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Why It’s a Great Time to Start a TV Startup, part 2: It’s Time For Change

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2015-03-04_1049As I asserted in Part 1,  I believe we are entering a “fourth generation” of television, one in which the rigid walls that have previously defined the industry are fundamentally disrupted. In the post-1.0 era, not only have consumers lived within “walled gardens” of content, but the industry itself has remained mostly closed to outsiders. When even companies as powerful as Intel and Google have tremendous struggles dealing with Hollywood, gaining access to content, etc, it’s almost comical to think of the startups who tried the same. Aereo’s $96 million in funding became about $1M in auction to TiVo this week.

This is mostly due to the incredible entanglement of contracts and legal issues pertaining to content ownership, distribution rights, release windows, playback, etc. Heck, even TV-related companies trying to change struggle with the mess. For context: We live in a world today that lets me buy NHL Gamecenter (directly from the NHL) yet not watch my hometown team (Montreal Canadiens, FTW) play “blacked out” games that air on, wait for it, the NHL Network.

The way I’ve always tried to describe the complexity to people is to think of taking a few dozen cables, neatly wound up, then throw em in a backpack and go for a quick jog. Then try to extract a single cable – good luck (for off-topic reading, here’s why that happens).

But we, today, are seeing important catalysts of change, and the catalysts are strong enough to make the powers that be look at how they can un-entangle their own mess. Here are the factors that I believe contribute strongest to a looming shift:

  • Netflix, Hulu, SlingTV, HBOGO, and TVE services break down the barriers to making content available through live and near-real-time streaming options. They also “train” content owners to think differently about distribution options.
  • iTunes, Google Play, and VOD services enable a la carte alternatives that are truly viable options to many consumers.
  • Pervasive 4G access, inexpensive smartphones, and tablets train consumers to demand anything/everything on all devices everywhere and all the time.
  • Bittorrent, Popcorn Time, and other piracy options have made finding and accessing high quality content for free far too easy for far too many people.
  • YouTube, Vimeo, and the suite of multichannel networks like Fullscreen are providing infinite entertainment alternatives to younger audiences, who may be losing the “attachment” to broadcast-quality television. This should be particularly scary to all sorts of companies – if the zeitgeist of pop culture shifts away from TV, we can expect to see more change, faster, than anyone can predict.
  • Cord cutting and dropping TV ratings are at the cusp of causing dramatic impact to advertisers, the unquestionable lifeblood of the industry.

As my colleague Adam Flomembaum, Editor at Lost Remote, shared with me yesterday:

“… we have seen in the last year that control of high quality content is being wrested from the hands of cable and satellite providers. Consumers are becoming increasingly aware of other great options for accessing their favorite content, and TV startups that make this process more seamless – or at the very least, more consumer friendly – have a great chance to thrive.”

"What do you mean 'Lets get rid of the middlemen' we are the middle men!"Fundamentally the thing that’s made the TV industry “work” is the requirement and dependency on the two-tiered “middlemen” between content production and audiences.  But if the audiences are shifting patterns, quickly, and the producers are able to find new methods of profitable content distribution, change will come. I can’t say it’s a “this year” thing or a “10 years from now” thing – but I do believe we’ve entered the phase wherein there’s industry awareness of changing times, and reactiveness is following.

I’d also argue that this was not the case over the past decade, and is directly attributable to why so many TV startups crashed and burned. As Eric Elia, Managing Director of Cainkade, puts it:

“The technology has been here for a while, but we’ve been waiting for 10 years for the TV industry dynamics to shift. The table is now set with [hundreds of millions of] streaming devices worldwide, the unbundling boom (HBO, CBS, Sling TV, etc), and a Netflix clone for every taste and geography.  It’s going to be a fun few years for tools companies, programmers, ad tech. But I would not want to be a commodity content owner that can’t flap its wings outside the bundle.”

Now with any change we’ll see some mega-corporations begin their slow road to the deadpool, while others seize opportunities. We’ll see startups rise seemingly out of nowhere and become household names. Even five years ago cable and broadcast execs could easily keep their eyes on the distant horizon fearlessly – today, they’re building survival plans.

Next up: defining “TV 4.0”, identifying short-to-long-term opportunities, and other thoughts on why I think it’s a great time to be riding the wave of change in television.

Guest Post: the Broken Golden Age of Television

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This is a guest post by TV industry thought leader Erik Schwartz:

broken golden tv

It’s broken. But in 4K!

“Television is dead.” 

“It’s the golden age of television.”  

Here at the NATPE conference in Miami Beach this week, I’m hearing both of these arguments being argued repeatedly.  I think there’s truth in both positions.

This is the golden age of television. Programs like Mad Men, Breaking Bad, HOC, Hannibal, Fargo, The Americans, are as good or better than anything that has ever been produced. The current MVPD model is optimized around every network having a blockbuster show that makes that network a “must carry” for cable and satellite providers, and then filling up the rest of its schedule as cheaply as possible. As the number of networks has grown, the number of these tent-pole programs has swelled.  

Television is dead. Fewer consumers are watching this programming in a linear fashion, as the network airs it. It is DVR’ed, viewed on demand through TV Everywhere or Hulu, or purchased from iTunes or Amazon. It’s a generational shift. This is making it more difficult to monetize via traditional TV advertising channels. (My kids barely know what commercials are.) If this trend continues, will networks continue to invest in the funding of premium programming?

Will the SVODs like Netflix pick up the slack by funding even more new programming? To a certain extent, yes. But SVOD growth was fueled by buying archives of existing high-quality content, for much less than it would cost to produce new quality programming. This content is cheaper because it is already monetized.  It is found money for the rights holder. At market saturation (and Netflix is almost there in the US), if the SVODs have enough programming (original and archive) to prevent subscriber churn, is there incremental ROI in making more premium shows? Their profit is maximized by offering just enough content to keep a viewer subscribed — everything over that threshold eats into profit margins. A viewer consuming more SVOD is an incremental expense that does not increase revenue.

Yes, it is the golden age of programming. But the existing models for monetization are flawed given today’s consumer’s preferred consumption channels. Flat-rate SVOD incentivizes “just enough” great programming. For decades, advertising made revenue directly proportional to consumption. That changed when retransmission fees started accounting for more network revenue, and then it changed more with SVOD. For this golden age to continue, we need a new model in which revenue for all stakeholders is correlated with audience size.

– Erik Schwartz



Why Netflix Offline Mode is Unlikely to Happen

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squirrel-no-internetFrom TechRadar:

And despite the pleas of the masses (or maybe it’s just us) it doesn’t sound like it’s going to happen any time soon – or ever. Speaking to TechRadar, Cliff Edwards, Netflix’s director of corporate communications and technology, said “It’s never going to happen”.

Now personally, I’d love this to be false. I’ve flown 75K miles a year for quite a while now, and am on planes and in hotels enough that I could’ve powered through all of Luther, New Girl, Broadchurch, and much more by now (those are my current shows FWIW). Heck, I’d have watched Lost by now – but I don’t think I have 200+ hours of connected time I’m willing to sacrifice for lens flare.

But truth be told, Netflix has no reason to cater to me, nor the legions of business travelers who follow suit. Here’s why, in handy list format:

1. Nobody’s Canceling Netflix for a Lack of Offline Access

If the Internet has connected us all together to do one thing, it seems to be to collectively whine about high-class problems. But getting rid of the unquestionably best-bang-for-your-buck TV service because you were inconvenienced en route to JFK makes no sense. And since churn is actually a key factor for Netflix, the lack of this being a “Problem” is enough to shut down the topic.

2. Nobody’s Subscribing to Netflix if they Added Offline Access

Much like the above, it’s pretty hard to imagine a market of people with disposable income (as business travelers are prone to be) who choose not to subscribe to Netflix because of price/features. So it’s pretty hard to argue that adding this feature would generate a wave of new subscriptions. Further, since customer acquisition is again a huge metric for Netflix, if they believed this is an untapped market, we’d possibly see change. Clearly they don’t.

3. It’s a Hard Problem to Solve Well

We could mince words about it, but the fundamental experience around using Netflix is pretty great. Everything about queuing up downloads, archives, and managing storage is a not-great experience. So adding this burden, which would inevitably create customer support overhead, product experience dilution, etc, would have to be well-justified. Again – not saying it can’t be done, just saying doing it really well isn’t easy, and is it worth it? See above.

4. It’s an Expensive Problem to Solve

In case all the above didn’t somehow add up, remember that Netflix, to the best of our knowledge, does not currently pay content owners for non-streaming access rights. And content ain’t cheap. And having worked in this field for more than a decade would lead me to believe adding in offline access would be an expensive negotiation point.

In conclusion…

Combining any of the aforementioned challenges – why does it make sense for Netflix to spend more money to build more product to solve a problem for a small number of users without gaining new paying customers nor staving off churn of existing customers?

It doesn’t.

NextGuide, now with Amazon and more awesomeness

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NextGuide, my personal favorite TV Guide app (that I built at the company I run), is now updated to include Amazon Prime and Amazon Instant Video alongside live TV, Hulu Plus, iTunes, and Netflix.  It’s really a great experience to browse all providers simultaneously and to search for shows and actually know where they are watchable. You can get the update here on the App Store.

That’s the “big” news (yes, adding a streaming provider with tens of thousands of hours of streamable shows and movies is a big deal IMHO), but we also took the time for a lot of across the board improvements to the app.  Here are some of the highlights:

>> New Gestures – two-finger swipe within showcards, pinch to hide, fullscreen media gallery, and more!

One of my favorite things about a great iPad experience is gestures. One of my favorite favorite things about any app is hidden features. While it’d be fun to document them everywhere, we’ve loaded up the NextGuide experience with many new gestures.  Explore around, let us know what you find and think of them!

>> Enhanced Cast & Crew with 1-click saved searches and Wikipedia biography lookups.

File this under “finally!”  When we shipped the 1.0 version, the cast and crew view just wasn’t that useful.  Now, go to the cast and crew tab for any movie or show, and tap on a person you are interested in.  Want to find more stuff from them?  Tap “add to interests.”

>> New Category Editor with easy drag & drop category setup

While we made removing/hiding categories really easy in the app, it’s always been a pain to add them. Now, push and hold on anywhere in the “Category Bar” to get a slick interface to add genres, custom genres, and trending topics.

>> Channel Setup now part of Initial Setup Wizard

The customer is always right, and lots of ours told us they didn’t like the fact they couldn’t customize their channel lineups until after launching the app.  Now you can.

>> Improved “Your Picks” algorithms

Let’s face it, recommending content is a very hard thing to get right. Our focus is to get beyond the baseline concept of “if you like this then you’ll like that.”  We’re constantly working to improve it, and I think our users will see a lot of progress in this department.

>> Lots of other little new features for you to explore throughout the app

Thanks again to every one of our users, even the 1-star reviews in the App Store – its the best way to learn, and learning is what we’re doing!

ps – sorry about not blogging much, just been working on, you know, everything you just read about.

Introducing NextGuide

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It’s my pleasure to unveil my newest product, NextGuide.  NextGuide is a hyper-personalized TV listings guide designed specifically for the iPad™.  It’s been a six month labor of lots and lots of love, and I’m extremely excited to tell you about it.  In a nutshell?  We went to the drawing board and utterly reinvented the concept of the TV program guide.

If you think about the concept of a “guide” it’s something that’s evolved over 60 years from supporting 3 to 13 to 80 to 500+ channels.  But that’s really all it does, and let’s face it, we no longer live in a 500-channel world.  We live in a 500 channel, plus tens of thousands of hours of streaming content on services like Netflix, huge libraries of video on demand from our cable and satellite companies, as well as iTunes itself.  It’s effectively an infinite content landscape, and having so much content has crippled the formerly easy process of discovering shows to watch.

As an example, in my house at night, we start by browsing our DVR library, don’t see anything we’re in the mood for, then switch over to live TV.  After browsing (painfully) the grid for a while, we give up, turn on the Apple TV, and head to Netflix.  Netflix is great, but I have a tendency to see stuff I already know about – Mad Men, Dexter, Weeds, Breaking Bad, etc – all great shows, but not really anything new that I’m ready to consume.  Part of the problem here is catch-up TV: if I’ve never watched Mad Men before then I’m a good 80+ hours away from catching up to live, and that sounds painful.  Anyhow, after an unsuccessful attempt to find something to stream, I generally end up watching whatever’s on (either Cops, the Shawshank Redemption, or an infomercial), then go to sleep.  Sound familiar at all?

So we invented NextGuide, designed to actually help me discover things I *want* to watch. We do that by tilting the concept of Channels, Times, and Genres on its head a little, and instead focus on Shows, People, and Interests.

Shows – we believe people care more about the show they watch than the channel number or time it airs.  So NextGuide uses beautiful show cover art to make it easy to find things and “escape” the grid view of numbers and times.

People – we believe TV remains a central zeitgeist component to modern society. When was the last time you chatted with any friend about a show you like (or love)?  Probably in the past day or so.  NextGuide makes it ridiculously easy to turn conversations, not to mention Facebook Likes, into easily discoverable shows.

Interests – we believe people care about finding things of interest to them, personally.  We all have interests, from bands to sports, from cities to hobbies, and these interests define so much of our lives. NextGuide connects you to your interests, and finds them all on TV and streaming services, in a seamless, organic way.  Examples of what NextGuide’s found for me over the past few weeks: Bill Murray’s guest appearance on Letterman (seriously, how would I even have known that unless I watch every night??), a live Coldplay concert on Palladium (I didn’t even know the channel was in my lineup), and Bizarre Foods goes to San Francisco (not a show I normally care for, but had to see what Andrew found in my city).

That’s enough writing already, this is one of those apps you just have to experience to get a sense of what we’ve done. It’s a complete paradigm shift for TV viewing, and I’m happy to share it with you.  You can download it from the App Store, or watch our quick intro video below.

Introducing NextGuide from Dijit Media on Vimeo.

I can’t wait for your feedback, thanks so much for trying out the app.  Thanks to Apple for inventing the iPad so we could have such a cool platform to bring something like this to life. Extra special thanks to my family, friends, coworkers and investors who have made the process of inventing something disruptive more fun than I think I really deserve.

We are getting some amazing press so far today, here are some great pieces:

Oh, and here’s the actual announcement on our newly revised site!

Dear Jeremy (d/b/a HBO) [guest post]

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This is a guest post by Lee Milstein, you can find his bio below.

Thank you very much for taking the time to explain your stance on why I won’t soon be able to subscribe to HBO GO without first becoming a cable customer.  To paraphrase your argument, you indicate 3 primary motivations for keeping your service as an add-on and not making a direct consumer offering.  Those motivations are:

  1. You don’t have a direct customer business today and would have to staff up, primarily for billing and support to be able to make an offering;
  2. You don’t believe you’d be better off (financially) trying to go after individuals directly; and
  3. You make too much in guaranteed payments from your existing customer base  (the cable MSOs) to risk pissing them off.

You’re stance, while rational and understandable is also wrong. Taking each point in turn:

You do have a direct customer relationship today.

You already maintain an active user database on your website, complete with authenticated email registration, and you offer technical support to your users on the same site.  So, the issue is not that you LACK consumer touch points, it is that you believe them to be insufficient.  I think you’re better off than you realize.

Apple has proven that, with a good enough product, you don’t need free customer support.   AppleCare subscriptions or one-time incident fees are required for support for streaming services from Apple, and I’d be willing to bear the same lack of support for you.  In fact, NOT offering support may help your cause (more on that later).

Further, online payment is an opportunity to partner with players such as Google, Square, Amazon, PayPal and others in what is amounting to one of the most brutal fights in our digital world.  For the right deal, any one of them would likely be willing to help you get transactions working.  Plus, you have DRM covered as part of the streaming protocol and with very little effort, you can do what Spotify does, allowing only 1 stream to run at a time on the same authenticated account.  You already have most of what you need.

The Direct-to-Consumer Opportunity is Big, and not Mutually Exclusive with the MSO offering.

In your letter to MG and in other public statements/posts, you’ve pointed to the 100M cable subscribers (70% of which don’t subscribe to HBO today) compared to only 3M broadband customers as a reason to stick ONLY with your current model.  BUT, the broadband subscribers represent a mere fraction of the potential market for HBO GO, and it is a group of users that has been marketed to efficiently for decades.

The real potential customer base includes tablets and smart phones, not just broadband subscribers.  With over 25M tablet devices and roughly 400M iPhones/Android phones now on the market, after making some assumptions about geographies, the potential domestic user base is likely to be in the range of 200M subscribers, not 3!  That’s twice as large as the cable base, and they’re worth more money to you.

Assuming you get 50% of a subscriber’s monthly payment from cable; that means your 28M subs net you approximately $196M per month in the US (again, let’s leave out your international revenues, which are both substantial and need not be impacted at the outset).  If you need to make that whole number with digital subscribers (at the $20 monthly rate suggested in MG’s letter), you need only roughly 10M subscribers to make even money.  You can have 1/3 the number of subs for the same receipts!  Netflix, even after all of this summer’s hoopla is estimated to have around 20M subscribers and they don’t have the original programming that is the biggest draw for HBO.  You can’t do half as well as Netflix?   Plus, the cable MSOs have had decades to attract HBO subscribers for you and still haven’t surpassed the 30% mark.  What’s going to change?  Direct is a much bigger opportunity than you’re suggesting

The MSOs aren’t going anywhere.

But it would be fair to agree with the above and still not be willing to risk guaranteed revenue if indeed the MSO revenue would be put substantially at risk.  It wouldn’t be.

There are at least 3 arguments worth highlighting here:

  1. Making an offering won’t take your MSO revenue to zero.  The cable companies won’t drop you (you’re still worth too much money to them), so they’ll simply renegotiate, but again, not substantially.  It is fair to assume that not only will a material percentage of people continue to subscribe through their MSO, but a naked offering from HBO can help highlight a cable offering as premium.  The vast majority of Americans have access to local broadcast channels free over-the-air, yet choose to subscribe to cable.  Making a similar argument for the benefit of HBO isn’t much of a stretch.  Cable still offers the easiest, most reliable means of accessing ANY programming.  Any IP-delivered video service is likely to stop at least once during playback to buffer, and require you to switch inputs if you want to watch the game.  Cable doesn’t.  Plus, there are other conveniences including direct-billing, discounts on bundled services, DVR functionality, AND robust customer service that will bolster the MSO offering.  Cable shouldn’t be impacted materially.
  2. Broadband subscriptions benefit the cable operators.  More and better streaming video offerings help drive broadband subscription and that is a good thing for the cable companies.  Access, unlike cable is a high-margin business with little incremental cost for adding a new userPlus, any new broadband subscriber offers cable a chance to convince users to take or retain core bundled services.  Cable knows you aren’t killing their business by offering something of value that requires broadband.
  3. Consumer interest won’t last forever. Finally, you can’t expect consumers to wait for you to deliver what they want.  Cord-cutting isn’t the issue, but accessing programming via the device and at the time of a user’s choosing is.  Taking a quote from Steve Jobs out of the Walter Isaacson biography, “If you don’t cannibalize yourself, someone else will.” With Amazon, Apple, Google, Netflix, Disney and many others offering direct-to-consumer access to movies and programming, people have to make trade-offs. I’d sooner pay for the series you’re making, but if you won’t let me, I’ll eventually give up.  I’m not alone.

To Be Fair.

But, to be fair, I understand your unwillingness to do it TODAY. You’ve got enough money coming in and your building a large enough stockpile of great original programming to license out if you choose to do so.  There’s very little urgency.

I don’t blame you for waiting, but you don’t have to.  I’ll sign up today.  You’ll make more money and grow your audience.  I hope you’ll reconsider.

Thank you,

Lee

About Lee Milstein: Trained as a lawyer, but a tech guy at heart, Lee is on a quest to better media through the use of technology.  Currently doing business development deals for AOL, Lee previously ran Business and Corporate Development at DivX and once took a class called “Mobile Robotics” that he never heard the end of from his friends. Read more on Lee’s blog.

The Dirty Little Secret of The Future of TV: Data [Guest Post]

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This is a guest post by Anil Podduturi, you can find his bio below.

Gary Myer, who helped found DirectTV, recently penned a guest post for Wired on the future of TV. It comes with a provocative headline: Why Nobody is Challenging the Pay‐TV Providers.

Myer covers a lot of ground in the post, but it’s mostly familiar territory for readers of this blog: Unbundling, linear vs. VOD, social, device ecosystems. After setting the scene with the 40k-foot industry landscape, Myer makes some bold claims about what’s gating television innovation that dramatically oversimplify industry dynamics.

The biggest problem with Myer’s argument is that it ignores the major impediments to progress for both newcomers and incumbents – these include product design in all of its various incarnations, but let’s not forget content rights, content cost structures, and the economic realities of unbundling. It’s not as simple as cracking a new navigational paradigm for on-demand video or acquiring more content.

(For more on the nuances of this industry quagmire, see my Storify from last week capturing a Twitter conversation between Dennis Crowley, Dan Frommer, Hunter Walk, and others, that all started when Dennis’s grandmother couldn’t watch the Pats game in Florida without a $350 DirectTV Sunday Ticket subscription.)

At the end of the day, video services of the future must increase the value of the monthly subscription through a mixture of distribution, content, and user experience, but getting there will require a data-driven approach to the business that embraces platform dynamics and wedges the economics of content in favor of consumers.

This approach should extend to every dimension of the business, including content acquisition. Myer acknowledges that content acquisition is one of the biggest challenges for would-be disruptors. In fact, it’s his hypothesis for why nobody is challenging the pay-TV incumbency:

What’s the Problem

To seriously compete with existing pay‐TV providers, new providers need to offer at least what the existing providers offer, plus added benefits (more content, lower price, superior user experience, etc).

Successful internet‐video providers will offer a comprehensive catalog of à la carte/on‐demand content –- with an intuitive user experience. Existing internet video players are offering only a fraction of the programming of pay‐TV providers and they are securing new content rights haphazardly. If you’re going to compete with the incumbents, why guess what programming is important to your customer by only acquiring rights to selected programs?

That’s the old Microsoft embrace-and-extend ploy. I’ll save you my personal thoughts on embrace-and-extend as it relates to product development, but assuming some newcomer could actually afford a content acquisition strategy that successfully equalized the traditional channel lineup, what would be the return on such an astronomical investment, and would it even add value for consumers?

Myer says that newcomers shouldn’t guess what programming is important to the customer, and he’s right. But that doesn’t mean the video service of the future should strive for parity in programming. We now live in a world where the best consumer web products have iterated in part because of data – usage data if your product has traction, but how about general industry research like this Nielsen study that tells us the average US home with a cable package receives about 118 channels, but only watches 17 of them.

The way to increase subscription value isn’t by embracing the same content library, but rather by extending the value of the ~14% of content that consumers do access regularly and augmenting that offering with other relevant content and services. To do that, newcomers should leverage actual consumer data signals if they’re fortunate enough to have built a product that can capture them.

"Let me just write em an email, I can explain it all in a simple email!"

Netflix has built a data-driven product, and this is why Reed Hastings got on stage earlier this month at the UBS Media conference to proclaim that he’s the Billy Beane of digital media.  “We’re very much the ‘moneyball’ content buyers. We’ll look at, OK, we paid X for something, so how many people watched it?” Netflix is collecting and analyzing viewing data that then informs their content acquisition strategy.

Netflix, like the Oakland A’s, must apply a data-driven approach because they simply can’t afford to acquire everything they think consumers might want. It’s been reported that Netflix’s streaming content licensing costs will rise from $180 million in 2010 to $2 billion in 2012. Netflix can’t afford to spend another dime or another million on content that doesn’t directly add measurable value to the service.

But at least Netflix is in position to measure value and apply data-driven learning to its product strategy. This brings us to the supply chain of internet-age content distribution, an ecosystem within which Myer says, “companies need to control at least the device and the service.”

It remains to be scene whether this level of control will prove to be a categorical business imperative. Apple and Amazon seem to think so, and have demonstrated success owning their respective hardware and software stacks.

Netflix, on the other hand, is a service provider that understands platform dynamics and how to extract value and meaningful consumption data at the service layer. Netflix not only operates its service across PCs, tablets, gaming consoles, connected TVs, and phones, but has also developed the technical proficiency to optimize that cross-platform device distribution. This allows Netflix to maintain a direct relationship with the consumer and refine its user experience across platforms.

Incumbents like HBO and Showtime have begun to recognize the value of the direct-to-consumer model with their HBO Go and Showtime Anytime streaming services. Competitors like Hulu and YouTube keep investing in direct-to-consumer efforts to drive greater engagement (Hulu Latino, YouTube Channels). Microsoft redesigned the XBox Live Dashboard as a platform for content providers to go direct-to-consumer. Just this past week, we saw the comedian Louis CK pull off an experiment in content distribution, going direct-to-consumer to the tune of $200k and counting in profit.

These direct relationships, and how service providers leverage them to extract data that in turn informs product development, content distribution, and content acquisition will help shape the real future of television at the service layer. No single service will be able to provide a comprehensive offering so long as there is still exclusive, marquee programming and healthy competition in the device ecosystem. However the dust settles, content must stay accessible and affordable for the consumer.

—
About Anil: Anil Podduturi was most recently VP of Product Strategy at NBCUniversal. Prior to NBC, he led product management at Daylife, MTV Networks, and Microsoft. On Twitter: @anilpod

Why Apple Won't Buy Netflix (or Sony or RIM or …)

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We're like Media. Squared.

I enjoy pondering the question of “who should Apple buy next?”  I think it’s probably best answered in this Quora post, which conveniently includes a history of most of their recent acquisitions, then followed by all sorts of fun guesses.  Some of the companies mentioned include: Square, Pandora, Sony, Amazon, RIM, and many more.  PaidContent lists Apple as a good future home for Netflix.

I’m sure on paper many of these are sound acquisitions.  Some bring good IP. Others good cash flow.  Others good branding and distribution vehicles.  I’d surmise that many a financial analyst could put together very solid plans, and would even wager the discussions happen within Apple from time to time on the topic.  But I don’t think Apple’s buying any of them, and for a vastly different reason, one that won’t make any spreadsheet or pro forma statement anywhere.  It’s about the DNA transfusion.

If there’s one thing Steve Jobs created over the past decade-plus it’s a certain DNA.  It’s a company-wide culture that transcends from product to marketing to customer service to building design.  And inserting hundreds of product managers, engineers, QA staff, designers, etc who come from radically different types of DNA will result in exactly one thing: Brundlefly.

How about an iMinidisc player? Or adding UMD to next-gen Macbook Airs?

My money is on Apple continuing their pattern of only absorbing companies who are either:

  • Small – smaller teams who are tightly focused can have their developing culture be absolutely subsumed by Apple’s
  • Non-consumer facing – ingredient technologies (chips, algorithms, infrastructure) tend to need less of the consumer product dogma that guides the “Apple way” and have less impact on culture

The exciting thing about an Apple acquisition, in my opinion, is watching them take little pockets of technology and turn them into big consumer products far down the road.  Although I would say, of all the companies named above, it certainly does seem like Square could be a good fit from a product, market, *and* DNA perspective, but that’s just from outside appearances.

Netflix + Arrested Development? Come On!

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I was asked by well-respected analyst firm TDG to pen a piece of the impact of Netflix wrapping up exclusive rights to the upcoming 4th season of Arrested Development (for their must-read OTT Newsletter).  At first they asked if I could get it done in the next two weeks, but I said, “two weeks, I can do it in two days. Hey!”  So readers who are surprised at that phrasing will probably want to stop right about now, since the rest of it is, in fact, an analysis, but one heavily wrapped in Arrested Development quotes.  You’ve been warned:

“I’ve made a huge mistake,” a quote that could either be attributed to the hasty creation (and destruction) of Qwikster, or to one G.O.B. Bluth, Will Arnett’s character on Arrested Development. In a groundbreaking move, those worlds collided as Netflix announced it was the “network of choice” to distribute the upcoming revival of the cult favorite show (leading many of us to say, “them?”).

Not FOX (the original broadcaster of the show), not Showtime (once rumored to pick it up from FOX), was in play here. In fact, not a single broadcast, cable, or premium network will carry the new episodes.

While Netflix already has rights to a forthcoming original effort (House of Cards, by David Fincher and Kevin Spacey), the Arrested Development play is a first for an existing show to be revived yet not be available through traditional TV (as fans of the show might say, “no touching!”).

Part of the curiosity here is that the show now has a larger fan base than when it was cancelled in 2006, and populates many “Most Popular” lists on Hulu, Netflix, VUDU, etc. One would assume traditional broadcasters would express interest in locking down that large audience…so much for assumptions.

For Netflix in particular, this is a very big deal. The company is acting like a loose seal out of water and consequently has Wall Street running scared. Having exclusive access to this show might bring back some of the recently lost customer base and could sit well with show fans, especially given that a key criticism of its service is related to its catalog.

From an OTT perspective, it’s safe to say there is no illusion of the tremendous opportunity ahead. In a world that seems to be moving more and more down a path where consumers can get truly quantum video access – the content they want, from the provider they want, on the device they want, at the time they want – this is a big stride forward.

Disclosures: I own a tiny amount of Netflix stock personally, but much more importantly, I’m a huge huge Arrested Development fan.  And as they say, there’s always money in the banana stand.  Come on!

ps – and that’s why you always add a disclosure.

Smart TV: Not Dead Yet!

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I'm Not Dead Yet!

There’s a post on Wired entitled “Smart-TV Space May Never Take Off as Predicted” in which the author quotes a comment from ViewSonic:

“’Smart TV’ has not achieved the consumer acceptance or market expectation… that was forecasted over the last couple years. In addition, consumer spending for Smart TV’s in general has experienced a significant slow down as the economy has slowed. Our current strategy is to stay involved with the various technology developments and consider them in the future as they become available.”

Now with all due respect to ViewSonic, the last time I checked they didn’t rank in the top 5 TV manufacturers, and based on looking at prior years reports, my hunch is they represent somewhere between 0-3% of TVs sold (they do well in monitors, not as much in TVs).  So when they predict Smart TV to have a problem, perhaps they aren’t the voice we should be using, as compared to companies such as Samsung, who has over 2 million Smart TVs in homes already.

Q2’11 Worldwide Flat Panel TV Brand Rankings by Revenue Share

Source: DisplaySearch Quarterly Advanced Global TV Shipment and Forecast Report

As Michael Wolf, of GigaOM, tweeted: “Folks, Viewsonic is not the bellweather company by which to judge success of embryonic sector on #smarttv.” Now that said, I completely agree with James McQuivey (Forrester analyst who is hitting Smart TV issues squarely on the head):

“What’s happening in the connected TV space is it’s not really about what consumers want, it’s about what manufacturers are making,” Forrester principal analyst James McQuivey says. “Simply having a connected TV doesn’t mean you’ll actually use it.”

According to all the analysts and manufacturers I’ve spoken with personally, and that’s virtually all of them, the industry is pretty well agreed that somewhere between 1/4 to 1/3 of all Smart TVs actually get connected.  Further, the vast majority of them are just using them for Netflix, and just about everything else is getting pretty well ignored (stats show the #1 Smart TV app is Netflix, #2 is YouTube, and #3 is “other”).

The Wired author goes on to cite failures of the Google TV Revue box as more evidence to why the market is stuttering.  The truth is, the Revue box is failing because it’s a lousy product with a poor customer value proposition, and Kevin Bacon commercials aren’t enough to pull the wool over it.  But this would be like saying there’s no SmartPhone market because the BlackBerry Storm wasn’t so hot.

BlackBerry Angry Birds

Wait a sec, that's not a touch screen!

Last January I wrote a piece for Mashable called “5 Reasons Connected TV Could Flop in 2011” and in my opinion, all 5 of those problems are happening.  And I don’t see anybody really emerging out of the pack to do it any better – yet.  In fact, I’d wager we’re going to go a full calendar year from now before seeing signs of change.  And here’s why:

The TV UI (aka “ten foot user interface” aka “lean back UI” aka “onscreen display”) is simply unable to scale to meet the demands of convergence.  I’ll write more on this topic in the next couple of weeks, but mark my words: we have utterly reached the apex of functionality of all forms of TV-based user interfaces/experiences.

I believe TiVo pushed the concept to the breaking point with their original UX back in 1999, and I’ve seen nothing push it further since.  Yes, there are some prettier looking things out there, with beautiful icons/etc, but from a UX standpoint, we’re well past the zenith of what you can do with a remote.  And no, I don’t believe gestures are going to cut it either, and I’ll go into depth on that topic in an upcoming post as well.

I'd change the channel, but honestly my arms are just too tired.

The last point on Smart TV I have is this – the biggest “thing” that’s going to slow down all forms of growth is replacement cycle consideration.  If you buy a device once every 7-8 years, yet know intrinsically that the technology inside that device will be outdated long before that, you are less likely to buy it.  The only way manufacturers can solve this problem, as far as I can see it, is through a modular component that will enable future-proofing of the set.  Hm, yup, time for a blog post on that.

So is the Smart TV world fragmented? Yes. Confounded? Yes. Faced with turbulence? Yes.  Full of shoddy products that are causing backlash and poor word of mouth due to radically complicated living room experiences when all we want to do is kick back, turn on Bear Grylls, and have a beer? Absolutely. Dying? Nope, not even a tiny bit.

They Pulled Me Back In! I’m Joining Dijit Media as Chief Product Officer

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A week ago I announced that Jim Schaff would be taking over active duties at Stage Two, and that I’d be focusing on “other stuff.”  Today I’m excited to share the stuff:  I am joining the management team of Dijit Media as Chief Product Officer, where I’m responsible for product and marketing (here’s the official update).  Not only that, my virtually common law married colleague (business partners for much of the past 14 years) and very close friend Adam Burg is the company’s VP of Business Development.

What???

Last Fall, I gave a presentation at the Set-Top Box Conference in San Jose, and the entire drive back I had a feeling of near elation.  Not that I had said anything extremely profound, but it was wrapped up in the feeling of doing something I had a lot of passion for – in this case, discussing the future of television.  Over the next few months, I spent a lot of time doing research in the Smart TV (also called Connected TV or Internet TV) space, and started seeing some trends emerge, and realized there were some very interesting business opportunities on the horizon.

Adam and I spent months developing a prototype concept of the vision we had, and went to meet with some of the brightest folks we know in the convergence field.  One such bright folk was well-known VC Stewart Alsop, who I’ve known since the late 1990s, who introduced us to Maksim Ioffe, CEO of Dijit.  In our very first meeting with Maksim it was clear he shared much of the same industry and product vision and philosophy with Adam and me. I’ll keep this part of the story short, as we’ve all seen this movie before – we ended up agreeing to join the company. And there was much rejoicing (yay).

Why Dijit?

The grand vision of Dijit is to create the ultimate “four screen” (phone, tablet, computer, TV) social entertainment experience, one which seamlessly merges disparate products and platforms and content into one single, easy to use, consumer offering.  The company is well on its way, and its first product is an iPhone app that enables a really sophisticated, yet elegantly simple control experience for home media centers.   As Maksim put it, “Consumers have 21st-century home entertainment experiences but are stuck with remote controls that haven’t been updated since the 1980s.”  The company partnered with Griffin to produce the Beacon, a clever take on the “IR blaster” product, and one that’s already receiving solid reviews (and I haven’t even done anything yet!).  This is going to be a very exciting company to be a part of, and I’m thrilled to have such an opportunity.

Reminiscing.

I still recall the early days at Mediabolic, where we enabled networked home entertainment solutions that interfaced with legacy, analog consumer electronics devices (yes, we were networking the living room in an era where there were virtually no HDTVs, no YouTube, no Pandora, and no… iPod!).  At Mediabolic I learned what it takes to design and build embedded entertainment devices, to work with consumer electronics manufacturers, and the deep set of challenges surrounding the connected home industry (fun trivia: I heard the phrase “this is THE year of the digital home” every single year starting in 2001 – possibly earlier).  It was a great experience, and key people from that team now work at amazing companies like Netflix, Rovi Corp (Rovi acquired Mediabolic in 2007), etc.

At Sling Media I had the unique opportunity to work for and with some outstanding individuals, not to mention the position of being tasked with figuring out how to deliver the perfect “living room experience” – only over the Internet.  The company’s CEO, Blake Krikorian, taught me the meaning of focusing on every detail and nuance, remaining truly innovative, and keeping the consumer’s wants and needs in the forefront of every product decision.  I also had to learn the ins and outs of social media, back in the era before it was called “social media,” where “the bloggers” were a special, hard to understand subset of humanity (or, as I rapidly learned, just cool people).  We accomplished a great success building the Slingbox, and I’m proud of the product, the team, and the experience.

Over the past four years at Stage Two, I’ve had tremendous exposure to startups, big companies, CEOs, visionaries, the media, and managing a great team.  We literally put companies like Boxee, Bug Labs, and Pogoplug on the map, and have also had the chance to work for well-established firms like Electronic Arts, Best Buy, and VUDU (now Wal-Mart).  I’ve learned from entrepreneurs like Jim Lanzone (now president of CBS Interactive), Peter Semmelhack (Bug Labs), David McIntosh (Redux), Rahim Fazal (Involver) and so many others (I’ll write another post in the next little while chock full of shout-outs).  I’ve redesigned product experiences for dozens of products, and created marketing/PR/social media campaigns for dozens more, and had the pleasure to work with great teams along the way.

The Future.

And now I’m taking all of the above, and putting it to work at one place.  Welcome to Dijit.

Roku vs AppleTV smackdown

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I don’t have cable. But I watch a lot of TV.

For my birthday I got a Roku and after tooling around with it for a couple of weeks, I cut the cable cord, much to the wife’s chagrin. Then, last Christmas, I found under the tree an AppleTV (although it is small enough it could have gone in the stocking.)

AppleTV and Roku essentially inhabit the same space. Both are around (or under) $100, both are solely media streaming devices and, unlike the mythical GoogleTV or the enigmatic Boxee, neither offer web access.

So with no methodology and no experience in product reviews, here is my official, unauthorized, David-vs-Goliath head-to-head streaming media device smackdown. In one corner, Apple, the single greatest human accomplishment in the history of the universe; the company that proves Intelligent Design is real. And in the other corner, Roku, which means “six” in Japanese.

Design

OK, this isn’t really fair because this is where Apple has always excelled. When I first got my Roku, I thought it was a pretty slick device. Black plastic, pleasing angles and the size of a turkey club sandwich (hold the mayo). Then I unwrapped the AppleTV and…. My God you’re beautiful! So small, so sleek…

I looked at my Roku, what is that hideous oversized slab of a streaming device currently attached to my TV?

Point: Apple

UX

I won’t even go there. Apple’s is amazing… Roku’s has always sucked.

Point: Apple

Content

So this is where it gets interesting. The gateway drug for both of these is Netflix and Pandora, which are both awesome services and the reasons why the sun still shines in my world. But what’s there beyond that?

With Roku, yes there is MLB if you like baseball (I don’t) and HuluPlus if you’re able to figure out why you would want it (I can’t). Where Roku really shines is access to all the weirdo webTV shows on Koldcast, Blip.TV, Revision3 and so on. You have to really like web-only TV and fortunately, I do. The wife doesn’t so I end up watching a lot of it by myself. You can also watch Al Jazeera streaming live on Roku in the event you need more proof as to how f-ed up the world is.

With Apple TV, your channel flipping will lead you to YouTube or to all the various audio and video podcasts on iTunes. That may sound lame, but it really isn’t. There is a ton of great stuff there and most of it is pretty bite-sized. So in 3-5 minute increments you can flip from news to comedy to movie trailers… unless you land on the “This American Life” podcast, in which case you’re stuck on the couch listening to your TV for an hour.

Winner of this round? I’m going to give it to Roku. I love all the cheese that webTV has to offer. My big complaint is again the UX… it is hard to find content and then to remember which channel it is on if you want to go back to it.

Reliability
So here’s the knock-out blow… this goes to Roku. Yes, it is close, but Roku wins it. I found a better picture and fewer artifacts when streaming from Roku. Also, surprisingly, AppleTV hung up and crashed more than the Roku did. Not by a long shot, mind you, but enough to notice.

Final Verdict

If you like design, UX and more mainstream content, you’ll love AppleTV.

But this is my smackdown and I’m giving the prize to Roku. They’ve got the edge in reliability and I love the goofy webTV access… but that is just me.