Thoughts on Microsoft's new Xbox One

Yesterday, Microsoft unveiled its new Xbox One game console to an assembly of press, analysts and Microsoft employees on its Redmond, WA campus. The Xbox One has faster processors and more memory than the Xbox 360. A new version of its Kinect 3D digitizer with dual 1080p cameras is included as standard equipment. The Xbox Controller has also been redesigned, although the changes are mainly cosmetic. In addition, the Xbox One has an HDMI input, so that selected cable, satellite and IPTV set-top boxes can be connected to and controlled by the Xbox One.

Microsoft spent the first half of the presentation focusing on the Xbox One's TV-related features. For example, the Xbox One will have a built-in Electronic Program Guide (EPG) that supports many video operators. Users will be able to change channels and look for shows to watch by voice. In addition, the Xbox One will enable navigation via Kinect gestures.

The second half of the presentation was devoted to games. Only a handful of game publishers were represented on stage, and none of them showed actual game play; instead, they showed trailers. To my eyes, the most impressive trailer was for Forza Motorsport 5, which is the only game title that's been confirmed to be released day-and-date with the Xbox One. It looked great, with visual elements such as metallic paint and realistic depth-of-field rendering that would have been possible only in pre-rendered cutscenes not long ago. Unfortunately, that wasn't the case with the demos from the other game publishers. Electronic Arts, for example, appears to be using the Xbox One's additional horsepower to add more intelligence to the game play in its sports titles rather than for improving how its games look.

Microsoft is apparently concerned about the future of the Xbox given the falloff in sales of console games and the rise of casual games on smartphones and tablets. As a result, it's trying to position the Xbox One as both a set-top box (one that can both connect directly to content over the Internet and indirectly through cable, satellite and IPTV set-top boxes) and a high-performance game console. The problem is that those are two very different markets, with different use cases and consumer expectations. For example, Google TV provides most of the same non-game functionality as the Xbox One, albeit without voice recognition or gesture control. On the other hand, you can buy a Google TV-based set-top box from Vizio for $99, while I expect the Xbox One to be priced around $399. You can also buy an Apple TV or Roku set-top box for $99 or less. I simply don't see very many people buying the Xbox One for its set-top box features, since they can get most of its functionality from less expensive competitors. That means that most of the Xbox One's buyers will be hard-core or moderate gamers, which won't expand the potential market for the device at all.

I suspect that Microsoft's corporate leadership has fallen victim to Shimmer Syndrome (named after the combination floor wax and dessert topping in the famous Saturday Night Live commercial parody.) As with Windows 8, which works both on tablets and on conventional PCs but is compromised on both platforms, it's trying to make the Xbox One work both as a set-top box and game console. The compromise on the set-top box side is clearly price; we don't yet know what the compromise is on the game side, but it may be lack of attention that opens the door for Sony to offer a superior developer and gaming experience.

Does a Microsoft purchase of Nook Media make sense, and to whom?

Earlier this week, TechCrunch reported that it received private documents describing a $1 billion offer made by Microsoft to acquire Barnes & Noble's digital businesses from its Nook Media business unit, in which Microsoft invested $300 million last year. Nook Media also includes Barnes & Noble's college bookstore unit, which Microsoft doesn't want and would most likely be reintegrated with B&N's retail business.

Here's what Microsoft would be acquiring:

• Barnes & Noble's eBook business, including its publisher contracts, self-publishing business, eCommerce websites, online order fulfillment infrastructure and customer lists.
• The Nook hardware line (both eReaders and tablets,) and Barnes & Noble's hardware design operation in Silicon Valley.
• B&N's other digital product lines (apps, magazines, newspapers, audiobooks and video.)

The deal, if it goes through, would make Microsoft the second largest reseller of eBooks in the U.S., ahead of everyone other than Amazon. It would save Microsoft the time needed to build its own relationships with publishers and eBook distribution infrastructure. However, the other things it would buy might not be all that valuable:

• Barnes & Noble's tablet business, which was once a viable competitor for Apple and Amazon, has been declining since last year's Holiday sales season. B&N has been running a series of promotions to try to sell off its inventory of Nook HD and HD+ tablets.
• The document received by TechCrunch states that Barnes & Noble intends to shut down its tablet business by the end of its 2014 fiscal year. That's a huge "red flag" to B&N's Silicon Valley-based hardware and software engineers, who'll have no trouble finding jobs with other companies. By the time a Microsoft acquisition closes, most of Barnes & Noble's top engineers are likely to be gone.
• The existing Nook tablet line is of no interest to Microsoft, and in fact will represent a customer support liability.
• Microsoft already has its own app stores for Windows 8 and Windows Phone 8. It has no interest in maintaining the Nook's Android-based app store.
• Microsoft already sells videos and music through its Xbox Marketplace; it doesn't need Barnes & Noble's content.

That's what Microsoft gets for its one billion dollars, but what does the deal mean for Barnes & Noble? A billion dollars could fund a more serious reorganization of Barnes & Noble's retail business. The company is planning to reduce its store count largely by allowing leases for less-profitable locations to expire. Microsoft's money could enable Barnes & Noble's management to buy out leases and reduce its total number of stores much more quickly. It could also be used to redesign the stores in order to make them more profitable--but there's no evidence to date that Barnes & Noble knows how to turn its stores around.

Selling its eBook business to Microsoft also leaves Barnes & Noble with a big problem. eBooks represent as much as 30% of the sales of the Big 6 publishers; for some genres, such as romance, eBooks comprise 50% of sales. B&N's eBook sales are profitable and growing. So, Barnes & Noble needs to continue to offer eBooks to its customers. It could do so by referring its customers to Microsoft's eBookstore and getting a commission. However, Barnes & Noble would no longer be able to use its eBook sales to negotiate steeper discounts from publishers, since Microsoft would actually be the reseller for those publishers.

So, is Barnes & Noble's eBook business really worth a billion dollars (71% of the company's market capitalization as of this writing) to Microsoft? Is that billion dollars worth it to B&N if it means getting out of the only segment of the book business that's continuing to grow in both revenue dollars and units? In the long run, will selling its eBook business save Barnes & Noble's retail bookstores, or will it only buy the company a little more time?

 

Adobe drops software sales in favor of subscriptions

Earlier today, Adobe announced a major change in strategic direction. Its Creative Suites, which bundle software such as Photoshop, Dreamweaver, Illustrator, Premiere Pro and After Effects into multiple packages for applications such as video post-production and web design, will be discontinued as of June, when the company introduces the next version of its Creative Cloud service. CS6, the current version of Adobe's Creative Suite, will remain on the market in both physical and downloadable versions, but will not be updated. In addition, individual applications will only be available in physical and downloadable versions in their CS6 form. As of June, the only way to get the latest version of Adobe's software will be to subscribe to either the complete Creative Cloud or to individual applications.

As with the current version of Creative Cloud, the new version will be priced at $49.99/month, and individual applications will be priced at $19.99/month. Existing Adobe customers who own either a complete copy of Creative Suite 3 or greater, or one of the applications in Creative Suite 3 or greater, can take advantage of three different pricing models:

• They can license individual applications for $9.99/month.
• If they own CS6, they can license the complete Creative Cloud collection for $19.99/month.
• If they own CS3, CS4, CS5 or CS5.5, they can license the complete Creative Cloud collection for $29.99/month.

After the first year, the price of individual applications will increase to $19.99/month, and the price of Creative Cloud will increase to $49.99/month.

Customers who use most of Adobe's applications, such as those in the former Production and Master Creative Suite collections, will end up saving money with Creative Cloud versus buying annual updates. On the other hand, customers who use fewer applications, such as those in the Design and Web Creative Suite collections, and customers who've typically skipped versions of Creative Suite in the past, will end up paying more on an annual basis for Creative Cloud subscriptions.

As it stands today, Creative Cloud is a good deal for many Adobe customers, but what we don't know are Adobe's future pricing plans. What's $49.99/month this year could be considerably more in a few years. My sense is that there's going to be a lot of resistance to the end of Adobe's Creative Suites and individual purchase options, and a fair number of creative professionals will begin evaluating open source and lower-cost replacements for Adobe's software.

A new approach to ENG field transmission

There are two approaches that most local television stations use to get audio and video from their news gathering trucks to their studios:

1. For decades, ENG trucks have been equipped with microwave transmitters and antennas mounted on masts that range from 14 to 42 feet high when fully extended. These systems provide very reliable transmission, but they require that the ENG truck be parked, the mast be extended and the antenna be aimed at one of the station's receivers. Extension and retraction of the mast takes time.
2. In the last few years, companies such as LiveU, Dejero, TVU, Streambox and Teradek have offered Wi-Fi- and 3G/4G/LTE-based broadband transmitters, all of which are small enough to be carried in a backpack, and some of which are small enough to be mounted on top of or behind a camcorder. These systems are light, portable and can go live very quickly. They also operate from moving vehicles. On the other hand, these broadband transmitters are at the mercy of available mobile phone bandwidth. In a situation such as the recent bombing in Boston, mobile phone networks may become gridlocked, resulting in blocky video as the system is forced to use less bandwidth, or the connection may be completely dropped.

TVNewsCheck reports that Gray Television has developed its own approach to ENG transmission that combines many of the benefits of the microwave and broadband approaches. Its new system, called GrayMax, uses a single steerable antenna in a dome on top of a SUV, which connects to base stations with 18-inch antennas located around the city. Gray says that four base stations should be sufficient to cover a medium-sized city. The operator in the truck can use GPS to steer the antenna to align with one of the base stations with a single button push, but the antenna can also be manually steered. Gray will use the 2 GHz Broadcast Auxiliary Service (BAS) to send audio and video to the studio, and to receive audio instructions from the studio. The antenna can dynamically track the base stations while the vehicle is moving, so it can continue to feed content back to the studio.

A fully-equipped system, including the transmitter, base stations and vehicle, could cost as little as $80,000. Gray believes that it can eventually reduce the size of GrayMax so that it will fit into a backpack. In short, the system should offer the reliability of microwave systems with broadband's much faster set-up and ability to operate while in motion. In addition, by using the BAS band, it's not impacted by mobile phone congestion.

GrayMax won't replace broadband systems, because they're much less expensive and more flexible, albeit at the cost of lower reliability. However, for stations that want to replace existing microwave systems, GrayMax is likely to be less expensive to acquire, easier to use and more flexible than simply upgrading what they already have.

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Post-NAB business idea, 2013 edition

Every year, I return from NAB with a buzz from seeing new products and meeting new people. I get energized with lots of ideas--and then start penciling them out, which usually results in a bad case of reality setting in. Here's my 2013 idea:

A lot of people are repelled by the atrocious state of television news in many markets: A focus on crime and accidents, along with shoving cameras and microphones in the faces of victims' family members. My premise is borne out by the ever-older audiences for broadcast news: People who grew up watching it keep watching, but younger viewers get their news from the Internet. There has to be a market (albeit a small one) for people who want more serious local news, and they're likely to be both better educated and higher income than the population in general--prime targets for upscale advertisers.

The costs of building out a streaming-based (not over-the-air) news-focused television station are a fraction of what it would have cost to build a broadcast station just a few years ago. In fact, you can build eight or ten streaming stations for the cost of a single broadcast station. You don't need transmitters, antennas, studio-to-transmitter links, or any of the overhead required to fulfill FCC requirements. LED lighting and low-powered equipment make it feasible to use former retail space for production and post-production, and there's plenty of retail space available for lease in most major markets.

Start with a streaming station in a single major market to test the concept and identify what works and what doesn't. Then, over time, build out additional stations in other large markets, and create a network the way it was done in the early radio days--one station at a time. At a minimum, each station would produce two daily newscasts; as the network grows, those newscasts and additional stories would be fed to the network to create two national newscasts. In addition, some of the local stations would produce their own programming, such as talk and children's shows. The best of that programming would also run on the network. All programming, both local and network, would be available both live and on demand.

That covers equipment and real estate, but one area where you can't save much money is labor. A streaming station doesn't require as many people as a comparable broadcast station, but if the goal is to provide a superior news alternative to existing stations, you've got to hire experienced journalists. Yes, lots of stations and networks are laying off personnel, as are newspapers, but good people need to be paid appropriately. I'm a strong believer that if you're running a for-profit business, you should pay a living wage to the people who work for you, even if there's some way to get around it with interns and freelancers. People can't eat "exposure."

To staff a seven-day-a-week news operation producing two daily newscasts, by my count it would require 42 people at various salary levels. That's more than $2 million per year in salaries and benefits, even in a fairly small market. Advertising revenues aren't assured until the station can demonstrate that it has a loyal and worthwhile audience.

I believe that this idea has tremendous promise for someone who's willing to invest with the expectation that 1) Break-even may be five years out, and 2) To fully capitalize on the opportunity, the network will have to be built out. I can't fund it, and it's unlikely that I can find someone who will, so it goes into the drawer, likely to be pulled out again after NAB 2014.

Update, 4/26/2012: Google would be the perfect company to launch streaming stations, for several reasons:

1. It fits very well with YouTube, and adds a live, local news component that YouTube doesn't have.
2. The local stations can double as production and post-production space for YouTube's "creators," expanding beyond their existing facilities in Los Angeles, New York and London.
3. Google TV would get the streaming stations onto big-screen TVs.
4. Other than Netflix, Google is probably the biggest buyer of Internet bandwidth in the world, and it operates its own international fiber network that rivals the major telcos. Its bandwidth costs, a big part of any streaming network, would be the lowest in the industry.
5. As Google expands Google Fiber, locating streaming stations in Fiber cities would allow Google to compete with cable operators that have their own local channels.
6. Google already has 12,000 advertising salespeople worldwide, so it's well-equipped to sell advertising for a network of streaming stations.

Amazon's "Pilot Season," and the limits of reviews

Last week, Amazon released a group of television show pilots for audience viewing and feedback. Eight of the pilots are comedies that would (more or less) fit into a 30-minute sitcom slot, while the remaining six are children's shows between 10 and 20 minutes long. Most of the comedy pilots feature involvement by a few well-known entertainment names, including John Goodman, Bill Murray, Bebe Neuwirth, Jeffrey Tambor and Garry Trudeau. However, most of the roles, both in front of and behind the camera, are performed by a mix of experienced but lesser-known talents and complete newcomers.

Amazon's goal is to get "real viewers" to rate the pilots, with the highest-rated pilots getting "greenlighted" for production of an unspecified number of episodes. It's a great idea--instead of a handful of programming executives at a network making the decisions, Amazon has potentially tens of thousands of customers deciding what goes into production. At least, that's the theory.

The reality is that as of this writing, each of the pilots has from a few hundred to a few thousand reviews. In every case, the reviews are skewed heavily toward five stars--which makes it look suspiciously like friends and fans of the creators of the pilots are trying to skew the ratings. With so few reviews, it's difficult to separate the bogus reviews from the real ones, so the decision about which pilots to put into production will ultimately be made by the Amazon Studios programming team--the same people who would make the  decisions at a network.

We know how many people have reviewed the pilots and how many ratings they've given them, but only Amazon knows how many people have viewed each pilot. The actual viewer count is by far the most important measurement, because that can't be gamed--Amazon knows how much of each pilot is viewed each time, so it can subtract out views of, say, less than five minutes (or even use them as a negative indicator--if someone drops out after watching just a few minutes of a video, that's a fairly clear sign that they don't like it.)

My sense is that it may take several "pilot seasons" before Amazon gets enough viewers to be able to make well-informed programming decisions. It'll be interesting to see how Amazon's decisions on this first batch of shows match up with the reviews--if there's any correlation at all.

Teradek goes upmarket

I've been waiting for a little free time to write about the new Teradek video encoders and decoders that I saw at NAB. Teradek has been known for very cost-effective camera-top video encoders and wireless broadband transmitters. They've scooped up a fair share of the field video acquisition market that was pioneered by companies like LiveU, TVU and Streambox--and those companies have responded with their own lower-priced encoder/decoder systems. Just before NAB, Teradek started shipping its $699 VidiU live streaming encoder to reviewers; the company may have already begun customer shipments as I write this post. The VidiU brings much of the functionality of Teradek's Cube and Bond to a "prosumer" encoder priced less than $1,000.

When I visited Teradek's booth, I expected that the VidiU would be the company's primary new product, but I was wrong. The VidiU was on display, of course, but Teradek announced several new products, all of which are aimed at broadcasters and cable networks. Note: Teradek hasn't announced pricing or availability dates for any of these products. Here's a brief summary:

• The Bond Pro is an integrated encoder/cellular bonding system that's designed to attach to the Gold Mount and V-Mount battery plates used by professional ENG camcorders. It also includes an SD card proxy recorder, and has redesigned mounts for up to six 3G/4G/LTE wireless broadband modems that provide better protection from rough handling.
• The Bond II is a Bond Pro that's designed for camera-top mounting. Unlike the Bond Pro, it has its own internal rechargeable battery.
• The Edge is a Bond II in a 1U rackmount chassis, designed for permanent mounting in ENG trucks and mobile studios. Unlike the Bond Pro and Bond II, which use customer-supplied broadband modems, the Edge has six built-in 3G/4G/LTE modems as well as a WiFi hotspot. Up to 14 external antennas can be connected to the Edge for better cellular connectivity and WiFi range.
• The Slice is a pair of 1U rackmounted H.264 encoders and decoders. The encoder has one HD-SDI input and two outputs, as well as a WiFi hotspot in the encoder and a USB connection, while the decoder has a HD-SDI output and both Ethernet and USB connections.

Teradek also announced three new and updated software products:

• Sputnik 2.0 is the updated version of Teradek's Linux-based software for taking bitstreams from the multiple wireless broadband connections from the Bond, Bond II, Bond Pro and Edge, and bonding them back into a single H.264 video stream. It also enables tunneling of non-bonded point-to-point video streams from one network to another, supposedly eliminating the need to open firewall ports. Sputnik 2.0 has improved adaptive bit rate management that responds faster to changes in available bandwidth and bit rates from the encoder, as well as a new feature that reduces audio and video loss when a broadband modem drops its connection or is physically removed.
• Core is a new application that enables control of all of a organization's Teradek encoders, cellular bonding systems and decoders from a single location. One encoder's output can be routed to multiple decoders, and all settings of all of the devices can be managed from the Core console, allowing teams in the field to focus on getting stories instead of configuring encoders.
• Lokr is a new digital media and metadata management program that stores and logs all digital audio/visual media and metadata generated locally or remotely. It works directly with file-based cameras and existing VTR systems, and can mirror recorded files to a local RAID array or to a cloud-based storage system like Dropbox.

Even though these products are likely to be significantly more expensive than Teradek's previous products, it doesn't appear that Teradek is going after the high-end encoder market that companies such as Ateme, Elemental, Ericsson, Harmonic and many others compete in. Instead, Teradek continues to focus on mobile encoding products. Its Slice is a "toe in the water" for fixed-location encoding, but it rounds out Teradek's product line rather than strikes major new ground for the company.

In fact, all of the new products are aimed at offering a much more comprehensive product line: More professional encoders, rack-mounted devices, and software that enables centralized management of an entire network of Teradek devices, all make the product line much more appealing to major market broadcasters. Everyone from individuals streaming live webcasts from their living rooms to big-market broadcasters are now covered by Teradek products.