Internet Outsider

TiVo Provides the Missing Movie-Download Link; Threatens Cable Cos

At long last, someone has finally addressed the gaping hole in the digital-movie-downloading business. TiVo's new deal to let subscribers rent or buy Amazon.com digital movies directly from their TiVo boxes removes an awkward step in the process: customers no longer have to futz with their computers to rent or purchase a movie. Now, they can just pick up the TiVo remote.

Perhaps this will finally light a fire under the cable companies, whose resistance to unforced innovation is legendary--and whose grasp on the digital rental market continues to slip. Or perhaps it won't...

Cable giants like Time Warner Cable, Cablevision and Comcast have been trying for years to boost revenue with on-demand movie rentals. But success has been hindered by limited movie selection, short viewing windows, and the inability to for viewers to purchase downloaded movies outright.

Meanwhile, online movie services like Amazon's Unbox or Apple's iTunes have required a computer to make the transaction and download the movie file. Getting the movies to play on TV has been even more complicated and expensive, requiring either a complex computer setup or a pricey gadget like Apple TV. TiVo's deal with Amazon solves some of these problems, allowing subscribers to buy movies without leaving the couch, or rent them for 30 days, often for less money than 24-hour cable rentals.

But don't short cable yet: TiVo's impact is limited by its modest presence -- only 4.3 million total subscribers, of which only a small percentage have set-top boxes compatible with the new service. Also cheap, no-brand DVRs built into cable boxes have already reduced TiVo's market share, and now that TiVo has blazed the trail, the cable companies are presumably free to strike similar deals of their own. Because digital-download services require a high-speed Internet connection, moreover, even the TiVo box is not a total loss for the cable companies.

In any case, expect more deals like this in the near future from companies like Apple, Microsoft and Sony, all of which are eager for a place in your living room -- at your cable company's expense.

CBS's Moonves Sees the TV News Future...And It Is Bleak

Lost in today's dust-up between Dan Rather and Les Moonves over Rather's explanation for CBS News's tanking ratings was a bleak--and accurate--portrayal of the future of TV's evening news shows.

In case you missed it, Rather said the CBS Evening News is in a tailspin because CBS tried "to bring the 'Today' show ethos to the 'Evening News,' and to dumb it down, tart it up in hopes of attracting a younger audience."  It is understandable why Moonves dismissed these remarks as sexist, and it's also understandable why Rather wants to believe that things would have been different if he hadn't blown himself up in the Bush-National Guard forgery fracas.  But the argument is a sideshow.

Moonves is right that unless CBS can find ways to skew the Evening News audience under 60 years old, the show is toast.  He's wrong, however, when he implies that the choice of the right anchor, or style, will accomplish this.

The evening news shows are dying for the same reason the newspapers are dying: the next generation of viewers/readers are getting their news online (or from Jon Stewart).  Because the online medium is simply a better medium for delivering news, nothing the TV networks do will change this trend. 

Jason Jones on Yahoo/Right Media, VUDU, Amazon

Guest analyst Jason Jones weighs in on Yahoo/Right Media, the new VUDU box, and Amazon's S3 (the business that everyone's now prematurely salivating about):

Yahoo/Right Media: It seems to me like a lot of money to pay for a very young company that passes 90% of its revenue onto to its publishers and seemingly low barriers to entry.  $680m for 80% indicates a total value of $850m, which is larger than 24/7 Real Media's total enterprise value of $478m.  While TFSM does not directly compete in the advertising exchange model, it a profitable public company with a global platform in the media network, technology ad serving, and search engine marketing space and it is expected to do $270m in revs in '07. While Right Media has the first mover advantage, I find it hard to understand how they have a sustainable competitive advantage over companies like TFSM and DCLK that can leverage their ad serving technology and media networks to successfully enter the ad exchange space.  Perhaps that is why RM sold out.

That Cool New Movies-On-Demand Box--VUDU: Does the world really need another set-top box?  I think Vudu needs distribution.  TIVO is best positioned with its Comcast and Cox partnerships. Give it another 6-12 months and the spotlight will shift back to TIVO as the industry leader.  VUDU needs one of the major set-top box manufacturers to buys it or it must make deals with the MSOs for distribution.  Otherwise it isn't that interesting.

Amazon S3: In this blog post, SmugMug lays out the details of how much money his company has saved by switching to Amazon's S3, the new web-services service that Wall Street is all hot-and-bothered about.  On the call, Bezos said the service's contribution to Amazon's performance was immaterial.  Based on SmugMug's post, moreover, it seems like a very low-margin business.  So, is this really a good business for AMZN? AMZN is selling $423k of services for $84k? I am sure AMZN has some scale advantage but it seems like this is likely another low margin business.  If I was Smugmug, I would be concerned that AMZN would raise prices after standardizing on their platform.

VUDU: NetFlix in a Box

One of the most successfully secretive start-ups in recent memory finally came out over the weekend...and now the promise of true TV-based VOD (anything you want to watch, whenever you want to watch it) seems a step closer to reality.  According to Brad Stone in the NYT, the VUDU TV box will allow owners to watch any of 5,000-plus movies instantly, instead of playing roulette on cable Pay-Per-View, waiting for Netflix discs to arrive, interminably downloading full-length films to their PCs, or, god forbid, driving to the video store.

The VUDU box apparently stores the beginning of all movies locally, which allows for the "instant" viewing, then downloads the rest from a peer-to-peer network of other VUDU boxes.  Owners pay about $300 for the box and then $6-$10 for each movie.  Several studios have already signed up to distribute movies through the box.

Thoughts:

• The future--a world in which TV and movie viewers are no longer "programmed" and, instead, can always watch what they want to watch--is, slowly but surely, arriving.  VUDU is the next step.

• Unlike YouTube, Joost, and PC-based movie-downloading services, VUDU is attacking a TV problem through the TV, as opposed to through the PC.  Downloading and watching movies on a PC will never be a big hit with consumer, and today's PC-to-TV solutions are klugy.  VUDU starts with device on which most movies will and should be watched: the TV.

• The early incarnation of the VUDU functionality, which will require yet another TV box and remote, seems clunky and inconvenient.  Sooner or later, however, the functionality will likely be built into other boxes (the way TiVo is/was).

• The early reported business model--$300 for the box and $6-$10 per movie--is not likely to be as successful as a subscription model (all-you-can-eat or a Netflix-like tiering).  Consumers hate to be nicked for every action, and the per-movie charge will discourage use, no matter how convenient it is.  (If Netflix users got discs for free but had to pay every time they used them, the service would be far less popular).

• This said, the movie studios that have rushed to sign on with VUDU would likely be more wary of a subscription model, and have likely forced the company to go with pay-per-view. The fact that the studios have signed up so fast is, on the one hand, positive: They are finally embracing some change.  On the other hand, the fact that they have signed up so quickly indicates that, from their perspective, the change may not be that radical.  Unlike analog media, digital media is a high fixed-cost, low/zero variable-cost business.  Monthly subscriptions would/will ultimately make far more sense for both producers and consumers.

 

Joost: Big Advertisers Love It. But Will Users?

ClickZ reports that Joost has signed three-month contracts with a group of 31 big brand advertisers, including Procter & Gamble, Coca-Cola, Nike, General Motors and Visa. It will offer these marketers traditional units such as :30 mid-roll spots as well as unique formats, including a small digital overlay ad. "The foundation is the traditional :30 spot, which we believe is far from dead, served on a mid-roll basis," said David Clark, Joost's EVP of global advertising. "We're inspired by others who seem to be able to make this work, like ABC for example."

JJ:  This is pretty cool.  We are witnessing an Interactive TV medium built from the ground up.  It all sounds good but I  haven't heard how they will get Joost into the living room.

HB:  The bigger question, I think, is whether Joost viewers will be willing to watch 30-second ads.  The Joost environment is already startlingly TV-like (see "Test-Driving Joost"), which is great for traditional TV programmers, but not so great for many Internet users, who don't like to be programmed (and who often watch online videos at work, where transforming the PC into a TV won't go over so well).  The reason "traditional TV spots" aren't common online is not that they don't work--it's that Internet users hate them.  So I think it's premature for Joost fans to commence an end-zone dance.

Video Piracy 2.0: Get Ready for Viewer Lawsuits

The Journal's Kevin Delaney details the latest frontier in online video piracy: Sites like www.YouTVpc.com that assemble links to your favorite movies and TV shows--which are hosted on third-party servers in, say, Malaysia. 

YouTVpc's proprietors don't upload the video content--they just find it and link to it.  Unlike YouTube, they also organize it in a user-friendly fashion: lists of shows by year and episode, etc.  The proprietors spend their evenings searching for videos and answering concerned emails from users saying "is this legal?" (Answer: Maybe, for now.)  They cover their costs with advertising and live off Jolt cola and kettle chips.

Implications:

• Merely "linking" to pirated video may not be illegal yet, but, presumably, after fierce lobbying and lawsuits by the MPAA, et al, it might be. (Although this would be a heroic and disturbing precedent--making lists of links illegal). 
• If such efforts fail, the MPAA, et al, will presumably follow the path blazed by the RIAA, et al, and start suing thousands of American consumers who watch pirated video.  The consumers' defense, presumably, will be, "But I didn't download it."  To which the MPAA, et al, will reply, "See you in court."  And the threat of hundreds-of-thousands-of-dollars-of-legal-fees later, most consumers will, sensibly, cave.

What is not likely to happen, but should, is that the MPAA and traditional video production companies should note that 1) successfully suing users hasn't saved the music companies, and 2) the world has changed forever and there is no way stuff the cat back in the bag.  In light of this, BigMediaVideo should pursue a parallel course:

1. Post all their old shows online on their own sites immediately and allow other sites to link to them.
2. Make clear that videos hosted on their sites are LEGAL to watch, whereas video at all other unapproved locations are ILLEGAL (and viewers may be sued, etc.)
3. Build the best-available online directories of online video (an area in which YouTube, for some reason, is failing), so as to establish a presence in video search.
4. Get better at embedding sponsorships, product placements, and, if necessary, short ads in the videos to generate as much revenue as possible.
5. Create subscriber plans in which paying users can get new videos instantly (thus offsetting any lost revenue from folks who prefer to watch TV on their PCs).
6. Share a modest referral fee with sites whose users link to and view the videos (thus encouraging affiliates to promote them.)
7. In short, EMBRACE change, instead of fighting it every step of the way.

Time Warner to Keep AOL, Sell Cable, and Buy...MSN?

Matthew Karnitschnig of the WSJ kicks off the morning with a Twilight Zone piece about how Time Warner may not dump AOL after all, but instead sell off cable and "double down" on the Internet by buying another big net company. 

Without commenting on the plausibility of this theory (except to say that it would be quite a change of heart), here are some thoughts:

• Oh, the irony!  The theory behind the strategy, apparently, is that cable will become increasingly commoditized and less relevant in a world with the Internet and Internet TV, etc.  It was, of course, exactly this sort of thinking that led to the "transformative" AOL-Time Warner merger in the first place.  Without concurring that cable will become less relevant (somebody has to plumb the pipes), this would lend credence to the idea that the AOL-Time Warner merger wasn't a colossal, bubble-headed strategic error, but just early. 

• The most sensible big-net-company acquisition/merger candidate is MSN.  A combined AOL-MSN would dominate online communications, and, together, would have the scale and clout that each company alone currently lacks.  The integration, management, and long-term growth strategies, of course, would be a nightmare.

• Assuming Time Warner isn't up for that challenge (and who could blame them), companies like Facebook, Bebo, Music Nation, and others fit into the company's entertainment DNA and would help offset/refresh the demographics of AOL's geriatric user base.  They also wouldn't require another bet-the-company roll of the dice.

AOL's having a 'meet the new AOL' event today, so maybe we'll get further details.

UPDATE

A reader suggests another sensible Time Warner acqusition candidate: Joost.  Any others?   (I personally think Joost would make sense but also be extremely risky, because 1) the site hasn't even launched yet, and 2) if/when Joost is owned by one of the big media companies, it will lose its status as a neutral "Switzerland" BigMedia solution.)

CBS Video Deals: Quincy Smith Being Smart Again

CBS's portfolio of video distribution deals shows that CBS Interactive's president, Quincy Smith, is still using his head. 

Quincy, you may remember, then at Allen & Co, was one of the investment bankers who sold YouTube to Google.  Before that, he was the IR man at Netscape and a Valley venture capitalist--so he knows smart Internet ideas when he sees them.  And CBS, you may remember, was one of the first major TV production firms to embrace (or at least experiment with) online video distribution through non-CBS properties.

CBS didn't participate in the DOA bigmediavideo YouTube killer occasionally known as NBCFoxTube (although it will reportedly distribute video through it).  It didn't alienate the entire digital industry by suing YouTube for $1 billion (instead, it did a small partnership).  And, now, intelligently, by doing distribution deals with anyone and everyone BUT YouTube, it is establishing precedent and leverage for the inevitable major YouTube negotiation.

According to Brooks Barnes in the WSJ, in its video deals, CBS is also retaining full control over the sale of advertising that will be shown in conjunction with its videos--a big sticking point for traditional media companies, who value their relationships with advertisers.  It is also demanding 90% of the advertising revenue, with only 10% going to the distribution partner.  For the distribution partners' sake, one hopes this is "net revenue", as the streaming costs alone will probably eat at least 10% of the top line.

Most importantly, CBS is doing everything it can to diversify its distribution channels, attract a loyal base of online users, and make its content ubiquitous--all of which will allow it to credibly maintain to the folks at YouTube that it--CBS--can take or leave a full-blown YouTube deal.  Whether this is in fact true is a different question, but CBS is doing everything it can to make it seem so. 

The quarterback behind these intelligent CBS machinations, I suspect, is Quincy Smith.  So give that man (and CBS) a hand!

Test-Driving Joost: Beyond Slick, and Not Really a YouTube Competitor

Joost was kind enough to make me a beta tester, so I spent a half-hour last Friday checking out the service.  Key observations:

• In its current form, Joost is more like TV than online video.  As a result, it is not yet a direct competitor to YouTube.

• The interface is super-slick: Full screen, floating translucent menu bar, high-quality sound and video.  Even if it were possible to watch amateur videos on Joost, you would not want to--because they would look horrible.

• Joost will be awesome for watching music videos, movie trailers, and sports highlights.  These categories constitute a meaningful percentage of YouTube views, so there will be some overlap (although I still can't understand why music and movie companies would not want these videos available everywhere).

• The user-experience is definitely more video-on-demand than Internet, and this will likely create tension for those who like to consume their online video at work: Watching a few short clips on YouTube while checking online news and email is one thing.  Ginning up the "Soccer Channel" and watching the "100 top acrobatic goals" for a half-hour is another.

• Unlike YouTube, which is all about video storage and delivery and user choice, Joost appears to be at least half about programming.  This will certainly appeal to traditional media companies, who love programming.  Whether it will appeal to impatient, busy Internet users who hate being programmed, however, is another question.

• Joost's advertising currently takes the form of "brought to you by" full screen ads with logos that precede the launching of your "channel" selection.  These are unobtrusive, tolerable, and vastly preferable to pre-rolls, which make you loathe both advertiser and content provider.  They also presumably don't generate anywhere near as much revenue.

• Bottom line: Joost is a full-on entertainment tool that will compete with traditional television as much as it competes with YouTube.  The risk for the company is that the service will end up being neither fish nor fowl: Not as good as TV (the "100 top acrobatic goals" are good on a 17-inch PC screen, but amazing on a 42-inch TV), and not as simple, convenient, and user-driven as YouTube.  It should be a hit with those who live on music videos, though. 

eBay's Media Exchange Flops

As SWMX's Josh Wexler suggested in this interview, eBay's attempt to revolutionize the TV ad sales business isn't getting rave reviews.  In fact, Louise Story of the NYT reports that the cable industry has just left it for dead.

Which begs the question...how's Google really doing?  According to Josh, not well.