In Reel Time

2010.15 My NAB highlights … the top 10

Over 1,500 companies are on the NAB (click NAB for site) floor, and 479 of them are non-US based. Below is my attempt to edit a huge show into a few minutes. My personal show highlights….

1. 3D is the talk of this show. The lines to watch demos were long at Sony (Sony’s Hiroshi Yoshioka gave an opening keynote in which he stressed consumer demand for 3D), Panasonic and others. Buzz remains that 3D is the next technology invention to save the entertainment industry. Options are growing quickly and costs are coming down.

My specifics: I saw a great panel – with demo videos – on 3D sports. Incredible; and I’m one who generally doesn’t get excited about sports. On the panel were Anthony Bailey, Phil Orlins and Bob Toms from ESPN and Vincent Pace of PACE (and Avatar). Glen Dickson from Broadcasting and Cable Magazine moderated. I learned that the event rights holders were driving the production demand and that viewers are eager to watch the resulting product. Thus far, it is still a next generation experience and not a replacement for regular 2D sports. Not enough legacy work has been done to automate the process. Indeed the cameras often need to be placed lower to the action than are traditional cameras and the graphics must be scaled back so the screen doesn’t look too busy. Listening to Vincent Pace, a true 3D innovator, discuss the aesthetic challenges inherent in shooting 3D sports gave me my own Steve Jobs/calligraphy moment: I now view the images floating across the screen in an entirely new way.

2. Gadgets still sell… regardless of a recession.

How many panelists had iPads? Well, given the so recent Apple introduction they were pretty ubiquitous. One set of panelists agreed that the iPad is great for media or surfing the web on their couch but, as it didn’t fit in their pocket, wasn’t even to close to replacing their cell as number one.

I learned that Android smartphones now make up close to 7% of the market.

And, the GoPro HD Hero Naked is the coolest gadget of the year in my book (so far). The company has a booth at the show and their camera sold out of the NAB store in less than a day (at about $200). They make wearable, high quality HD cameras for sports. Waterproof, many versions (not just the Naked) including ones that fit on your surfboard – race car – bike – or wrist, durable (obviously) and great quality shots either as a video or a series of stills. Want to surf inside the curl of a wave at high definition? See the whole story by clicking GoPro.

3. The lack of available bandwidth and carry fees continue to be core issues. FCC Chairman Julius Genachowski gave a speech in which he discussed the FCC’s broadband plan. Broadcasters will be “encouraged” and “incented” to give up some of their broadband spectrum to be re-allocated to telecom companies.

“We’re at serious risk as a country in not moving quickly enough on our technology infrastructure and in other areas to remain the world’s leader in innovation,” he said.

The day prior, in another speech, NAB president Gordon Smith had compared the Chairman’s request for spectrum to Vito Corleone, in The Godfather, making people offers they couldn’t refuse. Chairman Genachowski joked back about the comment saying that as a result of the analogy “all the good restaurants have been offering to comp me.”

Later that day, a consortium of many of the countries’ largest broadcasters struck a deal to create a joint venture that would develop programming for mobile devices. The content provided could reach up to 150 million people (broadcast by them on their existing spectrum). Click article to read the entire story.

Chairman Genachowski also said that the agency is looking into (and looking for comments about) retransmission fees. We all remember the battle between Disney and Cablevision in March, during which certain Cablevision subscribers were threatened with no Oscar broadcast. He didn’t give any insight as to what the FCC will decide, just that Time Warner Cable and a few other like companies had asked them to look into the issue.

4. Multi-platform is a big buzzword. I liked how Dana Walden and Gary Newman, co-Chairmen of Twentieth Century Fox Television (Joe Flint of the LA Times moderated), described it in the context of Glee (click to see videos), their hit music show . They explained that the goal was to get the content into as many channels as possible – some of which are for marketing and not direct payment. Consumers all still appreciate quality content with universal themes and strong characters. Studios just have to be more creative in finding multiple channels in which to monetize the content. Glee did that, in part, through music, with a show over the summer, albums, etc. And, content needs to be monetized more quickly now (forget the days of relying on syndication or DVDs in a few years – 24 was put on DVD right after the first season ended). However, the idea of the network season, they stated, is still sacrosanct.

I also sat in on a mobile TV panel with execs from companies that included: Transpera, IBM Global Business Services, Flo TV, AT&T, MobiTV and Ion Media TV (if I missed you please let me know – the program differed from the actual speakers). For mobile, do we just use the content that exists? Not exclusively; though we do use it and cross device content portability is increasingly important. Currently, online narrative shows are watched more often on PCs; news and sports are viewed more on a mobile platform. On Flo TV their average viewer watches 25 to 30 minutes of mobile TV daily.

Overall, media viewership time itself is up dramatically. But the related revenue is going to different people (Apple, telecom carriers, concert promoters as opposed to music companies). From IBM’s Saul Berman, 4G will be the real inflection point of mobile television…if only we had the bandwidth to support the coming demand.

5. Ray Kurzweil matters. When I asked people I met what most struck them about the show his speech came right after 3D. In a keynote, he spoke about the acceleration of technology in the 21st century. No matter what the related topic he knew and could speak about it brilliantly. Agree or disagree … he’s an impressive guy. Click Ray to learn more about Kurzweil and singularity.

6. Social networking was another hot button. I attended a few panels on how to create a presence, market, advertize, brand, organize and more. Essentially, we’re in the early stages of the social networking reality. People will add more specialized social networks and means of organizing them but privacy (to a certain extent) is gone. Network.

And, social networking has become content.

7. People were spending. On Tuesday afternoon I couldn’t fight my way through the store and certain items were beginning to sell out (including some books!).

8. One of my cab drivers mentioned that Nevada unemployment is at 23%. For some even softer data, she told me that last month, finally, the larger strip-based casinos were busy. During the worst of times the smaller casinos were the only ones that had any business because they catered to a local clientele.

9. Convergence? The means of production haven’t changed as much as the means of consumption keep evolving. I saw a lot of cameras and reporters from paper based media companies. On display were satellite dishes, companies that build sets or send trucks. But the digital technology companies were out in full force (and filled some pretty large spaces).

10. Harmonic was the only booth (in my experience) whose reps didn’t just scan NAB badges for attendee information. Rather, they asked to look at a business card – it was given back – to get information, then asked about my company and interest in theirs so they could direct the information to the appropriate person within Harmonic (who would then respond). Smart.
The above is by no means a summary of NAB. It’s merely one person’s comments regarding what she saw and heard in a few days. Click Harmonic to learn more about the company.

The above is by no means a summary of NAB. It’s merely one person’s comments regarding what she saw and heard in a few days. Anyone who wants to add their own list please do.

To learn more about our firm please go to hadleypartners.com at link.

2010.14 Who shot my business model?

Creative destruction plus debt rarely miss a solid shot at any business model.

EMI and MGM share many things in common: they’re both studios (one music, one movies) with storied reputations, a history of hits, large and still-selling catalogues and owners (the hedge fund Terra Firma for EMI; Sony, Comast, TPG, and Providence among others for MGM) who loaded them with debt. Both are reeling as they battle to preserve value in light of creditor demands (which are justified under the debt terms) and negative industry trends.

The old studio business models are very obviously no longer working, and are still in flux. In the case of EMI and its music peers, nobody has found an adequate replacement for the sale of richly priced CD’s. In the case of MGM, which has a substantial library relative to a modest production slate (at least recently), the decline of DVD sales and the lack of equally lucrative replacement revenue streams sound like a similar tale of woe. And both businesses are beset by piracy and ever-increasing consumer entertainment alternatives. So who’s to blame? And why? The importance of the question hinges on the reality that if quality content can’t be monetized then no one can afford to make it.

The list of villains includes: the Internet, Netflix (rent, don’t buy), pirates, private equity firms, banks, consumers (read pirates), YouTube, video games and the studios themselves.

Ultimately, why these companies are tottering in 2010 is simple: private equity firms loaded up these media companies with too much debt, not expecting a precipitous decline in their revenues and much tighter credit. Let’s dig deeper. EMI has seen ten or so years of digital downloads siphoning sales. At MGM, DVD sales slid from $395 million in fiscal year 2008 to $70 million in 2010 (with a fiscal year end of March 31). The reality is that in both cases, the cash cow has been slaughtered. Neither EMI nor MGM has that steady stream of royalties to cover both their costs and their debt loads. New content remains unpredictable – will it be a hit – and is hurt by the destructive cracks to the historical monetization models of media’s recent past.

I blame what the economist Joseph Schumpeter most famously called “creative destruction.”

I’ve been reading Inventing the Movies by Scott Kirsner. It reinforces the story that’s been told before: media business models have repeatedly been disrupted by new technologies. “This time” is never different. Silent movies gave way to talkies, which gave way to radio, which gave way to network television, which gave way to cable, now the Internet (now 3D and our smartphones) – for a highly simplified overview. Media businesses have always been entwined with the then-prevailing technology. Progressive technological advances, from Technicolor to mobile video, have always disrupted media business models. As a result, whole sectors have been transformed or ended (silent film stars with bad voices…). Does anyone remember the song “Video Killed the Radio Star”? Yet we still have radio; we also have satellite radio, iPods, podcasts, MP3 players…

Further, no one should put a lot of debt on companies subject to full-blown technological disruptions in their industry. A company in the early stages of a new technology paradigm introduces something new so people start consuming it; when people get bored or a newer and better option arises then the business declines UNLESS you’ve anticipated the change and responded with a solution. Examples of responding to challenges by innovating: Apple, YouTube and Fred.

Assets – or in these cases libraries – are only worth what people are willing to pay at any given moment. And what people can or will pay changes (remember the tulip craze). EMI and MGM are learning that the hard way as they try to sell an asset which is in a downturn – the valuations are low (even if the content itself has long term value) because there is UNCERTAINTY in the long term monetization realities so buyers are avoiding risk.

Whether content is the core product, or rather it’s the larger entertainment, matters little. Monetization models have been disrupted with the introduction of new technologies. The response, since the disruption is so large (being creative destruction and not just a business cycle issue), will have to match the change and not just struggle with little tweaks in all that’s been done before. Some ideas that are working (already!) I’ll post about in future blogs.

And for now, I’m sticking with cowboys…

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2010.02 Is Content the “Chip” of the Media Industry?

Sitting down in Brentwood one morning recently for coffee, egg whites and toast, a friend and I debated the value of content, especially in today’s environment where so much of it is free.  There has to be some logic to pricing for everything that falls between Avatar and the YouTube Wii tutorials that my six-year-old son watches obsessively.  Avatar, by the way, is reportedly the most bootlegged movie in history (inasmuch as anyone can track that statistic!).

But consider the chips (or integrated circuits) which power all consumer electronic devices today.  A core principle in the tech world is Moore’s Law (in which computing power per dollar doubles approximately every two years).  This geometric increase in price/performance (smaller size, faster processing power, increased capabilities) means innovators can create new products like the smart phone, the iPod, the tablet computer, the Kindle, etc.  The chip is the core upon which everything runs, and its capabilities support seemingly endless new product possibilities.

Isn’t content similar in many ways?  Who wants a television without programming, an iPod without music, a newspaper with no news or a book without text?  So why is there so much pressure for content to be free (in the form of illegal downloads, bootlegging, file sharing, free registration for most websites or even trading of discs and books)?  Designers of integrated circuits aren’t expected to share their trade secrets online and let everyone use their blueprints to produce a like product. Yet much as an electronic device can’t work without a chip, media delivery sources are meaningless without content.  If content producers stopped creating new offerings, who would buy a new 3D television or an Apple tablet?  Is an old movie just as valuable as the new? Generally, no (although arguably some music holds its value better).

Content is just easier for an average person to steal (oops, I mean download), use and share than is a capital-intensive, patent-protected process like chip fabrication.  Trying to cover all of the possible media revenue models – past, current and future – isn’t possible in a short post; so I won’t try.  But unless consumers feel a social value or moral obligation not to pirate content then they will ignore the potential long-term cost (less new, original, professional content?).  After all, there is always YouTube.  Meanwhile, the media companies continue to give ground to the pirates by ignoring the practical realities of today’s marketplace.  Consumers are part of the solution and won’t generally pay $15 for a $.10 disc with music on it anymore.  Consumers will pay a reasonable price (say, $0.79 or $1.29) for a convenient, easy to use offering like an iPod download.  But in most cases, the situation festers…

We aren’t early adopters in my household, despite the reality that my job requires me to spend substantial time online exploring new technologies and meeting with management teams learning firsthand about the same.  Why?  Time.  I don’t have much time to enjoy content so I stick with minimalist simplicity.  My good friend, also technologically savvy and very busy, had a simple way of summing up his entire media purchase strategy:  Apple is his music provider and Amazon (Kindle) his book provider.  He doesn’t buy anything else.

Having said that, I recently got hooked on a few new (for me) media content enablers through which I’m exploring new content.  Fora.tv aggregates the best “smart” videos from various web sites, including universities. The content crosses numerous topics with expert commentators.  Economics, technology, politics and even non-profits are discussed by the experts.

Clicker.com does an excellent job of aggregating videos online – including shows, movies, music and sports events.  The site came out of beta at the end of 2009 with hundreds of thousands of videos (and other content) available.  What’s best about their model is that the content provider decides whether a viewer watches the show on the Clicker site or is instead directed to the provider’s site (so they control whether or not the content is free, and if not, the cost).

And, as someone who once thought the Kindle would end society as I know and love it (will the word library soon be synonymous with museum?), I have really come around and my Kindle is among my favorite possessions ever.

“Content is king,” is a much debated term.  But, as electronics manufacturers’ offerings are driven by what a chip can support so are delivery devices driven by content.  But whatever types of content people dream up someone will provide a means of delivery, whether it is a teenage girl texting her boyfriend, then her friend about her boyfriend, while she’s supposed to be doing homework; or James Cameron spurring the development of 3D capabilities to ensure his vision plays out in front of large audiences on screen.

Ultimately, it is the growing power of the chip, enabling high quality content to be delivered at a low cost to the devices of the world, that is disrupting the economic model of how content is monetized.  And the march of technology means that the disruption of the media business will continue.

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