While most are good sports about these things, I’ve received my fair share of puzzled looks in my time, so imagine my delight when I came across a website called Ask500 where you can pose these questions to a global audience. The site is set up where anyone can ask a question and if it receives enough votes, then they’ll leave it at the top of their main page until 500 people have viewed it. Over the last year, I’ve been ducking in and out of the site and since I’ve enjoyed it so much I thought that I’d share some of what I’ve learned. While these results aren’t necessarily scientific, I did find a few of them surprising.

-Considering that it costs more to make a penny than the actual monetary value, I thought it was interesting that people were split 50/50 when asked if it would bother them if we retired the penny.

-41% have lived dangerously by hitchhiking at least once.

If you’d like to view all of the questions that I’ve asked, you can see them here. If you haven’t checked out the site yet, I’d encourage you sign up because it offers all kinds of wacky entertainment. If you’re a business and are interested in crowd sourcing some of your market research, Ask500 has a sponsorship program where you can get instant feedback on ideas.

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.

While many media companies would like to see the first sale doctrine done away with, ever since the supreme court established the doctrine in 1908, consumers have enjoyed tremendous benefits from it. The concept, which was later codified into law in 1976, allows businesses and individuals to resell goods that they’ve legally purchased. Without it, companies like Ebay, Craigslist and Blockbuster Video wouldn’t even be possible.

Having the right to resell goods benefits consumers in two major ways. First, it reduces the risks that consumers have to take when making purchases. This ultimately makes things cheaper for all of us, because companies are forced to compete with their own products and consumers have a way of recouping part of their initial expense.

When I first purchased my TiVo series 3 for example, I spent over $800 on the product. While this may seem like an insane amount to spend for television, I was able to justify the cost in part, because I sold my original TiVo on eBay for $200 and knew that one day I would be able to resell my Series 3 (currently worth approximately $400 on Ebay) to recover part of my expense. As a result, I’ve been able to enjoy a premium DVR experience for about 1/3rd what it would have cost me to rent an inferior DVR from my cable company.

The second benefit to the consumer is that by having a robust resell market, it allows more businesses/middlemen to participate. This ultimately increases demand, stimulates innovation, and drives down prices. Redbox for example is able to rent you a DVDs at 1/20th of the cost or what it would cost you to buy the actual DVD thanks in large part to the first sale doctrine. Because Redbox knows that they can get more than 20 people to share the same product, it enables consumers to save money, the media companies to sell more DVDs and for Redbox to still earn a tidy profit in the process.

While the first sale doctrine has been a huge benefit for consumers over the last 100 years, these benefits are rapidly being eroded as media moves digital. Because the first sale doctrine was based on physical goods, it hasn’t aged very well in the digital realm. As a result, consumers have been forced to endure awkward DRM implementations, limited availability of digital content and higher prices for media services.

As the top media conglomerates have sought to seize more and more control over the distribution of their products, they’ve shifted from a world where you have the ability to “own” your media, to one where you only have the option to “license” your content.

For a lot of consumers, this distinction may not seem important, but it has profound implications on the future of digital entertainment. Since firms aren’t allowed to buy products at a wholesale price and rent them to multiple consumers, they’ve been forced to negotiate agreements one by one. This is a costly and time intensive process that has limited how quickly media can migrate online. It has also given the media conglomerates monopolistic control over prices. Instead of being forced to compete in an open environment, they are able to take their ball and go home, when they haven’t liked the terms and conditions that innovators offer them.

The result of this transition from ownership to licensing has increased costs for consumers even beyond the price of media. Take for example, the various hardware devices that we’ve seen released over the last five years. If you want to watch digital copies of old movies and TV shows, you can do it through Netflix, but only if it’s on a device that has a business relationship with them. When Sony decided to release a digital copy of Cloudy with a chance of meatballs at the same time the movie was in the theaters, consumers could only participate on select Sony TVs.

If you prefer to watch new releases from Apple’s iTunes store, you’ll need to buy an AppleTV to easily watch that content on your TV. If you want to watch a DivX file that you purchased from CinemaNow, you’ll need to illegally hack your AppleTV or purchase a DivX certified device instead. It’s fantastic that consumers have the ability to record HD cable TV through TiVo, but if you subscribe to AT&T or Dish Networks, you’ll need additional (proprietary) hardware to decode their signals.

While many of these businesses have come a long way towards opening up their systems and fulfilling the digital dream, they’ve all been limited by what content holders allow. As a result, consumers must face a digital minefield where DRM and file formats are used to limit what you can do with the content that you’ve paid for.

As we continue to move forward into the digital world, I think it’s important that consumers shouldn’t have to abandon the first sale protections that have served us so well over the last century. What I propose is a new set of rules that would allow media companies to control their prices, but would also give consumers (and businesses) a way to move past some of these restrictions.

While the DMCA has been a mixed blessing for tech companies and consumers, it is in desperate need of an update (and one that isn’t written by the lobbyists.) For example, currently, it’s illegal for consumers (or businesses) to circumvent DRM, even if consumers are being harmed by the DRM. This has led to situations where people who have purchased media, later lost access to those rights because a provider went out of business. Situations, where companies are unable to offer lifetime licenses in the cloud, because of exclusivity clauses in contracts with pay TV channels.

What I purpose is that if media companies want DMCA protection for their content, it should come with strings attached. In crafting new rules for a modern first sale doctrine, I would require content owners to set a wholesale price that all businesses would be allowed to buy content at. They could still require minimum purchases sizes and would have complete control over what they wanted to charge for that content, but they shouldn’t be allowed to sell a license at one price to one company and then exploit another company for political reasons.

What this would do is create a level playing field for all of the digital retailers. If UMG wants to charge $50 for a download, they would have the right to do this, but they couldn’t favor one vendor over another and they couldn’t punish innovators for being successful or passing on value to the consumer. This would also bring welcome competition to the pay TV market because media companies wouldn’t be able to play MSO’s off of each other.

For example, I’d love to be able to see every NFL game each season, but I can’t unless I’m willing to subscribe to DirecTV for service. Instead of making consumers fight and choose over exclusive content, everyone should be given fair access to that content. If cable companies don’t want to pay the price of admission, they would be less competitive with consumers. The end result would be more demand for NFL content by consumers and more competition for their dollars. If we allow media companies to continue with exclusive content in the digital realm, it will only makes it more expensive for everyone.

I also think that if the media wants to continue to have DMCA restrictions on their DRM, that they shouldn’t be allowed to use that DRM to discriminate between hardware partners. It’s great that I’ve got the ability to record HDTV on my TiVo, but since cablecards don’t work with satellite or U-verse, it essentially gives Comcast a monopoly on pay television for TiVo households.

As a result, Comcast is able to provide abusive cablecard support without having to worry about competition. If they knew that they had to actually compete for the $50 – $200 a month that they charge, it would encourage them to provide better service and to continue to innovate, (even if consumers decide not to use Comcast’s equipment.) Instead we’ve seen cable companies limit the ability for consumers to take their programs on the go and prevent consumers from accessing VOD services on DVRs that aren’t rented from them, all without having to worry about repercussions.

The same is true for digital downloads. If Apple wants to use DRM to help protect their content partners, they should be allowed to, but not at the expense of consumers. If other hardware manufacturers want to build support for iTunes’ product they should be allowed to license the DRM (at cost) from Apple. This would prevent Apple from offering exclusive downloads that lock consumers into their own hardware ecosystem. The end result would be more devices that could play Apple content and more competition among set top box manufacturers. This competition would cause prices to drop and would encourage Apple and others to be innovative with the features and services that they offer to their customers.

While some may be content to let the media industry continue to grow inside of these walled gardens, I’d like to see a world where someone can legally purchase media and play it on any device that they want to. By creating new laws to help better regulate the abuses of our current licensing system, consumers, businesses and the online video industry as a whole, would be allowed to flourish across many different platforms. Instead of being forced to buy the same content over and over and over again, consumers would be allowed to license their media under fair and reasonable conditions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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.

It’s hard to believe, but it’s been almost five years since I wrote my first blog post on Thomas Hawk’s digital connection. Since then, the internet has changed almost as much as it did in the previous five years, but I’m still having fun sharing my thoughts with others online. While I normally write about other people’s ventures (I’m just not that interesting) I did want to take a moment to share a piece of my life with you.

When the Hawk first started to recruit me to write articles for his site, I was a little bit reluctant. Part of it had to do with a lack of interest in creative writing on my part, but a large part of it had to do with my not wanting to take center stage in front of so many people. You wouldn’t know it if you met me in person, but deep down inside I tend to be shy and don’t particularly care for the spotlight.

To help overcome my stage fright, Thomas Hawk suggested that I publish under a pen name instead of mixing business with pleasure. Since I share my legal name with a celebrity, my chances of being heard above the fan posts were slim to none anyway. When picking a pen name, I wanted something that reflected a part of me, but had never been used on the internet before.

Ten years ago to the day, I was finishing up my final semester in college and was taking a course on entrepreneurism. I must of have saved the best for last because unlike some of my more stuffy classes, this one really connected with me. At the time, the internet bubble was still inflating and .com madness was everywhere, but even before we saw the wealth creation of the 90′s, I always knew that I wanted to start my own business.

One of the projects for my class was to create a business and to try and raise funding for it. After many late night brainstorming sessions, our team finally settled on the idea of an MP3 car radio. At the time, Napster was just taking off and while most people over the age of 30 hadn’t heard of an mp3 yet, I knew that it would be the format of choice to replace the CD. With limited hardware supporting MP3s, we felt that there was a large market opportunity for the first company to build an MP3 car radio.

Immediately, we set out to build a prototype and was lucky enough to attract top tier tech talent to our team. We also assembled an out of this world advisory board to help and started putting together a business plan. By the time we were done, we had a great idea, but lacked the experience to actually make it take off. At the time, I remember thinking if I had only been born ten years earlier, it would have been a lot easier to raise financing. We did enter our business plan into several competitions (and performed quite well I might add), but overcoming the challenges of educating investors on MP3 technology, ultimately proved too tough for a scrappy group of college seniors.

I remember one meeting where an investor who had never heard of the MP3, told us that we were foolish to try and take on the compact disc. He had asked us why we thought we could compete against Sony as a startup. When we pointed out Sony’s reluctance to embrace the technology because of their studio business, he just kind of rolled his eyes and told us that if the format was any good, it would only be a matter of time. As it turns out he was right in a way, but Sony ended up waiting too long and lost their walkman franchise to Apple’s iPod.

Since then, the MP3 has become the de facto standard of choice and while there are plenty of mp3 players and other devices, there still isn’t a lot of choice when it comes to the MP3 car radio market. Maybe we were ahead of our time or maybe we simply lacked the experience to create something this big, but whatever the reason, our business never got the funding and eventually became a fond memory.

Since this experience had such a profound affect on my life, when trying to come up with a pen name, I wanted to use something that referred to the original idea. Since the name of our business was Discfree, Davis Freeberg was born. Before hitting publish on my first post, Google said that there were 0 search entries for the term “Davis Freeberg.” Today, there are 105,000 references. While it’s probably too late for me to go back and be the first to create an MP3 car radio, the entrepreneurial spirit that was discovered during the project has carried over to this very day.

Eventually, I set up a business on my own and am living out my dream from ten years ago, even if the details are different than I imagined them at the time. As a way of thanking all of the great readers who’ve stopped by my site over the last five years, I wanted to share a copy of my original business plan with you. I’ve removed some of the details to protect the anonymity of my partners, but it should give you a good idea for what we were trying to build.

In retrospect, I think that our numbers were a bit aggressive (what startup isn’t?) and that we were asking for too little money given the equity that we were prepared to give an angel investor, but the idea was solid and had we moved forward with our team, I think we could have at least made a run with it. While Discfree won’t ever become the business that I had hoped it would be, I am pleased to see Davis continue the dream, even if it’s in a different form. Thanks for making the last five years a truly remarkable experience for me and I hope you enjoy the sneak peak at what Davis was blogging before he even knew what blogging was.

Anyone who has paid attention to digital distribution knows that P2P is a popular way for people to download content, but how popular it is may surprise more than just angry content owners. Last June, Futuresource Consulting released the results of an in depth survey called “Living With Digital: Consumer Insights into Entertainment Consumption” which examined legitimate and illegitimate video usage in the UK, France, Germany and the USA and came up with some pretty interesting data.

According to their survey’s, 8% of consumers in these countries have admitted to using p2p in order to get content.

With these countries representing approximately 500 million of the 6+ billion global population, it would mean that approximately 40 million people are participating in illegal downloading in just these four countries alone.

In France, where the p2p movement initially got started, as many as 25% of the population admits to downloading illegal content. What is so amazing about this statistic is that it stands in stark contrast to the draconian rules that the French government has tried to impose on their citizens. How elected officials think they can get away with making behavior a crime that one out of four is engaging in, I’ll never understand, but there does seem to be strong political support for banning downloaders from the net.

If you’re a content owner not all hope is lost. Some are taking advantage of this huge audience by encouraging them to share their films with friends, while others are finding that if they put their content online at a reasonable price, plenty of consumers don’t have a problem with paying for it. In fact, according to Futuresource’s report, 48 – 65% of residents in the respective countries mentioned that they watch TV sometimes or a lot on their PC or laptop. This would suggest that as many as 200 -300 million people in these countries are consuming legal internet content.

With more and more people turning to their computer as a television, the popularity of P2P will have a profound effect on video. Already we’ve seen content starting to become more bite sized for the web and smart producers turning towards alternative distribution systems to get their films out there. Competing in a world where you don’t control the entire chain of distribution may be scary for the big studios, but for small independent films, this rabid 8% could be your biggest source of marketing for your film.

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?

One of my very first jobs was working behind a concession counter for a big multi-plex cinema. It isn’t the sort of place where one would expect to learn a life skill, but early on I learned an important lesson in business, the art of the up-sell.

You see, movie theaters make very little from the box office receipts, so the concessions counter is the lifeblood of the industry. The setup is pretty much the same at every theater, but most people don’t tend to think about it. Because the actual cost of the popcorn and soda is so low, the theaters reap big profits from selling captive customers overpriced snacks and beverages.

One of the problems that theaters face, is that there are a ton of people who tend to order small sizes. It could be that they are trying to save money or that they don’t need oversized portions, but because the containers cost the theater more than the actual popcorn or soda, going from a small to a larger size, tends to be pure profit for the theater.

To help “encourage” movie goers to pay the max, theaters will price their small popcorns at ridiculously expensive levels and then have a minor jump in price from small to medium and medium to large. If you were to price the popcorn by ounce, a small would cost four times as much as a large, but because of the high cost at the small level, it makes it easier to convince consumers to pay a little bit extra for a lot more food.

When I sold concessions, the sales pitch would typically go “hey did you know you can get a large for only 50 cents extra?” That was all it took and at least 75% of the customers would go big.

In thinking about why my theater was so effective at up-selling, two things jump out at me. The first has to do with the way the pricing was set. Consumers got tremendously more value at the higher levels, then the lower ones. It might be tough convincing someone to spend $5 on a bucket of popcorn to begin with, but once they made that purchase, an extra 10% for 200% more, seems small. Secondly though, they had an actual human explain this value to the customer. Concession employees were expected to upsell or suggestive sell on every single transaction. It could be subtle, but management made sure that every employee was at least presenting more options to the customers.

What made me take this trip down memory lane is a recent experience with Real’s Rhapsody music service. Before the internet, napster, and digitization, I used to collect music with a passion. Records, Tapes, CDs, it didn’t matter. I would scour local garage sales and thrift stores looking for bargains, (not to mention all of the BMG and Columbia House memberships.)

When the internet first started to take off, my collecting habits intensified. I’d surf Ebay for favorite artists. I didn’t care about the singles or the greatest hits, I was after the rare B-sides that were released internationally. There is something amazing about listening to an artist’s entire discography in order, but back then, it took a lot of money to buy every single song that an artist produced.

Once MP3′s took off, I abandoned physical playback and spent many late nights digitizing my music. As time has gone on though, I’ve realized what a hassle it is trying to maintain a large digital library. Computers have a way of freaking out once you go over a certain limit, there are countless hard drive failures involving added expenses and I don’t even want to think about the amount of time I’ve spent dealing with buffer overrun errors while backing up my music. The bottom line is that if you’re trying to collect a couple hundred thousand Mp3′s, it’s not only cheaper to rent then it is to buy, it’s cheaper just to store it.

Because I had such a large music collection, I never gave Rhapsody a chance, but as one hard drive failure after another has taken large chunks out of my music library, I’ve found myself turning to the internet for specific artists or songs that I’m now missing.

Over the last year, I’ve signed up for Rhapsody three different times to listen to music that’s disappeared over time. Thanks to their free trial offers, I’ve been able to hear a lot of great music, but never kept my membership for longer than a month.

What surprised me so much about the experience was how much I enjoyed it. Not only can I get the latest top hits for a fraction of what I used to spend, but I also get access to the expensive b-sides that were never in wide circulation. The first time I logged onto the service, I was estactic after discovering an entire album’s worth of material from my favorite artist.

Given how much enjoyment I’ve gotten out of the service, one would think that it would be a no brainer for me to spend a modest amount of money for access to more music then you can even think about, but when it came down to becoming a paying member, Real Networks lost me on the up-sell.

You see, as a streaming internet music service, Rhapsody really is an amazing product, but its lack of a robust download solution, means that if you want to take your music on the go, customers have limited options. Since Real realizes that not every consumer wants downloadable functionality, they price their service in two tiers.

The first is the standard all you can eat streaming music of just about any song or artist you can think of (we’re talking stuff not even on Bit Torrent.) For $2 more though, you can download songs to “approved devices” and rock out using a portable device that doesn’t need to be connected to the net.

As an internet streaming service, I would have been happy to pay their monthly fee for all of the music that they provide, but by offering a download “upgrade”, it makes me keenly aware of a significant limitation to the service. As is, I can listen to Pandora via the internet now, so a streaming only service makes me second guess how much value Rhapsody really has. I wouldn’t even mind paying the $2 more per month just for streaming access, but don’t see enough value in the $2 upgrade to justify signing up for the downloading tier.

Part of this is because I’m not able to download a DRM free MP3. Even if you download your music, you still have to “refresh” your approved device once a month or your songs get disabled. You’re also limited in the number of devices you can play your Real files on.

As much as I prefer downloading over streaming, it simply isn’t worth an extra $24 per year for a weaksauce version of the real thing. Having to connect my cell phone to the net once a month is obnoxious and I’m not particularly fond of downloading music that I can’t play on all the electronic gadgets that I own.

If they eliminated the download tier, I’d probably be a customer right now, but by making me choose, they’ve persuaded me not to sign up for either package.

Not everyone purchased an up-sell when I sold concessions, but during my entire time behind the counter, I never had a single customer walk away without at least buying the small popcorn that they originally asked for. When it comes to Rhapsody though, the different pricing tiers have cost them at least one customer who would have paid, if he didn’t have to choose between streaming only or weaksauce downloading.

I don’t know if Real does consumer surveys, but I bet that I’m not the only one to agonize over this distinction. Instead of using the price difference to highlight their weaknesses, Real would be better off by either raising the price $2 on everyone and then including their downloading solutions with the service or eliminate the downloading tier entirely and focus on being an amazing and comprehensive streaming service only. By trying to straddle between streaming and downloading, they are only confusing customers and highlighting the limitations to their service.

After having spent a great deal of time researching Vois, I had a lot of questions with no answers, so I reached out to Herbert Tabin asking for an interview. Unfortunately, Mr. Tabin wasn’t interested, but Vois Co-founder Craig Agranoff was happy to chat in public.

To be fair to Mr. Agranoff, he came into the podcast expecting a cupcake interview on web 2.0 topics. Unfortunately, businesses don’t tend to like talking with critics, so I asked them to come on the air and then ambushed him with questions that I knew would be difficult to answer. Once Mr. Agranoff realized that I knew a little bit too much about their arrangements he cut the conversation short. While I can understand his reluctance to finish the conversation, I do believe that their are still many questions that haven’t been answered. As a public company, Vois should be more transparent. If Mr. Agranoff, Tabin or Schultheis want to come back on the show and tell their side of the story, I’d still love to have you on to finish the podcast.

A couple of things that might help in better understanding the questions and answers. When it comes to the market cap, Agranoff was correct. It closed today just shy of $13 million. I had assumed that the split had already taken place because there were two days where you would not have been entitled to the split if you would have purchased shares.

The other piece of information that might help is a little bit of background on Joel San Antonio. Before Vois went public, the shell that they used was named Medstrong International Corp. Mr. San Antonio was a Director for Medstrong and would have played a crucial role in negotiating the merger.

He is also the co-founder of Jicka.com, a Craigslist competitor that Agranoff, Schultheis and Tabin are also involved in. Jicka is a separate entity and isn’t publicly traded, but one of the trends that I noticed with some of Tabin and Schultheis’ former companies is that they liked to buy a lot of businesses and later respin them onto the public. Since San Antonio would have had to give up equity when he gave up Medstrong, this sort of arrangement looks suspicious.

Here is a bit more on San Antonio’s background,

San Antonio was the CEO of Warrantech, a rebate firm that was sued by AIG for their role in a $500 million toxic bet. According to USAToday,

“AIG paid its partners — the third-party administrators such as MBA and Warrantech, as well as credit unions and car dealers who sold the warranties and serviced the vehicles — based on how many contracts they processed rather than how the warranties performed. As a result, AIG suspected, some dealers packaged warranties with auto “lemons,” so customers could rehabilitate the cars at its expense.”

AIG wasn’t the only one upset, certain underwriters at Lloyds of London went so far as to sue Warrantech, alleging that they had been paying out phantom warranties without documentation.

“Underwriters asserts causes of action against Warrantech for fraud and negligent misrepresentation, alleging that they are subrogated to all rights Houston General may have to seek damages from defendants concerning claims wrongfully submitted and paid under the insurance policies. Underwriters also seeks to recover for spoilation, alleging that Warrantech destroyed certain evidence during the course of the arbitration proceeding.”

In 2004, the company was forced to restate earnings after an investigation by the SEC

SearchHelp Inc. is another dodgy publicly traded company that San Antonio has served as a Director for. Jeffrey Supinsky, the “head of business and development” is a former trader who was barred by the NASD.

I could go on and on, but don’t want to lose focus on Vois. For now, I’ll just have to be content with keeping an eye on this Craigslist killer.

For the most part, high profile bloggers have viewed these fly by night companies with the appropriate degree of skepticism, but over the last year and a half, one questionable company has managed to infiltrate the tech elite.

Vois.com’s first big splash on the innerweb occurred in November 2007, after TechCrunch highlighted the company as a publicly traded social networking site. In a quick post on the company they wrote,

“I can’t see VOIS winning any awards for its service, but those with a stock market fetish looking to play around with some investments in this space, VOIS gives you that option.”

Ironically, a mere month and a half later, Vois actually won Mashable’s Open Web Awards contest for best photo sharing site and finished at a strong 2nd to Facebook in the best large social network category. The win was so surprising that Mashable labled them a dark horse candidate.

In February of 2008, Mashable interviewed Vois Co-Founder Craig Agranoff and published another glowing review highlighting Vois’ efforts at raising $1 million. In the article, they wrote,

“Vois has gone in a new direction, giving its own users a piece of the pie, and it seems to be working out very well for the company so far.”

Maybe for the founders, but not so much for the other Vois shareholders. Mashable may have interpreted the $1 million in financing as a sign of Vois’ success, but the reality was much darker. Of the $950,325 that they raised, $95,033 went to the broker who did the placement. After they got their 10% commission, another $328,000 went to two former Directors and unnamed “consultants” that needed to be repaid because like today, Vois was in default on their debt.

If you had listened to the hype, you would have thought that Vois was the next Facebook, but behind the curtain, you’ll find plenty of skeletons waiting in their closet. Vois may envision their site as the new voice of social sourcing, but all I’m hearing is static.

Back To The Future

In order to understand the secrets locked inside of Vois, you must take a critical look at the footprints of its founders. While they may try to cast themselves as successful entrepreneurs, a closer inspection will reveal that they play the role of the villain in this tragedy.

To fully understand the events that led up to the creation of Vois, we’ll need to jump into the wayback machine to 1985.

Gary Schultheis – President and CEO

After one year at the State University of New York at Farmingdale, a young Gary Schultheis left school and took a job with Airport Express International. He would continue working there until 1992.

During the 1980′s, Air Express International was a microcap shipping company. Their one claim to fame is that they tangled with the Lucchese crime family during the late 80′s. According to a 1986 RICO indictment against members of the family, Air Express management was being squeezed by the mob, in exchange for peace with their labor unions.

The crime family was interested enough in the corporate comings and goings, that they even went as far as to try and block a merger between Air Express and another air freight company that was also being shaken down. While it’s hard to blame Air Express for being a victim, one does have to wonder how they found themselves in this predicament to begin with. What did they owe the mob to make them think that they could try and get away with extortion? I don’t have the answers, but I suspect that the story goes much deeper than this.

After Schultheis left Air Express in 92′, it’s not exactly clear what happened to him for the next two years. Despite my best efforts, I wasn’t able to ascertain his whereabouts during this period. Not only are these details noticeably absent from Vois’ regulatory filings, but they also seem to have been suspiciously left out of other filings as well. There could be a simple explanation for this black hole, but I believe that investors deserve a full and complete bio from publicly traded CEOs.

In March 1994, Schultheis would show up on the radar again, this time as the President of a financial relations firm named Wall Street Enterprises (aka Wall St. Associates.) We don’t know much about Schultheis’ early years at the firm, but over the next two years, he would lay the groundwork for what would later become a lynchpin for future stock promotions.

Herbert Tabin – Secretary, Senior Vice President, Corporate Development and Director

In 1989, Vois Co-founder Herbert Tabin graduated from The State University of New York at Oneonta. In Vois’ SEC filings, Tabin doesn’t reveal much in the way of details, about where he began his career. Fortunately, he does tell investors that he worked for the American Stock Exchange and “three New York-based stock brokerage firms”, over a span of three years.

By doing a bit of digging, I was able to identify the three brokerage firms as Stratton Oakmont, Continental Broker-Dealer and Kensington Wells.

Stratton may not be well known outside of the finance community, but is a legend on Wall St. Before it was shut down by regulators, the company was the poster child for how boiler rooms operate. In fact, Martin Scorsese is currently making a big budget film about what happened at the firm, during the time that Tabin worked there.

Even if you can look past the wild tales of “shaving female sales assistants’ heads, tossing midgets and Ethiopian hookers, one cannot ignore this culture of deceit where Mr. Tabin received his formal Wall St. training.

The SEC consent judgment against Stratton describes exactly what this culture was like from 1989 – 1991,

“It is undisputed that, during that time, Stratton was operating a classic boiler room. The brokers sat “cheek by jowl” in a room the size of a basketball court. All of their desks were lined up side by side in rows. The firm held mandatory sales meetings every morning at 8:30 a.m. at which time sales techniques were demonstrated and scripts for the firms’s “house stocks” (i.e., those in which the firm made a market) were distributed. Brokers were expected to follow the scripts and only give customers the information they contained. Brokers were discouraged from doing any outside research, and told to rely on the firm’s research and representations. Aside from training in high pressure sales techniques, brokers received no instruction from Stratton management.

In case you were hoping that Continental Broker-Dealer or Kensington Wells might have a better reputation, I wouldn’t hold your breath. During the time that Tabin would have been at Continental, the firm was helping to financially engineer the fraud that inspired the hit movie Boiler Room.

In the case of Kensington Wells, things are just as bleak. After the company shut down, the NASD stepped in and charged 12 of their former brokers “with a wide range of sales practice abuses. The complaint alleges that the 12 brokers, who were based at Kensington Wells’ Mineola, NY headquarters, participated in or facilitated a boiler room operation through a series of fraudulent sales practices and other misconduct”

From September 1993 to March 1995, Tabin served as the vice president of HBL & Associates, a financial relations firm in New York city. There isn’t a lot known about HBL, but the rumor on the street is that it was being run by none then Larry Erber.

Erber is a recidivist stock felon who has had multiple run-ins with the SEC. In 1991, he pled guilty to securities manipulation and wire fraud. Despite being barred from the industry, Erber is rumored to have secretly purchased a stake in Paramount securities.

HBL & Associates didn’t have a lot of clients, but they did have one very important one. Between 1991 – 1994, Erber (and HBL & Associates), would tout a small company named Teletek. This is significant because the promotion would have been going on the entire time that Tabin was with the firm. As the scheme was unraveling, a short seller even went as far as to try and extort Erber into giving away free shares of Teletek.

“Carlson’s alleged misconduct occurred during a June 9, 1994 telephone call, in response to Carlson’s earlier call. Carlson initially “congratulated” Erber on the GLAD situation, because he felt that “there were strong similarities between the GLAD situation and Teletek,“and he wanted to let [Erber] know that I knew what he was up to, that he was up to another one of these stock manipulations, and that he wasn’t pulling the wool over my eyes.” Carlson then requested a block of Teletek stock at a discounted price in exchange for Carlson’s keeping silent about Erber’s alleged promotion and manipulation of Teletek stock:

‘Let me tell ya, we were intimately involved in getting GLAD delisted. OK? I am going to do the same thing to Teletek — unless I get some stock from you on a favorable basis. I am gonna do what’s called a magic trick – that’s where I take your money and I turn it into my money.’

Carlson repeated this quid pro quo later in their conversation: “so, on Teletek-either I get a block of cheap stock or I am going to play a magic trick on you-OK-I am going to get that stock delisted next.” Carlson then accused Erber of being an undisclosed owner of Paramount Securities, an act that would violate a federal court order restricting Erber’s participation in the securities industry. Carlson continued:

‘Ya, if you want me to serve you up and wrap your F***ing nuts around your head I will. So you decide what you want Larry, we either play hard ball or . . . I get some of this cheap stock that keeps on printing in this pig.’ Carlson concluded the conversations as follows: ‘[s]ave your breath-OK-buy me some stock or I’m gonna F***ing-I’m going to go after Teletek. Those are my terms-please get back to me-thank you.’”

Unfortunately for Carlson, Erber was recording the phone call and while Erber would ultimately face charges for manipulating Teletek, Carlson would end up being suspended from the industry as a result of his conduct.

After leaving HBL & Associates in 1994, Tabin would join a “merchant banking and venture capital firm” named LBI group. From April 1994 – Dec. 1996 he served as their vice president of marketing. While Tabin was working there, LBI provided consulting services to a fast food restaurant named Tasty Fries Inc.

Tasty Fries first hired LBL on May 23rd, 1996. You may not be able to buy a burger for a nickel anymore, but LBL learned an even better trick. In exchange for “certain business consulting services, including marketing for a 12 month period”, LBI was given an option on 4 million pre-split shares at .05 cents a share.

A little over a month after entering into the contract, employees at LBI paid $200,000 to exercise these options (despite only being 2 months into a 12 month commitment.) While we don’t know whether or not LBI was dumping their shares while they were performing their “marketing” duties, we do know that they were only able to return 1 million shares once the contract was rescinded.

Later, the SEC would deep fry the fast food restaurant and in 2004, CEO Edward Kelly would be forced to settle charges “for fraud, unregistered sales of securities, and reporting, record keeping and internal control violations.”

After Tabin left the company, LBI was accused of sending unsolicited pump and dump faxes to prospective investors.

Millennium Holding Group – Their Own Personal Death Star

Millennium Holding Group was created on February 27, 1996. Shortly after forming the group, Millennium would acquire Wall Street Associates, the firm that Schultheis had spent the last two years creating. This is the first known partnership between Schultheis and Tabin. In the 10-k Vois describes Millennium Holdings as a “financial consulting firm specializing in mergers and acquisitions.” On the surface, this sounds impressive, but take another look at the types of companies that they worked with and you can’t help but be aghast at the client list.

In April of 1997, American International Petroleum Corp. (AIPC) hired Wall Street Associates to “implement a five-part investor relations program, including stockbroker relations, media relations, shareholder/investor communications and Interent [SIC] coverage.” AIPC was a Kazakstan oil exploration company with refining facilities in Louisiana. In July 97′, Wall St. Associates/Millennium Holding Co. issued a press release letting investors know that “revised estimates of potential recoverable reserves in Kazakstan exceed one billion barrels.”

Of course those barrels of oil were never recovered and in October 2004, AIPC would be forced to declare bankruptcy in a Louisiana courthouse. Two years alter, the SEC would revoke AIPC’s stock registrations for failing to file current reports.

To get an idea of the type of hyping that Millennium Holdings was allegedly engaged in, just take a look at this Silicon Investor post where someone says that “Gary from Millennium Holdings” touted a potential $50 share price in an AOL chat session with investors. I’m not sure what the stock was worth then, but today you can buy a share on the pink sheets for only .002 cents.

I don’t know what it is about the name, but there must be something about Voice that Schultheis and Tabin like, because on June 23rd, 1997 they picked up over 300,000 shares of iVoice.com. A little over a year later, they acquired an additional 925,000 shares.

On November 15th, 1999, iVoice hired Integrity Capital to perform a laundry list of “investor relation” services. At the time Robert Pratt was a principal owner of Integrity. In February of 2008, the SEC finally caught up with Mr. Pratt and accused him of running a pump and dump scheme.

In August 1997, Millennium Holdings group acquired shares in a company named MDI Entertainment. A few years later, MDI would sue Oxford International (another “investor relations” firm), alleging securities fraud.

In August 97′, Millennium took an interest in TearDrop Golf Company. Four years and several “acquisitions” later, TearDrop was forced to file for bankruptcy protection.

On Sept. 15th, 1997, Millennium announced that they would be taking on Sled Dog as a client. A little over a year later, Sled Dog would file for bankruptcy protection in Minneapolis. Given the short time between when Sled Dog hired Millennium and the bankruptcy, one has to wonder what type of due diligence Millennium was doing before taking on clients.

In November 97′, Millennium helped Mark Fixler, President and CEO of Fix-Corp International, Inc. secure an interview on Fox News. In 2008, Fixler would be named in a civil lawsuit, alleging, yup you guessed it, securities fraud.

In January 1998, Millennium Holdings was pitching Advanced Media Inc (ADVI) to potential investors. In September 2005, ADVI had their stock registration revoked for failing to keep their SEC filings up to date.

On March 12th, 1998, Winners All International, Inc. sued Millennium Holdings Group Inc. for breaching “a consulting agreement, common law fraud and fraud in the purchase of securities.” The statement of claim sought rescission of the agreement, restitution of the stock shares issued and a claim for $200,000 in damages. Millennium would later settle the lawsuit by paying out the $200,000.

In Sept. 98′, Millennium took on NetMed Inc. as a client. Less than 6 months later, OxyNet sued NetMed alleging fraud. Approximately, 3 weeks after the lawsuit was filed, NetMed declared Chapter 11.

In Sept. 98′, Millennium was also providing investor relations support to Silverado Gold Mines, Ltd. As if this story couldn’t get any more surreal, Silverado’s CEO would later appear “in a staged interview with a TV host, previously sued by the SEC in a multi-million dollar fraud case involving live goats and goat carcasses.”

Ten years after hiring Millennium, Silverado would eventually get busted after a series of damaging articles by the legendary business journalist, David Baines

In November 1998, Millennium Holdings announced that they had been hired to provide investor relations support for Keystone Energy Services Inc. Six months before they began their marketing campaign, Keystone was sued as part of a class action lawsuit for issuing misleading statements to their investors. In March of 2001, two Keystone execs, were indicted on 114 different violations. This case is especially notable because it was the first time that the state of Minnesota pursued charges on a pump and dump that involved the internet.

International Industries / International Internet Inc. / Evolve One – The Gift That Kept On Giving

After being involved in so many companies at the investor relations level, it was only a matter of time before Schultheis and Tabin would want to set up a company of their own to run. In preparation for public office, On May 30th, 1997, they formed a company named Mr. Cigar Inc.

They were supposed to be a cigar kiosk company, but after learning about a patent on the concept, the company decided to just be a distributor instead. On Jan. 26th, 1998, International Industries Inc. acquired Mr. Cigar Inc. and gave control of the company to Schultheis and Tabin through a reverse merger.

8 months after the acquisition, Transmedia Consultants (another financial relations company) would try to get their pound of flesh by suing them over some kind of grievance. While the suit would later be withdrawn for an unknown settlement, what was so damning about the lawsuit was that Transmedia was after the equity in Mr. Cigar Inc. NOT International Industries. This would suggest that stock promoters were lined up, even before Mr. Cigar Inc was bought.

On Jan. 14th, 1999, Bloomberg wrote an article accusing International Industries of adding to the “internet stock market mania” by issuing a press release announcing their acceptance into the Amazon affiliate program. Of course, we know today that even small time publications like my own, can easily get accepted into the program. At the time though, investors were so hungry for growth opportunities that they bid up International Industries by 100% on the day the press release was issued.

With the old economy starting to look stale, International Industries would change their name to International Internet in 1999. Later the company would be known as Evolve One.

On May 10th, 1999 International Internet announced a drastic change to their business model. Going forward, they wanted to act more like an internet incubator and try to acquire various businesses. Later they would spinoff these investments which would create new public companies for them to feed off of.

A month after announcing this change in business model, they acquired Auction Concept Inc., in the first of what would be a series of acquisitions.

Running low on funds, International Internet took to the street to raise money. In March of 2000, with the market near its high, they received a commitment for $11.25 million from Avenel Financial Group. Avenel was a financial firm controlled by Michael Pruitt. Pruitt will drift in and out of the story as time goes on, but this investment was notable for two reasons.

First and foremost, International Internet had just made an acquisition of Reconversion Technologies. Inc. on March 8th, 2000. As far as I know, this transaction was never reported as the related transaction that it was. Only two days later, Pruitt would be appointed as a Director of Reconversion Tech (now known as Healthsport.)

Another troubling connection between Pruitt and International Internet occurred on Jan. 14th, 2000 when International Internet LLC acquired a minority interest in Vertical Computer Systems.

Nine months later, One Travel Holdings Inc. (a company where Pruitt was the CEO) would enter into a contract with Vertical Computer systems to have them provide “internet, e-commerce and software services.”

On March 16th, 2001, International Internet registered to sell 550,000 shares of EResources Capital Group, Inc. EResources was yet another firm where Pruitt served as the CEO. Again, I couldn’t find a single related transaction disclosure.

While it’s easy to say that the SEC fell asleep at the switch on this one, Schultheis and Tabin did show up on their radar while they were working International Internet. In 2002, agents from the SEC recommended that “the SEC pursue a federal injunctive action against EONE for violations of the antifraud provisions of the federal securities laws.” Specifically, they were concerned about two false and misleading press releases that were issued in February 2000. Despite my best efforts, I wasn’t able to find out how this was resolved.

International Broadcasting Corporation – Ground Control To Major Tom

I never did quite figure out how Schultheis and Tabin acquired their stake in International Broadcasting Corp., but like many of the companies in this article, it also has had a troubled history. The firm was a collection of internet radio stations that broadcast everything from Blues to stock market commentary. Before it was IBC, the company was named “Explosive Financial Opportunities” Feldman Sherb & company was the auditor.

In May of 2002, IBC filed an SB-2 that brought Tabin and Schultheis’ positions under 5% (meaning that after the offering, Tabin and Schultheis would no longer have to report their trades or positions.) In the SB-2, IBC claims that “none of the selling security holders has or within the past three years has had, any position, office or other material relationship with us or any of our predecessors or affiliates, other than Tyler Fleming, who is Daryn Fleming’s brother and Sharon Fleming who is Daryn Fleming’s mother.”

Daryn Fleming, who was the CEO of IBC, may have disclosed his family relationships, but what IBC did not disclose was that Arthur Dermer, who also sold shares in the offering was (and still is) listed as a Director of the Tabin Family Foundation. I don’t know what his relationship to the family is, but it represents yet another related transaction that was hidden from the public.

Even before Fleming took on his role at IBC, he had prior relationships with Schultheis and Tabin. In July 98′, Fleming was hired to provide marketing to International Industries. As part of the promotion, he issued a positive “research” report on the company.

Despite the controversial nature of Fleming’s business model, the man knew no shame. A mere two weeks after his report on International Industries, he was highlighting a company that “helps investors who have been victimized by fraudulent and corrupt practices of brokers.”

In 1999, the Wall Street Journal would take Fleming to the woodshed for hyping stocks on the internet without disclosing that his firm, Wall St. West, was being compensated for the promotions. In the article, WSJ reporter Jason Anders, took a critical look at Fleming’s client base and included comments from Schultheis on why they hired Fleming in the first place.

“Gary Schultheis, president of International Industries says he hired Wall Street West to get some exposure for his company, particularly on-line. “[Mr. Fleming] said that he is very active in the internet, and that he had lots of places to get us good corporate exposure.” Mr. Schulteis [SIC] says he never specifically asked Mr. Fleming to post on message boards.

Mr. Fleming created a Silicon Investor message board to discuss International Industries, a Boca Raton, Fla., company that manufactures cigars and cigar vending machines. Mr. Fleming has posted 11 of the board’s 27 messages. When some participants complained that the stock’s price appeared to be slipping, he responded, “We think mostly big time investors bought [International], which is why we want to do a Wall Street West style SQUEEZE. This is where none of us will sell. In light of increasing demand, the stock could soar!!!!”

In 2005, Mr. Fleming would find himself in a bit of hot water after going on “Stock Talk Live”, one of IBC’s radio shows and making false statements to investors about acquiring various radio stations. Two years later, the SEC would lower the hammer and would file a complaint against him for fraud.

Interactive Golf Marketing/WowStores.com – More Than One Way To Skin A Cat

A little over a year after joining International Industries, Schultheis, Tabin and Rakesh Taneja purchased Interactive Golf Management (IGM), through a company named Estores.com. The purchase occurred on February 16th, 1999. One day later, International Internet, (which was also controlled by Schultheis and Tabin at the time) made a $20,000 investment into IGM. In March of that year, International Internet would end up acquiring 16% of the company. While it has been over ten years since this transaction took place, as hard as I tried, I still couldn’t find where it was reported as a related transaction.

After taking over, the group must not have been very happy with their golf swing, because they promptly changed the name of the company to WowStores.com. A short 7 months later, Tabin and Schultheis would leave the company after selling their stake to StockFirst.com

StockFirst was an “unbiased” financial site dedicated to emerging opportunities. The president of StockFirst at the time of the acquisition was David Hirsch. Before Joining StockFirst, Hirsch was working for a boiler room operation named First United Equities Corporation. While there, he was caught pushing two different microcap stocks on investors. In a settlement with the SEC, Hirsch admited to engaging in manipulative trading, lying to his clients about not earning commissions from selling them the stocks and refusing to let customers sell out of positions, unless they purchased one of the other house stocks instead.

Network Systems International/OnSpan/Double Eagle – Make Sure To Look Out For Number One

Of all the stocks that I’ll discuss in this report, Network Systems International was by far the most damning. On July 25th, 2000 Millennium Holdings Group conducted a private placement where they sold approximately $1 million worth of stock to investors. In addition, Tabin purchased another 2.7 million shares for a cool $1.5 million. After the transaction, Tabin would become the CEO of the new company.

While it would take nearly 6 years to unravel, this transaction would end up haunting Schultheis and Tabin for a very long time. Two of the $1 million investors, Richard T. Clark and Joel C. Holt would end up suing Schultheis and Tabin after things didn’t quite turn out as planned.

According to their complaint against the company, on May 8th, 9th and 10th, 2000, Tabin held a meeting in the Bahamas with Clark, Holt and other investors to discuss the acquisition of a small cap stock. Tabin’s attorney for the deal, G. David Gordon would also attend. From the complaint,

“At the meeting, Tabin solicited Clark and Holt, as well as others, to invest $1,000,000 for an operating company which was publicly traded and listed on the Small Cap NASDAQ Exchange. Tabin told Clark and Holt that the money would be used by OnSpan to acquire some operating business with independent managements [SIC] that would enhance the value of OnSpan’s stock and render a profitable return to its stockholders. Tabin told Clark and Holt that he would be buying out the ONSpan insdiers and assuming the role of OnSpan corporate director. Tabin told them that if Clark, Holt and other investors invested $1,000,000, then the insiders’ stock positions that he acquired would give them as a group effective control of OnSpan so that the business plan he had outlined for OnSpan could be carried out.”

Later in the filing,

“Tabin’s representations and warranties concerning the investment strategy and business plan never included, or even contemplated, that Tabin would remain a long term officer or Director of the Company. Nor would he draw a salary or other cash remuneration after he had assisted OnSpan in located and acquiring an operating business with an independent management. When Tabin made his statements and representations to Clark and Holt at the meeting, he made false representations of material facts, and omitted and failed to tell them of certain material facts, which would have had a substantial impact on their decisions to invest in OnSpan, and the absence of which, when considered in the context of the information that Tabin did provide to them, mad Tabin’s presentation misleading. These false representations and omissions of material facts include without limitation, the following:

(d) Omission of the fact that he was associated with acquiring another company, Vertical Computer Systems, Inc., in much the same fashion as he did for OnSpan, which was under investigation by the Security Exchange Commission for possible violations of federal securities laws.”

While it’s easy to look at a complaint like this and claim that it’s just Clark and Holt crying over sour grapes, there is supporting evidence to suggest that something may have been up.

On February 10th, 2009 the SEC charged David Gordon with securities fraud. In their complaint, the SEC claims that Gordon was part of a shell creation group that derived over $41 million in illegal profits from their pump and dump activity. Richard Clark would also be indicted as part of the scheme.

“To execute their scheme to defraud, Defendants, acting in concert with other persons, obtained market domination in the target stocks; engaged in coordinated trading activity, including the use of illegal matched orders; and created and distributed to the public deceptive promotional materials, all of which generated the false appearance of investor interest in the Target Stocks thereby artificially inflating the prices of the shares. Defendants, acting in concert with other persons, sold shares of the same three Target Stocks they were recommending that the public buy. This scheme is commonly referred to as a “pump and dump” because the perpetrators artificially inflate or “pump” the price of a stock and then sell their own shares (the “dump”), at the artificially inflated “pumped ” price.”

In case you think that Tabin was actually looking out the interests of OnSpan shareholders, I’d like to point out that once he faced legal liability, he was quick to offload the risk to the shoulders of OnSpan investors.

In 2006, Tabin and Schultheis would eventually settle the lawsuit by giving up their shares in OnSpan/Double Eagle in exchange for the Vois.com domain name. When Tabin finally did leave, Michael Pruitt would replace Tabin as CEO and Chairman of the board.

Marc A. Saitta – Chief Financial Officer

In this report, I’ve focused most of my comments on Schultheis and Tabin’s career, but one character who jumped out at me was Vois’ CFO Marc A. Saitta. I’m not exactly sure what connections he had with Vois, prior to its creation, but I found his prior employment at Smithsonian Business Ventures extremely interesting.

It would take another 7,000 words to go into all of the details behind the conspiracy, but essentially the executives at SBV found a loophole in the Government that allowed them to loot one of our Nation’s treasures. While investigating SBV, Senator Charles Grassley had a most appropriate quote,

“It looks like the leaders of Smithsonian Business Ventures were living like Thurston Howell and managing like Gilligan.”

Unfortunately, Grassley would never pick up on the microcap angle to the story and this was never fully investigated. Instead, SBV would eventually trip themselves up by signing a 30 year exclusive deal with Showtime to produce historical films. When Congress found out about SBV, they were furious. The investigation produced several lengthy hearings and a report that is over 100 pages long.

I’m not a fan of the political thrillers myself, but if a journalist wanted to take a closer look at SBV’s licensing deals, I think they’d find a story that is eerily similar to Vois, only involving extremely powerful Washington insiders.

The Auditor – Second Verse Same As The First

Over the last 20 years, Tabin and Schultheis have appeared with a wide variety of supporting cast, but one bad actor who kept reappearing during my research was Sherb & Co., Vois.com’s auditor.

In looking at the history of the firm, one must conclude that these guys are either incompetent, actively helping to perpetuate stock fraud or are simply the world’s unluckiest auditors.

Recently, famed short seller Manual Asensio cited China Sky’s use of Sherb & Co. as a major red flag for the company. In 2007 (right before Vois first hired Sherb & Co.) the auditor was reprimanded by the PCAOB after they looked at 8 of their clients and found material deficiencies in the audits. Specifically, they cited one case that “included a deficiency of such significance that it appeared to the inspection team that the Firm did not obtain sufficient competent evidential matter to support its opinion on the Issuer’s financial statements.”

Whether we are talking about Smart Online, Spear & Jackson, China Sky, ProNetLink, Light Management Group Triton, or Optionable, Sherb & Company has consistently failed to catch problems before they happen. That may be a benefit to someone who is trying to hide illegal behavior, but shareholders deserve a higher level of performance from someone who is so crucial in identifying and preventing fraud.

Over the years, Schultheis and Tabin have worked with Sherb & Co. enough times, that I think it’s fair to question whether or not the firm is considered independent. While I understand how hard it can be to identify firms that are engaging in fraud from that ones who just make mistakes, I can’t but help find it frustrating that Sherb & Co. has been able to have such a high failure rate and yet they’ve received little more than a slap on the wrist by regulators.

Given that Vois has been fooling the blogosphere for over a year now, some may ask why I choose to speak out on this issue now. While deep down inside I really didn’t want to make enemies with people I don’t know, I became concerned that a trap was being set after Vois announced that they were doing a 1 to 100 forward split. Through this use of financial engineering, they’ve been able to dilute their shareholders.

Why do I think that Vois is doing the 1 to 100 forward split now? It’s pretty simple really, they are out of money and likely won’t make it through December, unless they can offload warrant debt onto public shareholders that is. TheRichArab from Yahoo! Finance explains this point best,

“WARRANTS ARE LIENS. the company is doing the split to cover the WARRANT. which EXPIRE IN DECEMBER OF 2009. IF the warrant is not covered by shareholder capitalization then THEY THE COMPANY must pay the outstanding amount. IT IS SIMILAR TO OPTIONS, VS. MMs and US (you cannot option a pinkie).

Thanks!”

Former convicted stock felon Barry Minkow describes financial fraud as “the skin of the truth stuffed with a lie.” The best con artists must pepper their lies with truths in order to perpetuate their fraud for as long as they can. You have to have people believe in the legitmacy of what you are doing, if you want to do more than pickpocket them.

Vois claims that they are a legitimate web 2.0 company with a “strong” management team that has taken many tech companies public. What they don’t tell the public is that over the course of their careers, the founders have been exactly one degree away from businesses and individuals who have been directly involved in fraud on multiple occasions.

Whether or not Vois’ founders are trying to pull the wool over their investor’s eyes, I’ll leave up to you to decide, but make no mistake about what is at stake.

People who are victimized by stock fraud don’t tend to be the sophisticated investors that the big name VC firms are going after, they tend be be an unsuspecting and unsavvy web 2.0 public that doesn’t understand the first thing about investments. Hopefully, before recommending a company like Vois again, we’ll see sites like TechCrunch and Mashable do better due diligence to help protect their readers.

*Just in case you didn’t get enough of this story in the article, tune in on July 9th at midnight PDT for part 2 of my expose as well as a a podcast where I confront Vois Co-Founder Craig Agranoff on the air.

It’s been over 5 years since TiVo filed their patent lawsuit against Dish, but we’re finally reaching the endgame of what has been an epic chess match between the two companies. Between the he said/she said arguments that have played out in the press to the endless legal maneuvers by both camps, it has been a long and brutal battle for both. As a TiVo shareholder, I know that I’ve found the long delays especially frustrating.

In the latest development in this high stakes game though, TiVo has managed to pin Dish into a dangerous checkmate situation. With appeals quickly running out, Dish’s options are becoming increasingly limited. While things look pretty dire for Dish, I believe that they may try to play one more dangerous gambit before this game is up.

I think they might try to buy TiVo.

While looking through my traffic logs, I came across a very interesting visitor In 2006, I wrote an article referencing a poison pill TiVo implemented in 2001. Since Google loves bloggers so much, my story somehow ended up near the top of the page for the search term TiVo poison pill. Given recent analyst chatter that TiVo could be an M&A target, I’m not surprised that people would be interested in taking a closer look at the nuts and bolts behind the agreement, but I was surprised at where my visitor was coming from.

While there is no way for me to know who it was, someone at Echostar’s corporate HQ’s spent 25 minutes researching an article that I wrote on the topic. Their outclick took them to the legal document that contains all of the nitty gritty details on how the pill actually works.

Now, there could be any number of explanations for why someone at Echostar would be interested in TiVo’s anti-takeover provisions, but the most likely one is that they’re interested in making some kind of play at TiVo.

On June 4th, the Eastern District of Texas District Court announced that they were holding Dish in contempt for continuing to infringe on TiVo’s timewarp patent. (via Mainers’ Law Library) Dish may have been able to get a temporary stay on the injunction, but the eventual impact of the ruling could end up being devastating.

The order against them contains two crucial components, the first is a requirement to disable all infringing DVRs. For Dish to comply with this portion of the injunction, it will probably cost somewhere in the neighborhood of $300 – $400 million. This type of expense would hurt, but it wouldn’t necessarily put them behind the 8-ball.

The far more damaging portion of Folsom’s order is the infringement provision. This prevents Echostar from replacing these DVRs with other DVR set top boxes.

“The DVR functionality, storage to and playback from a hard disk drive, shall not be enabled in any new placements of the Infringing Products.” (bold added by me)

The inability to offer a DVR to their customers would put Dish at a severe competitive disadvantage. Furthermore, because Dish has now been caught trying to sneak a “replacement” DVR in through a redesigned back door, they now must seek court approval prior to deploying any new DVR solutions.

Now I realize that there are still a lot of people who haven’t adopted DVR technology yet, but for those who have, you know that once you get a sweet taste for time shifted entertainment, there’s no going back.

Survey after survey after survey has confirmed that people LOVE their DVRs and while I can’t speak for others, I know that if my television provider disabled my ability to record television, it would take less than a week before I found a replacement.

Dish doesn’t breakdown their current number of DVR subscribers, but during their most recent earnings call, Dish CEO Charlie Ergen acknowledged that the “majority” of their customers buy advanced DVRs and/or HD services. This would suggest that that as many as 8 million Dish subscribers could potentially lose access to DVR technology.

While the cost of replacing the set top boxes could hurt Dish’s earnings, the loss of even 10% of their subscriber base would do terrible things to their stock price. Customer defections and the inability to remain competitive could easily cost Dish shareholders, $3 – 4 billion in lost market cap.

Given the strength of TiVo’s position, several analysts have suggested that Dish may finally be ready to enter into a settlement agreement with TiVo and while forfeiting the game at this late stage would help to prevent an unmitigated disaster for Dish, I don’t believe that TiVo is willing to accept such a forfeit.

Instead I think TiVo is planning a North Korea strategy. For years, they’ve been unable to command respect in their industry and as more and more generic DVRs have hit the market, TiVo has seen their market share eaten away by larger competitors. Now that TiVo possesses a nuclear DVR patent, it opens up new avenues for “conversations” between them and their competitors.

A fat royalty check from Dish would be good for TiVo shareholders, but having the ability to strike fear into the heart of the MSO industry is worth considerably more in increased pricing power. Some may believe that a settlement is inevitable, but I believe that TiVo would have already entered into an agreement long ago, if they weren’t crazy enough to actually push the red button.

Even before TiVo’s latest legal victory, this bargaining power has enabled them to forge agreements with Cox, Comcast and DirecTV. Once companies like Time Warner and AT&T realize that TiVo is both ready and willing to put this kind of hurt on a business, it makes it a lot more palpable to swallow the carrot that TiVo offers through DVR partnerships.

If you assume that TiVo will eventually win this case and that they have no intention of settling with Dish, the only logical move left for Dish to try and make is an expensive acquisition.

After five years of litigation, I would hate to see Dish win this by seizing control of a company that they’ve done everything to squash. Fortunately for TiVo they should have a lot of leverage to negotiate. Their pill wouldn’t prevent an outright acquisition, but it would make it extremely expensive for someone to buy TiVo without the board of Director’s approval.

Based on my understanding of the complex agreement, in the event that Dish (or another acquirer) were to accumulate more than 15% of TiVo’s shares (or even announce the intention to acquire more than 15% of the shares), it would trip a provision that would entitle the other TiVo shareholders to a special $60 per share dividend This means that if Dish were to forcibly acquire TiVo, it would cost them $71 per share or close to $7.5 billion (more than Dish’s entire market cap.) If Dish tried to pay for the transaction in stock, TiVo shareholders would be entitled to $13.5 billion ($131 per share) in the buyout.

With TiVo’s stock currently trading at $1.15 billion ($11 per share), this type of premium would be too bitter of a pill for Dish to swallow.

While it’s possible that we could see Dish challenge the poison pill legally (I hear that they have an attorney or two working for them), the only other option that I can see around this restriction would be for Dish to somehow convince TiVo shareholders to get rid of the pill at next month’s annual shareholder meeting.

This would be a long shot in and of itself (and one that I’m not even sure would be allowed per TiVo’s bylaws), but this feat is made even more difficult when you consider the fact that you would have had to have been a TiVo shareholder prior to the most recent judgment, in order to be eligible to vote on this kind of initiative.

While I’m doubtful that Echostar would succeed in an attempt to acquire TiVo, at the very least it’s interesting to see them thinking about it.

“I need not fear my enemies because the most they can do is attack me. I need not fear my friends because the most they can do is betray me. But I have much to fear from people who are indifferent.” – Russian Proverb

Now I know that most people don’t really care about the mechanics behind playing video files and I can’t say that I blame you for caring more about your content than the technology behind it, but while this post will get into some of the more mundane mechanics of the codec industry, I ask that you stick with me because behind the scenes a war is being fought for control of your very television.

This particular battle has been going on for over 10 years now and centers around something called a codec.

When J.D. Rockefeller set out to monopolize the oil industry, there were several crucial areas where he attacked. He knew that he couldn’t control all of the oil fields because it was literally bubbling out of the ground, but what he could control was the distribution method for getting oil to the end customer.

In building his monopoly he seized assets used to transport oil from raw material to the end consumer. Whether it was owning all of the oil pipelines, so that he could control what oil cost him, owning the railroads so he could dictate how far his competitors could reach or owning the distribution points where consumers bought kerosene to light their homes, he made sure that he had control over every aspect of it. This was good for Standard Oil investors, but wasn’t very good for competitors or consumers.

Online video may not seem like it has a lot to do with the oil industry, but if you look at it’s early development, there are many similarities. So much content is bubbling up that the real challenge isn’t finding video oil, it’s getting it to consumers. Instead of pipes, now we have internet access, instead of railroads there are CDN networks, instead of gas stations, there are operating systems ready to serve us 24 hours a day.

In all of these industries, competition has been limited to a handful of big companies, but the industry that I’m most interested is much smaller than any of these. In the grand scheme of things, codecs (and the filters that go along with them) are the refineries of the video world. They take digital signals and convert them into the flickering magic that appears on our screens. Consumers may not understand the technical details behind it, but they are a crucial chokepoint in your digital video experience.

This battle has been fought on many fronts, but in the end it always comes down to one issue. Those who think consumers should have a choice and those who think they know better. It’s about control over your entertainment experience. Who, What, Where, When, and How you are allowed to consume YOUR media. On one side, well funded corporations with huge financial stakes, on the other, an unorganized patchwork of misfit companies and an army of guerrilla volunteers desperately fighting for a better entertainment experience for all of us.

The war over how video is transmitted may not make it to the front pages, but how it turns out will be important for the success of digital video. In order to better understand how this battle is going, I reached out to interview one of the Colonels in this digital revolution.

Dan Marlin is the CEO and Co-Founder of CoreCodec. His company has built many of the tools necessary to play video files. Before starting his company, he worked for DivX and over the years has contributed extensively to the open source codec movement. He also sits on the board of the Matroska Foundation, an organization dedicated to enabling high definition digital video support for as many consumers as they can.

In our interview, we discussed the growing momentum behind the MKV format, his thoughts on DivX and the competitive landscape of the codec industry and had a passionate discussion around a controversial decision by Microsoft to prevent outside developers from using alternative filters in Window’s Media Player.

In regards to MKV, Marlin had many positives things to say about the momentum that they are seeing. When I asked him about interest in the format, he said that over the last 8 months, they’ve seen a “20 fold increase in the inquiries in regards to more details, about usage about enhancing the current feature set.”

This interest should mean good news for consumers. As more and more customers ask “where’s the MKV?“, hardware companies are starting to respond. When I asked Marlin about how long it would take before we see MKV reach critical mass he said,

“If you look at the adoption scale, you’d probably have to say that we’re at the Ubber Geek stage right now. It will probably take 2 – 3 years. We’re just starting to see the penetration now and it’s been three years since our last release. I would probably have to say two years. Not this Christmas, but the following Christmas you’ll probably start to see more devices.”

One of the more interesting things that came up during our conversations was some of the trends that Marlin is seeing in the MKV adoption curve. It’s no surprise that the anime community was one of the first ones to start using the technology, but I was surprised to learn that countries in Asia and Europe have been more enthusiastic in adopting MKV then in North America. In fact, the trends for MKV adoption mirror the original DivX adoption curve exactly. It’s almost as if the people who’ve been long time DivX users are the first ones to upgrade to an HD experience.

“Absolutely, as a matter of fact it’s mirrored exactly. You could look at DivX in the early days when I was there going back to 2001 and you can actually see the same adoption happening, the anime, the ripped releases from the AV heads, it’s mirroring it, but you have to ask why they are doing it? They are doing it because of the flexibility that it brings to what they’re doing. They can add, especially when it comes to some of the guys that rip DVD and the like and Blu-Ray, they kind of make it their own. They can add menus, there are menus out there that even though they are text, they do very basic things, but there can also be a ton of files inside the container itself, there are info files and pictures you can group.”

While Matroska was technically created by CoreCodec, Marlin told me that he has plans to spin it off into a foundation similar to Mozilla. They plan to offer sponsorships to companies that want to tap into their early adopter customer base. One of the things that I found fascinating throughout the interview was the openness behind such a transformative piece of technology. Instead of monetizing their creation, CoreCodec is building a business around the open source eco-system. Big media companies that believe you can’t build a business around “free”, would be well served in looking at how Core Codec has been able to position themselves by giving a good portion of their technology away.

“we looked at it not looking to make money and that wasn’t really the intention, but even what has been proven now and maybe not so much back then, open source and the ecosystem around open source, there can be profit. Even in a non-profit foundation or a not for profit foundation I should say, which the Matroska Foundation will eventually become, you know is pretty much the same thing. You still can be profitable and make money to support what you developed.”

When I ask Marlin about his thoughts on DivX and how they are positioned in the codec industry, his thoughts were bittersweet, “it’s a love-hate thing.” On one hand, having DivX adopt the MKV container does a lot towards making it a standard. It also helps to speed up the amount of time it will take to get into hardware devices. On the other hand, not a lot has changed since DivX and XviD split paths and now that the open source movement has taken the upper hand, he doesn’t like to see confusion between X.264/MKV and DivXHD.

“Obviously they’ve rethought what they had to do with H.264 which is a migration, but they’re not providing anything of value to what’s already out there. As a matter of fact, it brings more confusion than anything else and that’s the frustrating part because they have their own eco-system with certification and us as a solution provider like with CorePlayer or the CorePlayer platform itself is working with third party OEMs and they are asking questions in regards to DivX and DivXHD and we say the same thing we’ve been saying all along. DivX is Mpeg video and DivXHD is AVC video.”

Of all the topics that we discussed though, the most controversial was the decision by Microsoft to restrict how third party filters work within Windows media player.

To fully understand the issue, you need to know how your computer reads media files. When you click on your file, filters take a look at that data and tries to figure out what to do with it. If it’s audio, they’ll send the data to an audio decoder so your soundboard can play it. If it’s video, then it gets sent to a splitter where the audio stream and video stream are separated. From there a decoder looks at the video data, decodes it and sends it to a renderer for display on your screen.

The controversy revolves around how Microsoft prioritizes filters when you play back content. Currently, if you have several filters installed that can all handle the same job, WMP will look at the merit value of each filter and give preference to the highest one. Since you have the ability to prioritize which filters you want your computer to use, it allows you to create the ideal settings based on your hardware.

This comes in handy if you’re trying to play H.264 video in WMP and it happens to conflict with your video card. Since the user has control over the priorities, you’re able to create a better (more credible) configuration.

With the Windows 7 RC, Microsoft has taken away your ability to prioritize which filter you can use. From their perspective, they get a ton of complaints about filter problems and by making it a closed system it improves the experience for their customers. For the codec industry though, it will reduce the incentive for engineers to continue to work on filters because Microsoft has just essentially seized the entire filter market.

Microsoft will argue that because they allow people to install whatever filters they want on their own media players, that this restriction is somehow reasonable. After all, they’re not preventing customers from downloading another media player and configuring the settings anyway you like, they’re controlling their own product.

The problem with this argument though, is that while consumers have shown that they’re willing to download a codec, by and large, they’ve been very reluctant to download an entire media player. It’s a big commitment to mess with the default settings on Windows and because Microsoft bundles a copy of Window’s media player into every operating system they sell, it drastically minimizes the potential market that companies like CoreCodec, DivX and Nero can serve. This ultimately leads to less investment in codec technology and lower quality video for consumers in the long run.

Take a look for yourself at a real life comparison between video played using Media Foundation’s preferred filters and an open source combination. While the differences may be subtle, there is clearly better focus and definition in the open source solution. It might not be much, but it makes a huge difference when you put it on a 60″ screen. Today, you’d have the option of recreating the ideal settings in WMP, but with Windows 7 Microsoft is now in control.

While Marlin wouldn’t go as far as to accuse Microsoft of using their dominance over the operating system as a way of stifle third party codec competition, he did agree with me when I suggested that this may have more to do with preventing competition then securing their media player for consumers.

“You said it I didn’t, but essentially when it comes down to it, that’s what it is. It’s just frustrating that we all have to go through what we have to do and they could have provided an integrated solution without having to lock out third parties. Period.”

Now we can argue over whether or not Microsoft had an evil intent when they choose to shut down part of the codec industry, but regardless of the motives, competition is hurt by their decision to close media player to third party vendors. When I asked Marlin whether this would hurt his company or whether it was a dam in the river that would fork around the issue, he had conflicting thoughts.

““I think it’s going to be both. Microsoft will probably tell you that there is no problem and then the Core people will fork around it, but you’ve got to question the value of it though. You could still have embedded DirectShow filters, why have them under media foundation?”

Later on in the interview he extrapolates,

“I would say that as long as the default decoders are not set as the default and can be overwritten, I think we’re OK. The question is what steps will you have to go through and will Microsoft allow those steps. Right now you can edit it, they posted the solution online, but Microsoft could bypass that solution with the next RC. So that’s kind of like a wait and see thing. It does affect our business though, it does affect DivX’s business, it affects everyone’s business. “

Now Microsoft is free to run their business in anyway that they see fit and while the issue over filter compatibility within WMP may be an inch in the grand scheme of things, with each inch consumers lose a little bit more control. What’s so surprising to me about Microsoft’s behavior though, is how bold their actions are given the current regulatory climate.

Someone should nominate them for Alpha Dog of the Week because it takes giant brass balls to use your ability to bundle software, in order to shut down an entire industry, while you’re being accused accused of abusing your monopoly by bundling software within the operating system. If the EU understands even a little bit about codecs, I would expect them to be up in arms over this issue because it essentially proves the argument that they’ve been trying to make. Microsoft’s dominance in the operating system is having a detrimental effect on competition in other areas of the software industry.

It could very well be that Microsoft has good intentions here, but given their long history of doing whatever it takes to gain control of the codec industry, I can’t believe that this is by happy accident. This is a company that just spent a ton of money to exclusively webcast the Olympics in their Silverlight codec. The lack of MKV support in Windows 7 prompted the Hack 7 MC blog to write that “Microsoft’s support of the format is borderline neglectful.”

The decision to interfere with the priority filter settings is so Machiavellian I still don’t know what to make of it. My cold banker heart says yes! yes! yes!, but the consumer in me says dear God no. While I understand that these issues are hard to figure out and that there are many ways to look at them, I hope, for the sake of the entire codec community, that Microsoft will rethink their decision to exclude third parties from Windows media player.

For a complete transcript of my interview with Dan Marlin, please click here.

What exactly is CoreCodec and how does it relate to what you are doing with Matroska?

“Matroska is a container that our engineers developed some years ago. It is part of CoreCodec, I mean CoreCodec technically owns the rights to the trademarks and the like for Matroska. We have begun to form a separate Matroska foundation which will pretty much takeover from what we’ve begun to more of an independent, something along the lines of the Mozilla foundation, where they independently control the source code, but for right now CoreCodec is maintaining and helping to startup the Matroska foundation itself.”

CoreCodec also does for-profit work as well is that right?

“Absolutely”

Why did you go with such a radical open source license for Matroska then? Was that the only way you saw it coming together and competing or is it a reflection of your core fundamentals?

“Really it goes back to what our roots were. If you go back to even from when I started with multimedia when I was originally with DivX, I was one of the original people in DivX and we had what was called the OpenDivX decore, that was pretty much under an open source type of derivative license that I think was called the DivX open license or something along those lines.

It didn’t come out, it didn’t really pan out very well for them because I thought that the eco-system that they were trying, which they eventually came to realize, that the eco-system they were trying to go for just wouldn’t work with that license.

so in a lot of ways at Matroska we saw, well we saw a lot of opportunities in that AVI itself was an outdated technology. At the time, MP4 the container wasn’t very well defined. You’re going back again to about six or seven years ago now, so we looked at it not looking to make money and that wasn’t really the intention, but even what has been proven now and maybe not so much back then, open source and the ecosystem around open source, there can be profit. Even in a non-profit foundation or a not for profit foundation I should say, which the Matroska Foundation will eventually become, you know is pretty much the same thing. You still can be profitable and make money to support what you developed. It’s no different than Redhat, though they are more at the corporate level trying to support their customers or their derivative works of the Red Hat OS on Linux.

With the CoreCodec side of the business how are you helping other companies? Who would be an ideal customer for you and how are you helping them?

“With regards to Matroska, it would have to be implementation. While Matroska is open source, we also have a free BSD style license version of our library for playback. What that means is that you can still playback the content even though you may have a closed eco-system. We still allow you to integrate the technology into your closed eco-system, so that’s the difference there. We help third party solution providers integrate Matroska into their solutions. Some examples that are currently out there implementing would be LG, Panasonic, Toshiba and the like, more recently Western Digital with their hardware that they just released for multi-media playback.”

Over the last 12 months it seems like we’ve seen awareness of MKV really start to take off. Even some of the more mainstream technology writers are starting to make it a check list feature, has that surprised you? What are you seeing in terms of the interest around the container? Has there been a ramp up over the last 12 months?

“Oh absolutely, as a matter of fact we’ve probably seen a 20 fold increase in the inquiries in regards to more details, about usage about enhancing the current feature set. It was really designed from the very beginning and if I can go back to the conversation that some of us had here in the early days, it was designed for the next 25 years, in that no matter what the MPEG consortium came up with in regards to the spec for whatever might be the next gen including Mp4 as a container, it was really designed to go beyond that, it was designed to let the spec grow as the technology kind of grew at the same time and again that’s the whole point of it.

Part of the early days, going back to DivX, one of the biggest things that held DivX back was the AVI container. It’s really why DivX right now is adopting Matroska in what their efforts are, and we’re all for that, even though, I’m no longer with DivX, I wish any third party that wishes to adopt a technology like Matroska the best of luck.

I really think it’s only going to enhance what has been in the past, a frustrating experience for end users. In that Matroska, once adoption has come and the tools are there, people start to understand more about the difference between a codec and a container, the experience will be much smoother because there won’t be hacked flavors of AVI or this or that, they’ll just be standards. No difference than what MP4 is, but the difference I think is about control.

People feel that they have no input whereas we listen to all third parties. We adjust and adapt as needed, but the core code itself has not needed to change itself in three and a half years, so we have not needed to touch the container itself in well over three years now and again that’s a testament to the flexibility of what is in place. Now in the future, that’s going to grow obviously with 2.0, but we’re actually going to slow our development for 2.0 because of the adoption curve of 1.0 right now. Which will allow us to be a little more meticulous and listen to the customers, listen to the consumers, the OEMs and the integration providers and see what their needs are and then we’ll kind of adapt to it, so we’ve kind of slowed down a little bit in what will be the future version of Matroska just so that people can start to enjoy what’s already out there.”

With Matroska, because it’s a container it allows you to put various codecs in it. Does that create problems when you go to try and certify MKV with a CES company, where maybe it could play some MKV files, but not all of them?

It’s setup so that the structure within it is the codebase with the exception of only one or two formats which are only recent formats and I think one of them wouldn’t actually be seen at all. It’s pretty much setup, I don’t think you’re really going to see problems.

Now certification, that’s something that we’re just getting into now. We’ve put out there I think in our specs, we actually put out levels of certification what a mobile and desktop platform are going to need. We put that out there for comment and later on we will have some form of certification, but it’s more so for sponsors and things down that line where we’ll certify their hardware against a certain profile and allow them to use logos and the like for distribution on the device itself or on the box and things like that, so it’s more so the flexibility and the updates hasn’t needed it for awhile and I don’t think any existing formats, even the ones I briefly mentioned, their not pressing. I think one is E-AC3, but I think even the guys that discuss their current code will still support it.”

Given the momentum that you’ve been gathering, what do you feel the next step is? What needs to happen for the next stage of MKV’s growth?

“Well probably, more hardware. That’s where we see it. The growth in the past 8 months, I won’t even say 6 months, prior to Christmas 2008, we saw big growth and we see this year that the growth even will be much more explosive going into this year’s holiday season. So I think that would probably be the biggest thing that we would want and we’re also expanding out from the services we’re providing within CoreCodec. People are starting to look more closely at what we have with our other technologies with CoreAVC, CorePlayer and even next year with CoreMVC which is based on H.264 and CoreAVC. So we’re excited about doing that, helping others as an alternative to what is currently out there right now. Again, no different from what we’ve done in the past.

How do Core services work within an open source eco-system? You’re working on creating these filters for private customers right?

Yes, it depends, both You’ve got to take it two different ways or at least we look at it two different ways. One as a consumer and one more from the OEM/consumer electronics side. Each one is supported in different facets. On the consumer side you have our codecs themselves outside of the container, the Matroska container, we have all of our decoders CoreAVC, CoreAAC, we support Mpeg2, Mp3, etc. We pretty much have our own codecs very similar to Ffmpeg, except it’s closed source.

Now later on at some point, we do plan to open source pretty much our entire eco-system, if the business warrants it and right now it looks like does and that is because of the popularity of the CoreAVC as it is. We can still open source it and monetize it and also release our encoder as well, but at the same time we’re very cautious about what we do. We take steps appropriately. We do, again going back to the core of what we’ve always done, we open source a lot of our technology. Like Matroska, the Haali media splitter may not be open source, but it is free and we put it out there for everybody to use. Most of our other directional filters from CoreVorbis to our original CoreAAC is all open source and available on our website.”

Help me understand some of the terms out there that can be a bit confusing, for me at least. What’s the difference between a codec, a splitter and a filter?

“You can throw renderer in there as well. Each one plays a certain role in playback. Consider a container like Matroska a ball. Inside of that ball you can put anything. You can put pictures, you can put video, you can put audio, you can put text files, you can put pretty much, even executibles in there if you support it with your parser. It gives you unlimited possibilities to put stuff in that ball. Then you have the codec which allows playback. They are the physical means for playing back the audio or video. Now in between the playback and the file itself, you’re going to have to have a player that supports it and to be able to do so, you need a splitter and a renderer and that’s where the Haali media splitter comes in.

Technically what it does, it puts pin outputs to the audio and video and connects the playback to the physical software itself within the operating system and that’s on Windows, Linux is something different and CorePlayer is something different as well. CorePlayer has it’s own built in filters. It’s not DirectShow, it’s pretty much has it’s own internal decoder, renderer and splitter.

Each playback means is going to have it’s own and Mplayer does it by mimicing DirectShow where you physically take the Windows .dll and you’re able to take it over to Linux and kind of emulate DirectShow within Linux. It’s hard to understand, but once you start to use it a little bit more and you start hearing the terminology you become much more familiar with it, but just know that each part plays a very key role in processing the playback of audio and video.”

Looking at the step forward to Window’s 7 that is coming out, there’s been a lot of positive press in terms of native codec support and the h.264 and AAC support. A lot of people would say this is a good thing, that this is going to make the codec experience more seemless for consumers. Why should anyone care about Windows locking down their filters and is Window’s 7 really bad for the codec industry or is this something where the good outweighs the bad?

“It really depends on how you look at it. If you’re a consumer, absolutely. It’s a controlled eco-system, it’s no different than what Apple does with the iPod or even the iPhone where they’re trying to control the experience for the end consumer. For technology companies, however that has a very large investment in what they’re doing as a service provider for their individual solutions, it’s bad.

Going back to our case with CoreAVC, our H.264 filter, we have people that have purchased it, consumers, OEMs that have purchased it and to have to shut out what is something that people have come to expect, ie. the flexibility of being able to add filters or add playback filters on their own, I think is bad.

You should always give them the choice.

I understand the point of trying to control the environment. I’m sure that one of the largest problems that Microsoft deals with when it comes to Window’s media player is people complaining that their multimedia doesn’t play. They’re trying to integrate that, it does make sense from a business case, but to have to shut out, under the guise, maybe of saying that it is a matter of controlling it, I think we can pretty much say that, or guess here, I don’t want to overstep myself, that it may be a guise and that may be in lieu of control.

It has to do with DRM and if you think about the formats that have been shut out, it’s AVC or H.264 and it has to do with AC3, this is what’s in Media Foundation itself. Now Media Foundation is a higher class replacement for DirectShow, in all honesty, it’s DirectShow, that’s all it is.

So they basically used their own filter and are now saying that we’re going to control the codec at the filter level and anybody who wants to use a different filter, you can do that, but you can’t do it on our player, you have to build your own application?”

“Right and there are some work arounds where people are hacking the registry and are trying to come up with bypasses where it overwrites the priorities for media foundation so when somebody clicks an h.264 file, that it actually will open up with a third party filter, DirectShow. The point is, there’s no documentation, or very limited documentation and there’s not even clarification.

Even Microsoft is confused in this case.

If you take Silverlight for example, Ok lets do a comparison with Adobe. Adobe has the Adobe media player and the like. They all share the same architecture essentially. Whether it’s Adobe Air, they all interangle amongst each other, whereas Microsoft’s Silverlight has it’s own collection of decoders within it and does not share the embedded ones that are on the OS. It’s kind of confusing and goes against what they should be doing.

If they’re truly trying to control it, meaning yeah that’s OK that Silverlight is a stand alone product, but if they’re going for the largest control then why aren’t they sharing the Media Foundation codec within Windows 7, within Silverlight? Maybe I could see stuff like XP, Vista making sense, but it doesn’t in Window’s 7, they should be sharing the same architecture and again, I don’t know I would probably say that the argument is going to come for control for their users experience, but I would probably have to lean towards it being more in line with DRM.

It’s about control for secured content.

Do you think DRM is the reason why Silverlight hasn’t been made portable? I mean isn’t the solution that Matroska is solving partly because there isn’t a high def portable format out there?

“You know, I’ve heard people talk about that, but I don’t really know about that. I just think that it’s almost about staying the course, but trying to migrate to something new at the same time and I just don’t know if the flexibility of being able to get things like Matroska into what they have, would work. How would you even get Matroska into Silverlight?

I don’t know

“I don’t know either and we have some of the top guys over at some of the forums like Doom9 and you have some of the engineers from Microsoft kind of chatting about it and as long as we’re putting the thought in their head, I’m hoping that it’s going to play a role in their future decisions. Not just for Matroska, but even for third party decoders like CoreAVC or DivX or PowerDVD or Nero or any of those other third parties.”

Looking at that piece of the eco-system, it seems like there are a lot of MKV files out there and now that we’re beginning to see more hardware devices support it, how far away are we from software solutions where you can start editing files or is that not even related to your goals with MKV?

No, it absolutely is, in fact that was one of the keys of what we’ve always done. You have AVIMux or MKVtoolnix which, is probably one of the most advanced tools, it is THE authority when it comes to mixing and creating Matroska files. That was a very key part of Matroska from the very beginning. We wanted to unify, or mirror some of the stuff that we’re doing with CorePlayer. Even CoreAVC is a single unified core for every operating system and Mosu with what’s he’s done and even Steve or some of our lead engineers, what they designed from the very beginning, is to be able to do that for adoption purposes. That way there were no restrictions, Linux OSS, Windows Pocket PC, Windows Mobile, even though it doesn’t really matter, it will create outputted formats supported on all operating systems and the tools for creating Matroska and editing Matroska is no different.

They’ve evolved over the last five years as much as the format has not evolved. The tools are the complete opposite I should say. They’ve evolved with at least a dozen versions every single year whereas the container hasn’t really needed to change. That’s a key to our success. Again, all under the same type BSD license where they can take the source code and integrate into the product, whatever that product might be.

They’re not required to pay royalties or licensing, all we want is for people to adopt the format itself, that’s the key to the success of it.

It seems like there are going to be three standards for downloadable media. The Silverlight solution, The Apple solution and the open solution that people can go towards. Recently, it seems like a lot of the hardware providers are partnering with studios to do streaming deals and the hardware is more about incorporating YouTube and Netflix into the devices then full portability for consumers. How long do you think it will take for mass adoption of MKV and having a serious penetration level where most of the devices out there have to support to?

If you look at the adoption scale, you’d probably have to say that we’re at the Ubber Geek stage right now. It will probably take 2 – 3 years. We’re just starting to see the penetration now and it’s been three years since our last release. I would probably have to say two years. Not this Christmas, but the following Christmas you’ll probably start to see more devices.

Even with companies like DivX putting DivXHD and the like, but we’re not convinced that DivXHD is going to succeed at all. It really is just a rehack of H.264. It’s no longer DivX. DivX was a file format and they’ve done nothing different with this, they just have the eco-system with their hardware partners for when they upgrade. I don’t know, I’d probably have to say within the next year and a half, we’ll be at a more critical mass.”

DivX adoption of MKV helped to solidify support in creating it as a standard, but as far as what DivX is trying to do with it, do you see a solution there or do you think that they have to reinvent their business as DivX SD becomes less popular? Where do you feel that they are positioned in the codec space?

“Well they have. Obviously they’ve rethought what they had to do with H.264 which is a migration, but they’re not providing anything of value to what’s already out there. As a matter of fact, it brings more confusion than anything else and that’s the frustrating part because they have their own eco-system with certification and us as a solution provider like with CorePlayer or the CorePlayer platform itself is working with third party OEMs and they are asking questions in regards to DivX and DivXHD and we say the same thing we’ve been saying all along.

DivX is Mpeg video and DivXHD is AVC video.

You can still say DivX name, just put a disclaimer saying blah blah blah, there’s no difference. Now DivX would probably argue with that and say they have file specific format stuff, and they do if you talk about the DMX menus, which they do have or they have Sub-X, which is their subtitle format and yeah that’s proprietary to their decoder and for them to be able to playback those file formats, but do they really bring anything of value to the table? No.

We support sub-titles in Matroska in .KF, so any kind of SSA or other sub-title formats we already support and the menu system is already out there for the 1.0 menus. You can create menu overlays right now within Matroska.

In a lot of ways, it almost seems like they’re back at the Xvid/DivX split where you have something where there is now this open source solution and correct me if I’m wrong, but if you’re Toshiba and want to support MKV in your products does that cost them anything at all?

“With DivX sure”

No, no, no, recently JVC had an MKV box without DivX, did it cost them anything at all to include Matroska support?

“Zero.”

So that’s very disruptive when you look at the eco-system and it goes back to the question of you’ve got these closed sourced solutions where you’re building a business and making money, but then you’ve created this open source solution. Is that because the only way to take on Microsoft and Apple is to keep it open and you need that help or is it more that you wanted to future proof your own container?”

“It wasn’t so much container it was more or less a need. The limitations on AVI as a container were very frustrating for engineers to be able to do things that they wanted very easily, you could not. Lets say you wanted to add or remove elements from within the container, for example an audio track where you wanted to be able to add an additional audio track. You couldn’t do that with AVI easily, you could hack it, but there weren’t tools to be able to extract.

With our tools you can extract or remove or replace very easily, so it wasn’t a move against Microsoft by any means, it was more of a necessity of what we wanted and then once we found out what we wanted, we tried to look at the future and see what we can do to extend the adoption for that 20 – 25 year period and we feel right now considering the feedback that everybody’s provided over the past few years and the fact that we haven’t changed for the past few years that we’ve kind of accomplished that.

Now to monetize it? The whole point wasn’t really to monetize it. We will with some of the stuff we’re doing, we have contractors that go out and help out and integrate within CoreCodec by helping third parties and that’s great and with the Foundation that will change a little bit because of the sponsors, but it’ll be no different than XMPP or Mozilla where you have sponsorship levels.

It gives you funding to do marketing, so that you can get people interested

Yeah, you want to be able to advertise. We also want to be able to further our eco-system, not only with Matroska, but also with CoreCodec and some of the stuff around other technology that we’re doing and we want to be able to provide that so having that will help us continue to stay in business and continue to further evolve the technology.

Providing the logos and the certification for those levels will definitely help to that point and cause less confusion in the marketplace, which again I feel that DivX is and will continue to cause. Again we’re not sold, they’re going against everything that we have tried to put out there, but again I understand it.

What’s to differentiate an MKV file that was created with DivX tools vs. Us? The only thing we can do is warn the user. We can detect it in the header of the file that was created and we can say you’re trying to play back a DivXHD file and this file may not be supported. We’ll continue to play it back in our eco-system with CorePlayer. With the filter we can do the same thing, we can warn the user that it was created with the DivX tools and it may not be supported because it may not be and DivX will try to tell you that everything is compliant with Matroska and I’m sure that it is, but that’s just what they’re saying. We’ve already identified stuff that’s not compliant and we’re reporting back to them and it’s good to have a type of relationship with them.

There’s a bit of a dichotomy there. It sounds like one hand you’re competitors, but on the other hand they’re ability to get this out into their ecosystem could really benefit the container as well?

Yeah, it’s a love-hate thing, same thing with Microsoft really. I wish them luck. I think that what they’re doing is great for the container. It shows that we were right all along. Hacking AVI was not good and Matroska was built for the future and I’m glad for that, but at the same time I don’t want them to ruin something for the consumers or confuse consumers anymore.

That’s my only concern. I wish them luck. When I left DivX, I left them wishing that they could have done better and I’m glad to see that they made something of a good move, but the question is how will it hurt in the long run.”

They made a splash, but where they’re going is what everyone is trying to figure out right now?

“What they have going for them is the current partnerships with the companies that they have and that’s a great great thing and again I just feel that under the guise of saying that it’s DivX and DivX only is what the third parties need to realize. Most of them aren’t stupid please, the third parties whatever companies you mention, they all know.

They have to see some value in the certification in order to spend the money so if it’s not there it won’t shake out that way.

“Absolutely and again you have to question the true certification and the cost for that certification. I’m not going to sit here and spit out numbers that they charge to certify, but the value is about control. They’re looking to control the experience for the customer, for that third party. That’s going to become less and less of an issue over time, especially with faster hardware coming into play and even TVs and the like, I’m not sure if you saw the latest TV reviews from Google?”

I saw that you have an LG TV coming out, but that’s thru USB stick right, not thru an ethernet connection?

“Yeah, but the speed of the menu system is horrible, it’s bad.”

So there is this trade off where you need the chips to be a certain speed in order to support your format?

“Yeah, but like with anything that will become less of an issue. In the mobile market CorePlayer excels because of the speed of the player and that’s because it’s written for 386, we write at a very low level, so when you start taking bloated code and start applying that to something that doesn’t have a lot of CPUs or dedicated CPU cycles, that’s when you start to realize the same performance. Going in it’s favor though, you do have hardware catching up especially when they have to upgrade to H.264. With TVs, it’s no different from some of the stuff they’re doing. Even with CorePlayer it’s already integrated with some third parties for TV usage, so that’s great for us and what we’re doing, but all we’re doing is providing the multimedia framework for playback on the TV itself and the user interface with CoreUI.

Going back to the Window’s 7 issue real quickly, do you think the decision to freeze out the outside filters, is that going to hurt the codec industry, is that going to result in less competition or will this be another case where there’s a dam in the river and the river forks around it?

“I think it’s going to be both. Microsoft will probably tell you that there is no problem and then the Core people will fork around it, but you got to question the value of it though. You could still have embedded DirectShow filters, why have them under media foundation?

Because you can lock competition out, people won’t download other media players they will download codecs.

“You said it I didn’t, but essentially when it comes down to it, that’s what it is. It’s just frustrating that we all have to go through what we have to do and they could have provided an integrated solution without having to lock out third parties. Period.

That’s the most frustrating thing. Then to not provide the information needed in order to overwrite, obviously we can now the hacks are out there, guys have already posted the registry key that we can kind of use, but what we’re doing here is we’re waiting. They’re not providing us with any of the information that we need now, so we’re in a wait and see mode. We’re in RC-1 right now with Windows 7 we’ll have to see with RC. Maybe they’ll post more information.

It sounds like this isn’t so much a threat to your ability to do business, but rather a lot more man hours, a lot more work to get this worked out?

“Yeah, I would say that as long as the default decoders are not set as the default and can be overwritten, I think we’re OK. The question is what steps will you have to go through and will Microsoft allow those steps. Right now you can edit it, they posted the solution online, but Microsoft could bypass that solution with the next RC. So that’s kind of like a wait and see thing.

It does affect our business though, it does affect DivX’s business, it affects everyone’s business.

When you can’t have filters within your application work properly . . . whether anybody realizes it or not, there’s mass adoption going for Windows 7. I can tell you that the demographics from our website, the ubbergeeks that are early adopters, I can tell you right now that the people running XP and Vista jumped to Windows 7. A huge percentage of them, probably 75% of them are all on Windows 7 and this is just since the RC came out.

It’s going to become an issue very fast, much more so than anybody thought. We need some kind of answers and I guess you’re not really going to get them right now from Microsoft. They are on our forums talking a little bit chatting back and forth with Haali, Steve and myself, so it’s good to see some dialog, but we’re still not getting any answers and I don’t expect that to change.

It seems like it’s an issue that affects your industry quite a bit, but it’s hard for people to see past that just because it’s not as visible.

“It’s definitely not as visible, but when people start screaming . . . . we’ll probably see that, if they are planning on releasing Windows 7 by Christmas . . . It’s going to be ‘great’ fall.”

I know that when DivX first came out, it was released in Europe and there was big adoption in France and to a certain extent spread geographically from there. Have you seen similar trends with MKV?

“Absolutely, as a matter of fact it’s mirrored exactly. You could look at DivX in the early days when I was there going back to 2001 and you can actually see the same adoption happening, the anime, the ripped releases from the AV heads, it’s mirroring it, but you have to ask why they are doing it?

They are doing it because of the flexibility that it brings to what they’re doing. They can add, especially when it comes to some of the guys that rip DVD and the like and Blu-Ray, they kind of make it their own. They can add menus, there are menus out there that even though they are text, they do very basic things, but there can also be a ton of files inside the container itself, there are info files and pictures you can group.

It’s creates a more interactive experience for consumers?

“Yeah and is that different than .divx? it is, but again, it is what it is. They’re looking for something that has a hacker edge to it and not that Matroska was really created for that, but we’re glad to see adoption no matter where it occurs and that kind of pushes hardware companies to do the same. They’re getting their customers asking why isn’t MKV support in there? Look at Sony, why isn’t there MKV support in the PS3? It’s free, they should add it, same thing with the Xbox 360.

Why do you think that the hacker community choose MKV for the Blu-Ray rips?

“Probably because of rips support, we started to see it right off the bat really. A huge Japanese following with Matroska back in probably 2004, somewhere right around there. We saw that right off the bat, the anime people jumped right on it.”

Do you have any sense as to why anime seems to be so far ahead of the curve when it comes to online video?

“We’ve actually had this discussion internally. I wish I could answer that, you could say it’s geographic and that the Asian market is faster to adopt cutting edge technologies, but at the same time why is China still using Real video? It could be argued both ways.

I would tend to think that they just look for something that’s flexible to their needs and I think that’s what Matroska is providing just like DivX did back in the early days with quality video. It was night and day vs. anything that was prior to that. I think Matroska brings the same thing to the table, but we do it with a little bit more flexibility than what they can do with the files themselves, being able to attach multiple files within the container.

What do Matroska fans have to look forward to next? In the next 3 – 6 months, are we going to see more hardware coming out?

“Oh Yeah!”

Is 2.0 going to be rolling out or is that further down the road?

2.0 like I said, we’ve definitely pushed it out for awhile because were going to hang back and let 1.0 get the adoption. You’ll probably see things finalized with MKS/MKV/MKA so there’s support within the web browser itself by default. Within all web browsers, Safari and the like. The application type will be set. That will be coming in setting us up for maybe tweaking it for some more menus.

We’re also talking about adding a bit more menu work into 1.0 and we’ve already done some work prior to 2.0 which is a major part of Matroska technology called EBML. We’ve already completed EBML 2.0, as a matter of fact EBML 2.0 is a complete rewrite of 1.0 which is in Matroska 1.0. It really provides us greater flexibility for what we will be doing for Matroska 2.0. At the same time, it uses the technologies that we created here at CoreCodec and utilizes those technologies within EBML which is CoreC which is our AVC library language. Going along those lines is what we’re planning for 2.0.

It’s exciting, you guys are at the heart of something pretty big here I think and to be part of that is neat. Since this is your 2nd go around is there anything that you think you’ll do differently from when you were at DivX?

“Yeah, it has to do with playback. While Matroska for us is great, we’re obsessed with fluid playback no matter what it is, including Matroska, so right now our main goals are to extend the eco-system, the CorePlayer eco-system even further and then be cutting edge with Matroska as we roll out our 1.x version and also 2.0 and that’s pretty much it. We’re excited to be able to provide that for the consumers and our OEM customers.”

Over the last few years, Redbox has been able to build an impressive DVD rental network by being innovative and flexible while their competitors were still laughing at the concept of kiosk rentals. Over time they’ve added features to the Redbox website that allow customers to browse and reserve titles online. They’ve linked their kiosks together so that unlike competitors (ahem: Blockbuster), you can actually rent a movie from one location and return it at another. Redbox’s core business may ultimately be, plain old boring DVD rentals, but there’s no denying that they’ve been an innovator in their industry. This is why I am so perplexed by their most recent decision to go hostile against iPhone owners.

Given the company’s reputation for thinking progressively, I was disappointed to learn that they’ve decided to take a technological step backwards by putting pressure on the Inside Redbox blog, to kill their Inside Redbox iPhone application.

I haven’t jumped on the iPhone bandwagon myself yet, but I can understand why some people think of their phones as an extra appendage. The apps store was a brilliant move by Apple and has created all kinds of interesting software programs that wouldn’t have existed if people had to rely on big companies to build them.

By taking advantage of the GPS features inside the phone, Inside Redbox was able to give iPhone customers the ability to look up which Redbox was closest to them at any given moment. It also allowed customers to find out whether a specific title was available before wasting time visiting the kiosk in person.

The best part about the application though, was it’s ability to reserve movies directly from the iPhone. This means that if you’re standing in line at a Redbox and the person ahead of you is taking too much time selecting a movie, you could theoretically use your iPhone to digitally cut in line and reserve the last copy of Harold and Kumar instead of having to wait impatiently.

When you consider that one of the biggest customer service complaints about Redbox are the long lines when customers try to return DVDs, it blows my mind that Redbox would discourage consumers from using their own mobile device by having them monopolize a kiosk instead.

Whether a customer prefers to order their movies from the internet, a kiosk or the middle of the store while shopping for groceries shouldn’t make a difference to Redbox. No matter what, they are still making a sale, even if they don’t have 100% control over the purchase.

Inside Redbox is mum on details and calls to Redbox’s PR agency didn’t shed any light on the situation, but the two most “controversial” features included in the app is a list of codes for free Redbox movies and the fact that the app relies on Redbox’s website for most of the content.

One theory for why Redbox doesn’t seem to care about iPhone customers is that while they’ve been able to get a lot of buzz using their free movie offers online, consumers haven’t been all that aggressive about redeeming the promotions. Since iPhone customers have access to the most recent free offers while they are actually standing in front of the Redbox kiosk, it makes it easier for customers to take advantage of their specials.

If this is the reason why Redbox killed the application, my response would be that Redbox hasn’t solved their problem, they’ve just made it more difficult to work out a reasonable compromise with their customers. It won’t take consumers very long to figure out that they can bookmark Inside Redbox’s list of free codes or RedboxCodes.com on their iPhones and still have access to the same information.

Rather then fighting progress, Redbox should be using the relationships formed through the application to streamline their movie promotions. They already restrict some of their offers to new customers only, so why can’t they work out a deal for iPhone promotions? Wouldn’t it be better for Inside Redbox iPhone users to have a 10% chance at “winning” a free movie instead of killing the app and forcing these customers underground? By trying to lower the wham hammer on this neat little application, they’ll only end up upsetting customers instead of addressing a weakness in how they’ve choosen to promote their service. Just because the iPhone app doesn’t fit into their mold of what marketing should be, doesn’t mean that killing it is the best solution.

A second theory for why Redbox may have requested that the app be pulled is that Inside Redbox uses Redbox.com’s website for a healthy chunk of their content. Some businesses may object to this and want to have 100% control over how their customers are “allowed” to use their product, but smart companies see the benefits of being open. In fact open API’s are becoming increasingly common in the tech industry. By allowing third parties to mashup and repurpose your data, entirely new creations are possible. This is why some of the most successful companies have business models that encourage outsiders to partner with them. The Inside Redbox app may repackage content from Redbox’s website, but when push comes to shove, it’s really no different than an internet browser. Is it really better for Redbox to force their customers to have a subpar experience using the Redbox.com website on the iPhone instead of an app that is specifically designed to be viewed on the small screen? I don’t think so.

Asking Inside Redbox to pull their program is a bit like asking Microsoft to not allow Redbox’s website to be shown on Internet Explorer. If Redbox really objects to how their content is being used, they have the power to change it. Instead of trying to kill the third party programs that tap into what they’ve already created, they should be encouraging their fans to mix, mash and experiment to create new experiences for their customers.

To date, Redbox has managed to stay ahead of the competition by being nimble and by nurturing a passionate and dedicated fan base. Their decision to now turn on the very fans who cared about them long before their mainstream momentum, says a lot about how fickle their business decisions really are. Instead of acting like the innovator that I know they are, they are acting like a big media company. Hopefully, Redbox comes to their senses and “authorizes” the use of an app that only makes their service more valuable to their customers.

The last couple of years may have felt like a bad dream to most investors, but for DivX shareholders it’s been nothing short of a nightmare. They don’t hand out Oscars for businesses, but if they did DivX would have won hands down for best horror flick.

When the company first went public, expectations were high. YouTube had just been sold for $1.6 billion, DivX was demonstrating 75% gains in their high margin core licensing business, and their unique business model looked like it offered a very strong moat from competitors like Apple and Microsoft.

At one point DivX’s market cap exceeded $750 million, today it barely closed above $150 million. Over $600 million dollars in capitalization wiped out by one misstep after another. Admitedly, the tough economic environment can be partially blamed for DivX collapse, but the sad truth is that much of the value destruction could have been avoided.

Suicide Kings

Shortly after DivX went public, Jeran Wittenstein wrote “DivX was founded just before the dotcom bust in February 2000 after Greenhall managed to convince Jerome Rota — a French software engineer who created DivX’s founding technology — to join him in building a company. Including Greenhall and Rota, eventually there would be five co-founders, all of whom are younger than Greenhall and still with the company.” (Note: bold print added by me)

They may have been able to survive the dot com collapse, but DivX’s founders weren’t able to survive the success of going public. In December 2007, Jordan Greenhall, Darius Thompson, & Tay Nguyen all left the company after DivX’s board of Directors made the inexplicable decision to cancel their spin off of Stage6. Joe Bezdek officially left the company 10 months later and now I hear that Jerome Rota, DivX’s original creator, resigned from the company on February 6th of this year.

While Rota remains on the DivX board of Directors, the loss of his day to day influence can’t be understated. I only had the opportunity to meet him once, but was impressed by his remarkable vision. These five individuals may not have had the spit and polish that Wall St. expects from traditional executives, but they weren’t afraid to take risks and knew how to motivate the troops beneath them. The impact from the loss of these employees goes well beyond their individual contributions and investors have already seen shockwaves from these loses ripple through DivX’s employee base.

Two and a half years later, investors have voted with their feet, all five of the founders have now left the company, cracks are beginning to form in their moat and their franchise is very much in danger. The company has gone from being an innovative risk taker to a zombie of her former self. DivX now stands at a crucial crossroad. Are they willing to risk potential annihilation to save consumers from their zombie masters or do investors have Dawn of the DivX in store for a sequel?

“Affliction comes to us all, not to make us sad, but sober; not to make us sorry, but to make us wise; not to make us despondent, but by its darkness to refresh us as the night refreshes the day; not to impoverish, but to enrich us.” – Henry Ward Beecher

There are many instances where management has stumbled, but the end result all comes down to a loss of confidence. They’ve lost the confidence of their shareholders, the analysts, their employees and most importantly, the consumers who drive demand for their products.

Without a dramatic turnaround, I fear that this lack of confidence will spread to their manufacturing partners and we’ll see DivX lose their digital video franchise. While there is still plenty of cash flow left to milk from the DVD market, without aggressively expanding their market position, DivX’s influence will be over before they have a chance to finish the revolution they started.

Barbarians at the gate

When DivX went public, investors were willing to pay a premium to get exposure to the stock. At one point investors were paying more then 10 times sales, a P/E over 30 and over five times DivX’s book value. Based on the midpoint of DivX’s 2008 guidance, DivX is now valued at 1.15 times book, 1.66 times sales and a p/e ratio of 9.5. When you consider that DivX is holding $120 million in cash and short term investments, investors are pricing them more like a blank check IPO, then a strong growing company. You can argue that this is a result of the poor financial markets, but I think it speaks volumes about the lack of confidence that shareholders seem to have in management.

DivX’s response to their problems has been to try and slash and burn their way out of it. When they closed Stage6, they also layed off approximately, 10% of their staff. After Yahoo! backed out of their toolbar arrangement, DivX fired another 10% of their staff. If DivX was struggling to get by, I could accept these types of sacrifices, but the reality is that these cuts are only designed to boost earnings for the company.

I believe that DivX’s management is under the impression, that if they can increase earnings enough, investors will reward them by returning to their stock. The problem with this strategy is that it may be easy for DivX to position themselves to feed off of years of hard work, but without continuing to invest in the business, they have little chance of realizing meaningful growth. When DivX presents their 2008 earnings in early March, I believe that their focus will be on strong earnings results. This may look impressive from a distance, but don’t be distracted unless it’s accompanied by strong revenue growth. Earnings are certainly nice for investors, but if DivX has stopped growing, then investors won’t pay a very high multiple.

When DivX presented at the Thomas Weisel technology conference earlier this month, they used the following graph to illustrate their past growth. On the surface, it’s hard to criticize the progress they’ve made.

While there’s no doubt that DivX has accomplished a lot in a very short time, where they are going is more important then where they’ve been. Sadly, over the last year they’ve seen their progress come to a screeching halt. Another way to illustrate, the same information that DivX used in their Thomas Weisel presentation, is to graph the percentage that revenue has grown each year. Even if we exclude things like the Yahoo! toolbar fiasco, the trend for DivX’s core business doesn’t offer a lot to get excited by.

In 2003, DivX grew their core licensing business over 700%, in 04′ they saw 184% growth, in 05′ they saw 84% gains, in 06′ they almost experienced a 76% increase in growth. In 07′ signs of danger started to appear, but they still realized 40% growth from their core business. If we use the midpoint of their guidance for 08′ revenue, DivX should see a 13% increase in core revenue for 08′.

As DivX’s business has grown, there is an expectation that the law of large numbers will start to kick in, but if current trends continue, it would appear that DivX’s core licensing revenue will hit near term maturation sometime this year.

Jordan Greenhall said that 2007 would be a building year for DivX, Kevin Hell said the same thing about 08′. With the company in self destruct mode, how optimistic should investors be for 2009?

Trouble In Never Never Land

Some investors may cheer the savings in earnings, but make no mistake, it has had a tremendous cost. The coup to get rid of Greenhall, the divisive nature of current management and the layoffs have all had a tremendous impact on employee morale. DivX may claim that their employee relations are normal in their SEC filings, but there is too much evidence to suggest that DivX now suffers from Yahooitis! These creative individuals are the soul of the company. If DivX continues in their zombie state, more and more employees will leave, feelings will become even more bitter and the company’s progress will be stalled.

If you want to see proof of how bad employee relations have become, take a look at DivX’s reviews on Glassdoor.com. Kevin Hell’s current approval rating is 15%. That’s worse then GW’s numbers, when he left office. To put this into perspective, Hell’s ranking gives him the dubious distinction of being the 18th worst CEO of the 7,185 companies that Glassdoor is tracking.

If you read the comments on the site, it’s very revealing about what’s going on behind the glass curtain.

“It’s party time…if you are a VP or above…”
Pros
It’s a fun atmosphere and very social if you are of the right mindset. Lot’s of cool people and talent…
Cons
Watch your back…I didn’t trust any of the management at all after seeing my boss’ team cut without her knowing beforehand. Very closed, “open environment”… If you are looking to complete a project to add to your portfolio…think again…my projects changed scope every 3 weeks. The strategic direction changes everytime the wind blows.
Advice to Senior Management
Hire new management that cares more about the company’s success than their cushy compensation packages… Layoffs in 2008 were taking place while senior management was cashing in on millions of $$ in stock…even at very low strike prices….Something very fishy is happening here…”

or this one from a current employee who goes by the name anonymous

Anonymous in San Diego, CA: (Current Employee)
“Great company, TERRIBLE management.”
Pros
You get a chance to work with a lot of cool, talented people.
Cons
All the cool, talented people are getting laid off/fired/quitting.
Advice to Senior Management
DivX had so much energy and drive but the management seems to have succeeded in beating that out of the company almost completely.

Here’s one that calls out DivX CFO Dan Halvorson

Developer in San Diego, CA: (Past Employee – 2008)
“DivX was a fun place to work…. at one time”
Pros
DivX has a wonderful group of bright engineers. The camaraderie in my team was superb and we made the best of the otherwise dismal situation. The HR department is better than most in that they truly seem to care about the needs of the employees. There is an opportunity to do something big, and that can be exciting as well.
Cons
I’m not sure where to start! The CFO Dan Halvorson has a reputation for layoffs and cash-outs. He was rumored to have said, “I love it when people quit”. It’s gotten to the point where Halvorson avoids the office and never sticks around at company events. I suppose he knows he isn’t welcome. The constant layoffs and lack of openness to employees gives people an sense of uneasiness and all you can really do is speculate what they’re upto. At least with Jordan, he would be straight with you. The Hell regime seems pretty secretive and sometimes dishonest most times. The Stage 6 debacle was a train wreck. So much of the company’s resources were thrown at this pig and look what came of it? Nothing. A number of long time employees left around this time? Coincidence? Maybe, but not likely. I am guessing the founders got tired of the games and politics.
Advice to Senior Management
Get rid of Halvorson, he is dragging morale down all on his own. No one likes him or wants him there. Be more honest and forthcoming with employees.

The most accurate of them all though, is the bittersweet summary of DivX’s short history.

Anonymous in San Diego, CA: (Past Employee – 2007)
“Good While It Lasted”
Pros
The culture, when it first started was remarkable. There was a great vibe in the office and you constantly felt that you were being challenged and motivated.
Cons
After they went public, and Stage 6 launched, there was a massive series of mistakes that killed morale.
Advice to Senior Management
Listen to your employees.

It may be tempting to write off comments like these as disgruntled employees, but there’s obviously friction between labor and management. Shareholders may not want to acknowledge it, but they would be foolish to ignore it.

If DivX’s reign of Hell is allowed to continue, labor problems will only get worse. Lower payroll may be good for the bottom line, but it does nothing to boost their revenue, long term potential or the health of the underlying business. Going into zombie mode may be the safest way for management to keep their jobs, but zombies move slow and now is the time for action, not caution.

DivX’s digital eco-system is shifting like quicksand beneath them

Like the DVD, DivX’s codec is being made obsolete by high definition. To DivX’s credit, they saw this trend earlier than most and had the foresight to buy MainConcept to help manage this shift, but even there we’ve seen talented defections.

Support for H.264 doesn’t automatically mean that their codec won’t be skipped over in lieu of generic HD certification. The biggest threat to DivX’s business model is that CE makers will use the DivX to HD transition as a way to build support for generic certification. If consumers aren’t demanding DivX support, it will make it easy for them to cut DivX out of the equation. Managing this change to their eco-system, should be the company’s top priority. If DivX can’t convince device makers, that consumers really want their product, more and more manufacturers will leave DivX for cheaper alternatives, creating a downward spiral on their licensing business.

Winbox COO, Niklas Samios shares his rationale for choosing to skip DivX certification

Since Hell took the helm of the company, DivX has been focused on licensing premium content from the major studios. They have scored agreements with Sony and Time Warner, but between their P2P reputation and their Stage6 experiment, one can understand why some of the studios would be reluctant to dance with them.

Last August, they announced a partnership with Cinema Now for showcasing DivX content. While it’s unclear as to when their collaboration will start, it sounds like they are working on creating some kind of new entertainment destination.

According to CEO Kevin Hell DivX is “actively working with retailers to launch sites that can sell content leveraging our DRM in the marketplace. We announced Cinema Now last year and we are actively working to launch a retail offering with Cinema Now and other parties that are out there. The whole idea being that we want to bring content and allow that content to move to all the different devices out there that have our DRM inside.” (Note: Bold added by me)

While I’m of the belief that there can never be too many internet video sites, I did find it curious that Hell used the word “launch” to describe their initiative. When you consider how difficult it’s been for businesses to gain traction in the online video space, it’s a little surprising that DivX wouldn’t be using Cinema Now’s own flagship website as their distribution system.

What the need for a brand new site reveals about DivX content initiatives is a fatal flaw in their Hollywood ambitions. Even with a third tier internet video provider, they can’t convince Cinema Now to incorporate DivX into their main site, because they’ll never be able to get a license from all of the content providers.

Even if they could get a couple more studios on board, their lawsuit with UMG will effectively torpedo any hope of them ever being able to offer a comprehensive catalog to consumers. If you think UMG has any intention of backing down on this one, take another look. Read through DivX’s latest dust up over whether or not UMG should be allowed to use Audible Magic on Stage6′s 60 terrabyte database and form your own conclusions as to how far UMG seems willing to take this.

In the past, DivX management has argued that access to premium content was a key component to their growth, but at the Thomas Weisel investor conference, Hell backed away from previous comments.

“this space does I think take some time to play out, I think that there’s a lot of interesting opportunities out there right now in the premium space, but they’re taking time to really play out, so we’re making sure to pace ourselves in this space and not get ahead of the market”

Going after the studio content is a mistake in my opinion, it’s like ditching the girl you took to the prom for the cheerleader that all the jocks are already trying to make a move on. If DivX had a clean record and was bulging with cash, they might have a shot at some of that hot mainstream content, but when their P2P ex-girlfriend is more horrifying then Carrie to the content providers, it seems foolish not to stick with the girl you took to the dance.

DivX doesn’t need Hollywood content, they need consumers to DEMAND support for DivX in their consumer electronics. Supporting the dark side of the content business wouldn’t earn them any friends in Hollywood, but it would win them the hearts of consumers and would rebuild their moat in high definition.

One of the biggest challenges that Blu-Ray players have faced, isn’t so much the high cost of the hardware device, but the extra money that studios are insisting for Blu-Ray content. DivX could turn themselves into a recession play if they’d be more vocal about advertising the “free” content that people can use on their devices. As Paul Sweeting so aptly put it earlier this year, “hardware makers are adding all sorts of other gimmicks to their Blu-ray players, too, from wireless connectivity, to portability, to, wait for it…VHS playback. Yep, anything to try to avoid slashing the price of players. And anything to try to give consumers options beyond paying $30 for Blu-ray movies.”

Instead of promoting their latest licensing scheme as an H.264 solution, DivX should be pointing out that DivX Plus certification offers “Blu-Ray quality” high definition without this $30 cost. Again, it wouldn’t help their content negotiations, but it would help drive consumer demand back to DivX Plus devices, which is what ultimately drives CE interest and powers DivX’s business.

Content deals make sense as a way to extend their eco-system, but only if it’s on DivX terms. Instead of begging studios for access, DivX should be developing their consumer pipeline and rewarding the content companies who recognize the benefit of being able to access millions of consumers at their television sets. DivX greatest opportunity is the caos caused by Hollywood’s licensing terms. If they go through official channels, it will be years before they can reach their core fans, but if they fight against the system, they will be the only international solution for a very long time.

How much buzz could DivX get, if they actually spoke out about their lawsuit against UMG or if they ran some kind of “pirate” friendly promotion like giving free ISOhunt toolbar installations, while trying to find a replacement for Yahoo! These moves wouldn’t make them any money, but it would be a clear signal about who their end customer really is. DivX does almost zero marketing because their consumers have built their brand. By going hostile against Hollywood, DivX would magnify the strength of their signal. When consumers show passsion for the DivX brand, CE companies will quickly fill the void.

Fat Tube and little DivX

DivX other big “growth” initiative has also turned out to be a flop. Despite two years of pitching the concept, DivX has yet to see Connected integrated into other consumer electronics. The sad part is, that I believe Connected could radically transform DivX’s value proposition.

Currently, if you want to play a DivX movie on a DVD player, consumers must find the content, transfer it to a portable storage device (i.e. burn a DVD or move the file onto a memory stick) and then physically transport the media to their DVD player. If you’re a hard core fan, it’s worth going through all this trouble to get access to your media, but I’d be shocked if more than 5% of users were taking advantage of this feature.

The beauty of the Connected business model is that it dramatically simplifies the process. If consumers buy a TV that is powered by DivX Connected, they’ll get curious as to how to take advantage of the functionality. Not everyone will adopt DivX, but if even 25% of those customers plug their television into the internet, it would drive mass adoption for DivX content.

Compared to their DVD licensing, DivX Connected could have an atomic impact on the content industry. Make no mistake about it, if Connected takes off, it will be a weapon of mass piracy from the studio perspective. Because Connected makes it so easy to access your content, it has the potential to turn mainstream customers into rabid file sharing animals. Why it hasn’t already taken off remains a mystery to me, but it could have a serious impact on the demand for DivX, if they can ever get it released into the wild.

Last fall, I had the opportunity to meet Hell in person and I asked him whether or not he felt that the premium they were asking for Connected had anything to do with manufacturer resistance.

His response was “I wouldn’t attribute it to the pricing, I think it’s more an issue of implementation and the fact that a lot of these guys are still trying to figure out what they’re doing there. They either have their own initiatives or they’re confused about it, they want to try X, they want to try Y, anything that’s out there to figure out what it’s all about and in my mind it’s a lack of coherent focus and understanding by the CE partners.”

Since then, CES has come and gone, but it looked pretty clear to me that the CE industry isn’t all that confused about their connected television plans. The fact that DivX hasn’t been able to get their product in the door may or may not have something to do with their pricing, but deep discounting may be their best option for jump starting the program again.

In 2002, DivX was struggling to convert their company into a licensing business. Manufacturers were skeptical that consumers would pay extra for the support. To prove the value of DivX certification, DivX signed a licensing agreement with a little know third tier DVD maker known as KISS. It was officially certified in August 2003. The product, immediately began to pick up buzz and less than six months later, Phillips signed on to have DivX included in their own DVD players as well. After Phillips made their move, other CE companies were forced to follow and by mid 2004, DivX DVD players were pretty much available anywhere on the globe. To this day, the Phillip’s DVP642 remains one of the most reviewed DVD players on Amazon.

A couple years after DivX helped to put Kiss on the map, Cisco bought them out for over $60 million. I would argue that there are many similarities between Divx’s initial efforts to convince DVD player manufacturers to licensing their technology and their current struggles in the Connected market. Rather then continuing to hold out for a premier deal, DivX would be well served in signing a teaser deal with a small television provider. When large CE companies see proof that DivX Connected can move TV sets, they’ll quickly begin signing contracts to ensure that they remain competitive. While heavy discounting is less than desirable from Divx’s perspective, getting more Connected devices in the wild, would at least give them an opportunity to prove that there’s still value in the DivX brand.

Death of a Salesman

While I support discounting when it helps to secure DivX’s moat, it’s hard to be encouraged by the cracks that we’re seeing in their value proposition.

To help take a closer look at DivX’s pricing erosion, I reached out to Jack Wetherill from Futuresource Consulting for data on global DVD player sales. According to Mr. Wetherill, “DVD players in their broadest sense (ie set-top players, recorders, integrated home theatres, DVD/VHS combos and portable DVD players) totaled 122m in 2006 and 127m in 2007. We expect the market to level off at 127m in 2008, although year end numbers are still being finalised.”

When DivX first went public, the company said that they had a 25% penetration rate in the DVD player market. This translated into approximately $47 million in core licensing revenue for 2006 or approximately $1.54 per DivX certified device.

In 2007, DivX grew their global DVD player market share to 37%, which translated into approximately $66 million in core licensing revenue or $1.40 per unit.

At the Thomas Weisel Technology conference, DivX said that they’ve now captured 50% of the DVD player market, but according to their own projections they are only expected to grow their core licensing business by 13% in 2008. With core revenues around $75 million, this would suggest that DivX is now earning a unit licensing fee of $1.18 per certified device. A decline of approximately 23% in pricing power since the company went public.

When you consider that consumer trends have been much kinder to upscaling DVD players (where you almost always find DivX) vs. traditional DVD players and when you consider that DivX’s core revenue numbers include other electronic categories and Main Concept revenue, one could argue that these calculations are much more conservative then the actual results.

DivX has always said that they provide volume discounts to partners, but with over half the market now captured, it would appear that DivX’s DVD upside is somewhat limited.

Saving Private DivX

Along the way, DivX has made their fair share of mistakes, but they’ve also achieved tremendous wins as a result of the risks that they’ve taken. Compared to the mainstream studios they may only be a tiny mouse, but when you look at affect that their technology has had on the media landscape, it’s clear that they’ve been able to frighten the Hollywood elephants.

The good news is that it’s not too late to turn DivX around, but without some kind of action, I fear that DivX will remain in cruise control while their franchise continues to lose value. What does DivX need to do in order to return to their glory days of growth? It all comes to restoring confidence in the company.

First and foremost, DivX must put a stop to the bleeding from employees leaving the company. Given their labor issues, I don’t believe that this can be accomplished without replacing their management team, so I believe that new leadership needs to be a top priority.

Once a new team is in place, I would take .25 cents worth of earnings and commit to investing it in DivX’s growth. DivX’s employees are more accustomed to the culture of a start up then a publicly traded company. DivX should be playing to these strengths. Spend $500k per month building out new businesses. Adopt a Google model where employees are encouraged to spend 15% of their time thinking outside the box. Become a technology incubator with the long term goal of spinning off divisions when the markets recover. Start funding a profit sharing contribution to the company’s retirement plan, so that DivX’s success is shared by everyone instead of those lucky enough to get options. Take the time to listen to your employees and address their concerns.

Secondly, DivX must restore faith to their investor base. New leadership could help to accomplish this, but it will likely take more than promises of growth, to soothe the rattled nerves of their investors. Reinforce DivX’s long term commitment to shareholders by paying a .25 cent dividend as a way to reward investors while they wait for evidence of a turnaround. Taxes on a dividend would be better avoided through a buyback, but further buybacks would only reward short term shareholders and would increase volatility by reducing an already low share count. With a 5% yield, a dividend should help to establish a floor on DivX’s share price until earnings multiples expand back to growth levels.

Finally, restore confidence in your consumer base by speaking out for consumer rights. Use the UMG trial as a way to create passion in your fans and to drum up support for digital rights. Squeezing marketing leverage from the lawsuit would at least help to justify the costs involved with going to trial. Focus on Divx Plus’ quality advantage for HDTV consumers. Instead of throwing good money after bad, abandon your content plans until you have better leverage. Use small independent content providers to show how powerful DivX user base can be to progressive studios. Sign a sweetheart deal with a small CE television manufacturer to put pressure on the rest of the market.

If investors do nothing, DivX won’t necessarily go bankrupt, but it will torpedo their brand and market position. DivX CFO Dan Halverson said that their #1 goal in 09′ is to protect the balance sheet. This may seem prudent during such difficult economic times, but sleepwalking through a format change won’t position DivX for the long term. There will be a time for Divx to cash in on all of their hard work, but to try and do so at such a crucial point in the digital transition seems foolish and short sighted.

Yet, despite all of the advances in technology, the rollout of fiber access has been painfully slow. AT&T likes to brag that they now offer Uverse to over 17 million households, but after two years, they’ve still only managed to sign up 1 million subscribers. While 17 million households sounds like a pretty significant footprint, if you’re not in one of the higher tax brackets, you are probably still waiting for super fast internet access.

A Tale of Two Cities

A little over a year ago, I left my swanky downtown loft in San Francisco for a much more humble apartment in the heart of Oakland. A big part of the move was because I wanted to save money for a new business that I was starting. At first I was ashamed to tell people that I was living in the 510, but after spending a year in Oakland, I’ve grown quite fond of the neighborhood. We certainly have more then our fair share of violent crime, but if you take the time to get involved in the community, you’ll meet a lot of amazing people. Leaving San Francisco for Oakland meant that I had to give up my fiber connection, but at the time, I was hopeful that it wouldn’t take long before AT&T finished their rollout of Uverse in the Bay Area. Sadly, after researching Uverse’s availability, I don’t expect this to happen anytime soon.

According to ZipSkinny.com residents who live in my zip code make a median salary of $32,273 per year. 23.7% of the population lives below the poverty line and there are nearly 18,000 people per square mile living in my neighborhood.

While Oakland can be a rough place, smack dab in the center of Oakland is a small town named Piedmont. Piedmont may be less then 2 miles from my home, but their community is night and day compared to my own. Despite being surrounded by Oakland, Piedmont was able to create a separate town for their residents and as a result they have their own school district, police department and fire services. While people in Oakland are struggling to survive, the median salary in Piedmont comes in at $77,952 (over twice what my neighbors are making.) The percentage of people living below the poverty line is a more reasonable 4.9%, and the average density per square mile is a measly 5,700 people.

Now I can’t fault Piedmont residents for wanting to live in a good neighborhood, but when you compare both cities, the difference between them is pretty startling. While one city is known for it’s high drop out rate among teenagers, the other is known for their high SAT scores. One city has an extraordinarily large population of single mothers, the other has an extraordinarily large population of personal nannies. One city has limited internet options, the other has access to Uverse.

We can argue over whether or not it’s fundamentally fair that Piedmont has so many advantages, but it’s their access to Uverse that I take exception with. As someone who has first hand experience with the benefits of a super fast internet connection, I’ve been harassing trying to get AT&T to expand Uverse into my neighborhood since I first moved. So far they’ve been pretty unresponsive and downright uncooperative to work with, yet 2 miles away in Piedmont, they are going door to door signing up residents for their service.

If you ask AT&T (either their phone reps or their PR dept.) for a list of neighborhoods where they provide service, they’ll refuse to break down the data citing competitive threats. Since I knew that Piedmont was juiced up for Uverse, but that Oakland had been largely denied service, I wanted to take a closer look at the numbers, to determine whether or not this was part of a larger pattern by AT&T.

In order to test my theory that AT&T is discriminating against the poor by only choosing high net worth areas to rollout Uverse service, I painstakingly researched bay area availability by looking up individual addresses one at a time. To help track this data, I created a public spreadsheet showing all of the bay area zip codes where you’ll find (and not find) Uverse service. While my spreadsheet does not prove that AT&T is using demographic data to discriminate over who gets access to Uverse company wide, it does suggest that their selection criteria in the Bay Area could be favoring the rich neighborhoods over the poor. When asked for more data on their company wide rollout, AT&T’s public relations department more or less told me to kick rocks and refused to comment on their selection criteria for Uverse availability. While they are well within their rights to withhold this data from the public, when you consider all of the government assistance that they receive, it seems only fair that they be required to provide some transparency over how they are choosing who gets Uverse and who gets denied.

According to my research, the average median salary of Bay Area Uverse neighborhoods comes in at $75,486 vs the average median salary of $67,405 for neighborhoods without access. In neighborhoods where AT&T offers Uverse, 6.65% of the citizens live beneath the poverty line compared to 11.04% in non-Uverse neighborhoods. While you would think that it would be in AT&T’s best interest to offer service in some of the densest areas first, a quick glance at the data shows that the average Uverse neighborhood represents approximately 3,500 people per square mile compared to density of over 7,000 people in Non Uverse neighborhoods.

Encyclopedia Davis and the Case of the Missing Uverse

Perhaps even more perplexing then the discrepancy between the haves and the have nots, was the fact that I could not find a single address in San Francisco which has access to Uverse. While my phone calls to AT&T reps and their public relations department generated plenty of assurances that they were offering service in the city of San Francisco, after more then 200 address searches, I still could not identify a single San Francisco residence that had access to Uverse. Despite AT&T’s claims that Uverse is currently available in the city of San Francisco, their representatives were also unable/unwilling to provide me with a single address that is currently using Uverse. As a result, I’ve excluded demographic data from the city of San Francisco when running the calculations listed above.

What makes this issue such a controversial topic is that if you are one of the traditional cable providers and want to expand service to a local neighborhood, there are typically very strict guidelines on which neighborhoods you have to serve. Because cable agreements have been traditionally negotiated community by community, local city governments have been able to negotiate equal access for all citizens. There are plenty of examples where cable companies have tried to only service high net worth neighborhoods, but because of the local franchise agreements, local politicians have had the muscle to pressure the cable companies to treat all of their citizens fairly.

When it comes to the telephone companies, the rules are a little different. Two years ago, California approved statewide franchise agreements that allow the phone companies to pick and choose which neighborhoods they want to offer service. The result is a broadband system that rewards the rich while discriminating against the poor.

Normally, I’m content to let businesses operate in the best way that they see fit, but when it comes to the internet, I’m a strong proponent of open access for all. The net is a great equalizer for society. It doesn’t matter whether you are black or white, rich or poor, male or female, gay or straight, young or old. When push comes to shove, it’s the power of your ideas that matter online. Yet, when it comes to the speed of your connection, it would appear that the tax returns of your neighbor, play a large role in deciding whether or not you have access to the highest tiered speeds on the net.

Internet providers have a unique business model that tends to encourage natural monopolies. Because the barriers to entry are so high, incumbent providers have a big advantage over new companies trying to get into the game. When you consider that President Elect Obama has proposed some pretty large checks to the phone companies, it becomes even more important to ensure that AT&T’s rollout policy treats everyone the same.

While I recognize the need for AT&T to turn a profit on their investment, I fear that by discriminating against the poor, it will only increase the digital divide. If AT&T isn’t using demographic information in their decision making process, then they should be more open about the criteria they are using to decide who does and does not get access to fiber internet. If my data is correct and they are only rolling out Uverse to the wealthy neighborhoods, then this is an issue that should be addressed before giving them access to more public funds.

While I believe that the statewide franchise agreements were a positive step for consumers and the telecommunications industry, if we’re not careful we run the risk of creating a system that makes it even more difficult for the poor to succeed online. While there may not be the same adoption rates in Oakland as there are in Piedmont, it doesn’t mean that their citizens should have less opportunities. Instead of continuing to discriminate against the poor, I’d like to see AT&T provide more balanced access to all.

When I was a kid, I grew up in middle of the sticks where my parents didn’t have access to cable TV. When satellite dishes first started to show up, my folks were early adopters and bought a ginormous pirate dish (that you’d actually have to crank by hand when you wanted to jump to different channels), but for the most part, my childhood television experience consisted of two fuzzy OTA choices, NBC and CBS.

Back then deciding what to watch was rarely a problem. If I didn’t like what was on one channel, I’d simply live with whatever was on the other. Of course since then, technology (and my life) have changed a lot.

In thinking about my home entertainment setup today, I’m amazed at how many choices I actually have. It’s as if I’ve overcompensated for my lack of choice growing up, by deluging myself with every media gadget or service that comes out today. Between Netflix, Comcast, Amazon, YouTube, a dual tuner HD TiVo (not to mention my dual tuner media PC) and a little friend I like to call Bit Torrent, there is no shortage of content to watch.

While having plenty of choices is fun, having too many can be just as paralyzing as having too few and as more and more technology companies continue to take their shot at crossing into the living room, managing all of this content is going to become an even more important task.

So far, there have been plenty of efforts to improve content discovery services, but the task is apparently, much tougher then I would have thought. Two years ago Netflix offered a million dollars to anyone who could improve their recommendations by 10% and they’ve yet to award the prize.

Over the years, I’ve signed up for a plethora of movie recommendation services, but last summer I realized that it was too difficult to sync my ratings between them all. Since I strongly believe that TV and movie suggestions is a crucial piece of the new media experience, I wanted to make sure that my metadata activity was giving me the most bang for my click. In order to test out the various movie sites, I decided to create a Netflix challenge and conducted a “blind” taste test to figure out what site actually makes the most relevant recommendations.

To set up my experiment, I randomly choose 5% of the 2,000 movies and TV shows that I’ve rated through the Netflix service. I then set up a new profile on Netflix, Blockbuster, Spout and Criticker and manually entered my ratings for these 100 films, into each service. According to Spout, these ratings represented 11.6 days and 181 minutes of time spent watching TV

After I had setup an identical profile on all four services, I then took a look at the first 50 suggestions from each site and compared it to what I had actually rated the film on my main Netflix account.

If the service suggested a movie that I hadn’t already seen, I disregarded it toward calculating the final scores. Essentially, what I wanted to figure out was which movie recommendation service provided the best recommendations based on my actual real life viewing data. After taking a look at all four sites, it was clear that Netflix easily won this challenge.

Of the 50 recommendations that Netflix made, 28 of them (56%) were for films that I had rated 5 stars on my main account. While they did include two 1 star recommendations (Fight Club & American Psycho), the average rating for their recommendations weighed in at 4.18. Critcker came in second place with an avg of 4 stars per recommendation, followed by Blockbuster at 3.96 and Spout at 3.87.

Perhaps even more interesting then the final scores though, were the services that helped me find movies that I had never seen before. Netflix’s results may have been higher then anyone else, but of the 50 recommendations that they made, there were only 11 films that I hadn’t already seen. This compares to 24 unknown content suggestions (48%) from Blockbuster and an astonishing 44 unknown recommendations (88%) from Criticker. In taking a look at the types of movies Blockbuster was recommending, I wasn’t all that impressed with the list of unknown films. Most of them were kids movies that I simply missed because I had no interest in them at all. Trying to decipher Criticker’s picks was a little more difficult because most of their picks were for indie or foreign based films. At first glance it would seem that while Netflix may make more accurate suggestions, Criticker may actually be the best place for finding films that go beyond mainstream audiences.

I’ve listed the breakdown of my results below, but I would encourage you to take these results with a grain of salt. With a sample size of 1, my survey isn’t very scientific and because the ratings of my Netflix sample profile were 100% identical to the ratings on my main profile, it could have influenced my results from Netflix. Nonetheless, at the end of the day, I was pleased to discover that Netflix appears to be the best place for me to be rating and interacting with movies. While I’m hopeful that their open API will eventually allow consumers to port their data between services, it feels good to know that my primary movie recommendation service is the most optimal one for me.

Netflix

Recommendations I’ve Never Seen – 11
5 star – 28
4 star – 4
3 star – 1
2 star – 1
1 star – 2

avg. 4.1794

Criticker
Recommendations I’ve Never Seen – 44
5 star – 2
4 star -2
3 star – 1
2 star – 1
1 star – 0

Avg Ranking 4.0

Blockbuster

Recommendations I’ve Never Seen – 24
5 star – 9
4 star – 11
3 star – 4
2 star – 1
1 star – 0

avg – 3.96

Spout

Recommendations I’ve Never Seen – 11
5 star – 18
4 star – 9
3 star – 4
2 star – 5
1 star – 3

avg. 3.87