Tag Archives: Netflix

Some Oscar Night Reading

This week’s Economist features a brief article on the state of Hollywood. Though not a lot will be revelatory to those of us in the space, it does remind us of some interesting trends that many of could hardly imagine just a few years ago.

One example, rumors of television’s demise were premature.

TV is relatively stable and currently lucrative. TV networks earn money from advertising and from the fees that cable and satellite operators pay to carry their programmes. These fees amount to some $32 billion a year in America, and are growing by about 7% annually. People love watching TV, and, per hour, it is one of the cheapest forms of entertainment.

In contrast, film revenues are volatile. Attendance swings like the moods of Claire Danes’s bipolar character, Carrie Mathison, in the TV show “Homeland”. In 2011 American cinemas sold 1.28 billion tickets, the smallest number since 1995.

As studios continue to experiment with new distribution models, and companies like Netflix are getting into the content creation business, both the motion picture and television industries might be in for a period of growth.

 

Not much there in Netflix deal

So Netflix is paying $1 billion to Epix for the rights to stream titles from Paramount Pictures, Lions Gate and MGM. This could have been a big deal, but it preserves the cable networks’ 18 month exclusivity window. At the end of the day the Roku box remains a gateway to sometimes good, but somewhat stale Hollywood fare.

HBO and friends live on for a few more years as they evolve their businesses. Cable companies can continue to force customers into bundles that lump four or five “movie” channels showing pretty much the same stuff. Do cable companies see their reign coming to an end, and are just cash cowing their existing business models? It’s clear the “movie” channels are weaning themselves from studio fare. They continue to expand their original programming efforts — and doing it quite well. But what about the cable companies? Beyond caller ID on my TV for the phone line no one in my family uses, we’re not seeing a lot of innovation from Comcast, Charter, and company.

A more disruptive deal from Netflix would have forced big cable’s hand. We’ll just have to wait until the next round of studio deals with distributors to expire.

Apple TV’s next moves?

Before the Christmas holiday, rumors of Apple’s overtures to the networks abounded like so many visions of sugar plums. Journalists and bloggers posited about the effect of Apple’s entrance into the subscription television market. Most of the analysis was solid. The Seeking Alpha blog featured this succinct write up. Most expect a successful Apple offering would threaten cable and satellite subscription models. Others note that an invigorated Apple TV could put the pinch on the Netflix Roku service. Light Reading’s Cable Digital News noted the following.

While cable operators likely won’t face an immediate threat from the subscription service Apple Inc. (Nasdaq: AAPL) is purportedly pitching to major content suppliers, the offering may instead put the hurt on over-the-top video service providers like Boxee and Roku Inc.

It should be noted that Apple TV employs a hard disk. Content is downloaded before it’s played. Roku receives streams, so it’s a lower cost, lower footprint device. Most importantly streaming allows more delivery flexibility. Netflix doesn’t care whether I watch my content on a PC or a TV. Apple TV is anchored to a television. While an iTunes account can be managed from multiple devices, content needs to be downloaded to each to play it. Even with improved progressive download performance, this model has its limitations. One blog noted that a full season of an HD network television series can take up to 50 GB of hard disk space. So there’s a limit to how much content can be delivered to an Apple TV.

For Apple to leverage the strong iTunes brand it has to unhitch content from the device – a fundamental change in business model for a device manufacturer. But if any company has shown the ability to adapt to the digital media marketplace of the early 21st century, it’s Apple. If Apple succeeds at getting content deals in place, I expect a next-generation Apple TV to emerge shortly thereafter.

IPTV’s quiet revolution

RokuPolitical revolution’s have their defining moment – a statue is toppled in a public square, a wall comes down, somebody’s head is removed. Technology revolutions are (thankfully) a different breed. The revolution is declared, nothing happens for a long time, and then the trickle of change begins. That’s been the case with IPTV. For all the hype, a lot of nothing has been going down. Maybe the ground is beginning to shift.

Saturday my Roku arrived. Roku is a Netflix-enabled set top box, capable of streaming directly from your Netflix to queue to your TV. Only a relative few Netflix DVD titles are available for streaming, but at $99, the box was worth a try. Set up took more than the three minutes the launch screen promised due to a flash update, but still easy enough. Using your existing Internet connection, the box accesses the Netflix queue. Unlike Blu-ray disks, Netflix has yet to charge additional for this functionality. (Of course Blu-ray began at no extra charge, then cost $1/mo., and now runs $4/mo. per standard account.)

Netflix did what I wanted Apple TV to do, bring IPTV to my living room. After a year and a half of Apple TV, I’ve bought less than a handful of titles and rented none. Apple TV in my house is nothing more than an expensive iPod with a nifty screen saver for my HDTV. The family already watched more titles on Roku than Apple TV. Until Apple changes the Apple TV business model, Apple TV will remain moribund.

Though initial reviews and customer testimonials have been overwhelmingly positive, it’s too early to declare victory for Roku. There are still rough patches ahead for Roku – or any potentially successful IPTV platform.

  • Pricing model Netflix will have to begin charging for the service. It’s too easy to spend the day streaming titles. Serving up scores of titles per account may become more costly than maintaining DVD stock and using the USPS to act as a governor.
  • Network performance As these services gain in popularity, large areas of the country will suffer network performance issues. I can already tell when school’s out every afternoon in my neighbor based on increased network latency. It can only get worse.
  • Cable providers will want a piece of the action Roku’s using all that bandwidth to compete against cable’s on-demand offerings. Cable is going to want a piece of the action or things might get ugly.

The larger point is that my family is already hooked on IPTV. There’s no turning back.

The digital home

For a blog originally intended to house my rants and raves about television post production trends and tool, a lot of space has been devoted IPTV and podcasting. For IPTV to reach its potential, the digital home must become a reality. Different vendors have distinctly different visions of such a future. Microsoft envisions its Windows Media Center as the hub of the 21st century living room. Apple expects Front Row to supplant Netflix, Blockbuster, and much of the broadcast and cable grid. Akimbo and Dave are peddling proprietary set top boxes. Brightcove wants to supply the brains. And of course Yahoo! and Google expect a place on the couch. Sony, like Apple, sells both hard and soft wares (and has trouble playing well with others).

How it will all play out is anyone’s guess. When it will play out should be the bigger concern. My love affair with the video iPod stems from the role I see for it as the catalyst of the digital revolution in the home. Folks aren’t clamoring for IPTV and STBs. Because it’s not about technology. It’s TV. And to most Americans TV is just fine the way it is. That’s where the iPod comes in. Sitting in the living room or the dorm room in its cute little dock next to the TV, it provides a sleek, sexy, and fun window to the future. Downloadable content for TV can be pretty cool. Niche content that isn’t economically viable to distribute over broadcast and cable can be delivered point-to-point via IP. Some people will want to see the Numa Numa Dance on the big screen. (Sadly, many first generation video podcasts will aspire to be the next Numa, but that’s a discussion for another day.)

Interestingly, Apple finds itself perilously close the position it was in back in ’84 – introducing the masses a new, totally great technology, only to find itself marginalized in the future because it insists on keeping its proprietary systems closed. iTunes won’t work with other MP3 players. The iPod can’t be used to subscribe to other services. And Front Row won’t catalog Windows Media. Plus ça change…

Apple’s approach is great when launching a new technology. No chicken and egg. The hardware manufacturer isn’t waiting for content to be available, and the distributor isn’t waiting for the gadget to reach critical mass. If you don’t think this is a huge deal think about how long it took for HDTV to take off, why interactive TV never took off, and why widespread mobile phone video looks like a pipe dream.

But over the long haul monopoly inevitably stifles innovation. If one company supplies the hardware and software, distributes the content, and manages the rights to that content, what’s left for others? Ask HP. It decided that distributing iPods wasn’t worth its effort. There’s no motivation to form an alliance with such a vendor because it controls your profit potential. Instead others will copy pieces of the formula and form alliances with each other. HP figured that was a more reasonable approach. It might take longer to get to market, but once there, there will be real opportunities to make money. And then after a couple of product cycles, the new alliance will surpass the original innovator because they are in a competitive environment. It’s costs will be lower and its products better suited for the market.

I wouldn’t be surprised if Apple has a plan to avoid this fate, but I would be surprised if it succeeds without opening up its proprietary universe. It’s creating a lot of competitors where it could be creating collaborators. Here’s some free advice for Apple. Open your system to the Sony PlayStation platform. Both the iPod and the PSP use the H.264 codec for video. They were meant to play together.

The Xbox is Microsoft’s best shot at becoming the master of the digital home. Wirelessly networked to a Media Center PC. It can be the ultimate IPTV STB. Akimbo, Dave, and Brightcove should redesign their systems around the Xbox. It’s the quickest way to penetrate the market. Brightcove’s business model with Xbox engineering? Apple may meet its match sooner than it expects.

Post script: Texas Instruments has developed an intersting, though immodestly named, technology. DaVinci is a tool box for developers. The basic idea is to have a single suite of developer tools work with a wide variety of video formats and codecs. Theoretically a video jukebox using DaVinci chips and code would be able to switch between WM9 and MPEG-4 H.264 seamlessly. Pretty cool. The white papers are well written – even to a guy who thinks ASICs are something one wears to the gym. Read beyond the paranoid worldview that has consumers watching their home surveillance cams on the living room telly and the technology is compelling.

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