"?> Davis Freeberg's Digital Connection » Netflix http://davisfreeberg.com Fri, 23 Sep 2011 19:32:38 +0000 en hourly 1 http://wordpress.org/?v=3.3.1 Netflix Gone Wild http://davisfreeberg.com/2011/07/25/netflix-gone-wild/ http://davisfreeberg.com/2011/07/25/netflix-gone-wild/#comments Mon, 25 Jul 2011 13:59:01 +0000 Davis http://davisfreeberg.com/?p=2147 Netflix may have one of the best movie recommendation engines out there, but from time to time, their suggestions do get thrown off the track. I’m not sure whether this is proof that Skynet Netflix still has a long ways to go before it becomes self aware or evidence that their algorithms are so good, that they can spot connections, even when they appear ridiculous to us mere humans. Either way though, the results can be hilarious! After pouring through 100′s of nominations, I’ve put together a top 10 list of some of their more wonky suggestions.


#10 – Make Love Not War

One would think that Ken Burn’s award winning documentary on WWII would appeal more to those who are further from the cradle than the grave, but apparently senior citizens enjoy Angelina Ballerina and Barney too! (h/t – Plamere)

#9 – Who Said Kids Find Documentaries Boring?

This may be a case where it would be more helpful for Netflix to suggest something the kids might like a little bit less

#8 – Beneath the tough rapper exterior lies the heart of a romantic

It may not be all that exciting of an ice cream flavor, but romantic musical fans will melt for vanilla

#7 – Who Knew Mrs. Doubtfire was so angry inside?

Robin Williams’ dressed in drag was pretty painful to watch, but not chop up and eat people bad.

#6 – One Of Netflix’s Darker Comedies

Yup, that’s right, after you watch Reno 911, even Auschwitz will seem funny by comparison

#5 – Beware the Penguins?

Oh sure they look all cute and adorable, but not if you’re the fish. Something tells me that Netflix may have outsourced this movie category to Charlie Tuna.

#4 – The Scariest Movie on Netflix


Mallcop may have been bad, but it’s a pretty low blow to call it a horror movie


#3 – I’m pretty sure that most pregnant women aren’t that flexible

Is your significant other all of a sudden obsessed with Cirque Du Soleil? You may want to think about taking a pregnancy test h/t – Tgidenver

#2 – Netflix Suggests That It May Be Time To Consider Therapy

It’s good to know that I’m not the only one from a dysfunctional family. For those looking to deal with your Father/Daughter issues, Netflix recommends, the Call Girl or the steamy erotic thriller, Lie with me.

#1 – A Friendly Reminder From Netflix That You May Not Be Ready For Kids Just Yet

Don’t be fooled by the photo of the cute baby on the cover of the movie, It’s Alive probably isn’t something you’ll want to watch if you’re expecting

Still haven’t had enough? Here are a few more that didn’t make the top ten list;

Want to learn whether or not your new date has apartment full of cats back at home? Find out her thoughts on King Lear, Looking for Swamp People? Try the Kardashians, Did you enjoy the Last of the Mohicans? Well Netflix is pretty confident that you’ll enjoy The Last of the Mohicans, Netflix outs Top Gear driving enthusiasts for being closet Jane Eyre fans, Do you enjoy Louis C.K.’s edgy sense of comedy? Well you may want to think about going back to school because Netflix sees advanced Physics in your future, Frankly, the talking lobster already freaks me out, but Netflix thinks people who enjoy movies about LSD, will really like the Little Mermaid too, When I think of classical movies, Black Snake Moan isn’t the first thing that pops into my mind, If you ask them, GI Joe fans will deny it, but apparently they have a soft spot for furry little Sharpays, Family Guy fans take note, you may be a freakin’ genius, Freaks and Geeks are always welcome in Mr. Roger’s Neighborhood.

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Why Doesn’t AMC Want My Money? http://davisfreeberg.com/2011/07/05/why-doesnt-amc-want-my-money/ http://davisfreeberg.com/2011/07/05/why-doesnt-amc-want-my-money/#comments Tue, 05 Jul 2011 16:11:10 +0000 Davis http://davisfreeberg.com/2011/07/05/why-doesnt-amc-want-my-money/

AMC Empire
Originally uploaded by imoteph9


Most businesses are thrilled when someone wants to give them money, but for some crazy reason whenever you’re dealing with Hollywoodnomics, logic seems to get turned on it’s head. Case in point: MoviePass

I love the movies, in fact I’d argue that I’ve probably seen more films than 90% of the population. As a moviehound, you would think that I would be one of AMC’s best customer’s, but the truth is that in the last 5 years, I’ve only seen 2 movies in the theater. While there are a lot of reasons why, it essentially boils down to the fact that it’s hard for me to justify paying $9 for a film, when I can watch it at home for free*

Now in reality, my TV isn’t actually free, but psychologically, it feels that way because I “rent” my content through services like Netflix and TiVo. While I’m sure that PPV and Blockbuster would prefer that I take advantage of their services, the simple truth is that the transaction fee involved (no matter how small) has made them persona non grata in my lifestyle.

I’ll be the first to admit that watching a film on my 60″ TV isn’t the same as seeing it in Imax, but when the choice is to pay money vs. seeing something for free*, it makes it a lot harder to accept the premiums that the theaters charge. Four years ago, I noted that consumers were making a transition from a pay per view model to a subscription model and that movie theaters would be wise to endorse the trend.

“Why not offer a monthly subscription fee to your local movie theater chains. Consumers would be happy to spend $30 or $40 per month in order to have the privilege of seeing films the way I did when I worked for the theaters. Instead of collecting $40 per year from me now, theaters could instead bring in $480 each year with an all you can eat model.”

A long time ago, I worked as an AMC projectionist and every Thursday night, I’d stay up to the wee hours of the morning screening the new films before they opened. Because of this experience, I know first hand how powerful a theater subscription model could be, which is why I’m so confused that my former employer wouldn’t recognize the brilliance behind MoviePass. What makes this all you can eat movie experience so special isn’t the access to the big hits that you’re dying to see, it’s being able to see mediocre films in a larger than life environment without having to put your wallet at risk. Yet for some strange reason, AMC isn’t interested in attracting customers to their most empty theaters.

Now I can’t speak for everybody, but in my case, had MoviePass existed back then, AMC would have collected $1,920 in ticket sales. Instead they’ve earned less than $40 from me and that includes popcorn.

Not everybody chooses to rent their content, but when you look at the number of cable, satellite, Hulu, Netflix, etc. subscribers, it becomes clear that a huge segment of society chooses to consume the bulk of their content this way. This is why, when I saw that MoviePass was going to create a subscription theater service, I thought it was a no brainer for the theaters involved.

Instead, AMC decides that they want no part of this? Can someone please help me understand how this makes sense because AMC’s justification that “plans for this program were developed without AMC’s knowledge or input,” or that “it does not integrate well into our programs and could create significant guest experience issues”, rings hollow in my opinion.

AMC could have picked up a brand new customer willing to buy tickets in bulk and instead of nurturing a new source of revenue (while MoviePass assumes the risk of proving an experimental business model), AMC has chosen to ban it because they weren’t consulted first? This seems awfully shortsighted and petty on the part of AMC.

If AMC really believed in the mantra, listen, learn, discuss, decide, execute, measure and … repeat, then they would have at least taken the time to see if MoviePass could bear any fruit. Instead, they’ve jumped straight to an execution (with a promise to repeat if anybody else decides that they want to give them buckets of money without permission.)

I could almost understand this reaction, if AMC had some type of similar program that MoviePass was competing with, but the reality is that AMC has failed dramatically when it comes to the execution of their customer loyalty programs.

For 25 years, AMC ran a program called Summer Movie Camp for kids. The idea was basically a seasonal version of MoviePass, except restricted to handful of old kids movies. Given it’s long run, one would think this was a homerun for the cinema, but I can tell you first hand that AMC did a terrible job of running it. Even on their own website, AMC admits it was a failure.

“Unfortunately, the number of guests has been fewer in recent years, with many shows operating with less than 25 guests in the auditorium. Last year, attendance dropped so significantly that we have made the difficult decision to discontinue the program.”

AMC’s most recent program, also looks like it will be a dud. Not only do consumers now have to pay $12 a year for the privilege of frequent customer membership bonuses, but they only save 10% off for every $100 they spend. This means that you would have to pay to see 33 films in a year before you would actually earn a free one under the program. It’s nice that they want to be so stingy with their best customers, but MoviePass really wouldn’t threaten this.

If MoviePase attracts moviehogs, then it will be uneconomical for them as a business. If they attract consumers like myself, who refuse to pay transaction charges for their entertainment, then it’s complimentary to AMC’s existing program and could greatly expand revenue. It’s hard to tell what the future holds for MoviePass at this point, but with the major theater cartels going hostile against this new innovator, I can only hope that independent theaters will be more interested in collecting hundreds of dollars a year from me instead.

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Netflix Makes Deal With The Devil – Now Streaming Snuff Film Online http://davisfreeberg.com/2011/06/01/netflix-makes-deal-with-the-devil-now-streaming-snuff-film-online/ http://davisfreeberg.com/2011/06/01/netflix-makes-deal-with-the-devil-now-streaming-snuff-film-online/#comments Wed, 01 Jun 2011 22:19:44 +0000 Davis http://davisfreeberg.com/?p=2104 I’ve always enjoyed violent movies. A quick look at my Netflix’s rating history reveals a pantheon of horror films. Whether we’re talking Michael Myers or Alfred Hitchcock, there’s something about gratuitous violence that tickles my funny bone. When it comes to real life violence though, I am generally much more squeamish. Nearly ten years after 9/11, I’m still haunted by the news footage of people jumping to their deaths from the burning buildings. While some might argue that this line really shouldn’t matter, this distinction is often the difference between a black comedy and a documentary.

This difference may also help to explain how I can be thrilled to see Netflix adding Pulp Fiction to their watch now service, but dismayed to learn that they’ve also added Death Scenes 1 – 3. For those not familiar with the Death Scenes series, it’s a collection of extremely graphic video clips that show the murder and execution of countless individuals. It is “narrated” by Anton LaVey himself, the founder of the church of satan.

Back in the 90′s, I had friends who would trade Faces of Death VHS cassettes, but Blockbuster was never foolish enough to rent them in their stores. Netflix on the other hand doesn’t seem to have a problem renting snuff films to their members and I think this is a mistake. While I respect the fact that Netflix doesn’t censor other people’s movies, they have drawn a line by not offering pornography on their service. Whether or not, Death Scenes is a pornographic snuff film or a documentary I’ll leave up to my readers to decide, but before clicking on this graphic link to view the evidence, you should take a look at excerpts from how other Netflix members have described the film.

“I was very disappointed in the fact that so many of the scenes had no commentary or too little and seemed to just be a shock value show” – Steathl

“In my opinion, this footage does not qualify as a documentary. Rather, Id consider it more along the lines of a smutt film or Faces of Death with a heaping scoop of pointless thrown in for your viewing displeasure” – QBS 1996331

“There a couple of scenes that will stay with me forever. One was a boy of about nine dressed in 30s style clothing with his hands tied behind him and laying sideways after being executed. The other scene that I have trouble getting out of my head was the pre execution footage of a guerrilla rebel all of about 16 tied to a pole awaiting a firing squad. He looks directly into the camera and you are looking at a boy, face full of rage, terror and, defiance. The next scene he is executed with the other rebels.” – Sedatme

While I didn’t waste my time watching every minute of this film, I did see enough to know that this is closer to pornography then it is to a “documentary” and I would hope that Netflix would be able to see that. The idea of watching people being brutally tortured or murdered may appeal to some niche quarters of the internet, but it’s not appropriate on a site like Netflix.

Update – A quick check of the website, seems to suggest that Netflix has taken the series offline. With so many films that they’re licensing, it’s probably hard for Netflix to watch everything that comes in. My guess is that this film somehow slipped through the cracks and once Netflix became aware of it they reviewed it and rethought whether it was appropriate for their site.

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Ohio University Bans Netflix During Finals Week http://davisfreeberg.com/2011/03/15/ohio-university-bans-netflix-during-finals-week/ http://davisfreeberg.com/2011/03/15/ohio-university-bans-netflix-during-finals-week/#comments Tue, 15 Mar 2011 19:43:24 +0000 Davis http://davisfreeberg.com/?p=2094

Universities across the US have been at war with P2P for a while now, but this is more than a little bit ridiculous. In an attempt to manage their network, Ohio University has banned access to Netflix. A copy of the university’s email was originally posted to Reddit

“OHIO Students,

Due to extremely high demand, the university’s Internet connection currently does not have enough capacity to meet service expectations and results in noticeably slow connections at times. Traffic analyses have shown streaming media usage accounts for nearly two-thirds of our current demand, with Netflix being the largest single consumer of our Internet capacity. In an effort to free up the bandwidth faculty and students need to complete academic online tasks during finals week, the university will be instituting a temporary limit on the total bandwidth available for Netflix traffic. The restriction will go into effect this evening, Monday, March 14 at 6:00 pm. OIT appreciates your patience as this temporary corrective action is taken. We welcome and encourage your thoughts on a more permanent solution as we engage the university in planning on this critical issue.

Best regards, J. Brice Bible Chief Information Officer”

I’m not sure whether or not this will boost grades at the school, but it does say a lot about how popular Netflix is becoming. While this may be a temporary fix for the school, it isn’t a very good long term bandaid. The internet is more important than it’s ever been and students need access to a robust network to participate in that. If the school can’t keep up with demand, their customers (the students) will leave for places where they have unlimited bandwidth. Even if the school doesn’t upset their students, it’s not going to stop digital video consumption. A ban on Netflix will only drive their students underground where illegitimate sources of content can fulfill their entertainment needs.

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The Compuservation of Television http://davisfreeberg.com/2011/01/11/the-compuservation-of-television/ http://davisfreeberg.com/2011/01/11/the-compuservation-of-television/#comments Tue, 11 Jan 2011 18:36:04 +0000 Davis http://davisfreeberg.com/?p=2000 Gossip Dirt

The more things change, the more things seem to stay the same. Over the last ten years, the internet has redefined nearly every aspect of our lives. Whether it’s how we communicate with old friends, how we get our news or how we do our shopping, I could give you countless examples of how this technology has changed the way we interact with the world.

Thinking back to when dial up was first getting started, it’s not too hard to imagine an entirely different future. You see, when internet service providers first got into the business, they didn’t want to provide unrestricted access to their subscribers. Instead, they wanted to create a massive intranet where they could charge businesses fees to reach their customers.

In this bold new world that they envisioned, people wouldn’t be buying search terms on Yahoo!, they’d buy keywords on AOL. Instead of being able to use any email provider you wanted, they would only allow you to log into Compuserve accounts. This balkanization of the internet almost succeeded and for a time, Compuserve actually ran one of the top airline ticketing services, but eventually consumers saw the forest for the trees and instead of paying $19.99 a month for a stripped down version of the world wide web, they insisted on unfiltered access to the internet.

Once a few consumers started to move, the rest of the industry followed and as a result we now have third party sites like Facebook, YouTube and blogs, that have been able to build an audience on the free and open web.

With online video still coming of age, it’s interesting to see how the same Compuservation is occurring again, except this time it’s around the television. NewTeeVee has a provocative post out where they argue that the smart television providers are becoming the new gatekeepers for content. This is better than having the cable companies control your television, but it’s is still a watered down version of what you deserve.

I don’t care whether we’re talking about TiVo, Boxee, Roku, AppleTV or any of the latest digital video solutions, all of them have placed restrictions (albeit sometimes unwillingly) over how much their customers can do with their hardware.

Some of these restrictions are because of frightened content owners. For example, customers who rent their TiVo from a cable company aren’t allowed to access Netflix because of agreements Netflix made with the studios. Some of these restrictions are because of plain old fashioned greed. Hulu has already had more than their fair share of conflicts from disabling access to their videos on devices that are designed to sit next to your TV and would love to charge hardware companies for access. Some of these restrictions are self imposed. There’s nothing stopping Apple from offering flash on their iPad, except for their own selfish desire to control 100% of their media eco-system.

Whatever the reason, no matter how you slice it, these “internet” enabled devices have all failed to actually bring the internet to your TV. Looking over the headlines from CES, it’s clear that tablets and “smart TVs” were all the rage in Las Vegas this year and while it’s neat to see content companies start warming up to these devices, if consumers are forced to continue at big media’s pace, it will take another 10 years before you’ll be able to access even 90% of the content that’s out there today.

Because of these restrictions, it’s become increasingly difficult for me to endorse these options as adequate solutions. Over the years, I’ve managed to sample and collect a large number of different media streaming devices, but by far, the most powerful digital media device that I’ve ever used was the cheapest laptop that I could buy from Walmart. Maybe I’m crazy and other people don’t actually want access to the internet on their TV, but from the very first moment that I plugged it into my television, it was just as liberating as the first time I used TiVo to free my TV.

Since almost all new laptops include an HDMI port, getting it connected to the big screen was as easy as plugging it into an HDMI cable. Not only will this setup let you access sites like Hulu without big media interfering, but I can also do PC related tasks on a big screen environment. For example, over the holidays I was able to connect to Skype and do a video chat with the entire family on the big screen. I’ve always been a fan of comic books, but the comic book experience is very different when you’re looking at the action at 40+ inches. Do you ever play video games like Axis and Allies? Being able to see the entire war map actually changes your strategy compared to when you have to view troop movements region by region.

The point that I’m trying to make is no matter how progressive and advanced these technology companies are, no matter how many “apps” developers create, until the CE industry and the content industry abandon their gateway plans, you’ll never get to experience everything that the world wide web is capable of.

Instead of navigating this minefield of short sighted media companies and a CE industry that has lost sight of who their real customers are, take my advice and buy an HDMI enabled laptop before you buy the latest and greatest half baked technology product. A cheap laptop won’t necessarily make it easy to record your broadcast television, but if you’re only going to own one media device for your TV, an HDMI enabled laptop will beat the pants off of any digital device on the market today.

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Why Are Cable Prices Moving Higher? Because There Are More Of You Than There Are Of Me http://davisfreeberg.com/2011/01/10/why-are-cable-prices-moving-higher-because-there-are-more-of-you-than-there-are-of-me/ http://davisfreeberg.com/2011/01/10/why-are-cable-prices-moving-higher-because-there-are-more-of-you-than-there-are-of-me/#comments Mon, 10 Jan 2011 22:25:40 +0000 Davis http://davisfreeberg.com/?p=1992 Undercover

Looking for more proof that the pay television industry still doesn’t believe that cord cutting is really a threat? Analysts are predicting that those of you who haven’t cut the cord yet are likely to see price hikes across the board in 2011. Given all of the cool digital distractions that are out there, one might argue that this doesn’t make a whole lot of sense, but the reality is that the telcos will continue their rate increases until the higher prices don’t offset the subscriber losses.

Last year may have been a watershed year for the cord cutting movement, but a closer look at the data reveals that most consumers haven’t been as price sensitive as those who quit pay television. As of October 2nd 2010, ESPN had approximately 100 million subscribers. I use this as a proxy for the pay tv industry since most basic cable, satellite and fiber customers receive the channel by default. A year earlier, ESPN had approximately 99 million customer. If we assume that the telcos averaged $75 for a TV subscription in 2009 and that they increased rates by 5% last year, then this means that not only were they able to net an extra $5.4 billion in fees last year, but they’ll get to collect again on these fees in 2011 and into the future.

So what happens when consumers finally start to resist these fee increases and the trend reverses, the cable companies still get fat and happy until they have a full scale revolution on their hands. Even if we assume that 2% of all telco customers will quit pay TV over every 5% increase in price, then we’re still guaranteed to see fee increases into the foreseeable future.

Don’t get me wrong, losing 2 million subscribers would hurt the pay TV industry, but at the new $78.75 average price, it would only cost them $1.8 billion in lost revenue each year, while they would be gaining an extra $4.125 billion with the higher subscription fees. While the pay TV industry may realize that their golden years for growth are now over, that doesn’t mean they can’t do basic math and engineer higher revenue while they have you over a barrel. Until a significant number of people say enough’s enough, they’re never going to take the threat of cord cutting seriously, so if you are still paying for your television, then you’re part of the problem, instead of the solution.

Over the long run, defections will accelerate and eventually they’ll be forced to abandon their annual price increases, but until then it’s clear that the pay tv industry is going to milk consumers for as much as you will let them. The only silver lining that I see in all of this, is that a 5% increase for the pay television industry is equivalent to a 50% increase in what Netflix’s charges for a digital subscription. This should give Netflix a lot of room to remain competitive while poaching the digital living room.

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It’s Time For Netflix To Say Goodnight To Silverlight http://davisfreeberg.com/2011/01/09/its-time-for-netflix-to-say-goodnight-to-silverlight/ http://davisfreeberg.com/2011/01/09/its-time-for-netflix-to-say-goodnight-to-silverlight/#comments Mon, 10 Jan 2011 05:46:36 +0000 Davis http://davisfreeberg.com/?p=1980

In 2006, Netflix scored a grand slam when they announced a $1 million prize for anyone who could improve their recommendation engine by at least 10%. It took 3 years for a team of scientists to actually accomplish this feat, but the prize was ultimately worth far more than a million dollars in publicity and to Netflix’s bottom line. Better recommendations not only led to happier subscribers (less churn), but they also made it easier for Netflix to sell the niche content that they spend less money on. Recognizing the benefit that they received from the contest, Netflix was quick to announce a sequel, but ultimately had to suspend their plans over privacy concerns.

While a contest to replace Silverlight likely wouldn’t garner as much attention, I believe that the financial benefit to replacing this outdated codec, would be just as significant.

Some will argue that I’m being tough on poor old Softie and that Silverlight represents some of the best video compression out there, but consider my logic for a moment. From the way I see it, Silverlight has two basic flaw. It’s buggy as all get out and it’s a bandwidth thief.

The screenshot posted above is a real life example that I encountered of Silverlight in action. All codecs are prone to errors of course, but look at all the hoops Netflix makes their customers jump through just to support a buggy piece of software. If I had a nickel for every time I’ve had to restart my browser after a Silverlightning strike, I’d probably have .35 cents by now. Seriously, I have less trouble with Real Network’s codec and that’s saying a lot. Instead of putting up with these kinds of errors, Netflix should be actively searching for a more reliable alternative.

Given Netflix’s runaway success, it shouldn’t be a surprise that the big telco companies are running scared. While usage based pricing hasn’t hit the US yet, the Canadian telcos were very quick to raise rates the minute Netflix invaded their territory. When you consider how many internet service providers also sell video, it’s clear that Netflix will need a way to undercut these tactics, especially if they plan on expanding internationally. Currently, an SD movie over Silverlight clocks in at approximately 2 Gigs, while an HD movie will cost the user 3Gbs towards their cap. If Netflix could reduce the size of a movie file by 50% – 75%, without sacrificing quality, they could end the usage based meter for their customers, while also undermining a critical future component to their latest competitors’ business model.

Getting Hollywood to sign off on an outsourced video codec could be a potential problem for Netflix, but even if they were able to gradually ween their customers away from Silverlight by delivering independent films with the new technology, the benefit could still be substantial. Given how little they pay for traffic, they probably wouldn’t save $1 million on their bandwidth bill, but being able to stop telcos from nickle and diming Netflix’s members would be priceless and would help to future proof their business.

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Has The DMCA Created A Legal Bermuda Triangle For Downloads? http://davisfreeberg.com/2011/01/04/has-the-dmca-created-a-legal-bermudia-triangle-for-downloads/ http://davisfreeberg.com/2011/01/04/has-the-dmca-created-a-legal-bermudia-triangle-for-downloads/#comments Wed, 05 Jan 2011 00:28:11 +0000 Davis http://davisfreeberg.com/?p=1954

For the last several years, the entertainment industry has been doing their darndest to put The Pirate Bay out of business. Whether it’s been suing TPB’s users, going after TPB’s hosting providers or trying to make the site’s founders criminally liable for the behavior of their customers, it’s clear that TPB doesn’t have many friends in Hollywood. More recently, we’ve seen a legal settlement industry spring up where mass lawsuits are threatened against consumers for allegedly participating in P2P activities. Whether or not the entertainment industry has been successful in these endeavours is open to interpretation, but in their zeal to put an end to filesharing, they may have created an even more dangerous monster.

One could argue that it all started with YouTube, but over the past few years we’ve seen a shift in consumer behavior away from P2P and towards streaming and downloading services. To see proof of this trend, all one has to do is compare the traffic of TPB with the streaming/downloading search engine FilesTube.

According to Compete.com, over the last year FilesTube.com has been able to consistently attract 50% more visitors than TPB. Not too shaby of a feat considering that Filestube.com didn’t even exist 3 years ago.

Given their animosity towards TPB, one would think that entertainment executives would be celebrating the cultural decline of TPB with a round of cold beers and high fives, but the reality is that instead of curbing piracy, they’re merely redirecting that illicit traffic towards safe harbors where consumers don’t appear to be at risk. In the immortal words of Princess Leia, “The more you tighten your grip, Tarkin, the more star systems will slip through your fingers”

By continuing to squeeze P2P users with countless numbers of lawsuits, the entertainment industry may have been able to establish a precedent that uploading content to the internet is a copyright violation, but what’s less clear is whether or not simply downloading that same content is actually illegal?

According to the Copyright.Gov FAQ website, “Uploading or downloading works protected by copyright without the authority of the copyright owner is an infringement of the copyright owner’s exclusive rights of reproduction and/or distribution. ” [Emphasis added by me]

Setting aside the ethical question of whether or not it’s moral to download grey area content, it is clear that US Copyright law places some restrictions on infringing downloads vs. legitimate ones. From the same FAQ page,

Whether or not a particular work is being made available under the authority of the copyright owner is a question of fact. But since any original work of authorship fixed in a tangible medium (including a computer file) is protected by federal copyright law upon creation, in the absence of clear information to the contrary, most works may be assumed to be protected by federal copyright law.” [Emphasis added by me]

Now I’m not a legal beagle, but I believe that this means that consumers can’t be prosecuted for downloading a movie, if the service they are using claims to be offering content with the blessing of the legal copyright owner. For example when I’m streaming (making a cached copy) of old episodes of Battlestar Galactica from Netflix, I’m not actually breaking the law because I have a reasonable belief that Netflix has licensed this movie for their subscribers.

Since many streaming sites are largely controlled by the company that is paying for the bandwidth, it would be relatively easy for the studios to hold these companies accountable if they did stray off of the straight and narrow path. Where the legal waters become more murky though is when service providers (streaming companies) allow others to upload content instead of taking charge of this themselves.

With YouTube receiving 35 hours of content per second, it would be impossible for them to screen every second of footage that is uploaded to their site. Because of this the DMCA offers YouTube a safe harbor as long as they respond to DMCA takedown requests and don’t encourage piracy. To date we’ve seen several lawsuits that have tried to challenge this exemption, but so far they’ve all been a bust for the entertainment industry.

So on one side of this digital triangle you have consumers who are exempt from legal liability as long as the service provider requires uploaders to claim ownership of everything that they upload, on the other side of the triangle you have the service providers who are exempt from liability as long as they respond to DMCA request and don’t uploading anything themselves and on the final side of the triangle you have the content owners themselves who must choose between trying to police an endless stream of piracy or to quietly embrace the millions of consumers who are now streaming their television instead of paying for cable.

In a perfect world, only the actual copyright owners would be uploading their content to these digital locker services, but because sites like Megavideo.com pay users based upon the number of plays their videos get, there is an economic incentive for rouge operatives to cheat the system by claiming content as their own. To Megavideo’s credit, they have a history of refusing to pay copyright violators, but from a practical standpoint there are many who’ve been able to collect royalties on other people’s content.

Also to Megavideo’s credit, the entertainment industry has a long history of embracing “piracy” while staying in the closet about this. For example, when Viacom sued YouTube for copyright infringement, some of the clips they sued over were uploaded by Viacom employee’s themselves. It would hardly seem fair to hold either YouTube or consumers who watched those clips liable for copyright infringement when Viacom was creating a honeypot to tempt web surfers with.

Some will argue that content owners would never do this, but there are many reasons why someone would choose to embrace piracy and the popularity that it can bring a film. Whether you’re trying to jumpstart a struggling TV series or you’re trying to increase licensing opportunities, just because someone doesn’t pay to view a video doesn’t necessarily mean that the creator won’t benefit from that attention.

One of the things I’ve noticed when browsing through the FileTube.com search results is that often times studios will be unrelentingly aggressive about filing DMCA takedown requests the minute infringing files are uploaded while other files will remain online for over a year without even being “noticed.” While it would be tough to argue that 100% of these files are being monetized by the original copyright holders, I do believe that many copyright holders have chosen to secretly monetize their content in this way, but aren’t able to publicly disclose this because of how it might impact their negotiations with more traditional video distributors.

While the uploaders who falsely claim ownership of copyrighted material certainly put themselves at legal risk, with most of the uploading activity occurring outside of US borders, it’s unlikely that many infringers will find themselves being dragged into US court.

Some will cry foul over this latest trend, but I do find it fascinating how alternative business models can thrive when copyright issues aren’t strangling internet startups.

For example, one of the unique ways that Megavideo is able to sell memberships for their service is by letting consumers watch a certain amount of video each day for free before being interrupted with a time out. By running their business this way, they are able to use each and every video as an advertisement for their paid service. Since you may be 80% of the way through a movie when the time limit hits, a consumer is given the opportunity to ask themselves whether or not the content is really worth paying for to see right away or if it is a piece of garbage that you don’t care about finishing anyway.

Can you imagine if you were able to go to a movie theater and didn’t have to pay for your ticket until you had already watched 80% of the film? It would probably hurt ticket sales for a lot of the big budget flops, but the really well made movies would be incredibly successful because they’d be able to convert a larger percentage of those free eyeballs into paying customers.

Whether or not content owners are embracing this business model may be unclear, but by aggressively pursuing P2P users, the entertainment industry has made it clear that downloading without uploading is a much safer alternative for consumers then participating in the P2P movement. As technology marches forward, we’ll find out whether or not this Bermudian Copyright triangle gets sorted out, but in the meantime the efforts to prosecute P2P users, only seems to be driving consumers from a clunky bandwidth intensive technological solution to offshore providers who are offering a more elegant experience.

It’s probably worth pointing out that the MPAA has claimed that movie streaming is still considered a form of theft, but instead of backing up their position by citing the appropriate copyright laws, they instead try to equate digital streaming with physical theft.

The problem with this position is that companies like Sony (one of the MPAA founding partners) is apparently offering a shoplifters paradise in the form of all you can stream free movies on their Crackle.com website. Other MPAA partners like 20th Century Fox have not only made their movies available online at their official sites, but have also licensed their content to a number of different distributors like Comcast’s Fancast.com. Since it would be impossible for the end consumer to know the contractual details of every one of these down stream relationships, it would hardly seem fair to hold the consumer liable if someone uploaded a clip that actually infringed.

While I’m entirely open to exploring other opinions that downloading (without uploading) is still a copyright violation, I’ve yet to see any legal evidence indicating that this is actually the case. What do you think, when you hit play on a Simpson’s clip on YouTube have you actually committed a crime?

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Comcast Raises DVR Prices For East Bay Residents Yet Again http://davisfreeberg.com/2010/12/30/comcast-raises-dvr-prices-for-east-bay-residents-yet-again/ http://davisfreeberg.com/2010/12/30/comcast-raises-dvr-prices-for-east-bay-residents-yet-again/#comments Thu, 30 Dec 2010 17:50:05 +0000 Davis http://davisfreeberg.com/?p=1944 I think that most people realize that TiVo is about 1000 times better than the DVR that you get from your cable company, yet the cable companies still continue to rent out their DVRs by the truckload. This mostly has to do with the convenience of getting your set top box directly from your television provider, but some are under the false impression that they are saving money by renting their DVR instead of buying.

I was recently perusing my Comcast bill and noticed that they are once again raising prices on their DVR packages. At. $19.95 per month, it’s still 48 cents less per year than what TiVo currently charges for a TiVo premiere with no up front cost, yet millions of people still put up with a sub-par DVR experience at virtually the same price. Over the last 10 years, I remember TiVo raising prices once, over the same period it feels like Comcast has raised prices every 6 months. On the surface, $19.95 per month for a DVR may not sound like a lot, but thanks to the most recent rate changes, it now costs East Bay Comcast customers more to record their television each month, than it does to subscribe to their basic TV service.

It would be one thing, if Comcast was using your $240 per year in DVR fees to keep improving their DVR experience, but anyone whose used the device knows that it still suffers from severe lockups and buggy/slow interactions. Heck, even if the cable dinosaurs wanted to innovate, because of how much money they pay the content industry, they’re still prevented from offering services like Netflix on their DVRs.

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Using Netflix + Pandora To Reinvent The Silent Film http://davisfreeberg.com/2010/12/06/using-netflix-pandora-to-reinvent-the-silent-film/ http://davisfreeberg.com/2010/12/06/using-netflix-pandora-to-reinvent-the-silent-film/#comments Mon, 06 Dec 2010 12:53:20 +0000 Davis http://davisfreeberg.com/?p=1935

Full disclosure: I’ve always been a huge fan of the rock opera. Tommy, Ziggy Stardust, yes even Aqualung. Some may celebrate the rise of the individual download, but I miss the concept albums that were designed to entertain for more than 3 minutes. I’m also a big fan of cinema. Even beyond the entertainment factor, I love being able to look into the past and see the shadows that film has left behind.

Unfortunately, as much as I enjoy watching old films, the soundtracks during the silent era are almost unbearable. The Jazz and Ragtime ballads may have been popular in their day, but they usually cause me to fall asleep within 20 minutes of starting a silent film. Because of this, I’ve more or less ignored nearly 2 decades worth of cinematic history, so when I saw Reddit user Feverdream post the following suggestion, you can understand why it may have caught my interest.

“[1]Put on silent movie “Metropolis” on Netflix [2]turn down volume [3]Custom quickmix on Pandora in a separate tab [5 6 7 8 9 ...]“

After trying out the instructions exactly, I’m proud to report that the results were amazing. In and of itself, Metropolis is a fantastic film. As a sci-fi fan, I’m really happy that I was able to see it. Even today, it’s probably still 30 years ahead of it’s time. When I combined it with music that was relevant to me, the film took on a life of it’s own. Just like when you sync Pink Floyd’s dark side of the moon with the Wizard of Oz, there were all kinds of intersections where the film and the music collided. It almost felt as if my custom Pandora mix had been made exclusively for that film.

What’s even better about the experience is that it’s not just limited to the film Metropolis. You can literally mash up any silent film on Netflix with a Pandora custom mix and it creates a very personalized experience. The dialogue, the acting and the plot all remain unchanged, but the addition of music that you actually enjoy creates a different sort of connection when watching the film. Throughout my experience, I noticed that my mind seemed to drift more. Instead of getting distracted by the explosions and witty one liners, I was actually thinking about the plot and trying to anticipate each step. It was as if the music was forcing the story to play out in my mind instead of on the screen.

Netflix only has about 25 silent films on their watch instantly service right now, but since you can sort by star rating, it’s pretty easy to find the ones that you’re most likely to enjoy. YouTube also has a pretty impressive collection of public domain silent films for those interested in playing at home.

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The Netflix Cartel http://davisfreeberg.com/2010/03/05/the-netflix-cartel/ http://davisfreeberg.com/2010/03/05/the-netflix-cartel/#comments Fri, 05 Mar 2010 15:16:32 +0000 Davis http://davisfreeberg.com/?p=1902 Netflix CartelSince bursting on the scene 13 years ago, Netflix has been a huge ally for consumers trying to save money. For years Blockbuster had dominated the rental industry and whether it was abusive late fee practices or high rental prices, they took advantage of their strength. The value that Netflix passed onto consumers injected some good old fashioned competition back into the DVD market and led to new forms of innovation. While Netflix continues to remain one of the best values for your entertainment buck, the firm has recently started to engage in some very anti-consumer behavior.

Most notably, they’ve been trying to strike agreements with studios to delay when they offer new release DVD rentals to their customers. In exchange for lower prices, they’ve agreed to put all of the new movies by Warner Brothers on very long wait status for their customers. In exchange, they get lower prices that will help them to drive brick and mortar competitors out of business. So far most studios are only watching these experiments from the sidelines, but Warner Brothers has embraced this scheme with gusto and has followed up their agreement with Netflix by striking a similar deal with Redbox.

Ironically, Redbox actually dismissed an anti-trust claim against Warner Brothers, in exchange for being invited into this exclusive club. Now some will argue that the beauty of Netflix is their deep archived content and while 487 or the 488 movies in my queue currently show availability of now, they’re customers who do like to rent new releases. By making them wait, Netflix is creating an artificial rental window that allows Warner Brothers to charge higher prices for new release DVDs and causes the price for rentals to rise at rental firms like Blockbuster. In fact since striking these agreements, Blockbuster has raised prices on their DVD by mail program and reinstated late fees to their customers. This is a reversal of the price wars that consumers enjoyed over the last decade.

While Netflix and Redbox haven’t seen much in the way of customer defections from implementing this hostile policy, they may find their activities under closer scrutiny thanks to Susan Uman from Manhattan. In a lawsuit against Netflix, she argues that this latest rental window is nothing but anti-competitive collusion. Already, Netflix has been sued over a different arrangement with Walmart to carve up the sales and the rental markets, so it will be interesting to see how this one plays out.

According to USLegal.com, “collusion occurs when two persons or representatives of an entity or organization make an agreement to deceive or mislead another. Such agreements are usually secretive, and involve fraud or gaining an unfair advantage over a third party, competitors, consumers or others with whom they are negotiating. The collusion, therefore, makes the bargaining process inherently unfair. Collusion can involve price or wage fixing, kickbacks, or misrepresenting the independence of the relationship betweeen the colluding parties.”

While there is a fine line between collusion and standard industry business agreements, the deal that Netflix made cheats customers out of new releases and I think it crosses that line. They have in effect sold their first sale rights, in exchange for financial terms that give them an economic advantage over smaller competitors in their industry. According to this primer by the Justice Department, collusion tends to occur when we see some of the following conditions.

“-Collusion is more likely to occur if there are few sellers. The fewer the number of sellers, the easier it is for them to get together and agree on prices, bids, customers, or territories. Collusion may also occur when the number of firms is fairly large, but there is a small group of major sellers and the rest are “fringe” sellers who control only a small fraction of the market.

-The probability of collusion increases if other products cannot easily be substituted for the product in question or if there are restrictive specifications for the product being procured.

-The more standardized a product is, the easier it is for competing firms to reach agreement on a common price structure. It is much harder to agree on other forms of competition, such as design, features, quality, or service.

-Repetitive purchases may increase the chance of collusion, as the vendors may become familiar with other bidders and future contracts provide the opportunity for competitors to share the work.

-Collusion is more likely if the competitors know each other well through social connections, trade associations, legitimate business contacts, or shifting employment from one company to another.

-Bidders who congregate in the same building or town to submit their bids have an easy opportunity for last-minute communications.”

Looking over this list, it would appear that Netflix is very much in a position to abuse their market leadership status. With Movie Gallery in bankruptcy for the 2nd time and Blockbuster getting close to a date with the grim reaper themselves, Netflix and Redbox represent the future of the DVD rental industry. This limited competition has made it easy for them to enter into agreements that wouldn’t have been tolerated by customers five years ago. If Blockbuster had the finances to actually keep new releases in stock, one might argue otherwise, but their company is in survival mode and are now having to pay Warner Brothers more for each new release then their two biggest threats.

While Netflix and Redbox may not have their headquarters located in the same town, both have been aggressively courting Hollywood for access to their movies. Since the studios are largely controlled by a small handful of companies, it gives them the ability to collude with the limited DVD renters that are left.

Prior to their agreement with Warner Brothers, Redbox was on the outside of this club and was being forced to acquire their DVDs from outlets like Walmart because Warner Brothers refused to even do business with them. Now that they’ve stopped sticking up for the consumer, they have access to all the DVDs that they want to buy. If this doesn’t qualify as collusion, I’m not sure what does.

It’s hard to say how much legal merit this lawsuit will have, but from my viewpoint, I believe that Netflix, Redbox and Warner Brothers have created an illegal cartel to try and carve up the DVD market. Warner Brother’s gets to force consumers to buy new release DVDs, instead of being able to rent at lower prices and the rental companies get cheaper supply which helps to boost their profits. While I’m sad that Redbox gave up on fighting for consumers, I am glad that consumers aren’t afraid to fight back. Hopefully, Ms. Uman takes this case all the way, instead of settling at the last minute for a million dollar windfall.

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TiVo Granted Patent For The Season Pass http://davisfreeberg.com/2010/02/18/tivo-granted-patent-for-the-season-pass/ http://davisfreeberg.com/2010/02/18/tivo-granted-patent-for-the-season-pass/#comments Thu, 18 Feb 2010 14:36:59 +0000 Davis http://davisfreeberg.com/?p=1874 TiVo Season Pass ManagerThe US patent office must have gotten their hard drives unpaused, because hot on the heels of winning a patent related to closed captions on a DVR, TiVo has been awarded another patent at the heart of the DVR experience. With the application having been filed in October of 1999, it took the USPTO over ten years to review and approve their request, but on February 16th, TiVo was given the legal exclusive on season pass technology.

For those of you unfamiliar with how a DVR works, part of their magic is the ability to let you record shows in the future without having to worry about when it’s on. Back in the ole VCR days, you’d typically have to manually tell your gadget what time and channel you wanted it to record, but with TiVo (and other DVRs) they keep track of this information automagically and records your programs whenever it’s scheduled to be on. Because the TV studios tend to schedule all of their good programming at the same time (I’m looking at you Thursday night), there are sometimes conflicts between what you’d like to record and the number of TV tuners available to do it.

To resolve these issues, TiVo created a season pass manager that allows you to prioritize which shows get recorded and which ones don’t. This helps to make sure that I always get to watch Survivor and CSI, even if it means that I sometimes have to skip Community.

From patent 7,665,111,

“The invention correlates an input schedule that tracks the free and occupied time slots for each input source with a space schedule that tracks all currently recorded programs and the programs that have been scheduled to be recorded in the future, to schedule new programs to record and resolve recording conflicts. A program is recorded if at all times between when the recording would be initiated and when it expires, sufficient space is available to hold it. Programs scheduled for recording based on inferred preferences automatically lose all conflict decisions. All scheduling conflicts are resolved as early as possible. Schedule conflicts resulting from the recording of aggregate objects are resolved using the preference weighting of the programs involved. A background scheduler attempts to schedule each preferred program in turn until the list of preferred programs is exhausted or no further opportunity to record is available. A preferred program is scheduled if and only if there are no conflicts with other scheduled programs “

Without the ability to do this, the DVR would be as hard to program as the blinking clock on the front of your VCR. Recognizing how crucial this feature was to the DVR experience, TiVo moved aggressively to patent the feature, before they even rolled out their technology to the public.

In the ten years since then, TiVo’s season pass technology hasn’t really changed all that much. Most of their DVRs now come with two tuners instead of one, but the basic experience has remained the same.

Two improvements, that I’d like to see them make to their season pass manager would be faster processing times for when you want to rearrange your priorities or delete season passes and some kind of a menu that can identify future conflicts even after you’ve already scheduled your program list.

If TiVo introduces a DVR with faster microchips at their March 2nd press event, the long delay after reorganizing your season pass should take care of itself, but making their conflict resolution program a bit more robust would need some kind of a software upgrade.

While TiVo is good at pointing out conflict issues when you first schedule a program, they rely solely on your prioritization list when considering future conflicts. This may ensure that the programs you care about most get recorded, but it can make it difficult to know when you’ve missed an episode because of a scheduling change. In the past this hasn’t been much of an issue because the consumer’s only option would be to wait for a rerun, but with sites like Hulu and Netflix now streaming the repeats, it would be nice to be able to view some kind of a report of what you missed that week, so that you could watch any missed programs online.

While pretty much every single DVR currently uses this embodiment of the season pass manager, TiVo’s latest patent isn’t without a workaround. Because it was invented during a time when cloud computing was an expensive pipe dream, TiVo only patented the client side application of this technology. In other words, as long as the conflict resolution is done remotely on a server, competitors like Microsoft and cable companies could avoid infringement. Of course, this could potentially be a lot more expensive than licensing the patent from TiVo to begin with, but given the current trend towards remote DVR services, the USPTO’s long application process may have made TiVo’s invention obsolete, before they’ll have much of a chance to enforce it.

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Battle Of The Media Players http://davisfreeberg.com/2010/02/02/battle-of-the-media-players/ http://davisfreeberg.com/2010/02/02/battle-of-the-media-players/#comments Tue, 02 Feb 2010 22:56:12 +0000 Davis http://davisfreeberg.com/?p=1820 Battle Of The Media Players

See larger view of chart here

While old school media types like to insist that content is king, when it comes to viewing said content, the format and media player can make a big difference in the quality of the user experience. With new options seeming to crop up everyday, I wanted to take a look at a few of the most popular media players (and video destinations) to determine which one is the best for consumers. While individual results may vary, here is the criteria I used to evaluate each one.

Format Support
With so many different formats out there, it’s important that your top media player has robust support. Since consumers shouldn’t have to scour the web to add additional functionality, I did not include any plugins that consumers could use to add greater support. Of all the players listed, the VLC clearly won this category. Whether you’re trying to watch Quicktime movies or play a VOB file, if VLC can’t handle the codec, you probably shouldn’t be trying to play it to begin with. The clear loser in this category was the Netflix Media player. While I have no complaints about the quality of their stream, the DRM restrictions and the requirement for downloading the Silverlight plugin, makes their web player pretty limited.

Ability to Stream Online
When digital movies first came out, you used to have to wait a couple hours for your file to download. With the introduction of streaming support, consumers no longer have to wait more than a few seconds in order to get access to that content. While most video players are able to support this functionality, I felt that Netflix was the clear winner for this category. Not only do their video streams take into account your bandwidth to reduce buffering issues, but they also seem to have the highest video quality when streaming content. The clear loser in this category was the VLC player. While technically, there are ways to use it to stream torrent files while downloading, for the most part the VLC player is designed strictly for offline media.

Ability to Play Offline
A lot of people don’t think that this feature is very important, but as someone who commutes an hour per day by train, being able to view my videos offline is just as important as being able to stream them. Once again, the VLC Player takes top honors due to their ability to handle high definition files and the robustness of their offline support. While Amazon, Netflix and YouTube don’t allow you to easily save files on your laptop, because they offer hardware support, they get a free pass on this one. Hulu on the other hand, ranks at the bottom of this list because they don’t allow consumers to watch a movie unless it’s on an internet connected computer screen.

Auto-Dimmer
In order to create a more cinematic experience, a few media companies have started to incorporate dimmer technology into their players. While Hulu does allow users to black out distractions manually, they don’t do it automatically. DivX on the other hand, will slowly darken the screen outside of your video, to help better focus on what your watching. This really is neat technology and something that I hope will catch on. Since none of the other media players include this functionality, it’s a tie for last place on this one.

Disable Screen Saver
Few things are more annoying than being totally immersed in a film and then BAM, all of a sudden your viewing experience is interrupted by your screensaver popping up. While users can always disable this themselves, it’s easy to forget to do this and cumbersome for media companies to expect them to. DivX, Windows Media Player, Amazon and VLC all take top honors for ensuring a seamless experience. Netflix finishes in a close second place, in part because I’ve noticed that their software will sometimes cause the media toolbar to pop-up when the screensaver tries to activate. At the bottom of this list is Hulu, who actually has the gall to request that their users disable their screensavers themselves, instead of helping to automate this experience.

High Definition Support
While a lot of people advertise high definition support, not all HD is created equally. As broadband pipes continue to get fatter, the ability to support larger and/or more advance compression algorithms is becoming a critical differentiator between various media players. The top honors in this category goes to VLC and DivX for supporting the MKV/H.264 format. The worst player is Real Media who may have pioneered video on the web during dial-up days, but hasn’t aged very well.

One Click Full Screen
While all of the media players reviewed allow for full screen support, some players make it easier for consumers to jump in and out of this experience. Making someone hunt around for a tiny button to maximize their video, just isn’t as friendly as letting them double click on their screen and instantly be able to see the full picture. Amazon, CinemaNow, DivX and Windows Media all make it easy for you to do this. Quicktime on the other hand, actually makes consumers pay money in order to get this functionality . . .

Hardware Support
Consumers used to have to burn their movies to DVD if they wanted to play it on the big screen, but over the last few years, we’ve seen a number of connected devices that will allow you to easily transfer content to your television. The winner in this category is clearly Netflix. Not only have their pioneered this particular field, but they’ve been able to strike agreements with a wide range of consumer electronic companies. Whether you own a DVR or a video game console, they’ve set the gold standard for watching internet video beyond the monitor. The worst offender is Hulu. Not only are they limited to the web, but they’ve actually fought attempts by innovators like Boxee, to bring their content to the TV set. While their studio owners may have good reasons for trying to keep consumers from cutting the cord, such an anti-consumer stance will only hurt them in the long run.

Subscription, Pay-Per-View or Free Content
With so many different services offering different forms of content, it’s made life pretty difficult for the modern digital consumer. If you want to view new releases, you have to visit Apple, CinemaNow or Amazon. If you want content that doesn’t charge you to experiment, then a subscription to Netflix is the best way to go. If you’re looking for free content, then you should consider Hulu or VLC. While no one seems to have figured out a perfect way to consolidate all three features at once, CinemaNow has done the best job of offering consumers flexibility when it comes to how you want to pay for content. While they don’t offer much in the way of free or ad supported content, they do allow you to rent, purchase or subscribe to various digital packages.

While it’s hard to say that any one media player is THE best, my recommendation for consumers would be a combination of Netflix and the VLC player. Both provide an excellent user experience, as well as high definition support and while your options may be limited on Netflix, they’ve done a good job of integrating their video streams beyond the computer and into a larger hardware eco-system.

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Friends Don’t Let Friends Subscribe To HBO http://davisfreeberg.com/2010/01/24/friends-dont-let-friends-subscribe-to-hbo/ http://davisfreeberg.com/2010/01/24/friends-dont-let-friends-subscribe-to-hbo/#comments Mon, 25 Jan 2010 01:12:13 +0000 Davis http://davisfreeberg.com/?p=1770 HBO NY OfficeHBO 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.

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How To Save Blockbuster http://davisfreeberg.com/2010/01/20/how-to-save-blockbuster/ http://davisfreeberg.com/2010/01/20/how-to-save-blockbuster/#comments Wed, 20 Jan 2010 22:25:34 +0000 Davis http://davisfreeberg.com/?p=1592 SuperBlockbuster

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.

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Cut The Cable and Free Your TV http://davisfreeberg.com/2010/01/19/cut-the-cable-and-free-your-tv/ http://davisfreeberg.com/2010/01/19/cut-the-cable-and-free-your-tv/#comments Tue, 19 Jan 2010 21:17:40 +0000 Davis http://davisfreeberg.com/?p=1730 HDTVoA couple of months back, I received my monthly bill from Comcast and almost had a heart attack. Over the course of one month, my bill went up over 50% and while I’ll admit to loving TV more than your average bear, after years of fee increases, it became hard to justify paying over $50 a month for the small handful of channels that I actually watch.

When I called Comcast to inquire about the increase, they told me that instead of extending their “promo” deals like they have in the past, they would rather lose my business than extend my discounted rate. After much hand wringing, I finally decided to cut the cord and figured I could always go back.

Sure enough, less than one week after discontinuing my cable TV service, Comcast had a change of heart and sent out a 12 month promo offer bundled with internet. While the deal looked tempting, I didn’t want to keep trying to play musical chairs when it came to how much I paid for television and I didn’t particularly appreciate Comcast’s policy of screwing existing customers until you actually quit. At first, I tried going cold turkey and figured I’d have withdrawals, but much to my surprise, I found that I didn’t really miss cable TV all that much.

Thanks to sites like Netflix, Megavideo, Amazon and Hulu, it was easy to stay up to date via the laptop and with less distractions, I found that I was actually accomplishing a lot more in my life.

Over the holidays, it became clear that cable TV simply wasn’t offering a very good value for what they were providing. In the past, there’s been talk of allowing consumers to subscribe to channels a la carte, but Comcast has consistently resisted offering this to consumers. As much as my laptop provided a reasonable solution for finding content though, I still felt like I was missing out on the high definition experience that I had grown to love, so after the holidays were over, I purchased an Audiovox HDTVo antenna to see what kind of free OTA signals I could get.

In the past, I’ve seen plenty of negative reviews on HD antenna’s, so I half expected that I’d be taking the product back, but despite a few difficulties in getting it set up, I couldn’t be more pleased with the reception that I’m getting.

When I was a kid, we had a giant antenna mounted on top of our house. Not only was it ugly, but every time a storm blew in, we’d lose all reception. On the good days, we were lucky to get three channels and even then it was intermittent with static. While the price for OTA signals hasn’t changed any, technology sure has.

Not only did my Audiovox antenna allow me to pick up signals that were over 50 miles away from my house, but they provided the signals with incredible clarity. No static, no glitches, just pure high definition goodness. When you throw in the ability to time shift my programs with my TiVo, it creates a remarkable user experience.

In comparing my season passes from cable to post-cable, I found out that there are approximately 15 programs that I’m missing out on. Of those programs, 10 of them are available through Hulu or Netflix. While I do miss some of the Laker games that are broadcast on ESPN and some of the original programing on USA and TBS, with over 45 programs being recording each week, there is more than enough high quality content to keep me busy. If you throw in Netflix’s watch instantly integration via the TiVo, there are another 250 movies or shows that I’ve got waiting in my queue.

While my overall impression of the AudioVox HDTVo antenna was positive, there were a few drawbacks. While the antenna is fairly small, it does look a little obnoxious sitting on my roof. Because of the location of the broadcast towers, in order to capture the signals I could only install it on one side of my house. This makes it hard to camouflage from the neighbors and could present problems to those who live next to tall trees or buildings.

Another difficulty that I had was that the installation instructions were very poorly written. They referred you to web addresses that didn’t exist, didn’t provide the names of each part, but referenced the parts like you were supposed to already know what they were and when I first hooked it up to my TV, I couldn’t get any signals because by five year old HDTV did not include an HD receiver inside of it. Luckily, My HDTiVo did and was able to translate the signals perfectly. I also thought that the name HDTVo was a little bit deceptive and made it seem like this was a product designed specifically for TiVo. While I’m not sure that it would amount to a trademark violation, I do think that the way they’ve chosen to market the antenna could lead to a bit of confusion on the part of consumers.

Despite my frustration setting it up though, the final experience exceeded my expectations and I wouldn’t hesitate to recommend the product to anyone who are looking for a way to save money on their television. At $65, it takes about 5 weeks before it becomes cheaper than paying Comcast for lackluster service and when you consider that you can save over $600 in the first year that you use it, the savings can add up pretty quick.

That $600 could be spent on two movies a night from Redbox or a Blockbuster rental every other day and I’d still end up ahead. While antennas in the past may have been a disappointment, the new generation of digital antennas make it easy to cut the cord and make it awfully hard to justify the expense of pay television. I don’t expect that we’ll see everybody cancel their cable bill, but if enough people begin to take advantage of this type of equipment, hopefully we’ll see some of the cable companies begin to rethink their fee increases.

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Coming Soon To A Store Near You http://davisfreeberg.com/2009/11/18/now-come-to-a-store-near-you/ http://davisfreeberg.com/2009/11/18/now-come-to-a-store-near-you/#comments Wed, 18 Nov 2009 16:51:03 +0000 Davis http://davisfreeberg.com/?p=1689 Hollywood DivXI know that I’ve been critical of DivX’s efforts to woo Hollywood in the past, but I’ve also got to give them credit for a win when I see one and I think they knocked it out of the park when it comes to Paramount.

Recently, Paramount announced that they were going to be distributing content on USB sticks. At the time, they didn’t say what format it would be in and even on DivX’s conference call there was no mention of this realization of their strategic vision, but Electric Pig is reporting that the Paramount movies will in fact be encoded in DivX.

With only 20,000 memory sticks for sale and at a price of approximately $33 US, Paramount is still clearly in the testing phase, but the fact that they choose DivX demonstrates the clear advantage that DivX has over all of their other digital competitors. They have the only real solution for brick and mortar retailers.

If Paramount tried to do this with a proprietary solution, it wouldn’t work because it wouldn’t give them a way to get that movie to the television. They could try to do it with Apple, but Apple doesn’t have the same reach to the TV, especially in Europe where this is being launched.

To date, most of my thoughts on DivX’s courtship of Hollywood have centered on the futility of trying to win enough support, so that online retailers could adopt their technology for digital distribution. If you can’t get a Disney or UMG to license DivX’s format, it makes it tough for someone like Netflix or Blockbuster to use their codec even with the other 80% of the content owners on board.

The beauty of the USB distribution strategy is that they won’t need 100% industry support in order to move their plans forward. Shelf space is limited as is, all they need is for a single studio to want to take advantage of this and there will be more than enough titles to tempt you with while you are waiting in line at the cash register.

Now I know what many of you are thinking, movies on USB are pretty lame. When Paramount made their announcement, there were more than a few commenters who zinged them for being out of touch with current trends. While there’s no doubt that the world will go digital, I also realize that the major studios aren’t going to abandon the retail partners that deliver the majority of their profits each and every year. It may end up becoming super easy to buy movies straight from your home, but if you have millions of consumers visiting a store each day, you can bet that the studios will want to reach those customers where they are hanging out. The shelf space is too valuable to be abandoned.

DivX on USB also opens up new business models for the studios. Instead of selling three DVDs, they could package all the Godfather films on one stick to justify a higher price tag or they could offer an entire season of television on an 8GB stick instead. If a retailer can sell something for twice the price, they will take smaller margins from the studios for the larger transaction. With the studios under pressure to develop new revenue streams, this will be too tempting for them not to exploit.

There’s no doubt that DVD is moving to Blu-Ray, but DivX memory sticks allow their Hollywood partners to reach consumers who may not have upgraded to high def just yet. With the industry in a state of flux, being able to sell a device that can be read by any computer and over 200 million devices gives DivX broad reach when it comes to the world of disconnected playback.

Paramount may be approaching this market cautiously, but I think people have greatly underestimated the size and the impact that USB films will have. It may not be cutting edge technology, but there are too many powerful companies who need it to succeed for it to fail. At the birth of this industry, it’s encouraging to see Paramount actively supporting their partnership with DivX, instead of just taking a licensing payment and then ignoring what their technology can offer.

USB movies won’t necessarily solve DivX problems with their shifting business model, but it does underscore the significance of the platform that DivX has built. As much as DivX is threatened by the obsolescence of the DVD, they can also benefit from the format shift. So far, they haven’t done a very good job of managing this transition, but this deal proves that even an old dog can learn new tricks. If retailers start asking for DivX as a weapon against Blockbuster and Netflix, other studios might also understand the benefits of using open and popular technology to make more money.

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Should Digital Movies Be Required To Offer Subtitles? http://davisfreeberg.com/2009/11/05/should-digital-movies-be-required-to-offer-subtitles/ http://davisfreeberg.com/2009/11/05/should-digital-movies-be-required-to-offer-subtitles/#comments Thu, 05 Nov 2009 17:47:05 +0000 Davis http://davisfreeberg.com/?p=1668 Normally, I tend to think that most regulations are bad. In a free market, businesses should be allowed to operate with a wide degree of latitude. At the same time there is a pragmatic part of me that understands there can be exceptions to this. Everyone should have the right to free speech, but that doesn’t make it right to run cigarette ads on Saturday morning cartoons or to claim that you’re a Doctor when you only bought your degree from an internet spammer.

For the most part, the television world has been forced to accept reasonable restrictions in exchange for the public bandwidth they use to deliver their content. In the internet world though, the content rules are more like the old west because consumers are opting into the service by paying for it. As long as you have the quickest draw, your behavior doesn’t matter as much and so far companies like Netflix have been more concerned about digital market share, then doing what’s right.

Maybe this is because internet audiences are still small compared to television or it could be that it takes time for rules and standards to develop and emerging markets don’t tend to care about these things. Whatever the reason though, there are parts of the television experience that aren’t making the jump to the internet.

Specifically, I’m talking about closed caption data. For years, television studios have been legally required to provide this information, so that people who are hard of hearing can also enjoy the content. While there are some technical issues associated with adding this kind of data to a movie file, technology is at a point where it could easily support this. The Matroska container for example, is able to include optional sub-title information along with video and audio data. Alternatively, because online delivery can microstream to people, files with the embedded sub-titles could made available to viewers who opted into them. This would involve keeping multiple copies of the same movies though and so far the digital movie industry hasn’t wanted to bear this cost.

While I’m loathe to suggest new regulations on a burgeoning industry, I also feel like we have a responsibility to consider the needs of everyone. It costs companies extra money to include wheel chair ramps at their physical locations, but we pay for that as a society because we want to treat everyone as equally as we can. As the traditional line between telecommunications and entertainment becomes blurred, it’s important that we don’t leave behind those less fortunate in life. Having a law that requires subtitles in order to qualify for DRM legal protections wouldn’t be popular with the entertainment industry, but it would fill a void that the market isn’t interested in addressing. Personally, I don’t know whether or not I’d actually support a legal mandate for firms like Netflix, Amazon and Apple to require this data, but I am interested in hearing your thoughts on the issue.

Update – Interestingly enough, I found out that the FTC is actually hosting a hearing (not sure if there was a pun intended) on this topic on Friday Nov. 6. It sounds like the entertainment industry’s position may not be represented, but they will have several prominent members of the deaf community weigh in on the topic. The event will run from 9am – 1pm EST and will be broadcast on the web at the FTC’s website.

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Blockbuster Bleeding DVD-By-Mail Subscribers http://davisfreeberg.com/2009/08/21/blockbusters-3-million-subscribers-now-down-to-1-to-125-million/ http://davisfreeberg.com/2009/08/21/blockbusters-3-million-subscribers-now-down-to-1-to-125-million/#comments Fri, 21 Aug 2009 16:11:38 +0000 Davis http://davisfreeberg.com/2009/08/21/blockbusters-3-million-subscribers-now-down-to-1-to-125-million/ not-blockbusterPhoto by C-Bunny.

Just in case you think Blockbuster’s problems are isolated to a declining video store industry, I’d encourage you to take a closer look at their latest 10-Q filing. Despite there being clear growth in the DVD by mail category, Blockbuster is hemorrhaging subscribers. In fact, the percentage of people giving up on their by mail service is almost as high as the percentage of people giving up on their video stores. According to their 10-Q,

“Rental revenues decreased mainly as a result of: a $76.3 million decrease in by-mail revenues driven by a 30% average decline in by-mail subscribers, which was more than offset by related cost reductions described below under “Domestic—Gross profit;”

At one point in early 2007, Blockbuster had the pedal on the metal and was boasting of having close to 3 million subscribers. Since then, they’ve been understandably quiet, but I had no idea things were this bad until I read their most recent filing.

After piecing through other filings, I was able to come up with an estimate of 1 – 1.25 million current subs.

Here’s the math for those playing at home.

At the end of 2006, Blockbuster had 2.2 million subscribers and had brought in approximately $250 million in revenue. By the end of 07′, they were flirting with 3 million subs and had $525 million in DVD-by-mail revenue.

From a historical standpoint, this tells us that Blockbuster’s subscribers tend to average between $9.49 – $14.60 per month, but these figures are a bit skewed by their total access efforts. Since most of their subscriber gains were added at the end of 06′ and the beginning of 07′, it pushes both numbers to an extreme. Their actual monthly average is probably closer to somewhere in the middle.

By comparison, Netflix subscribers were averaging $12.84 per month as of their most recent quarter.

The information that Blockbuster discloses doesn’t allow us to get at an exact figure, but if we also dig through past filings, there is more than enough info to extrapolate a reasonable estimate for their current number of subs.

In December of 2006, they had just passed 2.2 million subscribers. Two months later, they were predicting that they’d be at 3 million subscribers by March 07′

A year later the first sign of trouble shows up when they disclosed that they saw “significant” subscriber losses after pulling total access in 07′. If we assume that 20% of their subscribers left after they cancelled the free in-store exchanges, it would bring you to an estimate of 2.4 million subscribers for midway through 07′.

By Oct 08′, Blockbuster admits that their by mail revenues decreased another 21.5%, so if you subtract another 500,000 subs you get a total of 1.9 million from 9 months ago.

Since we know that they’ve lost 30% of their subscribers over the last 12 months, it gives us an estimate of 1.3 million subscribers today. With some of these number being moving targets, I wanted to check to my math to see how reasonable this guess was and I actually think it’s a tad high. If you take a look at their most recent by-mail revenue number, it suggests that the total is slightly lower.

Since Blockbuster has plans that range from $9 – $17 per month, it gives us a range to consider. If a decline of $76 million represents 30%, it would suggest that they are currently earning $14.8 million per month from by mail subscribers.

If we assume that 100% of them were $9 per months subs, it would mean that the maximum number of subscribers that they could have at this point would be 1.64 million and if 100% of the subscribers were paying $17 per month, it would peg the minimum size of their subscriber base at 870,000.

Since $12 – $14 is a more reasonable estimate for what the average Blockbuster by mail subscriber pays each month, it gives us a ball park range of 1 – 1.25 million current subscribers.

I wasn’t surprised to see a drop in subscribers right after Blockbuster abandoned their total access plans, but to see them drop below TA levels has to be concerning for Blockbuster Execs. This is the one part of the company that should be firing on all cylinders, but clearly Netflix’s Watch Now service has been poaching their members.

Blockbuster may have put up a good fight in the DVD wars, but with nearly 10 times the number subscribers, Netflix is now threatening to do to them, what they did to Wal-mart’s DVD by mail program.

The smaller membership gets, the harder and harder it will become for Blockbuster to run their by-mail program at a profit. They could always raise prices, but that would only lead to additional defections. With Blockbuster on the ropes, don’t be surprised to see Netflix maintain the price war for another 12 months while they wait for Blockbuster’s bond owners to take control of the company.

In the meantime, this data only highlights the fact that Blockbuster’s problems aren’t because of a lack of opportunities, it’s an issue with their execution.

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TiVo’s Billions: How TiVo Could Spend Their Legal Jackpot In A Single Day http://davisfreeberg.com/2009/07/21/tivos-billions-how-tivo-could-spend-their-legal-jackpot-in-a-single-day/ http://davisfreeberg.com/2009/07/21/tivos-billions-how-tivo-could-spend-their-legal-jackpot-in-a-single-day/#comments Wed, 22 Jul 2009 06:55:54 +0000 Davis http://davisfreeberg.com/?p=1481 Money In The BankDuring their ten year history, TiVo’s obituary has been written more times than I’ve sat through an entire commercial, yet no matter how tough the climb has been, TiVo has continued to defy critics and skeptics alike by chugging along (as if by sheer will at times.)

Even though the financial wiz kids over at Engadget, still have TiVo on their “death watch”, I’m beginning to see a much different picture. With 6 quarters of EBITA profitability now under their belt, $200 million in cash (minus the zero in debt on their balance sheet), and partnerships with a significant portion of the DVR market waiting to be implemented and rolled out, it’s no surprise that TiVo has gone from being a small cap child with plenty of dissenters, to an emerging mid cap teenager looking to establish a legacy.

The last ten years may have been characterized by one rumor after another of who TiVo was going to be acquired by next, but the next ten years will be a much different chapter for the little DVR that could.

At the risk of counting my chickens before they hatch, I wanted to kick off the next ten years of innovation by highlighting a few companies that TiVo could use to transition themselves from a niche DVR provider to a diversified corporate conglomerate. Of course there’s no guarantee that TiVo will even get the billion dollars that they are asking for, but it’s still fun to spend imaginary money.

SecuriTiVo – For years TiVo has been dragged into a bare knuckle brawl with cable and satellite companies, just for the right to offer their DVR to their customers. Meanwhile, they are ignoring an important untapped stand alone market that their invention created. The home security business might not be as sexy as HBO, but the DVR has had just as big of an impact on the security industry as it’s had on Hollywood’s outdated business model.

Instead of fooling around with a couple hundred of gigabytes, TiVo should be building multi-terrabyte DVRs that can record several weeks worth of high quality footage. TiVo could also sell a consumer version of the system that connects to the DVR in your living room and allows you to see live security video from your couch.

Not only would a security DVR give TiVo a commercial product to sell, but it would also add important reoccurable monthly revenue from on going security contracts. It would also create an opportunity to add an additional revenue stream from high quality video cameras.

Potential Target = The Brink’s Company (Ticker: BCO) – With a current market cap of $1.36 billion, this top notch security outfit may be a little out of TiVo’s reach, but they could certainly consider a joint venture or pounce on them, if the market starts to get cheap. Either way, a free TiVo with your home security system sounds like a great promotion just waiting to happen.

TiVo Charge Card – In 1939, the US was reeling from an economic depression so Fred Lazarus Jr., the CEO of Federated Dept. stores did two important things for his business. First, he convinced President Roosevelt to change Thanksgiving to the last Thursday of November so that it would extend the Christmas shopping season and then he started offering store credit to anyone who would purchase through him. By giving cash starved consumers access to credit during a tough economic climate, Federated Department stores was seen as a friend and patriot during a dark economic period. The impact from these two decisions helped take the company from a struggling retailer to the Goliath that it is today.

When it comes to couch commerce, TiVo faces a similar opportunity. Currently, when you purchase something through your DVR, TiVo stays out of the transaction. Even if you want to order a pizza with a credit card, you’re not able to, TiVo makes you pay cash :( This is probably a good thing for home shopping addicts, but works against’s TiVo’s goal of revolutionizing the advertising business. If they want couch commerce to actually succeed, they must make it easier for consumers to make an actual purchase.

The beauty of a TiVo charge card is that it could be linked directly to your TiVo account once and then capture every purchase after that. If you wanted to rent a movie from Jaman or buy a pair of flip flops from Amazon, it would be the same process and simply require password authorization.

TiVo could also offer discounts on DVR service for balance transfers or for customers who carry larger balances. Extending credit during tough economic times might seem risky, but TiVo needs a better payment solution sooner than later. By putting themselves in a position to become the paypal of television, TiVo could lower the barriers of entry for advertisers, in exchange for a cut of every transaction.

Potential Target = Bank of the Internet (Ticker: BOFI) With a current market cap of $50 million, TiVo could easily acquire this sleepy little bank from San Diego, CA and immediately serve a national audience. Not only would they have the infrastructure in place to start offering credit card services, but TiVo would be picking up a high quality loan portfolio in the process. BOFI’s conservative approach to lending may have hurt investors during the boom years, but when the credit bust hit, it proved that there was wisdom in their prudence.

SlingTiVo – When Sling first introduced place shifting to the DVR community, TiVo choose not to implement the functionality directly into their software. My guess is that they were concerned that a feature enjoyed by the fringe, could spark a lawsuit with the media giants, who’ve had their business model disrupted by TiVo’s fast fowarding powers.

Holding off on introducing place shifting may have been the right choice when the technology was still young, but internet video has changed a lot since Sling was founded. While the legality of placeshifting still hasn’t been affirmed by the courts, even Sony is selling a placeshifting device to their customers. With placeshifting starting to reach a more mainstream audience, now is the time for TiVo to introduce this capability to their customers.

Potential Target = Echostar (Ticker: SATS) – Without the ability to manufactuer DVRs for Dish customers, Echostar may find that their business isn’t worth all that much. With a market cap of $1.31 billion, TiVo could offer an olive branch to Dish, in exchange for the Echostar/DVR side of the business. Frankly, I’d rather see them bankrupt Dish and buyout the satellite business in a vulture sale, but the poetic justice alone makes this one worth consideration.

TiVoPages – One of the problems with TiVo’s current advertising setup is that they are kind of taking a walled garden approach to selling the ads. There are strict requirements on the content allowed on the service and only certain agencies are really given access to the inventory. This may be necessary to butter the toast of their Stop Watch customers, but it also limits what TiVo can become.

Why not make it so that anyone can upload a video ad to TiVo and inexpensively reach the TiVo audience based on screening criteria similar to Google’s Adsense program? I may be a small business, but if the costs are low and I can target local viewers or people who fit a certain demographic profile, I’d advertise through TiVo in a heartbeat. TiVo should play to their strengths and become a video Craigslist for the time shifted generation.

Potential Target = Razorfish – Two years ago, Microsoft paid $6 billion for the company. Today they are rumored to be looking for $600 – $700 million to spin off the ad agency. Owning an agency might ruffle some feathers with some StopWatch customers, but Razorfish would give TiVo the infrastructure they need to their take their advertising program, beyond major, one time, national partnerships. By better implementing their advertising programs, TiVo could create a platform where local businesses could reach local viewers in their markets.

DigiTiVo – TiVo may be one of a handful of solutions for letting consumers watch digital video on their televisions, but they could go a long way towards improving their current implementation. One of the problems with trying to watch various internet video types on your TiVo is that TiVo needs to transcode the video before it will play on your screen.

Currently, customers can either hack their machines for free access or they can pay $25 for a copy of TiVo Desktop plus. While I don’t expect TiVo to support every flavor of codec out there, it would be nice if they threw their support behind a standard and tried to come up with a more seemless experience for their customers. It may be too late for them to get a piece of Adobe or to crack their way into Quicktime or Silverlight, but there are still smaller codec companies that could help.

Potential Target = DivX – (Ticker: DIVX) with a market cap of $175 million, TiVo could easily afford to buy the digital video company and use their contacts to adopt more of a licensing approach to the DVR business. By taking advantage of the profits from the codec business, TiVo could help to subsidize more robust codec support for their subscribers.

HuluTiVo – One of TiVo’s advantages is that they’ve managed to remain neutral despite competing in some pretty tough battlegrounds. In the past, TiVo has taken on the media giants, but now may be the time for them to lay down their arms and secure a stake in the next generation of television.

Love it or hate it, the Hulu cartel has been able to establish themselves as a major broadcaster in the narrowcast world. To date, other media companies have been reluctant to share Hulu on the television, but with TiVo’s relatively small subscriber base, they could be seen as a safe testing ground for experimentation. By implementing direct response ads into the actual programming, TiVo and the major media companies could finally benefit from working together instead of against each other.

A Hulu ownership position might make it harder for TiVo to sign more deals like UnBox and WatchNow, but I think if they stayed focused on advertising supported programming, they could still attract plenty of premium and subscription based partners.

Potential Target = Hulu – The company has raised $130 million to date at a billion dollar valuation, but with the market being down its hard to know what it would be valued at now. Given the “digital dimes” that Hulu is producing, one could argue that the weak market should offer new investors a discount, but one could also argue that given Hulu’s growth, a billion may be cheap. It’d be hard to convince Hulu’s current owners to sell or even innovate to the television, but I know more than a few TiVo customers who would love to see Hulu show up on their Now Playing lists.

NinTiVo – Even with TiVo’s new found purchasing power, buying out one of the three video game companies simply isn’t going to happen, so TiVo would either need to invest in building out their own billion dollar console or license one from Nintendo, Sony or Microsoft to create a killer DVR/PC/Console compatible platform. With three major companies fighting for a highly competitive industry, a partnership with TiVo would be highly sought after and could at least give them a seat at the negotiation table.

Potential Target = Take Two Interactive (Ticker: TTWO) – Take Two’s bad boy Grand Theft image wouldn’t compliment TiVo’s KidZone initiatives, but it would give them access to an instant powerhouse in the video game industry. With a market cap at $690 million, TiVo could easily acquire the company for a billion and tone down the bad boy image. With an exclusive on several of the hottest games out there, a partnership with a major console manufactuerer and a beefed up TiVo that acts more like a high end gaming PC/DVR combo then a VCR, TiVo could create a big splash with the gaming crowd.

Hotel TiVofornia – One of the biggest reasons why TiVo isn’t more popular with consumers is because it’s hard to know how much you’re missing until you’re actually a customer. Getting someone to buy a DVR in the first place is tough, but getting them to give it up is even tougher. What TiVo needs is an easy and cost effective way to introduce their DVR to the masses.

Whenever I stay at a hotel, the television is awful. If a national hotel chain were to partner with TiVo to let me schedule programing while I’m there, I know that they would become my default choice when I traveled. To date, TiVo has dabbled with these types of programs, but with the extra money they could kick this program into hyperdrive. By building out more support for hotel rooms, TiVo could secretly expose millions of travelers to a commercial for their DVR without travelers ever realizing that it could be the last ad that they’d ever have to tune into.

Potential Target = Boyd’s (Ticker: BYD) – With the Vegas economy still dealing with the after shocks of the credit crisis, Boyd’s market cap has fallen to $760 million. With a little bit of elbow grease and some slick marketing, TiVo could buy the hotel and pick up a casino as a bonus. With a Vegas style monument to the DVR, TiVo could let you gamble from your hotel DVR. You can check out anytime you like, but you can never leave.

TiVoTube – Over the last few years, a lot of people have mocked Google for their $1.6 billion acquisition of YouTube, but in retrospect, it’s starting to look like a brilliant acquisition by the search giant. Not only did Google continue to expand their dominance on the web, but they picked up a major future broadcaster in the process.

It’s too late for TiVo to get their slice of YouTube, but it doens’t mean that other video sites wouldn’t be a good fit for them.

Potential Target = Dailymotion.com – With TiVo looking to expand DVR service into Europe and Asia, Dailymotion could very well be the beachhead they need with international audiences. This one would probably have the biggest risk associated with it because of the hosting costs and potential copyright headaches, but with Dailymotion having only raised $43 million so far, TiVo could probably offer $300 million and set aside the other $700 million to figure out the business model.

1-800-TiVo-Fon – I wish that I could take credit for this idea, but I originally found out about TiVo-Fon two years when a research report surfaced online by two teams of University students studying the idea. Unfortunately, I lost track of the link so it will have to remain internet legend for the time being, but the system they described worked similar to the Movie-Fon hotline that you can buy theater tickets with.

To use the service, you would link your DVR to your cell phone number so that you could call 1-800-TiVo-Fon and immediately go into the main menu choices. Currently, TiVo does have a cell phone app, but it costs money to use and doesn’t allow you to schedule things at the last minute. With TiVo-Fon any cell phone could call and a voice recognition system could be set up to take you to the program you want to schedule. This way if you’re at dinner and someone mentions that there is something good on at home, you could order your recording and have it pushed into your box, so that you can watch it when you get home.

Potential Target = Fandango – Fandango is a fellow .com mania survivor who managed to scrape together an impressive business by being early and disruptive. Early on, TiVo and Fandango partnered to offer movie ticket reservations through the DVR and may even represent their first couch commerce transaction. Two years ago Comcast paid close to $200 million for the ticket company, but I think TiVo could buy them for less than $150 million. With the right budget and some slick marketing, TiVo could use Fandango to take on TicketMaster and StubHub.

TiVo Video Conferencing – It’s 2009 already, but where are all of the video phones. Making it easy to attach a camera and Microphone to your TiVo would really change what it means to reach out and touch somebody. By adding VOIP and business support, TiVo could expand their services into the commercial marketplace.

Potential Target = Skype – When you consider that Ebay paid $2.6 billion for Skype in 2005, this one may seem like a longshot, but telecommunications has only gotten more competitive since then and Ebay’s already signaled their intention to exit the business. By picking up the popular program and making a subsequent acquisition for a small relationship management company like Zoho, TiVo could build a multimedia telecommunications solution that would rival Salesforce.com

TiVo Networking – One of the biggest challenges that TiVo faced early on was trying to convince consumers of the benefit to plugging your DVR into the internet. Owning a networking company wouldn’t necessarily make this any easier, but it would help to further wedge TiVo into the center of the digital media experience. If there were enough synergies for it to make sense for Cisco to buy Scientific Atlantic, then it makes just as much sense for TiVo to acquire a networking company.

Potential Target = Netgear (symbol: NTGR) – A few years ago Netgear had a market cap that was almost four times larger then TiVo’s but today they weigh in at $540 million. With a profitable business model and revenue that is nearly three times what TiVo is currently bringing in, a $700 million bid wouldn’t be ridiculous.

TiVo Extender – Over the years, TiVo customers have loved the service so much that many of them have purchased multiple units. TiVo charges an extra fee to add an additional DVR, but doesn’t really make much of a profit because they are forced to subsidize the hardware purchase with smaller multi-room viewing fees.

Instead of trying to get their customers to buy multiple DVRs, TiVo should instead allow the first DVR to act like a server and then have extender devices inexpensively tap into the main DVR signal. This would allow TiVo to sell hardware at a profit and give away multi-room viewing to their customers. With companies like AT&T making a big deal about their muti-room capabilities, TiVo could use an extender strategy to undercut them in pricing.

Potential Target = Roku – Netflix may have put Roku on the map, but the company is headed for greatness on their own. We don’t know a lot about their valuation, but if you consider that they’ve only raised $6 million in VC backing, I think that it’d be easy for TiVo to pick them up for less than $50 million. Not only would the other TiVo video services compliment Roku subscribers, but it would be an easy and cost effective way to solve the multi-room limitations.

Some of these ideas are admittedly a bit far fetched, but you have to admit that they would make interesting mergers. While I don’t expect that we’ll see TiVo go on any big shopping sprees soon, as their cash bulks up and their legal victory pulls through, expect to see more people asking what they plan to do with the money.

What do you think, if FakeTomRogers stepped aside and you were hired you as the new CEO of TiVo, what would you do with a billion dollar jackpot?

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