Thursday, May 31, 2012

Internet multichannel video services go on the offensive

According to The Hollywood Reporter, Aereo, the Internet-based multichannel video service backed by Barry Diller, faced off against ABC, CBS and NBC yesterday in Federal Court in New York. The broadcast networks are asking for a preliminary injunction again Aereo. In an unusual move, the judge is allowing both sides to call witnesses--an opportunity that wasn't afforded to either ivi or FilmOn in previous cases. (The Second Circuit Court of Appeals began oral arguments about ivi's injunction yesterday.)

Part of yesterday's testimony centered on the damage that Aereo's service could do to broadcasters, since the networks have to demonstrate both a likelihood of prevailing on the merits of the case and irreparable harm if Aereo continues in operation in order to get a preliminary injunction. Martin Franks, CBS' Executive Vice-President of Planning for Policy and Government Affairs, was asked whether Aereo is more or less damaging to broadcasters than DVRs, and Franks replied that he didn't know. Michael Elkin, one of Aereo's attorneys, pointed to a deposition that Franks had given, in which he suggested that DVRs were more damaging than Aereo's technology, even though broadcasters have accepted DVRs as a "fact of life."

The comparison with DVRs is interesting, and it might well help Aereo avoid a preliminary injunction. However,  it's probably not going to be a major factor in the trial for a permanent injunction. Broadcasters want to be able to require Aereo to pay for retransmission rights, as cable, satellite and IPTV operators are required to do by law.  Aereo claims that its system is the same as reception through a roof-top antenna--the antenna is simply located across the open Internet--and that it's thus not bound by the same rules as other multichannel video programming distributors (MVPDs.) Broadcasters are concerned that if Aereo is allowed to continue to operate, it will lead to a flood of low-priced, over-the-top video distributors copying Aereo's model. Consumers will move to the new Internet-based distributors, and the revenues that broadcasters get from cable, satellite and IPTV providers will decline.

The FCC is considering whether to add over-the-top Internet video services like Aereo to the definition of MVPDs. That would partially address the issues in this case, since Aereo would be required to pay for broadcasters' programming. However, the broadcasters could still refuse to license their programming to Aereo, leaving the company without the content it needs to operate.

What's ultimately needed is a requirement that broadcasters make their programming available to all MVPDs at equitable prices. That would allow Internet-based MVPDs to compete on an even footing with other companies, but wouldn't penalize established MVPDs. It would also insure that broadcasters get retransmission revenues from all distributors.
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Tuesday, May 29, 2012

A television EFP van in your...motor scooter?

Last year, Newtek got a lot of attention by turning a Mini Cooper into a tiny EFP vehicle, equipped with one of its Tricaster systems, camcorders, tripods and microphones. KiBAN International, a Japanese eLearning vendor, has just announced an even smaller EFP vehicle--well, actually, an EFP scooter.

The Panda Bird combines Blackmagic Design's electronics and a Honda Gyro Canopy three-wheeled scooter. It incorporates Blackmagic Design's ATEM Television Studio video switcher, HyperDeck Studio Pro dual-deck SSD video recorder and SmartView Duo dual 8" display, along with two camcorders, tripods and additional electronics. Camcorders are connected wirelessly to the ATEM Television Studio, and its built-in H.264 encoder can be used for live streaming from the Panda Bird directly to Ustream. The electronics package fits into 6RU, is powered by 12 volts and can be removed from the scooter for indoor use.

As you can see, there's no room to carry lighting and sound equipment; from the picture, it might not even be possible to fit in the camcorders and tripods. So, the Panda Bird is more an interesting exercise than a self-contained mobile production system. However, it does suggest that Newtek no longer has the miniature video production system business to itself.
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If publishers hate Amazon so much, why do they sell to them?

I haven't been able to wrap my head around the fact that the Big 6 publishers hate Amazon so much that they were willing to risk antitrust prosecution, yet they still sell their books to the company. If Amazon is truly such a threat to publishers, there's a simple solution: Stop selling to them. I'm not a lawyer, and I don't claim to be an expert on U.S. antitrust law, but my understanding is that sellers can refuse to deal with a class of customers, so long as they uniformly apply their standard to all applicable customers. That means that publishers could refuse to sell to online-only retailers. That wouldn't prohibit online sales, but it would require that retailers also sell their books through physical stores.

Imposing this standard would mean that the publishers would no longer sell to Amazon, Apple, Kobo, Sony and other online-only book retailers. Of course, it would make Barnes & Noble a de facto monopoly for online book sales in the U.S.; publishers may find over time that B&N becomes just as demanding and difficult to work with as Amazon was. On the other hand, it would strengthen independent booksellers, which would no longer have to compete with Amazon.

The ball is in publishers' courts--they can cut off Amazon if they want to. The real question is, why haven't they already done so?
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Friday, May 25, 2012

Be your own role model

I was browsing at my local Barnes & Noble last night, and I noticed that the Business section seems to be getting its own "Steve Jobs" department: In addition to Walter Isaacson's biography, there's "The Presentation Secrets of Steve Jobs," The Innovation Secrets of Steve Jobs," "The Steve Jobs Way," "Steve Jobs: The Man Who Thought Different," "Insanely Simple," and on and on. There's clearly a big market for books about Steve Jobs, reflecting a great deal of interest. Does that mean that you should model yourself after him?

Consider that when Steve Jobs first started Apple with Steve Wozniak, the leading company in Silicon Valley was Hewlett Packard. Company founders Bill Hewlett and Dave Packard, and their "HP Way", were the models for many technology companies in the Valley and beyond. Wozniak had even worked at HP's calculator division for a time. Yet, Jobs and Apple didn't try to emulate HP. Jobs had his own philosophy about how a company should be run and how his employees should be treated. The signature companies that were founded in HP's model, Tandem and ROLM, no longer exist.

Founders' personalities and their companies are very much a matched set--either the combination works or it doesn't. Trying to emulate a successful founder's personality rarely works; trying to model that style and then impose it on a different organization almost never works. The most successful people follow their own path; they take lessons from others, but they don't try to emulate them. That's why slavish mimicking of how Steve Jobs thought, or how he ran Apple, is doomed to failure. The best that you can possibly be is a second- or third-rate imitation of Jobs. You're much more likely to be successful by being a first-rate version of yourself.
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Monday, May 21, 2012

What are eBooks doing to the publishing industry?

We’ve now had a couple of quarters of earnings reports from the Big 6 publishers and some other large, publicly-held publishers, and two patterns have emerged:
  1. Overall revenues (sales) are down, but earnings (profits) are up.
  2. Print book sales are down, but eBook sales are up.
Overall revenues are down in part because consumers are substituting less-expensive eBooks for print books, and because total demand for books is declining (I’ll discuss that latter point in a moment.) Earnings are up because it’s less expensive to “manufacture” and distribute eBooks (the costs for editing and designing eBooks and print books are comparable and overlap to a great degree.) Folks are arguing all over the Internet as to whether or not eBooks are cheaper to produce than print books, and if it even matters. The fact is that eBooks are cheaper to produce, and it does matter. Here’s an abridged list of all the costs that print books require that eBooks don’t:
  • Printing
  • Binding
  • Shipping
  • Warehousing
  • Acceptance of returns
  • Inspection, warehousing and shipping of salable returns
  • Recycling or destruction of unsalable returns
Publisher margins are up because consumers are substituting lower-cost eBooks for higher-cost printed books, and heavy book buyers are buying more eBooks. However, printing and binding costs are extremely sensitive to quantity, so as eBooks comprise a bigger and bigger percentage of overall book sales, book manufacturing costs will start to rise. That’s one of the reasons why the Big 6 publishers have been raising prices for their eBooks—the increased profits they earn on eBooks are being used in part to subsidize the manufacturing cost of print books.

There will come a time when eBook profits won’t cover increases in print book manufacturing. At that point, publishers are going to have to make some very hard choices:
  • Raise print prices to reflect the full cost of manufacturing and risk an even faster decline in sales,
  • Adopt Print-on-Demand (POD) technologies, which allow manufacturers to control costs and minimize inventories but require dramatic changes in how books are manufactured, warehoused and distributed, or
  • Stop supplying printed books.
eBooks aren’t the only reason why demand for print books is declining. For many years, the average number of books read by each person has been dropping. The number started declining before eBooks became a major factor. The primary reason is that there are so many more ways for people to entertain and inform themselves. Consider that in the 1960s, when Random House co-founder Bennett Cerf was a regular panelist on the U.S. prime-time television game show “What’s My Line?”, there were three commercial television networks and, in most markets, three television stations. In most cities, you’d have one or two daily newspapers. Radio was an option, but it had been declining since the advent of television. There were movies, and of course there were books. Those were your choices.

Today, there are literally hundreds of thousands of additional media choices, most of which are available whenever and wherever you want via the Internet. There are video games and casual games available on game consoles, PCs, smartphones and tablets. Social media provides ways to get information and interact that weren’t thought possible in the 1960s. The result is that while the total media “pie” is getting bigger, each media choice is fighting for a smaller and smaller share of the pie.

Books haven’t fared well in the battle for attention, but eBooks may be slowing down the decline. Heavy book readers have been the most enthusiastic adopters of eBooks—they’re buying more titles, because the cost per title is less with eBooks than with print. Medium book readers’ use of eBooks is catching up with heavy readers, but they’re buying about the same number of eBooks as they did print titles. Light book readers are also light adopters of eBooks, and it’s unclear if they’ll buy or read any more eBooks than they do print books.

Even with eBooks, overall book sales will continue to decline—but they’re certainly not going to zero. In some countries, it’s entirely possible that eBooks will result in overall sales growth, as expensive, hard-to-distribute print books are replaced by less-expensive eBooks. (This is particularly true in markets such as India that still have primitive distribution infrastructures but fast-growing mobile phone availability.)

eBooks are changing publishers’ cost structures, redefining how print books are manufactured, reshaping channels of distribution and reeducating consumers about how much books “should cost.” However, they’re not changing the competitive environment in which publishers find themselves today, and at the end of the day, competition for consumers’ time and money may have far more impact on the publishing business than eBooks could ever hope to have.

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Sunday, May 06, 2012

The tablet makers' dilemma

Last week, DigiTimes wrote that "Android 4.0-based tablet PCs will be the dominant products in the segment in the third quarter of 2012 as most brand vendors will not rush to launch Windows 8-based models until the fourth quarter." The reasons for holding off on introducing Windows 8 tablets are fairly clear:

  • Microsoft had been expected to release Windows 8 in Q2, but it's now looking like it won't be released until Q3 or possibly even Q4. 
  • It will take time for vendors to test Windows 8 and related products for their tablets. 
  • Vendors are suspicious of Microsoft's intentions with the Barnes & Noble deal--is B&N going to become Microsoft's "preferred" tablet vendor in the same way that Nokia is favored for Windows Phone 7 smartphones?
  • Vendors see no reason to rush Windows 8 tablets to market. 
But, will Android 4.0 products be "dominant" in Q3? Not likely. According to Google's Android Developers site, all versions of Android 4 constitute less than 5% of the active Android installed base. That number overstates Android 4's true share because Google bases its installed base numbers on usage of the Google Play website, which only "authorized" devices can access. If the Kindle Fire and Barnes & Noble Nook Tablet and Nook Color were included, Android 2.3.3 to 2.3.7 would have even more market share than the 63.9% reported by Google.

That leaves tablet vendors other than Apple, Amazon and Barnes & Noble in a quandry. Should they continue to invest in Android tablets when, to date, Google hasn't been able to provide a version of Android for tablets that's compelling to consumers? How much hope should they place in Google getting it right with Android 5? Should they follow Amazon's model and fork a stable version of Android with their own user interface, perhaps even going back to 2.3.X?

Is Windows 8 the solution? Possibly--the Windows Phone user experience is superior to that of Android, and both Windows Phone and Windows 8 uses Microsoft's Metro design language  However, Windows 8 is the "floor wax/dessert topping" of operating systems. It's designed to be used for both touch-oriented tablets and keyboard-oriented personal computers, and as a result, it has compromises that iOS and Android don't have. The "tablet" portion of Windows 8 looks like its usability will be competitive with iOS, but there are likely to be very few apps available for it at launch, compared to more than 600,000 for iOS. The "personal computer" portion of Windows 8 looks and works almost identically to Windows 7, which means that it has nothing to do with the tablet apps.

One the one hand, computer companies can't afford to concede the tablet market to Apple. On the other, it's clear that Android, at least the stock version offered by Google, isn't competitive with iOS. Windows 8 is likely to be better, but as a tablet operating system, it's starting where Android was more than a year ago. So what should tablet vendors do? The safest approach is to wait and see: Develop prototypes of Android 5 and Windows 8 tablets that can be taken into production quickly, but let competitors test the waters first. Don't commit the resources to production or distribution until one of the operating systems proves that can compete with iOS. Another option is to fork and skin Android in order to improve its user interface--riskier, but possibly  the only way to make Android a viable alternative to iOS.

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