radio & TV

The Release Windows Archaism

 

Television and media industry are stuck in a wasteful rear-guard fight for the preservation of an analog era relic: the Release Windows system. Designed to avoid destructive competition among media, it ends up boosting piracy while frustrating honest viewers willing to pay.  

A couple of months ago, I purchased the first season of the TV series Homeland from the iTunes Store. I paid $32 for 12 episodes that all landed seamlessly in my iPad. I gulped them in a few days and was left in a state of withdrawal. Then, on September 30th, when season 2 started over, I would have had no alternative to downloading free but illegal torrent files. Hundreds of thousands of people anxious to find out the whereabouts of the Marine turncoat pursued by the bi-polar CIA operative were in the same quandary (go to the dedicated Guardian blog for more on the series).

In the process, the three losers are:
– The Fox 21 production company that carries the risk of putting the show together (which costs about $36m per season, $3m per episode)
– Apple which takes its usual cut. (The net loss for both will actually be $64 since the show has been signed up for a third season by the paid-for Showtime channel and I wonder if I’ll have the patience to wait months for its availability on iTunes.)
– And me, as I would have to go through the painstaking task of finding the right torrent file, hoping that it is not bogus, corrupted, or worse, infected by a virus.

Here, we put our finger on the stupidity of the Release Windows system, a relic of the VHS era. To make a long story short, the idea goes back to the 80′s when the industry devised a system to prevent different media — at the time, movie theaters, TV networks, cable TV and VHS — from cannibalizing each other. In the case of a motion picture, the Release Windows mechanism called for a 4 months delay before its release on DVD, additional months for the release on Pay-TV, Video-On-Demand, and a couple of years before showing up on mainstream broadcast networks (where the film is heavily edited, laced with commercial, dubbed, etc.)

The Western world was not the only one to adopt the Release Window system. At the last Forum d’Avignon cultural event a couple of weeks ago, Ernst & Young presented a survey titled  Mastering tempo: creating long-term value amidst accelerating demand (PDF in English here and in French here).

The graph below shows the state of the windows mechanism in various countries:

Europe should be happy when comparing its situation to India’s. There, it takes half a year to see a movie in DVD while the box-office contributes to 75% of a film’s revenue. Ernst & Young expects this number to drop only slightly, to 69%, in 2015 (by comparison, the rate is only 28% in the UK). Even though things are changing fast in India, internet penetration is a mere 11.4% of the population and movie going still is a great popular entertainment occasion.

In the United States, by comparison, despite a large adoption of cable TV, Blue-Ray or VOD, and a 78% penetration rate for the internet (84% in the UK and higher in Northern Europe), the Release Windows system shows little change: again, according to the E&R survey, it went from 166 days in 2000 to 125 days in 2011:

Does it makes sense to preserve a system roughly comparable to the one in India for the US or Europe where the connected digital equipment rate is seven times higher?

Motion pictures should probably be granted a short head start in the release process. But it should coincide with the theatrical lifetime of a production that is about 3-4 weeks. Even better, it should be adjusted to the box-office life — if a movie performs so well that people keep flocking to theaters, DVDs should wait. On the contrary, if the movie bombs, it should be given a chance to resurrect online, quickly, sustained by a cheaper but better targeted marketing campaign mostly powered by social networks.

Similarly, movie releases should be simultaneous and global. I see no reason why Apple or Microsoft are able to make their products available worldwide almost at the same time while a moviegoer has to wait three weeks here or two months there. As for the DVD Release Windows, it  should go along with the complete availability of a movie for all possible audiences, worldwide and on every medium.  Why? Because the release on DVD systematically opens piracy floodgates (but not for the legitimate purchase on Netflix, Amazon Prime or iTunes).

As for the TV shows such as Homeland and others hits, there is not justification whatsoever to preserve this calendar archaism. They should be made universally available from the day when they are aired on TV, period. Or customers will vote with their mouse anyway and find the right file-sharing sites.

The “Industry” fails to assess three shifts here.

–The first one is the globalization of audiences. Worldwide, about 360m people are native English speakers; for an additional 375m, it is the second language, and 750m more picked English as an foreign language at school. That’s about 1.5 billion people likely to be interested in English-speaking culture. As a result, a growing proportion of teenagers watch their pirated series without subtitles — or scruples.

–Then, the “spread factor”: Once a show becomes a hit in the United States, it becomes widely commented in Europe and elsewhere, not only because a large number of people speak serviceable English, but also because many national websites propagate the US buzz. Hollywood execs would be surprised to see how well young (potential) audiences abroad know about their productions months before seeing them.

–And finally, technology is definitely on the side of the foreign consumer: Better connectivity (expect 5 minutes to download an episode), high definition image, great sound… And mobility (just take a high-speed train in Europe and see how many are watching videos on their tablets).

To conclude, let’s have a quick look at the numbers. Say a full season of Homeland costs $40m to produce. Let’s assume the first release is supposed to cover 40% of the costs, that is $16m. Homeland is said to gather 2 million viewers. Each viewer will therefore contribute for $8 to the program’s economics. Compare to what I paid through iTunes: my $32 probably leave about half to the producers; or compare to the DVD, initially sold for $60 for the season, now discounted at $20. You get my point. Even if the producer nets on average $15 per online viewer, it would need only 1.6 million paid-for viewers worldwide to break-even (much less when counting foreign syndication.) Even taking in account the unavoidable piracy (which also acts as a powerful promotional channel), with two billion people connected to the internet outside the US, the math heavily favors the end of the counter-productive and honest-viewer-hostile Release Windows archaism.

–frederic.filloux@mondaynote.com

Fantasy Apple TV

On August 15th, The Wall Street Journal published yet another story about Apple’s imminent invasion of the TV business. According to people who are “familiar with the matter”, the Cupertino company is…

in talks with some of the biggest U.S. cable operators about letting consumers use an Apple device as a set-top box for live television and other content…

The article has triggered an explosion of comments, speculation, purported leaks, and ”channel checks”. After the enormous success of the iPhone and the iPad, is TV going to be Apple’s Next Big Thing?

(If you Google “Apple iTV”, you get about 32M hits; “Apple TV” yields 700M. Curiously, Microsoft’s Bing gives you only 11M and 250M. I don’t know what to make of the disparity between the Google and Bing numbers, but a cursory look shows more useful results on Bing. As we know, this now depends on who’s asking and when.)

The topic excites writers and readers alike for good reason: We’re all frustrated with TV as it is, and we have a vague, hopeful sense that a disruptor such as Apple (or Google) could break through the obstacles that have been constructed by operators (cable/satellite) and content owners (studios).

Wouldn’t it be nice to get What we want, When we want it, Where we want it, on the device we like without having to deal with brain-dead set-top box program guides and channel bundle rip-offs?

The precedent has been set: CBS Interactive offers the excellent $4.99 60 Minutes iPad app. NBC, ABC, and other networks have an array of separate apps for news, sports, and entertainment. But this is sliced and diced content, carefully picked and edited, not the real What When Where thing.

For example, where can I get the Olympics opening ceremony? I missed it, I hear it was TV Worth Watching. NBC’s site? No. I even checked the NBC Olympics Live Extra app… no joy. YouTube has a few snippets here and there, but I want the whole thing, beginning to end, the excess and the embarrassment. I’ll sit through an ad or two, if need be, or, better yet, offer me a one-click payment so I can skip the ads.

Why is this so difficult?

First, there’s the fear factor: Having seen how Steve Jobs dominated the music distribution industry, TV studios and operators aren’t eager to let Apple hop into the driver’s seat. The major players foresee a significant drop in ARPU (Average Revenue Per User) if viewers are allowed to unbundle channels, if we can go ”à la carte”, if we can point, click, and pay our way into the TV universe. The impression that Apple “destroyed” the music industry conveniently omits what pirates were doing when iTunes came onto the scene and provided a clean, well-lighted distribution channel, but the fear remains.

Then there’s the complexity: Today’s TV revenue stream, the money sucked out of our pockets, divides into a maze of rivulets that flow to operators, distributors, content owners, and producers. Music is relatively simple compared to TV…but even so,  remember how long it took for the Beatles to become available on iTunes? Nine years.

And is it even worth it to Apple? Although Apple TV sales keep growing — +170% year-to-year for the last quarter — the numbers are still relatively small, only 4 million units for FY 2012 so far. At $100 apiece, such volume doesn’t “move the needle”, it’s immaterial when compared to iPhone and iPad revenue and profit.

Still, are these persistent Apple TV rumors totally unfounded?

The answer lies in Apple’s one and only business model: hardware revenue.

Everything else Apple does — software, iTunes, Genius Bars — only exists to push up hardware sales and profits.

With this in mind, today’s Apple TV does more than just deliver Netflix and iTunes movies: It’s a neat part of the ecosystem, it makes Macs (now with AirPlay), iPhones, and iPads more valuable. Your iPhone vacation pictures will show quite nicely on the family TV. Go to a conference room equipped with Apple TV and make your Keynote presentation from your iPhone, iPad, or Mac, no cable required. (PowerPoint doesn’t run on iPads, but a PDF output works just as well.) With the latest 10.8 rev (Mountain Lion) of OS X, all content available on the Web can now appear on your TV.

There’s another, longer term strategy at work: At some point, the growing Apple TV installed base will gain enough mass to become a viable distribution channel. (The same would apply to a successful Google TV effort.) When this happens, someone will crack. ESPN will offer its fare as apps — some free with ads, some paid-for without intrusions — and the others will follow.

It’s a nice theory, it plays into Apple’s ability to deploy the iOS platform more fully on Apple TV, to offer a UI miles ahead of today’s set-top boxes. But in order to matter, the product line will eventually have to reach revenue in the $100B range. What sort of numbers can an Apple TV bring in?

Let’s start with a modest $100/month cable bill. What portion does Apple want? We see the 30% number bandied around, I’m skeptical such a percentage would fly but let’s go with that for the order of magnintude experiment. If we look into a distant future, a time when Apple has 100 million TV subscribers (today, in the US, we have about 50M cable and 35M satellite TV customers), that’s $3B/month, about $40B per year in recurring revenue. If we assume that the new-fangled Apple TV hardware fetches $300 per box, we get an additional yield of $30B — stretched over the number of years needed to reach 100M customers.

This leaves us with difficult questions: How fast can Apple get to 100 million Apple TV-equipped homes? Will operators and content owners/distributors “give” Apple a $30 ARPU? How often will customers be willing to upgrade their TVs (certainly not as often as the iPhone/iPad)? Can Apple broaden its business model to include content and services?

I hope so, I’d love to throw away my ugly set-top box, but I have trouble seeing a path to that happy event. Apple might just continue to improve the black puck, open it to iOS app developers and, in Tim Cook’s words, see where it leads the company.

As for  a full-fledged 50″ TV set…I don’t think so. The computer inside would be obsolete well before the display goes dim. This seems to favor a separate Apple TV box.

Who knows, all this agitation might scare TV providers into providing us with better hardware and services…

(See previous Monday Notes on the subject here, here, here, and here.)

Shift Happens…

Behold Netflix. This really is a special company, one that was long adored by its customers for its DVD rental service by mail. Success made the company one of the largest if not the largest US Postal Service customer.

Then — and this is where the “really special” part comes in — Netflix managed to “pivot”, as Valley argot now demands we say. Netflix turned to the Internet and became the VOD (Video On Demand) leader, delivering movies directly to our homes through our laptops. Such a change of medium sounds obvious — retroactively. But ask Blockbuster. Once the retail king of VHS tapes and DVD rentals, it never managed to move its business to the Internet and went bankrupt, only to be picked up by Dish Network, another giant in trouble.

Netflix decided to change everything: business model, infrastructure, people. Such sweeping moves are risky, they often fail. As Netflix successfully managed the transition, Wall Street took notice of the Netflix exception:

As a result, Netflix is now the biggest consumer of Internet bandwidth:

Silicon Insider comes up with an even more interesting chart:

Netflix now has slightly more subscribers than Comcast (which now calls itself Xfinity) and keeps growing while the “cable guy” is bleeding.

I’m happy for Netflix, a well-run, customer-oriented company. And I’m happy Comcast is losing: They’re expensive, their customer service is terrible, they make you feel like you work for them and not the other way around. And their tricky channel bundle pricing ought to be illegal. Forget triple-play (TV + Internet Access + phone service) for a moment. Just for cable TV service, can a normal consumer easily figure out how much the Comcast bill will be?

Netflix, on the other hand, is easy on the mind and the wallet: $7.99/month, all you can watch, on all your devices (TV, PC, smartphone, tablet), cancel anytime. Furthermore, Netflix is making us honest consumers of Internet video. We all remember the lament of content owners: BitTorrent is killing us! Why bother with time-consuming downloads (and the malware they bring with them) when you can stream instantly for a mere eight bucks a month?

Of course, ISPs, Comcast among them, claim that Netflix makes money on their backs, that VOD “abuses” their infrastructure. This leads to bandwidth caps, a normal consequence of the Tragedy of the Commons: If a commodity is free, it’ll be overused and, in some cases, it might disappear. Metered Internet bandwidth isn’t evil in itself, but in the hands of a Comcast… Let’s remember this is the company that managed to convince Congress to let it buy NBC, the equivalent of movie studios buying theater chains. A lovely way to level the landscape.

The ascent of Netflix signals a broader shift in the way we consume television. For example, “news” programs aren’t really news in that they aren’t fresh, they’re already reheated when we watch them at 6 or 11. Many TV programs, from John Stewarts’s Daily Show to PBS Nightly News, can be watched on a PC when we — not they — are available. Tomorrow, we’ll get all of them (minus NBC, perhaps) on Netflix or one of its competitors.

But what about “really live” events: NBA finals, Wimbledon, the Superbowl, Indy 500 (or Formula 1 races for us degenerate Europeans)? Today, we have choices, we can use the DVR to time-shift and get rid of annoying ads, or we get the show in real time, with ads. This is changing rapidly: NBA (basketball) and MLB (baseball) games are available live on Apple TV through the Internet, not cable TV. For the time being, Netflix doesn’t offer such events, just movies and TV series.

This is Internet TV, but is it IPTV?

What we have today is a digitized video stream chopped up and stuffed into dumb IP packets. Here, dumb means little or no metadata, little or no upstream information or interactivity. IPTV means TV endowed with roughly the intelligence of a PC browser. More specifically, IPTV provides targeted ads, multiple windows, interactive commerce, games, Facebook and Twitter engagement, instant messaging to friends: ‘Quick, get on Channel 36!’

This will lead to unforeseen but retroactively obvious usage modes, giving us a truly new medium, not just a shovelware version of an old one.

So what about Apple TV and Google TV? It’s not clear yet when and how they’ll replace the set-top box. Today, the set-top box occupies the privileged “Input 1,” it’s an unavoidable gateway, all TV content flows through it. Apple TV and Google TV are accessories, they’re not the main device. And as long as they’re accessories, they won’t really soar because the set-top box, meaning the cable operator, remains in control.

That’s why Netflix’ ascendance is so encouraging: It bypasses and eliminates the set-top box. It isn’t difficult to see where this is heading. Just as wireless carriers are destined to become wireless ISPs, cable operators such as Comcast are bound to ISP land.

Once this shift happens, the move from TV on dumb IP packets to real IPTV can begin.

JLG@mondaynote.com

The News Cycle Heartbeat

How do mainstream media and blogs interact? How do they feed each other ? Everyone in the newsmedia would love to get a better view of the mating dance. A few weeks ago, scientists at the Cornell University unveiled a thorough analysis of the relationship between the two universes. Borrowing from genomics techniques, they dug into a huge corpus of politically-related sentences and tracked their bounces between mainstream media (MSM) and the blogosphere.

Their dataset:

  • About 90 million documents (blog posts and news sites articles) collected between August 1 and October 31, 2008, i.e. at the height of the last US Presidential race.
  • 1.65 million blogs scanned.
  • 20,000 media sites reviewed, marked as mainstream because they are part of GoogleNews.
  • From this dataset, researchers extracted 112 million quotes leading to 47 million phrases, out of which 22 million were deemed “distinct”. These phrases were important enough to be considered as news.
  • The phrases where political statements or sound bytes pertaining to the political race  and uttered by the two candidates, their running mates or their staff.
  • Processing these 390GB of data took about nine hours of computer time (using a complex set of algorithms, involving “markers”, as in genetics).

The findings, in a nutshell:

  1. Mainstream media lead the news cycle. They are the first to report a quote, the story behind it, the context, etc.
  2. The 20,000 MSM sites generate 30% of the documents in the entire dataset and 44% of  the documents that contained frequent phrases.
  3. It takes about 2.5 hours for a phrase to reverberates through the blogosphere.
  4. The phrases that propagate in the opposite way (from blogs to MSM) amounts to a mere 3.5%.
  5. A news piece decays faster on the MSM than on the blogosphere.

The comparative curve looks like this :

For those who want the complete analysis, the full report is available here.

As expected, this research triggered controversy. More

Monetizing a social network, the Skyrock case

In the social network business, the European success story is called Skyrock. Built on top of the #1 FM radio station for 18-25 year-olds, it first expanded into a blog platform, then into a full-blown social network making full use of links users waved between themselves. In Europe, according to ComScore, Skyrock.com ranks #3 among social networks, right behind Facebook and MySpace, and #6 among conversational media including platforms such as WordPress or Blogger.

The key figures:

  • 39 million accounts, including :
  • 25,4 million active blogs with 33,000 new blogs added every day
  • 16 million individual profiles with 35,000 added every day (there is a small overlap between the two categories)
  • This online population has created more than 650 billion articles, loaded 580 million pictures and 37 million videos.
  • French monthly traffic is 8 million unique visitors (Nielsen), versus 13 million for Facebook
  • But Skyrock gets about half of its traffic from abroad: worldwide, its audience amounts to 23 million UV (ComScore). As a comparison, Facebook logs 275 million UV worldwide, approximately 100 million in Europe and 70 million in the US (ComScore).

Now let’s look at the money side. Unlike Facebook, Skyrock is a profitable company. Last year, Skyrock as a group made €38m in revenue; half coming from its radio operations, and half from the internet; with an ebitda of about €7m for the group and €5-6m for the internet alone (last year was not great for radio advertising). Even better, Skyrock doesn’t seem to be affected by the worst year in internet history: its internet operations revenue is up 42% for the first half of 2009 versus the same period last year (the radio side is up 22%). These numbers make its owners happy. The group is a privately held company owned by the private equity arm of French insurer Axa (for 70%) and by the founder and CEO Pierre Bellanger (30%); being blissfully private, it doesn’t release financials. Most of the data mentioned here come from interviews conducted with Pierre Bellanger and his staff in recent weeks. More

The success story of a technology-enhanced media brand

‘A fan of ours wrote an iPhone application, just for the sake of it.’ How many media companies can make such a bragging statement? One does: NPR, the American National Public Radio. Bradley Flubacher, is a professional programmer who moonlights as a volunteer firefighter in a small Pennsylvania town. A few months ago, Brad decided he wanted to learn a new programming language and to develop for the iPhone. Et voilà: NPR Addict, a free app that gives access to thousands of podcasts in a simple and efficient way. The author didn’t make a dime in the process: his app is free. If you want to give a few bucks, he will encourage you to do so directly to a local NPR affiliate. This is what I call a true fan – and a testament to NPR’s place in American culture.

Two thoughts to be drawn from this anecdote. First, the relationship a great media brand such as a Public Radio enjoys with its audience. Second, how such bond can be boosted by a clever use of digital technology.

In France, we praise ourselves as being the champions of public broadcasting. We have many brands around Radio France, great shows, excellent journalistic crews and so on. Brands such as France Inter or the all-news channel France Info appeal to a large audience; others, France Culture being one example, target only small circles and feel themselves totally liberated from vulgar strictures such as attracting large audiences. Fine. More