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Analysis for 'VUDU'

  • Apple TV Improves, Vudu is In its Crosshairs

    As widely expected, yesterday Apple launched movie rentals in iTunes, with titles from all the major studios. Steve Jobs also announced price cuts and a number of key enhancements to Apple TV, squarely repositioning the device as a "broadband movies appliance" (my term). Apple TV now allows direct ordering (no computer needed) and a much improved UI prominently featuring movies. The message from Apple is clear: the primary value proposition for Apple TV's prospective buyers is convenient movie rentals through iTunes.

    In the last few weeks there has been much buzzing about which companies might feel the most competitive pressure from Apple's launch of movie rentals. Here's how I see it: when rentals are combined with Apple TV's new features, the company that has to be waking up this morning most nervous about Apple's news yesterday is Vudu, because it has the most obviously similar value proposition.

    Some of you may not be familiar with Vudu. It is a recently launched combination online movie/TV on demand service and companion box that has gained a lot of favorable early reviews. The company is backed by Benchmark and Greylock, two huge and highly regarded venture firms. While any startup faces long odds of success, with Vudu now going up against the Apple branding and marketing juggernaut, Vudu's odds seem even more daunting. In fact, one wonders how the folks at Benchmark and Greylock, when considering their original Vudu investment, weighed the very question of Apple's entry into this market, as it was somewhat inevitable.

    To step back for a moment, as many of you know, I'm skeptical about all appliances meant to bridge the broadband and TV worlds, as I think they have only narrow consumer appeal and create new inconveniences. Apple TV and Vudu are even more specifically-directed at people who are focused on premium movie and TV content, not gaining access to the wider world of broadband video (note Apple TV does provide some access to YouTube videos and podcasts). In effect, purchasers of either of these products value the instant viewing gratification they offer more than the selection, portability, unlimited viewing windows and "extras" that DVDs provide. And of course there are a broad array of choices and models for accessing DVDs (e.g. Netflix, Blockbuster, Wal-Mart, etc.).

    However, for interested buyers, my sense is that both Apple TV and Vudu do an admirable job at delivering online movies and TV programs. The issue is that, if I was considering a purchase, and was obviously only going to buy one, I'd be hard-pressed to see why I'd pick Vudu over Apple TV. Consider: Apple TV is cheaper ($329 vs $399 for Vudu, albeit with smaller storage space), provides access to your music library and podcasts already configured in iTunes, allows easy display of your photos, has a familiar iPod/iTunes UI and enables transfers to these devices for portable viewing. Apple TV is also backed by a strong and well-known brand, giving additional comfort that the company will be around for a long time to come, which is always a nagging question when buying anything from a startup.

    The whole category of broadband movie appliances is going to remain pretty small until the key limitations are resolved (small selection, 24 hour playback, 30-day expiration, no portability, no "extras", etc.). When these are fully addressed, online delivery of movies and TV programs will happen in a big way, no question.

    So for now, given these limitations, what we're really seeing is a skirmish for positioning and branding, with an eye toward the long-term win. This dynamic in particular gives Apple, as a multi-billion dollar diversified company, yet another a big advantage over a single product startup. I've learned never to count out plucky startups, but given Apple TV's new positioning plus rentals, the mountain Vudu is trying to climb just got a whole lot more treacherous.

    What do you think? Post a comment and let everyone know!

     
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  • Broadband Video on TV is a Mirage

    In yesterday's WSJ, Nick Wingfield wrote a lengthy article outlining the 5 key challenges encountered by the myriad devices aimed at bringing broadband video to TVs. He lists them as: consumer resistance to adding another box, complications in setting them up, cost, lack of content and slow downloads.

    The article has a generally optimistic tone, posing "solutions" to each of the challenges. You're left with the impression that mass-scale broadband video on TV could actually happen sometime soon.

    At the risk of being the "skunk at the picnic," I have recently come to believe that broadband video on TVs is a mirage, tantalizingly close yet in reality nowhere on the horizon. Unless there is some new box or approach I've yet to hear about, I've regrettably concluded that broadband video will be tied to computers, and select mobile devices, for a long time to come.

    The minority of consumers who will actually see broadband video on their TVs will either (1) shell out big bucks to buy a broadband appliance such as Vudu or Apple TV, (2) tackle the challenge of connecting their TVs via wireless networks (3) use a device built for another primary purpose, such as Xbox 360 or TiVo, to selectively augment their viewing with broadband-delivered choices or (4) use a service provider that has decided to throw in a few morsels of broadband video.

    Those of you with good memories will remember that in a Broadband Directions newsletter at the end of 2007 I wrote bullishly about Apple TV's ability to become the breakout convergence device, if only Apple opened up the box to all broadband content. Instead Apple has kept the box closed, available for iTunes downloads and selected YouTube videos. Consequently it has been a flop.

    To help explain why products succeed or not, I tend to reach for Prof. Clayton Christensen's abiding lesson that people "hire" products to do "jobs" they have to be done. In other words, products that meet the buyer's true desires are the ones that succeed.

    For me, the "job" that consumers increasingly want "done" is to be presented with an integrated, easy-to-access service (not just a new box) that offers all video programming they value in an on-demand manner and priced appropriately. That's a tall order, but ultimately one which will drive wide-spread success of any new product in this space.

    Some of the possibilities include TiVo, which believes in this "seamless" philosophy, though it is still dependent on current service providers (cable, satellite, telco) to deliver programming. ICTV has a very interesting approach, though it is also reliant on existing service providers. Building B is taking a bold approach that seems to meet the full test for success, though it's still too early to know whether they can successfully execute on their vision.

    But hodge-podge, costly broadband appliances just create new inconveniences while only partially addressing true consumer needs. As a result, they're not going to find a broad market. And so, barring some other new innovation, most of the world will still be watching broadband video on their computers and some mobile devices for a long time to come.

     
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