"?> Davis Freeberg's Digital Connection » Technology http://davisfreeberg.com Fri, 23 Sep 2011 19:32:38 +0000 en hourly 1 http://wordpress.org/?v=3.3.1 Why Won’t AT&T Protect Your Grandmother’s Data? http://davisfreeberg.com/2011/08/03/why-wont-att-protect-your-grandmothers-data/ http://davisfreeberg.com/2011/08/03/why-wont-att-protect-your-grandmothers-data/#comments Wed, 03 Aug 2011 16:01:52 +0000 Davis http://davisfreeberg.com/?p=2245 He Sold His Soul to Telephone

Photo by Thomas Hawk

While going over my finances yesterday, I noticed a strange anomaly with my bills. After 3+ years of sending out a regular phone bill in the mail, all of a sudden AT&T stopped. Concerned that there could be a mix-up with my account, I contacted AT&T’s customer support line and was told that ebilling had been activated on my account.

The only problem is that I’ve never registered for online account access, nor have I ever provided AT&T with an email address. When I asked where my bill was being emailed too, the agent couldn’t provide me with an answer, but did say that my statement had been sent out this way for the last 3 years!

People may not be able to siphon money out of your bank account with your phone records, but they can still use this information to harm you. A competitor could use the list of phone numbers you call to prospect for clients, a thief could look for patterns of activity so that they would know a good time to pull off a burglary or a home invasion or an upset ex could use the records to stalk and harass you. While I’m inclined to believe AT&T when they claim that this mixup was actually caused by one of their employees, the thought of someone (nefarious or random) seeing this level of personal detail is a little unsettling to say the least.

Given the fact that there could have potentially been an online intrusion into my privacy, I asked AT&T to investigate the matter further and even more importantly to disable access to my online account. After 30 minutes on the phone, the AT&T rep ultimately declined to investigate the matter further and told me that the company has no way of turning off access to your online bill. Her only solution was for me to register my account online and to set my own password, so that someone else couldn’t register without my being notified first.

While I imagine that a large percentage of AT&T’s customers register for online account access, I’ve got to suspect that I’m not the only one whose never taken the time to do this. In fact, I’d be willing to bet that less than 25% of all senior citizens haven’t registered for online access. Given that all one really needs is a copy of someone’s phone bill, AT&T’s policies are putting some of their least tech savvy customers at the greatest risk. With zero notification for when ebill gets turned on, customers who depend on the physical mail for their billing info must wait at least 30 days to find out that they could have been a victim to a crime. Meanwhile, someone could use the time they get from hijacking your billing, to put 1-900 charges on your phone or to sign you up for monthly plans that don’t really provide any benefits.

Other utilities that I’ve contacted, haven’t had any problems with this request. PG&E for example, won’t even provide me information over the phone, unless I show up to one of their retail locations with my ID in hand. This may seem a bit extreme for most people, but your smart meter data is just as vulnerable.

To say that 2011 has been the year of the hack is an understatement and while I’m sure that AT&T spends millions on internet security, no system is fool proof. Add the fact that AT&T actually receives a percentage of the proceeds from the estimated $2 billion illegal cramming industry and one could make an argument that this security vulnerability is by design so that AT&T can profit at the expense of their less savvy customers. I love the internet and how quick and easy it is to get access to important data in my life, but if other people can also access that data, I’m not sure that it’s worth the risk.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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You’ve Got Questions, Ask500 Has Answers http://davisfreeberg.com/2010/03/10/youve-got-questions-ask500-has-answers/ http://davisfreeberg.com/2010/03/10/youve-got-questions-ask500-has-answers/#comments Thu, 11 Mar 2010 07:03:00 +0000 Davis http://davisfreeberg.com/?p=1910 Dark MysteryI’ve never had any trouble forming an opinion of my own, but often times I wonder how the rest of the world sees things. Anyone who has ever spent time with me can tell you that I tend to ask a lot of random questions that don’t really have any significant meaning behind them. This could range from asking someone what they think the area code in Detroit is or it could be something deeper like would you really want to be immortal if it meant you could never die?

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.

-On the creepier side of things, 64% of respondents said that they wouldn’t break up with their significant other, if they found out that they were a relative.

-While nearly all of the Ask500 audience has tried chicken, only 41% has tasted rabbit.

-If forced to choose, 81% of people would rather go a day without the internet than a day without water. When forced to choose between the internet and TV, 81% would rather go online.

-When I asked how many cats it takes before it officially gets weird, 16% of the audience said it would take more than 6.

-In a sad commentary on the times that we live in, 48% of people responded that they would run out of money in less than a month, if they lost their job.

-Only 28% of us have owned a pager in our lifetime.

-51% said that they’ve called 911 at least once in their life.

-65% said that they wouldn’t travel back in time, if they knew that they couldn’t come back.

-Surprisingly, 72% of the Ask500 audience said that if their best friend’s spouse made a pass at them, they’d leave their friend in the dark about it.

-When asked if they’d ever be willing to pay more than $10 to download a movie, 88% of the audience said no.

-30% of respondents said that they’ve signed up for an internet dating site at least once in their life. When looking at the gender breakdown, women were almost twice as likely to have said yes compared to their male counterparts. Perhaps even more interesting was that 25% said that they’ve come across someone they’ve known while surfing an internet dating site.

-37% of you have engaged in an office romance

-Only 8% of the replies said that they had a bumper sticker on their car.

-74% of the audience agreed that revenge is a dish best served cold.

-Only 36% said that they’d want to know the exact date of their death if it was available to them.

-35% said that they believed there was at least one fact or opinion that 100% of the global population could agree upon.

-64% of people said that they had been living at their current residence for longer than 3 years.

-46% said that they’d break up with someone if there wasn’t a ring on their finger after 5 years.

-When asked what type of milk you buy, 20% said whole milk, 22% went with non-fat and 22% said light (1%), and 36% went with reduced fat (2%)

-67% said that they’ve owned a dog at least once in their life.

-66% of respondents said that they had their first kiss between the ages of 12 – 19.

-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.

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

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

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

From patent 7,665,111,

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

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

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

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

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

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

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

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Forget Net Neutrality, What About Media Neutrality? http://davisfreeberg.com/2010/02/10/forget-net-neutrality-what-about-media-neutrality/ http://davisfreeberg.com/2010/02/10/forget-net-neutrality-what-about-media-neutrality/#comments Wed, 10 Feb 2010 20:28:17 +0000 Davis http://davisfreeberg.com/?p=1850 Media NeutralityOver the past five years, there’s been a lot of debate around the topic of net neutrality and while there have been a few examples where internet providers have tried to favor their own services over the competition, by and large this has turned out to be little more than a boogey man. Don’t get me wrong, I think that it’s important to keep the playing field level, but I also believe that there are bigger issues where consumers are being harmed.

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.

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Why McAfee Isn’t Any Different Than The Scammers They Try To Stop http://davisfreeberg.com/2010/01/29/why-mcafee-isnt-any-different-than-the-scammers-they-try-to-stop/ http://davisfreeberg.com/2010/01/29/why-mcafee-isnt-any-different-than-the-scammers-they-try-to-stop/#comments Fri, 29 Jan 2010 16:34:24 +0000 Davis http://davisfreeberg.com/?p=1812 Spider Invades MonitorYou can mock me for being afraid of the black helicopters or alien visitors with advanced technology, but I learned long ago that there are enough legitimate threats out there, that people need to take internet security seriously.

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

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

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

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

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

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

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

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

After taking a look at the account, I was informed that since it had been more than 90 days after my purchase of a 2 year product, that McAfee wanted me to pay them a “service fee” before they’d be willing to help with my issue 8O

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 :roll: , 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.

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Friends Don’t Let Friends Subscribe To HBO http://davisfreeberg.com/2010/01/24/friends-dont-let-friends-subscribe-to-hbo/ http://davisfreeberg.com/2010/01/24/friends-dont-let-friends-subscribe-to-hbo/#comments Mon, 25 Jan 2010 01:12:13 +0000 Davis http://davisfreeberg.com/?p=1770 HBO NY OfficeHBO may stand for Home Box Office, but it may as well be Hates Being Online given their objections to internet video. According to Time Warner, HBO has over 40 million subscribers and while this lucrative revenue stream allows them to produce some of the most compelling content on television, it also gives them an extraordinary amount of influence on the entertainment industry. Not only is the company owned by one of the major studios, but because of the billions that they take in each year, they’ve been able to outbid small nimble start-ups for access to content. Instead of using this power for good though, they’ve chosen to fight against consumer’s interests by restricting your ability to watch digital content that you’ve legally purchased.

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

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

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

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

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

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

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

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

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

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

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How Real Time Search Could Drive Traffic Offline http://davisfreeberg.com/2010/01/21/how-real-time-search-could-drive-traffic-offline/ http://davisfreeberg.com/2010/01/21/how-real-time-search-could-drive-traffic-offline/#comments Fri, 22 Jan 2010 05:40:32 +0000 Davis http://davisfreeberg.com/?p=1743 More ShopsFrom the first moment that I tried the internet, I was instantly hooked. After signing up for a “free” dial-up AOL membership, I remember getting my phone bill and being shocked at over $300 worth of local toll charges. Being 15 miles outside of civilization, I should have known that I was paying by the minute, but honestly I didn’t really think about how much time I was online. After that, I was more careful, but still paid more for that connection each month, then I pay for broadband today. While it’s hard to pinpoint exactly where that time was spent, it was the ability to find information on topics that I really cared about that kept me clicking to all hours of the night.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Davis Turns 10 http://davisfreeberg.com/2009/09/01/davis-turns-10/ http://davisfreeberg.com/2009/09/01/davis-turns-10/#comments Tue, 01 Sep 2009 16:34:55 +0000 Davis http://davisfreeberg.com/?p=1627 Discfree Business Plan

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.

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Over 40 Million P2P Customers Served http://davisfreeberg.com/2009/08/11/over-40-million-p2p-customers-served/ http://davisfreeberg.com/2009/08/11/over-40-million-p2p-customers-served/#comments Tue, 11 Aug 2009 20:49:59 +0000 Davis http://davisfreeberg.com/?p=1577 Video Moving Online

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Rhapsody And The Art Of The Up-Sell http://davisfreeberg.com/2009/07/20/rhapsody-and-the-art-of-the-up-sell/ http://davisfreeberg.com/2009/07/20/rhapsody-and-the-art-of-the-up-sell/#comments Mon, 20 Jul 2009 20:48:37 +0000 Davis http://davisfreeberg.com/?p=1465 RealPhoto by Thomas Hawk

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.

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At Midnight Hour – Vois Loses Their Voice http://davisfreeberg.com/2009/07/09/at-midnight-hour-vois-loses-their-voice/ http://davisfreeberg.com/2009/07/09/at-midnight-hour-vois-loses-their-voice/#comments Fri, 10 Jul 2009 07:29:17 +0000 Davis http://davisfreeberg.com/?p=1453 More often then not, companies like talking with bloggers because we give free publicity, but if you give enough interviews, then sooner or later you’re bound to step on a land mine.

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.

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Vois.com – Golden Melody or Laryngitis? http://davisfreeberg.com/2009/07/09/voiscom-golden-melody-or-laryngitis/ http://davisfreeberg.com/2009/07/09/voiscom-golden-melody-or-laryngitis/#comments Thu, 09 Jul 2009 11:42:52 +0000 Davis http://davisfreeberg.com/?p=1441 MoneyOver the years, we’ve seen stock promoters use spam and junk faxes as a way to hype their securities and while these methods are still in use today, they lack a certain amount of credibility that most investors are looking for. With the masses growing increasingly numb to these tactics, the wolves of Wall St. have learned a new trick and have managed to hijack social media as a way to tout their shady opportunities.

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 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.

After the morning sales meeting, brokers were expected to spend the entire day (except for a lunch break) on the telephone.

The firm expected a high volume of sales, and if brokers did not stay on the phone, they were fired. Stratton was run like a “boot-camp”, with all of the brokers’ activities closely monitored and scripted by the firm’s principals. At the end of the day, a second sales meeting as held at which time each broker was required to report his production for the day.”

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” :roll: 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:

(a) Tabin did not advise Clark or Holt, that their money had to be committed and in escrow to enable Tabin to acquire his interest in OnSpan, and that therefore he was not undertaking any risk until Clark and Holt had already assumed the risk of the investment.

(b) Omission of the fact that he already had an agreement with the current directors and management of OnSpan to purchase stock at a lower price than to be paid by Clark and Holt

(c) Omission of the fact that he had an agreement with one or more other John Doe investors to acquire a controlling interest in OnSpan as a group, instead of voting his shares with the shares purchased by Clark and Holt, and any other Initial Investors, for purposes which were contrary to his representations and warranties made to Clark and Holt. Tabin actual purpose included taking control of the Board of Directors of OnSpan so that the Board would be under the dominion and control of Tabin so that Tabin could direct the actions of OnSpan as he saw fit, including the dissipation of company assets and opportunities and the conversion or misappropriation of its assets by paying himself a large salary, and possibly other compensation and benefits, at a time that OnSpan had no revenue and no business operations whatsoever and while Tabin was drawing full compensations from Evolve One, inc., another company for which Tabin raised funds under the same or similar circumstances as OnSpan

(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).

SO, what does the company do when the stock has moved south ever since the LIEN of the WARRANT ISSUE? THE offer a 100 to forward split! Look at VOIS it has not moved at all since the SEC Filing – WHY? Because NOBODY F*ING CARES. The only paper in play is the WARRANT. They want that CAPITALIZED in order not to have EVEN MORE DEBT than they already have.

The Strike price previously on the WARRANT was 18.50
with the forward split it will be .1850 – 100 X less.
you will not get more share (nor will your PPS holdings be 100X less). But VOISW can convert to common shares at .1850! that is the play for us holding! AND I guarantee that this stock VOISW will reach .185 before and beyond the split! the company wants everyone in the warrants to succeed. they could care less about the company they are diluting with the 100 to 1 split. they simply dont want to go bankrupt on the LIEN, which looking at their company they are very close to doing.

So what do you do as an investor. RIDE THE WARRANT AND F*K the COMPANY. My prediction, this split will cause the warrant will be worth more than company stock – look at VOIS vs VOISW and the 3200% VOISW has made in 1 month versus the NEGATIVE SPIRAL CONTINUING with VOIS.

this is from company you can email them too

From: CRAIG A [mailto:craig@scommerce.com]
Sent: Fri 6/26/2009 9:55 AM
To: richarab
Subject: investor question

Hi richarab!

In regards to your question about whether the split affects both VOIS
and VOISW, I just wanted to clarify something. The common shares of
VOIS will split 100 for 1, and the exercise price of the warrants
split. So instead of exercising at $18.75 they would split at an
equivalent of .1875.

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.

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Dish Researching Hostile TiVo Takeover? http://davisfreeberg.com/2009/06/09/dish-researching-hostile-tivo-takeover/ http://davisfreeberg.com/2009/06/09/dish-researching-hostile-tivo-takeover/#comments Wed, 10 Jun 2009 00:41:33 +0000 Davis http://davisfreeberg.com/?p=1083 Dish Trying To Poison TiVo

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.

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Fear Of A MiKrosVft Planet http://davisfreeberg.com/2009/06/02/fear-of-a-mikrosvft-planet/ http://davisfreeberg.com/2009/06/02/fear-of-a-mikrosvft-planet/#comments Wed, 03 Jun 2009 03:56:26 +0000 Davis http://davisfreeberg.com/?p=1002 Microsoft Planet

“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.

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A Conversation With Dan Marlin http://davisfreeberg.com/2009/06/02/fear-of-a-mikrosovt-planet-a-conversation-with-dan-marlin/ http://davisfreeberg.com/2009/06/02/fear-of-a-mikrosovt-planet-a-conversation-with-dan-marlin/#comments Tue, 02 Jun 2009 17:10:45 +0000 Davis http://davisfreeberg.com/?p=1001 The following is a transcript of an interview I had with Dan Marlin, the CEO and Co-Founder of CoreCodec. For my thoughts and a recap on the review, please click here. My comments during the interview are in bold.

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.”

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Why Is Redbox Afraid Of The Big Bad iPhone? http://davisfreeberg.com/2009/03/25/why-is-redbox-afraid-of-the-big-bad-iphone/ http://davisfreeberg.com/2009/03/25/why-is-redbox-afraid-of-the-big-bad-iphone/#comments Wed, 25 Mar 2009 23:17:05 +0000 Davis http://davisfreeberg.com/?p=891

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.

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