Monday, February 25, 2008

The DVD Is Not Dead...Yet

An article in yesterday's NY Times does an excellent job of covering the point I was making last week. That is, the entire DVD business has a limited lifetime and Sony's Blu-Ray victory is somewhat hollow. The disc business is not a long-term business and it is already showing signs of fading.

The article discusses what the various studios are doing in an attempt to bolster the DVD and Blu-Ray business and keep it from going the way of the CD. They are trying everything from better packaging to actually providing a downloadable file on an accompanying disc so consumers can put the content right on their computers, iPods and wireless devices.

However, that last strategy relies on the fact that loading from a disc is still a lot faster than loading from the Internet. At least one executive claims that this advantage will remain for the foreseeable future. If that's true, then how come everyone is already foreseeing the day when all content will be piped directly to the consumer with no need for a disc or packaging or a brick-and-mortar retailer. Maybe no one can pinpoint the day that the speed and capacity of most consumers' Internet access will cause that technology shift to occur, but everyone can foresee the occurrence. And I maintain it is sooner rather than later.

I think we again are seeing entertainment companies struggling against inevitable technology shifts rather than embracing them and developing new and better business models. These guys have to give Who Moved My Cheese? another read. Change is inevitable and needs to be not only accepted, but pursued. Smart business people get out in front and give consumers what they want before they start switching to other vendors. The problem with the major entertainment companies is that they are still used to controlling the business and dictating to consumers. They need to get smart and embrace the commercial democracy that is created by technological revolutions.

And Blu-Ray sales will certainly pick up. As prices come down on 1080p displays and Blu-Ray players, consumers will seek and enjoy the higher quality. But that doesn't buy that much more time. Eventually, superior HD content will also be delivered over the pipeline. It is right around the corner -- maybe it's a 3 year corner, maybe a 5 year corner or maybe even a 10 year corner, but it's coming. Let's not put so much effort into denying consumers what they really want by delaying technological shifts as long as possible. Let's get out in front of consumers and figure out how to make more money by using technology to provide more quality and convenience at a price that consumers are willing to pay.

Update: Here is an article from Macworld, published last night, that makes the point even more directly, and backs it up with some emerging research.

Tuesday, February 19, 2008

And The Winner Is....Blu-Ray

No surprise here. Warner Bros. put the first nail in HD-DVD's coffin with the announcement at CES that WB hi-def content would thereafter only be published on Blu-Ray. Walmart, Best Buy and Netflix hammered in the final nails over the past week or so. When retail won't sell your product, it makes it very hard to stay in business.

To Toshiba's credit, it didn't waste time in seeing that the game was over and accepting defeat. Toshiba is a great company with excellent technological and business skills and history. Being a great company (especially in the technology industry) means having the flexibility to change when it's time to change.

I think Toshiba also recognizes that the entire disc business has a limited lifespan. Eventually (in the not too distant future) all content will come down the digitial pipeline at the push of a button. Everyone knows this. So, there was really no reason for Toshiba to keep fighting. Aside from the fact that they had no realistic chance to retain any significant market share, it's a business that they would have abandoned sooner or later anyway.

Monday, February 18, 2008

Mobile Media Marches On

Another good article this morning (this time from the BBC) which is indicative of the speed with which mobile media is advancing. The gist of the article is that the sales of smartphones will surpass the sale of laptops within the next 12 to 18 months.

Think about that -- 12 to 18 months. That is right around the corner. This means that everyone is quickly heading towards having robust media capability in their pocket, with a 24-7 connection. This supports what we've been saying about mobile media being the place where content providers need to be focussing -- not for sometime in the future, but right now.

This also means that the vision for mobile peer-to-peer distribution which gets charged to consumers through their carriers is a paradigm that should be set up now. If everyone has a media player in his or her pocket, and they can easily beam their favorite media to their friends, and the content providers can get paid on that transaction, that equals a win for everyone. That's where we need to be headed, and today's BBC coverage shows that the necessary shift in technology usage is fully underway.

Saturday, February 16, 2008

The Real Hurdle to Mobile Media

At the Mobile World Congress in Barcelona on Thursday, one of the panels was apparently very revealing on the topic of advancing mobile media business models. The Hollywood Reporter has excellent coverage on that story.

If you ask most people, they would probably characterize the content providers as reluctant to make their content widely available on mobile devices. Personally, if I had to guess, I would have identified that as the primary factor impeding progress in that area.

However, the real problem appears to be the carriers. They are apparently stuck in a business model where consumers must pay extra for everything they get through their phone. The content guys favor making content more readily (and cheaply) available to mobile customers, but the carriers insist on pricing it as a premium feature. This, of course, discourages most consumers from signing on.

The content guys recognize that if you want people to change their media habits, you can't make price an issue. You have to make it cheap and easy at first so consumers get used to doing things the new way. Once they grow attached to the availability of robust media on their phones, then they will be much more likely to pay for additional and expanded services.

That makes sense to me. I think the content guys are right and the carriers are being short-sighted.

By the way, the article makes one other interesting point. MTV is apparently discovering that consumers like watching full-length media on their phones. I think the presumption was (and continues to be for most people in the business) that mobile media would work best in smaller units -- something in the 5 minute range as is the norm for online media. However, MTV says this does not appear to necessarily be true.

Thursday, February 14, 2008

Update on Viewer Migration Caused by the Strike

Another article today relevant to what I was talking about on Monday. Video Business confirmed that in December, as new television programming was waning because of the strike, viewers turned to the Web. The article notes a 34% increase in online video consumption -- apparently a lot of it at Youtube. (Check out the table showing market shares of online video traffic -- very interesting.)

It's probably not a popular opinion, but I think this is ultimately a really good thing. The only thing holding back more aggressive development and commercialization of online media is the lack of enough viewership to constitute a critical mass. Everyone knows that video on demand through the Internet (and mobile networks) is the future of the entertainment business. We need to get out of the no-man's land between television and online media, and get to an integrated model. Anything that speeds up that process is a good thing in my mind.

Tuesday, February 12, 2008

Mobile Is The Next Frontier, and It's Right Now

The most interesting news on the digital entertainment front comes out of Barcelona, Spain today. That's the site of the Mobile World Congress where there have been two very interesting and related developments.

First, Microsoft announced its acquisition of Danger, a mobile phone operating system. The Danger software is especially adept at facilitating social networking through mobile devices. This is clearly a part of the MS strategy to dominate the entire digital media environment. I view the acquisition of Danger as being equally important to that strategy as the proposed acquisition of Yahoo. Certainly not as high profile, but an equally important piece of the puzzle.

At the same conference, the new Google-enabled cellular device was unveiled. The phone runs on Google's Android operating system.

So the fight between MS and Google has officially extended onto the mobile front, and it will be a battle royale. The mobile advertising business should be worth double-digit billions of dollars by the end of the decade, or not long thereafter. Mobile media is the portion of the business that truly frees consumers from their desks and facilitates the "whatever I want, whenever and wherever I want it" paradigm that is the current goal of media technology development.

And the big winner at this point appears to be Andy Rubin. Andy is the co-founder of Danger who is now running Android for Google. That's right, the entire mobile operating system battle can be traced back to one guy (who I'm sure had a lot of help from dozens of other talented people). I guess when they make the list of most important people in the world of mobile technology, Andy's name will be near the top.

Monday, February 11, 2008

What the Writers Strike Really Accomplished

It looks like the WGA labor action will be coming to an end in the next couple of days. The show runners are heading back to work today, so that's a pretty good indication that the union anticipates a positive vote from the membership on Tuesday evening. (

There is already a lot of talk about what the writers accomplished with their job action. The most important provisions of the new deal would appear to be those which focus on the writers compensation in connection with new media (including mobile), both original and derivatives of broadcast shows. Is it a good deal? At first glance, it would appear to be pretty good as it ties into a lot of the current television provisions. However, I still don't think we know enough about the ultimate digital media landscape to determine what constitutes a good deal. Everyone is still doing a lot of speculating and projecting of possible scenarios.

What's more interesting is that the 14-week strike used up the inventory of new television shows. This appears to have driven viewers towards the Internet looking for different content. Although the strike is over, many of those viewers will continue to visit the digital media outlets they discovered during the strike.

So perhaps the most important impact of the strike is that it not only helped set a framework for the compensation of creative personnel in the new media environment, but it also contributed to the speed of evolution towards that new model. That seems ironic, but if the WGA has indeed cut a good deal in connection with new media, then I would call it a double win.

Personally, I like anything that helps speed the transition to a new, stable digital media environment with enough users to create a critical mass of revenue. So, while I never like any job action or other event which slows down production, this one might have had an unanticipated positive impact. I'm glad it's over, but perhaps it wasn't all bad.

Saturday, February 2, 2008

Why Microsoft Wants (Needs?) Yahoo

Clearly the big media business news of this week is Mircrosoft's unsolicited (and unwanted) offer to buy Yahoo for a combination of Microsoft stock and cash. Depending on the price of the MS stock at any particular time, the deal is worth around $42 billion. That represents a steep premium over the pre-offer price of Yahoo.

Obviously, the deal is driven somewhat by the current low price of Yahoo stock. However, the premium offered by MS shows that this is about more than bargain-hunting. Everyone covering the story accurately notes that MS sees Yahoo as a necessary piece of its strategy to take the Internet away from Google. It's about gaining control over as much online advertising as possible. No big mystery there.

What I find interesting is that this is a huge endorsement of the idea that advertising is the key to online riches. Again, this philosophy is nothing new. In fact, there are really only three basic models for selling online content -- subscription, per-unit and advertising-based. So, anyone who wants to deliver any content over the Internet without charging the end-user is looking to make their money from advertising.

My question is how much growth is in that model? Online advertising dollars are predicted to grow by multiples over the next few years, and they probably will. However, what if advertisers start deciding that the bulk of their online dollars are not generating sales? What happens when online advertising stops working as well as everyone thinks and hopes? The prices for online ads could go down, the dollars could migrate to other media, or advertisers could simply cut back.

Honestly, I don't think there's a significant risk of negative growth in online advertising anytime soon. I personally believe that it can be a very effective way to hit target markets and initiate transactions. But it is more fun to think about business growth in the digital world once advertising growth tapers off. What's over the next hill? I think the answer is delivering content that is so compelling that consumers will gladly pay for it. That may not be realistic, but it is a much more interesting challenge than figuring out how many ads on a web page are too many.