GoPro: Succeeding by sticking to its knitting

Let me introduce you to Bigbird, a juvenile pelican that was orphaned and abandoned by its flock, and washed up on the beach at the Greystoke Mahale resort in Tanzania. The resort's staff took care of Bigbird--which included teaching the pelican how to fly. The resort's team of "pelican trainers" mounted a GoPro sport camera on Bigbird's beak, and the camera captured the bird's process of learning how to flap its wings while simultaneously running down the beach. Most importantly, it captured Bigbird's first flight.

That video, which was taken by the Greystoke Mahale's staff, was edited by GoPro, and you can watch it on YouTube. You can also watch two deer be rescued from a frozen lake in Minnesota, or a kitten rescued from a burning building and resuscitated by a Fresno, CA fireman. If you can keep from crying after watching any of these videos, you're stronger than I am. If you want something a little more exciting, you can watch people snow skiing, snowboarding, water skiing, surfboarding, skateboarding, mountain biking, racing superbikes, racing cars, and much more, all from a first-person perspective. In fact, if you can name a sport or outdoor activity, it's probably been captured by a GoPro camera and can be found by searching on YouTube.

GoPro is arguably the most successful camera company in the world--they've certainly done more with fewer models than anyone else. The company exclusively makes sports cameras--small, rugged, inexpensive video cameras that nevertheless produce high-quality images. At any one time, GoPro only sells three models; currently, they sell two versions of their top-of-the-line Hero 3+ cameras, and they sell one model of their previous-generation Hero 3 line as their entry-level model. Prices range from $199 to $399. In addition, GoPro sells a range of accessories that allow the cameras to be mounted just about anywhere, and to be protected from just about any conditions (short of placing them in an oven.) The accessories for the Hero 3 and 3+ series are identical, so customers who purchased Hero 3 models can upgrade to a Hero 3+ and use all of their existing accessories.

By comparison, GoPro's biggest competitors--Sony and JVC--sell sport cameras as a sideline. For example, Sony sells full lines of point & shoot cameras, DSLRs, ILCs and camcorders, not to mention its line of professional camcorders and cinema cameras. And, in there somewhere, it's got two sport cameras. JVC is in a similar situation; its two-model ADIXXION line of sport cameras are a small part of a much bigger line of camcorders. GoPro has been able to keep ahead of its competitors, both big and small, with its laser-like focus on features that are of value to its target market of active sportspeople. Sony and JVC may each have a single product manager focusing on that market, while GoPro's entire company is focused there.

One way that GoPro keeps on top of its customers' needs is to watch videos that they make--and it gets thousands of them. Most of the videos featured on GoPro's website and YouTube site were produced not by GoPro but by its customers. So many people are producing videos with their GoPro cameras, and the videos are so popular (especially after being edited and enhanced with music by the GoPro team) that the company is launching its own branded media channels. It provides an in-flight video channel to Virgin America, and plans to launch a video channel on Microsoft's Xbox One and Xbox 360 game consoles this summer. A GoPro-branded media channel separate from YouTube is likely in the near future; such a channel would enable GoPro to fully monetize its videos, and cement customer loyalty by sharing advertising revenues with video submitters.

Last month, GoPro made a private IPO filing with the U.S. Securities and Exchange Commission. We don't yet know how much money the company plans to raise or how much of the company it plans to sell, but most observers believe that the IPO proceeds will, at least in part, be used to fund new products and the development of GoPro's media channels. By focusing on a small slice of the camera market, GoPro has built a big business and a cadre of loyal customers that's producing the content for a whole new business opportunity.

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 a 1080p camera 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.

Episode 5 of the Feldman File videoblog is live!

This week's episode of the Feldman File videoblog is live on YouTube! If you can't see it here, click here to view it in your browser. Here are the stories in this week's show:

• Google's $6 billion offer for Groupon is rejected, but it acquires DRM specialist Widevine
• Verizon Wireless fires up its LTE broadband network and launches its first devices
• Comcast extends its agreement to acquire NBC Universal and contends with complaints from Level 3 and Zoom Telephonics
• Adobe releases the first beta of Flash Player 10.2
• The U.S. Justice Department is forced to drop charges against an accused Xbox 360 modder
• Flipboard adds HTML5 support and advertising

Put a Roku in your Cable Set-Top Box

For years, I've doubted the ability of third-party set-top boxes from companies like Apple and Roku to make much market impact. Consumers generally detest adding more boxes and more wiring to their televisions. That's why home theater-in-a-box systems have been so successful, and a big reason why TiVo, which still has the best PVR, has struggled to build a viable business selling hardware. Consumers know that they have to have a set-top box from the cable or satellite company, and they accept two other boxes: DVD players (slowly morphing into Blu-Ray players), and game consoles.

In turn, both Blu-Ray players and game consoles are morphing into Internet digital video players. Netflix's streaming movie service is integrated into many Blu-Ray players, and with Microsoft's XBOX360. Earlier this week, Netflix made official support for Sony's Playstation 3, and support for Nintendo's Wii is right around the corner. However, none of these devices have anywhere near the household penetration of the ubiquitous cable or satellite set-top box.

Cable and satellite set-top boxes have always been closed, monolithic devices--they act as the gateway to the service provider's content, and nothing gets on them or through them without the service provider getting a cut of the action. Even with initiatives like Tru2Way, there's been little progress on opening up service provider STBs. Perhaps now is the time for them to do so.

Network-enabled Blu-Ray Players and game consoles represent the first viable competitors to the service providers' programming hegemony in the living room. The cable and satellite operators can rail against the competition, try to keep their content suppliers from working with them, and try to limit the value of competitor's services with artificial release windows for movies, none of which are likely to work in the long run. Or, they could add network-enabled features to their own set-top boxes and make the competition irrelevant.

Consider a cable or satellite set-top box that allows subscribers to access the same content as Roku. That means Netflix, Amazon, Major League Baseball, and in the near future, YouTube, Hulu, Revision3, Mediafly and a host of other services. You may be thinking, "Netflix? Amazon? Are you out of your mind? Don't the cable and satellite operators have their own Video-on-Demand services that they've spent millions of dollars to build?" Yes they do. But, those VOD systems have limited capacity and are extremely expensive to expand.

According to Comcast, in the first quarter of 2009, over half of its new VOD movies were available the same day as the DVDs. To limit the impact of $1-a-night services like Redbox, the movie studios are pushing to require Netflix and the kiosk operators to get their titles a month or so after the DVDs are shipped to retailers. The way things are going, if you want to see the movie as soon as it's out on DVD, you can buy the DVD or Blu-Ray, or watch it on cable or satellite VOD and pay a premium. If you're willing to wait a month, you can watch it on Netflix.

But, under the model I'm proposing, even if it's from Netflix, you'll still watch it on your cable or satellite set-top box. The service provider will charge Netflix a small fee for access to your set-top box--perhaps pennies per title viewed or a dollar a month. The service provider will get to brand and sell advertising on the interactive program guide and menus that subscribers access in order to find titles. A similar approach would work for other content providers: The cable or satellite operator gets the right to surround the content with advertising, and possibly to even insert advertising directly into the content.

Is the service provider cannibalizing itself? Yes, but it's capturing a chunk of the revenue that it's now losing, and will lose in even greater amounts in the future, from over-the-top (OTT) services that completely bypass the cable or satellite operator's set-top box.

The OTT services also offer leverage that the cable and satellite operators can apply to providers of conventional cable networks. For example, many service providers have long wanted to move ESPN to a premium sports tier, but ESPN demands a fee for every subscriber, even if they have no interest in sports and never watch any ESPN channels. OTT services like Major League Baseball can be integrated into the service providers' offerings to make a premium sports tier more popular and provide negotiating leverage to move ESPN's services into the same tier.

It's time for the service providers to stop trying to prevent the growth of over-the-top services like Netflix, and to start working with them.

Microsoft Goes for Price Leadership with Xbox 360

As of Friday, Microsoft is dropping the U.S. prices of all three Xbox 360 models. The entry-level Arcade model with no hard drive drops from $279 to $199--the cheapest current-generation game console on the market. The basic model with a 60GB hard drive falls to $299 from $349, and the Elite, with a 120GB hard drive, drops to $399 from its previous $449 price. The Arcade and base model prices now bracket the Nintendo Wii, which is priced at $249. The entry-level Sony Playstation 3 is $399.

I'm not sure that the price drops will make a huge different in sales for Microsoft, but it will certainly keep the product price-competitive with Nintendo. However, I think that it's long past time that Microsoft introduce a version that's a media extender first and a game console second. The Elite has everything it needs to be a HD PVR, except for digital or analog video inputs. Even the Arcade can be a usable SD media extender in streaming mode. Microsoft is positioning the Xbox 360 as a set-top box for Mediaroom IPTV systems, but with digital or analog inputs, it could do a lot more.

HD DVD is Dead...Now What?

Two days ago, Toshiba announced that it has abandoned HD DVD, with player production and all marketing activities to end in March. Yesterday, Universal Home Video announced that it would discontinue HD DVD production and shift to Blu-Ray. Paramount and DreamWorks, the remaining HD DVD-only studios, haven't yet made an announcement, but one is expected soon. (UPDATE 02/21/08: Paramount and DreamWorks have officially announced that they've dropped HD DVD in favor of Blu-Ray.) Thus, we finally have a single high-definition blue laser optical disc standard. The question is, does it really matter?

Video Business and Adams Media Research recently reported that the adoption curve for the first two years of HD disc sales ran significantly below that of DVD sales; 8.3 million HD discs vs. 16.3 milion DVDs. Now, there are a number of reasons why the growth of DVD sales was much faster than that of HD discs:

• DVDs were clearly superior to VHS cassettes, while HD discs are far less of an improvement over DVDs.
• HD discs are of value only to those consumers who already have a HD television set, of which only 26.5 million households in the US (out of 111 million total, according to Nielsen) have at least one.
• Many consumers can't tell the difference between movies on HD discs and DVDs.
• The format wars caused many consumers to delay purchasing either format until a winner arose.

Now that Blu-Ray is the winner, consumers don't have to choose between formats, but there's still the issue of the evolving Blu-Ray standard. In order to get the interactive features of BD Live (Internet connectivity, games, forums, etc.), Blu-Ray players have to conform to Profile 2.0 or greater. Unfortunately, the only player on the market right now that can meet Profile 2.0 is the Playstation 3, and even it will require a firmware update later this year in order to get BD Live functionality. So, smart consumers won't rush right out and buy a Blu-Ray player, unless they're already buying a Playstation 3.

The biggest issue, however, is whether electronic distribution will make Blu-Ray obsolete before it has a chance to take hold. As a Comcast subscriber, I can already see some VOD movies in HD; I can also rent HD movies on my Apple TV. As I write this, a partnership between Microsoft and Netflix is being rumored; this will get Netflix's streaming catalog, including some HD titles, onto Xbox 360s. If I can rent a movie electronically for a few dollars (and even see it at the same time that it's in theaters, as I did with "4 Months, 3 Weeks and 2 Days" last weekend on Comcast,) why do I need to buy or rent it on physical media?

If the Blu-Ray and HD DVD contingents had settled their quarrel two years ago, before either of them came out, the unified standard would have had two years to establish itself in the market. Today, I honestly can't recommend that anyone buy a Blu-Ray player unless they're buying it for some other reason (such as playing games on the PS3,) and thus will get the Blu-Ray capability "for free."

More on Playstation 3...

Paul Sweeting of Video Business Magazine has some interesting insights into Sony's recent announcement of layoffs at Sony Computer Entertainment, the division responsible for the Playstation 3. He chalks the layoffs up to a fundamental misreading of the market by Sony, and suggests that Sony has two choices:

1. Position the PS3 as an advanced digital media center for the living room that just happens to play games (which is pretty much what Ken Kutaragi said last year when he announced the PS3's pricing), or
2. Dramatically lower the price of the PS3 to compete more effectively with the Xbox 36o and Wii.

Option 1 doesn't solve Sony's competitiveness problems--in addition to the Xbox 360, which to my eyes has much better media management capabilities, the PS3 would have to compete with Apple TV, which sells at half the price.

For option 2, Sweeting suggests that Sony may have to replace the Blu-Ray drive in the PS3 with a DVD drive in order to get the cost down enough for Sony to compete with Microsoft and Nintendo.

After reading some of the cost breakdowns for the PS3, I think that deleting the Blu-Ray drive alone isn't going to do the trick--they're going to have to radically remove features in order to compete on price. From one of my posts from last year, the manufacturing cost of the PS3 was estimated to be $900. Even assuming that deleting the Blu-Ray drive and replacing it with a DVD drive saves Sony $300, they still have very little room to move on price.

One of the key sales points for the PS3 when it was priced last year was that at $599, it was still at least $400 cheaper than the least-expensive Blu-Ray player, so it was a "bargain." Well, scratch that advantage--Sony's latest Blu-Ray player will sell for $499 later this year, and several other companies (Panasonic, Samsung, LG, etc.) are also shipping Blu-Ray players and will have to be at least as competitive on price.

So, where does Sony go with the PS3? Really, the only option is more and better games. Right now, the only thing that will dramatically increase sales, even if they lower the price, is a better assortment of games--titles that are so much better on the PS3 that hardcore gamers can't afford to play them on anything else. Unless Sony can fix its game shortage soon, the PS3 risks becoming this game console generation's Gamecube--the third player in a market that can at best support 2 1/2.