"?> Davis Freeberg's Digital Connection » VOD http://davisfreeberg.com Fri, 23 Sep 2011 19:32:38 +0000 en hourly 1 http://wordpress.org/?v=3.3.1 Why Doesn’t AMC Want My Money? http://davisfreeberg.com/2011/07/05/why-doesnt-amc-want-my-money/ http://davisfreeberg.com/2011/07/05/why-doesnt-amc-want-my-money/#comments Tue, 05 Jul 2011 16:11:10 +0000 Davis http://davisfreeberg.com/2011/07/05/why-doesnt-amc-want-my-money/

AMC Empire
Originally uploaded by imoteph9


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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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Blockbuster’s Latest Drama Is Political Thriller http://davisfreeberg.com/2010/04/12/blockbusters-latest-drama-is-political-thriller/ http://davisfreeberg.com/2010/04/12/blockbusters-latest-drama-is-political-thriller/#comments Mon, 12 Apr 2010 15:09:21 +0000 Davis http://davisfreeberg.com/?p=1920 Political ThrillerThey say that a good captain will go down with their ship, but what can you say about the guy who climbs on-board after the ship has begun taking on water? Over the last few years, Blockbuster Video has hit iceberg after iceberg and while they’ve avoided capsizing this long, a $300 million looming debt payment may be the final torpedo that sinks the historic brand. Over the last few months, Blockbuster has seen board members flee like rats off of a sinking ship, but at least one shareholder wants to fight to save the company.

Last week, Greg Meyer fired the first shot in a proxy war by submitting paperwork to have his name considered for a position on Blockbuster’s board of directors. To win, he’ll need to take on board of director incumbent, James Crystal. In the proxy filing, Meyer makes a strong case that he is the more qualified candidate for the position.

-In 2001 Meyer started a DVD kiosk business at a time when most thought the idea was crazy. Eventually, DVDXpress was sold to Coinstar and later merged with Redbox. Mr. Crystal on the other hand has spent his career running an insurance company and doesn’t have any DVD industry experience.

-Over the last year, Meyer has put his own money on the line by purchasing over 600,000 Blockbuster shares on the open market, Crystal on the other hand has less than $50,000 worth of Blockbuster’s stock and only because it was given to him for serving on the board of directors.

-While Crystal’s full time job is his insurance business, he also serves on 7 other boards for various insurance companies. Meyer’s only other board position is with a non-profit that uses movies to help reach young kids.

-Perhaps most damaging of all though, is the related transaction between Mr. Crystal and Blockbuster. Last October, Blockbuster made Frank Crystal & Company their exclusive insurance broker for the company. At the same time, Mr. Crystal, who sits on the compensation committee, was helping to award over $1.5 million in bonuses to Blockbuster executives in a year where Blockbuster lost over a half a billion dollars. Given that Blockbuster CEO James Keyes was awarded $400,000 of that bonus, perhaps it isn’t all that surprising to see him come out against Meyer’s nomination.

In a press release, Keyes rejected the idea of adding Meyer to the board and wrote,

“While we have an appreciation for Mr. Gregory Meyer’s investment and interest in the company, those are not sufficient reasons for his candidacy for the board. We are disappointed Mr. Meyer is pursuing a costly and disruptive proxy contest. A proxy contest can only serve as a distraction to the company when attention and resources would be better used in creating value for stakeholders by implementing our strategic plan. We assure all of our constituencies that we remain committed, as always, to doing what is right for our shareholders, debt holders, employees, and customers,”

Distraction or not, it’s understandable that Blockbuster’s shareholders would be disappointed in the current board of directors. Since bringing on Keyes, Blockbuster has seen their stock fall from $4.46 to $0.29 per share. During that time, they’ve seen Netflix and Redbox take market share from them, while they were concentrating on trying to figure out a way to save Circuit City from bankruptcy. Instead of focusing on offering an all you can eat streaming service, Blockbuster spent their operating income on redesigning their stores. Meanwhile, they’ve continued to lose the confidence of both the stock and bond market.

Given that there aren’t many people who’d be willing to run into a burning building in order to save a video store, I reached out to Mr. Meyers to help better understand what he hopes to accomplish with his proxy run. Below is a transcript from our interview.

Davis: I guess the biggest question on my mind is that with Blockbuster clearly hurting pretty bad right now, why you would even want to get involved with the company. You’ve already proven that you can build a DVD business from scratch, what is it about the challenge of turning the company around that appeals to you, instead of using your time and capital to create another new business?

Meyer: When our team was building the DVDXpress business early on, we spent years struggling to make customers aware of the fact that it was possible to rent DVDs from a kiosk and encouraging them to do so. Blockbuster was such a dominant force at the time that we felt like we were constantly swimming upstream against this 900lb gorilla.

Fast forward to today and the tables have turned so that many people say ‘Why would I ever go to Blockbuster?’ I think the pendulum has swung too far and believe there is an enormous amount of intrinsic value within Blockbuster that can be realized with proper guidance and forward-thinking strategic insight. Love ‘em or hate ‘em, everyone knows that Blockbuster means movies, and having such widespread brand awareness is extremely valuable.

Davis: Having served on the front lines of the bond market, what insights does this give you into how the banks and hedge funds might be thinking about Blockbuster’s debt right now? Specifically, what sorts of things do you think that they’d like to see in order to be amenable to restructuring overtures?

Meyer: The perception in the market is that Blockbuster’s subordinated notes will be equitized at the expense of shareholders. I believe there are some intelligent steps that management can take to avoid this outcome, which would obviously be advantageous for shareholders- and I have recently apprised them of one such structure. The Company and its legal and financial advisors need to be thinking about creative solutions to bring the company back to health and not take the easy way out by converting sub debt
to equity unnecessarily. My impression is that the Company and its advisors are looking at this as a zero sum game instead of trying to figure out how to creatively increase the size of the pie for all constituents, which I think is doable. That’s why I think it’s so important to have at least one shareholder advocate on the board.

Davis: You also mentioned in your filing that you’d like to pursue a solution that results in the lowest possible dilution, if any, of shareholders. Given the burden of having to service almost a billion dollars worth of debt, can Blockbuster be competitive in an industry whose competition is cutthroat right now? Can you share any thoughts on your rescue plan for Blockbuster and what it might take to save the company?

Meyer: Blockbuster has some incredibly valuable assets and competitive advantages. In addition to huge brand awareness, the Company has very strong relationships with the Hollywood studios. These studio relationships have become more apparent in the last few months with the Warner, Fox, and Sony supply deals providing Blockbuster with day-and-date availability of new release titles vs. the 28-day delay for other channels. This is a huge advantage relative to Netflix and kiosks competitors, and it’s one that Blockbuster has never had in the past. I think the company has done a reasonable job of communicating this advantage to customers with the recent release of ‘The Blindside’ and ‘Sherlock Holmes’.

The studios are smart- they realize it is in their best interest to have a healthy Blockbuster. Blockbuster spends more money on DVD inventory each year than Netflix and the kiosk operators combined, so they’re a very important source of revenue for the studios. And Blockbuster’s a la carte rental pricing is not viewed to cannibalize sales like some of the other distribution channels. So I view Blockbuster’s relationships with the studios remaining strong over time and think the Company needs to continue to leverage these relationships going forward, particularly as digital delivery replaces physical distribution. Keep in mind that the First Sale Doctrine does not apply in the same way to the digital world as it does to the physical world, so having strong relationships with the studios becomes even more important down the road as the studios have stronger control over who gets their content.

For now, having closed many of its underperforming stores already and amid a significant reduction in overall brick-and-mortar industry capacity, Blockbuster’s physical stores represent a true asset if managed properly that can generate significant cash flow for years to come and act as a bridge to its various future distribution channels rather than an impediment.

Davis: Blockbuster released a press release urging shareholders to reject your advances, saying that they were disappointed that you were pursuing a “costly and disruptive proxy contest” at a time when their efforts should be focused on executing their existing turnaround plan. Do you feel that it’s appropriate for Blockbuster management to publicly respond this way and do you have any concerns that your actions could have any negative consequences by trying to shake up the status quo?

Meyer: The reality is that Blockbuster’s management is making the decision to perpetuate a proxy contest. I find it unconscionable that management would be willing to waste shareholders money to fight a full blown proxy contest to keep a qualified, industry relevant and highly motivated individual off the Board. If James W. Crystal is as valuable as James W. Keyes suggests then I would be happy to serve constructively with him on the board. This does not have to be mutually exclusive. Keep in mind the size of the board has shrunk from 9 to 7 over the past few months due to several departures, so having both of us as directors would actually return the board to a more normal size. But this is a decision that Jim Keyes and the Board has to make as it is out of my hands.

Davis: Beyond the finance side of the equation, is there anything that you feel Blockbuster should be doing to make their product more relevant to consumers?

Meyer: Yes, I think the value proposition to customers can be significantly improved. Look at the smart things that smaller brick-and-mortar video competitors like Family Video (rental) and MovieStop (retail) are doing. These companies have been growing rapidly over the past several years as they’ve figured out how to remain relevant with consumers despite growing competition from Netflix and the kiosk operators. These companies offer a variety of real services to their customers. As one small example, both of these chains offer a ‘Notification Service’ by which they will call or email their customers when a movie or game becomes available for rental or sale, either new or used. This builds goodwill and drives customer traffic. Sometimes a lot of small improvements at the margin add up to a much better experience.

Additionally, these chains have figured out intelligent pricing structures that appeal to the widest possible audience in a manner that still generates profits for the retailer. There is a lot that can be done with pricing to improve both customer satisfaction and profitability.

And of course there are many innovative steps the company can take to serve customers digitally, some of which they’ve started to take with Blockbuster On Demand. The combination of near ubiquitous brand awareness and strong studio relationships has the potential to make Blockbuster a dominant player in digital delivery going forward, but this path needs to be navigated intelligently to ensure success.

Davis: Finally, Carl Ichan previously spent a lot of time and money trying to win board seats and concessions from Blockbuster management. While he ultimately won, his actions haven’t seemed to help the company all that much. Even if you were to win a seat, do you think that you’d have enough influence to create the kind of change that Blockbuster needs in order to save their business?

Meyer: All I can ask for is the opportunity to have my informed opinions heard at the board level and hope that the other directors would act in a rational and objective manner in the best interests of the shareholders.

Since I’m not a Blockbuster shareholder, my vote won’t count in this contest, but I am interested in what other shareholders think, so feel free to share your thoughts in the comments. Will you be voting for Meyer? For Crystal or do you plan to kick all the bums out? While fighting a proxy war can be a distraction and could potentially interfere with Blockbuster’s efforts to restructure their debt, it can also bring hope to a weary shareholder base at a time when things seem hopeless. I don’t think that Meyer can turn the company around single handedly, but as Johann Wolfgang Von Goethe once wrote, “in all things it’s better to hope than to despair.”

Update – In an open letter to shareholders, Meyer calls out James Keyes for perpetuating the proxy contest and reveals that he encouraged Blockbuster to adopt DVD kiosk technology over five years ago. At that time he also pointed out that Blockbuster could have saved $140 million per year by cutting their store hours by three hours per day.

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

See larger view of chart here

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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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Judge Denies Further Extensions, DivX/UMG To Be Resolved By Christmas http://davisfreeberg.com/2009/08/07/judge-denies-further-extensions-divxumg-to-be-resolved-by-christmas/ http://davisfreeberg.com/2009/08/07/judge-denies-further-extensions-divxumg-to-be-resolved-by-christmas/#comments Fri, 07 Aug 2009 10:35:01 +0000 Davis http://davisfreeberg.com/?p=1547 You Win Some You Lose Some

Additional ruling
3 good transcripts with background on case to date (1 , 2 , 3 )

It’s been nearly two years since DivX filed their “pre-emptive” lawsuit against Universal music group and so far, there really hasn’t been much to talk about. DivX’s original lawsuit was thrown out after UMG removed the overhanging legal threat against Stage6 by actually filing a suit alleging copyright infringement.

Given the hurry that DivX was in to have this case resolved, one would have thought that consumers would have had a digital betamax decision by now, but once DivX abandoned Stage6, their strategy towards the case took a 180.

With DivX seeking Hollywood approval, I’ve no doubt that they would like nothing more than to sign a content deal and settle the matter with a small token of goodwill. Last November, they tried to reach a settlement with UMG, but UMG seems out for blood on this one. If they were to actually get the $300 million in damages that they are seeking, it would not only bankrupt DivX but would give UMG control over their technology.

While it may still be in UMG’s best interest, not to establish a legal precedent on the DMCA safe harbors, there’s no doubt in my mind, that they’ll try to extract more than a pound of flesh, before they let DivX off the hook on this one.

Over the last year and a half, the case has largely been hung up over petty issues related to discovery. With DivX in stall mode, they tried to ask for a mountain of documentation from UMG. Specifically, they wanted the entire chain of copyright documents for all 2,600 allegations of infringement.

With some songs requiring over 500 pages of contracts, UMG was reluctant to help DivX on a fishing expedition, especially when they have “certificates” that certify their ownership of the works in question.

Meanwhile, UMG wanted to use Audible Magic, in order to detect every instance of copyright infringement on Stage6. DivX understandably wanted to make this harder for them. DivX argued that since UMG failed to use their voodoo technology, while the site was up, they shouldn’t be compelled to power all 750,000 videos back up.

Eventually, they gave UMG an index that let them search for the name of a video and then request a copy from DivX for review.

Of course the problem with this approach is that as anyone who used Stage6 knows, the studio files were never labeled with the proper titles. Search on Stage6 was always pretty terrible and this was made even worse by members trying to hide themselves underground.

Rather then using search, browsing through tags was a much more efficient way to find content ;) Since most visitors were coming from link aggregation sites anyway, it wasn’t all that necessary for the movies to show up in search.

Most of these differences could have been worked out pretty easily, but with DivX trying to let YouTube set the precedent, and with UMG trying to go after the lower hanging Veoh fruit instead, neither party has been very incentivized to move this case forward.

In fact, just last week, both UMG and DivX asked the judge to add on an extra 60 days before they would have to do battle, specifically so Veoh could go first. The judge, who has clearly been frustrated by the petty antics of both parties, finally put his foot down and denied the extension despite both parties being in agreement. Now, Veoh’s case has been pushed back while they wait to see if DivX walks away a free entity or facing an executioner.

Like a man on a mission, the judge has followed up his denial with two rulings, that settle a laundry list of squabbles and should make the rules of engagement crystal clear.

At one point, DivX may have been able to convince the judge to let them have wider access to the copyright records, but after failing to cite a single “widely distributed” modern act, he put an end to this discovery requirement.

Because a healthy part of the legal paperwork is obscured by sealed records, it’s not exactly clear what happened with audible magic, but from the way I read it, it looks like DivX was able to limit UMG to finding the content the same way that users had to. The judge did give UMG access to the search terms, (which will enable them to use the tags in order to find more potential violations), but he didn’t require DivX to turnover the metadata on the files.

DivX wasn’t able to get emails of record label employees, but did get an order for “actual or prospective policies or practices from January 1, 200o to the present.”

As part of their defense, DivX is trying to assert that they put in measures to help prevent copyright abuse. Specifically, they used technology that would prevent the same video from being uploaded, if it had already been subjected to a DMCA notice.

UMG is trying to argue that the copyright violations on Stage6 were so blatant that DivX would have had to have known that infringement was occurring (even if UMG didn’t complain about it first.)

The key issue here, will be whether or not the technology that DivX employed, was considered an “industry standard” for preventing infringement. If they can show that UMG had previously endorsed the technology that they were using, it would make it hard for them to argue that DivX wasn’t taking reasonable steps to prevent pirates from ransacking Stage6.

With the legal maneuvering, finally out of the way, the biggest obstacles to a trial have been removed and we should have a resolution before Christmas.

Of course, if you’re hoping that DivX is going to make a stand for consumers by establishing the legality of video sharing for a site that is all but dead to them, I wouldn’t get your hopes up too high.

DivX and UMG may have failed to reach an agreement last November, but they’ve “tentatively” agreed to go in for couples counseling and have a mediation date scheduled for Sept. 21st.

I don’t know that DivX will be willing to write a big enough check to satisfy the music conglomerate’s greed, but if UMG begins to doubt their case, it wouldn’t be hard to get a little bit of money and a passive admission that they can enforce whatever rule of law they want.

If we do get a trial, it will be a fun one to watch. Here is an estimated schedule based upon the most recent developments in the case.

August 17th – Non-expert discover cutoff/last day to conduct settlement conference
August 18th – 25th – UMG begins depositions of DivX employees and witnesses
Sept 29 – Last day to hear motions
October 26th – witness list is due
Nov 24th – Trial Begins
Dec 10th – Jury reaches verdict

Whether or not DivX will stick to their guns remains a question, but there is finally light (or darkness) at the end of the tunnel. We don’t know how this will get resolved, but it shouldn’t take much longer to find out.

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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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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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Netflix Closes Silo (again) – Forces Jinni To Disable Ratings Feature http://davisfreeberg.com/2009/06/29/netflix-closes-silo-again-forces-jinni-to-disable-ratings-feature/ http://davisfreeberg.com/2009/06/29/netflix-closes-silo-again-forces-jinni-to-disable-ratings-feature/#comments Mon, 29 Jun 2009 20:20:56 +0000 Davis http://davisfreeberg.com/?p=1320 Netflix SiloI love Netflix, but more than once their data policies have forced me to reconsider whether or not I should have a membership with them. You see, I believe that when you rate a movie, the data should belong to you. After all, you were the one that spent the time to input the rating and it’s personal to your tastes. In fact, I’d be willing to bet that once you get past 100 ratings, you can’t even find two rating profiles that are identical.

Netflix on the other hand, seems to feel that they own your ratings data and have guarded it closely. This wouldn’t be so important, if Netflix was the only movie site out there, but because they refuse to implement many web 2.0 features, there are many other movie sites that consumers may prefer.

Because I have memberships with about a dozen of these sites, it has created an awkward and cumbersome situation where I’m forced to to maintain a dozen different sets of ratings, instead of being able to sync them all together.

Since even small differences in how you rate a movie can have a big impact on the recommendations that you receive, whoever is able to get a consumer to input the most ratings is given a powerful moat around their subscribers.

For a long time, Netflix kept their silo closed, but about nine months ago, they opened up their API to outside developers. At the time, I saw this as a watershed event because it marked a change in philosophy from one of control to one allowing for innovation, inside or outside of Netflix’s site.

If you go their developer site, you’ll see that they still encourage people to use ratings data to create cool apps.

“The Netflix API allows developers full access to our catalog of movies and actors, and–when properly authorized–subscriber data, such as queues, ratings, rental history, and reviews.”

Regrettably, after opening up this data to outside developers, Netflix has apparently changed their tune and is now trying to take away this feature from their customers. From an email I received from Jinni.com,

“Hi Davis Freeberg,

Since March, we’ve offered an option to connect your Netflix account with Jinni. Until now, an optional feature has been importing ratings, so Jinni can quickly learn about your taste and recommend only movies you haven’t seen.

Unfortunately, Netflix has demanded that we remove the import ratings feature. If you already imported your ratings, they will stay on Jinni.

We, and many other developers and users, have been asking Netflix to open the ratings data for a while, to give you the choice to import your Netflix ratings as you wish. We’re working with Netflix now to initiate adding an import ratings option to their API – as your ratings actually belong to you.

As always, feel free to get in touch with questions. And stay tuned for new features and improvements that we’re working on now toward our public beta opening!” (Note: Bold added by me)

In the long run, I believe that this will hurt the company. I can understand Netflix’s desire to protect their competitive moat, but as a subscriber this upsets me to no end. Instead of letting me choose the most innovative movie site, they are making it more difficult for other sites to work with their data. This may not seem like a big deal to most, but preventing customers from accessing content in their preferred format, tends to create dissatisfaction. I feel that it also raises questions of anti-trust abuse when you consider Netflix’s market position and the grip that they are maintaining on their subscriber data.

Instead of using their rating silos to stop competition, I’d rather see Netflix forced to compete fairly by creating the best product out there.

I’m not sure that I’ll cancel my account, but taking this kind of a hostile stance against a competitor makes it hard for me to continue to recommend the service to others. I hope that Netflix reconsiders their stance on this issue and allow consumers to take full advantage of the openness of the web.

Update – Netflix responds on their developer forum“The API Terms of Service don’t allow an application to capture a subscriber’s user name and password, which is required to scrape user data from the site. While we do expose ratings via the API, we do recognized that there isn’t a good way to grab a subscriber’s full rating history. We’re working on the technical and legal details to allow developers to access this info without running afoul of our terms of service nor enabling a unsatisfactory user experience.”

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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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Is DivX Bringing Bookmarking To The TV? http://davisfreeberg.com/2009/05/06/is-divx-bringing-bookmarking-to-the-tv/ http://davisfreeberg.com/2009/05/06/is-divx-bringing-bookmarking-to-the-tv/#comments Wed, 06 May 2009 18:49:45 +0000 Davis http://davisfreeberg.com/?p=960 DivXlicious

I was on DivX’s website earlier today and saw a link to an online survey. Since I don’t tend to be very shy about sharing my opinions, these sorts of things are the perfect click bait for me. Most of the questions were about how and where I watch online video, but after answering a dozen or so, one of them caught my eye.

“5. Would you be interested in a free service that lets you bookmark online videos to queue and play back in media center software or on a device?”

I’ve never really been a heavy user of bookmarking services, but being able to bookmark TV would be much more appealing. One of the biggest problems with bridging the computer to TV gap, is the process of finding the content that you want to watch and then getting it to the television set. For downloadable media this is easier to accomplish, but for streaming media you’ll need some kind of a PC or internet connected gadgetry. Once you are juiced up to the net, trying to navigate the vast sea of digital content with a remote is like trying to paddle upstream as you go over Niagra Falls backwards.

So far, Netflix seems to have come up with the best solution, but there is still room for others to build a better mousetrap. Instead of letting consumers use a remote to browse all of their programing, Netflix makes you bookmark your watch now movies via the old fashioned computer. This hybrid tv/computer approach may lack a bit of elegance, but it does create a more satisfying experience to the end user. Sometimes having too many choices can create a paralyzing effect when it comes to finding content.

If DivX were to launch their own bookmarking service, here’s what I think it would look like. Instead of limiting their “queues” to Netflix content exclusively, they would allow consumers to bookmark content from all over the web. While there would be a few notable exceptions, I bet that they could build support for 90% of the sites on OVGuide.com. Using some kind of greasemonkey script or a toolbar button, consumers would be able to click a button and create a playlist of streaming content that they can watch later. As you begin to bookmark more and more videos, the service would get to know you and could make video recommendations to you. Once consumers are at the television, they’d be able to connect to their data stream and shuffle through their own personalized VOD channels. The killer feature would be the public streams that allow you browse through your friends’ queues too.

Throw in some nifty social networking features, support for sites like Twitter, Facebook and Friendfeed to help make it go social and a partnership with StumbleUpon video or Reddit’s bookmarking service to help get others to adopt it and DivX could have a very useful application for their Connected solution. If they’re able to build enough of a critical mass around these types of enhanced video services, it would help differentiate DivX’s features from generic codecs.

This question alone doesn’t necessarily mean that DivX will actually try to launch another social network, but it does suggest that they are at least thinking about it. What do you think, something only a geek could love or would you be interested in bookmarking online videos for playback on your TV?

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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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Where’s The Beef? Filtering Cats For Content http://davisfreeberg.com/2009/03/25/wheres-the-beef-filtering-cats-for-content/ http://davisfreeberg.com/2009/03/25/wheres-the-beef-filtering-cats-for-content/#comments Wed, 25 Mar 2009 20:50:21 +0000 Davis http://davisfreeberg.com/?p=726

If you ask the big content owners, they’ll argue that the only content on YouTube has either been stolen from them or is some kind of a lame cat video uploaded by your crazy neighbor. Unfortunately, in my seemingly endless quest to collect and document the best cat videos on YouTube, I keep getting distracted by some pretty amazing independent content producers. Here are ten of the artists who’ve impressed me the most, over the past few months.

Wicked Awesome Films – Kevin & Bobby create movie trailers of pop culture events. Whether they are remaking the latest films, riffing on popular internet memes or teaching underaged kids how to get alcohol, their quick 2 minute clips will keep you entertained and laughing. They tend to be a little over the top and crude at times, but that’s a big part of their charm. They are usually NSFW so be forewarned, but if you enjoy listening to shock jocks on the radio, you’ll love their videos.

Jack the Danger Bunny – Filmed in a style that is part documentary, part sitcom, and pure genius, Cait and Dan share moments of their dysfunctional relationship with the rest of the YouTube community. If their relationship in real life is anything like the show, I’m not sure how long the series will be around, but take advantage why you can because their silly antics make for some of the best videos on Youtube.

The Big Time Show – Gabe and Dave moved to Hollywood with a dream to make it big. Along the way, they’ve been documenting their progress towards trying to break into the world of show business. They’ve got the looks, are willing to work hard, sell themselves out and have no shortage of motivation. The only problem is that they seem to be lacking talent. Filmed as a reality TV show, their videos take a satirical look at the movie business and features a wacky cast of characters including their sleeze ball agent, a clueless photographer and a student director who isn’t even willing to cast these guys in a student project unless they’re willing to pay him. If you’ve ever wondered how bad b-movies end up making it to the big screen, this mockumentary provides all of the answers. Spinal Tap fans will especially love this series.

Scenic Videos – I tend to prefer watching Youtube online vs. taking advantage of it on my TiVo, but the Scenic Video channel was made to be displayed on a big screen television. They film relaxing nature scenes and let viewers play them in the background. If you play their clips while you sleep, you’ll have fantastic dreams. Most channels get attention by flashing lights or using loud buzzer sounds, but the low key nature of their videos is what makes this channel really stand out.

Rejected Jokes – This sketch comedy channel is produced by Ben Schwartz, a writer who has worked for Letterman, SNL and Robot Chicken. While not every one of his jokes ends up on television, his unique blend of dark humor fused with pop culture leaves you laughing even if his YouTube jokes are the leftovers. Sometimes Schwartz will do a stand up routine, while other times the skits are a little bit more complex, but either way they’ll make you smile.

Daneboe – Whether your watching his award winning expose on the Kool Aid serial killer or his LegoMan job inquiry, Daneboe’s Gagfilms will keep you entertained with his seemingly random videos. He doesn’t produce a ton of content, but when he does it tends to be very high quality. It’s one of my favorite channels for when I need to quick bite of comedy.

Visible Mode – Watching the Visible Mode channel is kind of like watching a car accident in motion. You know it’s terrible, but you just can’t stop your self from watching the destruction. Visible Mode has some pretty crazy ideas, but his demented sense of humor is a good fit on YouTube. After watching his experiments at bringing the combover back in style, I feel much more comfortable about my own receding hairline.

Timbotantrum – This channel is producing the excellent LA I.C.E. web series. It’s about a couple of immigration agents trying to clean up the streets of LA. In addition to the series, Timbotantrum also produces some very funny clips that tend to mock the pop culture we live in.

Sloncekandrej – Sloncek is a legend in the P2P community, but is relatively unknown on YouTube. At one point, his website SuprNova was the most popular torrent site on the net. Sadly, it all had to end after he started to receive a little too much attention in the local Slovenian press. After shutting down the site, he gave the domain to the Pirate Bay and started focusing on making videos instead. Recently, he’s been working on an excellent P2P news vidcast with Torrent Freak. The program is very professional and is a bit like watching the local news for people who care about P2P.

Beet.tv – Beet.tv is a good example of what modern TV studios must do if they want to succeed amidst the fragmentation of the internet. Most of their videos are interviews with influential people in the tech community, but they’ve also begun to cover other industries like healthcare. After filming and editing unique niche content, they then hyperblast it through a distribution system that includes sites ranging from MySpace to the New York Times. The combination of high quality unique content and fragmented mass distribution has worked out pretty well for them so far and I’m optimistic that the model will prove to be successful. Viral stories don’t always have the same immediate punch that you get from live TV, but if they end up being seen by just as many people, it can be even more powerful than traditional television.

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