Monday, February 28

Top 5 signs your 3 year old watches too many nature documentaries...

5. (At the zoo...) Can we go and see the Oryx, Daddy?

4. Daddy, the Neanderthal kills the hairy rhino with his spear, and then he cuts his fur off with the spear, and eats his meat!

3. Opening a conversation with another three year-old with "Did you see the sabre-tooth cat chasing the mammoth?" instead of "Did you see The Incredibles"?

2. Waking up first thing in the morning with "Mummy, are the animals awake yet?"

And coming in at Number One...

1. Mummy, you and Daddy did mating to make me, didn't you?

Tuesday, February 22

PVR without EPG is DOA

Foxtel's IQ set-top box will fail to set the world on fire, but to understand why, you need to become familiar with a TLA (Three Letter Acronym), and not the one you'd first expect. While the meeja is excited because the Foxtel IQ is a "PVR" (Personal Video Recorder), the TLA that really matters for this product is actually EPG (Electronic Program Guide).

It's the lack of a decent EPG that really kills it, not the exorbitant $395 cost, $100 setup fee and monthly $5.95 service fee.

You see, buy a PVR without an EPG and you've just paid $495 upfront and $70 a year for something with only slightly more functionality than a VHS VCR ("Video Home System", "Video Cassette Recorder") which would cost you about $150, plus maybe $50 in VHS tapes.

An EPG is an online version of your newspaper's printed television guide (minus the editorial guidance on what's good and what's not.) The more shows you have to choose from, and the more channels they screen on, the more value in an EPG. No more complex timer record setup, no more keying-in a six digit G-code from the printed guide, only to find later that the program didn't start on its scheduled time. You just browse through the EPG with the cursor keys on your PVR's remote, and select a program with the touch of a button. Whether the IQ can automatically record shows featuring your favourite stars is unclear, but it's possible - in the US your TiVo will do that, as well as automatically recommend shows to you based on your viewing tastes.

While an EPG's value increases in proportion to the volume of content available, the value of a PVR is also in direct proportion to the volume and depth of content in the accompanying EPG. The reverse is also true: if your EPG sucks, your PVR may as well be a lead ingot.

You'd think, with the combined smarts of Foxtel and its owners, Telstra, PBL and News Corp on-hand, that someone at Foxtel would understand that. Maybe someone there does, but they're not in charge, because sources close to the company tell me that the IQ's EPG only covers Foxtel's pay channels and PBL's Channel Nine free-to-air schedule.

In other words, if what you want to record and watch is on the 75% of free-to-air programming that isn't on Channel Nine (and that's arguably 90% of what's actually worth watching) then you better pickup the newspaper and get ready for recorder setup the old fashioned way with the rest of us pre-digital slobs.

Why? Because the other commercial channels own the copyright to their own TV programming schedule, and they won't license the rights to HWW (used to be an acronym for Horan Wall & Walker but now it's just the publishers of the Foxtel EPG). Why won't they license the rights so we can have a decent EPG? Because Foxtel is 25% owned by PBL, owner of Channel Nine, and deadly competitor to the other channels.

No (in case you're wondering if it's just you) it doesn't make sense: here's a company (HWW) that wants to market your products - encourage people to watch your programming by giving them an easy way to navigate it and optionally record it. The easier your programming is to find, the more people are going to watch it, right? And the more people watch it, the more your advertising is worth, right? All this is sacrificed in a petty, paranoid, pointless gesture, and as a side-effect, it leaves the Foxtel IQ, Australia's first commercial PVR, a still-born waste of launch budget.

There is an Australian TV enthusiast community busy building their own PVR systems, a whole spectrum from hackers cobbling them together out of xboxes and Linux PCs through to inventors and entrepeneurs hoping to become The Next Big Thing. And the single greatest missing ingredient is a great EPG. Without a broad and deep EPG, any PVR is DOA (Dead On Arrival).

You can't publish an EPG without the permission of the networks as copyright owners, and even if you're not affiliated with a competitor, the networks fear that your work will make it possible for PVR owners to skip ads and cut ad revenue.

Maybe there's a business in publishing a paid-subscription EPG in multiple formats for a broad range of Australian PVRs - there certainly seems to be pent-up demand. But without copyright owner permission, you'd have to base your business overseas, somewhere without a FTA (Free Trade Agreement) with Australia.

Hmm... kicking back on the beach in Malaysia or Indonesia, once in a while getting up to check on the progress of a sweatshop of underpaid locals busy keying-in the TV guide section of the Australian newspapers and the Foxtel print guide? Watching the online credit card payments grow? It sounds like a great life.

Meanwhile, the IQ is cheap as an alternative to a $1000+ HD (Hard Disk) recorder, but you don't get to own the device. It remains Foxtel's property, and when you stop paying for your Foxtel subscription, your recorded content is deleted and they take the IQ back. Unlike most HD recorders, it doesn't offer a way to record your programs permanently to external media, such as a DVD-R, so you don't get to keep the programs you've recorded (which would be illegal under Australia's antediluvian copyright law, but we all flaunt that anyway).

The only glimmer of hope in the whole mess is a mysterious USB port that's reportedly hiding in the back of the Foxtel IQ. What it's for remains a mystery, but maybe it's a way for hackers to output their digital video recordings to another device, or import a decent open-source EPG... stay tuned... or not...

Monday, February 21

Napster needs iPod so bad

Napster has announced its new 'fightback' subscription model - 2 week trial, USD15 a month, and unlimited downloads. They're making as big a splash about it as they can afford, reportedly including a Superbowl TV spot. Oh, that takes me back! Remember when all you had to do to raise VC funding for a new Internet company was to book a Superbowl ad?

The company's "Do The Math" campaign shows that you can get 10,000 songs a month for your $15, and that it'd cost you $10,000 to get that on iTunes. Right, but if I only want one new album a month from Napster (my usual consumption) that's expensive, isn't it?...

Michael Walsh is right when he says it's only going to make sense to people who always want to download hundreds of new tunes every month, otherwise you're better off paying $.99 a song on iTunes Store (in countries where you can use iTunes Store, that is, not Australia.)

The bigger challenge for Napster is it's still locked-out of the iPod. Napster could be offering you unlimited songs for $2 a month and still it's #1 customer support question would be, "why can't I get my songs onto my iPod?" Talk about World's Biggest Barrier to Adoption.

Every month that Apple defends and extends its lead in portable music players, it gets more and more unassailable in the online music downloads market too. If I were Napster's backers I'd be thinking not about whether to fund Napster, but about how to broker a peace with Apple and get into iTunes Store. And if peace doesn't work, mount an anti-trust suit.

Saturday, February 19

Disposable DVDs disposed of

As I predicted, it looks like disposable DVDs won't be the Next Big Thing either. Creating piles of new landfill just to prevent people copying DVDs was never going to fly.

On-demand movies? Never say never but...

Disclosure: being in the online DVD rental business (I'm a cofounder and employee of HomeScreen Entertainment) I have an interest in when and how the majority of Australians might enjoy digital on-demand movies to the home. That said, the claims from Telstra and Foxtel that on-demand movies are coming soon to the Australian loungeroom seem optimistic.

In the US, CinemaNow and MovieLink are streaming movies over other people's cable networks, and now cable giant SBC has disclosed it has plans for a service that sounds like it might seriously compete with Netflix and Blockbuster. But the Australian market environment is different, and not in a good way.

SBC's plan sounds like Netflix-via-cable: pay a fixed monthly surcharge on your SBC cable bill, and you can download up to three programs (movies, TV, music, whatever) at a time, keep them as long as you like, and when you download more, your earlier downloads will be automatically deleted (whether by a set-top box or your PC isn't clear.) SBC has a near monopoly in cable in many parts of the US (or at least, as close as US regulators will allow) and its coming acquisition of AT&T makes it the largest telco in the US. With that kind of monopoly power, it doesn't matter that you're not a cable movie channel or a studio - if you want to license latest-release movie rights from the studios, you can pay whatever the studios want to get them.

Why would SBC want to pay over-the-odds to get into the content business? Because, worldwide, the markets are a bit over telecommunications infrastructure players - it's a maturing, rationalising marketplace. If SBC can show that it's taking the first tentative steps into the content business, it gives investors a reason to look at SBC in a new light - as a potential player in what many believe will be the Next Big Business - digital on-demand content to the home.

Problem is, even the mighty SBC is going to have to get down on its knees and beg when it comes to licensing content for these new services.

Hollywood, which was once all about selling movie theatre tickets - one distribution channel only - learned a painful lesson from VCRs and VHS all those years ago - you have to beat new delivery channels into submission, because at worst they kill your business, and at best, they force it to traumatically and dramatically change. In the movie business, there's only two dials you can turn to materially affect your business: the dial marked "cost of production" and the dial marked "control of supply." Anyone or anything (such as a new distribution channel, like on-demand over an IP network) that threatens your exclusive access to either knob is going to enjoy your full paranoid spittle-flecked attention until you've beaten it into submission and tamed it. You can tame it, or at least control its growth, by turning the "control of supply" button way, way down - charge the new delivery channel so much for your content that its growth is slowed to a trickle.

That's why, if you'd been trying to license the rights to latest-release blockbusters to rent to people on VHS in the early days of the VCR, you would have paid through the nose, or not gotten very many blockbusters, or both. Same with pay TV, and more recently, same with DVD.

The DVD format was once feared as the death of the movie theatre industry because its digital fidelity brought a cinematic experience to the home. Instead it's become Hollywood's favourite channel because they've been able to dramatically reduce piracy (compared to VHS) and because DVD retail has become a much bigger business than anyone had forecast.

Now when the studios sit down to do deals with the companies hoping to license content for on-demand IP delivery, they're going to be reluctant to endanger not just theatre revenue, but increasingly, they'll want to protect DVD revenue. It would be very hard to prove to a studio that your on-demand service wasn't going to cannibalise the studio's DVD retail and rental revenue.

So if content will be limited and expensive to license, SBC will need to pay over the odds to get it, accept release dates well past DVD release dates, and see subscriber numbers grow much more slowly than they like. Most likely, in the early days, all of the above.

If it's going to be hard for the biggest telco in the US to pull together a killer on-demand movie network for its internet subscribers, will Telstra find it harder?

Much, much harder:

  • Telstra's a phone company, half a world away from Hollywood. Talk about culture clash. It doesn't have the people or the culture and will need to buy them in. As anyone in television will tell you, television is not a technology business, it's an audience and content business. Telstra's a technology company, and so far, its attempts to attract an online audience and serve it compelling content shows that Telstra believes on-demand is a technology business. It ain't.

  • You can't serve on-demand movies over a DSL network, especially not an Australian DSL network, with its overpriced and under-speed infrastructure. You need at least 1.5mb-2mbps connection speeds, all the way back to the media server and that just doesn't exist for anyone other than Telstra/Foxtel/Optus cable customers, of which there are only about 300,000 or so.

  • If you're serving on-demand content over someone's DSL or cable modem it's going to be shown on their PC or Mac screen, not the big widescreen TV and surround sound system so many Australians have only just spoiled themselves with. How many people are going to sit in front of their 17" PC monitor for two hours to sit thru a blockbuster and leave the widescreen TV and DVD player idle in the living room?

  • You can, of course, put a set-top box in the living room, as Foxtel does. But only for cable customers (which passes 2.5m premises maximum in Australia, if you've got a great content offering and you eventually get 30% adoption your total audience size is 750,000 households. That's a tiny market. Meanwhile, the other seven million Australian households will continue to rent DVDs.

Next time: why Foxtel's EPG isn't worth the paper it's not printed on.

Wednesday, February 9

File under "Maybe it's just me, but:"

Cool band name "Very Large Array" - named after a kind of radio telescope installation that specialises in tuning into the 'music' of the stars.

Ok, it's definitely just me...

Friday, February 4

Own your own Pope

...and why not? Hitler did, they say.

My dad has decided to auction some very good photos he took of the Pope when he and mum were there on holiday a couple of years ago. With the old guy on his last legs for surely the last time, Dad figures this is the ideal time to cash-in when the inevitable media vultures swoop down to cover the expiry of the Papal Use By Date.

I've offered to fake Il Papa's autograph if Dad wants to do a limited edition run of prints, but Dad reckons I should buy the rights to the photos first and do them myself. Damn, you're good, Dad. I'm not half the bargainer you are!

Are you gonna pay for that music video? This ain't a library!

I was stopped in my tracks this morning when I read in CNET that Universal Music Group was quietly planning to charge online music sites for the right to host and serve music videos to their audiences.

Why did that stop me in my tracks? Well, it's early evidence that my Grand Unified Theory of How The Internet Changes The Music Industry might be valid. And maybe Universal Music is already feeling the early effects. I wish I could ask someone at Universal why they'd risk losing airplay just to recoup a tiny amount production cost, when they have to make the video for MTV and VH1 anyway. But since I can't, and since this is my blog, I can speculate. First, some background:

Theory extract:

  • In the future, people will buy more of their music on the Internet and less on albums in stores because it costs less online to buy track-by-track, using previews to select only the tracks they want, and ignoring the rest;

  • No sense making songs if nobody's going to buy them. The industry will respond by no longer packaging songs in album format on the Internet and taking fewer of an artists songs to final production. They'll do the audio equivalent of movie 'test screens' and then complete only the songs that test well. The demise of the album, and possibly the EP. The future of music is singles;

  • Fat margins on CD music from Top 20 artists can support enormously expensive marketing campaigns, including lavish music videos, TV/print giveaway campaigns, point-of-sale promotions, publicity, and excesses on tour. But gone with the album model goes the fat margin, and therefore, the fat marketing campaign for each album. How much can anyone afford to spend on marketing a single if it is not supporting an album? Not much.

  • "Not much" doesn't pay for a music video unless you've got a Top 10 single (in the Australian market, it better be Top 3).

  • If you can't afford to make a music video to promote a single, it better have some commercial value of its own.

  • This is what Universal is about to test - the commercial value of a music video.

How big a story is this? Does it really matter that Universal is doing this? I think so. Universal Music claims the company is number one in worldwide music sales, with 23.6% of the worldwide music market. Their labels include Barclay, DreamWorks, Interscope Geffen A&M, Island Def Jam Music Group, Lost Highway, MCA Nashville, Mercury, Mercury Nashville, Motor Music, Polydor, Universal Motown Records Group, Universal Classics Group (which includes Decca, Deutsche Grammophon, Philips and ECM) and Verve Music Group. If they've even got half the marketshare they claim, that's a big impact on music videos online.

If labels want to charge for them, why would portals like Yahoo! and MSN still want to stream music videos? Partly because they assume music videos online perform a similar function to music videos offline - they help sell music - and the portals stand to make a cut of the online music retailer's album sale (a model which depends upon selling a physical CD and mailing it to the customer - if the customer is only buying an MP3 or AAC single and there's a licence fee for playing the video, fuggeddaboudit.)

Most of the portals also make some money the old-fashioned way ('old-fashioned' in the internet sense of the term, meaning '5-6 years ago' and referring to online advertising). They wrap the music video up in an online promotional campaign for the label that features the artist and album, and also includes ad banners, editorial, photos, website links, email newsletters, homepage stunts and instant messaging ads. One good way to sell online advertising is to bundle up a lot of inventory of questionable value and utility, and then whack one big sticker price on it. Most of it is stuff that you should be getting for next-to-free, but when it's in such a big bundle, you feel like you "own MSN Music for a month" and that makes you look good with your boss. You don't have to understand Internet marketing to spend money on it.

Which is just as well, because portals are also hoping to prove to the record labels that promoting an artist online is more cost-effective, more targetted, and easier to associate with the sale of an album than, say, getting VH1 to play the video. I believe it is. But fifty years of the relatively easy life selling popular music has, shall we say, not bred the brightest marketing minds in the music industry. Some music industry marketers I know still have trouble using email, much less understanding the new and intimidatingly geeky jargon of internet marketing. Getting their assistants to print out their emails and dictating their responses, they are like Diplodoci - by the time they get their massive bulk turned around, something will have flashed by and bitten their arse off. Though sales are down across the industry, they have a way to go yet before evolution starts picking off the dimmer bulbs.

So what is the commercial value of a music video streamed to an Internet audience? It's going to take a while before the results are in because, according to the story, Universal is going softly-softly about changing their commercial relationships with Yahoo!, MSN, AOL, etc, trying to quietly negotiate deals that don't alarm the online publishers too greatly, as that would disrupt the album sales Universal needs to protect in the meantime. The price will start low and trend up, but the relatively frictionless economics of Internet music will establish a stable market value quickly. Universal plans to hurry things along by only advertising on music sites that agree to pay-to-play terms on the music videos. You don't have to understand internet marketing to play hardball.

There will be a nice feedback loop, as until now, the portals have been happy to encode, stream and store as many music videos as the labels can provide. But if they're paying, the portals will take a long, hard look at all the Universal-owned video content in their libraries, to make sure they're not paying for any crap nobody watches, and to make sure that the good stuff everybody enjoys gets all the exposure. That must lead to a smaller roster of artists' videos appearing on the online music sites, and that reduction in promotion might speed up the shrinking of artist rosters in general (see above.)

An alternative future, but one less likely, is one in which we see the birth of a new kind of mass entertainment product. Still called, for the moment, a "music video", but changing from an album sales marketing tool to a standalone commercial entertainment product. A new industry in its own right. The best music videos have already proven that they can be as engaging, entertaining, and creative as any other form of modern media. Perhaps all they lack is a market in which to be traded. Fat music labels producing videos as marketing for generic urban albums and giving them away to MTV and AOL is a value chain of sorts, but it has way too many intermediaries. However an artist, or an artist and director, or an artist and a production company, producing music videos intended only to entertain and sell to an audience... maybe that's a viable market? It's no stranger than people paying to see an opera. Will our kids all want to work for a 'music video production company' when they grow up?

And is it synchronicity that handheld video player technology is nearing a tipping point at the same time? A music video marketplace needs its equivalent of the LP and the Sony Walkman. It'll be a while yet - the current generation is clunky, and Microsoft is making it clunkier by sticking its big clumsy boots in to try and control it. But watch this space. And while you're watching, here's a nice music video, meant to lure you into buying that song, which unfortunately comes on an album with a lot of other cruft on it you'll only listen to once. But that may soon change...

Disclaimer: the author owns a small independent record label with one band on its roster and one album, which currently has one single, with one music video, which you can watch online. It's not La Boheme, but it's a narrative, and not half-bad, made by the very talented Sean Kennedy, and it's only there until someone at Yahoo! remembers to remove it. The author also used to work at Yahoo!, owns an iPod, and wishes he had bought Apple stock when he sold all his Yahoo! stock. Or maybe not sold all his Yahoo! stock quite so soon.

Wednesday, February 2

Real dollars for Aussie online media company

Australian online news source, has announced the sale of the business to Private Media Partners (PMP) for AUD1 million.

I think this is big news because, as far as I know, it's the first time anybody has paid real money (rather than shares) to acquire an independent online publication in Australia. If I were Andrew and Louise at Urban Cinefile or Paul at Undercover, this could be heartening news. Maybe all those hard years of hard work for stuff-all reward might pay off after all.

If you value Crikey on its subscribers, the main revenue source, then PMP has paid about $190 per paid sub. That might assume an average subscriber lifetime of 2-3 years (a two year subcription to Crikey costs $160 and have to figure there's some churn too.) Many online businesses would kill to keep a paying online customer for two years. Mind you, there's no suggestion that there was ever much profit from those 5,300 subscribers, and I can't tell you whether that's an increasing number, or how fast it's growing.

The sale will be completed by Sept 2006, with no mention of performance benchmark requirements disclosed in the announcement.

Crikey's had a significant impact on the Australian business and political environment in its short life. About half-way through my time at Yahoo! I remember founder Stephen Mayne popping up on radar, parlaying his background as investor activist and journalist, using his natural flair for being a thorn-in-your-side, and standing up to the big end of town with a courage that bordered on the suicidal. It's exposed countless secrets and embarrassed those too powerful to be threatened by the established media, not to mention those who own the media themselves.

The Packer family has been such a frequent target that IT departments in CPH and PBL companies were told to ban internet access to by blocking it at the firewall. Even one of my own businesses, HomeScreen Entertainment (I'm a founder, shareholder and employee), which had (CPH-owned) Hoyts Cinemas as a major investor, had its internet access to blocked. Largely pointless, of course, because everybody has internet access at home, which escapes the blockade. Besides, most serious Crikey readers (me included) subscribe to the daily email newsletter, which apparently nobody thought to block. I suspect they knew it was just a token gesture, but were so pissed-off with Mayne's disclosures they chose to make it anyway.

From my own experience advertising on Crikey (for my record label, Littoral Records and the album Pacifico), Crikey has a lot to learn about online advertising before it delivers much additional revenue, but if I were PMP, that would be where I'd focus right away. Crikey's subscribers must represent a small but concentrated mass of net-savvy, online transaction-friendly, high-net-worth people mostly working in senior management, media, and politics. You couldn't reach them cost-effectively through any other media, and if you could reach them at all, you certainly couldn't track effectiveness online. Mayne's wife Paula has been acting advertising sales manager as well as "acting almost everything else" and that's the only reason why Crikey hasn't turned a real dollar out of advertising yet. I'm aching to offer to help but I wouldn't know who to call.

PMP's never done online advertising at all, and come to think of it... PMP's an offline media company acquiring an online media company for the first time. Offline media still don't have a great track record of 'getting' the net, or of letting online media do its stuff unfettered. I hope PMP goes into this hoping to learn from Crikey as well as grow it, because if they think they know how to do online media, they'll fail.

Anyway, by then, Stephen and Paula will have their payout, and their three children under the age of three (Paula, you're a Superwoman!) will get to go to a good school, and that's a happy ending if ever I've read one.

Buy content through ScooptWords