Netflix jumps into the movie production business

Many people in the movie and television businesses have believed that given Netflix's success with original television series, it was only a matter of time before the company would begin producing movies. Those beliefs have been confirmed in a big way: Last week, Netflix announced that it has partnered with The Weinstein Company and IMAX to produce a sequel to "Crouching Tiger, Hidden Dragon" called "Crouching Tiger, Hidden Dragon: The Green Legend," and today, Netflix announced a four-picture production deal with Adam Sandler and his Happy Madison production company.

The terms of the deals aren't public knowledge, but some of the plans have been revealed: In the "Green Legend" deal, IMAX was brought in to distribute the film to IMAX theaters. IMAX develops the cameras, projectors, screens and processing software for its various formats, but its theaters are actually owned and operated by other parties, and a number of those parties in the U.S. are very unhappy. The four largest theater circuits in the U.S., Regal, AMC, Carmike and Cinemark, have said that they won't show the sequel. Cineplex in Canada and Cineworld in Europe have also refused to show it. That doesn't completely eliminate IMAX as a viable outlet for the movie, because there are many IMAX theaters operated by museums and public institutions, and smaller theater chains with IMAX theaters may decide to show it.

It's not clear whether Netflix changed its strategy overnight or whether it had already expected the theater chains to react the way they did, but in today's announcement, Netflix said that none of the four movies to be produced by Adam Sandler will be shown in theaters. In addition, they also made clear that none of the movies that Adam Sandler or Happy Madison are already committed to for other producers or distributors are included in the four films.

No one should be surprised that big theater chains won't show Netflix's films--they've pushed back against major studio day-and-date Video-on-Demand (VOD) tests (the movie is released in theaters and on VOD on the same day,) starting with Universal's "Tower Heist" in 2011. By and large, the big studios have backed off of day-and-date VOD, but they're aggressively testing shorter windows between some movies' theatrical release and their availability on VOD. Smaller independent studios such as Magnolia Pictures have adopted day-and-date VOD releases. 2929, parent company of Magnolia, also owns Landmark Theaters, which has 50 theaters in 21 markets, so Magnolia is guaranteed of theatrical distribution in many major cities, no matter what other theater chains decide.

It's likely that Netflix is structuring its movie production deals with the expectation of no domestic theatrical revenues. Whatever theatrical distribution Netflix gets will be promotional, not a significant revenue generator. Over time, if Netflix's movies prove very popular, the big theater chains may be forced to start bidding for the right to show them in their markets. However, for now, the safest move for Netflix is to budget movie production in line with VOD revenues.

Earlier today, The Verge reported on Adam Sandler's deal with Netflix, and wrote:

Under the deal, Sandler removes the burden of risk. Netflix will solely fund the films, taking full responsibility for providing investment — and securing additional investment — off Sandler's Happy Madison Productions. Though Netflix will be the sole financier, the films will still have their $40 million to $80 million budgets. Sandler's payments are a large chunk of his films' budgets. He reportedly receives $15 million and over per film as an actor, and can make an additional $5 million as the producer, which explains how Grown Ups 2, a comedy with a handful of special effects, reportedly cost $80 million. On top of all that cash, it's likely Sandler and his production company will make an additional, undisclosed lump sum of money simply by signing the deal. Netflix decline to provide comment to The New York Times on the specifics of the agreement.

It's inconceivable to me that they would agree to pay production costs anywhere near $40 to $80 million or $15 million per picture for Sandler's acting, especially since Sandler's last several movies have bombed in the U.S. Netflix probably has a "back-end" deal with Sandler that pays him additional compensation if the movies reach or exceed performance targets, such as the number or percentage of subscribers who watch them. As the Verge article points out, Sandler laces his films with product placements, which can defray some production costs, or put money into his pocket. That might be enough to enable Sandler to, say, produce a film for $25 million, get $10 million in product placement funds, deliver the movie to Netflix for $20 million and put $5 million before tax into his pocket.

Netflix may be the first VOD company that will underwrite major motion pictures for its own distribution, but it almost certainly won't be the last. I expect Amazon to follow suit, and possibly Redbox. (Update, October 4, 2014: TechCrunch reported today that Redbox will shut down its streaming service on Tuesday, October 7.  That makes it much less likely that the company will get into original production.) SoftBank, the owner of Sprint in the U.S, SoftBank Mobile in Japan and the single largest shareholder of China's Alibaba, just invested $250 million for 10% of Legendary Entertainment, with options to invest a total of $750 million more between now and the end of 2018. Legendary, whose movies are co-financed, marketed and distributed by Universal, could produce movies for SoftBank and Alibaba should either company decide to distribute its own original titles.

Rabbit season? Duck season? No, another pilot season!

In Los Angeles, actors, writers, producers and networks are getting ready for the madness that's known as pilot season. If you're unfamilar with the term, pilot season is when pilots for new televsion shows are approved for production by networks. There's a mad dash that starts in January to complete scripts, cast actors and shoot the pilots. With that in mind, networks are already getting a head start by "greenlighting" (approving) some new shows.

I'd like to propose some new shows for 2015-16. I'll start with what's called a logline (a one-sentence description of the show,) followed by some of the pitch to the network:

• "You're The Judge": We take people off the street, put them in judicial robes and let them decide cases between real litigants, with binding decisions.
  
  This show doesn't deal with the kind of namby-pamby disputes that you might see on "Judge Judy." Think about "Rowe v. Wade" or "Brown vs. Board of Education" decided by a plumber with no legal training whatsoever. Or, all the "Apple vs. Samsung" patent lawsuits decided in 30 minutes by a hairdresser.
  
  In the same vein...
• "Kids' Court": Disputes between first-graders are decided by a judge who's also a first grader, with binding decisions AND an appeals court.
  
  Remember those playground arguments you had when you were a kid? Were you bullied by someone? "Kids' Court" will let first-graders argue their cases in from of a first-grade judge. It's kids arguing and trying to understand the law at the level of most daytime television viewers! And, in a unique twist, the losers will be able to appeal their case to an appeals court with three third-grade judges. Think of it--a snowball fight case could fill two complete episodes!
• "Hatewatch": The cast from "Mystery Science Theater 3000" makes on-screen snarky remarks during the second showing of an existing network series.
  
  Why should Tweeters have all the fun? "Hatewatch" brings the lovable professional hate watchers from "MST3K" together with YOUR bad shows! Instead of just burning off the remaining episodes, let "Hatewatch" set them on fire! And, it's incredibly inexpensive--you can use the showing rights you've already paid for, and the "MST3K" comments don't need much in the way of production value. Come to think of it, they don't need ANY production value.
• "Life With the Joneses": A family situation comedy written by everyone who ever wrote for "The X Files," "Twin Peaks" and "Lost".
  
  What would a conventional family sitcom look like if it was written by the writers of some of the strangest, most elliptical shows ever seen on U.S. television? Pay us to find out!
• "Detroitia": A fun-loving romp through the twee areas of America's most depressed major city.
  
  IFC's "Portlandia" has been so successful in communicating Portland's culture that even parts of the city that weren't twee before it went on the air are now twee. "Detroitia" will bring the same lighthearted point of view to Detroit. A male-female couple will visit Detroit's many overpriced, gentrified neighborhoods while trying to avoid arsons, abandoned buildings and physical assault. (What? Detroit doesn't have any overpriced, gentrified neighborhoods? Never mind.)
• "Reality Island": The heads of reality programming for all the major television and cable networks fight to the death on a desert island.
  
  Each season, all of the top reality programmers at all the major television and cable networks are sent to an isolated desert island, with only enough food and water to last two weeks (but all the knives, guns and poisons they want.) When the food and water run out, they'll have only their wits and the dead bodies of their companions to live on. Waters around the island will be mined, and anti-aircraft guns will shoot down any helicopters that try to rescue programmers. The winner returns to his or her job; the networks employing the losers have job openings.

If you like any of the ideas, please feel free to use them. Somewhere, Paddy Chayefsky will be laughing.

Why I'm not racing to buy a Ultra HD TV...yet

Over the last 18 months, there's been an explosion of products for creating and editing 4K video, from cameras and switchers to editing and compositing software. Costs have declined dramatically: A few years ago, there was only a handful of cameras that could do 4K, and they were priced in the mid- to high-five figures. Today there are 4K cinematography-quality cameras priced as low as $2,000, and GoPro is said to be planning to release its 4K HERO 4 sport camera the week of October 5th, probably at a price below $400. (Update, Sept. 29) GoPro announced three new sports cameras today, with prices. The new HERO 4 Black is the 4K/30fps model, and it will sell for $500, not the $400 I estimated. However, it will ship on October 5th.

4K consumer televisions are becoming more common, and again, much less expensive. In late 2012, there were only two 4K televisions for sale in the U.S. market, and they were priced at $20,000 and $25,000 respectively. Today, the average selling price for an Ultra HD TV (the new name for 4K video) in North America is just under $2,000, and 50" Seiki and TCL models can be had from Amazon for under $450. Vizio has just started shipping its P-series Ultra HD TVs, which are claimed to be comparable to more expensive models from the top manufacturers; its 50" model sells for $1.000.

The better models from the first tier TV manufacturers (including Vizio) should have excellent picture quality, refresh rates of 120Hz or more, and a good upscaler that resizes conventional HD video to Ultra HD without distortion. However, independent researchers have found that, at the normal distances that viewers sit when watching their televisions, there's almost no meaningful difference in the perceived quality of a HDTV and Ultra HD picture. This chart explains how it works:



There was a huge jump in quality between analog TVs and even 720p HDTV. If you had a 50" set, you could see the full difference at 10 feet; with 1080p, you saw the full benefit over 720p at about six feet. However, with Ultra HD, you won't even begin to see any improvement over HD until you're about five feet from the TV, and you won't get the full benefit until you're only about 3 1/2 feet away (a little more than a meter.) At that distance, the television picture is filling most of your field of vision. So, I'm not planning to buy any of this generation of Ultra HDTVs. The reason is that there's a new technology not too far down the road that will provide a much more dramatic improvement over conventional HD picture quality than Ultra HD provides by itself.

This new technology is called High Dynamic Range, or HDR. HDR expands the contrast range of television pictures. Imagine that you're outside on a bright sunlit day. You can see well-illuminated objects quite clearly, and you can also see what's in shadow. That's because your eye has a contrast range of about 1,000,000:1 (20 f-stops.) LCD televisions have a much lower contrast ratio--Rtings.com tested a variety of 2014 HDTVs and found that the highest contrast ratio, 5,268:1, was measured on a Toshiba L3400U. Manufacturers like to claim much higher ratios--for example, in its current E-series, Vizio claims a contrast ratio of 500,000:1, but Rtings.com measured it at 4,581:1. Still very good for a current-generation HDTV, but less than 1% of the advertised contrast ratio.

Even video cameras don't have the same contrast range as the human eye. The Arri Alexa XT. one of the most popular cameras for episodic television and high-end movie production, has a 16,384:1 contrast range. However, through HDR technology the contrast range can be extended significantly, to as much as 262,144:1 (18 f-stops.) That's still not as wide as what the eye can see, but it's dramatically better than anything ever seen on consumer television sets. Even plasma TVs, which have a much wider contrast range than LCDs (up to 13,000:1) are nowhere near what HDR can represent.

One of the several companies developing HDR technology for consumer television, Dolby, claims that its Dolby Vision technology will provide a dynamic range of as much as 200,000:1. Other companies developing HDR technology for video include Technicolor, Philips and the BBC. In addition to more dynamic range, Dolby and its competitors are implementing bigger color spaces (simply put, displays built using their systems will be able to display more colors than current televisions.)

One of the big reasons why HDR isn't in the consumer market yet is that existing formats for transmitting video don't support the increased dynamic range and bigger color spaces from the HDR system developers. These formats, if they're used for over-the-air broadcasting, usually have to be approved and standardized by each country's governmental broadcasting authority (the FCC in the U.S., Ofcom in the U.K., etc.) These standardization processes take time, and they take more time when there are multiple vendors competing to set the standard. In the U.S., it took almost five years for the competing companies to agree to work together on one digital television standard, and another five years for manufacturers to begin shipping digital televisions that were compatible with the standard.

Implementation of HDR is likely to be much less painful and take significantly less time than the move from analog standard definition television to digital HD. However, it will take several years, and it's likely that some TV manufacturers will release HDR TV sets using different, incompatible formats. HDR system vendors also have to design their HDR formats so that they're 100% compatible with today's formats, so that HDTVs already in use will simply ignore the HDR portion of the signal. Backward compatibility is never easy to do, and that's why digital HDTV had to be a clean break from the earlier analog SD formats.

So, unless my HDTV dies prematurely, I'm not going to buy an Ultra HD until the television industry settles on a single HDR format, either through government agency decisions or the rise of a de facto standard. There's a huge quality difference between HDTV and Ultra HD with HDR--a difference that you'll clearly see in retail stores and in your living room.

Hey Kids! Let's Build "The Machine"!

(Updated October 4, 2014) If you follow me on Twitter, you probably know that I'm a rabid fan of CBS's "Person of Interest", a wonderfully-written drama about the dystopia of permanent, continuous surveillence disguised as a "crime of the week" thriller. It has several key human characters, but the character that drives the show isn't human at all--it's a computer, or more correctly, a whole bunch of computers, called "The Machine." The fundamental purpose of The Machine is to identify threats to U.S. national security wherever they may be, so that they can be "neutralized" (and we all know what that means.) Last season, The Machine was displaced, but not eliminated, by another system based on Artificial Intelligence software. This new system, called Samaritan, uses quantum processors that Samaritan's builders, Decima Technologies, stole from the NSA.

This season, POI is focusing on the impact and ethics of AI. Showrunners Jonathan Nolan and Greg Plagerman see AI as potentially having the same magnitude of effect on the world as the atomic bomb, and call AI's development our era's Manhattan Project. I'm not sure that a system like The Machine needs Manhattan Project-scale development in the state-of-the-art of AI in order to fulfill its primary objective.

Here are the key functions that both The Machine and Samaritan perform:

• Signals Intelligence: Both systems are connected to all of the same sources and feeds as the NSA, CIA, FBI and presumably National Reconissance Office (NRO), Defense Intelligence Agency (DIA) and other U.S. and Five Eyes (U.S. plus Canada, U.K, Australia and New Zealand) country sources. That means that it can get virtually every phone call, email, text, tweet, webpage and app data transfer anywhere in the world. It can geolocate any mobile phone call, and turn the microphones of certain mobile phones on for surreptitious listening, even if the phone itself is turned off.
• Image Recognition: They can access the images from security cameras around the world, and use those images to recognize peoples' faces. It can also, presumably, categorize the actions in the images and analyze them to determine whether or not they represent threatening behavior.
• Database: They have massive databases of all the data they've collected, as well as a lot of historical data.
• Pattern Recognition and Classification: The systems have to be trained, or train themselves, on previous patterns of activity that indicate a threat. So, for example, they would be given every piece of information related to the 9/11 attack: Who the terrorists were, where they came from, where they traveled to, who they met, who they talked to, where they lived, how they trained, etc. Those data would then be analyzed to build a pattern that indicates a terrorist event being planned. That pattern would be modified with new information continuously. Other patterns, based on subsequent terrorist attacks and changes in terrorist behavior, would be identified. Then, as the systems see current activity, they'll try to match it with previous patterns and calculate the probability that what's going on is actually leading up to an attack. Both systems probably also have the ability to learn from previous attacks and make inferences about the activity even if no previous attack is well-matched. If a probable attack is identified, the systems alert human analysts and provide their analysis and underlying data. 
• Voice Response and Recognition: Both systems have voice response interfaces and accurate voice recognition.

In addition to these functions, both The Machine and Samaritan are what's called in the AI community "Hard AI." Hard AI has the ability to reason and independently solve problems without human intervention. Beyond that, Hard AI is self-aware--conscious, although its form of consciousness may not look or act like human consciousness.

That's a lot for any system to do, so where are we now (at least in developments that the public knows about?):

• Signals Intelligence: All the databases and sources that I listed above exist. The problem comes in access and coordination. The Five Eyes countries have extensive data sharing systems, but not all of their data are shared with all of the other partners, not all of the data are in online databases, and we can't assume that U.S. intelligence agencies have 100% of the functionality of other Five Eyes intelligence services available to them. For example, a Five Eyes member may have the ability to get geolocation information, caller identity and even the content of a phone call, but it may not have the legal authority to provide all of that information to the U.S. in real time. In addition, non-Five Eyes countries such as Russia and China may have the ability to limit, disrupt or completely block U.S. and Five Eyes access to their signals. That would keep a system like The Machine from getting every signal, everywhere, in real time.
• Image Recognition: This is the biggest problem for building a Machine-like system today, not because the quality of image (face) recognition is unacceptable (it's getting better every day) but because of the scarcity of networked security cameras. In New York, where POI is shot, you'd say that the last sentence is dead wrong, because there are security cameras everywhere. New York police had real-time access to 6,000 public and private security cameras and 220 license plate cameras last year, and the ACLU reports that Chicago police had access to 22,000 security cameras last year, but it's not clear how many of them offered real-time access.
  
  When you get beyond those two cities and a handful of others, including London, the number of cameras per 1,000 residents goes down significantly. However, even in the high-camera cities, there are many cameras on private property and in buildings that are not accessible from the Internet, either because they're on a private network or they're not networked at all. Getting images from these cameras requires physical access to the cameras or video recorders. Sometimes, the local police department or FBI has to take the entire video recorder to its facilities in order to copy the video. So, the real-time acquisition of video from every security camera everywhere simply isn't possible today.
• Database: The initial capacity of the NSA's Bluffdale, UT Data Center has been estimated to be between 3 and 12 exabytes (3 and 12 million terabytes,) and that's just one site. Storage developers are starting to think in terms of zettabytes (1000 exabytes) and even yottabytes (1 million exabytes.)
• Pattern Recognition and Classification: The world leader in this technology so far (at least the one that we know publicly) is Palantir, which was a spin-off from PayPal's fraud detection team. The company has two publicly-disclosed products: Gotham, which is a data management system for management and analysis of complex datasets containing both structured and unstructured data that can be both quantitative and qualitative. Metropolis is for model-based analysis of structured, quantitative data. Both systems require analyst and Palantir engineer inputs: Gotham requires Palantir engineers to build the model that maps all the data together, and analysts to query the data and develop their own hypotheses and conclusions, while Metropolis requires analysts to create and modify models.
  
  The functionality of both The Machine and Samaritan is a combination of both Gotham and Metropolis--they can build models that incorporate all types of data, not just quantitative. In addition, they have the ability to build and modify their own models. It's likely that The Machine's creator, Harold Finch (Michael Emerson,) initially trained it before it took over the task of model building and analysis.
• Voice Response and Recognition: Both voice response and voice recognition are mature but still improving technologies. As an example, the voice recognition in Apple's Siri hasn't been as good as that in Google Now, in large part because Siri does its recognition on the mobile device, while Google does it on its own computers with dramatically more horsepower. 

So, where does that leave us in building an all-knowing, all-seeing AI security system? We've still got a long way to go, but all the pieces are there. Voice and image recognition use both AI and non-AI technologies. There are some image processing systems that can analyze video to identify anomalies and threats. To my knowledge, there are no pattern recognition and classification systems that work on multiple types of data and that build and test models without human intervention, but research on neural network training and optimization methods (backpropgation, for example) is making big strides, fast enough that we may be five years away from a commercially-viable Machine. All of this is with processors using a conventional von Neumann architecture; it doesn't need quantum processors, although they could eventually dramatically speed up parts of the problem best suited to superposition and entanglement.

Also, let me be clear: The resulting system won't be conscious. We don't yet even have a consensus scientific definition of consciousness. This system would be what's called Soft AI: It can solve a specific problem that's it's been programmed to handle, but it's not self-aware. It may be able to analyze data and make decisions about a class of problems, and it may be able to hold a conversation, but beyond that, it will only do other things if it's programmed to do so by its developers. I'd hope that its developers will have seen "War Games" or "Colossus: The Forbin Project" and don't give it the ability to launch ICBMs all by itself.

It doesn't hearten me that the biggest obstacles to building The Machine or Samaritan are time, politics and bureaucracy, not fundamental science, but I can only hope that the benefits to medicine, science, education and engineering outweigh the risks to civil liberties.

Comcast-Time Warner Cable: Would it really be anti-competitive?

As you probably know, Comcast and Time Warner Cable have agreed to merge. Many consumer groups and some of the companies' content providers and competitors are opposing the merger, while it's hard to find proponents that aren't either getting funding from one of the two companies or are "Astroturf" organizations created to support the merger. However, is the Comcast-TWC merger really anticompetitive? A big part of the answer depends on whether you're looking at the multichannel video services market today, or a few years from now.

If you look at the situation today, whether or not the merger is anticompetitive depends on who you are. If you're another cable company, it's not anticompetitive at all. The reason is that cable operators all have local franchises to be the exclusive cable supplier in the areas they serve. So, Comcast doesn't compete with TWC, which doesn't compete with Cox, which doesn't compete with Charter, etc. The reason for exclusivity is that it was so expensive for a cable operator to lay the wires, put in the plant and equipment, and service customers, that it was uneconomical to do so unless they could serve all the customers in an area without competition.

If you look at Comcast's and TWC's non-cable competitors, the merger is likely to have a modest impact at most. Existing Comcast and TWC customers will still be customers of the merged company, and can switch to a competitor if they want to. It's likely that Comcast will improve TWC's plant and equipment, and improve its cable and Internet services, which would make the combined company a stronger competitor in TWC markets. If you're an existing Comcast or TWC customer, your competitive situation isn't likely to change much, either. The new company will still supply your cable service, most likely your wireline Internet service, and possibly your phone service as well. The same competitors you could switch to will still be there.

However, if you're a program supplier to Comcast and TWC, your situation is likely to change substantially. The reason is that the merged company will have around 30 million subscribers and will be by far the biggest cable and Internet provider in the U.S. (If the AT&T acquisition of DirecTV is approved, that company will have at least as many video subscribers as Comcast-TWC, but DirecTV, which has the lion's share of subscribers, doesn't provide its own Internet service--it resells services from local Internet Service Providers.) The merged company will be the only way for program suppliers (television and cable networks, and movie distributors offering titles for Video on Demand (VOD)) to reach about 1/3rd of all U.S. households. That will give the new company enormous power to negotiate preferential licensing and retransmission fees, and will also give it additional power to negotiate non-fee terms and conditions, such as limitations on content providers' ability to license their content to other service providers. In addition, given that Comcast owns NBC Universal, it can give preferential treatment to NBCs broadcast and cable networks and Universal's movies and television shows similar treatment in its VOD systems, which would put other content providers at a competitive disadvantage.

If you're an Internet content provider, such as Netflix, the merged company will be by far the biggest single provider of ISP services to your customers in the U.S. There's strong evidence that Comcast was throttling the bandwidth available to Netflix subscribers until Netflix agreed to pay for a peering agreement with Comcast. The combined company would have even more power to extract payments from Internet companies.

That's today's situation, but what about tomorrow? Netflix is a nationwide (now also international) service; it can reach everyone in the U.S. who has either wired or wireless high-speed Internet access. Roku, Apple, Sony and others sell set-top boxes and devices that offer similar access to video over the Internet. Verizon, which has long operated its FiOS IPTV service which offers a cable-like video service and high-speed Internet, recently acquired Intel's OnCue Over-The-Top (OTT) Internet video platform. Verizon is expected to use OnCue as the basis of a nationwide video service that will operate over its wireless network, and possibly over the Internet as well. That would give Verizon a nationwide footprint, and would enable it to offer video services in almost every U.S. market. Sony and Dish are also rumored to be in the planning stages for a similar Internet service. Intel's attempt to launch OnCue was stymied by pressure from the cable industry to prevent its program suppliers from licensing their content to Intel, and the same pressure is suspected as the reason why Apple has not yet launched its long-rumored HDTV and video service.

What happens if OTT service and program suppliers find a way to launch viable services that can compete with cable? The video services market could change radically. Instead of today's three or four competitors (the incumbent cable operator, DirecTV, Dish, and depending on where you live, either Verizon or AT&T,) there could be many more:

• T-Mobile and Sprint could use their networks to deliver video to households.
• I've written that there's evidence that Netflix is planning to offer live programming in addition to its VOD offerings; they could expand into a full cable competitor.
• Sony and Apple could offer their own services.
• The existing cable operators could directly compete with each other for subscribers using OTT.

With the exception of Verizon, Sprint, T-Mobile and (if it doesn't acquire DirecTV,) AT&T, all of the other new competitors will have to go through telco ISPs or cable operators in order to get to consumers' homes. If cable operators set prices and/or terms & conditions that make servicing their customers with OTT video unprofitable or too complex, these new competitors could be killed in the womb. That's why I suggest that regulators set and enforce two conditions on both the Comcast-TWC and AT&T-DirecTV deals:

1. Both combined companies must offer all OTT services access to their Internet networks and subscribers under fair, reasonable and non-discriminatory (FRAND) terms.
2. Both combined companies must remove all clauses in their contracts with program suppliers that prohibit them from licensing their content to competitors, or that place significant restrictions on such licenses. In addition, they're prohibited from signing contracts with any such clauses in the future, and from using their influence and market power to informally persuade program suppliers not to deal with competitors.

Both conditions would last for five years from the day that each combined company finalizes its merger and begins operating as a single company. That would give competitors enough time to build their market presence and establish viable businesses, and also give the telecom industry five years to develop new ways for the OTT services to reach consumers without having to go through the incumbent cable operators.

What to do about the NFL?

Last Saturday, I wrote about the ever-widening Ray Rice scandal and how the NFL's handling of that and other domestic violence cases is very similar to how the League covered up for years the long-term damage done by traumatic brain injuries. Today, both Baltimore Ravens owner Steve Bisciotti and head coach John Harbaugh issued statements denying some of the allegations of ESPN's "Outside the Lines" report. One of the two reporters on the story, Don Van Natta, Jr., a multiple Pulitzer Prize winner, said that he and ESPN stand by the story. Van Natta is expected to file a written response to the Ravens' denials soon.

In his public comments, Bisciotti claimed that the source for the ESPN story was Ray Rice and his associates. However, Van Natta claims that he and reporter Kevin Van Valkenburg interviewed more than 20 sources over 11 days. Given the level of detail in the ESPN report, it's inconceivable that the network would have run the story without independent confirmation. Rice and his associates had to be considered biased sources, so running their claims without independent confirmation would have been foolhardy (except for those situations where Rice was the only one in a meeting who was willing to comment on it, such as the closed-door meeting between Ray and Janay Rice and NFL Commissioner Roger Goodell.)

If the ESPN report is all, or even just substantially true, serious reform needs to happen within the NFL, the Baltimore Ravens, and possibly, even in the Baltimore City and County State Attorneys' offices. Here are some practical steps that can be taken:

• Commissioner Roger Goodell and the entire senior staff of the NFL should be fired, and replaced with a new Commissioner with a) An impeccable reputation, and b) No current personal or professional connection with any NFL team owner. That Commissioner will then appoint the remaining members of the League's top management.
• In an article published today, "New Yorker" staff writer Ben McGrath noted that the NFL is classified as a "nonprofit trade organization" by the IRS--A nonprofit that pays its Commissioner $44 million a year, and that pays its top leadership a significant fraction of the total annual payroll for all the players in the NFL. The IRS should strip the NFL of its nonprofit status, and if the IRS is unwilling or unable to do so, the U.S. Congress should step in and do it.
• The Baltimore State's Attorneys who gave Ray Rice permission to enter a no-jail diversion program usually used for non-violent drug cases, Ravens owner Steve Biscotti and other team executives should be investigated for obstruction of justice, bribery and influence peddling. If Maryland Attorney General Doug Gansler is unwilling to take the case or unable to do so because of a conflict of interest, Maryland Governor Martin O'Malley should appoint an independent prosecutor.

These are practical steps that the League, the IRS and Maryland's top law enforcers should take to reform the NFL and find out, to the satisfaction of a judge and jury, who actually participated in the decision to give Ray Rice a slap on the wrist for beating his (soon to be) wife. The NFL and its team owners may hope that by spreading enough cash around and letting things stretch out, the entire affair will eventually blow over. Everything eventually blows over--the question is, "What will be left standing when the wind dies down?"

Football: Boxing with more clothes

I've been following the Ray Rice domestic abuse scandal, and ESPN's "Outside the Lines" unit released a damning story on Friday that details a cover-up by top executives and the team owner of the Baltimore Ravens, and NFL Commissioner Roger Goodell's efforts to avoid seeing the video of Rice hitting his girlfriend (now wife) in the elevator. By the time Goodell met with Rice and now-wife Janay, Baltimore executives believed (or in their words, "assumed") that Goodell had seen the video. Based on that belief or assumption, Rice truthfully told Goodell that he hit and knocked out Janay. My belief is that whether or not Goodell saw the tape, he had enough evidence from Rice's own confession to give him a lifetime suspension.

The abysmal way that the NFL handled the Rice case and other cases of domestic violence is of a piece with how the league handled the impact of brain concussions. For years, the NFL minimized the effect of brain injuries on its players, even as evidence of long-term personality and cognitive changes was piling up, and players with traumatic brain injuries were committing suicide. The doctor who found evidence of chronic traumatic encephalopathy (CTE) in the brain of deceased former Steelers center Mike Webster was libeled and slandered by the NFL, with the intention of destroying his credibility. The doctor that the NFL appointed to head its own research into traumatic brain injuries was a rhematologist and a physician for the New York Jets with no training in or experience with brain injuries. The researchers under that doctor then proceeded to release 16 studies that claimed that there were no chronic brain injuries that were caused by playing football, and that it was even fine to allow a player who had received a concussion to continue playing in that same game once he'd recovered.

Earlier this year, the NFL settled a lawsuit filed by more than 4,500 former players who claimed that they had suffered long-term damages from concussions they'd received while playing. The NFL set up a $675 million or more fund to pay compensation to injured players, $75 million for baseline testing and $10 million for research and education. However, the NFL was able to avoid having to pay anything to players with neurobehavioral problems unless they can also prove that they have cognitive impairments.

All of this brings me to an inescapable conclusion: The NFL isn't interested in the welfare of its players, nor is it interested in the welfare of its players' families or significant others. Its sole concern is the maintenance and improvement of the financial interests of team owners. My headline made a comparison with boxing. Boxers, like football players, often suffer severe physical injuries, the most visible of which involve the head and brain. Boxers, like football players, have a reputation for violence, both inside and outside their sport. Top boxers, like football players, are paid a lot of money. The fight promoters who stage boxing matches are seen as largely venal people who care only about money and who care about the boxers' welfare only because their fights have to be licensed by a state boxing commission. Boxing has a terrible reputation, but the damage caused by boxing has never been a secret; the term "punch-drunk," defined by Merriam-Webster as "Suffering cerebral injury typically marked by mental confusion, incoordination, and slurred speech and usually resulting from minute brain hemorrhages caused by repeated head blows in boxing," was first used in 1918. Some of the best books and movies about boxing have used the symptoms of CTE in descriptions of boxers' behavior and personalities.

It's become clear to me that under the NFL, football is boxing with more clothes, and team owners are fight promoters with more money. Would you trust that an investigation of a group of boxing promoters being led by two boxing promoters who are part of the group, and being overseen by a former government employee who's being paid by the group of boxing promoters, would be impartial and comprehensive? I doubt it. That's why I have so little trust in the self-examination of the NFL's handling of Ray Rice by two team owners and Robert Mueller.

Update, September 21: The two team owners who are running the investigation of the NFL's handling of the Ray Rice case are John Mara of the New York Giants and Art Rooney II of the Pittsburgh Steelers. Ben Roethlisberger, the Steelers' quarterback, has been accused of sexual assaults twice: In 2008, a former casino host at the Lake Tahoe Harrahs claimed that she had been raped by Roethlisberger. That case was settled out of court with a gag order on both the plaintiff and defendant. Another charge of sexual assault was lodged in March 2010, this time by a student in Georgia. No charges were filed, but the NFL suspended Roethlisberger for six games. However, the suspension was lifted after four games.

Roethlisberger works for Rooney. So far as we know, the Steelers took no action against Roethlisberger as a result of either charge. Mara and Rooney are related by marriage (that's where the actress Rooney Mara gets her name.) Given the Steelers' acceptance of Ben Roethlisberger's behavior, the relationship between Rooney and Mara, and both of their complicity with years of NFL behavior, can we really put any trust into their investigation?

With the FS7, Sony finally learns to cannibalize itself

At the International Broadcasting Conference in Amsterdam, broadcasting equipment companies announce new products, and often ship the new products they announced at NAB in April. For example, Panasonic showed near-production versions of its Varicam 35 that was announced at NAB, as did AJA with its CION camera. Sony, on the other hand, showed a new camera whose existence started to be rumored only a few weeks before IBC. The PXW-FS7 (referred to by most people as the FS7) is a Super 35 4K camera that fits in price between Sony's FS700 and F5, but is functionally superior to the F5 in many ways. It uses the full XAVC codec and records 10-bit 4:2:2 UHD 4K at up to 60 fps and 600Mbps (Digital Cinema 4K will be supported in a firmware upgrade scheduled for early 2015,) but it uses Sony's XQD flash media, which costs substantially less than the SxS Pro+ flash media used by the F5.

It's got built-in ND filters, and it natively accepts Sony's E-mount lenses; Sony announced a new professional power zoom 28-135mm F4 lens to go along with the FS7. An A-mount adapter is available, and of course, third-party adapters that connect a variety of mounts to A- or E-mounts will also work. It's got a standard grip control that puts many of the camera's most important controls on a hand grip. An optional extension unit enables the FS7 to record using Apple's ProRes 422 codec, outputs raw 12-bit 4K video that can be recorded by external Sony and Convergent Design recorders, and supports industry-standard batteries. The FS7 will be somewhat heavier that AJA's CION; the FS7 weighs 4.5kg without the extension unit that it needs to be functionally comparable to the CION, while the CION weighs 3.4kg. Both cameras are lightweights compared with Blackmagic Design's URSA, which weighs 7.4kg.

What makes the FS7 so worthy of discussion is that a number of observers have noted that it's in many ways a better camera than Sony's F5, for less money. The F5 sells for $16,490 (U.S.) at B&H, and that's without a viewfinder or lens. The FS7 will sell for $7,999 at Adorama ($10,499 with 28-135mm lens.) Introducing a new product that competes directly with another Sony product for less money was, until now, considered heresy. Sony took extraordinary pains to make sure that its products didn't directly compete with each other, except when the company was deliberately obsoleting an older product. In this case, however, Sony says that the FS7 will replace neither the FS700, which B&H sells for $7.699 and which the FS7 blows out of the water, nor the F5, which the FS7 compares very well to for about half the price.

Sony's no-competition policy dates back to when Sony was the undisputed technological and market leader in cameras. Any cannibalization of Sony's own products was seen as unnecessarily leaving money on the table. However, first Panasonic and then Canon showed that they could build cameras that could compete very well with Sony's offerings. Panasonic in particular was largely unconcerned if its cameras cannibalized its other models, and both Panasonic and Canon were happy to take sales away from Sony. Blackmagic Design showed that it can't yet design or build cameras to Canon's, Panasonic's or Sony's standards, but it introduced price competition into a business that hadn't seen much of it. That brought in AJA, which looks like it's learned from Blackmagic's mistakes and will combine high-end performance with aggressive pricing.

Sony's in a new world. It's now got competitors that are its technological equal and are willing to accept a lower gross margin on their sales. Sony has finally figured out that it's better to cannibalize yourself and keep the revenues, rather than let your competitors cannibalize you and take the revenues. Sony's going to let its customers tell it if the FS7 replaces either the FS700 or F5. The older products will stay in Sony's product lines until sales fall off sufficiently to make one or both unprofitable to continue to offer.

With the FS7, Sony is finally doing what many observers and customers hoped that it would do decades ago, Time will tell if the FS7 is a one-time fluke or the first product in a new strategic commitment.

Sometimes risk is the safer option

This is a blog post that I'd much prefer not having to write, but I've learned some lessons that could be very helpful to others. I'll first describe what I did, and then, what I should have done.

In late January of this year, I ended a multi-year consulting project. Much of my role in the project was done in the fall of 2013, and to be fair, I was expecting my client to end my contract as early as October. They were a great client to work with, but I had been thinking about what my next move would be for more than a year. I worked almost my entire career on the West Coast, and I really wanted to get back there if I could. Given the cost of living in Silicon Valley, I decided to look at Portland as the place to move; I started my career working for HP in Corvallis, Oregon, 90 miles south of Portland.

When my project ended in January, I had a lot of money set aside to pay income taxes; more than enough to pay for the move and several months of rent and utilities. However, I decided that it would be very risky for me to pick up and move to Portland without having a job lined up. In addition, I was convinced that I could find a new job or project in the Chicago area within a month or two. So, I stayed here, applied to jobs and took calls from recruiters. Unfortunately, from February to today, I've had exactly one job opening that resulted in onsite interviews, and the client ended up hiring none of the candidates, including me. I burned through the tax money to the point that it was insufficient to pay for a move, so I was stuck here. I ended up selling some of my belongings, and then my car, in a last-ditch attempt to move, but that fell through.

Now, I've got three job prospects, two in the Chicago area and one on the West Coast, and I'm hoping that one of them turns into a real job. I've also been working on a crowdfunded Internet of Things project since May. However, in hindsight, when my project ended in late January, I should have immediately booked a flight to Portland to find an apartment, and then moved. Moving without a firm job offer or contract in hand seemed like the much riskier option at the time, but in reality it would have been no worse than the situation I'm in right now. In fact, given that Portland has a far superior public transit system than the far northwest suburb of Chicago in which I live, it would have been better because there's an excellent chance that I could have sold my car if I'd needed to without having to buy a replacement.

The lesson is that you should look at the worst-case scenario for all the options available to you, not just what you believe to be the most likely scenario. In my case, I compared the worst-case for Portland with the most likely case for Chicago. If I had compared the worst-case for both locations, I would have moved immediately. Given my background and experience, I have a much better fit with the companies and markets along the West Coast than I do with Chicago. I could have lived in Portland and either worked full-time for a technology company there or consulted for firms from Seattle to San Diego.

Staying in Chicago, which I believed to be less risky, turned out to be the much riskier option. I made the mistake because I didn't judge both risks equally. Keep that in mind when you're making a major business or personal decision.

Detroit, Pittsburgh, and the value of diversification

I just watched Anthony Bourdain's visit to Detroit for his show "Parts Unknown." Bourdain showed plenty of what's come to be known as "Ruin Porn": Abandoned, burned-out buildings and entire neighborhoods that have been leveled. He also found signs of hope and recovery, although he made it clear that he doesn't believe that Detroit will come back to anything resembling its previous form. Government corruption played a massive part in the decline of the city, but there was another factor that was far more important in leading Detroit to where it is now: An almost complete dependence on the automobile industry for the city's and region's economy.

My hometown is Beaver Falls, PA, thirty miles from downtown Pittsburgh. I went to school and college in the Pittsburgh area. When I was growing up, steel was the sole major industry in Beaver Falls and most of Beaver County. There was a Valvoline refinery in Freedom, along the Ohio River, and the world's first commercial nuclear reactor was running in Shippingport, also on the Ohio, but beyond that there was steel and steel fabrication. Pittsburgh was long known as "Steel City," and the headquarters of both U.S. Steel and the United Steelworkers Union are still there. However, Pittsburgh was almost never wholly dependent on steel. It also was the corporate center for coal; coke, made from coal, is an essential part of steelmaking, but coal was at one time used for heating and steam engines, and is still a critically-important (although rapidly declining) fuel for power generation. CONSOL Energy, one of the country's biggest suppliers of coal and natural gas, is headquartered in the city.

Alcoa (Aluminum Corporation of America,) the largest producer of aluminum in the U.S., recently moved its corporate headquarters to New York but has kept its operational headquarters in Pittsburgh. Like Alcoa, Bayer, the German chemical and pharmaceutical giant, had its U.S. headquarters in Pittsburgh until a couple of years ago, but it still maintains major operations in Pittsburgh. PPG Industries, one of the largest suppliers of paints, coatings and glass in the U.S., is headquartered in a landmark building in Pittsburgh. The city was the home of Westinghouse Electric and is still the home of Westinghouse Air Brake, both companies founded by George Westinghouse. Westinghouse Electric is now reduced to its nuclear plant division, majority owned by my old employer Toshiba, and a trademark licensed to a variety of companies by CBS. However, for decades, Westinghouse was General Electric's biggest competitor and one of the biggest makers of televisions, radios, major appliances and industrial electrical equipment, along with power plants of all types. It also owned the world's first (or second, depending on your opinion) commercial radio station, KDKA, which led to Westinghouse Broadcasting, one of the biggest non-network-owned radio and television station operators in the U.S. As one of its last acts, Westinghouse Electric acquired CBS and took the CBS name, which is why CBS licenses the Westinghouse name to others. Westinghouse Air Brake, now known as Wabtec, is still alive and well and headquartered in the Pittsburgh area.

Pittsburgh was and still is the home of H.J. Heinz. Many people in Great Britain think that Heinz is a British company because it sells so many products there, but it's from Pittsburgh. Rockwell International, now known as Rockwell Automation and Rockwell Collins, was based in Pittsburgh until 1988, and was at one time #27 on the Fortune 500. Candy maker D.L. Clark, maker of Clark and Zagnut bars, was based in Pittsburgh until 1999. It's also the home of PNC Financial, previously Pittsburgh National Bank, one of the biggest banks in the U.S., the University of Pittsburgh Medical Center (UPMC), one of the top transplantation centers in the world, and Carnegie Mellon University, one of the top 10 engineering schools in the U.S. Carnegie Mellon, in turn, has attracted Apple, Bosch, Disney, Google, Microsoft, Oracle, Seagate and Yahoo! to open R&D centers in and around the city.

My point is that Pittsburgh had, and still has, a very diverse economy. When the U.S. steel industry collapsed in the early 1980s, Pittsburgh was hard hit. Every steel mill in the city closed, but the city survived because it had so many other industries to fall back on. Today, the steel mills have been torn down, converted into parks or repurposed as offices and retail space. Other towns around Pittsburgh weren't so lucky. My hometown, and the other towns that were almost totally dependent on steel, were decimated. What were once thriving downtowns are now mostly ghost towns, perhaps not as bad as you'd see in Detroit, but close. Detroit was much like Beaver Falls, on a vastly bigger scale: Just about every business made cars, made parts for cars or sold goods and services to the people making cars and car parts. When the car industry collapsed, there was nothing else big enough in the Detroit economy to compensate.

I've read pundits who say that there should be dozens of Silicon Valleys around the world, each focusing on a single technology or industry. Silicon Valley, however, has a diverse economy--semiconductors, computers, instruments, software, online services, consumer electronics, video games, pharmaceuticals, health care, and automobiles (previously GM, Ford and Toyota, now Tesla.) The Valley is in a constant state of reinvention, because it has such a diverse set of businesses and skills. A "Silicon Valley" focusing on a single technology or industry will be as vulnerable as Detroit was.

If Detroit is ever to recover even a part of its former glory, it has to make attracting and keeping a diverse set of industries its top priority, after reliably providing public services to its citizens. Diversification is the right formula for any city or region that wants to maintain its economic viability for generations.

When is a watch not a watch?

Apple's announcements yesterday were guaranteed to stimulate feedback from pundits everywhere, myself included. The Apple Watch introduction has generated a lot of interesting feedback, both because it's a new product and category for Apple, and because it's competing in an established market. A few writers have speculated that the Apple Watch spells doom for high-end watch brands such as Rolex, Omega and TAG Heuer. I don't think it does, because the Apple Watch competes in a completely different market than the high-end watches.

Comparing the Apple Watch to, say, a TAG Heuer Carrera Calibre 16 chronograph, is like comparing a Honda Odyssey minivan to a Lamborghini Huracan, or like comparing a food processor and microwave oven with a gourmet kitchen. Neither one is a great analogy, to be sure, but both get the point across. People will buy the Apple Watch, as they buy other smartwatches, to be an extension of their smartphones. Timekeeping is just one of many functions that they expect a smartwatch to perform. Buyers of the Calibre 16, on the other hand, are buying the watch for two reasons: 1) To keep time, and 2) To demonstrate their taste (and that they can afford a Calibre 16.) The TAG Heuer watch, which is relatively inexpensive for a high-end watch, is priced at $4,950. It's a mechanical watch with a Swiss made movement that can run up to 42 hours without rewinding.

Everyone in the watch industry knows that electronic movements are more accurate, more convenient and less expensive than mechanical movements. In fact, the widespread introduction of quartz movements by Seiko and Citizen decimated the mechanical watch industry in the 1970s and 1980s. The mechanical watch makers that survived did so by making their watches more sophisticated and more expensive. Their watches evolved from functional timepieces into collector's items and works of art. Someone who buys an A. Lange & Sohne Tourbillion Perpetual Calendar Handwerkskunst for $357,700 (that's not a misprint) is willing to trade off the inconvenience of winding for the chance to own a gorgeous watch that only a handful of people in the world can afford or appreciate. The Apple Watch, on the other hand, will be an heirloom to be enjoyed until the Apple Watch 2 comes out in a year or two.

The Apple Watch, and all the other smartwatches out there, are gadgets and compete with other gadgets for consumers' dollars. High-end mechanical watches compete in a completely different category. That's not to say that I'd be surprised if Rolex, Omega or Tissot releases their own smartwatch to participate in the category, but it's still not going to compete with their high-end mechanical watches--it will be for people who find the Apple name on their smartwatch to be too pedestrian.

Apple gets its mojo back...for now

Earlier today, Apple held a multi-product announcement at the Flint Center in Cupertino. I'm going to skip the product specifications and discuss what it all means, at least to me:

iPhone 6

The long-rumored iPhone 6 was announced, in two flavors: The iPhone 6 with a 4.7" display, and the iPhone 6 Plus with a 5.5" display. Other than display size, the two phones are functionally identical to each other. The big news, obviously, is the bigger screens. Prior to today, if you wanted an iPhone, you could choose between a 4" display and...another 4" display. Android smartphone vendors have successfully competed against the iPhone with bigger phones--in fact, some analysts attribute a fair portion of the decline in iPad sales to substitution of bigger smartphones for tablets.

With the deliveries of the iPhone 6 models in September, Apple will have its own "phablet" to compete with big Android and Windows Phone models. The iPhone 6 Plus, in particular, is likely to cannibalize sales of iPads and iPad minis, but Apple would rather steal sales from itself and keep customers inside Apple's ecosystem than lose sales to competitors and risk having customers switch to Android or Windows Phone.

Apple has also adopted Near Field Communications (NFC) for use in financial transactions. The company's new Apple Pay service enables customers of five of the largest U.S. banks to make credit and debit card payments without taking out their cards. Apple says that over 220,000 stores are already equipped for Apple Pay transactions. Again, this is an area where Apple is catching up with competitors; the first NFC-equipped Android and Blackberry phones were released in 2011. NFC hasn't taken off in the U.S., largely because a relatively small number of customers had compatible smartphones, and partly because not enough banks and merchants were supporting it. Apple Pay goes a long way to cutting the Gordian Knot by bringing Apple, payment networks (American Express, MasterCard and Visa,) banks and merchants together. However, Apple Pay only works with the iPhone 6 and iPhone 6 Plus, so for quite some time, the vast majority of iPhones in customer hands will be incompatible.

From all appearances, the new iPhones are well-built, well-designed smartphones that compare well with the best phones from competitors. However, the key features that differentiate the iPhone 6 and iPhone 6 Plus from earlier iPhones, particularly the iPhone 5s, are features that competitors have had for some time. With today's announcement, the top iOS, Android and Windows Phone smartphones are largely at parity.

Apple Watch

Today's Apple Watch announcement (really a preannouncement--I'll explain in a moment) finally brought to an end most of the speculation about the "iWatch"--speculation that began in late 2012. Many, if not most of the current assortment of smartwatches from Pebble, Samsung, Motorola, LG, Sony and others, owe their genesis to a desire to get into the market ahead of Apple. Apple isn't in the market quite yet--they announced the Apple Watch with two different display sizes and three models, but didn't discuss the actual screen size, resolution, storage space, RAM size or battery life. We also don't know when the Apple Watch will ship, other than some time in early 2015. The prices was specified at "starting at $349" in the U.S., which suggests that the three models will be differentiated by screen size, bands, and possibly memory. (We've since learned that the models are also likely to be differentiated by case materials.) So, we know a lot about the Apple Watch, but if we don't know when we can buy it, how much it'll cost or how it's equipped, it's a preannouncement.

People have criticized Samsung for their tendency to throw everything but the kitchen sink into their smartphones, whether or not the features are actually going to be used or work very well. I felt the same way about the Apple Watch feature set. Some of the features, such as using a GPS-based time server to maintain the correct local time, and the ability to use the Watch as the "front end" for texts, phone calls and email, make a lot of sense. The exercise features make the Watch an effective substitute for a fitness tracker. However, some features, like the ability to draw on the crystal with your finger and to send your heartbeat to another Watch user, go into the "What were they thinking?" category.

It feels to me like no one--not Apple, Samsung, Motorola or the rest--knows what the real use cases for a smartwatch are. Of course it has to tell time; otherwise, it's not a watch. But anyone can buy a perfectly adequate watch for telling time for $25. How do you justify spending $250 or more for a smartwatch? One way is to let it act as a "front end" for the smartphone for the most common uses--phone calls, texts and emails. Using the watch for maps and navigation is also nice, and fairly common. And, of course, if the smartwatch can do everything that a fitness tracker can, you don't need the fitness tracker. But here's the problem: Other than telling time, the smartwatch doesn't do anything as well as a smartphone. The screen is too small, especially when people want smartphones with bigger and bigger screens. Fitness trackers aren't selling well, and many people who bought them have stopped using them. Will they use the fitness features longer or more regularly if they're part of a smartwatch? Perhaps. Will they want to feel someone else's heartbeat? Maybe once.

I don't think that anyone, Apple included, has as of yet either 1) Justified the prices of their smartwatches, or 2) Figured out the right feature set to make them a mass market item. At $349, I expect a watch that's a smartphone, not a watch that has to be connected to a smartphone in order to do anything more than tell time. Maybe at $199, smartwatches with comparable functionality to the Apple Watch will sell in big numbers, but at $349, or even the $249 that most Android Wear watches are priced at, they're going to be niche items.

An approach for funding independent films...via Netflix

The business and process of funding, making and distributing motion pictures is going through changes at least as wrenching as those caused by the rise of television after the Second World War:

• Technology has changed everything from movie production to theater projection. You can buy a camera that will give you images that stand up quite nicely in a movie theater for the same price as a big screen TV from a few years ago. Editing and color correction that once required hundreds of thousands of dollars of equipment can now be done on a PC that you buy from Amazon. The only company that still makes motion picture film is Kodak, and they're still in the business only because the big U.S. motion picture distributors agreed to buy a minimum quantity of film per year. Film is almost completely phased out as a delivery medium for theaters; it's been replaced by digital projection.
• International revenues from movies are starting to exceed domestic revenues. In particular, China has become the single biggest and most important international movie market. Dialogue-heavy movies tend not to do well in China and some other markets, so the major studios have shifted their emphasis to expensive, special effects-heavy movies like Marvel's superhero series.
• The shift in emphasis from plot-driven to action-driven titles has dramatically decreased the amount of funding available for smaller, more literate movies that were once the "bread and butter" of the major studios. There are still a few producers who make these kinds of movies (Megan Ellison's Annapurna Pictures is a good example,) but by and large, the major studios acquire these titles for their prestige and award-winning possibilities, not with the expectation that they'll make much money.
• Most of the major studios have shut down their independent divisions, or as in the case of Universal's Focus Features, have radically reorganized them to fit better with the studios' new international emphasis.
• Streaming and Video-on-Demand have largely supplanted, although not totally replaced, DVDs and Blu-Ray discs for home video distribution. The studio revenues from streaming and VOD are significantly less than what they made from physical media, but consumer preferences (a shift back to movie rental after years of purchasing DVDs) have forced the studios to adapt.

All of this means that if you make small, independent movies, it's getting harder and harder to get them funded and onto movie screens. Note that I didn't say "get them distributed." It's easier than ever to get independent movies into consumers' homes, with Netflix being by far the biggest outlet, while Amazon, Apple iTunes, Crackle, Epix, Google Play, Hulu Plus, Redbox Instant, Sony Unlimited Video, VHX, Vudu, Xbox Video, Yekra, YouTube Movies and others also stream movies to consumers. Some of these distributors selectively license titles, while others are open to anyone.

For independent producers, the problem isn't finding distribution--it's making money. Let's take a movie that costs $1 million to produce (including post-production.) You send the movie to Netflix, but they offer you only $1,300 for the rights plus a bonus based on the number of times your movie is watched. Apple's iTunes and Amazon won't pay anything upfront, but iTunes will sell your movie for a 30% commission, and Amazon will take a 15% commission. Unless your movie is very popular, none of the three will do any promotion for you, and the promotion they will do is limited to preferred placement of your movie on their websites and apps. That means that you've got to budget a significant amount of money for promotion, which may include:

• Submissions to film festivals
• "Four-walling" (renting) theaters to get a theatrical release and reviews
• A social media outreach campaign
• If you happen to have a well-known actor or two in the cast, queries to radio stations, local and national daytime news shows, daytime and nighttime talk shows, syndicated daily entertainment shows and celebrity/entertainment magazines.

There's no single rule of thumb that says how much you should budget for your promotional campaign, but for a $1 million movie, the very least that you should expect to spend is $100,000. If you've got a lot of well-known actors and a strong pitch, you could end up spending $1 million or even more (but in this case that's good news, because it means that you're getting lots of coverage.)

So, let's say that all-in, you've got $1.25 million in the movie and promotion. You've got to get back at least that $1.25 million just to break even, and you and your investors would certainly like more. Let's take a simple case: You price the movie at $10, and you sell 60% of your total sales through Apple and the remaining 40% through Amazon. To break even, you need to sell a little under 165,000 copies. 165,000 is a high but not completely unreasonable number if your promotional campaign is successful. However, you have to raise the $1.25 million at the very beginning of the project in the hope that you can sell 165,000 or more copies at the end.

There may be another model, at least for some distributors and filmmakers. Netflix has built a very successful business using an "all you can eat" subscription model. With its recent price hike, Netflix charges $8.99 per month in the U.S. The company has 48 million subscribers worldwide as of their last financial quarter. The cost of the infrastructure and bandwidth to serve those customers is factored into the $8.99 price.

Netflix could create a second tier--call it "Netflix Premiere"--that would offer exclusive new movies 30 to 90 days before they're available through any other outlet, for an additional $5/month. If 10% of Netflix's subscribers sign up for the Premiere service, that would be an extra $24 million of gross revenue each month--largely incremental revenue, because the infrastructure and bandwidth are already paid for. A hefty portion of that $24 million could be used to fund new independent films. If Netflix reserved 70% of the revenue for film production, that would result in $16.8 million that the company could use to fund films each month. To a studio, $16.8 million is chump change, but to independent filmmakers, that could represent two or more complete films.

Netflix could distribute the money in two ways:

• It could be an investor in a film (for example, funding half the film while other investors and distributors fund the remaining 50%.)
• It could fund the entire cost of the film, and own the film outright when it's complete.

Netflix would have the exclusive first distribution window in either case, as a condition of the producers accepting its funding. It's very unlikely that any film funded by Netflix would get domestic theatrical distribution because of the first-showing restriction, but there's a good chance that at least some of the films would be picked up by other streaming and VOD distributors. There might be some opportunities for hotel and airline distribution as well, not to mention international distribution in markets where Netflix either doesn't do business or doesn't exercise its first-showing right.

For the first year or two, Netflix would have to underwrite the Premiere service, acquiring and showing movies until its subscriber base covers its costs. After that, however, the Premiere program could underwrite at least a dozen independent films a year, and potentially many more. This approach certainly won't fix the independent film funding problem, but it will put a dent in it, and if it's successful, it'll encourage other companies to launch similar programs.

Opening Schrödinger's Box

Robin Williams's suicide has gotten me thinking a lot about death (more than usual,) which got me thinking about Schrödinger's cat. Physicist Erwin Schrödinger proposed his "cat-in-a-box" as a thought experiment, and an analogy, to explain some of the "spooky behavior" (to quote Einstein) of quantum physics. In the experiment, a cat is placed inside a box, into which has already been mounted a capsule of poison gas and a hammer with a trip mechanism, connected to a radiation detector. The box is closed, and if the radiation detector senses the decay of a single atom, it trips the hammer, the gas is released and the cat dies. Assuming that you can shield the box from all sources of natural radioactivity, to which we're exposed all the time, whether the cat is alive or dead at any given time is a probabilistic exercise. Schrödinger argued that while the box is closed, the cat is both alive and dead at the same time. We don't know the cat's true state until we open the box, at which time we can definitively learn whether the cat is alive or dead (if it's alive, the probability that it's dead is zero.)

Schrödinger was illustrating a paradox of quantum physics, which is that a subatomic particle is in all potential states simultaneously until it's observed or measured, at which time it collapses down to a single state. Let's now use that subatomic particle as an analogy for a human (or animal, or plant) life. While the box is closed, the person is alive; when it's opened, they're dead. So, alive and dead aren't the states that we're interested in. When the person is alive, the have the potential to do an enormous number of things. A baby has the potential to do just about anything. Circumstances (where they're born, how wealthy their parents are, the quality of their schools) can either limit or enhance their potential, but they still have enormous potential. As time goes on, choices they make and choices made for them can further constrain their potential, but even a career choice made fairly early isn't necessarily constraining.

For example, Michael Crichton, author of "Jurassic Park" and many other works, originally wanted to be a writer but switched to anthropology while at Harvard, then attended Harvard Medical School and got his M.D. degree, but wrote novels while still in school. "The Andromeda Strain," which he wrote in 1969, was the first of his books to be adapted into a movie. He started writing television screenplays in 1978, and directed his first film, "Coma," that same year. He was also a father, and given that he was married five times and divorced four, a not-so-successful husband. He could have made a career out of any one of his pursuits, but he was able to do all of them in a 66-year lifespan.

We retain the potential to do many different things throughout most of our lives. We may be temporarily trapped in a job (or lack of a job,) a location or a relationship that limits us, but there's usually a way out. Going back to Robin Williams, even if he had early-stage Parkinson's Disease, he still could have worked for several years, and then turned his attention to his family and to charitable causes, as Michael J. Fox has done very successfully. (I'd argue that the work that Fox has done since largely leaving acting behind, like the work that Bill Gates has done since leaving Microsoft, is far more important and useful to society than the work that he did in his first career.) For Williams, however, depression was the limitation that he couldn't escape or control.

To return to Schrödinger's metaphor, when we die--when the box is opened--all of our potential is gone. We no longer have any options. Our quantum superposition collapses down to one state. We've all heard the saying "Where there's life, there's hope." A more accurate version is "Where there's life, there's options."

Robin Williams: A light in the dark

Like a lot of people, I'm still trying to process Robin Williams's apparent suicide. I spent most of my adult life in the Bay Area, and several years with some attachment to the comedy scene, so it was impossible not to have some contact with Robin Williams. I remember in the early 1980's, I was at work when word broke that Robin was going to do a set at Foothill College, a community college in Los Altos Hills. My recollection is that the concert, which was held in the college's stadium, was free--just show up. His opening act was singer Bobby McFerrin, and as I recall, the two of them were working out material for a tour that they were about to begin. This was a few years before McFerrin's "Don't Worry, Be Happy" became a hit, and for most of us, it was the first time that we'd heard McFerrin. It turned out that McFerrin's improvisational singing was a perfect match for Williams's improvisational comedy. It was a wonderful performance by both of them, and I remember it thirty years later.

About ten years later, I met Robin's first son, Zack, and his first wife, Valerie Velardi, both of whom were very kind to me. I visited their home in San Francisco and saw Zack's bedroom; Robin had made sure to equip him with the newest and best Apple Macintosh computers. Zack could have been spoiled, the son of show business royalty, but he was totally down-to-earth.

Robin Williams's struggles with drug and alcohol addiction are well documented. There was a darkness to him that was rarely visible in public but that became more readily apparent in private interchanges with his friends. I won't go further. When I first heard that he died yesterday of an apparent suicide, I was shocked, but the surprise was lessened when I heard that he had been struggling with depression. As someone who's dealt with depression for most of my life, I know how quickly and easily it can turn into a struggle to stay alive. Depression warps your perception--it makes you think that things will never get better, and that death is the only escape. Anyone who thinks that this was a voluntary act on his part doesn't understand depression at all. It isn't something that you control--it's something that controls you.

We've lost one of the best comedians of our lifetimes, and someone who could have had many more years of productive life. On the other hand, his pain is over. The pain of severe depression is overwhelming and excruciating, and it's really impossible to understand if you haven't gone through it yourself. I hope that we use this loss as an opportunity to better understand depression and suicide. More people die each year in the U.S. from suicide than from auto accidents, but the media rarely cover it out of fear that it will encourage more people to take their own lives.

We need to start paying attention to depression, and to recognize that it's a medical condition in the same way that heart disease or cancer is a medical condition. It's important for us to remember how much joy Robin Williams gave us for so long, but it's equally important for us to use his death as a catalyst to learn more about depression and make mental health as important as physical health.

Sisters have to do it for themselves

I just read an anonymous post on Forbes.com titled "What It's Like Raising Money As A Woman In Silicon Valley." The article details the sexist gauntlet of groping, marriage propositions and insults that the author had to run as part of the process of raising money for her company. Her experience is hardly unique; there's an ever-growing body of documentation of the sexist, racist and bigoted atmosphere that non-male, non-white founders are confronted with in Silicon Valley. My stomach churned as I read her article, partly because of her experiences, and partly because I saw some of my own past behavior reflected in the men that she dealt with.

Women have never had an easy time in Silicon Valley, whether as an employee (of which there are few) or as a C-level executive (of which there are much fewer.) Women have been concentrated in marketing, PR and HR positions, and people in those positions, male or female, rarely get an opportunity to run technology companies. Female software developers and hardware engineers have always been rare, and have had to put up with a disproportionate amount of sexism because of their rarity.

Social scientists say that it's much easier to pass laws than it is to change how people think. The proof of that is easy to see: Civil Rights legislation made segregation illegal 50 years ago, but racism is still easy to find. The first sexual harassment trial in the U.S. was 40 years ago, but there's still plenty of sexual harassment to go around. We can't legislate away racism, sexism or bigotry--but we can do an end run around them.

Women can't depend on male-dominated venture capital firms to change the way they do business--only four of the top 100 venture capitalists on Forbes's Midas List are female, and only four more made the magazine's "long list." There are a handful of seed and VC firms run by women, such as Golden Seeds and the Women's Venture Capital Fund. We need a lot more. We need women who have been successful in business and finance to step up and help other women succeed. For that matter, we need a lot more African-American-, Hispanic- and Asian-run seed and venture funds. All of these groups face discrimination from the VC community. That's not to say that every seed investor or VC partner is a sexist, racist or bigot--far from it. However, the investment community is largely an "old boys' club," and if you're not male, white and under 40, you're going to have a hard time finding funding, no matter how good your team and ideas are.

Los Angeles and New York have been making a strong push to compete with Silicon Valley for startups and technical professionals. One way that they could succeed is to help build a community of seed and venture funds in their cities to serve underserved groups, like women. Silicon Valley VCs often make it a stipulation that out-of-town startups must move to Silicon Valley in order to get funding, and the vast majority of startups offered money with that condition agree to move. Startups offered money by Los Angeles- and New York-based investors with similar stipulations are very likely to move as well, especially if they can't find funding in Silicon Valley.

As the number of investment firms targeting women, African-Americans, Hispanics and Asians increases, founders will be able to bypass investors who engage in sexual harassment, racism and bigotry. Those investors will see their deal flow diminish, and they'll be forced to either change their behavior or get out of the business, because at the end of the day, another song title describes what's most important to them: "It's Money That Matters."

Beware the Monoculture: The risks of focusing on San Francisco and New York

I just finished reading a good analysis of the market opportunity for valet parking startups, written by Charles Hudson. He writes that the real competition for these startups may be public transit, Uber, Lyft and ridesharing services. In San Francisco, where he's based, he notes that these services have cut down on the use of cars, and therefore, the need for parking. However, it was while reading his post that I realized that San Francisco is primarily representative of San Francisco, and that extrapolating from the San Francisco market could get startup founders, as well as investors and analysts, in trouble.

San Francisco has been a parking nightmare for decades--at least from the time that I moved to the Bay Area in 1983. It's hard to find commercial parking, and it's expensive when you do find it. On-street residential parking is a nightmare. On the other hand, despite the many complaints about the Muni bus system, San Francisco has a very good public transit system, with busses, subways, streetcars, cable cars and trains. It was an early Zipcar market, and it's also the home of both Uber and Lyft. The availability of so many transit options grew out of the natural limitations imposed by San Francisco's geography and the concentration of startup talent.

You don't have to go very far to find a counterexample to San Francisco. Los Angeles is much bigger and more spread out than San Francisco, even though its downtown is smaller than San Francisco's. Los Angeles's public transit options range from poor to nonexistent. Cars are essential for getting around Los Angeles--its geography shapes the market for transit options just as surely as San Francisco's does, but in a different direction.

That illustrates a problem that many startups are faced with: There's demand for them in the area where they were founded, but demand tapers off dramatically when they move into different markets. For example, meal delivery services have flourished in both San Francisco and New York. Even though New York is much bigger than San Francisco, both cities have highly concentrated populations and multiple transit options. Both cities also have a proportionally large population of high-income earners, who can afford to pay for convenience. However, conditions are very different in, say, Omaha, Denver and Dallas. That limits the growth potential for those delivery services--they may do very well on the coasts, but find limited viable markets in the rest of the U.S.

There are many other services that you can think of that take advantage of the population concentration, transit options and high-income populations of San Francisco and New York, but that may not play as well in other places. There are also services that target other unique market characteristics--for example, a dating service that targets techies might be very successful in New York and San Francisco but less so in Pittsburgh or Cleveland, which have much smaller young techie populations.

You might say "We did lots of customer development and found that there's high demand for our service." That may well be true, but where did you talk to potential customers? If you only talked to them in your home city, you've probably got a biased sample. It's important to talk to people in multiple cities with different underlying conditions. Only then can you begin to understand where your service will and won't work. That, in turn, will help you to more accurately gauge your Total Available Market, and you'll be able to launch in the markets where your business is most likely to be successful. In short, successful customer development requires that you not only get out of your building to talk to customers, but that you get out of your home city as well.

Jobs you can't afford to take

A multi-year consulting project that I worked on ended several months ago, and I've been trying to find work since then. I've spent much of my career working as a product manager; my software developer career is far behind me. Like many people, I keep current resumes on all of the popular job sites, as well as an active presence on LinkedIn. From the last time that I was in a long-term job search (2008) to now, a lot seems to have changed. Here are two trends I've noticed:

• Insurance jobs that aren't jobs

Every time I post a new resume or revise an existing one on Monster or CareerBuilder, I get bombarded with emails and phone calls from insurance companies, all of which are interested in talking to me about sales jobs. I've not seen the same activity when I make resume changes on sites like LinkedIn, SimplyHired or Indeed, which leads me to believe that Monster and CareerBuilder have a function that allows employers to mass email jobseekers who've posted new or changed resumes.

The problem with the insurance company "jobs" is that they're not jobs at all. The companies are looking for people with sufficient assets to set up their own insurance agencies, and the compensation they provide is 100% commission, at least until a threshold is reached. At that point, the insurance company kicks in some money, but it's usually to help fund setting up the agency, not salary for the salesperson. A few companies make this clear in their solicitation emails, but most of them don't, and the jobseeker learns the truth by doing their own research or by participating in an amazingly easy-to-get interview.

I've gotten to the point where I simply ignore the flood of emails from insurance companies, but recently, a few of them have stopped taking silence for an answer. Some send multiple follow-up emails, and one has even taken to making follow-up phone calls. I can only imagine that there's tremendous turnover in their agent ranks, and why wouldn't there be? If you want to buy insurance, have you ever had trouble finding an agent? Not likely; in fact, it's very likely that in any given week, a life or home insurance agent will send you a letter soliciting your business. Any new agent that an insurance company adds has to succeed by carving away business from an existing agent. That makes the chances of success very small, and the agents who do succeed are both highly motivated and highly profitable for the companies.

If you receive an email from an insurance company as the result of posting a resume, they're offering you a small business opportunity, not a job. Unless you really want to be an insurance agent, get off their mailing lists.

• Contract jobs that require relocation

Since the 2008 Great Recession, companies have increasingly made jobs that were once permanent into contract positions. At least half the positions that I'm contacted about are contract ones. I understand companies' preference for contract workers--they don't have to pay for benefits, and there's no hit on their unemployment insurance if they let a contract worker go. I'm happy to do contract work in the Chicago area where I live. However, contract employment agencies are now recruiting employees from all over the country, without offering any relocation assistance.

A phone call I got this morning from one such recruiter is illustrative: He said that a major brokerage firm is looking for a product manager in Austin, Texas, and noticed that I had expressed interest in moving to Austin. He asked me if I'd be interested in a job in Austin, and I said yes. I then answered a series of questions about my background and experience for him. Then, as his final question, he asked if I'd be interested in a six-month "contract-to-hire" position. I asked if there was relocation assistance, and he said no, so I replied that I wasn't interested and ended the call.

Most recruiters are more straightforward about disclosing the nature of the job as contract, but the problem goes further than simply withholding the nature of the job until the end. Contract jobs are ephemeral, and either the employment agency (the real employer) or their client can end the contract at any time. Some companies are notorious for not hiring their contract employees, and all that "contract-to-hire" really means is that the agency and client have agreed that the client can hire its workers after a certain period of time.

The real problem is that I've never encountered any employment agency that was willing to pay relocation expenses, or even share a portion of the expenses. There are times when I've had enough money to pay for relocation myself, but most times, the money I've put away is to cover taxes, with a little left over for emergencies. Employment agencies are looking for truly desperate people who are willing to uproot themselves and their families for a six-month contract, and who are willing to foot the entire bill for and risk of relocation.

This is bad enough when a candidate is being asked to relocate to a city like Austin with good job opportunities, but it's far worse when the candidate is asked to move to a city where there's only a handful of major employers. I was approached by an agency for a 12-month contract position as a product manager with a major consumer products company in Racine, Wisconsin. There's only one "major consumer products company" in Racine: S.C. Johnson. I could commute to Racine, but I'd spend three hours each day in my car. The agency suggested that I could stay in a hotel in Racine three or four nights each week, but I'd be responsible for paying for the hotel, as well as the additional expenses for taking care of my cat while I'm gone. Over the course of a month, I'd spend almost as much for the hotel, gas and other expenses as I'd pay for an apartment. I could move to Racine, but when my contract ended, I'd almost certainly be forced to move again.

Not long ago, I interviewed for a 12-month contract position with a Chicago-area company. The agency sent in five candidates for interviews, all of which had been well pre-screened, but the company ended up turning them all down. After meeting with company managers, it was clear to me that this job was critical enough to the company that it should have been a permanent, full-time position, yet the company wanted to hire a contract employee to save a little money.

The trend toward hiring contract employees, even for positions that should be permanent full-time, is increasingly turning employees into fungible goods. Companies see these contract employees as interchangeable, even though they often apply the same standards to them that they apply to their permanent employees. Contract employees learn to live with multi-month income interruptions every six or twelve months, and with the minimal benefits offered by employment agencies. In turn, the contract employees get very good at "spinning" themselves into whatever employers are looking for, and employers are faced with much higher employee turnover because the contract employees may be able to talk a good game but not execute.

I fear that U.S. businesses are burying themselves in order to save a few dollars. As for me, I'm old enough that I'll be out of the labor force very soon, and the only problem left for me will be not how to pay for my apartment but where to spread my ashes.

Chelsea Handler: Netflix's MacGuffin?

Last week, Netflix announced that it will launch a talk show starring Chelsea Handler. The announcement triggered speculation about Netflix's reasons for launching a talk show, and what kind of a talk show it would offer. After all, Netflix is a video-on-demand service that features movies, old television shows and new series, while talk shows are one of the most time-sensitive show formats, after news and sports. Is Netflix trying to copy HBO shows such as "Real Time with Bill Maher" and "Last Week Tonight?" Would Handler's show be shown the day of production, or even live, or would Netflix delay it? Would Netflix try to create a new type of talk show that's not, as Variety says, "perishable"?

You may know of Netflix's first original series, "Lillehammer," starring Steven Van Zandt. It's never gotten much critical notice; certainly nothing like "House of Cards" or "Orange is the New Black." Netflix has renewed it for a third season, even though I suspect that most television viewers have never heard of it. When Netflix announced "Lillehammer," industry observers thought that was the story, and discounted its (and Netflix's) impact when the show turned out to be mediocre. The real story, however, wasn't "Lillehammer," but the fact that Netflix was targeting HBO with its own original series.

An important nugget in Netflix's announcement of Chelsea Handler's talk show is that the show won't go into production until some time in 2016. That seems like an awfully long time, given that talk shows are usually launched in a matter of months, not years. A daytime talk show can get "greenlighted" in the spring and be on the air in the fall. Why is it going to take Netflix more than 18 months to get Handler's show into production?

I believe the reason is that Netflix is preparing to launch a live service in addition to its existing VOD. Given that all of Netflix's infrastructure and all of the software that people use to watch Netflix was developed solely for VOD, Netflix has a lot of work to do in order to offer live programming. Once Netflix gets it working, however, it opens up entirely new opportunities for the company. One of them is Pay-Per-View (PPV). Typically, PPV is used for big-ticket sporting events, such as boxing and wrestling matches, as well as live concerts. These PPV events are one of the biggest profit generators for cable, satellite and IPTV operators. They would also be a big profit generator for Netflix, above and beyond the company's monthly "all you can eat" subscription revenue.

Another opportunity is live sports--the kinds of events shown by broadcast and cable networks: Football, baseball, basketball, hockey, golf, soccer and tennis. Sports can be very lucrative for networks. Games on Netflix would be very appealing to viewers who could watch them without commercial interruption. Consider something like DirecTV's NFL Sunday Ticket, which offers subscribers every out-of-town NFL game. It costs from $230 to $330 for a six-month (full-season) subscription, depending on the level of service, and it's one of DirecTV's most profitable offerings. In fact, NFL Sunday Ticket is said by many observers to be one of the biggest reasons why AT&T wants to acquire DirecTV. If Netflix develops a live streaming capability, it can offer a similar service to subscribers to any high-speed Internet service. All 99 million U.S. households become potential buyers. No cable, satellite or IPTV company has that kind of reach.

With that in mind, it becomes clear that the real story isn't that Chelsea Handler is getting a talk show on Netflix, it's that Netflix plans to offer live programming--and live programming is increasingly the lifeblood of broadcast and cable networks alike. In short, if your television business is known by initials (HBO, TNT, ESPN, ABC, CBS, NBC, Fox--okay, those aren't initials--etc.), Netflix is coming for you in 2016. And, Chelsea Handler is the least important part of it.