Thursday, December 13, 2007

The Writers' Strike: Inertial Guidance in Action?


As I write this, the Writers Guild of America strike against the Association of Motion Picture and Television Producers has been going on for more than five weeks. Production on most scripted television shows has stopped; all but a few of the late night talk shows have been in reruns since the strike began. Motion picture production is still continuing, although a number of films have been postponed.

I've read the WGA's proposals and the producers' counterproposals, and frankly, I don't see anything in what the WGA is asking for that will dramatically impact either the producers' profitability or their ability to do business, on the Internet or anyplace else. Of course, with negotiations coming up with both the Directors Guild and the Screen Actors Guild, the producers don't want to set precedents that will cost them far more money if they make similar concessions to those unions.

Even if the producers manage to beat back the WGA, there's no guarantee that SAG, which has far more power, won't ask for the same things, and put the producers right back to where they are today. Iin fact, the situation will be even worse, with all production suspended. So, why aren't the producers trying to get a compromise with the writers now?

In my opinion, the reason is that this is the way that the producers have always dealt with the writers, and they're not going to change, even though it's clearly in their best interest to do so. This is inertia. We've seen the effects of inertia on American business many times before:

  • The consumer electronics business was once dominated by U.S. companies. After World War II, Japan had a reputation for making shoddy products, and U.S. manufacturers discounted their ability to ever compete effectively. Of course, we know what happened--the Japanese flooded the world market with superior products at low prices. Rather than aggressively lower their own cost structures and improve quality to compete with the Japanese, U.S. manufacturers sued, charging that the Japanese were dumping color televisions in the U.S. at below their cost. Some Japanese manufacturers were penalized, but ultimately, all the U.S. consumer electronics companies were either acquired (for example, RCA by Thomson of France, Motorola Quasar by Matsushita of Japan and Zenith by LG Electronics of South Korea) or went out of business.

  • The U.S. was also once the world leader in steel production, but by the mid-1970s, management had completely lost control of costs. In some cases, steel was being manufactured in plants with furnaces that were over 100 years old. The Japanese entered the U.S. market with better products at a lower cost, and as with consumer electronics, rather than build new plants and renegotiate labor contracts to get costs down, U.S. steelmakers sued to keep the Japanese out. That strategy worked for only a short time, and in the early 1980s, the U.S. steel industry collapsed. A handful of companies survived and built plants that could compete, but the Rust Belt was decimated. Whole towns looked like a neutron bomb had exploded--the buildings were still there, but the people were gone.

  • The recording industry is "circling the drain." Rather than respond positively to the advent of MP3s and file sharing, they chose to sue their own customers, charging them with piracy. They're still making only half-hearted attempts to come to terms with this new environment.

The motion picture and television companies have generally done a much better job than the recording industry in adapting to the Internet, but their arguments about not yet understanding the value of Internet content are just silly. Viacom is suing Google for one billion dollars for unauthorized use of their content, and NBC Universal removed its content from iTunes because it wasn't making as much money as it thought it should, but both companies are pleading ignorance about the value of Internet content.

Marc Andreessen thinks that a long writers strike could result in a Silicon Valley-style economy in the entertainment industry. I don't think that the strike by itself will precipitate that outcome, and the film industry is incredibly resilient--the major studios "melted down" in the 1950s with the one-two punch of the advent of television and the loss of their theater chains, but they still survived. Nevertheless, the major media companies are going down the same path as consumer electronics, steel and music. By the time they stop suing people and "taking their ball away," and start making the radical changes to their businesses that will be needed for survival in the 21st Century, it will probably be too late. We're nearing the point at which the "wire" used to get content, whether it happens to be cable, twisted pair, fiber or wireless, will be completely unimportant. Physical media (CDs, DVDs and the blue laser bombs,) for all intents and purposes, will go away. Content will be consumed any time, anywhere. User-generated content will become a permanent, and major (if not dominant) part of the media landscape. Self-distribution will be the norm rather than the exception.

The major media companies are at a crossroads, one that will be exacerbated by probable back-to-back strikes by writers and actors. I honestly think that there are some senior managers in these companies who don't have their heads in the sand, and who, if given the chance, could help their employers make the next evolutionary step. Whether they're given that opportunity is an open question.

Friday, October 12, 2007

Opportunity 3: Video Editing


Lord knows there are many, many choices for video editing software. Most of them follow the "timeline and bins" model popularized by Avid almost 20 years ago. Avid and similar platforms from Apple (Final Cut Pro) and Adobe (Premiere Pro) now dominate professional video and film editing. And, up to the YouTube era, even consumer editing software looked like Avid (Pinnacle Systems, one of the leaders in the consumer business, is actually owned by Avid.) However, there's a dawning recognition that most video editing programs are simply overkill for consumers.

Apple's iMovie 8 and Adobe's Premiere Elements 4, the most recent versions of each company's consumer editing software, have adopted a much simpler user interface. They're both a lot easier to use than previous versions, but they're also much less flexible.

On the other hand, Pinnacle's latest package, Pinnacle 11, has gotten even more sophisticated; the Ultimate version comes with hundreds of special effects, noise reduction, music composition software and even Chroma Key capabilities with an included green screen.

The job of a video editing package, or any tool, is to make it as easy as possible to get the results that you want. Any director or editor will tell you that they actually use a very small number of video transition--fades and cuts--when they're editing. Yet, the sophisticated consumer editing packages have hundreds of transitions (wipes, 2D and 3D effects,) the vast majority of which never get used. They add to the complexity without adding any real value, but they look great on the box.

Pick up a copy of any consumer-oriented video magazine, and you'll see dozens of articles and ads that assume that readers want to be the next Spielberg. but I really don't think that's the goal of most videomakers in the YouTube era. If the continuum runs from Daddy and Mommy wanting to show how cute their new baby is on one end, to the next Steven Soderbergh on the other, most people are somewhere in the middle. They want to entertain and communicate, and they want their videos to look and sound good. For them, the "easy" software (including online services such as Adobe Premiere Express, Eyespot, Flektor, Jumpcut, Kaltura, Motionbox and One True Media) isn't enough and the "complex" software is too much.

Thus, the opportunity that I see is for editing packages that work the way real editors do, with enough functionality to produce good-looking results in a minimum of time, but without all the unnecessary "gingerbread" of the high-end consumer packages. Could someone "de-feature" an editor such as Pinnacle 11, write it in Flash or Java, and make it an online service? At IBC, Forbidden Technologies launched a service called FORscene, which is a step in the right direction, but there's lots of room for innovation.

Thursday, October 11, 2007

Opportunity 2: Video Search and Discovery


Video Search and Discovery are two very important, and closely related, functions: Discovery is when you want to find something to watch, and search is when you want to find something specific to watch. When I was writing the report on Internet Video for MRG, I wanted to illustrate the problems with video search, and I decided to do a very simple search, on the word "Panama." There are lots of things containing the word Panama: Panama the country, the Panama Canal, Panama hats, etc., but I was interested in the country and things related to the country.

I started with a text search using the Google engine, and sure enough, the first page of the search was exclusively related to the country and things in the country (including the Canal.) I then did the same search with a variety of video search engines: YouTube, Dabble, Truveo and EveryZing. (After the report went to press, I did the same test with blinkx, and got similar results.)

YouTube and Dabble gave the best results--everything was either related to the country Panama or had been produced in the country. Blinkx returned videos about Panama, the Canal, Panama City, Florida, and three versions of the Van Halen song "Panama." Truveo came up with a seemingly random list of videos with the word "Panama" somewhere in the title, description or tags. And EveryZing was the worst--it relies on speech to text recognition, and it completely misrecognized the speech in the videos it returned. Not one of the videos had anything to do with Panama.

Good video search relies on two components:

  1. The metadata (title, description and tags) associated with each video, and
  2. What the search engine does with that metadata.

Search engines like Google and Yahoo! have it relatively easy--they can use all the text in a page in order to index the page's content. The more text they've got, the more accurately they can index the page. However, to automatically index videos, you have to rely on the amount and accuracy of the metadata, not the content of the videos themselves. In my experience, search engines like EveryZing that reply primarily or exclusively on speech-to-text recognition simply aren't "ready for prime time."

YouTube gives good (not great) results, because it processes whatever metadata is available with Google's search engine. Dabble gets equally good (some would say better) results because individuals review and tag all the videos, and better metadata means better results.

In my opinion, however, no one has "cracked the code" for video search. This remains an area of tremendous opportunity for at least three companies (the companies that will eventually be bought by Google, Yahoo and Microsoft.)

Discovery is the other side of the coin. It's what you do when you're "channel surfing," or when you're scanning through an Electronic Program Guide (EPG) to find something to watch. EPGs have been around for many years, and they've worked very well. However, as the number of channels increases and Video-on-Demand (VOD) services become more popular, it gets harder and harder to find something to watch with an EPG. Including HD and music channels, many cable, satellite and IPTV systems now have channels into the 900's. How is a viewer going to browse through so many choices?

Companies are working on solutions to make video discovery easier and more intuitive. Hillcrest Labs in the U.S. and Ruwido in Austria have developed custom remote controls and software designed to make it simpler to navigate large libraries of broadcast and VOD content.

At the recent IBC conference in Amsterdam, Orca Interactive of Israel was claiming that "the EPG is dead." They and other companies have licensed collaborative filtering software called ContentWise from Neptuny of Italy. ContentWise both enables viewers to specify the categories and keywords that they're interested in and monitors actual behavior to determine viewers' interests. Then, programming that meets the viewer's interests as determined by ContentWise is offered on-screen, using a "cross-hair" display instead of the typical EPG table of channels and programs.

At IBC, we were assured that ContentWise won't be susceptible to "Amazon disease". If you're an Amazon customer, you know what I'm talking about--you purchased a book for a friend as a gift years ago, but Amazon keep trying to sell you similar books, and there's no way to stop it. The analogue in this case would be if your grandmother came to visit, and watched "Lawrence Welk" reruns on Public Television. Then, ContentWise kept recommending shows with accordion players. Both Neptuny and Orca assured us that viewers can go in and delete shows from their watching history. Nevertheless, I'll believe it when I see it.

As with search, no one has found the "holy grail" of 21st century video discovery yet, and the company (or companies) that do will have a tremendous opportunity to license their technology.

Monday, October 08, 2007

Opportunity 1: Monetization

If there's anything that Internet video sites need to figure out, it's how to make money. Today, it's clear that the way to make money is through advertising, rather than trying to sell access to your content to viewers. You can either persuade viewers to come to your site, or place your content on popular sites where lots of viewers already go.

There are two reasons to distribute video content hither and yon:

  1. Drive viewers back to television screens, where they'll watch shows live or on a DVR, or
  2. Sell advertising on the video content.

If you're pursuing Scenario #1, all you really need are some bumpers at the beginning and end of the video to let viewers know the name of the show that they're watching, and when they can see it on television. If you're pursuing Scenario #2, however, you've got to accomplish several things:

  1. The advertising has to go with the video wherever it goes, and it should be very difficult to separate the two.
  2. The advertising should be updatable, so that if the video gets played six months from now, it plays an ad for a campaign that's running then, not a campaign running now.
  3. The video should be able to "call home," to provide at least basic information about when and where the ads were seen.

YouTube, VideoEgg and have all deployed video advertising systems that can perform these three functions, but all three systems are "closed": Both the videos and the ads have to be served by the same company. VideoEgg and are far more hospitable to independent video producers and sites than is YouTube, which really can't be bothered to negotiate with anyone much smaller than, say, Viacom. But, wouldn't it be nice to have a third-party solution that would perform all the needed functions without tying you to a specific video host or advertising network?

At IBC, I ran across a company called Adjustables (, with offices in The Netherlands and Sunnyvale, CA. They've come up with a third-party video overlay design tool and ad server that works with both Windows Media and Flash Video files. (A plug-in has to be installed into the Windows Media Player in order to support the Adjustables content.) Their product helps content providers to monetize their video content without locking them into one hosting vendor or ad network.

In short, the monetization opportunity is to provide a platform for producing and distributing in-video advertising that meets the three criteria described above, and that gives the content producer or Internet video site operator the flexibility to choose their own hosting services and ad networks.

The Three Opportunities in Internet Video

I'm taking a few days' break after months of 1) Finishing my report on Internet Video for MRG, 2) Inteviewing dozens of industry executives at IBC, 3) Meeting with IPTV service providers in France, and 4) Completing the fall Market Leaders Report for MRG. During my break, I want to catch you up on some of the industry trends that I've seen.

While I was writing "Internet Video for IPTV Service Providers," I came across three opportunities that are being addressed, but could be addressed far better. Whoever succeeds in solving these problems will be in a position to make a lot of money, through revenues and/or an acquisition. So, here are my "Big Three":

  1. Monetization (a big word for advertising)
  2. Video Search & Discovery
  3. Editing

I'll use the next three entries to discuss each of these opportunities in detail.

Thursday, August 30, 2007

Hello, Hulu!

News Corp and NBC Universal just announced the name of their Internet Video joint venture: Hulu. Not Hello or Hula, but Hulu. Apparently, this will be big in Malaysia; according to Wikipedia, Hulu Terengganu is a place in Malaysia. Everywhere else, it will cause people to scratch their heads.

The good news is that there's synergy with Vudu, the VOD set-top box company in Silicon Valley that's coming out of stealth mode. If the companies merge, you could get HuluVudu, maybe with a pupu platter on the side.

Friday, June 15, 2007

Off to NXTcomm

I'll be at NXTcomm in Chicago next week for Multimedia Research Group, covering IPTV and Internet video-related announcements. I'll keep you informed on some of the interesting new products and services I see.

Thursday, June 14, 2007

More on Playstation 3...

Paul Sweeting of Video Business Magazine has some interesting insights into Sony's recent announcement of layoffs at Sony Computer Entertainment, the division responsible for the Playstation 3. He chalks the layoffs up to a fundamental misreading of the market by Sony, and suggests that Sony has two choices:
  1. Position the PS3 as an advanced digital media center for the living room that just happens to play games (which is pretty much what Ken Kutaragi said last year when he announced the PS3's pricing), or
  2. Dramatically lower the price of the PS3 to compete more effectively with the Xbox 36o and Wii.
Option 1 doesn't solve Sony's competitiveness problems--in addition to the Xbox 360, which to my eyes has much better media management capabilities, the PS3 would have to compete with Apple TV, which sells at half the price.

For option 2, Sweeting suggests that Sony may have to replace the Blu-Ray drive in the PS3 with a DVD drive in order to get the cost down enough for Sony to compete with Microsoft and Nintendo.

After reading some of the cost breakdowns for the PS3, I think that deleting the Blu-Ray drive alone isn't going to do the trick--they're going to have to radically remove features in order to compete on price. From one of my posts from last year, the manufacturing cost of the PS3 was estimated to be $900. Even assuming that deleting the Blu-Ray drive and replacing it with a DVD drive saves Sony $300, they still have very little room to move on price.

One of the key sales points for the PS3 when it was priced last year was that at $599, it was still at least $400 cheaper than the least-expensive Blu-Ray player, so it was a "bargain." Well, scratch that advantage--Sony's latest Blu-Ray player will sell for $499 later this year, and several other companies (Panasonic, Samsung, LG, etc.) are also shipping Blu-Ray players and will have to be at least as competitive on price.

So, where does Sony go with the PS3? Really, the only option is more and better games. Right now, the only thing that will dramatically increase sales, even if they lower the price, is a better assortment of games--titles that are so much better on the PS3 that hardcore gamers can't afford to play them on anything else. Unless Sony can fix its game shortage soon, the PS3 risks becoming this game console generation's Gamecube--the third player in a market that can at best support 2 1/2.

Wednesday, June 13, 2007

HD DVD and Blu-Ray Continue to Struggle

According to this article from Reuters, Toshiba has cut its calendar year 2007 forecast for HD DVD player sales in the U.S. by 44 percent, from 1.8 million players to one million,even though some Toshiba players are selling for as little as $249. (They had forecast worldwide sales of three million players by March 2008; clearly they won't make that number.) The Blu-Ray team hasn't announced comparable sales numbers, but we do know that Sony is well behind in sales of the Playstation 3; to date, they've sold 1.3 million in the U.S., one million in Europe and Australia combined and 911,000 in Japan. They claim to have shipped 5.5 million units, which means that approximately 1.8 million units are sitting around in stores and warehouses.

As for disc sales, the biggest seller (depending on which figures you believe) is either Sony's "Casino Royale" or Warner Brothers' "The Departed," both with around 100,000 units. Now, sales of 100,000 units aren't bad, but in DVD terms it's comparable to a relatively successful independent film release--nothing like what a major studio release should expect to sell.

Thursday, June 07, 2007

The Price of Not Updating Your Blog

First of all, I want to thank DailyIPTV for being named one of their top 40 IPTV Movers and Shakers! I'm in the rarified company of the guys who do "Ask a Ninja"--for that alone, I can die happy. However, since I haven't updated this blog in months, I need to make one correction. I left Safari Books Online and the wilds of Sebastopol last January, when I moved back to Silicon Valley to become the Director of IPTV Analysis for Multimedia Research Group. My cat loved Sebastopol; he had the run of a 7 1/2 acre apple orchard that we lived on. However, I was simply way too isolated in Sonoma County, where a late-night restuarant is one that stays open until 9 p.m. Also, I suffered from Fry's withdrawl. But that's another story.

So, with that correction, I'm going to try (really, really try) to update this blog on a regular basis again.