Although based in Silicon Valley, Solar City does not manufacture electronic components. Instead, it installs photovoltaic panels much like thousands of local electrical contractors around the country. Goldman would have been no more likely to accept Solar City as a client than any such contractor but for two exceptions.

First, Solar’s “financial engineering” is the investment banking equivalent of OxyContin. Ultimately it is every bit as addictive and equally destructive. Specifically, SCTY vigorously promotes lease financing that (1) enables homeowners to avoid a down payment and (2) is structured in a manner to optimize tax and rebate incentives for investors providing the financing. For example, earlier this year Morgan Stanley sold investors $300 million in a fund used to provide such financing. For starters, investors get a 30% Federal tax credit as well as applicable utility rebates authorized by various state and local governments. The conventional interest rate return implicit in any lease is icing on the cake.

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Second, Solar City is well connected in Silicon Valley.  Elon Musk who was the founder of PayPal and current CEO at Tesla Motors is the Board Chairman. Draper, Fisher leads a group of venture capitalists who invested almost $500 million before the IPO.   

Since an installed solar panel array can cost $25,000 – $50,000 the “nothing down” option tempts consumers seeking to immediately lower their monthly electric bills. Yet typically the lease obligates them to a 15 – 20 year monthly payment that increases about 3.5% annually. Moreover, since the leased rooftop array is owned by the investors instead of the resident, home resale can get snagged if buyers don’t not want the array, or desire to repair or upgrade an aged roof.

In short, Solar City may be the first of a wave of companies that casual investors falsely assume to be technological leaders but are actually little more than finance companies. They shall resemble the computer-leasing craze of the 1960s. During that era companies such as Leasco Data Processing, Dearborn Computer, Randolph Computer, Data Processing & Financial General, Computer Investors Group, and Continental Computer sometimes reached triple digit stock prices merely by purchasing IBM mainframes and leasing them to the end users at moderately lower rates.

Their principal method of reporting profits was the use of 7 – 10 year depreciation schedules as opposed to the 5 years that IBM applied to identical models in their own customer rental base.  In the present day of ubiquitous personal computers, readers can readily perceive the absurdity of an assumed 7 – 10 year useful life for any equipment subject to Moore’s Law of semiconductor progress and implied equipment obsolescence. As a corollary, Solar City’s leased panels are typically depreciated over 30 years even though leases are only 15 – 20, and photovoltaic technology over the next 30 years is difficult to predict.

Nonetheless, in the 1960s computer leasing stocks were temporarily all the rage. While still under the age of thirty, Leasco’s CEO used company stock to acquire Reliance Insurance, which was a prominent old-line Philadelphia company. Such a development galvanized Wall Street pushing Leasco’s stock to $140 per share when the CEO attempted to acquire Chemical Bank in a share exchange transaction. Such audacity sobered the established financial community with the result that the nascent industry found it hard to access new capital. The stocks lost popularity and were typically taken private a decade or so later at values only a small fraction of their late 1960’s stock prices.

As Will Rogers put it eighty years ago, “You can’t have a picnic if the party carrying the basket doesn’t show up.” If the Federal budget crisis is genuine, perhaps the Government will stop bringing the basket for Solar City.

For example, if I want to interview a Digital Media expert at a conference I am attending, the iPhone is an ever-present tool for recording the interview so that it may be released later as an audio podcast. Alternately, I may simply want to record the interview to be certain I don’t miss any key points when I later might choose to write a summary of the interview.

Even in college it was difficult for me to keep notes synchronized with lecture commentary. I simply could not write and spell fast enough to keep up. Thus, a voice recording is a great option and the iPhone is a handy tool.

Apple provides its own App for iPhone voice recording. However, it is not easy to get the recording off of the phone and saved on my computer for later editing. Thus, I have chosen a free App from Griffin entitled iTalk. Today’s video podcast demonstrates how iTalk works. There are two steps.

First is to download the iTalk App to the iPhone. Second is to download a separate program, called iTalk Synch, to the computer. The purpose of iTalk Synch is to transfer the recording from the iPhone to the computer, which it does via WiFi.

The iTalk App works consistently as advertised on the iPhone. Unfortunately, iTalk Synch sometimes is unable to “locate” the phone or transfer the recording. I had to restart the computer on a few occasions to get iTalk Synch to do its job. Since I have an iMac the restart procedure is not nearly as annoying as it is for a Windows machine that can take five minutes, or more, to restart. Nonetheless, even on an iMac the restart procedure is grating because it should not be necessary.

I question whether the six percent figure is valid.

The reason I doubt it is because the Dow Jones appears to be a “rigged” Index. Furthermore, all indexes seem to be similarly “rigged” for two reasons.

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Frist, many of the most popular stocks during a speculative boom that later go bust, never get into the applicable index.  Two examples are National Student Marketing and MP3.Com each of which once traded at over $100 per share. Both were popular with “performance” mutual funds, which means a great many investors were indirect shareholders. The endowment funds of the University of Chicago, Harvard and Cornell held stock in National Student Marketing as did Morgan Guaranty, Bankers Trust, Northern Trust, and General Electric Pension.

The situation would not be so discouraging if it were only speculators who failed to match the presumed 6% compound annual return rate. But upon comparative inspection I learned that only 8 of the 30 Dow Jones stocks in 1968 remain in the index today. Thus, the second reason to doubt the 6% statistic is that the Dow Jones Industrial Average fails to be an internally consistent Index. Moreover, the same inconsistency applies to every index, although the flaw is more easily demonstrated with the Dow.

To be specific, formerly mighty companies presently in decline tend to be replaced by stronger ones. For example, if XYZ Corporation has been declining for ten years it can be replaced by ABC Corporation that has been growing over that same period. Thus, the ten-year downtrend of XYZ is taken out of the index and replaced by the ten-year uptrend accumulated by ABC. Unfortunately, investors who owned XYZ over that period cannot pretend they did not actually own them. If they sell the stock in their portfolio and replace it with ABC, they must take a loss in the XYZ. Furthermore, unlike the index, their portfolio does not get the benefit of the rising ABC trend for the previous ten years simply because they didn’t own any share of the company. In contrast, the index essentially gets to pretend that it did.

Unfortunately, substitution into the Dow Averages happens more often that the might be supposed. For example, in 2004 Kodak was replaced by AIG Insurance, but AIG was replaced by Kraft in 2008, and earlier this year Kraft was replaced by United Healthcare. As the graph below illustrates, the removal of AIG probably had material, favorable, and artificial impact on the Dow Averages. As may be seen, AIG lost about 97% of its value over 2007 – 2009.

As a qualification, my analysis assumes that the Dow’s historical performance is recalculated to reflect the removal of AIG and its replacement by Kraft. If the historical performance is not changed when Kraft is “substituted in” then the subsequent index performance is more valid. However, I have been unable to clarify the point and presume the historical index values are recalculated when a new stock enters the Dow.

In conclusion, there appear to be at least two objective reasons to question whether the Dow Jones Averages – or any index – are a legitimate proxy for average historical returns in the stock market.

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But I would never again be so trustful of the market. I had learned my lesson. Or had I? As John Brooks put it in The Go-Go Years when commenting upon the message of Proust’s great book, “man’s apparent capacity to learn from experience is an illusion.” We fall in love again. The cycle repeats as evidenced by the dot-com period of the 1990s or the junk bond takeover era of the 1980s.

Recently I decided to relive my first passion and see what I could learn by re-reading The Money Game. In addition to underscoring key points, I highlighted every stock the author mentioned. While I may have missed a few, I ended up with 58. Only about 12 are still public. The rate of demise is significant because nearly all of the stocks were “Wall Street darlings” during the 1960s. Many achieved triple digit stock prices thereby implying to investors of the period that they would be prosperous – and certainly viable – for years thereafter.

A characteristic example was Farrington Manufacturing whose stock went in one great arc from $10 to $260. The move was not without some justification because the company was a leader in a primitive form of optical character recognition at the time. Without their technology, information had to be laboriously keypunched into computers. But last month – October 2012 – a 100 share canceled Farrington certificate sold on eBay for $3.75.  Other stocks popular during the 1960s that vanished or faded to obscurity include, Flying Tiger Line, Kalvar, Leasco Data Processing, Admiral Electronics, Mohawk Data, General Transistor, Packard-Bell, Yale Express, Scientific Data Systems, Western Oil Shale, and Control Data. All might be mentioned in an episode of Mad Men.

Some went bankrupt, but most were acquired or recapitalized years later at prices well below their 1960s valuations. A few, like SDS suckered major corporations into disastrous acquisitions much like AOL and Broadcast.com did during dot-com infatuation. Apparently, Proust’s warning applies to the Titans of industry as much as the rest of us.

The Money Game repeatedly mentioned the six stocks listed below. IBM and Xerox remain viable corporations today, although each has changed significantly. Presently Solitron is an almost-forgotten niche maker of nearly obsolete semiconductor components, although investors during the 1960s felt it could rise to the position of industry leadership held by Intel today. Polaroid went bankrupt around the turn of the century. Presently Fairchild is publicly owned, but it is not the same company traded in the 1960s, which was sold to an oil field service company in 1979 for $425 million. Ten years later it was marked-down fifty percent and sold to a California semiconductor company, which later sold it to private equity and thence public a second time. Motorola was split into two parts with the bigger half recently bought by Google.

Significantly, technology companies were the most frequently mentioned stocks in The Money Game.  While investors are probably correct in looking to the sector for the biggest winners, the preference is a compelling invitation for imposters.

In the 1960’s the signature phonies were computer-leasing stocks. They were not technology stocks, but merely finance companies. Typically they would buy IBM mainframe computers and lease them to users at rates below the IBM monthly rental. Their bogus profitability relied almost entirely upon lengthy depreciation schedules. Whereas IBM depreciated its computer rental base over five years, many of the leasing companies would choose ten-year lives. Top accounting firms greedy for audit fees would provide unqualified opinions. The absurdity of a ten-year life was not evident to investors in an era before personal computers.

For a period, computer-leasing stocks were the rage. Examples include Leasco Data Processing, Randolph Computer, Dearborn Computer, Data Processing & Financial General, Computer Investors Group, G.C. Computer, and Continental Computer. Note the propensity of for words like “data processing” and “computer” in the names.

Less than a year after I read The Money Game, Leasco Data Processing made a bid to acquire America’s eighth largest bank by exchanging its stock valued at $140 per share for publicly traded Chemical Bank. The CEO of Leasco was not then thirty years old whereas Chemical Bank was founded 150 years earlier. Although the attempt failed, Leasco’s audacity convinced the imperial four hundred of American capitalism that the end of the 1960s bull market was a “consummation devoutly to be wished.” The Dow Jones Industrial Average declined over 30% during the next year. Stocks like Leasco dropped much more, and never came back.

Upon re-reading “Adam Smith’s” account of the 1960s stock market I better comprehend the aphorism, “We can no better forget those we once loved than to remember those we never met.” Presumably later generations will have similar feelings about the dot-com or junk bond eras.

Despite an early 1970s triple digit stock price and a CEO with a captivating personality later emulated by Steve Jobs, Polaroid Corporation went bankrupt in 2001.  Along with a great many 1970s-era investors, Allen failed to realize that the chemical process of film imaging was near a technological dead end. In the rearview mirror, Polaroid’s fate should not have been a surprise as underscored by the amplifying evidence of Kodak’s demise a decade later.

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The first rule of technology stock investing is to accurately identify the current state-of-the-art within the applicable industry’s life cycle. For example, in the 1970s Kodak and Polaroid could make picture taking incrementally more convenient, but film technology was unlikely to ever reduce the consumer’s cost-per-snapshot or provide the versatility promised by the future of digital photography. In contrast, it was simultaneously becoming evident that semiconductor integrated circuits were beginning to comply with Moore’s Law whereby the cost-per-function dropped by half every eighteen months. Furthermore, the underlying miniaturization processes to manufacture the chips could be repetitively improved thereby implying the Law would last for years, if not the decades that it has actually persisted.

As a consequence of Moore’s Law, 1970s-era companies with leading edge capabilities in electronics, computers, and communications held the potential to grow 10-to-100 fold, or more. Examples include Intel, Cisco, Apple, and Microsoft. Upon mapping the pertinent industrial life cycles, a 1970s investor would likely have put Kodak and Polaroid in a category of “stocks to avoid” whereas Intel, Cisco, Apple, and Microsoft would likely have ended-up in a group of companies meriting further analysis.

Unfortunately, as difficult as industrial life cycle analysis can be, it is less challenging than the merciless subtleties involved in selecting the long-term winners within a truly infant technology sector. For example, in the early 1970s it was evident that the solid-state electronics industry was at the threshold of long term growth. Yet integrated circuits evolved through various esoteric designs, – bipolar, MOS, CMOS, silicon gate, etc. – which created opportunities for new companies to gain leadership at each stage. Since only a highly dedicated and skilled shareholder can remain current on such developments, investors may be tempted to rely upon a subject company’s management credentials as a proxy for technological leadership status.

Unfortunately, well-credentialed management alone is not a sufficiently reliable indicator. For example, just as the transistor market was taking-off in the 1950s, one of the Bell Labs transistor co-inventors and Nobel Prize winners named William Shockley formed his own company to capitalize on the market opportunity. He was well funded by a California instrument maker and hired the best talent. One example was Robert Noyce who later invented the planar integrated circuit, which is the basis for everything in computers and communications that has since followed. But Shockley was a bad manager and his team left to eventually form Intel in the late 1960s.

For a time in the 1950s an upstart competitor named Transitron appeared as though it would hijack Shockley’s destiny. The company was founded by David Bakalar who was another Bell Labs scientist with physics pedigrees from Harvard and M.I.T including a PhD. Transitron issued public stock in the 1950s and was an investor favorite for about a decade. It went out of business in 1984.

Unfortunately the picture that emerges from each additional layer of investigation resembles never-ending fractals – fascinating but practically unanalyzable. Consequently, prominent venture capitalists admit their investment decisions are eventually based upon visceral instinct. To paraphrase, “we invest in people, not businesses”.  But how can the passive investor identify a Robert Noyce among a group of Shockley, Noyce, and Bakalar? And surely Polaroid’s Edwin Land would have successfully passed a gut-instinct-about-the-man test from a venture capitalist, yet Land remained wedded to a dying technology.

Chromebook is designed with Cloud computing as its defining characteristic. There is no hard-drive because archival data and applications are maintained in the Internet Cloud on Google servers. Although icons for word processing, spreadsheets, presentations, and other applications appear on the computer screen in the normal manner, the applicable programs and files are actually located in the Cloud. When owners click-on one of the icons the pertinent program is transported over the Net and downloaded into Chromebook’s solid-state memory where it is cached while in use. Once the work is completed and saved to the “Google Drive”, it is returned over the Net to Google servers where is retained until summoned for use again.

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Cloud computing endpoints, such as Google Chromebooks, can be designed without regard to the legacy restrictions of Microsoft or Apple computers. Those units were invented as isolated processors in an era preceding even the Local Area Networks (LANs) that emerged in the late 1980s. Consequently, Cloud computing endpoints can offer a number of advantages.

First, without the need for a hard-drive, they can be inexpensive as evidenced by the $250 Chromebook price tag.

Second, they can use a modern and speedy operating system. A Chromebook start-up time is about ten seconds and the OS is virtually free of malware by comparison to Windows.

Three, when required, program updates can be automatically administered by Google – or whatever software vendor is germane – directly on the servers in the Cloud. This avoids the time-consuming, inconvenient, and sometimes complex need for each user to update software on her computer.

There are two reasons I have not yet purchased a Chromebook. First, is because presently I remain too dependent upon Microsoft applications such as Word, Excel and PowerPoint for my professional work. While Google’s Word Processing program – Google Docs – offers automatic conversion to Microsoft Word, I am not yet satisfied it will pick-up important nuances that would be showstoppers for me. Second, earlier this year I purchased a MacMini that I’ve attached to my TV for Internet video viewing. Although the Chromebook’s HDMI port could make it a less expensive alternative, there were no models as low as $250 available until last month.

As observed in our previous post, most of us are presently using our next-to-last PC. Whether the Chromebook per se is the wave of the future remains to be seen. But within five years Cloud computing endpoints – perhaps combining the best elements of Chromebook and iPad – shall become the standard office productivity tools.

Perhaps even more importantly, the evolution signifies a transition of computing to a business model that resembles a utility service. For example, instead of producing our own electricity with individual generators in our garages, we rely upon a utility to provide electric service, which we pay for monthly. It generally works better and at less expense, until a megastorm like Sandy comes along.

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Presently, the situation is nearly reversed among emergent devices. As smartphones and tablet computers rose to prominence after 2007 there was a simultaneous shift toward App-centric software as opposed to complex-to-install packages. In short, Apple has the gigantic lead among App-centric software vendors just as the PC starts to become an obsolete form factor. Simultaneously, Apple is beginning to behave like the Microsoft of the 80s and 90s as evidenced by the uninvited removal of Google Maps from iPhones. In short, Apple and Microsoft may be switching historical roles.

Consequently, Microsoft has little choice but to focus on innovation in an attempt to remain competitive. Whether Redmond will prove to be as innovative as Cupertino remains to be seen, but necessity can be the mother of invention. Nonetheless, the key point is Microsoft must try, as never before. As the company’s urgency for change intensifies, Microsoft’s forthcoming innovations may uncharacteristically provide hints about the future of computing, even if its more limited Post PC ecosystem prevents it from becoming the prime beneficiary.

In such a context, Microsoft pre-empted its traditional ecosystem partners by introducing a tablet computer of its own, termed the Surface. As little as five years ago it is doubtful the company would have contemplated such a move because it would put them in competition with the very engine that propelled Microsoft’s industry dominance. But the Surface implies Redmond concludes its ecosystem has failed to anticipate the next stage of computer evolution.

Surface is a touch-screen tablet computer with some key differences. Foremost among them is that it has a detachable keyboard enabling it to function like a PC as demonstrated in this video.  Admittedly, product reviews imply the MSFT software is not yet sufficiently evolved to permit the unit to effectively replicate a conventional Microsoft PC, but it seems as certain as fleas on a yard dog that such an objective is on the roadmap.

Whether Microsoft – or some other company including Apple – successfully implements the concepts demonstrated in the Surface video it is likely that Surface is at least a prototype of the future Post PC Era full-function computer. Thus, the next PC you purchase will probably be your last. Thereafter, you will buy a unit that looks something like the MSFT Surface.

– Arthur C. Clarke’s First Law of Prediction

Venerable computer industry pundit, John Dvorak, is probably wrong to “humbug” predictions of the Post-PC Era. Admittedly, John has expert credentials. He began writing columns for PC Magazine and InfoWorld in the 1980s. He’s also been a regular columnist for Barrons and Forbes magazines. Other Dvorak articles have appeared in The New York Times, Los Angeles Times, San Francisco Examiner, and International Herald Tribune. He was part of the start-up team at Cnet. He’s also hosted regular radio and TV shows for NPR and Tech TV. Finally, Dvorak has written or co-authored a dozen books.

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Yet his denial of the emergent Post-PC Era is likely to soon become an embarrassment. Perhaps his decades of award winning recognition from yesterday’s industry frontrunners, leaves him unable to recognize when what is new is more significant than what is familiar.

Dvorak surprisingly makes the superficial mistake of assuming that mobility, as evidenced by tablets computers and smartphones, is the defining characteristic of the Post-PC Era. They are only one manifestation. The true defining characteristic is the displacement of over-powered endpoints, such as PCs, with thin client devices that access computing resources from applicable networks such as LANs or the Internet, to wit, Cloud Computing.

Network computing shall not only provide the resources to make ubiquity a reality, but will provide the horsepower needed to enable desktop or laptop endpoints to do the work previously requiring a PC. Moreover, Cloud resources will permit users to employ a diversity of heterogeneous endpoints. It won’t matter whether the users operating system is Windows, Mac-OS, iOS, Android, or Amazon Kindle. Each device is synchronized to the applicable Network programs. They simply work without the user needing to bother with a blizzard of device-specific settings or program updates, beyond the initial configuration.

From at least one perspective it is startling that Dvorak fails to recognize the Cloud at the defining characteristic. After all, it is nothing more than an-idea-whose-time-has-come variation of the 1980s mantra from Sun Microsystems, “The network is the computer.”

But, perhaps identifying the arrival of a Post-PC Era requires an ear for the rhythms with a new computing age.  Thus, John might learn from Antonin who — upon listening to the rhythms of the New World – apparently earned everlasting respect.

As William Faulkner put it, “The past is never dead. It’s not even past.”

As a stock analyst dining alone at Rickey’s Hyatt House in Palo Alto one evening in 1975, I couldn’t ignore an animated conversation by two middle-aged men in the next booth with profound viewpoints on the future of computing. Since I shared their passion, like most any obsessed youth I rudely introduced myself and was graciously invited to join them.

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They were from Bell Northern Research, which was the Bell Labs of Canada. One of them, Joe, was an outside consultant who essentially functioned as a gadfly. His job was to get the technical staff to consider radical ideas from outsiders. Two ideas dominated Joe’s discussions that evening: (1) ARPANET and (2) timesharing.   At the time, Wozniak and Jobs were only starting to build Apple computers. Office workers didn’t sit in front of CRT screens because real-time computing was a rarity. Most office workers hardly related to the massive mainframe computers isolated in air-conditioned rooms with access restricted to a “priesthood” of operators. The “data processing centers” mostly prepared paychecks and accounting reports.

Joe’s enthusiasm for timesharing puzzled me because the concept had been kicked around for years, but didn’t seem to be progressing. He said ARPANET could change that and explained what it was. But I couldn’t understand how a Defense Department project designed to connect computers of different manufactures with packet switching – whatever that was – in order to minimize military vulnerabilities to a nuclear attack could transform the way my employer back on Wall Street used its IBM mainframe. However, I could sense that Joe had a proclivity for good new ideas. I determined to simply trust his judgment. He elaborated for over an hour. Later I spent a day with him in Ottawa, where the discourse went wider and deeper.

With a dial-up modem and a Netcom browser, in 1995 I got on the Internet for the first time. For me, it was the “second coming” of everything Joe discussed twenty years earlier. ARPANET was the predecessor of the Internet. I became an “Internet” stock analyst.

Joe was way ahead of his time on the value of the Internet. But timesharing still seemed to be lost in the weeds – until now.

The Post-PC Era is not strictly defined by the rise of mobile devices. It is equally defined by timesharing under a new moniker, to wit “cloud computing.”

PC sales are declining for two reasons. First, we are increasingly using mobile devices for new and limited applications characterized by less need for the processing and storage capacities of a PC. Second, office workers are starting to replace PCs with lower cost “thin clients” that access programs and computational power on a timesharing basis in a remote data center, or the Internet Cloud. Like Sun Microsystems and its “network computer” of fifteen years ago, others have advocated the concept. However, as evidenced by the accelerating decline in PC sales, it is presently an idea whose time has come. There’s no way to turn back the clock. All industry constituents must adjust to the future scenario.

First, the thirty-year old Intel architecture will be displaced to the Cloud. Reduced Instruction Set Computer (RISC) chips will be used on the clients.

Second, essentially computing is returning to the highly centralized model in the halcyon era of IBM mainframes. The major difference is that our desktop and mobile screens will connect to data processing centers by timesharing with other clients.

Third, within a decade most white-collar workers will be using inexpensive tablets and thin clients to run remote applications through a browser.

Fourth, within five years road warriors will be using laptops or tablets with long battery lives and Flash memories instead of hard drives. Flash storage will be used chiefly to cache applications as they are running, whereas archival data will be stored in the Cloud.

Fifth, in a sense the “Post-PC Era” concept is limited to presently mature economies. The great majority of devices coming onto the Internet today in developing countries like China are smartphones and tablet computers. Most Chinese are unlikely to ever participate in the PC paradigm. Even in the USA today, grade school children won’t be indoctrinated into the PC environment. They will grow up in a Post PC world, which will have as much relevance for them as “Fibber Magee and Molly” radio shows do for me.

Thank you Joe Zelikovitz, wherever you are.

Over three years ago Inside Digital Media predicted television advertisers would eventually insist they only be required to pay for ads that get watched. Thinking the Unthinkable About Video Ads reasoned that Google’s pay-per-click set a new paradigm that was ultimately going to encompass nearly all types of electronic advertising, including video. Yet television industry incumbents greeted our forecast as though it had all the credibility of an imminent second coming prophecy.

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Last week YouTube’s head of Global Content proclaimed the company does very well with skippable ads. Robert Kyncl added, “…our skippable ads in the U.S…are now making as much revenue per hour as ads on cable TV.” Advertisers don’t mind paying more when they know consumers have declined to skip the ad.

In our analysis, a proliferation of interactive smartphone-to-TV-Apps such as Into Now implies the TV industry simply will not be able to prevent the paradigm from spreading to their sector as well. Such Apps not only provide for “clickable” ads but can also evolve to enable viewers to click-through to an actual purchase of merchandise. It’s really a pretty obvious evolutionary path.

Similarly the Wall Street Journal reported last week that TV networks were disappointed TV viewing dropped significantly as they were launching new shows for the season. The Journal put the blame squarely on “intensifying competition from online video.” That was predicted at Inside Digital Media almost four years ago in Third Generation Television. Over two years ago Inside Digital Media not only predicted consumers would cut-the-cord to cable TV, but also described how the pattern would evolve. Simultaneously at least one prominent cable TV industry analyst dismissed cord-cutting as an Urban Myth.

Presently many industry experts are endorsing yesterday’s “ridiculous” predictions as though they never disagreed. As the African proverb explains, “Sometimes in the dust of the kill you can’t tell the lions from the hyenas.”

A case in point is the Long Tail Theory of Internet media and merchandising. The Theory holds that content programming on the Internet can be economically viable even among small audiences thereby drawing viewers away from content requiring mass markets to support the production costs. While Wired Editor Chris Anderson deserves credit for popularizing the concept, the less well-known Clay Shirky is the true originator. Thus, those of us concerned with the future of media may want to monitor Shirky’s commentary as much as Anderson’s.

In that context, ponder the more recent “Shirky Principle” – “Incumbent institutions will try to preserve the problem to which they are the solution.” Consider for example, the recent popularity of Op-Ed commentary from distinguished professors about the merits of traditional education over “Internet experimentation.” Yet, Coursera is approaching two million users.

Background

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The two dominant carriers, Verizon and AT&T, readily concede they expect monthly bills to climb steadily higher as they adopt metered bandwidth rates.  As long as wireless traffic congestion is managed by granting exclusive frequency allocations in a manner originated a century ago, carrier executives can smile at the future like a roomful of bankers fondling TARP bailout money. Yet escalating Wireless Internet access fees will not only be more costly for consumers, they also damage future growth opportunities for powerful companies such as Apple, Microsoft, and Google.

For two years, Inside Digital Media has advocated that exclusive frequency allocations should be augmented with wireless spectrum white spaces.  Yet, outside of a small circle of other white space supporters, the concept has been largely been orphaned.  Thus I must be missing something – perhaps a great deal – and invite your comments as indicated below.

Analysis. One, or a combination, of three factors may explain the modest white spaces progress.

First, white spaces are poorly understood. Therefore, many decision-makers don’t understand how white spaces can increase wireless capacity and induce lower pricing through openly competitive market entry.

In short, wireless white spaces are presently authorized FCC channels that are not used uniformly throughout the country and can be explained by example.

If TV channel 9 is not used in Tampa, but presently used by a broadcaster in Miami, the channel 9 band is unnecessarily wasted in Tampa. A smartphone with a cognitive radio continuously aware of its geographic location will “understand” that it can use an unlicensed network on channel 9’s frequency in Tampa, but not Miami. Such cognitive devices can automatically query an online database and connect to applicable white space channels as hand-held units move from location-to-location. Since white space networks won’t require auctioned spectrum, they can be built at much lower cost by a larger number of operators.

Nonetheless, certainly the technical staffs at Apple, Google, and Microsoft understand white space. In point of fact, Google and Microsoft have been active white space advocates. But I would like to know why they have not done more with it, especially considering the vital interests at stake in the future of the wireless Internet, and indirectly their own companies.

Second, some observers argue on-the-fly white space allocation is technically too complicated. Authoritative readers are welcome to share an informed analysis. However, Microsoft has already built a campus-wide white space network thereby demonstrating technical feasibility. We assume that the probabilities that technical progress over the past century has failed to be adequate enough to implement white space principles are vanishingly small.

Third, white space deployment is contrary to the interests of politically influential companies such as Verizon and AT&T wireless. Given their market dominance, conventional frequency exclusivity nearly assures that they will be able to impose metered rates with impunity, thereby nearly guaranteeing a steady escalation of revenue-yield per subscriber.

Room for Debate. What are your thoughts? Please post comments at or email me at phil(at)insidedigitalmedia.com

Thanks.

Copyright law is one of the most convincing validations of the cliché, “The ways of the dollar are devious.” What else could explain the following complexities?

Gordian Knot

First, there are two kinds of music royalties. One is for the music publishers and the second is for the record labels. Music publishers represent composers and the record labels represent the “performing artists”, meaning singers and instrumentalists.

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Second, conventional radio stations are required to pay music publishers, but not record labels. That’s because for the better part of a century, radio station “airtime” was the key determinant of a music track’s popularity. Thus, instead of collecting royalties from the radio stations, the record labels paid them bribes – termed payola – as an incentive to play specific tracks. When payola became illegal, it was replaced by other perquisites.

ASCAP and BMI collect music publisher royalties from radio stations. They are essentially “non-profit” debt collectors. Anyone selling a CD, or digital track, or even a pub owner playing background music, must also pay music publishers. But in such instances the publishers use a different debt collector, to wit, The Harry Fox Agency. As readers might guess, visits from Harry Fox, ASCAP, or BMI are greeted with all of the enthusiasm of a call from the IRS….”They’ve come to help you with your records.” If you don’t have any records they cheerfully provide some they conclude are applicable.

As new forms of music distribution evolved, the publishers and labels helped Congress to distinguish between such matters needing government regulation to prevent ruinous competition, from other matters that should be left to the “free market”.  They persuaded Congress that a governmental board, termed the Copyright Royalty Board (CRB) should set royalty rates to be paid by digital services. However, they also helped Congress to understand that CRB rates should be much higher for digital services than for legacy conduits liked radio because…well, the newer services don’t understand the music business.

The labels and publishers prevailed upon Congress to require the CRB to set rated based upon the principle of whatever a “willing buyer and willing seller” would agree upon. Even though historically record labels gave their records and CDs to radio stations for free, such transactions were presumably not between “willing buyers and willing sellers” because…well, that’s different, see? Such precedents suggest that the record label as “willing seller” voluntarily undervalued its product…even if that is precisely what they did, it does not apply to the new era because…well, it just doesn’t.

Instead the CRB applies “willing buyer and willing seller” in some esoteric manner to derive a rate that avoids “ruinous consequences” for the legacy music business. Even if it does impose unreasonable hardship on the new digital services, that doesn’t matter because the newcomers don’t understand the music business, remember?

Cutting the Gordian Knot

Together with others, Pandora is attempting to get a bill through Congress to permit the CRB to consider the financial impact of royalty rates on fledgling businesses like Internet Radio. In our analysis, the bill is not likely to become an Act because the legacy music industry proclaims that it avoids free market forces by enabling the CRB to consider other factors aside from the “willing buyer to willing seller” standard when setting rates. Thus, royalty rates are likely to remain high for Internet Radio. Yet the playlist and playback limitations on Internet Radio imposed by the label-sponsored Digital Millennium Copyright Act (DMCA) fourteen years ago are annoyingly restrictive.

Eventually, however, the music industry will feel compelled to strike a music service deal with Apple in addition to current agreements to sell digital tracks at iTunes. But it’s as certain as fleas on a yard dog that Apple will decline to offer a service that has all the operating restrictions imposed by DMCA. Apple has worked too hard to successfully transform media to let the publishers and labels force them to offer an inadequate music service that dates to the last century. Thus, once Apple gets the agreement they want, most consumers will no longer be interested in “Internet Radio” as presently restricted by DMCA. As the industry become de minimis, aggregate royalties from Internet Radio will be inconsequential to the labels and publishers. They’ll end-up being even more dependent upon Apple.

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This post describes my configuration in layman’s terms.

Network

When attached to televisions, computers must also connect to the Internet. Generally this is accomplished with a wireless (WiFi) home network. WiFi is available in a number of standards, but dot-11n is the best choice for video. My WiFi router is in a home office adjacent to the living room where I do most of my TV watching. Thus, the WiFi signal in the living room is sufficiently strong to provide a good experience. If I were to try and watch Internet videos in more distant rooms, WiFi repeaters would likely be required.

Television

My flat panel TV is a discontinued Hewlett-Packard model with three HDMI (High Definition Multimedia Interface) sockets. They are a key feature for good computer-to-TV viewing. Most current model flat panel TVs include such sockets as pictured (although they’ll normally be labeled “HDMI In”.)

The principal HDMI advantage is that it transports both video and audio. Other sockets on older TVs normally do either one or the other, thereby requiring multiple cables to transport both picture and sound.

Computer

I’m using Apple’s MacMini for three reasons. First, since it is only about the size of a cigar box it is unobtrusive. Second, the boot-up time is much shorter than Windows thereby making Internet Video a more appliance-like experience, similar to conventional television. Third, relative to Windows, Apple computers are less likely to be targeted by malware.

Since MacMini’s have HDMI sockets, the hardware set-up is straight-forward; plug in the power cord and connect the MacMini to the TV with a HDMI cable. The MacMini automatically sensed my WiFi network and prompted me to enter the pass code. It spontaneously used BlueTooth to detect my remote keyboard and mouse, although initializing the MacMini required a corded mouse.

Display Settings Frustration

The most frustrating part of the set-up was getting the output of the MacMini to display properly on the television. Essentially, the image-footprint of the MacMini was about an inch too big around the edges. Unfortunately, that little inch was hugely consequential because it was impossible to see the menu bar along the top border of Apple programs. It was hidden behind the plastic frame of my TV.

Metaphorically, the image “footprint” of the MacMini was too big for the “shoe” defined by the physical dimensions of my TV. After about an hour on the phone with the Apple help desk trying various resolution adjustments, I was told that the problem was my television. They wanted me to buy a new TV.

I went to BestBuy to look at TVs and actually contemplated buying one, but there was a nagging doubt that it would solve the problem. A few days later my 26 year old son stopped-by for a visit. Within minutes he fixed the problem by adjusting the Mac Mini’s “Underscan” slider within “Display Options”. While he didn’t know the meaning of the term “Underscan”, he concluded, “It was the only other option to try, and presumably it was there for a reason.” While I kicked myself for not thinking the same way, it is important to note that Apple’s help desk also failed to suggest the option.

Understanding Underscan

The terms “underscan” and “overscan” are obsolete and intuitively useless to most of us. They date to a time when the chief electronic display was a broadcast TV in which images are “painted” across the screen electronically in nearly parallel lines. Older readers may remember the days when television images would sometimes flicker and couldn’t be photographed by film cameras without the appearance of dark lines.  A camera lens catches such dark swaths while the human eye interpolates a component part of the overall screen image.

The “test pattern” below illustrates “underscaning” in a context applicable to my computer-to-TV set up. The green area represents the size of my TV display, but the MacMini was providing an image the size of the pink border. By using the “Underscan” slider within the MacMini display settings, I proportionally reduced the computer’s “overscan” represented by the pink border, to the size of the green area. Thereafter the menu bar became visible on my TV, enabling me to navigate the computer normally.

Terms like “underscan” and “overscan” are unnecessarily geeky. If the slider adjustment were simply labeled “Adjust Display Borders” with “Larger” at one end and “Smaller” at the other, there’s a better chance that I would have figured out how to fix the problem without phoning Apple’s help desk, which didn’t know the answer anyway.

Conclusion

Despite the frustration for needing to learn new arcane concepts like “underscan” and “overscan”, such efforts are likely going to remain a requirement for making computers do our bidding. Nonetheless, it is disappointing that Apple’s help desk failed to suggest the “underscan” adjustment.

Except for sports programming and a couple of TV shows like “Mad Men” and “Breaking Bad”, I’m pretty close to discontinuing Cable TV service. While Cable operators faithfully believe sports programming is their “Ace in the Hole”, the Internet is also unexpectedly challenging that assumption. Specifically, Meet-Up groups enable spectator sports enthusiasts to watch their favorite teams in sports-bar settings with groups of fans similarly devoted to the same teams.  It’s a good way to make new friends and better enjoy the games – and it does not require Cable service at home.

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First, desktops and laptops shall likely remain the primary tools for creating files and doing work for years to come. Examples include word-processing documents, “slide-show” presentations, building and augmenting websites, spreadsheets, and high quality video and audio productions. In contrast, smartphones and tablet computers shall become our primary means of consuming media. For example, even in the living room, iPhones and iPads enable users to view most any Internet video through a flat panel TV so long as the television is attached to a $99 AppleTV appliance. As illustrated in the chart below, new buyers of tablet computers typically spend more time doing work on their desktops and laptops while spending less time consuming media.

Second, computing will no longer be a well-defined destination activity. We’ll cease requiring a desk or laptop workspace in order to interact with information. With tablets and smartphones, computing will be all around us. Eventually other items such as automobiles, appliances, and medical devices shall be absorbed into the computing environment. Lines of demarcation are already starting to fade as televisions are increasingly becoming optional displays for personal computers or similar devices.

The Internet Cloud shall provide the computing resources required to make ubiquitous computing a reality. Cloud services will augment the data processing capabilities of portable devices thereby enabling them to perform otherwise overly complex activities and remain synchronized to the user’s agenda. Portability shall also add context such as location and presence. For example, Starbucks is developing an electronic payments system that senses the identity of arriving customers owning smartphones and enables them to pay with the phone instead of a credit card or cash.

Blogger Simon Bramfitt insightfully perceives Amazon’s Kindle as a limited function device with features suggestive of a more universally applicable to a future “Post-PC Era”. Specifically, the Kindle is more than just a physical unit. It combines a hardware appliance with a series of applications for reading and annotating documents. A user with more than one Kindle (or Kindle App) discovers the content on one is available on all. Content, bookmarks, and annotations on each device are synchronized. Text is automatically reformatted to fit the applicable screen. All of this requires no effort from the user. It just works.

Third, a wireless Internet shall be an indispensible component of the Post-PC era. Virtually all future computing devices will be able to connect to the Internet wirelessly. Even aging form-factors such as desktop computers will offer wireless connectivity as an option. Home appliances ranging from thermostats to TVs will connect to the Internet wirelessly in the majority of instances. But among portable devices such as smartphones, tablet computers and e-book readers, wireless connectivity is a requirement.

Unfortunately, in the United States the major cellular carriers are starting to impose metered rates. The more consumers use the wireless Internet, the more they will pay. Yet, research from AT&T Labs convincingly demonstrates that consumers intensely dislike usage-based rates. In our analysis, they will hunger for ways to avoid it.

A recent metered-data-rate horror story was reported in The Wall Street Journal. A tech-savvy vacationer took his family to Europe and applied all reasonable precautions to avoid using cellular service. In a WiFi setting he downloaded a catalog from a store the family was visiting in Scandinavia. But he did not realize that the iCloud service would automatically “synch” the catalog to his son’s iPhone. Moreover, iCloud would automatically use the cellular network if the iPhone was not in a WiFi hotspot.

The most readily available option to cellular metered rates is private networks utilizing unlicensed spectrum centered on the WiFi convention. In the future Television Band White Space will be used to augment such networks. Such technologies are the common methods of providing Local Area Networks in our homes. Outside the home they are normally available in restaurants, coffee shops, common areas of multi-family dwelling units, hotels, and airports.  Often such outside the home networks are available as a free amenity, but hotels and airports often charge for the service.

Consider how managers of office, apartment, and condominium buildings are using the iPad as a “Post-PC Era” productivity tool. The device enables them to make more engaging presentations, conduct business during tenant tours, and display videos and photos of related properties. There’s no clunky keyboard or mouse to carry around. And since it’s an Apple product, there’s little need to be concerned about catching a virus wherever it is taken. The interface is touch-finger on a simple pane of glass. The iPad reduces the barriers to making a sale by (1) capturing an applicant’s signature on the spot, (2) pulling in links to verify his employment, and (3) even processing credit cards with the aid of a commonly available attachment. Yet to insure that all such features work at the fastest possible speed without network congestion, it is best that the applicable buildings have their own wireless networks.

Conclusion

While it is difficult to comprehend to full “Post-PC” environment, some characteristics can be anticipated. Perhaps most significant of all is that wireless connectivity will be essential. The fact that cellular operators are increasingly adopting metered rates implies that consumers will demand private networks typically using unlicensed spectrum, such as WiFi, which will be augmented in the future with shared spectrum such as Television Band White Spaces.

First, a sizeable majority of consumers are familiar with WiFi and steadily more comfortable using it. Many have become habituated to surfing the Net at their favorite coffee shop or restaurant.  Some are using services like Sling and Aereo to connect to home televisions in order to watch favorite shows while traveling. Given such habits many can readily comprehend that it might be sensible to connect appliances to the Internet as well.

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Beyond familiarity, WiFi is an inexpensive way to connect to the Internet throughout the house. While full household coverage often requires multiple access points, wireless networks are far less expensive than the hardwired schemes previously specified in the smart-home designs of yesteryear.

Second, increasingly ubiquitous smartphones are nearly ideal control panels. For example, I’ve learned to use an iPhone (in combination with a $99 AppleTV) to play Internet videos through my television. Additionally, a number of apps are available permitting smartphones to control TV for conventional television viewing as well.

Third, a combination of WiFi mass-market acceptance and smartphone ubiquity can trigger a genuine economic incentive for connecting appliances to the Internet. Since about half of the typical homeowner’s energy costs are tied to temperature control, Internet-connected thermostats are entering the early adopter stage and may “cross the chasm” among pragmatists into the beginnings of a mass market within five years. Adding a WiFi Internet controller to water heaters as well will enable users to address two-thirds of typical homeowner energy costs.

One example is a $250 thermostat by Nest Labs. While $250 is a lot to pay for an ordinary thermostat, this video illustrates the advantages of the learning-adaptive and Internet connected unit. Unlike conventional programmable thermostats that can be as difficult to program as the adjustment settings required for 1970s-era VHS units, the Nest has a simpler user interface. That’s because the device manufacturer was founded by a former Apple executive who helped design the iPod and ran the iPod-iPhone divisions for years.

A key Nest advantage is that users can check the temperature of their home remotely from a smartphone app. The app also enables them to adjust the temperature setting remotely. Thus, if they’ve rushed to the airport for a trip and can’t recall whether they turned-off the air conditioner they can use their phone to check the thermostat and make the desired setting adjustments. Nest also learns their daily habits. For example, it will adapt to automatically adjust temperature settings when they normally leave for work.

While it may take five years or so for Nest and other WiFi-connected appliances to become mass market items among conventional homeowners, WiFi energy management systems may be more quickly adopted by operators of multifamily units for three reasons.

First, multifamily building owners are typically sensitive to costs because they are operated as a business. While the energy costs within each dwelling unit is normally assigned to each resident, common, amenity, and outdoor areas are often the responsibility of building owners. When sensors in such sectors are connected via WiFi property owners can pinpoint areas of excessive energy consumption, thereby identifying opportunities to save money. For example, dimming lights by fifty percent in areas like hallways and conference rooms saves up to forty percent in energy consumption.

Second, according to apartment industry research specialist, J. Turner Research, WiFi is the most popular amenity requested by renters. Consequently building owners are increasingly likely to deploy robust WiFi backbones. Given such deployments property owners can amplify the return on investment by integrating energy management in common areas where they – instead of tenants — normally bear the costs of energy consumption.

Third, increasingly multifamily building owners are discovering that tenants also want WiFi enabled control networks for purposes aside from energy management. By way of example (starting at the 37-second mark) this video showcases a model unit supplied by Spot-On Networks for Rudin Management in New York City.  Owners who deploy robust backbones throughout the applicable buildings can sell non-energy home networks services. Typically offered for a monthly fee, examples include (1) home security, (2) video surveillance, (3) home theater, and (4) audio entertainment.

Conclusion

Increasing WiFi and smartphone ubiquity is likely to enable network utility to become as applicable to machines and appliances as it is presently to people-controlled devices. Consequently, the smart-home should no longer be falsely disparaged as an illusionary concept, like cold fusion. Owing to potential cost savings and incremental revenue opportunities, profit-motivated multifamily property owners may be among the first to benefit.

There are four reasons why YouTube is the most popular source of recorded music among thirteen-to-seventeen year olds.

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First, it is free. Although viewers are typically required to watch a short commercial before the music video plays, they still don’t have to pay for it. Moreover, the present YouTube app for the iPhone plays the music without a pre-roll commercial.

Second, selections are playable on demand. While conventional radio is also free, it fails to empower users to choose their own music selections or construct a customizable playlist. Yet conventional radio also has a many commercials along with an abundance of disc-jockey palaver. Although Internet radio, such as Pandora, enables partial playlist customization it is far more restrictive than YouTube owing to provisions of the label-sponsored Digital Millennium Copyright Act approved about a dozen years ago.

Third, there’s plenty of legitimate content. Most of the major record labels banded together to form a sort-of music version of Hulu.com. They call it Vevo and Vevo posts its content on YouTube as well as its own website.

Fourth, the labels get paid. Music royalties are an esoteric topic, but until this summer broadcast radio stations didn’t pay fees to the labels, only the music publishers. To the contrary, years ago the stations were caught accepting bribes – termed payola – as incentive to play, and thereby popularize, selected tracks. In contrast, YouTube splits ad revenue with Vevo, as well as other legitimate music video postings.

Evidently the labels have used such YouTube payments as leverage against radio broadcasters. Two months ago Clear Channels agreed to start paying a popular country & western label royalties whenever songs from its catalogue were broadcast. While it is logical to expect Clear Channel’s decision to spread to other broadcasters and more labels, the maneuver may be too late to disrupt the growth rhythm at YouTube.

The road to a successful music experience on YouTube is not without potholes. For example, the labels are apparently reluctant to let certain music videos play on portable devices, even if such devices are commonly used to access YouTube. One example is this video, which will not play on my iPad. Instead I get a message reading “This video is not available on mobile.” Inconsistently, however, the same video plays okay on my iPhone – as well as my iMac and PC.

Conclusion

In our analysis, YouTube is replacing radio as the chief means of popularizing recorded music. For example, it is significant that second-ranked broadcast radio is only slightly more popular than Apple’s iTunes music store among the thirteen-to-seventeen demographic. It appears that the youthful listeners initially learn the songs they like on YouTube and later purchase their favorites as downloads from iTunes. From the record label viewpoint, it is a virtuous cycle with YouTube playing the former role of broadcast radio. So long as listeners are also buying their favorite YouTube selections as digital downloads, chances that the labels will abandon YouTube – or a similar variant — are about as slim as an Apache Indian getting elected Pope.

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In sum, Netflix is looking more like a video version of profitability-challenged Pandora Media, than a trail blazer toward a lucrative streaming video future. Pandora is the leading Internet Radio service whose margins are squeezed tightly by unavoidable music royalty fees. Despite continued subscriber growth, at $10 Pandora’s stock is trading below its year-old IPO at $16.

In our analysis, innovations at YouTube are better indicators of a future video entertainment scenario. That’s because YouTube gets most of its content for free, yet is able to share advertising revenues with the content provider. Especially promising are YouTube Channels.

There are three types of YouTube channels.

First, everybody who registers with YouTube – typically to upload their own videos – is (often unwittingly) creating a personal channel. If Joe-the-Plumber uploads a video, by default he also generates a personal channel. Anyone subscribing to his channel will get a feed of (1) every comment he makes, (2) all the “likes” he clicks, and (3) every video he uploads. Normally such channels are boring and reveal more about Joe’s viewing habits than the typically infrequent uploads disclose about his videographer skill.

Second, some YouTube users restrict their comments and “likes” to an alternate user-name. Thus, the channel of the prime user-name only includes the owner’s uploaded videos. Some such channels are popular and can be tracked at VidStatsx.com. An example of a posting on one of the popular channels is provided here. While amateur features are obvious in the example, it also shows talent that is likely to only get better.

Third, YouTube is investing $200 million into scripted programming for one hundred channels. In recent years new types of studios have formed to create such videos. Examples in include, Maker, Machinima, Mahalo, and Vuguru where pioneering producers have been reported to take jobs for as little as $1,000 a month.

Yet YouTube viewing has been growing. As the chart below documents YouTube viewing doubled over the past 18 months whereas Hulu’s traffic has been flat.

In our analysis, the preceding chart validates Clay Shirky’s “Theory of the Long-Tail”. Each of us has personal interests that cannot be satisfactorily addressed by mass media because the audience size is too small. But the Internet enables fractionally small audiences to find content germane to their special interests. And an abundance of aspiring actors, producers, and other film workers means that such programs can be produced economically.  A vast number of aspirants shut out of Hollywood will flock to a new generation of studios making scripted programs for YouTube. Some of them – probably only a small fraction – will produce works that can drain audiences away from shows produced by legacy programmers.

Jim Burger - Copyright Attorney

It’s increasingly evident a growing number of Cable TV subscribers want to discontinue Cable service. They object to the high monthly fees required for fixed “packages” of video programming. Instead, they want to save money by watching only their favorite programs from a combination of (1) broadcast television, and (2) fee-based Internet services such as NetFlix, Hulu, and Amazon Prime.

Although broadcast television is free to individual TV-set owners with their own antennas, reception is often unsatisfactory in dense urban markets like Manhattan. About sixty years ago the problem was circumvented by the erection of community antennas, typically on the rooftops of large apartment buildings. In point of fact, today’s Cable TV companies are evolved forms of community antenna operators who were originally known as the CATV companies from the acronym for Community Antenna TV.

For many years TV broadcasts were delighted to have CATV distribute clear signals to their subscribers because it enlarged the TV audience. Larger audiences translated to higher advertising rates for broadcasters. There was no competition from Cable programming networks like ESPN, CNN, and AMC. Consequently, the three major broadcasters were generally satisfied with the overall expansion of TV audience that CATV operators provided.

However, after the advent of Cable programming, “Cable-only” networks such as CNN and ESPN were paid monthly fees in exchange for programming. In time broadcasters began to lust after such fees and presently collect a significant amount of programing compensation directly from Cable and Satellite operators. But Barry Diller threatens to change that.

After decades of outstanding success at Paramount Pictures and Fox Network, since the turn of the century Diller has focused on Internet ventures. His latest scheme is a new broadcast television distribution model that delivers broadcasts as a nearly simultaneous streamed service over the Internet. Diller believes his approach avoids copyright infringement and therefore does not require that he pay programming fees. His new company is named Aereo. It is offering residents of Manhattan all of the local broadcast stations as a streamed Internet service for $12 monthly. The service also provides DVR functionality.

Aereo’s planned method of infringement avoidance is to “rent” each subscriber a unique pair of antenna elements from the centrally located array geographically positioned within the city at a place where reception is good. The array is radically different than conventional TV antennas. Each pair of subscriber-assigned antenna elements is only about the size of a dime. Thus, a great many subscribers can be served from a single array location.  The following YouTube video describes how it works.

Not surprisingly the broadcasters argue that the Aereo array is nothing more than a “smoke-and-mirrors” way of evading classification as a community antenna. Earlier this month a District Court Judge declined to invoke an injunction as requested by the broadcasters. She reasoned that the element-pairs were unique to each subscriber, even if assigned dynamically as needed. The broadcasters have already announced that they will appeal her ruling.

A legal analysis of the ruling is provided in today’s audio podcast with Jim Burger who is a copyright attorney with Dow, Lohnes in Washington, D. C.

Download Jim’s audio interview here, for iPod, iPhone, and iPad.

Jim perceptively notes that if Aereo is sustained upon appeal, the precedent could have huge implications for broadcasters, satellite operators, and the CATV industry. For example, the Cable companies could replace their “community antennas” with Aereo-like arrays thereby enabling them to discontinue programming fees to all broadcast stations.  It could also adversely affect the Nielsen audience numbers, because Nielsen does not include Internet streams as part of a TV program’s audience. A smaller Nielsen audience would translate to lower advertising rates.

While an initial decision to decline an injunction against Aereo does not mean Aereo has won its case, it does mean that it will stay in the business presently. It also implies that Aereo’s legal arguments may be stronger than broadcasters had hoped.

As I steadily read more eBooks it’s increasingly obvious to me that they’ll become the chief book form-factor of the future. Thus, for the past few weeks I’ve sharpened my eBook authoring skills at Amazon Kindle by publishing two new titles.

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First is From Microsoft Word to Kindle Publishing. This short ninety-nine-cent instructional book explains how users of Microsoft Word can get their manuscripts, (1) published by Kindle and (2) displayed in the author-intended manner on Kindle devices. There are three steps.

One: Create the manuscript in Microsoft Word using the formatting conventions most acceptable to Kindle.

Two: Convert the Microsoft Word manuscript into a Web Page file suitable for upload to Kindle.

Three: Iteratively inspect-and-correct the file Kindle automatically creates for its devices.

A couple of instructional videos are embedded within the eBook to demonstrate key steps. Thus, it is a multimedia document, which is empowerment a conventional book can never match.

Second is an updated version of Confederate Private Sam Watkins’ Civil War memoirs entitled Co. Aytch – Illustrated and Annotated. (Co. Aytch is Confederate vernacular for “Company H”).

Originally published in 1882, Co. Aytch languished in obscurity until the early 1990s when it was extensively quoted in the Ken Burns Public Broadcasting film documentary entitled The Civil War. Prior to that the manuscript had only a few admirers, but some notable authors such as Margret Mitchell who wrote Gone With the Wind were among them.

If Sam’s narrative were presented to publishers today as a novel it would likely be rejected as too improbable. His experiences were stunning and his writing sometimes resembles Mark Twain’s. But what’s most missing – as Ms. Mitchell noted – is an understanding of Sam’s story within the larger context of the War. For example, none of his battle descriptions include maps. Thus, from his original manuscript it is hard to understand where he is fighting in relation to other combat units.

Accordingly, my updated version provides nearly two-hundred-and-fifty maps, annotations, and illustrations. The maps are particularly valuable.  My method of obtaining them underscores a fundamental shift in publishing collaboration. Specifically, Hal Jespersen created the maps for numerous Civil War Wikipedia articles and he permits me to use them so long as he is credited.  Undoubtedly this example of inexpensive illustrator-author collaboration results from the open-and-free characteristics of Internet publishing. Presumably Hal’s payoff will obtain from increased publicity for his fee-based mapping services.

Finally, from a legal viewpoint, my version of Co. Aytch is termed a derivative work of a public domain document – much like annotated versions of Shakespeare plays. Thus, my title has its own copyright .

Update. The devils in the details are monstrous. There are three reasons. While I anticipated each one, I failed to appreciate just how big they would be.

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First, as with any new computer the iMac requires initial configurations. The options are overwhelmingly confusing. The chances of getting everything right are vanishingly small. Moreover, this applies to each application and not merely the computer set-up as a whole.

For example, it took me a week to realize the reason I was not getting all my email on the Mac was because I failed to instruct the XP computer to leave a copy of each email on the server. It’s logical once I understood the process of how computers access email servers. But I never had to bother myself with that before. It was a matter of checking “two little boxes” seven layers down in the Outlook program on the XP machine. This required two phone calls to the ISP technical support. Neither Apple nor Microsoft technical support was of any help. Although Microsoft helped me set-up Outlook on the iMac, they did not tell me about the adjustment required (for me) on the XP machine.

Second, almost every task on the iMac is accomplished with a different set of keystrokes, or track-pad clicks, than used on the XP unit. While I anticipated they would be different, I now appreciate I failed to realize how many steps are involved in even the most routine tasks.  Whenever I tried a familiar XP task on the iMac, the chances that I could not “figure-out” at least one of the iMac steps was a near certainty. Consequently, I could not complete the task without a phone call to AppleCare, which provides unlimited telephone support for $170 a year. But it’s an annoyance to phone them owing to the ten minutes or so of required conversation with a computerized voice logic tree at their end with the same questions every time, before even getting put into the queue for speaking with a real person.

Third, the 2011 (iMac) version of Microsoft Office had enough differences to complicate transition from my old version. A lot of this had to do with the voluminous set-up options. For example, I wanted the “Inbox” view to match the one I’ve used for years on the XP machine. However, since the XP view was configured years ago, I couldn’t remember how I set it up. Additionally, matching the view on the new version involved different track-pad clicks than the mouse-clicks originally used. The menus were different. Given the long sequential click-chain required, the chances of encountering at least one incomprehensible option were as probable writing instruments in a pocket protector.

Recommendations. There doesn’t appear to be a satisfactory substitute for “hands-on” training. Instructional videos can help, but they have two problems. First, Apple and Microsoft just don’t supply many. Second, too often they take too long to get to the specific stumbling point, or they fail to address it at all.

Microsoft and Apple appear to have different approaches to “hands-on” training. Once I get through to technical support at Microsoft, the technicians can remotely take control of the iMac to fix the applicable problem in the Office software. This is “good” in the sense that I don’t have to drive anywhere to get someone to show me what I was doing wrong. But it is “bad” in the sense that Microsoft technicians are using it to fix specific problems and evidently are told not to provide more general instruction.

Apple’s approach emphasizes One-on-One training sessions at the Apple Store. For a cost of $100 a year I can schedule as many sessions as there are openings. But getting the most out of them is a challenge. Presumably, arriving with a task list is a good idea. However, if I can’t get passed the third level in a seven level set-up, it is hard to anticipate all the questions. For example, questions about the meaning of the options in each of the remaining levels might help me “relate” to the underlying logic of the navigational structure. The objective is to become like the hungry man who is taught to fish as opposed to the needy man who continually has to be given his next meal.

While getting an iMac desktop to a One-on-One session is a hassle, I’ve decided to keep the desktop instead of trading it in for credit on a more expensive laptop. When I arrived for my first One-to-One an elderly lady simultaneously arrived for hers. But she loaded her iMac in its original packing box and rolled it in with a portable luggage rack.  Since Apple does a great job with packaging and I saved my original box as well, I am going to try the lady’s method at my next One-on-One.

At the risk of stating the obvious, the transitional hassles would likely be considerably reduced if there were others in my office making the switch because we could help one another. Presumably the base-of-knowledge would grow exponentially with the growth in the number of people making the switch in a manner similar to Metcalfe’s Law.

Readers are welcome to share their own thoughts and experiences by emailing me or posting a comment below.