The Pros and Cons Of Media Center Vista

January 31st, 2008 Davis

Over the past few months, I’ve finally started to get a feel for Media Center Vista and while I haven’t tried out every feature in the program, I have played around with it long enough to have some initial thoughts. Before I tried the software, I had low expectations, but after actually using the program, I’ve been really impressed with what the Media Center team has put together.

Media Center Vista allows you to perform some pretty advanced tasks without having to be a computer geek in order to figure out how to use it. I initially had some reservations about the user interface, but it only took about a week, before I found it growing on me. There are still improvements that Microsoft needs to make, but they’ve made a giant leap forward, compared to the original XP version.

Pros

-Media Center Vista is wicked fast at finding new programs. In the XP version, the software was painfully slow at trying to search for shows. As soon as I would start typing in the name of a show, XP would freak out from trying to sort through so much information. In Vista, the program still starts searching immediately, but the indexing has been turbocharged. Instead of having to wait for the menu, the results will appear as fast as you can type. This faster indexing shows up in a number of areas. When you are browsing, you can hit page down and scroll through programs as fast as you can read them. If you want to rearrange the priority of your recordings, you can make changes and move onto other areas of the program without having to wait forever while the system checks for conflicts.

-The interface looks fantastic. Microsoft has done a good job of creating a clean and intuitive DVR experience. The program is easy to navigate and has lots of extra features. On the surface the design appears relatively simple, but you can tell that Microsoft has paid a lot of attention to the little details. Whether it’s being able to double click on the picture in picture window, in order to bring up the full screen or being able to see the DVD art for upcoming movies, there are a lot of subtle features that make for a more enjoyable media experience.

-Vista comes with 30 second skip enabled. TiVo fans know that you can hack your remote to add this feature, but the big studios were able to scare TiVo into disabling it for the masses. In the past, I’ve never really used the 30 second skip feature because it meant giving up the skip to the end button on my remote. After spending some time with it on Media Center, I’ve been really surprised at how much I’m enjoying it. Hitting a button six times is a lot easier than trying to guess when the program is about to start again.

-There is minimal interference between you and your recordings. One of my biggest frustrations with the generic DVR was that it required too many unnecessary steps, before I could interact with my content. It felt like I had to hit ten buttons before I could schedule a movie, delete a recording or even watch a show. With Vista Media Center, it’s an entirely different story. The entire experience is built around the content that you are interacting with. You can’t do everything from all levels of the software, but each step is intuitively linked to the task that you are focused on. If you are watching a TV show, then by right clicking you can delete the program or burn it to DVD. If you are playing music it’s one click to pause, skip, repeat, shuffle . . . .

-You can watch TV while surfing the web. Media Center is really designed for the living room, but I’m primarily using it in a desktop setting. I didn’t think that I’d watch a lot of TV at my desk, but I’ve found it to be the perfect compliment to streaming Netflix and YouTube. This isn’t ideal for shows with intense action and complex story lines, but its perfect for tuning into the news when you see a story break online or for listening to late night talk shows, while you’re multitasking on the web. This feature won’t benefit you, if you plan on using Media Center on your TV, but it’s a good reason to add on a TV tuner, the next time you upgrade your PC.

-You can use the XBox360 as an extender. I’ve read a lot about the Xbox extenders, but I had never actually seen one in action. Connecting my Xbox to Media Center took an extra registration step, but it was well worth the time to get it set up. When I first heard about Microsoft’s extender strategy, I was skeptical that it would stream videos without problems or program lock ups. While I didn’t test the connection using WiFi, my experience using the Xbox was almost identical to having the PC directly connected to the TV. No lag, no stuttering, just instant access to my content on my big screen tv.

-You can watch TV while using the menus. TiVo uses picture in picture technology on their Comcast download, but you won’t find it on their stand alone DVRs. I had forgotten how much I enjoyed this until I started using Vista as a DVR. Whether it’s a live show or a recording, Vista will minimize whatever program that’s on, when you want to dig deeper into the menu settings. This isn’t good if you’ve accidentally stumbled onto a football game and are desperately trying to avoid the score, but it is nice for when you’re not exactly sure what you want to watch.

-It will help you find programs that are on right now. Vista Media Center allows you to search for programs in a number of ways, but its their support for upcoming television, that impressed me the most. When it comes to searching for things like TV series, kid shows, etc., it allows you to browse alphabetically or by date. They’ve also built a separate section for movies and for sports where they’ve packed in some extra bonus content. In the TV and movies section, they offer plugins for various movie download services and in the sports section Vista will let you check the box scores or add fantasy players to track.

-You can skip automatically skip commercials. DVRs make it easy to skip commercials, but Vista Media Center takes things one step further by supporting plugins, that can edit out those pesky little ads entirely. It’s not easy to set up and it’s not something that is enabled by default, but it’s still a pretty sweet feature to add.

-You can placeshift your TV. The Slingbox is great if you have a cable DVR or a TiVo, but with Media Center you can download a free plugin that will let you watch your content wherever you can connect to the net. I haven’t actually used the program yet, but it’s still a great feature to have access to.

-You can burn DVDs. Normally, I’m pretty good about watching all of the shows that I record, but when it comes to boxing, I just don’t have time to see every fighter. It’s my favorite sport, but since I record every fight (even the ones on the Spanish channels), there isn’t enough time/hard drive space, to get caught up. Since I’ll never really know which fighters will end up making it big, I’ve decided to use my Media Center to archive all of the fights. By saving them to DVD, I should be able to go back and watch the fights that mattered.

-It supports external storage. Media Center gives you a lot of control over how you want to set up your storage. Since I’m using it as a secondary DVR, I’ve set it up to record a maximum of 100GB on my internal drive. If I need more, I can add an external drive or increase my internal hard drive allocation.

Cons

-You shouldn’t have to reboot your TV. One of the things that I love about my TiVo is that it just works. You don’t have to be a tech geek to figure it out, you plug it into your TV and it records everything. In the entire time that I’ve been a TiVo customer, I can think of very few occasions where TiVo failed to record my programing. When it comes to Media Center, it’s important to remember that it’s a PC first and a DVR second. Over the last few months, I’ve found the program to be mostly reliable, but it hasn’t been smooth sailing either. Whether it’s been dealing with poor DRM design, troubleshooting a bug that refused to let me download the guide data or having my computer crash while recording television, there have been several times where I’ve missed recordings, because of PC related problems. While I can’t blame Microsoft for all of my problems, it’s still frustrating to miss a show because of technical difficulties.

-Internet video support is weak. Media Center includes support for services like Vongo and Showtime on Demand, but it involves registering and downloading a separate program before you can get it working. As a Netflix subscriber, I was looking forward to being able to use Watch Now inside of Media Center, but Microsoft has left it up to the fans to build support for this. Microsoft includes some MSN internet video content, but they make you watch pre-roll ads before knowing whether or not it’s something that you are interested in. The Xbox may unofficially support DivX, but you can’t access it inside of media center. If you prefer to use a media extender instead, it will support your XviD files, but it’s set up to block your DivX content.

-It won’t record radio. XM may have just settled a lawsuit over their radio DVR, but recording radio shouldn’t be any different than television content. Media Center will let you listen to OTA radio, but it doesn’t let you record any of the programs.

-Fast forward is a little too powerful. It may be, that I’m just used to TiVo, but Vista’s fast forward speeds are hard to adjust to. They’ve got slow, almost fast and then it jumps to hyper speed. I can’t tell whether or not they are using a five second skip back, but when I hit play, I’m usually way past the start of the program. If you stick to the 30 second skip it’s not a problem, but it’d be nice if there was some kind of a way to adjust the timing on this.

-You can’t skip to the middle of a program. One of the things that I like about downloaded video is being able to immediately jump to the middle or the end of a program. Since this is a key feature in Window’s media player, I was surprised to see this missing from Media Center. There is also no way to jump 15 minutes ahead. If you happen to fall asleep during the middle of a program, you’re stuck with fast forwarding in order to get back to where you were at.

-You can’t rate your television. As television continues to involve, it’s becoming increasingly personal. Media Center does a good job of recording TV, but it doesn’t do a very good job of getting to know you. You can sort movies by the highest rated, but its using someone else’s criteria. Because you can’t tell Media Center what you do and don’t like, there are no suggested recordings or personalization.

-It doesn’t support auto-recording of wishlists. I’m a big basketball fan, but I’m really only interested in seeing the Laker games. Media Center will let me search for the next time that they are playing, but it won’t automatically record the game. It would be nice to be able to use media center to record programs that are customized to my interests.
Al pointed out in the comments that you can actually uses wishlists, you just need to set it up from the add recording field. Thanks for the help Al. This one definitely should go in the pro category.

-Vista’s DRM doesn’t play nice with HD. I’m still fuming over this one. I knew that recording HDTV on Vista would be a hassle, so I stuck with standard tuners when I customized my computer. After upgrading to an HD monitor, Vista disabled my Netflix Watch Now and put Media Center into lock down. If Apple’s DRM wasn’t just as bad, I would be thinking differently after this experience.

-It takes forever to burn a DVD. I was really jazzed up over being able to archive shows onto DVD, but the sluggishness of the DVD burning capabilities has me rethinking this game plan. It took me 2 and a half hours to burn a one hour program to DVD. It’d be one thing if I was using lousy hardware, but it takes less then 4 minutes for me to burn a 2 hour DivX film. It’s nice to be able to save your TV, but it should never take more time to burn the disc, than it does to watch it.

-Good for early adopters, complicated for everyone else. Vista Media Center offers a lot of unique features, but it takes too much tweaking to set these up. Placeshifting and auto commercial skipping are available, but it’s up the consumer to find and install these programs. Even if you know what you are doing, the setup can still be complicated. Instead of making consumers seek out these programs, Microsoft should be including them as part of the package. It wouldn’t be popular with the media companies, but it’d win the company a lot more fans.

-The recording quality is terrible. It’s probably not fair to compare a cablecard connected TiVo with an analog cable media center set up, but the TiVO SD recordings on my 60″ screen, look way better than the Media Center recordings on my 22″ monitor. This probably has less to do with Media Center and more to do with the tuners that I’m using, but it still takes away from the user experience. Unless you want to spend the big bucks on a cablecard media center, you may end up having to deal with poor resolutions.

-There’s no turning back once you delete - As careful as I am, sometimes my DVR instincts go on auto-pilot and I’ll accidentally delete a show before watching it. With TiVo I can recover that program, but in Media Center it is gone forever. The file isn’t even in the Recycle bin. Media Center will always ask you to confirm before deleting, but this also creates one more button to push when you are done with the shows that you have watched.

So there you have it, the good, the bad and Media Center Vista. There are some rough spots around the edges, but it really is a fantastic program. I’m hoping that we’ll see better support for HDTV and for online video as the program continues to evolve.

Posted in TV, Media, DivX, Slingbox, DRM, Disclosure - I own stock in co. mentioned, Microsoft, TiVo | 7 Comments »

Netflix In A Coma I Know

January 7th, 2008 Davis

For the past few months, KK and SalGal have been reviewing their Netflix movies on YouTube and their videos are hilarious. This is my favorite new TV show and its not even on television. Normally, I wouldn’t be a fan of midlife chick flick movie reviews, but their dark sense of humor is right down my alley. In this video KK interviews SalGal after she slips into a coma. You can see more of their videos at their YouTube page or you can visit them at their Midlife Gals blog.

Posted in TV, VOD, Disclosure - I own stock in co. mentioned, Netflix | 1 Comment »

Bad COPP No Netflix

January 3rd, 2008 Davis

Even though I’m an HDTV fanatic, it wasn’t until this past weekend, that I finally made the jump to an HD monitor. While I don’t have HDTV tuners on my Media Center, I do have an HD camcorder and it was important for me to be able to edit my high resolution videos.

After doing a little bit of research, I decided to pick up a SyncMasterTM 226BW from Samsung. Between the new monitor and my ATI Radeon HD 2600 XT video card, the resolution looks absolutely stunning. Even my home movies look fantastic in HDTV. I really couldn’t have been happier with the upgrade.

Unfortunately, Hollywood isn’t quite as thrilled about my new HD Media Dream Machine and they’ve decided to punish me by revoking my Watch Now privileges from Netflix.

I first found out about the problem on New Year’s Eve, when I went to log into my account. When I tried to launch a streaming movie, I was greeted with an error message asking me to “reset” my DRM. Luckily, Netflix’s help page on the topic included a link to a DRM reset utility, but when I went to install the program, I stopped dead in my tracks when I saw this warning.

The minute I saw“this will potentially remove playback licenses from your computer, including those from companies other than Netflix or Microsoft” I knew better than to hit continue. Before nuking my entire digital library, I decided to call Netflix’s technical support, to see if I could get to the bottom of my C00D11B1 error message.

When I called them they confirmed my worst fears. In order to access the Watch Now service, I had to give Microsoft’s DRM sniffing program access to all of the files on my hard drive. If the software found any non-Netflix video files, it would revoke my rights to the content and invalidate the DRM. This means that I would lose all the movies that I’ve purchased from Amazon’s Unbox, just to troubleshoot the issue.

Technically, there is a way to back up the licenses before doing a DRM reset, but it’s a pretty complex process, even by my standards. When I asked Netflix for more details, they referred me to Amazon for assistance.

Perhaps even worse than having to choose between having access to Netflix or giving up my Unbox movies was the realization that my real problems were actually tied to the shiny new monitor that I’ve already grown fond of.

Netflix’s software allows them to look at the video card, cables and the monitor that you are using and when they checked mine out, it was apparently a little too high def to pass their DRM filters.

Because my computer allows me to send an unrestricted HDTV feed to my monitor, Hollywood has decided to revoke my ability to stream 480 resolution video files from Netflix. In order to fix my problem, Netflix recommended that I downgrade to a lower res VGA setup.

As part of their agreement with Hollywood, Netflix uses a program called COPP (Certified Output Protection Protocal). COPP is made by Microsoft and the protocol restricts how you are able to transfer digital files off of your PC. When I ran COPP to identify the error on my machine, it gave me an ominous warning that “the exclusive semaphere is owned by another process.”

My Netflix technician told me that he had never heard of this particular error and thought that it was unique to my setup. When I consulted Microsoft, they suggested that I consult the creator of the program. Since Microsoft wrote the COPP software, I wasn’t sure who to turn to after that.

The irony in all of this, is that the DRM that Hollywood is so much in love with, is really only harming their paying customers. When you do a DRM reset, it’s not your pirated files that get revoked, it’s the ones that you already paid for that are at risk. I’m not allowed to watch low res Netflix files, even though I have the capability to download high def torrents? How does this even make sense? It’s as if the studios want their digital strategies to fail.

While I understand the need for the studios to protect their content, I believe that these measures go too far. It makes little sense to block my ability to copy low res internet movies, when I can always rip the DVD straight from my Netflix discs instead. By blocking access to my Netflix membership, Hollywood is once again punishing their customers by pushing defective DRM.

Posted in Technology, Microchips, VOD, DVDs, Disclosure - I own stock in co. mentioned, DRM, Netflix | 92 Comments »

Forget Radio Shark, The Stream Ripping Piranhas Were What The RIAA Should Have Been Worried About

December 18th, 2007 Davis

The RIAA may have given up on trying to outlaw DVRs, but that hasn’t stopped them from trying to interfere with your legal right to record content and when it comes to recording radio, they’ve drawn a line in the sand. Over the past few years, we’ve seen a number of innovative radio DVR gadgets hit the market, only to be squashed by the goons at the RIAA squad. What’s made the RIAA’s strategy even more boneheaded than usual, has been their insistence on trying to keep this technology out of the hands of their paying customers.

Whether its their ridiculous lawsuit against XM Satellite radio or Creative’s decision to remove FM recording from their MP3 products, there are plenty of examples where the RIAA has used heavy handed tactics to try and stifle innovation.

Yet, no matter how hard they try, they can’t put this genii back into the bottle and by taking such a strong stance against legitimate companies, they’ve driven DVR radio underground, where they’ve now lost all control over it.

The RIAA may have been worried about RadioShark, but it was the radio piranhas that were the real threat and while they were busy suing their partners, the open source movement has been filling the stream ripping wake, that corporations are now too afraid to touch.

Stream ripping software isn’t new, but the functionality has been relatively limited and the interface hasn’t been ready for the average user. Screamer Radio is an excellent open source solution for DVR radio, but it lacks the aesthetic appeal and scheduling features, that make traditional DVRs so easy to use.

Luckily, the open source community has been hard at work and what Screamer Radio leaves out, Raima Radio is now bringing to the table. Raima Radio is a powerful freeware program that fuses features like wishlists, program scheduling, and video support with the traditional features of most stream ripping programs.

This combination turns a tremendous amount of power over to the consumer and will certainly have the RIAA taking extra heartburn medication (when they find out about it ) If they didn’t like XM’s limited subscriber base, having the ability to record satellite radio, then they will hate this program. It gives anyone with a computer and an internet connection, the ability to time shift radio to an mp3 player.

Raima supports a large number of internet radio stations and includes links to web pages, where you can find even more mainstream programs. If you are midway through a program, you can hit record and it caches the data, so that you can get all of the program. For years I’ve wanted to tune into Kevin and Bean’s morning show on KROQ, but since I live in San Francisco, I haven’t had easy access to the program. Now I can use Raima’s program to start recording, before I even wake up. By bridging the gap between the internet and the mp3, Raima allows you to follow radio that would normally be out of geographic reach.

Even more powerful then the scheduling capabilities, is the ability for Raima to monitor and record specific songs or artists that you are interested in. Instead of illegally downloading songs from the P2P networks, Raima allows you to create wishlists and will scan for those songs on any station that you tune into. The number of streams that you can simultaneously record is only limited by your bandwidth. This allows you to set up filters, record 10 different stations overnight and in the morning you’ll have a hefty mp3 collection.

This is the functionality that has the RIAA so terrified. If consumers are able to easily record the songs that they hear off the radio, it reduces their need to buy the hit singles. As someone who prefers albums over singles, I think that this is the wrong way to look at it, but I can still understand why they would see this as a threat to their business model. If you get me hooked on a few of your best songs, I’m going to buy your albums, go to your concerts and tell my friends about you, but if you are a casual music listener, this software will enable you to avoid ever having to purchase music again.

While the radio capabilities are Raima’s strongest suit, they’ve also thrown in support for recording streaming video. There isn’t a large selection of channels and the quality is terrible, but its a nice bonus over some of the other stream ripping programs. I would like to see them add support for recording internet video into XviD, but portability is more important for music, than it is for video.

The biggest drawback to Raima’s software is that the quality of the sound files isn’t always the best. The songs usually start recording ten seconds early and cut off before they finish. Unlike TiVo, there is no way to tell the system to start recording earlier or later to account for the lag. The mp3 streams also tend to include commentary from the DJs and sponsors. This isn’t a big deal if you’re trying to listen to a half an hour of talk radio, but it can be annoying, if you are only focused on the music. The quality of the mp3’s is also dependent on your internet connection. If you are trying to record a stream from Japan, while watching YouTube, running Bit Torrent, and playing online poker, then expect stuttering and interference to show up in your recordings. If you have a dedicated connection to a local radio station, then you should be fine.

While these deficiencies aren’t a major drawback, they still help to differentiate time shifted radio from buying the actual music. As great as Raima Radio is, it still can’t replicate the selection or quality that you can get from visiting Amoeba or buying .mp3’s online.

Another drawback to the software is that you can’t tell if a station is broadcasting until you try to tune into it. Because Raima includes a lot of dead streams, it means that you have to spend a lot of time trying to load dead air.

Overall, Raima Radio is a great freeware program and one that is pushing the envelope for time shifted radio. While there is plenty of room for improvement, its one of the better stream ripping programs out there. Universal may be relishing the royalties that they extracted from XM, but in the end, they paid a fair steeper price by trying to squash innovation.

Posted in Music, Technology, Media, DRM, Disclosure - I own stock in co. mentioned, TiVo | 5 Comments »

DVDPost Clones Netflix’s Website

December 17th, 2007 Davis

When Copywrite.org stumbled onto the Belgian DVD company, DVDPost, he noticed something eerily familiar about their website. Over the years, Netflix has inspired their fair share of copycats, but DVDPost had cloned more than just their business model, they completely ripped off Netflix’s website as well.

The similarities between the two sites made Copywrite wonder if Netflix was running a secret European division or if this was just a cheap international counterfeit. While the conspiracy theorist in me desperately wanted to believe that Netflix was using Belgian subsidiaries to expand internationally, deep down inside I knew that this was just another internet knock off. It wasn’t the first time that Netflix’s website had been copied and it probably wouldn’t be the last.

My gut reaction was to start blasting DVDPost as a fake, but luckily I decided to do a little research first. Instead of finding another internet scam, I found a renegade DVD company that has been trying to make a name for themselves, by stirring up controversy in the media.

DVDPost first struck publicity paydirt, when they ran a commercial for a spoof company named Rent-A-Wife. The ad featured a man tying up his wife and trading her for a new one DVDPost claimed that the ads were meant to be light hearted, but critics felt that the company had gone too far with the shock tactics. After local media pressure, DVDPost yanked the Rent-A-Wife website, but followed it up with an equally tasteful ad, featuring Osama Bin Laden as one of their customers.

While it’s possible that DVDPost is trying to fool consumers into thinking that they are somehow related to Netflix, I think its more likely that their recent web redesign is part of a PR campaign. Normally, I try not to fall for this kind of PR bait, but I found their marketing techniques too entertaining, to resist commenting on this latest guerrilla ad campaign.

Posted in Marketing, DVDs, Disclosure - I own stock in co. mentioned, Netflix | No Comments »

Not Every Love Song Is Romantic

December 10th, 2007 Davis

Posted in VOD, Disclosure - I own stock in co. mentioned, TiVo | 4 Comments »

Forget Streaming Video, How Do I Stream My PC Instead?

December 5th, 2007 Davis

Over the last week, I’ve put a lot of thought into how I plan on networking my home entertainment system. After bouncing around for the last few months, I’ve finally found a place to call home (for now), but haven’t figured out my digital strategy yet. 10 years ago, this would have involved hooking up a DVD player and forgetting about it, but today things are far more complicated. While doing an inventory of my entertainment options, I was surprised to realize that I now have eight different devices, that are capable of bringing digital entertainment straight to my television.

Having to allocate electrical outlets is a tough enough problem, but figuring out how to network each device has proved to be even more challenging. Despite having a plethora of choices, I still can’t figure out the best equation, for maximizing my entertainment experience.

My current plan is to set up the Media Center PC in my office and stream the videos to an Xbox360. Because I don’t want to deal with slow WiFi, I plan on drilling holes through the walls (don’t tell my landlord) and running ethernet cable straight into the living room.

My only reservation in using this set up, is that I won’t be able to get the real internet, directly on my television. This is important, because I want to be able watch YouTube, Stage6 and Netflix videos on my big screen TV. In order to solve this problem, I could hook the Media Center PC, directly to the TV, but then I miss out on all of the computing functions, that are more ideal for a desktop environment.

It may seem like I’m asking to have my cake and eat it too, but the experience has made me wonder, if Microsoft has their extender strategy backwards? Instead of being able to stream video files to the living room, why not let me stream the computing functions to an office monitor?

This would unlock the media experience in the living room, while preserving the PC functionality in the home office. Instead of selling media extenders, Microsoft could be offering a networking dongle that connects your monitor, mouse and keyboard to the living room PC. They could even set it up, so that someone could watch the media center, while another person was using the computer. While I know that a lot of consumers don’t want a PC in their living room, a bizarro media extender would be more practical for me.

A few years back, I had a friend who used some kind of networking equipment to cut back on the number of PCs in their office, but this was more expensive and complicated, then what I’m trying to accomplish. I tried to find out more about desktop extenders, but wasn’t familiar with any of the companies I found online. If anyone has ever used a remote computing setup, I would love to find out more about your experience. Is this even possible and is there a solution for the home consumer market? Is this something that would even work or am I better off hooking up an Xbox360 and an old computer to my television instead?

Posted in Media, Technology, TV, VOD, Disclosure - I own stock in co. mentioned, Microsoft, Netflix | 5 Comments »

From Rental To Retail - Blockbuster Begins Evoloution Towards New Rental Paradigm

November 14th, 2007 Davis

Over the last few years, I’ve followed the DVD rental industry pretty closely. During that time, I’ve been one of Blockbuster’s biggest critics and have frequently blasted the company for failing to adapt to the digital age. With their core rental business experiencing massive deterioration, I’ve had very few positive things to say about the company.

Their hyper-focus on competing with Netflix, has cost the company dearly and was a huge blunder by Blockbuster’s previous management. In order to try and counteract Netflix’s momentum, Blockbuster ended late fees, started a price war against a well funded innovator with little debt, and they massively cannibalized their higher margin in-store business. All in a desperate attempt, to differentiate their online service. Meanwhile, their executives took home pay packages that were unconscionable, especially when you consider Blockbuster’s dwindling resources and their dismal financial performance.

At the end of the day, their fight against Netflix has cost them at least a half a billion dollars and they still only have 3,000,000 subscribers.

Six months ago, I would have told you that there was nothing that Blockbuster could do to save itself. I had seen Antioco and Co. make too many poor decisions, to believe that they could figure out how to turn the company around. Instead of increasing prices, they were lowering them by offering unlimited total access rentals. While the program proved to be popular with consumers and the Mad Money crowd, it wasn’t an acceptable long term solution for the challenges that Blockbuster faces.

Of all the decisions that I’ve seen the company make, squeezing out Antioco may have been their best one. Ironically, the one move that I think was good for shareholders, turned Mad Money against them and started the spiral towards a new 52 week low today.

With so much going wrong for the company, I had low expectations when they brought in Jim Keyes to takeover at the helm. With the future of rentals being digital, I didn’t immediately appreciate the importance of bringing in a retail specialist.

Over the past few months, I’ve watched as Keyes has taken over and while it will take him time to steer Blockbuster back on course, his immediate move to cut advertising and unlimited rentals was one that made economic sense.

What a lot of people interpreted as Blockbuster refusing to face reality, I saw as an admission that they had lost their focus on their most profitable customers. In the short term, this is a good thing because it helps to stem the losses from the Total Access program, but it’s not a long term solution.

Following Blockbuster’s 3rd quarter earning’s call, I could understand why their shareholders might be nervous, but after listening to Keyes unveil his turnaround strategy at their analyst event, I was shocked to see such a negative market reaction to his ideas. Analysts slammed the event as being big on dreams and light on details and since the event, Blockbuster’s market cap has taken a 20% haircut.

What other’s may have interpreted as bad news, I saw as a stroke of genius. Keyes’ prescription for saving Blockbuster is the exact remedy that they need, in order to remain relevant in a digital age. There is little doubt that there will come a time where we see the end of the DVD rental, but for the first time, Blockbuster is willing to admit this and they laid out a compelling plan for how they will adjust to this transition.

Keyes discussed several initiatives, but at the heart of the strategy was a plan to evolve from a rentailer to a retailer. While the differences may be subtle, the details have tremendous implications on the viability of Blockbuster’s business model.

Dedicate More Square Footage To Retail

While Blockbuster has seen their brutal selloff, shares of Gamestop have caught on fire. The market clearly has no faith in the future of DVD rentals, yet they are still willing to invest in profitable retailers. The rental industry is a tough business and as that stream dries up, Blockbuster needs to be able to replace this with higher profit opportunities.

In order to accomplish this goal, Keyes has worked out an agreement with Sony to provide 2000 PS3 kiosks, in their stores during the holidays. I view this as an an early test for the viability of Blockbuster’s retail approach. I believe that the consoles will sell well among Blockbuster’s customer base and will lead towards more high end consumer electronics.

By focusing on selling higher ticket items, Blockbuster stands a better chance of covering their fixed costs. People are already going to Blockbuster to rent their movies, but if they can start to buy things like computers, cellular phones, HDTV’s and Blu-Ray players, it will give Blockbuster an opportunity to capture some of the money that retailers like Best Buy are able to take in.

If Blockbuster is successful with this transition, they could even get to a point where they could use rentals as a loss leader to drive higher revenue transactions. If you can sell enough HDTV’s, the decline in rental revenues becomes less of an issue. What some might see as the abandonment of the rental market is really Blockbuster pursuing better market opportunities.

Invest In Kiosk Technology

It’s no secret that I believe that burn on demand could save the DVD rental industry. As a tech savvy consumer, I have lots of options for streaming digital content to my television, but most people still prefer the good old fashioned DVD. Even after the digital revolution gains critical mass, there will still be a need for movie rentals. While it’s easy to believe that everyone has a computer and internet access, there is still a large part of the market that VOD and Netflix, can’t get at.

The problem with Blockbuster’s retail initiatives, is that this will eat into the selection and inventory. If half the store is dedicated to selling consumer electronics, it becomes challenging to offer as many choices. Burn on demand can solve this issue for Blockbuster. By taking care of the heavy lifting, Blockbuster can make it easy for consumers to watch an even wider range of content.

Keyes plan to invest in burn on demand technology shows that he understands the savings and impact, that this technology can have. My only reservation about his approach, is his intention to introduce the kiosks at the store level. Kiosks can provide a lot of efficiencies, but they don’t do well with volume. I can see the potential in letting franchisees use the technology in non-video store locations, but believe that Blockbuster needs a different solution at the store level.

Everybody knows how to work a printer at the supermarket, but there is a reason why people still go to Kinkos. They can handle volume like nobody’s business.

Burn on demand kiosks will be good for expanding into supermarkets, coffee shops and fast food restaurants, but Blockbuster will need dedicated servers and lots of burners at the store level, if they want to provide a superior experience at their retail locations. By handling the heavy lifting for consumers, they could bypass a significant technological hurdle in the adoption of burn on demand DVD.

Shifting To More Revenue Sharing Arrangements

One of the biggest weaknesses in Blockbuster’s business model are the high fixed costs that they have to deal with. Blockbuster can’t get rid of the lease payments or all of the employee costs, but they can reduce their leverage by approaching their stuido partners. Whether rental will eventually die or not, the studios want to protect the DVD stream and have an incentive to work with Blockbuster towards ensuring their survival. In order to get less up front costs, Blockbuster will be forced to give up their gross margins, but it will allow them to keep top movies in stock and to offer a burn on demand experience.

Raising Prices and Reinstating Late Fees

Over the past few years, we’ve seen the price of a lot of products go up. Whether it’s higher gas prices or postal rate increases, the cost of living has been increasing. When it comes to rental though, we’ve seen price deteriorate. The DVD price war has taken it’s toll and there is more than enough justification for Netflix and Blockbuster to increase prices. This strategy is probably the most risky, because if Netflix didn’t follow through with their own price increase, there could be a severe reaction against Blockbuster.

One of the things that has always impressed me about Netflix, has been their commitment to testing ideas before implementation. When Blockbuster ended late fees, they took a shotgun approach and hoped that it would pay off. It obviously didn’t.

When Netflix lowered prices it was after they understood the elasticity of the demand curve. By taking their time to react to competitive threats, Netflix was able to make more intelligent decisions in combating Blockbuster. While I’m sure that Blockbuster shareholders would welcome an imediate price increase, I have to admire the fact that Keyes isn’t willing to dive in head first on this one.

As far as the late fees goes, this is clearly a problem. By allowing customers to keep rentals, it’s prevented other people from having access to the inventory. I think it’s fair for Blockbuster to consider this move, but after such a massive no late fee campaign, there could be a strong backlash. One of the problems that I think most people had with Blockbuster’s late charges was the punitive nature of the fees. Instead of having to pay for one more day, you often had to pay for another three day rental.

During the analyst presentation, Keyes expressed admiration for Redbox’s pricing model and pointed out that a $1 a day wasn’t really cheaper then Blockbuster. If Blockbuster had $3 rentals for three days and then a $1 per day afterwards, consumers might accept the return of late fees. Still, after such a massive promotion (and lawsuit settlements), it would be gutsy to try and re-introduce them.

There is no way to know for sure, if any of these initiatives can save Blockbuster, but I do believe that Keyes is making the right moves towards securing the long term future of the company. While I may have written off the video store, I’m not ready to call the end of retail and I’m impressed by Keyes focus on improving revenue per square footage, instead of being distracted by the internet. It’s the right move for Blockbuster to make and one that marks the divergence of the Netflix vs. Blockbuster paradigm. With rental revenues set to eventually expire, Blockbuster is smart in positioning themselves to take on other retailers, where they have an advantage. By making these changes, it shifts the battle to Blockbuster vs. Circuit City, Best Buy and Game Stop and this is a business model that should make more sense to Blockbuster’s investors.

Posted in Movies, DVDs, Kiosks, Disclosure - I own stock in co. mentioned, Netflix | 4 Comments »

Comcast Raises Fees On Non-Comcast DVR Owners

November 12th, 2007 Davis

Over the years, I’ve had a love/hate relationship with Comcast. On one hand, I love having access to high speed internet and high definition cable television, but I also resent their monopolization over my entertainment choices. Because they’ve worked out sweetheart deals with cities in the Bay Area, I have little choice, but to use their services. If I owned my own home, I could consider satellite, but as a renter, I’ve found very few landlords, who are willing to approve a dish.

I probably should have been upset about their latest fee increase, when the Toeman warned me about it, but it didn’t hit home until I got my latest Comcast bill and saw a 6.5% increase on the price of my television. This follows a 6% increase last year and a 10% increase the year before. What makes this fee increase even more frustrating, is that I wouldn’t have to pay it, if I would just break down and become a Comcast DVR subscriber.

It’s been no secret that Comcast has objected to the cable card mandate, but what most people don’t understand, is how big of a threat, the stand alone DVR is to Comcast. What the public thinks is a $5 surcharge, is really a difference of $56 per month for my own situation. Over the years, Comcast has fueled their corporate profits by upgrading a massive analog cable base to their digital platform and they’ve done that by bundling these digital services with DVR and HDTV features.

If you actually compare the basic analog tv lineup to the basic digital tier, there are few differences between them. When I asked a Comcast rep which new channels I would get as a digital subscriber, he cited the Hallmark channel, CSPAN2 and ATV as reasons to upgrade. Not exactly a very compelling lineup.

Because Comcast knows that people won’t upgrade for CSPAN2 alone, they force their customers to upgrade, if they want any advanced services. This means that the real cost of HDTV and DVR services, has been buried in the forced digital upcharge that subscribers pay.

In the Bay Area, Comcast currently requires you to subscribe to their Digital Preferred Plus package, before they’ll rent you a DVR. The problem with this package is that it has an ongoing rate of $98.45, plus an additional $11.95 for the DVR. This comes to $110.40 per month or over $1,300 per year. Now in all fairness, this package also includes HBO and Starz, but if you don’t care about these channels, Comcast still won’t rent you the DVR unless you pay for them.

Now compare this to the $54.29 that I was paying as an analog sub. As a lifetime TiVo owner, my only additional monthly cost is the $1.95 for both cablecards, which means that I’m saving $650 per year, by not being suckered into Comcast’s digital packages. Even when you consider that I paid $800 for a series 3 TiVo, plus $300 for the lifetime transfer and another $300 to upgrade to a massive hard drive, I still come out ahead, after a little more than two years of service.

If you are a stand alone user, chances are, you are already taking advantage of the analog loophole. Because Comcast has to provide cablecards, it lets you bypass the bogus $9.99 HDTV “converter” charge. If you are a non HD standalone user, then you probably prefer the basic package anyway, because it means that you don’t have to mess around with the annoying IR blasters.

By raising prices on their analog subs, Comcast is effectively adding a non-DVR tax for people who have chosen to go outside of their system. By increasing the price on the basic television, but not digital subs, they are effectively penalizing their competition.

If Comcast wants to raise rates, they should have to do so evenly. Instead of forcing consumers to buy channels they don’t want, they should instead, be offering a la carte DVR services, that don’t require the digital subscription. I can understand why they would want to encourage people to upgrade, but they shouldn’t be allowed be allowed to abuse their monopoly, in order to appear cheaper then their competition.

Posted in Media, TV, Disclosure - I own stock in co. mentioned, TiVo | 2 Comments »

DivX Thrives As The DVD Continues To Die

November 6th, 2007 Davis

The market for DVD players may be in decline, but you wouldn’t know it by looking at DivX’s latest quarterly results. On a day where the press was reporting a 15% drop in the number of DVD players sold, DivX surprised investors by announcing better then expected revenues, driven largely by gains in the DVD player category.

During the quarter, DivX took in $20.9 million in revenue, of which $17.1 was related to their core licensing business. This jump in revenue represents an increase of 44%, over the same period a year ago.

During a conference call discussing the results, DivX estimated that as of June 30th, they had captured 37% of the global DVD player market. This compares to a 25% penetration rate, from a year ago. During the more recent 3rd quarter, they saw their market share for US based DVD players, climb from 20% to 31%, over the past year.

Kevin Hell, DivX’s newly appointed CEO, attributed the growth to top OEMs, reacting favorably to greater consumer demand for DivX products.

“These penetration gains are a direct result of our growing relationships with the key OEM partners, as they react to increasing consumer demand for DivX devices. In Q3, our top 5 OEM partners, taken as a group, increased unit shipments of DivX Certified products by 55% relative to the same period last year. What’s more, we are especially pleased that we have been able to achieve this growth while maintaining our historically strong average royalty rates.”

What I find so fascinating about this aspect of DivX growth, is that they are seeing it come from their existing partners. If new partners were coming on board, it would be easy to dismiss their gains as being driven by OEM competition, but to see 55% growth from your existing customers, would suggest that DivX’s market share is either being driven by consumers directly choosing DivX devices over non-certified products, or from OEMs recognizing the value that DivX adds in a more competitive environment. Whether it’s the chicken or the egg that has been driving demand, these gains represent a strengthening of DivX’s core business and offers further proof, that DivX certification can drive the adoption of consumer electronic devices.

In addition to seeing progress in their core DVD licensing business, DivX also saw key developments in their emerging products category. During the quarter, they successfully launched their DivX Connected platform, they formed a strategic relationship with Qualcomm to help drive DivX mobile, and they signed an important advertising agreement with Yahoo!

On their conference call, DivX didn’t unveil any new customers for their Connected platform, but they did announce that Connected would begin shipping on November 12th. Initially, it will only be available in the UK, Germany and France, but DivX expressed hope that we could see a North American launch sometime in 2008.

One area where DivX continued to struggle, was in securing the rights to premium content. When asked about their progress, Hell said that DivX remained committed to the idea, but that negotiations with studios tend to take a lot of time.

“we continue to aggressively pursue Hollywood content and believe that there is a strong rationale for a deal. Of course, these sort of deals take time, particularly with our open approach, where we’re working across a number of different device types and a number of different brands, but we think that the rationale for the studios and other premium content owners is compelling. We have over 100 million devices out there that are certified. All of those devices have our DRM inside and so ultimately we believe, it’s just a matter of time. Once we do get these folks on board, the studios and other premium content owners, we’ll then be working with other folks like Amazon or Netflix to enable services for distribution in the powered by DivX model.”

There may be strong rationale for a deal, but it appears that DivX is finding out the hard way, that studios don’t always behave rationally. DivX may still be committed to trying to secure the digital rights to content, but you wouldn’t know it by looking at their their legal department. During the quarter, DivX sued Universal music group, in order to help establish the legality of their Stage6 video sharing site. On October 22nd, UMG fired back by filing a copyright complaint against DivX, as well as ten John Does who are accused of uploading infringing content to the Stage6 website.

When asked about whether or not the lack of premium content would impact the popularity of DivX Connected, Hell didn’t seem to feel that it would be an issue.

“I think Connected in its current form and the sense that it has access to all of your music, your photos and, of course, your video, as well as access to Stage6 and other services is a compelling offering and I believe that its something that solves the problem out there, unlike any other platform that’s out there today. That said, of course, I do see Hollywood content as being an accelerator to Connected.”

For most digital media companies, being denied access to premium content would make or break your business, but because DivX’s core customers already have access to premium content, this really isn’t all that significant of an issue. Customers may have to steal their movies off the P2P networks, but DivX consumers have already demonstrated a willingness to take content, especially when legal downloading isn’t an option. Premium content will be an important part of Connected, but it doesn’t necessarily have to be legal content, in order for the platform to succeed.

During the quarter, DivX saw three major developments for their mobile strategy. As part of a new multi-year agreement with LG Electronics, they introduced another DivX certified cell phone, they expanded the global availability of the Samsung F500, and they formed a strategic partnership with Qualcomm.

Of these events, the Qualcomm deal was the most important, because it lays the infrastructure for mass deployment further down the road. Qualcomm is a major player in the cell phone chip market and if DivX can achieve interoperability with their technology, it will accelerate the mass adoption of DivX mobile, once the phone companies finally warm to the technology.

Of all the questions that the analysts raised, I was most surprised by the confusion surrounding their Yahoo! agreement. Over the quarter, DivX reported that they had replaced Google with Yahoo!, as their advertising partner on DivX software downloads. While I can understand why people might be concerned by the end of the Google agreement, I also believe that the move makes perfect sense for Yahoo! and DivX.

Over the last several years, DivX has bundled the Google toolbar as an option, when you download or update their software. Even before, DivX went public, there were concerns that Google’s toolbar would be less effective, as market saturation set in. As more and more people download the Google toolbar, it becomes increasingly harder to find new customers to cross sell to.

From DivX’s perspective, I have to believe that they’ve been experiencing diminishing returns on this revenue stream. By partnering with Yahoo!, they are not only able to cross sell a less saturated product, but Yahoo! will also get a chance to directly steal current Google toolbar customers, every time, someone updates their DivX software. By swapping out advertisers, DivX is able to help keep this revenue stream fresh and relevant, despite their success with the Google software.

When it comes to Stage6, DivX was understandably tight lipped about their progress towards spinning off the asset. For negotiation reasons, they didn’t want to discuss the valuation or the format of the spinoff, but did give some background metrics on the development of the video sharing service.

During the quarter, DivX spent $4.0 million on Stage6. Of this amount, $2.6 million was directly related to bandwidth costs. While this expense was considerably higher then a year ago, it was still less then the $4.5 million that DivX had previously predicted it would spend. DivX CFO Dan Halvorson pointed to infrastructure constraints as a reason for the reduction in spending.

“As we mentioned in the past, the site experienced huge trajectory in 2007, moving from 4 million “uniques” in April to 10 million by July. At the end of October, Stage6 reached 11.7 million unique visitors. Our view is the number of uniques could have been higher, but were limited by infrastructure capacity. To accommodate the increased traffic we have continued to enhance the Stage6 infrastructure.”

Halvorson didn’t elaborate on how they were enhancing the infrastructure, but during the 3rd quarter, DivX did take a $2.2 million charge on their Veatros acquisition from the prior quarter.

While it’s understandable that DivX investors would be worried about the death of the DVD player, DivX’s current results suggest that they will handle this transformation just fine. Unlike the movie studios or print newspapers, DivX should see greater growth from the transition to a digital environment and can still take DVD player market share, even with the industry in decline. As the DVD format begins to disappear, DivX will eventually lose this business, but if they can transfer this licensing revenue into new product categories, they should see a dramatic increase in the demand for DivX devices.

When he was asked to rank the importance of these emerging technologies, Halvorson pointed out that the potential market for DivX devices is 10 times larger then the current DVD opportunity.

“In terms of the ranking of those opportunities, I would say, mobile, given its size obviously, is probably the largest. We are also thus seeing DTVs, HDTVs, set top boxes and gaming consoles all being interested to us over time as well. Cameras, of course, are important not just because it’s a large market, but because it is also a generic content in the DivX format, and as I mentioned, I think the addition of H.264 to our overall media language will allow us to penetrate that more quickly as well.”

The death of the DVD business will happen eventually, but whether it takes five years or twenty, DivX is in a good position to take advantage of this shift. In the near term, OEMs are recognizing the value that DivX brings to a more competitive environment and over the long run, DivX will only need to capture 10% of their market opportunity, in order to replicate their current level of success. As consumers turn away from the DVD, they will need to embrace a digital format and DivX has positioned themselves to directly benefit from this evolution in the digital market.

Disclosure - I am a shareholder of Netflix

Posted in Media, Technology, DivX, TV, VOD, Disclosure - I own stock in co. mentioned, DRM, DVDs, Netflix | No Comments »