Archive for January, 2010

Why McAfee Isn’t Any Different Than The Scammers They Try To Stop

Jan 29

Posted by Davis in Technology | 3 Comments

You can mock me for being afraid of the black helicopters or alien visitors with advanced technology, but I learned long ago that there are enough legitimate threats out there, that people need to take internet security seriously.

As a small business owner, I’m not just concerned about protecting my own privacy, but I also care about the vendors and customers who do business with me. Because of this, I’m willing to pay a premium in order to have the best anti-virus protection on my computer, so two years ago I purchased several subscriptions to one of McAfee’s anti-virus solutions. Given their reputation, I felt that they were the best at what they do and had complete trust in their service. Unfortunately, after learning first hand how they treat their customers, their “total protection” turned out to be little more than a protection racket and I can promise you that I’ll never spend another dime on the company again.

My problem occurred late last year, ironically just 2 weeks before my anti-virus package was up for renewal. Since hackers tend to do a pretty good job of staying ahead of the curve, it’s always been important to me to update my software as promptly as possible. Whenever McAfee would release new virus definitions, it was a no brainer to install them. Because McAfee had earned my complete trust, I never thought twice about the possibility of them sneaking malware into one of these updates.

Yet, after approving one such “recommended update”, I was dismayed to find an obnoxious button with the McAfee logo sitting at the top of my internet browser. Without every clearly explaining what they were doing, McAfee had installed a Siteadvisor toolbar directly on my internet explorer browser. Since I’m particular about how my browser is customized and since I was already aware of the Siteadvisor service, I wasn’t very happy about giving up valuable real estate on my screen to someone who I had paid money to. Worse yet, one of the proprietary programs that I use for my work had a conflict with their program making the situation completely unacceptable.

Being a little bit computer savvy, I figured it would be easy enough to disable or uninstall the update, but no matter what I tried, I simply could not get this button off of my browser. Over the years, I’ve had to deal with my fair share of malware and unwanted viruses and while there have been times where it took a bit of effort and research to get rid of these obnoxious predators, I’ve never had this much difficulty zapping an unwanted visitor before. If you search the web, you’ll find a ton of other people asking about how to remove it and a lot of answers telling them just to give up.

Here’s a good example of what other people’s experience with the program has been like.

” one good reason to remove it, is because the damn thing is a nightmare to remove and anything that evasive when it comes to uninstalling usually means it a bad thing. I’ve had less trouble getting rid of nasty virus’, therefor i consider it just as bad as a virus, because a user should have the right to remove their software, (and if its near impossible to remove, i’ve gotta wonder what else it upto that it shouldn’t be). I originally wanted to just remove stie adviser and keep the rest of my McAfee package, I’ve now uninstalled all of it in an atempt to get rid of it, and will never trush McAfee again, after relying on their antvirus for years. Its so bad i’m now resorting to formatting my shiny new laptop, which is less than ideal as I have to now try and hunt down all my drives. I’ve tried repeatedly to uninstall it in various ways I have Vista with IE7, I originally tried using the McAfee uninstaller, I have since removed it no less the 15 times using add or remove programs, even filled in their sodding questionair to why I removed it over and over again, but every time I open internet explorer it re-installs itself without my permission and leaves it it in a domant state, poping up a window saying it has been updated and wanting me to re-activate it every single time I open a new internet explorer window or tab, which as you can imagin is unbelievably annoyng. any surgestions about getting rid of it for good would be welcome?”

It would be one thing, if McAffee’s software was freeware and they choose to migrate to an ad supported model, but since I had paid for multiple copies of their software, having an ad forced on me was tacky at best. After conditioning me to always trust their updates, they took advantage of that trust by sneaking in a payload on an unsuspecting customer.

What really made this situation so infuriating though, wasn’t the mix-up with their unwanted malware or even the nefarious way that they choose to distribute this piece of software, it was what happened when I called the company for customer support.

After taking a look at the account, I was informed that since it had been more than 90 days after my purchase of a 2 year product, that McAfee wanted me to pay them a “service fee” before they’d be willing to help with my issue

Even when I asked to speak with a manager to discuss this policy, the rep flat out refused to transfer the call and told me that he wasn’t going to continue the conversation until I paid them the fee.

Over the years, many computer users have been tricked into a scam where they unwittingly download a piece of software that then tells them their machine is infected or at risk of a virus. While many viruses want to stay hidden, these programs want you to know about them because they then aggressively offer to sell you the antidote for getting rid of them. Not only is this behavior unethical, but it’s even considered illegal. In fact, just last month the FBI warned consumers about this very type of scareware and said that they think these scams have cost internet users over $150 million in bogus charges.

Now I can understand why McAfee is reluctant to help people troubleshoot their computers, especially when you may have installed a tricky virus or trojan file, but when their very own software uses sneaky and underhanded methods to place an ad on every web page you visit, I feel they owe it to their CUSTOMERS to help them get rid of this unwanted behavior. While they may have a good reputation within the anti-virus community, by requiring customers to pay an extra fee to get rid of THEIR unwanted software, they are essentially trying to extort money from the very people who are buttering their bread already.

McAfee may try to argue that they are only trying to protect their customers with a security enhancement, but I believe that their behavior is no different than what these scareware companies are trying to pull off.

Ultimately, the only way that I was able to get rid of this annoyance was to do a complete reinstall on my computer and to wipe out a lot of data in the process. Spending 3 – 4 hours to reformat my system and reinstalling my programs may sound like a lot of fun , but as a small business owner it cost me valuable time and money, that could have been spent more efficiently.

Since McAffee has built their business around a program where updating the software is a crucial part of the service, I don’t believe that it’s unreasonable for consumers to expect to have a hassle free experience when they are getting the most recent data files. Nor do I think that it’s unreasonable to expect a minimal level of technical support when it’s their own program that is causing the issue.

If you search the internet, it’s clear that these problems have been going on for a long time, but instead of dealing with them, McAfee continues to abuse customers who would prefer not to see an ad at the top of their browser. While this scheme may net their shareholders a little bit more in profits and a lot more in extra traffic to their Siteadvisor website, it’s also cost them at least one small, but irritated customer.

Home School Confidential

Jan 28

Posted by Davis in Misc | Comments off

Normally, I like to focus on tech and business news, but lately I’ve been thinking about something a bit more personal and thought that others might benefit from my perspective. While I’ve always felt fortunate to grow up in a large family where all of my needs were always met, my parents weren’t exactly the Rockefellers either. Having a lot of kids was a blessing for them, but it also created some unique financial pressures that have had a profound impact on who I am today. In particular, providing a quality education was especially problematic for them.

While there are some great public schools out there, my particular school district was infamous for being the worst of the worst in the Los Angeles school district. Last year, the graduation rate at the local high school was just a hair over 50%. While this kind of public education would have done a good job of helping me to succeed if I ever ended up in prison, it wasn’t going to provide me with the life skills necessary to succeed in the real world.

The other option that my parents had was to enrol their kids in a private school, but faced with the prospect of making 5 concurrent tuition payments each year (plus mandatory school taxes), it just wasn’t financially feasible for them to do it. Because my parents felt trapped between a rock and a hard place, they ultimately made a tough decision to forgo the traditional route and to homeschool their kids instead.

At the time, this was a controversial choice. In fact, I was one of the very first students in California to “officially” attend home school. In 2008, the co-op that was my Alma mater was actually declared illegal (and than legal again) by the California Supreme court. If my alma mater was ground zero for the California home school movement, it’s fair to say that I was part of the epicenter.

While my parent’s decision was driven in part by financial considerations, it was also driven by their desire to have more control over what their kids were exposed to. Our society tends to bombard kids at an early age with messages that aren’t always very healthy and they wanted to make sure that they had an opportunity to share their faith and ideals with their children. Some may view this as controversial, but I think that every parent should have a right to teach their kids right from wrong. Because my education was considered quasi-legal though, there was always a little bit of paranoia surrounding what we did. Personally, I never lost sleep over it, but my parents certainly worried that the neighbors might report us or that we could be accosted by truancy officers when out and about during school hours. At one point, they actually purchased legal insurance to help protect themselves, in case they were ever forced to defend their decision.

In addition to some of the legal questions, there was also a social stigma that I was forced to deal with. When I eventually re-entered the traditional school system, extensive testing was required before they would accept me. At the time, most colleges were shunning those who hadn’t received a formal education. When I did enroll in school, many of my peers viewed me as a bit of a social misfit. It’s fair to say that over the course of my life, I’ve heard my fair share of homeskooling jokes.

Fortunately, this trend has almost completely reversed itself and as more and more homeschoolers have worked their way through the system, it’s become increasing clear that those who’ve had this unique experience, aren’t necessarily the backwards country bumpkins that society would lead you to believe. Often times, they are gifted artists and creative thinkers who can bring a lot to an organization.

If you would have asked me at the time, I probably would have told you to never home school your kids, but when you fast forward 25 years, I have mixed emotions about whether or not I plan on making the same decision with my kids (assuming that I end up having kids of course.)

While my relationship with my parents went through it’s fair share of ups and downs, undoubtedly I feel closer to them today, than I would have otherwise. My Mom was never a rocket scientist (or even college educated for that matter), but the one on one attention made a big difference compared to the massive classrooms that ended up being my high school experience. When I did test to enter school, they wanted to place me two grades higher than my age group.

When other kids were studying California history, I was seeing it first hand by visiting historic missions and seeing how the government worked in action. When I expressed an interest in one day becoming a fireman, my parents were able to arrange visits to the local fire station. When I expressed an interest in being a veterinarian, I was given backstage access to the LA Zoo. While you can question the educational value of some of these experiences, I feel that they gave me a perspective that most people miss out on and made learning an enjoyable process. Even at a very young age, it wasn’t unusual for me to read over 100 pages a day simply because I loved the topic.

From the negative side of the equation though, being home schooled was a very lonely experience. My parents made sure that we belonged to a lot of social groups, but you really can’t replace the day to day stimulation that kids get from interacting with each other. The parents that I know, who’ve chosen to homeschool their kids, almost never understand how pervasive this loneliness really is. Having spent a lot of time with other home schooled kids, I think it’s a fair generalization to say that socially we were all a bit behind. Even to this day, I still have social phobias that most people don’t have to wrestle with.

While these phobias have placed me at a disadvantage when it comes to office politics and competing in the rat race, my upbringing has also given me many advantages. Being forced to constantly seek out information has taught me how to think critically, instead of accepting everything as a truth. Instead of learning to memorize facts for tests, I was taught to think for myself. More than anything, spending my life living outside the box has helped develop crucial skills that one needs to be a successful entrepreneur. In this ever changing technologically driven world that we live in, these skills have already proved invaluable. While I still have many goals left for my career, I am very proud of where I am today and that I own my own business.

Even though, I still have mixed feelings about the entire experience, I’m thankful that I was given the opportunity to learn in this way. For parents who are thinking about homeschooling your own kids, I’d encourage you to think long and hard about the pros and cons and to take your time reaching a decision. If you don’t have the patience, time or resources to properly socialize your kids, I would discourage you from going this route. For those who do take the path less traveled though, it can be one of the most rewarding experiences for both you and your children.

25 Stocks Under $250 Million

Jan 26

Posted by Davis in Disclosure - I own stock in co. mentioned, DivX, SA | Comments off

*Disclaimer – This post should not be construed as investment advice or a recommendation to buy or sell any of the securities mentioned. Small cap stocks in general tend to be much more dangerous than larger companies and investors are highly encouraged to speak with their own financial adviser and to perform their own due diligence before considering an investment in any of the companies mentioned. Full Disclosure, I currently own shares of Calamos and Lojack.

Many investors tend to focus on large well established companies, but I’ve always had a penchant for small cap stocks. It could be my masochistic tendencies, but I prefer the risk/reward of a long shot, over companies who already dominate their market. Typically, my investment style has been to seek out strong brands that have fallen out of favor with the market and then wait for their fortunes to improve. Sometimes this involves waiting for years, sometimes it involves taking a complete loss and sometimes I get lucky and other firms step in and buy them out or bid up the price. Since a few of my readers have inquired about what sorts of things I look for in an investment, I thought I’d present a list of 25 small cap stocks that I currently have my eye on. Most of the data has been taken from Yahoo! finance as of 1/26/2010, so it’s probably a good idea to double check the numbers.

1-800-Flowers (Market Cap = $136.47 million Ticker: FLWS) – Every since United Online purchased FTD, 1-800-Flowers seems to have lost market share, but despite their wilting fortunes, they represent a strong brand in a market with limited competition. After cutting operating expenses by $50 million in the second half of 09 and with Valentine’s day just around the corner, I wouldn’t count this one down and out.

Audiovox (Market Cap = $151.26 million Ticker: VOXX) – Despite having booked over a half a billion in consumer electronic sales over the last year, Audiovox doesn’t seem to get a lot of respect outside of the consumer electronic’s industry. With $361 million in shareholder equity, the firm is trading at half of their book value. While the company has lost over $50 million in the last 12 months, these losses are largely attributed to one time charges. With the firm having hit profitability in the last 3 quarters, a turnaround may be in sight for patient investors.

Bank Of The Internet (Market Cap = $87.61 million Ticker: BOFI) – While many local California banks made some pretty terrible loans during the housing boom, BofI was considerably more conservative with their assets. The market may have discounted them along with the rest of the financial community, but a closer look at their balance sheet suggests that this may be a hidden gem in all the rubble. With a charter that allows them to operate in every US state, there is a lot of potential for this little known company. With some of the highest interest rates on cash deposits, they’ve been able to attract deposits during a period where most banks have seen their customer base contract. For fiscal year 2007, they had revenue of $45.7 million, in 08′ they booked $64.8 and in 09′ they had $81.1 million. While I’m no longer a customer of the bank, from past experience I can personally attest, that they have the best customer service of any financial institution that I’ve ever worked with.

Big Band Networks (Market Cap = $205.92 million Ticker: BBND) – Since it’s debut in 2007, this content delivery network has seen their stock price fluctuate between $3 a share to $20.44. The company did lose $11 million in the last quarter, but had they not been investing in research and development they would have generated a small profit. While they do owe approximately $70 million in debt, with $161 million in cash and short term investments, they should have the stamina to make it through the market’s bust. Sitting at the epicenter of online video movement, there’s a lot of potential for this Silicon Valley company.

Calamos (Market Cap = $237.42 Ticker: CLMS) – When it comes to convertible bond investing, Calamos has set the gold standard for fund managers. While revenue is down over 20% since the market collapsed in 2008, I don’t believe that this is proper justification for trading at less than 1 times their trailing 12 month sales. With a strong management team, a fantastic brand and their recent return to profitability, I think that the company is undervalued. With their latest dividend reflecting a 2.4% yield, I’m willing to wait for their turnaround.

ClickSoftware Technologies (Market Cap = $200.88 million Ticker: CKSW) – ClickSoftware helps companies better manage their workforce. Since the beginning of 2009, they’ve seen their stock rise almost 400%, so they’re not exactly a secret. Nonetheless, this Israeli company has demonstrated some pretty impressive metrics. In fiscal 06′ they had $32.4 million in revenue, in 07′ this rose to $40 million. In 08′ they recorded $52.3 million in sales and for 2009, they are expected to report approximately $61 million. With the company having made three small acquisitions in the past year and realizing 67% gross margins, it would appear that they have a bright future ahead of them. With $48.6 million in current assets and only $22.2 liabilities, they should be able to survive for a very long time, especially if the continue to remain profitable.

DivX Inc. (Market Cap = $180.25 Million Ticker: DivX) – After making a huge splash in 07′ and hitting a billion dollar market cap following their IPO, DivX has been a huge disappointment for many investors. While there are long term questions about their business model and management has given no indication that revenues won’t continue to drop, with $139 million in cash and short term investments and only $25.6 million in liabilities, the stock is certainly priced at a bargain. Given their unique position in the digital media space, I can think of a number of large competitors who wouldn’t mind taking advantage of the market’s short-sightedness.

Double-Take Software (Market Cap $216.34 million Ticker: DBTK) – Even before cloud computing was a buzz word, Double-Take was working towards building remote solutions for businesses. After seeing their revenues rise over 50% between 2006 – 2008, the company experience some turbulence in 09′. For the first 9 months of the year, they recorded revenue of $60.4 million, compared to $71.3 million for the similar time period in 08′. Nonetheless, when you consider that they are still booking a gross profit of 89%, there is a lot here to like. With financial and insurance companies representing some of their biggest customers, it may take time for them to return to their highs, but with nearly 4 times as many assets as they have liabilities, the company should have no problem surviving.

Geek.net (Market Cap = $77.41 million Ticker: LNUX) – As a self professed Geek I may be a bit biased on this one, but with the company trading at just $10 million above their book value, I think that this could be an extremely attractive acquisition for the right partner. Through sites like Slashdot, Sourceforge and ThinkGeek, they’ve been able to build an audience of over 40 million unique visitors each month. When you consider that their core audience tends to be primarily male developers with a lot of disposable income, I’m not surprised that their revenue has grown despite a collapse in the online ad markets. Recent insider selling and the lack of profitability may be cause for concern, but I believe that their core brands are too valuable to be trading at such a steep discount.

IncrediMail (Market Cap = $77 million Ticker: MAIL) – Since hitting their bottom in late 2008, IncrediMail’s stock before has been nothing short of incredible. With the stock up over 400%, there’s room for it to take a breather, but based on their most recent dividend, investors are earning an approximate 10% yield. While it’s always possible that they could quit paying back returns to their shareholders, with revenues up 25% for the first 9 months of 09, the trend is headed in the right direction.

Jackson Hewitt (Market Cap = $101.27 million Ticker: JTX) – They say nothing is certain in life except death and taxes and given Jackson Hewitt’s past sins, it’s fair to say that both may still be in store for this company’s future, but with the stock trading at 10% of past valuations, there’s also room for an impressive “dead cat bounce”. After getting busted for issuing problematic refund anticipation loans there’s an unknown liability that hangs over this firm, but with the company trading at 0.40 times their 12 months sales, the risk/reward is attractive for the troubled tax preparer.

Internap (Market Cap = $247.71 million Ticker: INAP) – Like many of the CDN players, Internap has seen their stock price hit with a buzzsaw as investors re-evaluated the long term potential of internet delivery. While Akamai may have a firm grasp on this market, I believe that there’s a lot of untapped value in this company. With over $250 million in revenue over the past year and over a billion dollars worth of tax losses, this small little video provider is ripe for consolidation.

Lasercard (Market Cap = $75.85 million Ticker: LCRD) – After a history of losses, this Silicon Valley security company appears to have turned the corner with their business model. During 2009, they blew through their net operating losses and have once again begun paying taxes on their profits. While their revenue tends to be concentrated with a few customers, recent contract wins with the governments of Hungary and Angola should provide some much needed diversification over the next year. Their leverage is a little bit higher than I’d like to see, but with a successful underwriting early last year and a bright future for the global security market, they should be OK over the near term.

Lojack (Market Cap $74.57 million Ticker: LOJN) – Caught between the wrong end of a patent lawsuit and the collapse of the auto market, Lojack has been absolutely hammered over the last few years. With the stock down more than 80% from their all-time high, it would be easy to write this one off as a tax loss. Despite the challenges that they’ve faced though, I believe that their unique technology and brand can easily be ported into other industries and that their recent losses will only prove to be temporary. With sticky contracts with law enforcement agencies and the potential to once again realize strong earnings, I think the company has been undervalued by investors.

Motorcar Parts of America (Market Cap = $68.22 million Ticker: MPAA) – Despite their ticker symbol, MPAA doesn’t have anything to do with the entertainment industry. They’re a small firm that sells plain old boring alternators and starters for small trucks. While the auto industry has seen new car sales eviscerated over the last few years, it should provide an opportunity for companies who build replacement parts. With their current liabilities exceeding their current assets, it may be wise to wait until they raise more money before proceeding, but with the company trading at approximately half of their trailing 12 month sales, the market seems to have priced in the doom and gloom already.

OpenTV (Market Cap = $162.92 million Ticker: OPTV) – With the Kudelski group having already agreed to pay $1.55 per share, you won’t get rich off of investing in this set top box manufacturer, but there could be an arbitrage opportunity for those looking for a short term investment. Assuming that it takes them another 1 – 3 months to close the transaction, investors could expect an annualized yield of 10.75% – 3.22% respectively. While these transactions always carry the risk that something could derail them, I’d be surprised if the deal doesn’t get completed in the first quarter.

Primedia (Market Cap = $126.26 million Ticker: PRM) – From a high of $175 per share during the .com heyday, to it’s current price under $3 a share, it’s fair to say that the last decade hasn’t been very kind to Primedia investors. Despite their past performance though (and huge question marks about the ad market), there’s still life in this old dog yet. Over the last 12 months, they’ve been able to pull in approximately $270 million in ad revenue and while this is less than what they earned in 2008, it does suggest that their revenues are starting to stabilize. With an impressive portfolio of .com properties, once the ad market returns, Primedia is an a better position to recover than most.

Rentrak (Market Cap = $167.97 million Ticker: Rent) – DVD sales may be in a freefall, but Rentrak has done a good job of managing this decline. The company not only helps to distribute packaged media, but also sells industry data to the major studios. While on one hand, the current business trends would appear to be working against the firm, the decline in disc based media also makes that intelligence even more valuable. With the company trading at less than 2 times sales, it wouldn’t surprise me to see a firm like Nielsen try to buy them in an attempt to bolster their own portfolio.

Rocky Mountain Chocolate Factory (Market Cap = $51.65 million Ticker: RMCF) – While this pick violates a rule I have about never investing in restaurants, I’m willing to make an exception when it comes to chocolate With $17.8 million in assets and only $3.7 million in debt, this small specialty retailer has a remarkably clean balance sheet. Sales may be down year over year, but thanks to a partnership with Cold Stone Creamery, there is potential for growth. Given the strength of their brand name, I could think of quite a few companies who would mind owning their brand.

Smith and Wesson (Market Cap = $235.94 million Ticker: SWHC) – Over the past two years Smith and Wesson investors probably feel like they’ve been shot in the gut. Despite revenue going through the roof, they’ve been sidelined by one blunder after another. With a messy balance sheet and company officials facing charges of bribery, this one may be dead on arrival, but with over $300 million in revenue and a terrific brand name I wouldn’t hesitate to take a second look once things get straightened out.

Sonic Solutions (Market Cap =$232.46 million Ticker: SNIC) – For a long time, Sonic seemed to be the little engine that just couldn’t. With a number of software products focused on digital media, success always seemed like it was just over the horizon, but delays from studio partners and the decline in demand for their DVD services put a crimp in their stock’s performance. After seeing a rebound of over 400% in 2009, investors may be setting themselves up for another disappointment, but recent agreements with Blockbuster Video and a successful stock underwriting late last year, have removed concerns about their near term future. While I still have doubts about their ability to execute, there’s no denying that the Roxio and CinemaNow brands have value.

SORL Auto Parts (Market Cap = $205.64 million Ticker: SORL) – Chinese companies always make me a bit nervous because it’s hard to trust their financials, but given China’s investment in infrastructure, there’s a lot of upside to the industry that SORL operates in. As a supplier of auto parts for Chinese trucks and buses, they’ve been immune to the issues facing the US auto sector. With assets representing more than 4 times their debt, they should be well positioned to capitalize on China’s own stimulus plan.

Spark Networks (Market Cap = $62.77 million Ticker: LOV) – Every since I made a bundle when IAC bought out UDate, I’ve been looking for an internet dating site to court. While I may have missed the bottom when it comes to Spark Networks, I’m still attracted to their business model. Revenue, net income and their member base have both been heading the wrong direction, but if their new Spark.com domain can take off, there’s still a lot to love.

SRS Labs (Market Cap = $98.73 million Ticker: SRSL) – Compared to heavyweights like Dolby, SRS is a 98 pound weakling in the audio technology industry, but don’t let their size fool you about the quality of their technology. Recently the company announced that their partners have shipped over 30 million ~~certified~~ TruVolume devices. Perhaps even more impressive though is that the company operates at 99% gross margins. With their technology able to prevent the sound fluctuations between your programs and commercial breaks, I see a bright future ahead. When you also consider that the company has over $50 million in assets and less than $3.5 million in debt, I think it’s a steal at their current valuation.

Stamps.com (Market Cap = $140.77 million Ticker: STMP) – Over the last few years, Stamps.com’s revenue has been more or less stagnant, but with limited competitors they should be able to maintain a pretty good hold on their niche market. With the recent growth in home based businesses, the company is poised to capitalize on FedEx’s losses. With a balance sheet heavy on assets and light on liabilities all it would take is a dividend or a share buyback to make this stock attractive.

Eye In The Sky

Jan 25

Posted by Davis in Photos | Comments off

How To Improve Sportscasting In Video Games

Jan 25

Posted by Davis in Video Games | Comments off

As a casual video gamer, sports games have always been one of my favorite genres. I like being able to play an entire game from start to finish, without having to devote a month of my life to beat the game. My natural love for sports probably also contributes to this preference, but whatever the case, it’s safe to say that they’ve been a staple of my entertainment system for a very long time. Unfortunately, when it comes to innovation in gaming, the sports franchises seem to lag the rest of the field.

I’d argue that this is because of the monopolies that surround most major professional sports, but it may also have something to do with the temptation to release a new game every single year. After being burned too many times, I did finally cut my upgrade cycle from every year to once every 2 or 3 years, but even with less frequent purchases I still notice that there are pieces of each game that seems to be endlessly recycled year after year after year.

Specifically, I’m talking about the commentary in EA Sports games. Whether you’re playing NBA Live or John Madden football, having live commentators lends a certain amount of realism to the experience. Sure, their puns are cheesy and sometimes there are glitches where they’ll tell you how bad you did on a great play, but overall I enjoy having someone critique my every press of a button.

The problem is though, that after you’ve played a few games, you start to hit repeat commentary and what was once cute and funny quickly becomes annoying. If EA provided entirely new commentary with each new version of the game, this would be less obnoxious, but in recent years they’ve added almost zero new commentary and just continue to repeat the same tired expressions from past versions of their games.

While I understand that there are limitations to how much content can be put on a disc and financial considerations over how much time these famous celebs can spend in a sound studio, I do think that EA is missing out on an extremely lucrative market.

Just like people are willing to purchase ring tones to customize their cell phones, I bet that sport franchise customers would happily pay a dollar or two to get their favorite commentators “in the game”. As someone who grew up watching the Lakers play, I’d be thrilled to hear some of of Chickisms that legendary sport commentator Chick Hearn used to say. Even though Chick has passed away, it wouldn’t be hard for his estate to use some of his in-game footage to re-introduce expressions like the Dime Store score or Leapin’ Lena to an entirely new generation of sports fans.

Better yet, EA could set up some kind of an online locker, where fans of the game could share their own commentary and use people’s own social networks to give us a reason to upgrade. When I was in school, I had a friend of mine who’d say “that was slammin” everytime we played and while this expression would get old if John Madden used it, I’d pay real money to hear my friend sitting next to me while I played. This could also be a good avenue for the professional players to extend their own brand. Whether it’s Shaq talking smack about Kobe or Darth Vader calling plays for John Madden, the creativity would be endless.

From EA’s perspective, they could not only use these updates as a source of revenue, but it would also give their customers a reason to buy more games. By allowing customers to make free updates over the course of a season, it would provide a strong incentive to always have the latest copy. It would also make some of the personalization even more meaningful.

It’s great that I can create a superstar player that looks like me (even if I’m not 6’5″ with one percent body fat), but how much fun is it when the game calls out “great basket by number 35″, instead of pronouncing Freeberg as my last name? Given how small audio files actually are, there shouldn’t be any technical difficulties associated with implementing this type of system. While the repetition from in-game commentary might not be noticeable to the control groups who are testing EA’s games for an hour or two, for long time fans like myself it’s a great feature that becomes irritating the longer you play. Instead of creating a product that causes less satisfaction over time, EA should be using dynamic sports commentary to improve how their games age.

Friends Don’t Let Friends Subscribe To HBO

Jan 24

Posted by Davis in DivX, DRM, DVDs, Media, Netflix, Technology, VOD | 2 Comments

HBO may stand for Home Box Office, but it may as well be Hates Being Online given their objections to internet video. According to Time Warner, HBO has over 40 million subscribers and while this lucrative revenue stream allows them to produce some of the most compelling content on television, it also gives them an extraordinary amount of influence on the entertainment industry. Not only is the company owned by one of the major studios, but because of the billions that they take in each year, they’ve been able to outbid small nimble start-ups for access to content. Instead of using this power for good though, they’ve chosen to fight against consumer’s interests by restricting your ability to watch digital content that you’ve legally purchased.

With consumers clearly wanting to access content online, one would think that HBO would be the first in line to embrace this trend, but because of their status quo, they’ve chosen to fight progress instead of helping to usher in the digital age.

Over the last two years, a group of digital and traditional media companies have formed an impressive collective known as the Digital Entertainment Content Ecosystem (DECE). This diverse group of firms includes firms ranging in diversity from Sony to DivX. While each company has their own agenda, the goal of the group is to try and create a media framework that allows consumers to purchase downloadable media and to play it on a wide range of consumer electronic devices.

While I do think that there are some problems with their proposed implementation, I’m also pragmatic enough to see this consortium as our best chance of furthering the internet video revolution. To date, media companies have fought digitization tooth and nail, but this co-op between Hollywood and the Silicon Valley could create an environment where more new release content is made available to the public.

Anyone whose used Netflix’s Watch Instantly program knows that there is a ton of content from the 1980′s, but very few titles from the last decade. One of the biggest reasons for this, is that companies like HBO have used their vast financial resources to outbid them and other digital players for these films. With studios scared to death of upsetting deep pocket partners like HBO, it’s created an environment where consumers must either pirate recent content, set an appointment to see TV or stick to watching it on a disc.

While, HBO has made some of their content available through Comcast’s TV anywhere initiative, it’s only includes their weakest titles and you must be a cable subscriber to get access to the content. Contrast this to Showtime’s digital experiments and it’s clear that HBO is standing in the way of progress.

Like Netflix’s Watch Instantly platform, DECE has proposed a system where consumers can store their media content in the cloud and then stream it whenever (and more importantly wherever) they want to view the film. Yet, according to the industry trade publication, The Wrap (via Inside Redbox), HBO isn’t a fan of this system and is actively trying to block it’s implementation. Since they insist on legal language in their contracts that prevent consumers from accessing digital content while it’s playing on their channel, it’s possible that you could purchase a film and then be blocked from seeing it while it’s playing on HBO.

Imagine paying a steep premium to see a recently released film and then being told that you can’t watch it on certain dates, just because HBO is afraid that you might not subscribe to their channel. Clearly, this isn’t in the interests of consumers and yet HBO is using their financial resources to try and create this very scenario.

“Paying hundreds of millions of dollars a year for output deals with Warner, Fox and Universal, HBO currently restricts these studios from distributing their films digitally during its exclusive pay-TV window. Typically, that window starts six months after a film debuts on DVD and extends for 18 months. It already has presented itself as a challenge for established download sellers including iTunes and Netflix.”

HBO is free to run their business anyway that they like, but I believe that policies that are downright hostile to consumers should not go unpunished. Because of this, I’m asking HBO subscribers to call your cable company and cancel the channel. I know that this may mean giving up some great content, but if HBO starts to feel the sting from a consumer backlash, perhaps they’ll rethink their position and start to embrace the digital revolution. Currently, only 3% of the entertainment industry’s revenue come from online, but if just 3% of HBO’s subscribers were to cancel service, it would have a profound effect on the company’s profitability.

For too long, consumers have been abused by these exclusivity agreements and if you sit back and allow them to walk all over you, then you’re only part of the problem. Instead of rewarding an outdated analog business model, we need to be demanding that studios and their partners join the 21st century and make their content available online.

Is Google Pulling A Bait And Switch On Their Users?

Jan 22

Posted by Davis in Marketing, Media, Search | 2 Comments

It’s no secret that newspapers have been challenged by the rise of the internet. Whether it’s pesky bloggers like myself giving content away for free or social networks redefining what a hot news story actually is, things have gotten incredibly competitive for traditional news organizations. As a result, we’ve seen everything from pleas for government assistance to blaming Google for directing massive amounts of traffic their way. While I’m sympathetic to anyone who is being displaced by innovation, as a consumer I’m also glad to have a ton more options for finding content.

I may have less brand loyalty to any one particular publication, but thanks to the magic of Google, it’s a lot easier to find a diverse set of opinions on topics that I care about. For the most part, I think that Google is the best thing since sliced bread, but that doesn’t mean that they can’t improve their product.

As the media landscape has gotten more competitive, I’ve noticed that publications are becoming increasingly aggressive at trying to monetize the eyeballs that they do get. This really started with the pop-up ad, but after the web browsers figured out how to turn this control over to the users, news companies seem to have switched tactics.

The latest trend is to insert an interstitial ad between you and the content. Usually, there’s some tiny link where you can bypass it or it auto-forwards after 30 seconds, but anytime I’m forced to watch an ad before knowing how good or bad the content actually is, it creates a lot of frustration with my web experience.

Don’t get me wrong, I’m actually a strong supporter of smart and innovative ways that advertisers can bring their messages to the public and I’m happier than most to support newspapers who are creating great content, but with so much bad content out there, I don’t feel that consumers should be forced to roll the dice, when there’s no payoff on the other end.

I could probably list a dozen major companies who are offenders, but my biggest beef is actually with Google. If I know that someone uses this type of aggressive advertising, it’s easy to quit visiting their site, but because Google is indexing billions of web pages, there’s no way to know which link is going to take me to real content and which link will take me to an ad.

As an example, if you search for the phrase “hardware spec for Microsoft’s pink phone” the first result is a story by ZDnet showing the first line of the blog post, but if you actually click on that link, it takes you to a page that is missing the content and only displays an ad instead. If you wait long enough you will be forwarded to the right destination, but isn’t this false advertising on behalf of Google?

If they know that someone’s browser is going to be hijacked, then why are they taking you to a different page instead. It’d be one thing if Google was trying to actively stop the process, but they’re actually helping publishers create more of these roadblocks on the web.

While Google is free to advertise (or link to anyone) that that they see fit, they should realize that this harms their own user experience while benefiting no one but spammy news publications. If a company like Bing or Ask.com were to come out with an interstitial ban, it would take me about a half a second to change my default search engine. It may be that this isn’t seen as a big enough annoyance to do anything about or it could be too late and is considered an industry standard now, but to show one search result and then take a user to an entirely different page (albeit temporarily) feels an awful lot like a bait and switch tactic to me. What do you think, would Google be better off banning these ads from their search results or is content from newspapers so valuable that it would do more harm than good to blackball offenders like Forbes and ZDNet?

How Real Time Search Could Drive Traffic Offline

Jan 21

Posted by Davis in Marketing, Search, Technology | 2 Comments

From the first moment that I tried the internet, I was instantly hooked. After signing up for a “free” dial-up AOL membership, I remember getting my phone bill and being shocked at over $300 worth of local toll charges. Being 15 miles outside of civilization, I should have known that I was paying by the minute, but honestly I didn’t really think about how much time I was online. After that, I was more careful, but still paid more for that connection each month, then I pay for broadband today. While it’s hard to pinpoint exactly where that time was spent, it was the ability to find information on topics that I really cared about that kept me clicking to all hours of the night.

When e-commerce started to become a reality, some were nervous about trying new companies online, but I had no reservations about being one of the first ones in online. While I still miss my Webvan and Kozmo.com deliveries, no one can say that I didn’t do my part to support the shift from bricks to clicks. Given my preference for the online experience, it would be easy to conclude that for traditional retailers, I’m a lost cause. Yet, recently I’ve been thinking a lot about one of the biggest weaknesses of the online experience. For as fast as all those ones and zeros move, when it comes to instant gratification, you still need to wait a few days to receive most purchases.

While I do tend to plan ahead, there are times where I’m willing to pay a premium to have something right away and while it’s easy to transport media over broadband connections, when it comes to physical goods, you typically have to wait for UPS or the post office to stop by. This is a huge advantage for traditional retailers, but it’s one that I don’t believe that they are leveraging enough. Certainly, they do their best to draw traffic into their stores, but if they want to court the internet generation, they’ll need to use technology to better highlight this advantage.

Recently, I was in the mood for a little bit of world domination, so I set my sights on a lengthy game of Axis and Allies. For those who aren’t familiar with the game, it’s a complex simulation of world war two that is a ton of fun and can take all night to play. While there are digital versions of the game, it can’t fully replicate the real world experience of the board game.

It may have only taken me 10 seconds to find a copy of the game online, but when it came to finding out which local retailers carried the game, it was almost impossible to find. After a half a dozen phone calls to all of the usual suspects, I finally tracked down a copy that was over 40 miles away

In this case, I was so motivated to play the game that night, that I begrudgingly made the long journey to get it that day. While real time search has seen huge improvements over just the last year alone, when it comes to searching retail inventory, it’s almost unheard of to be able to check availability before driving to a store (let alone to be able to get that information in real time.) Yet, many companies employ expensive sophisticated inventory management software, that allows them to know exactly what’s sitting on their shelves, what’s being delivered via truck and what needs to be ordered pronto, just so that it can be restocked in time.

Despite this wealth of information though, unless you’re an employee inside of one of these companies, the data more or less doesn’t exist to the public. While there may be some competitive reasons to keep sensitive inventory data out of the hands of the public, I think that retailers are missing a golden opportunity to use that real time inventory data to draw online adopters like myself, back into their real world stores.

In the case of my situation, I would have gladly paid 50% more for the game, if I could have found it within 10 miles. Instead of being to forced to compete by heavy discounting, local stores could compete using their greatest advantage, the instant gratification that the internet simply can’t provide.

While i don’t expect that we’ll see this void filled in the near term, I do think that the firms who sell real time inventory solutions could easily become the next Google, by negotiating to list their client’s information online. Not only would retailers be able to charge different prices based upon distance or availability, but they could allow consumers to reserve and purchase the item before they even got in their car. If one of these real time inventory firms could get just a handful of major players to participate, it wouldn’t take long before real time inventory software went from being an efficient. but expensive luxury to a lucrative revenue source for their clients.

How To Save Blockbuster

Jan 20

Posted by Davis in DVDs, Kiosks, Media, Movies, Netflix, SA, VOD | 3 Comments

Ten years ago, Blockbuster video was on top of the world. They didn’t know it at the time, but it was the golden age for the video store. After years of reminders to be kind and rewind, consumers were adopting DVD players en masse and needed a source for their entertainment needs. For better or worse that source was Blockbuster.

With the internet buzz hitting a fevered pitch, Blockbuster was already hard at work creating a digital strategy. Given their dominate position in the video store industry, they even flirted with the idea of buying a small internet start up named Netflix for a mere $50 million.

With the entertainment world seemingly in the palm of their hand, Blockbuster was positioned to make the jump to digital better than anyone, but over the last decade they’ve made a series of blunders that now threatens to bankrupt them today.

Yet, in looking at their rise and fall, it’s easy to make the quick assumption that their problems were a result of technological innovation, but the truth of the matter is that they have no one but themselves to blame for the weak position that they find themselves in today.

Of all their missteps, the biggest blunder was assuming $1 billion in debt, so that Viacom could collect an obscene dividend payment when they sold the company to a naive public. That debt now hangs over them like an albatross across their their neck and has caused them to lose pace with their unencumbered competitors.

With revenues in steep decline, it will only get harder and harder for Blockbuster to continue to meet their obligations under this debt. Without the firepower to compete on a level playing field, their situation will only get worse

With the precariousness of their position becoming increasingly clear, Blockbuster has done everything from paying a high price to refinance their debt to hiring a bankruptcy specialist to help salvage what is left of their business.

Yet, despite the clear and present danger of their situation, Blockbuster has continued to keep their head buried in the sand. Over the years, I’ve offered my fair share of ~~suggestions~~ criticism for how they could improve their business model, but we’re now at a point where a tourniquet won’t save them, they must do massive surgery and Stat!

In an effort to try and preserve a dying part of the entertainment industry, I present to you, my plan to save Blockbuster.

With the future looking pretty bleak for just about any video store, how can a company like Blockbuster save themselves? By sacrificing their media business in exchange for an opportunity to reinvent their retail business.

What I’m proposing would be tricky and the devil really would be in the details, but with the right execution, Blockbuster could shed their legacy of debt, future proof their business and position themselves to take market share, instead of losing it.

Essentially what they’d need to do is create a “good Blockbuster” and a “bad Blockbuster” to isolate their problems.

On one side you would have their DVD by mail program, their DVD kiosks and their digital business. On the other side, you would have Blockbuster’s traditional video store business that so many are quick to write off.

Together, the two businesses are slowly strangling Blockbuster, but split apart, they could free them from the impact of years of stagnation and ineptitude on their part. What I’m proposing is that they spin off their good assets and use that money to pay off their debt.

In the past, Blockbuster tried to launch an aggressive initiative to boost their DVD by mail program, but by doing so, they only ended up cannibalizing their in store customers. As a result, they’ve all but abandoned the program and have allowed their future to slip away.

If an independent Blockbuster.com doesn’t have to worry about that cannibalization, they could focus on going head to head against Netflix. They could create a subscription program for their kiosks that could offer value that Redbox couldn’t match. They could be price competitive without having to worry about their legacy stores. The result would be a smaller Blockbuster with less meaningful revenue, but it would represent profitable revenue instead of losses.

Neither Netflix nor Redbox would be able to offer DVD exchanges at the kiosk level and through the mail, but Blockbuster could capitalize on both strengths. Yes, the company would be a mere sapling in the larger entertainment industry, but Netflix was once a sapling and they’ve been able to grow into a very large oak.

From the video store side of the equation, Blockbuster could focus on what they do best, maximize cash flow while transitioning their stores into a new business. Whether that means turning their stores into modern day Starbucks or a replacement for the now defunct Circuit City, there are still plenty of opportunities for smart and nimble retailers.

To date, Blockbuster CEO Jim Keyes has made this transition a priority for the company, but when they are forced to forgo tens of millions in capital expenditures, just so that they can service their debt, it limits how quickly they can make this jump. As a result, they continue to face pressure to close stores instead of turning them into cash flow producing machines.

Given all of the negative media attention, it may be hard to believe, but Blockbuster still does a ton of business. For the first 9 months of 2009, Blockbuster brought in over $1.9 BILLION in revenue. By comparison, Netflix brought in $1.22 billion during the same period. Yet, when you look at the differences in market capitalization, Netflix is over 20 times more valuable than Blockbuster.

Perhaps even more surprising is that Blockbuster would have turned a profit of $38.4 million during that 9 month period, had they been able to ignore their debt. Instead, that $38.4 million profit turned into a loss of $131.6 million for the company. Now you don’t need to have a Phd in math to know that losing over $100+ million per year starts to get expensive fast and perhaps even more damaging than the loss of the cash is the effect that these interest payments are having on their competitive ability.

Instead of being able to invest in their future, they’ve been forced to make cut backs. Instead of retrofitting their stores, they’ve been closing them instead. Instead of stepping up the marketing, they’ve been forced to dial back. The result is that more revenue shifts to Redbox and Netflix and their cost to acquire customers has plummeted. If this trend continues, you don’t need Dr. Doom to tell you that it will be curtains for Blockbuster. They must stop the bleeding and they must stop it now.

Now I know what you are thinking, if Blockbuster is a penny stock today, how are they going to come up with $1.6 billion to pay off their long and short term debt. Part of it comes from the assets that they are holding today. With $980 million in current assets, they should be able to keep a good chunk of their leverage in check. The remaining $620 million worth of debt would be paid off by spinning off their new media divisions.

According to the most recent data, Blockbuster currently has 1.6 million online subscribers. As of last September, they had deployed 1,000 kiosks, but were anticipating that they would have over 10,000 deployed by the end of 2010. While Blockbuster doesn’t break down their digital revenues, I think that it’s reasonable to suggest that this division would be worth anywhere between $25 – $75 million based on their market position and intellectual assets.

If you look at Netflix’s current valuation, it works out to be approximately $255 per subscriber. Assuming that you discount Blockbuster subscribers by 30%, it would value Blockbuster’s DVD by mail business at $285 million.

In February of 09′ Coinstar completed their purchase of Redbox at a valuation of approximately $350 million. At the time, Redbox had 12,500 kiosks suggesting a value of approximately $28,000 per kiosk. Assuming that Blockbuster can get to 10,000 kiosks, even at a 50% discount to what Coinstar paid at the bottom of the market, one could assume that this stake would be worth approximately $140 million without Blockbuster’s legacy stores or debt.

What these numbers suggest is that if Blockbuster were to do a spinoff, it’s easily conceivable that they could raise at least $500 million in the offering. Assuming that they start to market their DVD by mail and get it up to 2.5 million subscribers, it would value their new media business at approximately $660 million.

If they did the spin off in the form of a convertible bond, I believe that this number goes even higher, because bond investors could be given the option to return to their current position, if the spin off flopped.

While this sort of transaction would create a new competitor for Blockbuster Video, by getting rid of their debt, it would enable their stores to become profitable once again, which in turn would make it easier for Mr. Keyes to raise money for the marketing and store improvements that Blockbuster so desperately needs.

While I believe that this rescue plan could make Blockbuster competitive again, I don’t believe that their current management is willing to sell off their future, even if it means saving themselves. Despite all evidence of a dying industry, Keyes continues to insist that the video store is the cornerstone of what they do and has consistently defined Blockbuster’s competitive advantage as being able to offer entertainment across multiple channels. While it’s easy to point to Netflix and Redbox as the source of Blockbuster’s kryptonite, I believe that it is their own unwillingness to let go of the past that is preventing them from being a video superhero of the future. Only time will tell how indestructible they really are, but if they continue down the same path, they’ll end up as a mere footnote in the history of the entertainment industry.

Lovebirds

Jan 19