may want only the simplest of lightweight tools to help them survey popular genres across a small number of internet-based TV sources. Whereas, 'Loyal Pod Viewers' may want much more sophisticated and frequently updated notifications of new content postings across many more programming categories. Viewers using the internet as a 'TV Substitute' are highly loyal to the medium and may want more collaborative-filtering style recommendations for long-form content, akin to what they may be used to enjoying today on Netflix.

Or not.

This is all going to be an experiment, but the point is that audience research teams, and streaming content site development should think at least in part about differentiated viewer segments and their requirements. The last thing we need are more players piling in on translating "God box" thinking of cable set tops into Web 2.0, or iPhone tools.

Today's 400-channel universe and the emerging Television Everywhere world have one thing in common - oversupply. The competition for viewer attention will continue to increase and pressure on television's most fundamental value proposition - mass audience reach - will intensify. Suppliers that provide "application"-like tools, targeted at or tuned for different viewer segments will outdistance those who don't.

We'll be exploring this and much more in our forthcoming book "Television Everywhere: How Hollywood Can Take Back the Internet and Turn Digital Dimes Into Dollars"

Television Everywhere = Application + Segmentation (Part 1 of 2)

2009-10-13T21:41:00.000-04:00

Television Everywhere - the term now in vogue for internet-delivered TV of various sorts - is making the already-complicated experience of watching TV in a 400-channel world even more so.

In both the 400-channel world and the internet world television viewing has moved beyond flopping down on the couch, grabbing the remote and watching something. Not that people don't do that all the time - more than ever in fact. But for regular (or so-called linear) television viewing there's a lot that leads up to grabbing that remote, a lot that's needed to keep the viewer on that channel and return episode after episode.

In the internet world, it's the same, only more so. Like it or not, watching TV has for all practical purposes turned into an application with six parts:

Discover: making a potential viewer aware of a program. This is done via anything from promos and interstitials to ads on the side of a bus.
Find: getting the viewer to actually locate an "airing" of a program across whatever delivery format he/she would like or has access to (linear, VoD, DVR recording, internet stream, etc.), and thus turning a general, often vague awareness of a program into the actual intent and ability to watch
Engage: at minimum, actually watching. At maximum, the sky's the limit: sharing with friends via Facebook, buying related merchandise, texting votes about contestants, you name it.
Organize: making it possible for viewers to organize, schedule, manage, prioritize, and otherwise control their viewing - and this is key - regardless of medium. So whether on Hulu, YouTube, their cable system, over-the-air, on the “phone”. Preferably this is an active capability - it schedules it for you, reminds, you, saves it for you, whatever.
Retain: at the end of the day, if a viewer doesn't like a show, he or she won't keep watching it. Or if the show's a 'Mad Men'-level cultural phenomenon, viewers will find a way to keep watching without much prompting. But the vast majority of TV falls into the grey middle between love it or hate it. The better suppliers do at "Engage", “Find”, and "Organize" the better they will do at viewer retention. But it also involves occasional and creative communication to retain interest. And motivation (below)
Reward: When it comes to rewards, TV has two things going for it. People appreciate rewards in the form of more TV and less commercials ("watch tonight's 'No Reservations' and get a one-day unlimited pass at Hulu Premium Edition"), and those rewards cost very little (vs., say, inserting a breakfast cereal sample into a Sunday paper delivery).

Today's 400-channel universe and the emerging Television Everywhere world have one thing in common - oversupply. The competition for viewer attention will continue to increase and pressure on television's most fundamental value proposition - mass audience reach - will intensify. Suppliers that treat TV watching as an application, not a passive and distant form of consumption, will be able to outdistance competitors who don't.

We'll be exploring this and much more in our forthcoming book "Television Everywhere: How Hollywood Can Take Back the Internet and Turn Digital Dimes Into Dollars"

Garbage Moguls

2009-10-01T20:14:00.000-04:00

Recently, Bruce Greenwald, Jonathan Knee, and Ava Seave published “The Curse of the Mogul: What’s Wrong with the World’s Leading Media Companies”.Interesting reading and perhaps we’ll discuss some of their key theses later on.

In the meantime, however, I’d like to relate a much more pressing, if modest mogul-related anecdote of my own.

While flipping by some channel (thought it was Planet Green, but it turned out to be National Geographic), I saw a few tail minutes of Garbage Moguls. I looked up the name, and was directed to the National Geographic website where an apparently not Chrome-friendly page displayed a largely blank screen.

Thwarted from viewing even a clip, and too lazy to try firing up a couple of other browsers on an already-slow laptop, I moved on to YouTube (a mental flip of a coin vs. Hulu, YouTube won).

At the top of “results 1-20 of about 29” were the only two entries that actually related to the show, as far as I could tell. I watched some of a 2:40 clip, then looked around for actual shows. In the right hand column (“More From: National Geographic”) was helpfully listed “Exploring Oceans: Patagonia” which, as far as I could tell, had absolutely nothing to do with the show I was originally looking for.

Ah, but I noticed near the top of the page a tab-like thing labeled “Shows”, so there we went and did our search again. Oops. “Limited results available in Shows.” So limited in fact, that the two entries that were offered had absolutely nothing to do with what I was looking for.

I think you get the point. This isn’t about bashing YouTube, or NatGeo, or the show that I still haven’t found or watched. It’s about the fact that I, like many viewers, am not going to go to multiple different websites, navigate through three to five layers of menus, hunt and peck my way through a TiVo menu that can only look ten days forward, etc. etc. etc., just to find something that seemed like it might be interesting for future viewing.

And while it’s certainly worthwhile pondering whether “content is still king” and other weighty strategic matters, it’s also worth pondering why an industry that often sees itself under siege or potential distress has so little respect for or interest in its viewers and advertisers, to the point that someone actively trying hard to engage with recently discovered content is thwarted at every turn.