They’ll Never Learn (Part 27)

The age of authorized DVD burning of downloaded movies began in earnest last week with two announcements. First, Movielink, which is owned by MGM, Sony, Universal and Warner Bros., announced a licensing deal with Sonic Solutions to enable subscribers to burn downloaded movies onto DVDs. Then, two days later, CinemaNow, owned by a number of investors including Microsoft, Cisco, Blockbuster and Lionsgate, released a working burn-to-disc service. So far, so good—consumers can finally legally burn their own DVDs and play them anywhere. Sounds too good to be true? It is.

According to Paul Sweeting at Video Business, the story is a lot more convoluted. It seems that the movie studios are in favor of using CSS (Content Scrambling System,) the standard encryption method used in every DVD player. However, there’s a catch—the movies would have to be recorded on a new kind of DVD that’s been “pre-keyed” to support CSS. So, you wouldn’t be able to use your garden-variety DVD-Rs to record movies; you’d have to buy special, and undoubtedly more expensive, recordable discs.

In return for accepting this “light” encryption scheme, the studios want consumer electronics companies to add additional security features, including watermark detection, to all their DVD players going forward. Given that more than 169 million DVD players without these features have been sold in the U.S. alone as of the end of March, this would be equivalent to closing the barn doors after the horse has gotten out and the barn has burned down.

There’s no way that the major consumer electronics companies would, or even could, accept this deal. Chinese competitors have decimated their profit margins on DVD players, so there’s no room for them to either raise prices or absorb higher costs. (After all, that’s the reason why the big CE companies are pushing HD DVD and Blu-Ray to replace DVDs—the blue-laser formats offer higher prices, better profit margins and an ongoing stream of royalties.)

By contrast, the CinemaNow system is based on FluxDVD, which includes a Microsoft Windows Media Format-compatible Digital Rights Management (DRM) copy protection system (instead of CSS) and allows movies to be burned onto any DVD-R. One downside of this scheme is that FluxDVD’s dependence on Windows Media Format means that discs can only be burned on PCs running Microsoft Windows. Another downside is that there’s a chance, however small, that a DVD-R burned from a FluxDVD download might not be playable in some DVD players.

So, you’ll have a choice of two systems, but both will put demands on consumers: Either you’ll have to buy special recordable DVDs, most likely at a higher price, just for Movielink, or you’ll have to have a Windows PC and run the risk that the movie you burn might not play on your DVD player. It gets even better—apparently, there’s a schism among the studios: The Protestants (er, I mean Sony, Disney, Universal, MGM and Lionsgate) are willing to accept a CSS-only system with no new security features in the players, while the Catholics (sorry, I mean Warner Bros., Fox and Paramount) are still holding out for added security features in the players. The Protestant camp backs CinemaNow, while the Catholics back Movielink, even though the Protestants own three-quarters of Movielink. That makes no sense to me, and seems dangerously close to illegal collusion.

Representatives of all of the major studios and CE manufacturers are meeting this week in Los Angeles to try to agree on a single burn-to-disc system. If recent history is any guide, they’ll fail miserably—and still leave the door wide open for bootlegging. The worst of all possible worlds. They never learn.

HD Power to the People (Part 1)

Last week, Sony announced five new camcorders, two of which comply with the new AVCHD standard for high definition video recording that I wrote about a few months ago. The Sony HDR-UX1, which will sell for approximately $1,400 and ship in September, uses 8cm single- and dual-layer DVDs to allow as much as 30 minutes of recording at the highest quality (12Mbits or 15Mbits/second, depending on which part of the Sony specifications you read.) The HDR-SR1, which will be priced at approx. $1,500 when it ships in October, is essentially the same camcorder, except that it records video and audio on a 30GB hard drive instead of a DVD. The HDR-SR1’s recording time at maximum quality is 4 hours.

Both camcorders can record 1080i video using MPEG4 AVC/H.264 compression. No software video editor vendors have yet announced versions that will support the AVCHD format, but Sony, Adobe, Sonic Systems and Ulead have all announced corporate support for the format. Apple is not yet part of the AVCHD group, but Final Cut Pro can already edit H.264 video. (Panasonic will probably be in the market with a flash memory-based AVCHD camcorder by or shortly after Christmas 2006. Apple and Panasonic are close collaborators on video editing, so I’d expect the companies to announce their AVCHD-compatible products together.)

AVCHD mini-DVDs will be playable on Blu-Ray players, but since the DVDs themselves are readable by existing DVD drives, PCs with DVD drives will only need a player software upgrade in order to be able to play AVCHD discs. (Owners of standalone DVD (and, probably, HD DVD) players are out of luck.)

$1,400 to $1,500 is far from cheap for consumer camcorders (and video pros who got a sneak preview of Sony’s new camcorders say that they’re clearly consumer, not “prosumer”, products.) However, these are the first products in a new format, which means that they’re going to be at the high end of future pricing. Canon, Pioneer, Samsung and Sharp have also signed on to support AVCHD, so I expect to see camcorders with similar specs to the ones announced by Sony to be available for around $1,000 or less by Christmas 2007.

Until the first reviews of actual shipping hardware are out, it’s impossible to say with certainty what compromises AVCHD users will have to wrestle with. Image quality is a real question, because AVC/H.264 encoders have required a lot of computing power—will the UX1 and SR1 have the horsepower to do the job? What about HDV? Until the announcement of AVCHD, HDV was clearly the de facto consumer HD camcorder standard. (In fact, the first two members of the HDR family, the HC1 and HC3, are tape-based HDV camcorders.) Will Sony reserve HDV for more expensive prosumer and professional camcorders? (Panasonic doesn’t support HDV, so AVCHD doesn’t present a conflict, but Canon is one of the leading HDV camcorder suppliers.) How about editing? It took a while for good HDV editing software to become widely available, and the MPEG2 compression used in HDV is much easier to edit than MPEG4.

Whatever the answers are to these questions, AVCHD appears to be the vehicle that Sony, Panasonic and others will use to drive HD camcorder prices down to the Wal-Mart/Target level. However, there’s a lot more to making good videos than just HD, so in part 2 of this article, I’ll discuss what else is needed for the next golden age of consumer video.

No Reason to Live?

Is it just me, or is the flow of Web 2.0 startups getting incredibly lame? I just spent some time perusing eHub, MoMB and TechCrunch, all blogs that track new web sites and services. Here are the descriptions of some of these new services:

• Mikons: “Mikons.com, the website, is about reintroducing an ancient way to communicate that uses modern technology (the web) as the vehicle for that communication. It is about connecting people through visual symbols that they can draw using our Mikon Machine...". (The Mikon Machine is, in fact, nothing more than a Flash-based drawing program. A cool toy, but not much more than that.)
  
• Twttr: “Stay in touch with your friends all the time with instant updates through cellphone, txt msgs or the website.”
  
• Videws: “A mashup of RSS news with YouTube videos.”
  
• Fantacular: “A tech news social site.”
  
• PickStation: “A music podcasting/blogging community where users submit, tag, discuss and vote for the tracks they like.”
  
• FeelingBullish: “An investor social network with a twist: each user is an 'equity analyst' that takes public positions and writes analysis on companies.”
  
• BullPoo: “A place where investors can collaborate about finance using various tools such as blogging, virtual trading, and forming of investor clubs.”
  
• Fliqz: “Fliqz is a community founded on the premise that you should never have to delete your video assets. We are committed to the premise that it should be fun, free, and easy to preserve, manage, and share your memories with friends and family.”
  
• Taggly: “Taggly is an online social bookmarking community. You can store, share and search your favorite bookmarks.”
  

To which I respond: Why? Who cares? Can’t I already get this stuff from someone else? Why would I want this stuff in the first place? How many communities can one person possibly belong to? How many video sharing sites will get launched before the Internet, like Mr. Creosote and his “wafer thin mint,” explodes and sprays its tubes all over Ted Stevens?

A bubble? This is the Hindenburg. Light a match and run for your life.

No Runs, No Hits, Two Errors

The first volley of HD DVD and Blu-Ray players and discs has been launched, and the results are considerably less than stellar. First out of the chute was Toshiba’s $500 HD-A1 player and an assortment of HD DVD discs including Goodfellas and Swordfish. While reviews of the HD-A1 have found it to be not quite ready for prime time (bulky, very slow response, no 1080p resolution and an awful remote control,) the video quality of the discs is generally superb. On the Blu-Ray side, Samsung’s $1,000 BD-P1000 player has gotten excellent reviews, but the video quality of the available Blu-Ray discs (including The Terminator, The Fifth Element and Memento) ranges from bad to awful. The discs appear to have been mastered from worn theatrical prints of the films, scratches and all, rather than from negatives or digital masters.

This certainly isn’t the first time that a new format has had teething pains, but with all the time and money that the major consumer electronics companies and movie studios had to get ready for these launches, you’d think that they would have made a better showing. Particularly inexplicable is the poor quality of the first Blu-Ray discs. There’s absolutely no excuse for Sony and its partners to have come to market with crappy discs. What’s more, the discs are missing most of the special features and extras that the DVD versions of the discs come with. “Pay more, get less” is not a winning formula for Blu-Ray.

Last week, the North American HD DVD Promotional Group (Universal Studios Home Entertainment, Paramount Home Entertainment, Warner Home Video, Intel, Hewlett-Packard, Toshiba and Microsoft) vowed to spend $150 million over the next six months promoting HD DVD. The Blu-Ray team started a lower-key campaign a few months ago, but Sony seems to be holding back until this fall, when it will release both its first Blu-Ray player and, a couple of months later, the PlayStation 3 with built-in Blu-Ray player.

The best gauge of success for the high-def formats will be how much shelf space major retailers give them. Right now, HD DVD and Blu-Ray aren’t competing against each other as much as they’re competing against DVDs. Many of the very early adopters are buying both players, but as the market expands beyond technophiles to the larger population of movie watchers, proponents of both formats will have to first convince consumers that the value of HD discs is enough to warrant an upgrade from DVDs, before each camp can start convincing them that their format is best.

The real test will be about six months from now, after the Christmas buying season is over. If retailers and rentailers substantially expand their displays, it means that customer demand for discs is increasing. If they don’t expand (or worse, cut back) their displays of HD DVD and/or Blu-Ray discs, it’ll be a sign that sales haven’t met expectations. And, if they move the players and discs from the front of the store to the back, it means that the party may already be over for one or both formats. The horses may have left the gate, but there’s no guarantee that either of them will reach the finish line.

When Market Research Isn’t

A couple of days ago, a “market study” (and I use those words very loosely) was released by a company called Kelton Research. This study, sponsored by the WiFi Alliance, purports to indicate that WiFi is more desirable than either home phones or iPods. The study surveyed 551 people who said that they “…had experience with wireless computer technology in their home or home office.” One of the most interesting findings of the study was that “When asked how long it took to set up current wireless computer networks at home, the average length of time was just 1 hour 8 minutes.” My experience with WiFi has been almost the opposite, and I’m probably one of the more experienced people I know. Setting up a WiFi network usually takes hours, if not days, and woe be it to those who are setting up more complex networks with features such as virtual private networks (VPNs.) Since the average respondent in the study works from home 2 to 3 times a week, many of them must have complex networks.

News.com reported the story, and gently took issue with the study’s conclusions, given that the survey sample was taken from people who had already mastered the intricacies of setting up WiFi networks. Craig Mathias, an industry analyst who, according to News.com, covers the wireless communications industry, said that he thought that the study was skewed, but wasn’t inaccurate: "’The results are clearly skewed by the demographic,’ he said, adding that it doesn't indicate a real inaccuracy.”

Not inaccurate? Well, let’s visit the website of Kelton Research. Here, you’ll find a section of the site titled “Polling for PR.” You can read all the text on their site, but one quote puts everything into perspective: “… Kelton's team will help craft your questions, always with an eye towards attracting press attention to your campaign. Then, we'll complete a Kelton NewsWorthy Analysis, providing you with those findings which will be most interesting to your target media.” In other words, the entire survey was tailored not for accuracy or insights, but for attracting the interest of editors and reporters who'd give the WiFi Alliance free publicity. It makes a joke out of the words “market research.” In fact, it’s promotion disguised as research, and frankly, it’s disgusting.

Here’s a wager: When Kelton Research or Edelman, the WiFi Alliance’s PR firm, stumbles on this blog entry, they’ll count it as a PR win, because it includes the client’s name and some of the findings of the study. They probably won’t even bother to read the blog entry until it ends up in their client’s electronic clipping pile of press coverage that mentions their name. But folks, what people say about you does matter, and they don’t even have to spell your name right. So if you’re reading this in your clipping pile, congratulations. You have zero credibility.

The Party’s Not Quite Over

Fairly unnoticed in this week’s news are the actions of U.S. District Judge for the District of Columbia Emmet Sullivan, who has been given responsibility for reviewing both the SBC-AT&T and Verizon-MCI mergers under the Tunney Act. Both mergers have already been approved by the U.S. Justice Department, but the Tunney Act is intended to provide the Federal judiciary, acting on behalf of consumers, final oversight of Justice Department judgments or actions with antitrust implications. Most Tunney Act reviews are simply rubber stamps of the Justice Department’s decisions, but Judge Sullivan looks like he might seriously review the mergers.

You may remember that in 2002, Judge Colleen Kollar-Kotelly reviewed the settlement between Microsoft and the Justice Department. While Kollar-Kotelly eventually accepted the agreement with relatively minor changes, it threw a scare into both Microsoft and the DOJ, and provided the last serious opportunity for public review of and comment on the heavily watered-down settlement.

Now, we may have another opportunity to see the DOJ squirm. More importantly, it’s an incredible opportunity to see AT&T and Verizon squirm, as they’re forced to prove that their mergers are not anticompetitive. Given both companies’ positions on Net Neutrality and their usage of the backbone networks that they acquired (SBC from AT&T and Verizon from MCI) to gain leverage over the leading content and service providers, they’re clearly consolidating their market power over access and prices in a way that’s at least suggestive of monopoly power.

According to News.com, Judge Sullivan held a seven-hour hearing on July 12^th and scheduled a status conference for July 25^th to disclose his course of action. As with the Microsoft settlement, the DOJ, AT&T and Verizon are very much on the same side, so we consumers shouldn’t expect any support there. However, the Tunney Act requires a period of open public comment, and that’s where we can have our say. AT&T and Verizon really don’t want to have to reopen their mergers. If they have to concede some ground on Net Neutrality in order to keep their done deals done, they’ll do it. Depending on what Judge Sullivan rules on July 25^th, the telcos could be in a world of hurt that even Senator Ted Stevens can’t save them from.

On or shortly after July 25^th, either Judge Sullivan or the DOJ should announce the procedures for accepting public comments. You’ll find the Judge’s biography here, but for Pete’s sake, don’t start contacting him until the procedures for public comments are announced. In the Microsoft case, the public comments were collected by the Justice Department, so that will probably be the procedure in this case as well. I’ll let you know how to comment as soon as the announcement is made.

A Few Rules to Live By

I’m spending a typical Sunday night scanning the blogs that I missed during the week, and as usual, there are the seemingly never-ending lists of new Web 2.0 sites fortified with AJAX and Ruby on Rails, or whatever the latest programming paradigm is this week. Before my brain turns to mush trying to figure out just what market opportunity these people think they’re pursuing, I offer A Few Rules to Live By:

1. Technology is a means to an end, never an end in itself.
   
2. Just because you can do something doesn’t mean you should.
   
3. Just because you think there’s a market for your idea doesn’t mean that there is a market.
   
4. If you can’t explain your new product or service in one or two (reasonably short) sentences, you’ve probably got the wrong idea.
   
5. If you can’t convince someone who’s not a coworker, friend or relative that you’ve got a good idea, it might be time to rethink your idea.
   
6. If you don’t think you have any competitors, you’re wrong.
   
7. You can never know enough about your business, market or technical specialty.
   
8. The two most important resources for success in business are time and money. Like matter and energy, they’re interchangeable, but only under extreme circumstances.
   
9. At the end of the day, there will be a helluva lot more losers than winners. Never take success for granted, and never assume that it’ll last forever.

Me and the Internet: A Case Study

I moved from the relative civilization of Palo Alto, California to an apple farm in Sonoma County a few months ago. We have phone and cable service, but DSL is very problematic because of our distance from the nearest central office, and only the buildings nearest the road are wired for cable (one of which has a high-speed Internet connection.) I arrived here with a motley crew of wireless routers and other equipment, and I was committed to figure out a way to get a high-speed Internet connection back to my cottage using the equipment I already had, and without running a conduit and wires. Here’s what I did to get it to work:

First, I connected my Belkin Pre-N MIMO router to the existing cable modem. (Of all the equipment I have, the Belkin has by far the longest range.) The Belkin’s antennas can’t be removed, so I couldn’t connect an outdoor antenna to the router (which would have made the most sense.) Instead, I got the router as close to a window facing my cottage as possible. Next, I flashed my Linksys wireless router (which the Belkin replaced in my old home office) with DD-WRT firmware, and converted it to a wireless bridge, connected to the Belkin. I then wired a Buffalo wireless router/access point (the only new piece of active equipment I purchased) to the Linksys, and wired my print server, data server and Vonage phone adapter to the Buffalo (which is configured as an access point.) Finally, I connected my Buffalo wireless Ethernet converter to the Netgear USB-to-Ethernet adapter on my Series 2 TiVo. Both my TiVo and notebook computer connect wirelessly to the Buffalo access point, which sends packets by wire to the Linksys, from there wirelessly to the Belkin, and finally on to the cable modem.

So far, so good, but because of the distance between the main building and my cottage (and the fact that both the Belkin and Linksys are inside,) I was getting an average signal-to-noise ratio of 10dB on my wireless connection—marginal under the best of conditions. Thus, I added the last component: A 2.4GHz 15.5dBi directional planar array outdoor antenna from Sharper Concepts, and 25 feet of low-loss pre-terminated coaxial cable to connect the antenna to my Linksys bridge. With about a half-hour of work, we got the antenna mounted and aimed. The signal-to-noise ratio went from 10 to more than 40dB, more than enough to insure a reliable connection.

So there you have it. Rube Goldberg, eat your heart out!

“My Car Company is in Trouble. I Guarantee It!”

Every once in a while I write about cars, and seeing Dieter Zetsche starring in a new series of Chrysler commercials warrants a brief rant or two. Zetsche is the chairman and CEO of DaimlerChrysler, and the commercials play off his notoriously prickly personality. The ads have him demonstrate to a “reporter” how Mercedes’ technology has contributed to Chrysler’s products by taking the reporter on a scary test drive, show him storing away the Chrysler and Dodge minivans’ “Stow N’ Go” folding seats in record time, and even have him take the reporter along on a crash test. Unlike most of the commercials starring the head of a car company, these are actually funny.

But, to my point—does putting your CEO on camera actually make it more likely that people will buy your cars? It sure doesn’t seem to be working for Bill Ford, who, based on his ads, seems to believe that Volvo is an example of American ingenuity and that Ford cars are “bold.” (I’ve had Cream of Wheat that’s bolder than today’s Fords.) CEOs only seem to show up in car commercials when the company is in desperate straits—Lee Iacocca, after all, starred in Chrysler’s commercials to try to reassure customers that the company was going to bounce back from bankruptcy. My advice: The final sign of the Apocalypse for GM will be when Rick Wagoner starts showing up in its commercials.

When the Best of Intentions Isn’t Enough

The rumor mill is buzzing about Microsoft’s (unconfirmed) plans to launch its own portable audio and video player, probably in time for Christmas, along with an iTunes-like online store. The gist of the argument goes like this: Microsoft is unhappy that its hardware partners, including Creative Labs, iRiver and Samsung, have been unable to compete effectively against Apple’s iPods. So as not to let the portable digital media business slip away entirely, Microsoft’s solution is to launch its own portable audio/video media player to compete with the iPod, and its own digital media store to compete with iTunes.

The logic is that, like Apple, Microsoft can make a better product by tightly controlling the hardware, software and services. The problem, however, is that Microsoft already does that, and the results have been far from electric. Microsoft has launched many hardware platforms over the years, and they not only write the specifications for the hardware, they often actually provide a “reference design”—a working system—that is designed to be used as a model by hardware manufacturers. A few examples include the recent crop of tablet PCs, the Portable Media Center, and most recently, the Origami PC. The last two in particular were designed inside and out by Microsoft. None of them have made much of a dent on the market.

Having complete control of the platform is insufficient for taking on Apple, or for that matter, Sony in the Xbox/PlayStation 2 battle. The hardware, software and services not only have to work together, they have to be a step above the competition. So far, Microsoft is at best a parity player.

That doesn’t mean that I expect that Microsoft will fail if it goes ahead with its own player and store. Far from it. Apple’s strategy of locking down the iPod and iTunes with FairPlay, its proprietary DRM that it licenses to no one, is deeply frustrating. It prevents iPod users from seriously considering competitive products, and prevents users of competing players with large libraries of DRM-protected media from switching to Apple. I’d love to see Microsoft succeed with a platform that enables customers to choose players from a variety of manufacturers and media from a variety of stores. However, the intention to “out-Apple Apple” alone won’t cut it. To dislodge Apple, Microsoft will have to ship a product with a level of user-friendliness and refinement that’s an order of magnitude better than the company has ever done before.

Update: The rumors are correct, and Microsoft is readying its own media player/media store combination under the Zune brand name.