3-D Cinema witout digital?

As I've written before, 3-D has come to be seen as the savior of the theatrical motion picture business, and potentially, the consumer electronics business as well. When you go into a movie theater to watch a 3-D movie, it's being projected by a digital projector. Digital projectors have a lot of advantages in picture quality (especially maintaining picture quality over time vs. a deteriorating film print), but they're very expensive (up to $150,000 for the highest resolution and most powerful projectors.) Meanwhile, there are tens of thousands of perfectly usable 35mm film projectors out there that are useless for 3-D. According to EE Times, Oculus3D is trying to rescue those analog projectors from premature retirement.

The Oculus3D system was co-developed by Lenny Lipton, the former Chief Technical Officer of RealD, the leader in theater 3-D projection systems. The Oculus3D system requires special processing of the final digital intermediates prior to creating the master negative for striking positive motion picture prints. Once that's done, the film is processed and handled identically to any other 35mm print.

Movies made with Oculus3D are printed with the left-eye view rotated 90 degrees in the left side of the 35mm frame and the right-eye view rotated 270 degrees in the right side of the frame. The Oculus3D system rotates the two images to zero degrees, polarizes and overlaps them so that they can be viewed properly with 3-D glasses. The Oculus3D projector lens will cost around $25,000. Inexpensive passive 3-D lenses are used with the system, and obviously, motion picture exhibitors can charge the same premium for tickets with the Oculus3D system that they charge today for 3-D from digital projectors. However, the equipment cost can be paid back five times faster with Oculus3D.

If Oculus3D performs competitively to digital projection systems, not only could 3-D be viable in far more theaters, but new life could be breathed into the film manufacturing and processing industries.

The 70% Solution

Yesterday, Amazon announced a new program offering publishers and self-publishing authors a 70% royalty on eBook sales as long as they agree to a number of rules, including:

• Pricing their eBooks between $2.99 and $9.99
• Setting the prices of their eBooks at least 20% below the price of their lowest-priced print versions of the same titles
• Giving Amazon "most favored nation" pricing status (the price that the author or publisher sells the titles for at Amazon has to be the same or lower than the price offered through any other reseller)
• Allowing Amazon to offer features such as text-to-speech on their eBooks

Apple is rumored to be offering publishers a 70% cut of revenues on eBook sales for its rumored tablet, and is said to be allowing publishers to set their own prices, so all that Amazon is really doing is matching Apple's terms. However, Amazon's moves are likely to spark a more seismic move in the publishing industry than simply paying more money to a few publishers. It may help spur a mass move to self-publishing, especially for authors who today typically sell 10,000 or fewer copies of their books.

Seventeen years ago, my first book (an introduction to Windows NT) was published by Sams, an imprint now owned by Pearson. The book sold a bit more than 10,000 copies, the minimum sales target for most computer book publishers back then. I earned out my advance ($8,000, as I recall), and made a few thousand more. However, given the amount of time I spent researching, writing and promoting the book, I could have worked at Burger King and made the same amount of money.

Also, I was responsible for promoting the book myself. When people say that one of the big reasons for publishing a book through a major publisher is their ability to promote books, don't believe them. Unless you're one of the publisher's top authors, you'll get little or no promotional support. I had to pay to fly myself around the country to promote the book, and a friend in Public Relations scored interviews for me with PBS' "Nightly Business Report" and other outlets.

So what does all this have to do with Amazon's announcement? I ran the numbers, and the economics are strongly in favor of an author self-publishing eBooks with Amazon or a similar service rather than going with a big publishing house. Here's an analysis that I did, comparing my book, originally priced at $19.95 and selling 10,000 copies in print, against the same title priced at $9.95 and selling 5,000 copies as an eBook:

	Print	eBook
List Price	$19.95	$9.95
Distributor Discount	50%	N/A
Royalty Base	$9.98	$9.95
Author Royalty	12%	70%
Royalty Revenues Per Copy	$1.20	$6.97
Unit Sales	10,000	5,000
Royalty Revenues ($)	$11,970	$34,825
Less: Editorial & Design Costs	$0.00	($5,000.00)
Net Author Revenues	$11,970	$29,825
Advantage ($)		$17,855
Advantage (%)		249%

Companies such as Lulu, iUniverse and Amazon's own CreateSpace offer editorial and design services for self-publishers. $5,000 is at the high side of what those companies charge for a complete editorial and design package. Even with the author paying for the editorial and design work that the publisher would ordinarily do, they'd still end up making 2.5 times as much money on an eBook priced half as much and selling half as many copies as the print version. That's amazingly compelling.

Amazon will try to steer as many of those self-publishing authors as it can to CreateSpace, where Amazon gets a cut of the editorial and graphics services as well. It means that the 30% that Amazon gets is just the start...and the fees paid to CreateSpace are paid upfront by the author, no matter how many copies the author sells. In essence, the authors are paying Amazon an advance for its services, and they're hoping to earn back the advance and make more through sales of the eBooks. It's a plan that could make your chin drop.

It's far too early to give the game to Amazon, but in many ways, they're moving beyond Apple in their integration of production services, distribution and delivery devices.

Startups: Quick and Dirty or Built to Last?

Several years ago, I rented a small house on the San Francisco Bay peninsula. The landlord was a very nice person, but she didn't want to spend a penny more than she had to for anything. In the mid-90's, she built a large house and installed the cheapest double-pane windows she could find. Typically, good windows that are properly installed last at least 25 years, but most of the internal vapor seals on the windows that she installed had broken in less than 10 years. The result was moisture and fogging between the panes that was impossible to remove. She was thinking about selling the house and knew that she could never get a good price with those windows, so she had to replace all of them.

There are times when you should spend money now in order to avoid having to spend more money later; the windows in that house are a good example. By installing good-quality windows when the house was built, the landlord could have avoided the hassle and expense of replacing them a few years later. However, there are also times when it's appropriate to spend the least amount possible building a "disposable" solution.

Software and Internet services startups have to make this same choice all the time: Spend a lot of money up front to get high-quality code that can be used for a long time, or go the cheap and dirty route and get something out that works but will have to be replaced quickly?  The answer depends on what stage your startup is in. If you're just getting started and you're still trying to determine if the opportunity you've targeted is real and your technical solution will work, cheap and dirty is best. You're almost certainly going to throw out your code once, if not multiple times, before you're got the right product/market fit. Once you've got your product/market fit right, you can begin replacing "temporary" code with higher-quality, more maintainable code (I hesitate to say "permanent". because no code should be permanent.)

There are always situations where getting it right the first time is essential, especially in applications used for mission-critical or life-and-death situations. However, for most early-stage startups, cheap and dirty is the way to go, at least at the beginning.

Profiles in Cowardice

It looks as though the negotiations between NBC and Conan O'Brien will be completed as early as tomorrow, and I couldn't be happier. With the disaster in Haiti, this entire situation doesn't even deserve ranking as a sideshow. However, a couple of things have happened that tick me off and point to the high level of cowardice within NBC's current management. First, Dick Ebersol, the president of NBC Sports, criticized O'Brien and David Letterman for their jokes about Jay Leno, saying that it was "chicken-hearted and gutless to blame a guy you couldn’t beat in the ratings." He went on to say that "what this is really all about is an astounding failure by Conan." Later, he claimed that if O'Brien had only taken his (Ebersol's) advice to water down his comedy to fit the 11:35 p.m. audience, everything would have been fine.

Let's take those arguments, in reverse order. O'Brien DID make his comedy blander and less pointed in order to avoid offending the "Tonight Show" audience. I don't think they ran the Masturbating Bear once during the last seven months, for example. I'd argue that it was removing exactly that edge that made The Tonight Show less entertaining and less interesting. In the last week, O'Brien has taken the gloves off, and his ratings have soared.

Second, the "failure" at 11:35 was hardly Conan's fault alone. NBC knew that putting Jay Leno on at 10 p.m. was going to draw away some of the older audience, and that they might not stay up later to watch O'Brien. If I recall the statistics, the average shortfall in ratings that NBC affiliates suffered by putting Leno on at 10 was 17%. That meant that a 17% lower audience was carrying over into the 11:35 time period for NBC. Of course O'Brien's ratings were lower, because he wasn't fighting on a level playing field. He had to start with the damage caused by The Jay Leno Show.

Before I skip to the first charge by Ebersol, let me bring you another quote, this time from an article last Friday in the New York Times, including a quote from Jeff Zucker, chairman of NBC Universal:

"Mr. Zucker said that it was during a phone call in the first week of January from Jeff Gaspin, NBC Universal’s head of entertainment, that he learned that the network’s affiliates were threatening to pre-empt the Leno show. 'It was becoming tough to deal with,” Mr. Zucker said. “The pressure from the affiliate body was strong.'

Mr. Gaspin’s idea was to move Mr. O’Brien’s show to 12:05 a.m., and give Mr. Leno a half-hour show at 11:35 p.m. 'That’s what he wanted to do, and I said, O.K., give it a shot,' Mr. Zucker said. The shot exploded in their faces."

Ahh, so it's Jeff Gaspin's fault, is it? If all that Zucker was doing was assenting to a plan proposed by his subordinate, why did Zucker go ballistic and threaten to not only pay O'Brien nothing but to keep him off the air for 3 1/2 years? He seems awfully invested in someone else's idea. It sounds more like Zucker is trying to make Gaspin the fall guy. Zucker was the one who came up with the plan to give The Tonight Show to O'Brien in the first place and to give Leno a show at 10 p.m. after Leno wouldn't agree to a show at 8 p.m. If he didn't originate the harebrained scheme of musical chairs starting with moving Leno back to 11:35, he most certainly approved it.

Which brings me to the "chicken-hearted and gutless" remark by Ebersol. Who's more chicken-hearted and gutless in this situation: O'Brien, standing up for himself, or Zucker, hiding behind Gaspin? For that matter, when Ebersol's Winter Olympics coverage loses $100 to $200 million for NBC, which he's said that it's going to do, I wonder who he'll blame or whether Zucker will stand up for him.

Entrepreneurship is a life choice, not a job choice

I was looking at the websites supporting the various entrepreneurial programs at my alma mater, Northwestern's Kellogg School of Management. There seemed to be a lot of activity until the current recession began, but since then, things have slacked off dramatically--not surprising considering the economy.

However, entrepreneurial programs at the graduate level have always had something of a checkered history. Most MBA students gravitate to the careers that pay the most. For years, that was consulting and then investment banking. In the mid- and late-90's, entrepreneurship programs took off and became the most popular programs at some schools. I suspect that the majority of those students didn't pursue entrepreneurship because they had a burning desire to found and run their own companies; rather, they saw an opportunity for quick wealth if they could take their companies public or flip them to an acquirer. When the dot-com economy collapsed, interest in entrepreneurship programs dwindled, and investment banking once again took over. (Today, I have no idea what MBA students are gravitating to.)

I believe that entrepreneurship is a life choice, not a job choice. You're either driven to create and build companies or you're not. You can teach the nuts and bolts of creating and building businesses, but not the mindset. In fact, the skills needed to be a successful entrepreneur are rarely taught in MBA programs. Graduate business programs are designed to create specialists--a student will be exposed to all the important disciplines, but they're expected to specialize in one or, as I was able to do, at most two. You graduate as a finance or marketing specialist, but to be a successful entrepreneur, you have to be a generalist. You must be functionally competent in a lot of areas, including product development, sales, marketing, finance, accounting, hiring, legal issues and a lot more.

I would gently suggest to anyone looking at entrepreneurship as a "get rich quick" opportunity that you're out of your mind. I was raised in an entrepreneurial family--my parents owned a retail store, and my father often said that he was in business for himself because he was unable to work for anyone else. It was a very difficult life for them, although they made sure that my sister and I had everything we needed. For 30 years, they were always one bad Christmas season away from disaster. They survived because they were driven to survive.

For you to really be successful, you have to be driven to build a business on your own, not on someone else's payroll. No graduate program can put that drive into your blood. It's either there or it's not.

Conan O'Brien Rejects NBC--Leno Will Get Back "The Tonight Show"

It looks like NBC is going to do what I suggested in an earlier post, but not because they want to do it. Yesterday, Conan O'Brien basically told NBC to "take a hike" with its plan to move Jay Leno back to 11:35 p.m. for 30 minutes, followed by The Tonight Show at 12:05 a.m. In a heartfelt but very carefully crafted public statement, O'Brien said that by moving The Tonight Show to 12:05 a.m. from a time period where it's been for almost 60 years, it will effectively no longer be The Tonight Show, and he won't be a party to that.

According to NBC, its contract with O'Brien doesn't specify at what time The Tonight Show has to run, so the network is completely within its contractual rights to move the show without having to pay O'Brien his kill fee. However, O'Brien is making the argument (and his lawyers would make the argument if it ever got to court) that having The Tonight Show on after the local news is a multigenerational institution with U.S. television viewers, and that by moving "The Tonight Show" to 12:05 a.m. and putting another entertainment program in front of it, O'Brien's show will be "The Tonight Show" in name only.

The trade press says that all that remains is for NBC to negotiate a cash settlement with O'Brien and an agreement on how long he'll have to stay off the air before he can work for a competitor. It's fairly clear that barring some other major event, O'Brien's last show as the host of The Tonight Show will be February 11th, the same night that "The Jay Leno Show" goes off the air. Leno will take over again as the host of The Tonight Show after the end of the Winter Olympics.

I have to admit that I wasn't a fan of O'Brien's Tonight Show, but I was even less of a fan of Jay Leno, who seems to believe that you can never dumb your talk show down enough for the audience. I'm not happy about the outcome, but NBC (and its acquirer, Comcast) has to be even less happy. No one in negotiations with NBC in the future is going to trust that the network will think through or stand by its decisions.

Buzzwords Without the Benefits

The eBook software company that I work for was just merged into a larger software division of the same company. This larger company uses Extreme Programming (XP) primarily as an excuse to put developers into pens. While other companies using XP put two developers into each cubicle or office, at this division, developers sit side-by-side at long tables with no privacy. The developers could just as easily be machine tools.

If the company was really getting benefits from the approach, I'd say that the human cost might be worth it, but they only manage to get one release out a year. Neither time-to-market nor responsiveness benefits from their approach. Developers are moved from project to project in order to meet staffing demands, so it's difficult or impossible for them to build and maintain domain expertise. There seems to be plenty of demand for customer support, so their approach isn't resulting in easier-to-use or higher-quality products.

I'd argue that the only reason that this company has been successful is that it's selling into a very conservative market that changes and adopts new technology very slowly. If they were competing in a more dynamic market, they'd have their heads handed to them.

It's easy to convince yourselves that you're experts in a given field if you're in a market cul-de-sac or technological backwater. An easy way to fall into this trap is to benchmark your operations against your direct competitors--that's what the U.S. automakers did, by comparing themselves against their next-door domestic competitors instead of the best companies around the world. The smart thing to do is to benchmark yourself against other similar, but not necessarily competing, businesses. Identify what they do right and what your direct competitors could learn to use against you.

3-D: Industry Savior or "Flavor of the Month"?

At the Consumer Electronics Show (CES) this week in Las Vegas, 3-D is everywhere. Sony, Panasonic and others showed LCD and plasma displays and Blu-Ray players that will support 3-D. Panasonic even showed a non-working prototype of a $20,000 camcorder capable of shooting 3-D content. ESPN and a consortium of Discovery, Sony and IMAX both announced plans for 3-D cable channels. The problem, however, isn't the technology (although the issue of 3-D formats needs to be resolved) but rather, how the technology is used.

If 3-D isn't shot very carefully, it usually becomes a brain-liquefying (and headache-inducing) experience. Both the right tools and the right technique are essential. If you think that it's tough for filmmakers to produce watchable 2-D movies and television shows, wait until they try to work in 3-D.

There's a very good chance that 3-D has become the consumer electronics industry's latest "flavor of the month". Blu-Ray was intended to save the industry, compensating for lost revenues from the decline in DVD player prices and encouraging consumers to pay more for Blu-Ray discs. That hasn't happened so far, thanks in large part to the recession, nor is it likely to happen in the future. However, 3-D could be the savior of Blu-Ray. It could even get people to replace earlier-generation HDTV displays with new models capable of the high refresh rates and resolution needed for 3-D. Or at least, that's what the industry hopes.

I can't help but think that 3-D is going to have the same impact as Blu-Ray has had or even less. Consumers are flocking to $1 a night Redbox DVD rentals, or they're turning to digital downloads and streaming video. 3-D technology is still about five years from being practical in everyday production, and if the industry tries to push out products too quickly, the most likely things that it's likely to stimulate sales of are headache remedies.

Leno Moving Back to 11:30 for 30 Minutes?

The New York Times is reporting that NBC is planning to move Jay Leno back to 11:35 p.m. to do a 30-minute show, followed by Conan O'Brien at 12:05 a.m. for an hour, and then Jimmy Fallon at 1:05 a.m. No word on what show gets named what, but I'm betting that O'Brien keeps "The Tonight Show" name and Leno's show remains "The Jay Leno Show". Besides being an act of desperation, NBC's moves smack of more half-steps: They can't remove Conan O'Brien from the Tonight Show without paying him a huge kill fee ($50 million, as I recall), but what can Jay Leno do in 30 minutes? A monologue, perhaps a sketch or comedy bit, but no interviews. O'Brien would start at 12:05 a.m., and Jimmy Fallon would be in Carson Daly's nosebleed territory.

NBC's hope is that moving Leno back to 11:35 p.m. will let them win the first half-hour of late night again against Letterman and Nightline, and give O'Brien a better lead-in, with the goal of keeping viewers from tuning to Letterman for the second half of his show, or to ABC's Jimmy Kimmel. But given NBC's track record, the chances are more likely that Nightline and Letterman will stay on top, the Tonight Show will be even more crippled than it is now, and Late Night will be killed in the ratings.

Why can't NBC simply bite the bullet and put Jay Leno back as the host of the Tonight Show? Pay O'Brien his kill fee and offer him Late Night again, move whatever Jimmy Fallon does to 1:35 a.m., and get rid of Carson Daly. Rather than really fix the problem, NBC's management looks like it's going to make another "bold move" that's really a half-step intended to save money.

Video Business Magazine closes

Today, Reed Business Information announced that it had shut down Video Business Magazine, effective immediately. Both the print magazine and the website were shut down. They were apparently victims of the recession, the decline in DVD sales, and the long-term closure of thousands of independent video rental stores, all of which resulted in lower advertising revenues.

Given that Video Business was one of two remaining magazines focusing on the home video industry in the U.S., the outlook for independent coverage of the industry isn't good. Also, speculation is high that Variety, Reed's flagship entertainment publication and newspaper, is either already on the block or soon will be for sale.

Google's Nexus One: Darwin at Work?

Google formally announced its Nexus One smartphone yesterday, and the trade press, many of whom had weeks to play with the phone prior to the announcement, was free to tell what it thought of the new phone. The verdict seems to be that it's the best Android phone to date, and a worthy competitor to Apple's 3GS. Now, we're going to see if Darwin was right.

Apple's iPhone is an excellent example of a closed ecosystem--everything is controlled by Apple, especially the pace of change. In the Android ecosystem, Google has limited control, in that it controls the pace of new Android operating system releases, but since Android is open source and anyone can build compatible devices, we're seeing a rate of change faster than anything in the Apple ecosystem. The Motorola Droid, which was the best Android smartphone, was supplanted by the Nexus One in just a few months. Motorola already has the next generation of the Droid design in testing, and other players, such as Samsung and Sony Ericsson, are hard at work on their own products.

The only real advantage that Apple has left is its lead in applications, which is still substantial. My suspicion is that Apple is going to try to change the topic of conversation later this month to its new tablet computer, which will likely use the iPhone's operating system. If that happens, Android will once again be playing catch-up. Nevertheless, the iPhone/Android battle is an excellent laboratory for testing evolutionary theory: Is a controlled or an open ecosystem better at producing valuable innovation? Apple's closed ecosystem has led the pack so far, but it's Android's turn to demonstrate the value of openness.

3D Comes to Cable

There were two announcements of new 3D cable networks at CES today. ESPN announced plans for a new 3D network, as did a joint venture among Discovery Communications, Sony and IMAX. ESPN's channel will launch this June and broadcast a minimum of 85 3D sporting events in its first year, the first one being a World Cup soccer match between South Africa and Mexico. The 24-hour Discovery/Sony/IMAX channel will launch next year and will feature programming from a variety of Discovery's channels.

It's far too early to tell whether these channels will turn out to be short-lived gimmicks or pioneers of a new generation of broadcasting. However, it's likely that other networks will follow suit, launching their own 3D services and putting additional demands for channels onto already crowded cable, satellite and IPTV systems. In turn, this will spur cable operators in particular to move even faster to Switched Digital Video and IP Video architectures.

As a practical matter, if you're in the market for a new HDTV display, you should probably go for one with at least a 120Hz refresh rate. There are no guarantees that it will work with 3D content, of course, unless the manufacturer says that it does.

Droid Doesn't?

I just noticed a Verizon commercial where they're giving away a HTC Droid Eris if you purchase a Motorola Droid. These kinds of deals usually don't happen unless sales slow down, which makes me wonder if Droid sales have already peaked. Verizon may also be running the promotion as a preemptive strike against the Google Nexus One, which is scheduled to be formally announced this coming Tuesday. Engadget's early review claims that the Nexus One is faster and better-designed than the Motorola Droid and slightly thinner than the iPhone 3GS.

Handset manufacturers competing in the Android space aren't going to be able to keep a "best-of-breed" position for very long. Motorola leapfrogged HTC, and now HTC looks like it's going to leapfrog Motorola. Samsung and Sony Ericsson are also in the market. It's going to be very tough to compete unless you've got the ability to crank out improved models quickly.

The Entrepreneurial Challenge

2010 has just begun, and depending on who you talk to, we're either still in the Great Recession, or it recently ended. Either way, there are millions of people in the U.S. and around the world who will remain unemployed or underemployed even after the economy recovers. As a society, we have both a moral and economic imperative to help these people get back on their feet. As a country, the U.S. can't survive with a hollowed-out manufacturing base, and having Wal-Mart or McDonald's as employers of last resort helps no one.

I believe that the end of the Great Recession presents a tremendous opportunity for individuals who want to start their own businesses. For many people, entrepreneurship will represent their best, or even their only, means of getting back on their feet financially. The challenge for those of us who have spent most of their careers in Silicon Valley and other entrepreneurial centers is to bring that startup culture to people who need it.

We've got the tools to spread ideas quickly and inexpensively; we need to use them to encourage new businesses, no matter where they're located. We also need to adapt our philosophy and techniques to the needs of entrepreneurs outside the major technology and business centers. It's far more likely that these new entrepreneurs will start a restaurant than a software company, and very few of them are ever going to have a business that's likely to go public. We need to help them build sustainable, profitable businesses that will allow them to make a good living and support themselves and their families.

Who's helped by "a la carte" pricing?

The Fox/Time Warner debacle (which was settled last night) has reopened discussion of a la carte pricing for cable. A la carte means that cable operators would be obligated to allow subscribers to choose and pay for only the channels that they watch. Never watch ESPN? You wouldn't have it in your channel list, and you wouldn't pay for it.

Consumers love the concept of a la carte, because it promises to dramatically lower cable costs. Most people have 20 or fewer channels that they watch regularly, and that's all that they'd have to pay for. However, a la carte is Kryptonite to both the cable operators and networks. The cable operators would have to price their services much closer to their actual costs, which would mean significantly lower revenues. They would no longer be able to offset the costs of cable networks that they have to pay for with cable networks that pay the operators for carriage. (For example, cable operators pay Fox to carry the Fox News Channel, but Fox pays the cable operators to carry the Fox Business Channel.)

Under a la carte, the cable networks could no longer get revenue from every cable subscriber, no matter whether or not they ever watch their channel. Disney's ESPN is legendary for refusing to allow its primary network to be moved to a sports tier; Disney insists on getting paid for every subscriber that a cable system has. If subscribers could pick and choose, Disney would only get revenue from those subscribers who actually want to watch ESPN enough to pay for it. ESPN's viewership numbers, and its advertising revenue, would likely drop significantly.

ESPN and Fox News are very popular, so they'd probably survive in an a la carte environment. The survival of marginal cable networks would be much more problematic. Most cable networks claim all of the subscribers to their cable systems as potential viewers, and set advertising rates (at least in part) based on those numbers. Marginal networks would see their potential viewer numbers drop dramatically under a la carte, and their revenues from cable operators would drop as well.

A few years ago, I interviewed a European IPTV operator that launched its service with a la carte pricing. The service was very popular, but it consistently missed its programming revenue goals, so it quietly replaced a la carte with the tiered pricing model used by US cable operators. The European operator found that it lost few subscribers and significantly increased revenues. (The operator's market was so competitive that even with tiers, its service was only 1/3rd the price of comparable cable or IPTV service in the US.)

A la carte pricing would be the fairest approach for consumers, and it would introduce true supply-and-demand pricing to the cable business, but it would probably also result in the failure of many existing cable channels. The forces favoring a la carte simply don't have the political or financial clout to make it happen in the U.S. at this time.

Fox vs. Time Warner Cable: A Portent of the Future?

Fox and Time Warner Cable played a game of "Chicken" with Time Warner's subscribers over the last few days, with Fox threatening to discontinue availability of its broadcast channel on Time Warner's systems unless TW pays $1 per subscriber per month in retransmission fees. TW has been said to have offered $0.25-0.35 per subscriber. Fox agreed to extend negotiations late last night so that TW subscribers could watch Fox's football games today.

Retransmission fees are nothing new--cable operators have been obligated by Federal law to pay them for years. Nor is brinkmanship, either by a programmer or cable operator, a new tactic. What is new, however, is for broadcast networks to demand their own retransmission fees. Cable operators are required by law to pay affiliates for retransmission rights, not the networks. The networks have historically played the game by allowing cable operators to pay reduced fees to carry their Owned & Operated (O&O) stations, or waived the fees altogether, if the cable operators carried their cable networks. (Cable operators pay separately for the rights to carry cable networks.)

The negotiations going on between Fox and Time Warner Cable centered on Fox's O&O stations; if Fox hadn't agreed to the extension, it would have knocked Fox stations off of Time Warner systems in New York City, Los Angeles, suburbs of Boston and other major markets. Fox would have had no right to withdraw its programming in TW markets where it doesn't own the local Fox affiliate. 

What Fox and the other broadcast networks are now saying is that they should be compensated in addition to what their affiliates get paid for retransmission. Here's an example: In San Francisco and Oakland, CA, the Fox affiliate, KTVU, is owned by Cox Broadcasting, not Fox. The local cable and IPTV operators are Comcast and AT&T respectively. Comcast and AT&T pay Cox for the right to retransmit KTVU's signal. Fox itself gets nothing. However, Fox also wants to get paid by Comcast and AT&T for its programming, in addition to whatever they pay to Cox.

The fight between Fox and Time Warner Cable is only the opening salvo in what promises to be a much longer war. Viewers should prepare for more brinkmanship as ABC, CBS and NBC pursue similar tactics.

The keys to media aggregation success

Not too long ago, I wrote about a new wave of disintermediation, but I've realized that consumers don't inherently dislike middlemen; in fact, they appreciate them if they aggregate content. For an aggregator to be successful, however, it has to:

1. Have a comprehensive selection of content
2. Be easy to use
3. Its prices (if it sells goods and services) don't have to be the lowest, but they must be reasonable

The first key is to have a comprehensive selection of content. Record companies learned years ago that consumers won't shop in stores where they can only get one or two companies' music. They want a big selection. That was why Apple didn't launch its iTunes Store until it had signed distribution deals with all of the biggest record companies.

The second key is ease of use. There were plenty of online music sites before iTunes, but they were hard to use and imposed draconian DRM schemes on users. The motion picture companies had the same problems with their early attempts at making movies available over the Internet.

The final key is reasonable pricing. Early on, record companies tried to demand more money for digital downloads than they did for CDs, and they tried to force consumers to purchase entire albums rather than single tracks. Apple sold them on the idea of a fixed price per track and discounted prices for entire albums.  Now, Amazon is rewriting the pricing model for eBooks by selling almost all its titles for $9.99 or less.

Apple was the first company to get all three keys right, with the iTunes Store. Tight integration of iPods and iTunes helped the company get the ease-of-use part right. Amazon learned from Apple and implemented a similar model with the Kindle, which also gets all three keys right but is somewhat vulnerable due to the technical and ease-of-use limitations of the Kindle itself.

On the video/movies side, YouTube leads by far in the free content space. Hulu has gotten the ease-of-use key right and has the biggest selection of legitimate content from the US television networks, but many users are frustrated by convoluted policies that make episodes available for only a limited amount of time or restrict the number of episodes available. Netflix and Amazon are both working to make more movies and television shows available for immediate viewing, but they're not there yet, and both their ease-of-use and pricing models are "works in progress".

TiVo and Roku are both positioning themselves as "super-aggregators", in that they already offer access to both Netflix's and Amazon's libraries, plus content from an expanding number of producers and aggregators. TiVo got ease-of-use right a long time ago, but its Achilles' heel is its monthly service charge. Roku's user interface is less mature, but it doesn't charge a monthly fee to use its set-top boxes. However, its weakness is that its set-top boxes are only sold direct, not through outlets such as Best Buy and Wal-Mart. Without high-volume outlets, Roku will always be playing catch-up with its better-distributed competitors.

In music, Apple has locked up a dominant position, and Amazon is well on its way to doing the same thing in eBooks. In video, television and movies, however, the only truly dominant player, YouTube, is free. It's far from certain that YouTube can maintain its dominance once it starts to charge for access to some content, which is widely rumored to occur in 2010. For these media, the field is still wide open.

A Big January Coming from CES, Google and Apple

Image via CrunchBase

January 2010 is going to be a big month for new product announcements. First up is Google, which has scheduled a major announcement for next Tuesday (January 5th) on the Googleplex campus, most likely to showcase the Nexus One mobile phone in partnership with T-Mobile. As I speculated earlier, leaked details indicate that there will be only one rate plan available for the phone if you get it from T-Mobile, but it's not a bad one: Unlimited voice and data for under $80 US a month. The phone will be subsidized if you get it from T-Mobile; the price will be $180. The price of the unlocked phone from Google will be $530; I thought that Google would at least partially subsidize the price of the phone and offset it with advertising revenues, but I was wrong.

Image via Wikipedia

The Consumer Electronics Show (CES) opens in Las Vegas next Thursday, January 7th. There's not a lot of pre-show buzz about new products, but here's what I expect to see:

• Several new eBook readers (both hardware and software). In software, the biggest noise is likely to come from Kurzweil and Baker & Taylor's blio--eBook reader software designed to maintain "page fidelity" rather than make eBooks readable on devices with tiny screens. There will undoubtedly be several hardware eBook reader announcements, including some with two-page displays and full color.
  
• More Internet set-top boxes like the Roku. This might be where Comcast first shows the Roku-like set-top box that it's been working on to support its Xfinity service, and Video Business Magazine
  Image via CrunchBase
  
  accidentally broke an embargo yesterday on a new set-top box called Popbox. Also expect to see lots more Internet-enabled Blu-Ray players supporting Netflix, Amazon On Demand, YouTube and other services. Internet connectivity will be the thing that drives sales of Blu-Ray players, not Blu-Ray itself.
• More companies will jump into the "dead-simple" camcorder space pioneered by Cisco's Flip. Samsung recently shipped its first model, and I expect to see Panasonic make an announcement as well. Expect to see more models with image stabilization, more control over image quality and better sound, as well as WiFi and geolocation. The challenge will be to make camcorders that are more sophisticated but still inexpensive, small and simple to use.
• There will undoubtedly be more waves of HDTVs, including someone pushing the "world's biggest" model. There will be more OLED models on the floor, still at stratospheric prices, but with larger screen sizes that are more practical for everyday use.
  
• Expect more add-ons for the iPhone and iPod touch to increase their functionality, and possibly, the first wave of similar add-ons for the Motorola Droid. Hardware add-ons for Android phones will be much more difficult to monetize because there's no standard form-factor or dock interface, but some companies will jump into the market.

Apple's announcement at Yerba Buena Center in San Francisco on January 26th is probably the most-anticipated event of all, because the expectation is that Apple will announce a tablet computer. The rumor mill has been going wild with this one, but I wouldn't be surprised to see Apple announce a dramatically expanded iTunes Store along with the tablet with a big selection of eBooks, magazines and newspapers to go along with the music, video and movies already on sale.

Pricing will be a huge issue. If Apple announces a tablet for around $1,000, as has been rumored, its market is going to be very limited. I think that they have to keep the price for the tablet to $500 or less, and they may have to get there by striking an exclusivity deal with a mobile operator such as Verizon or AT&T to subsidize the cost of the tablet in return for a two-year service contract.

In any event, this is going to be a very busy January.

Related articles by Zemanta

• Jobs to unveil Apple tablet next month, ex-Google exec says (macworld.com)

Nothing Lasts Forever: The 12 Most Tarnished Tech Brands

Harry McCracken published his list of the 12 most tarnished tech brands on his Technologizer blog. Some of them are near-forgotten, such as AltaVista, Commodore, CompuServe, Netscape (both of which were driven into the ground by AOL) and Packard Bell. A few are once-well-known brands that are now used by anyone with the money to license them, such as Polaroid and Westinghouse, and one, AT&T, is used mainly for convenience by its acquirer, SBC. One brand that I would have included is Compaq; once one of the most powerful companies in the computer industry, the Compaq trademark is now used to brand HP's cheapest and junkiest PCs.

The list reminds us that even the biggest and most powerful companies can eventually fall apart and become irrelevant. MySpace is heading down this path, and Yahoo! isn't too far behind. Motorola has to prove that the Droid isn't a one-shot wonder like the RAZR was in order to keep off the list. Nortel will certainly be on this list if its trademark continues to be used. Alcatel-Lucent fits the list as well, since it probably won't survive in its current form for much longer.

Who do you think is a candidate for ending up on the scrap heap in 2010?

In Silicon Valley for the holidays

I've been back in Silicon Valley for the last few days; tomorrow, I head back to Chicago. Not a lot has changed since I moved a year ago. Just about everything is more expensive, from gasoline (30 cents more a gallon) to food, although I got a great deal at a local hotel. It's certainly a lot warmer here, and there's no snow; I'm returning to heavy snow and a high around 25 degrees F in Chicago.

Stanford Hospital has taken over the old Excite@Home building in Redwood City, a huge white elephant that was a symbol of the dot-bomb implosion (Excite@Home went out of business before the company could occupy its new headquarters, and the building sat empty for years.) However, new white elephants have taken its place; there are two empty office towers near Great America in Santa Clara, and other, less visible empty buildings and "see-throughs" scattered throughout the area.

It feels as though the Valley is on hold, not dead, but the pre-recession energy of the place has dissipated. There's a sense that post-dot-com crash and post-recession, the Valley won't have the vibrancy that it once had. That's not to say that there isn't still a lot of activity here--after all, Apple, Facebook, Google, HP, Intel and Nvidia are all headquartered here, as are hundreds of other high-tech and biotech companies. However, I think that we're likely to see Silicon Valley become a satellite location for many companies, rather than headquarters.

It makes sense to have a presence in Silicon Valley when it's appropriate. For example, you may need an engineering team with skills that simply aren't available anywhere else, so it would make sense to set up a development office here. However, just about every other skill set you're likely to need is available in quantity in other parts of the country and world. Companies based outside the Valley should only put operations here that justify the extremely high cost of doing business.

Helping startups get started

I moved to the far northwest suburbs of Chicago a year ago from Silicon Valley, but I've stayed interested in and involved with new ventures, having founded or co-founded three companies myself. One of the things that surprised me was how much more difficult it seems to be to start new businesses here than it is in Silicon Valley. There are plenty of universities to provide technology and motivate students, including the University of Chicago, Northwestern, IIT and the University of Illinois. The Chicago area also has Argonne National Labs and Fermilab, two of the top scientific research facilities in the country. 37Signals and Threadless thrive here, and I know of a number of startups that are under the radar. Nevertheless, for those startups that do get traction, there's overwhelming pressure to move, usually to Silicon Valley or New York.

I recently signed up for The Founders' Institute, a program of lectures and team assignments designed to help aspiring founders to gain the skills and make the connections that they need for success. I was accepted but had to decline when I learned that I couldn't participate remotely and would have had to fly back to Silicon Valley for all of the sessions, or attend sessions in one of their other cities, none of which is even remotely convenient for me. There are other groups that do similar things, from Y Combinator (the best-known of the group) on down. The problem is that all of these groups depend on getting members and lecturers together in one place over a period of months. It won't work if there aren't a lot of qualified lecturers and interested participants in a city.

Given the success that for-profit educational instutitions such as University of Phoenix and DeVry University are having with remote learning, I'm convinced that a similar approach will work for training and encouraging new business founders, no matter where they're located. We use the Web for collaboration, messaging, teleconferencing and entertainment all the time--why can't we use it to help people learn how to launch their new businesses, wherever they are?

Let's be realistic--there are millions of jobs in old-line manufacturing industries that are gone in this recession and will never return. We have to encourage new ventures across the U.S and create jobs where the people are. Let's use the tools that have so dramatically lowered the barriers to entry for technology companies to lower the barriers to entry for teaching and encouraging entrepreneurs, across the country and around the world.

It's the predictions time of the year, and some are better than others

The holiday season is wonderful, but it's also the time where bloggers, editors, pundits, psychics and all of us slightly- to completely-uninformed people issue predictions about what is going to happen in 2010. I just read a few of the predictions for 2010 from Danny King of Video Business, and I had a few, uh, disagreements.

Image via Wikipedia

Image via CrunchBase

For example, King thinks that it's a foregone conclusion that Amazon will buy Roku. Not very likely, given that the Roku set-top box was designed by Netflix and was originally supposed to be a Netflix-branded product. I'm sure that Netflix still has first dibs on the product, and perhaps on Roku itself. He also predicts that Tivo will be sold to Best Buy. Huh? Tivo is turning into an audience- and advertising-research company; Tivo's DVR sales and market share continue to decline, and Best Buy buying the company wouldn't change that. I think that both companies will end 2010 as independent entities, but if I had to come up with likely purchasers, I'd vote for Cisco for Roku and Google for Tivo.

Image by Getty Images via Daylife

He also thinks that Redbox will do a deal with Starbucks, but only if they come up with kiosks that do digital downloads (to thumbdrives or SD cards, I presume.) Starbucks tried it with music and it didn't work, so why would they think that it would work any better with video? My personal opinion is that the digital download kiosk model being pursued by Blockbuster and MOD Systems will be dead on arrival. Why would I drive to Starbucks to load a video onto a thumbdrive when I can download it over the Internet to my PC or stream it to my Netflix- or Amazon-equipped set-top box or Blu-Ray player?

Another of his predictions is that NCR will drop out of the video kiosk market, just after the company acquired DVDPlay; his logic is that NCR is number one in ATMs and doesn't want to be number two in video kiosks. True, they don't want to be number two--that's why they purchased DVDPlay and partnered with Blockbuster. There is certainly room for more than one company in the video kiosk business, and I think that NCR will stay in.

I've learned not to make end-of-the-year predictions, because too much can happen too quickly to anticipate. I will state a hope for 2010, however, and that is that the economy recovers, so that the millions of people without jobs can find work, and the millions who are underemployed can find full-time work and better opportunities. I hope that you have a happy holiday season and a healthy, loving and comfortable 2010 for you and your family.

If you want a better tool, build it yourself

Image via Wikipedia

I just finished reading a great post on Gizmodo by Frank Beacham about Orson Welles's last project and his fascination with the then-new Sony Betacam. Welles took one look at the first professional camcorder and intuitively understood what its impact on video and film production would be. Beacham's article brought to mind how many great filmmakers over the years were also technologists: Not only did they use the tools available, but they helped to design them (or actually designed them themselves.) The recent list includes:

• Francis Ford Coppola, who partnered with Sony for many years and was one of the first to apply video to motion picture production
  
• George Lucas, who developed one of the first computer-based non-linear editing systems, owned Pixar (and still owns ILM, Skywalker Sound and Lucas Digital) and pushed the limits of digital production, post-production, computer animation and special effects
  
• Garrett Brown, a cinematographer who invented the Steadicam and Skycam and changed the way that both motion pictures and sports television look
• James Cameron, who first pushed the envelope of computer graphics and special effects, and later, with his partner Vince Pace, created the Fusion 3D system that's helping to make 3D a core production and display technology
  

There's an old saying: "If you want a better tool, build it yourself." These artists and others like them built their own tools in order to create art that could never have been made before. More importantly, they share their knowledge with others in order to advance the "state of the art." If anyone ever asks the question "Are engineers creative?", the answer is everywhere. Creativity is essential to engineering; sometimes, it results in masterworks in software, consumer electronics or architecture, and sometimes, it results in brilliant motion pictures and videos.

If you want a better tool, build it yourself.

Where should you locate your startup?

I monitor the Lean Startup Circle group on Google, and a member asked for some suggestions on how and where to find a contract development team. The discussion quickly turned to relocating to where the team is (the member who asked for advice was in Denver); Silicon Valley came up a few times, and one person even suggested relocating to India. My suggestion was to stay right where he was, find a qualified developer locally to run development (I found some good resources in the Boulder area, and other members in the area offered their help), and go from there.

So, where should you locate your startup? (I'm assuming that your business will be technology-based.) If your customer base is concentrated in one geographic location, the answer is simple--go where your customers are. However, if your customers are spread out all over the place, should you stay put or move? It depends on who you (and your partners) are and what your expertise is. If you have the experience to develop at least a portion of the product or service yourself, and you're comfortable managing a development team, you can locate wherever you're comfortable and where you can find the other business and technical resources you'll need.


If you're not a developer or engineer, you need to have at least one person on your team who can run development. That person should be a full member of the team, not a contractor or consultant. No matter how good or committed a contractor is, they're always thinking about the next client and the next project. The work is always done better when the person who does it has skin in the game. It may not be as hard to find that person as you think. If you live in or near a major city, there are always developers that might be interested, or who might know someone qualified who would be interested. Search on Google with your city's name and terms like "startup" and "venture" to find local groups and events where like-minded people congregate, or use a service such as Meetup.com.

That's fine, you say, but why not move to Silicon Valley? I spent more than 25 years living and working there; I consider it my home. You'll find experts in just about every skill set you can imagine. I love the weather; not too hot, not too cold, and you're no more than a few hours from the beach or the mountains. Now for the downside: Silicon Valley is an incredibly expensive place to live, work and run a business. I would easily have to pay 50% more than I pay now for a condo comparable to the one I rent in a suburb of Chicago. If I wanted to buy a home, I'd pay at least three times as much in Silicon Valley for a home with comparable square footage and yard space. Taxes are very high, yet the quality of schools is poor, and parents pay big premiums to live in cities that have good schools, such as Los Gatos and Palo Alto.

Just about everything else is more expensive as well: Food, gasoline, utilities and so on. Office space is much more expensive. People have to earn more money in order to have a decent quality of life, so salaries are much higher. It all adds up to a much higher burn rate than in other, less expensive places to live.

I've never understood why venture capitalists push their investments to move from lower-cost areas such as Texas and Chicago to Silicon Valley. Yes, investors can keep closer tabs on their investments if they can drive over to them, but airfare is truly not that expensive, and teleconferencing is effectively free. If I could run my business successfully at a 30% to 50% lower burn rate simply by staying right where I am, why would I move?

The "Google Phone" (HTC Nexus One) Begins to Make Sense

A short time ago, Engadget posted part of the FCC certification for the HTC Nexus One, the phone that Google mass-distributed to its employees last weekend. There's been a lot of speculation that the GSM-compatible would be sold unlocked by Google (meaning that in the U.S., it would work with AT&T and T-Mobile.) Frankly, a lot of the story didn't make sense--why would Google start competing with its biggest distributors just as Android started getting market traction?

The FCC certification shows that the Nexus One will work on a variety of international GSM networks, but it will only work in the U.S. in G3 on T-Mobile--AT&T customers can use it as a phone, but data speeds will be limited to EDGE. And, now the story begins to make sense. T-Mobile has been Google's primary partner in the U.S. since the launch of the first Android phone, the G1.

So, here's my speculation: Google is going to sell the phone, and technically, it will work on either T-Mobile or AT&T, but there will be a special T-Mobile account just for the Google Phone. It will be based on T-Mobile's Pay-as-you-go pricing models, and it can be considerably less expensive than T-Mobile's prepaid plans because T-Mobile isn't subsidizing the price of the phone.

Google will, in my opinion, subsidize the price of the phone, because the user will be locked into a suite of advertising-supported Google functions that work anywhere, even on WiFi, and even if the Nexus One doesn't have any GSM SIM card at all. (Yes. that means that Google Phone users will be able to take advantage of Google Voice wherever there's an open WiFi hotspot.)

T-Mobile won't be threatened by the Google Phone, because they'll be the preferred broadband voice and data service. Verizon won't be threatened, because the T-Mobile 3G network is even less well built out than AT&T's. Sprint has a foot in just about every camp, and they're becoming less of a market factor every day. AT&T is hostile to Android, so there's no reason for Google to play nice with them. Perhaps most importantly, Google has a chance to dramatically increase market penetration of Android phones and the appeal of the Android platform to developers, and they'll move a lot more mobile advertising inventory.