Posts for 'Apple'

Daisy Whitney and I are pleased to present the 54th edition of the VideoNuze Report podcast, for March 26, 2010.

This week Daisy starts us off by reviewing new research on the iPad's appeal as an ebook reader. Daisy also reviews sobering forecasts suggesting that the iPad is unlikely to change people's willingness to pay for content (regarding video specifically, Daisy and I agreed a while back that for now its impact for video specifically is likely to negligible). I'm not convinced the iPad will trigger a wave of people willing to pay for content, but I do believe any iPad research is still very preliminary. It's only when users get their hands on the device that we'll really start to learn how impactful it is. The iPad is of already available for pre-order and is set to debut in stores late next week.

We then shift topics and discuss my post from earlier this week, "Here's How Google TV Will Work - And What It Might Mean," in which I described Google's new set-top box and the company's strategy for entering the market. Google's move is likely to set off a fascinating negotiating dynamic with incumbent video service providers, and Daisy and I get into some more of the details.

(Note, Daisy's mic isn't working that well on this podcast, so please be patient)

Click here to listen to the podcast (14 minutes, 13 seconds)

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Yesterday's announcement by retailing giant Wal-Mart that it was acquiring Vudu, the on-demand movie service, generated a flurry of reactions from industry commentators. Some think it gives Wal-Mart the juice it needs to finally be a major digital media player. Others believe that Wal-Mart's miserable record in digital media suggests that the deal will be much ado about nothing. I'm in the latter camp, but not because of Wal-Mart's track record, but rather because of Vudu's own shortcomings.

Vudu's problem is that its value proposition is hamstrung by both the deals the Hollywood studios insist on to give Vudu access to their titles and by the current state of technology. Each of Vudu's 2 movie delivery models - rental and download-to-own - has its own problems that severely curtail its consumer appeal. No matter how slick the service looks or how many CE devices it's embedded in, consumers will readily see these drawbacks and resist embracing Vudu.

The rental model is primarily handicapped by the ongoing provision that the rental period "expires" 24 hours after the movie was started. That means that if real life (e.g. a crying child, a call from an old friend, a household emergency) interrupts the Vudu's users' planned viewing window, they're out of luck. It's an absurd restriction, but all online movie rentals are laboring under it. Then there's the provision that most new releases aren't available for rental until 30 days after they debut on DVD. This kind of delay doesn't mean as much for a subscription service like Netflix (which of course just agreed to a new 28-day "DVD sales window" with Warner Bros.), because it has a huge back catalog to offer. But for Vudu (and Redbox) these delays are very noticeable to users.

The download-to-own model is even more challenged. First off, tech-savvy and value-conscious consumers are increasingly focused on cost-effective rentals or subscriptions, not purchasing films. The demise of DVD sales is ample evidence of this. The idea of creating a movie "collection" in a fully on-demand world is already on the verge of seeming as archaic as creating a CD collection has been for a while. And with download-to-own prices of approximately $20, which are more than a DVD costs, consumers will be even more hesitant.

But the real killer for download-to-own is the technology limitations, more specifically the lack of portability and interoperability. Say you're actually inclined to own movies using Vudu. What do you do, download them to an external hard drive? And when you travel, do you lug that thing around with you? When you get to your destination, what device will actually let you play back your movie from your hard drive? The issues go on. The reality is that ubiquitous, cheap DVD players and the compact size of the discs themselves have created a very high bar for digital delivery to exceed. "Digital locker" concepts like DECE and Disney's KeyChest are desperately needed to move digital downloads along, but even they are just a part of a larger CE puzzle.

So, although the Vudu service is very impressive, with a slick user experience and really nice quality video, the reality is that unless Wal-Mart is able to break through these challenges, the Vudu service is going to be marginally attractive to consumers at best. That means the Wal-Mart acquisition, in fact, makes little difference.

Maybe Wal-Mart has the clout to move the studios, but given mighty Apple's own difficulties doing so, I'm skeptical that Wal-Mart will have better luck. I continue to believe that Netflix's model - which combines the full selection of DVDs with the convenience and growing selection of online delivery (including TV shows by the way) - is a far better approach. Netflix may not have all the HD and user interface bells and whistles that Vudu has, but it's a far better value proposition for consumers. This is partly why Netflix has doubled in size, to 12.3 million subscribers, in the last 3 years.

What do you think? Post a comment now (no sign-in required).

One other noteworthy tidbit to come out of Mobile World Congress earlier this week was that Sling Media announced it got final approval from Apple to offer its SlingPlayer Mobile App in the App Store. SlingPlayer had been held up due to network concerns, but 2 weeks ago AT&T announced that it would let the SlingPlayer app stream live over its 3G network.

Though there aren't that many Sling users, and only a subset of them will pay the hefty $29.99 price for the SlingPlayer app, its clearance is a milestone because it truly enables high-quality place-shifting of long-form programming to a mobile device. It also steals some thunder from the FLO TV value proposition and offers a meaningful precedent to others who might like to stream long-form programs to iPhones and other mobile devices down the road (Netflix? Hulu? Amazon?). It's somewhat of a mystery to me how AT&T's overtaxed 3G network can now support long-form video streaming when complaints are still rampant about call quality. I don't have an iPhone or a Sling box, but if a VideoNuze reader does, and downloads the SlingPlayer app, I would be very interested in hearing about your viewing experience.

What do you think? Post a comment now (no sign-in required).

Of course, the question still looms, will people pay $500-$800 for all that iPad coolness? Apple itself appears sensitive to the issue, clearly softening the market for possible price reductions soon after the iPad's release if volumes don't materialize. Going out on a limb a little, I for one believe we'll see an approximately $200 price reduction by holiday season '10, if not sooner. The iPad is too important to Apple and Steve Jobs to be allowed to flounder and the coming release of numerous lower-priced tablets from competitors will only add to the pressure on Apple. If iPad prices fall, it could indeed become a game-changer for Wired and other print publishers.

What do you think? Post a comment now (no sign-in required).

Daisy Whitney and I are pleased to present the 47th edition of the VideoNuze Report podcast, for January 29, 2010.

With the old adage that "everything's been said, but not everyone's said it" in mind, in this week's podcast Daisy and I talk about what else but the new Apple iPad. Daisy actually attended the iPad unveiling at the Yerba Buena Center for the Arts on Wednesday and offers her first hand observations.

Generally we're in agreement that the iPad is not going to rock the video universe any time soon, with Daisy's write-up here, and my write-up here. We do however disagree about the role of the e-book reader functionality of the iPad. Daisy thinks that, at least for now, Apple should position the iPad as a better e-book reader to the Kindle and other products, while I think that would be pigeonholing it and, because at 2x the price of the Kindle, the iPad's enhanced features would be unlikely to peel off many Kindle buyers anyway. Regardless, given Steve Jobs's aspirations for the iPad, it is almost certainly out of the question that he would narrow the iPad's positioning so drastically; I'm guessing he'd rather see it wither on store shelves first.

Click here to listen to the podcast (13 minutes, 9 seconds)

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Steve Jobs finally made it official yesterday, unveiling the iPad before a world breathlessly awaiting the next big thing from Apple's factory of wonders. The device did not disappoint from a coolness perspective. It is a digital Swiss army knife of sorts, capable of browsing the web, playing games, reading books, looking at photos, working on docs, etc. all in a gorgeous ("intimate" in Jobs's words) package. All that aside, my main interest has been how significant will the iPad be for video providers and specifically for the evolution of online and mobile video? For now anyway, I think the answer is "not very."

For the iPad to breakthrough for video providers it has to sell really well, creating an addressable universe of millions, if not tens of millions of users. Only widespread adoption makes it a potential game-changer for video economics, possibly enhancing the paid business model. That may happen over time, but in the immediate future I think it's doubtful. For as cool as the iPad is, in many ways, it's still a "gadget" - overflowing with novelty and packed with status appeal, but hard-pressed to be defined as a "must have" device like a cell phone or a laptop. Maybe I'm really missing something but I still haven't drunk the Kool-Aid for why tablets are going to be so critical in users' lives.

To me, the question comes down to how many people will be able to identify the distinct value the iPad brings them and deem it worthy of purchase? Apple certainly exceeded expectations by offering a $499 low-end iPad, putting it in spitting distance for those who may have been clamoring just for an e-book reader and are willing to step up a bit more. But the $499 price is somewhat illusory. If you want connectivity beyond your home or sporadic Wi-Fi hotspots, you'll need to buy at least the lowest end 3G-enabled iPad, for $629. And you'll certainly buy the case to protect that gorgeous screen, likely for another $50. So with tax you're in the $700 range. But the real killer is you'll almost certainly need to take the iPad's $30/mo AT&T all-you-can-eat 3G service to get online when you're outside your house or within reach of a Wi-Fi hotspot.

Despite the iPad's claim that its price is "well within reach," I think that for all but a pretty narrow slice of Americans, that's not the case - $700 plus another $30/mo easily puts it in the "considered purchase" zone for most potential buyers. Think about it another way: if the iPhone had not been so heavily subsidized by AT&T and other carriers, bringing its price down to $100-$200, how many iPhones do you think Apple would have sold at $500-$600 apiece? Not many is right. And that's for a device that has at least partial "must have" appeal (it is a cell phone after all). Now I know Apple just reported a blow-out holiday quarter, but America is still mired in a recession, with high joblessness and the vast majority of people cutting back on discretionary purchases.

Meanwhile, in the demo yesterday, Jobs showed off how well a YouTube video looks on the iPad, and of course, as with the iPods and the iPhone you can purchase and download video from iTunes. But is there something new that the iPad specifically does for video, beyond delivering a more intimate experience? Is the iPad going to offer some new, previously unavailable video access? Or some new interactivity? Or something else Jobs will conjure? If there is, it wasn't demo'd yesterday. Maybe in time.

These days video providers are inundated with options for where to focus their attention and allocate their scarce resources. Online distribution (on their own sites and/or syndicated)? Mobile? Over-the-top devices? Aggregators? IPTV? VOD? Short form? Long form? Branded content? The list goes on and on. Resources are tight and the first filter for any new initiative is always, "how many eyeballs and potential dollars does it offer?"

Of course, over time the iPad's price will come down and more people will adopt it, making it incrementally more attractive. Its beautiful screen, enabling a fabulous video experience, will help sell the device itself. But Apple will still need to surmount certain niggly things like what do about lack of Flash (like the iPhone it's not currently supported by the iPad, meaning no watching Hulu, just for starters), limited battery life when watching video and AT&T's already-overloaded 3G network, which is bound to disappoint iPad buyers. And beyond these, the larger question looms: if I'm interested in watching video on the go on a nice large screen, why not just do so on my laptop, which is almost certainly with me already?

The iPad is a revolutionary device and an Apple engineering marvel. But as a consumer proposition, it's a much bigger leap for Apple to succeed. With Macs, the iPod and the iPhone, Apple made better, revolutionary products in categories that already existed. With the iPad, Apple is trying to create a whole product new category, looking for daylight where none may exist. Maybe it will be big, maybe not. In the near term, I'm skeptical that it will have any major impact for video providers and for the evolution of online and mobile video.

What do you think? Post a comment now (no sign-in required).

Last fall, when the WSJ first broke the news that YouTube was negotiating with a number of Hollywood studios about launching a full-blown rental store, I thought the plan was intriguing, but dubious. I argued that YouTube needed to stay focused on getting its ad model right, that it would be hard to differentiate its film rentals from those of myriad competitors and that the revenue upside for YouTube was relatively small.

I continue to believe those things and hope YouTube isn't still pursuing Hollywood dreams. That said, I do like the idea of it offering a paid option for indie and other hard-to-find video. YouTube's massive audience brings real promotional value to these often-obscure, yet high-quality titles, potentially significant revenue to their producers and for YouTube, another meaningful step away from pure UGC content. Rentals won't generate significant revenue for YouTube, but with Google executives on the company's earnings call yesterday saying that "YouTube is monetizing well," so long as it doesn't divert too many resources away from advertising, that's ok.

2. Revenue models matter, just ask the newspaper industry - This week brought news that MediaNews Group, publisher of 54 U.S. newspapers, including the Denver Post and San Jose Mercury News, will file for bankruptcy. For those keeping count, it's at least the 13th bankruptcy filing by a major U.S. newspaper publisher in the last year.

While the newspaper industry has been racked by the recession and ad-spending slowdown, the larger issue is that 15 years since the Internet's popularity took off, newspapers still have not been able to define a sustainable online business model. Many simply lunged headlong into providing their full print editions online, only to find out that online advertising wasn't sufficient to support their overhead and that Google commoditized their headlines. Others, like the NYTimes tried (and will continue to try) to find a balance between advertising and reader payments.

I've touched on this before, but the havoc being wreaked in the newspaper is a red-letter warning to video industry participants to cautiously guard existing revenue models while transitioning to digital delivery. Some consumers and techies may consider a deliberate pace to be bureaucratic foot-dragging, but for video content producers and distributors to remain viable, a deliberate ready-aim-fire approach to digital delivery is essential.

I'm not a Prada patron, and I found the film dreary and odd, nonetheless, what intrigued me was how online video has given Prada a whole new outlet to build its brand's aura, a key to success for all luxury brands. Buying TV ads would be incredibly inefficient for Prada, and magazine spreads only go so far. With a short online film, Prada can target its audience well and engage them as long as it pleases. For creative and advertising types alike, that's a compelling opportunity.

4. Get ready for the week of the Apple tablet - In case you missed it, this week Apple sent invites to the press for a Jan. 27th event to "come see our latest creation" - widely believed to be the company's new tablet computer. The buzz behind the product, thought to be called the "iSlate," has been steadily building for weeks now. Next week it will reach a crescendo. We can expect Steve Jobs to bring his A game to the mother of all product demos as the stakes are high for Apple to deliver major wows.

Daisy Whitney and I are pleased to present the 46th edition of the VideoNuze Report podcast, for January 22, 2010.

Daisy gets us started today, discussing recent smartphone research from eMarketer. According to the research, in Q4 '09, the percentage of people saying they're interested in purchasing an Android phone jumped from 6% to 21%, while the iPhone's dropped from 32% to 28%, creating a narrow 7% gap. In addition, research on how the phones are actually used revealed extremely similar behavior, with usage skewed toward reading news on the Internet, using apps, social networking and IM.

Daisy's takeaway is that this could be early signals that the smartphone market may be getting commoditized. I add that with the proliferation of Android phones, and the disproportionate amount of retail shelf space they'll soon take up, Apple could well find itself in the familiar spot of competing against a large and growing ecosystem of well-aligned competitors (i.e. similar to competing against the Windows ecosystem). Time will tell.

We then switch gears and I add some more detail to Boxee's plan to offer a payment platform, which it unveiled this week. Boxee's move is yet another effort to shift the online video model from advertising, which has of course accounted for the dominant share of the online video industry's revenue to date. In addition to Boxee, this week we've also seen additional paid model initiatives: YouTube dipped its toe into rentals, rumors resurfaced of Hulu's subscription plans, and, outside the video space, the NYTimes.com's announced plans to erect a pay wall early next year. And that's all on top of TV Everywhere's rollout.

Click here to listen to the podcast (11 minutes, 47 seconds)

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Google and Apple both unveiled key mobile initiatives yesterday, underscoring the collision path the two companies are on, and how long-term, video is poised to benefit from their battle.

First, as you no doubt already know, Google introduced the Nexus One, an Android-powered smartphone that it is selling directly to consumers. It is Google's first foray into consumer devices and many more products sure to follow. Meanwhile, Apple, in a rare significantly-sized deal, acquired Quattro Wireless, a mobile advertising company, for around $300 million. Quattro represents Apple's first real push into advertising, an important shift from its traditional iTunes-driven paid media model.

With its own device, Google is primarily looking to compete against Apple's iPhone, which has practically owned the U.S. smartphone market since its introduction 2 years ago. And Apple, with a toehold in the exploding mobile advertising market, is positioning itself to disrupt Google's planned dominance of mobile advertising through its pending $750 million AdMob acquisition. If Apple were to make additional acquisitions, particularly in the online video advertising space, that would further strengthen its position.

Mobile video is poised to be a real winner in the Google vs. Apple face-off. At a minimum, the two companies' considerable marketing spending (plus those of competitors Palm, RIM, Nokia and others) will mean smartphones in millions more consumers' hands, dramatically expanding the video-ready universe. In addition, the experience of watching mobile video will just keep getting better. For example, the Nexus One's screen resolution (480x800) surpasses the iPhone's (320x480), which only means Apple will need to up the ante even further with its next generation. The range of video applications is sure to surge as more and more players stake out their ground.

Importantly, because there are no powerful incumbent distributors in mobile video - as there are in the living room, with cable/satellite/telco - I believe there is more flexibility in how premium video can be distributed to smartphones. Until recently mobile was an "on-deck" world where everything had to be approved and carried by the wireless carrier. But mobile is quickly evolving to take on open Internet-like characteristics, where applications and services are not gatekeeped by a distributor. In short, mobile looks to be more like online distribution than traditional video distribution. As power in mobile shifts to players like Apple and Google, it should also be a wake-up call to the FCC, whose planned wireless carrier-focused net neutrality paradigm already looks out of date.

While there have been recent rumbles about Apple doing something with subscription video for the living room, instead the company likely has more latitude in mobile to go well beyond the pay-per-use iTunes model, especially if it can also bring in advertising. Meanwhile, by having its own device and operating system, Google is optimizing the YouTube mobile experience. As this YouTube blog post points out, the Nexus One is an improved way to search, view and upload YouTube videos. With YouTube enjoying such benefits not just on Nexus One, but on all Android phones, YouTube becomes an even more valuable partner for premium content providers looking to generate mobile usage.

Google and Apple will be jousting for years to come in the mobile space. The opportunities for growth for both companies are sizable. I fully expect that video is a going to be an increasingly important part of the battle.

What do you think? Post a comment now.

Happy New Year. If you're just back from a holiday vacation and have been partially or totally off the grid for the last week or two, here are 7 video-oriented items you may have missed:

1. Time Warner Cable and News Corp fight over fees, then settle - Two behemoths of the cable and broadcast TV ecosystem spatted publicly during the holidays over the size of "retransmission consent" fees that News Corp (owner of the Fox Broadcast Network and cable channels like Fox News) wanted TWC (the 2nd largest U.S. cable operator) to pay to carry its 14 local stations. While a last minute deal averted the channels going dark, broadcasters' interest in dipping into cable's monthly subscription revenues will only intensify as audience fragmentation accelerates and ad revenues are pressured.

For my part I wish Fox and other broadcasters were as focused on building new and profitable digital delivery models for their programs as they were on trying to redistribute cable's revenues. Even as Rupert Murdoch continues advocating the paid content model, the freely-available Hulu is seeing its traffic skyrocket (see below). But if Hulu's viewership isn't incrementally profitable, then all that growth is pointless. Urgency is mounting too; in '10 convergence devices that bridge broadband to the TV are going to get a lot of attention. In the wake of their adoption, consumers are going to want Hulu on their TVs. If Hulu doesn't allow this it will be marginalized. But if it does without first solidifying its business model, it could hurt broadcasters further.

2. Hulu has a big traffic year, but no further information provided on its business model - Hulu's CEO Jason Kilar pulled back the curtain a bit on the company's strong progress in 2009, citing 95% growth in monthly users, to 43 million, 307% growth in monthly streams, to 924 million (both as measured by comScore) and a doubling of available content, to 14,000 hours. While noting that its advertisers increased from 166 to 408 during the year, with respect to performance, Jason only said that "we are extremely excited about atypically strong results we have been able to drive for our marketing partners."

Though Hulu is under no obligation to disclose details of its business model, I think it would dramatically increase the company's credibility if it shared some metrics about how its lighter ad load model is working (e.g. improved awareness, click throughs, leads, conversions, etc.). Per the 1st item above, as Hulu grows, a lot of people have a lot at stake in understanding what effect it may have on broadcast economics. In addition, as I pointed out recently, it is important to understand whether Hulu thinks it may have already saturated its U.S. audience. After a jump in Q1 '09 from 24.6 million to 41.6 million users, traffic actually dipped below 40 million until October. What does Hulu do from here to gain significantly more users?

3. Cable networks' primetime audience is nearly double broadcasters' - Punctuating the ascendancy of cable over broadcast, this Multichannel News article pointed out that in 2009, ad-supported cable networks as a group captured 60.7% of primetime audience vs. 32% for the 4 broadcast networks. That's a major change from 2000 when the broadcasters had a 46.8% share vs. cable's 41.2%. Cable increased its share every single year of the last decade, powered by its innovative original programming. NBCU's USA Network in particular has become the real standout performer, winning its second consecutive ratings crown, with 3.2 million average primetime viewers, up 14% vs. 2008.

The surging popularity of cable programming is a crucial barrier to consumers cutting the cord on cable. Since cable networks are highly invested in the monthly multichannel subscription model, they are unlikely to disrupt themselves by offering their best shows to others under substantially different terms than how they're offered today. So to the extent cable programs are either unavailable to over-the-top alternatives or offered less attractively (e.g. less choice, higher cost, delayed availability), little cord-cutting can be expected. And if TV Everywhere achieves its online access goals, the cable ecosystem will only be further strengthened.

4. YouTube is working to drive higher viewership - Amidst the turmoil in the traditional ecosystem and Hulu's growth, YouTube, the 800 pound gorilla of the online video world, is working hard to deepen the site's viewership. As this insightful NYTimes article explains, a team of YouTube developers is analyzing viewing patterns and tweaking its recommendation practices to encourage more usage. YouTube says time on the site has increased by 50% in the last year, and comScore reports that the average number of clips viewed per user per month jumped to 83 in October, up from 53 a year earlier. Still, as comScore also reports, duration of an average session has yet to crack 4 minutes, meaning video snacking on YouTube is still the norm. YouTube's moves must be watched closely in '10.

5. Showtime's "Weeds" available online before on DVD - This WSJ article (reg req'd) pointed out that Lionsgate, producer of Showtime's hit "Weeds" series is offering episodes online before they're available on DVD. By putting the digital "window" ahead of DVD's, Lionsgate is further pressuring DVD's appeal. We've seen periodic experimentation in this regard, and I anticipate more to come, especially as the universe of convergence devices expands and consumers can watch on their TVs instead of just their computers. Until a tipping point occurs though, "Weeds" like initiatives will be the exception, not the rule.

6. Netflix goes shopping in Hollywood - And speaking of reversing distribution windows, this Bloomberg Businessweek piece was the latest to highlight Netflix's efforts to woo studios into giving it more recent releases. Netflix has of course made huge progress with its Watch Instantly streaming feature, but its appeal to heaviest users will slow at some point unless it can dramatically expand its current slate of 17K titles available online. Hollywood is understandably wary of Netflix given all the variables in play and a desire to avoid Netflix becoming master of Hollywood's post-DVD, digital future. Whether Netflix will spend heavily to obtain better rights is a major question.

7. Get ready for Google's Nexus One and Apple's "iSlate" - Unless you've really been off the grid, you're probably aware by now that two very significant mobile product releases are coming this month. Tomorrow (likely) Google will unveil the Nexus One, its own smartphone, powered by its Android 2.1 operating system. The Nexus One will be "unlocked," meaning it can operate on multiple providers using GSM networks. The device will further fuel the mobile Internet, and mobile video consumption along with it. Separately, Apple is widely rumored to introduce its tablet computer later in the month, which many believe will be called the "iSlate." The tablet market is completely virgin territory, and while it's early to make predictions, I believe Apple could have most of the ingredients needed to make the product another big hit. The prospect of watching high-quality video on a thin, light, user-friendly device is extremely compelling.

Yesterday's Wall Street Journal story, suggesting that CBS and Disney may participate in Apple's planned TV subscription service, caused was yet another tremor in the already chaotic video industry. Though Apple's plans are still preliminary, when I consider the numbers the Journal reported, the company's fuzzy math suggests incumbent distributors have little to worry about just yet.

The Journal said that in "In at least some versions of the proposal, Apple would pay media companies about $2 to $4 a month per subscriber for a broadcast network like CBS or ABC, and about $1 to $2 a month per subscriber for a basic-cable network..." Let's assume the mid-points for both: $3/mo for broadcast networks and $1.50/mo for cable networks. With 4 broadcast networks (assuming NBC participates, which under Comcast ownership is itself unlikely), that would be $12 in fees/mo. Say Apple signed up 12 cable networks, that would be another $18 in fees/mo. Together the $30 in fees/mo equals what Apple is reportedly looking to charge consumers. And this package would only deliver 16 channels, which would induce few consumers to cut the cord. And by the way, there's zero chance that one of those 16 cable channels would be Disney's ESPN, which already gets north of $3/mo/sub in all of its existing affiliate deals.

Given the broadcast networks' woes, it's within the realm of possibility that they would be enticed by the $2-$4/mo, considering it's above the $1/mo/sub that is often bandied about in retransmission consent discussions. Yet, Apple is supposedly talking about delivering the programs commercial-free, which means broadcasters' total revenue per month has to equal or exceed what they're already making per month for the plan to be interesting to them. With $60 billion/year in TV advertising revenue at stake, that's a big gamble for broadcast networks to make. Even the notion that consumers would pay for broadcast programs simply because they're commercial-free is speculative. Most research I've seen suggests the opposite consumer preference (they'd rather stomach ads in exchange for free content).

An even bigger challenge for Apple is to get cable networks to play ball. Starting with my post over a year ago, "The Cable Industry Closes Ranks," I've continued to assert that, despite ongoing skirmishes, cable networks and cable operators are joined at the hip in their desire to defend the traditional multichannel subscription model. In the model, big owners of cable networks bundle smaller channels with bigger, more popular ones, and require that cable operators, telcos and satellite operators take these as a package. This is the backdrop for why consumers often grouse that there are lots of channels, but little on that interests them personally. Meanwhile, TV Everywhere is intended to preserve this model as online viewing expectations build.

It stretches my imagination to believe that big cable network owners (Disney included) are going to allow Apple to cherry-pick which cable networks they want and disrupt the traditional model, especially at a time when cable networks want more, not less control. That cable networks would be willing to put Steve Jobs in the driver's seat of their digital futures is very unlikely. Analogies to the music business only go so far: remember, music companies were already under assault from rampant piracy and reeling under financial pressure when Apple came riding to their rescue. Cable networks feel no such urgency; they've been the brightest star in the media landscape as the recession has worn on.

I've learned never to underestimate Steve Jobs or Apple. But based on what's been reported so far, Apple's subscription TV math seems very fuzzy and any service that emerges from it is likely, for the most part, to be non-threatening to incumbent distributors. And that's before getting to the issues of Apple being a closed system and requiring consumers to buy a proprietary Apple TV box to get their programs onto their TVs. In the budding 'over-the-top" sweepstakes, Apple is one to watch for sure. But there are a lot of variables in play here. It will be fun to see if Jobs has yet another rabbit up his sleeve.

What do you think? Post a comment now.

As 2009 winds down, in the spirit of accountability, it's time to take a look back at my 5 predictions for the year and see how they fared. As when I made them, they're listed below in the order of most likely to least likely to pan out.

1. The Syndicated Video Economy Accelerates

My least controversial prediction for 2009 was that video would continue to flow freely among content providers numerous third parties, in what I labeled the "Syndicated Video Economy" back in early 2008. The idea of the SVE is that "destination" sites for online audiences are waning; instead audiences are fragmenting to social networks, mobile devices, micro-blogging sites, etc. As a result, the SVE compels content providers to reach eyeballs wherever they may be, rather than trying to continue driving them to one particular site.

Video syndication continued to gain ground in '09, with a number of the critical building blocks firming up. Participants across the ecosystem such as FreeWheel, 5Min, RAMP, YouTube, Visible Measures, Magnify.net, Grab Networks, blip.TV, Hulu and others were all active in distributing, monetizing and measuring video across the SVE. I heard from many content executives during the year that syndication was now driving their businesses, and that they only expected that to increase in the future. So do I.

2. Mobile Video Takes Off, Finally

When the history of mobile video is written, 2009 will be identified as the year the medium achieved critical mass. I was bullish on mobile video at the end of 2008 primarily due to the iPhone's success and my expectation that other smartphones coming to market would challenge it with ever more innovation. The iPhone has continued its amazing run in '09, on track to sell 20 million+ units. Late in the year the Droid, which Verizon has relentlessly promoted, began making inroads. It also benefitted from Verizon highlighting AT&T's inadequate 3G network. Elsewhere, 4G carrier Clearwire continued its nationwide expansion.

While still behind online video in its development, mobile video is benefiting from comparable characteristics. Handsets are increasingly video capable, just as were computers. Mobile content is flowing freely, leaving the closed "on-deck" only model behind and emulating the open Internet. Carriers are making significant network investments, just as broadband ISPs did. A range of monetization companies have emerged. And so on. As I noted recently, the mobile video ecosystem is healthy and growing. The mobile video story is still in its earliest stages, we'll see much more action in 2010.

3. Net Neutrality Remains Dormant

Given all the problems the Obama administration was inheriting as it prepared to take office a year ago, I predicted that it would not expend energy and political capital trying to restart the net neutrality regulatory process. With broadband ISP misbehavior not factually proven, I also thought Obama's predilection for data in determining government action would prevail. However, I cautioned that politics is a tough business to predict, and so anything can happen.

And indeed, what turned out is that in September, new FCC Chairman Julius Genachowski launched a vigorous net neutrality initiative, despite the fact that there was still little data supporting it. With backwards logic, Genachowski said the FCC would be guided by data it would be collecting, though he was already determined to proceed. In "Why the FCC's Net Neutrality Plan Should Go Nowhere" I argued, among other things, that the FCC is way off the mark, and that in the midst of the gripping recession, to risk the unintended consequences that preemptive regulation carries, was foolhardy. Now, with Comcast set to acquire a controlling interest in NBCU, net neutrality advocates will say there's even more to be worried about. It looks like we can expect action in 2010.

4. Ad-Supported Premium Video Aggregators Shakeout

The well-funded category of ad-supported premium video aggregators was due for a shakeout in '09 and sure enough it happened. Players were challenged by little differentiation, hardly any exclusive content and difficulty attracting audiences. The year's biggest casualty was highflying Joost, which made a last ditch attempt to become a white label video platform before being quietly acquired by Adconion. Veoh, another heavily funded player, cut staff and changed its model. TidalTV barely dipped its toe in the aggregation waters before it became an ad network.

On the positive side, Hulu, YouTube and TV.com continued their growth in '09. Hulu benefited from Disney coming on board as both an investor and content partner, while YouTube improved its appeal to premium content partners and brought on Univision and PBS, among others. Aside from these, Fancast and nichier sites like Dailymotion and Babelgum, there isn't much left to the aggregator category. With TV Everywhere services starting to launch, the opportunity for aggregators to get access to cable programming is less likely than ever. And despite their massive traffic, Hulu and YouTube have significant unresolved business model issues.

5. Microsoft Will Acquire Netflix

This was my long ball prediction for '09, and unless something happens in the waning days of the year, I'll have to concede I got this one wrong. Netflix has remained independent and is charging along with its own streaming "Watch Instantly" feature, now used by over half its subscribers, according to recent research. Netflix has also broadened its penetration of 3rd party devices, adding PS3, Sony Bravia TVs and Blu-ray players, Insignia Blu-ray players this year, in addition to Roku, XBox and others. Netflix is quickly becoming the most sought-after content partner for "over-the-top" device makers.

But as I've previously pointed out, Netflix's number 1 challenge with Watch Instantly is growing its content selection. Though it has a deal with Starz, it is largely boxed out of distributing recent hit movies via Watch Instantly by the premium channels HBO, Showtime and Epix. My rationale for the Microsoft acquisition is that Netflix will need far deeper pockets than it has on its own to crack open the Hollywood-premium channel ecosystem to gain access to prime movies. For its part, Microsoft, locked in a pitched battle with Google and Apple on numerous fronts, could gain advantage with a Netflix deal, positioning it to be the leader in the convergence era. Meanwhile, others like Amazon and YouTube continue to circle this space.

The two big countervailing forces for how premium video gets distributed in the future are TV Everywhere, which seeks to maintain the traditional, closed ecosystem, and the over-the-top consumer device-led approach, which seeks to open it up. It's hard not to see both Netflix and Microsoft playing a major role.

What do you think? Post a comment now.

I continue to be impressed with how the mobile video market is gaining traction. It seems like rarely a day goes by now where there isn't an announcement by a technology vendor, content provider or service provider related to mobile video. Though it's still well behind online video's adoption, all of the pieces continue to fall into place for mobile video's continued growth.

From a consumer usage standpoint, the iPhone has of course been the key driver. Whenever I'm with an iPhone owner, I'm struck by how deeply they've integrated video into their mobile experience. It's not just that they've downloaded TV shows and movies to watch on planes and so forth, but rather how natural it is for them to start playing a video and then pass their phone around so others can watch also. The iPhone has turbocharged the whole concept of shared, out-of-home video experiences.

And though the iPhone's 30 million estimated units sold represents a huge footprint of new mobile video users (in turn generating a large ecosystem of app developers), from a device standpoint, new entrants are poised to grow the market even further. Devices powered by the Android mobile operating system are continuing to come to market, with the most recent, high-profile example being Motorola's Droid, offered by Verizon Wireless. Verizon is putting a huge marketing push behind the Droid, contributing to a growing sense of awareness by consumers of the appeal of smartphones and their video capabilities in particular. Not surprisingly given its Google parentage, YouTube has also weighed in on the benefits of Android in allowing easier uploading at higher video quality.

In addition the iPhone and Android, among business users, Blackberry continues to dominate and internationally, Nokia has the largest smartphone position. This all suggests there will be vigorous competition among these 4 platforms, leading to lots consumer-facing promotion and rapid innovation. In a recent AdAge piece, IDC estimated that 6% of U.S. cell phone users, or 18 million people, will watch video on their cell phones this year, rising to 27 million in 2013.

Content providers have taken notice of these dynamics and have been aggressively creating video-rich mobile apps, initially for the iPhone, but now also for Android, Nokia and Blackberry smartphones. In a recent conversation I had with Ujjal Kohli, CEO of Rhythm NewMedia, which specializes in "mobilizing and monetizing" broadcast and cable networks' TV shows, he explained how clients continue to bulk up their teams devoted solely to mobile video initiatives. An example of this is Warner Bros, which is among a number of film studios now pursuing mobile initiatives. In addition to building mobile video apps, Rhythm is also creating a mobile video ad network, like Transpera (which I last covered here). As mobile video usage surges, advertising will grow right alongside it. Mobile advertising in general received major validation earlier this week as Google acquired mobile video ad display network AdMob for $750 million.

With all this mobile video activity, technology providers are increasingly their attention to serving their content customers. Just yesterday, Kyte, a video platform company that focused early on mobile, announced that it has launched "application frameworks" for Android and Nokia, following on previous frameworks for iPhone and Blackberry. As Gannon Hall, Kyte's COO told me, its content customers have pushed Kyte for other platforms. Now with native support for all four platforms, Kyte's customers can quickly and cost-effectively adapt existing apps, incorporating full social and monetization functions. While Gannon believes Kyte has taken the lead among OVPs in offering mobile capabilities beyond just APIs, he envisions others ramping up as well. Some evidence of this is today's partnership announcement by VMIX and Qik, to integrate mobile live streaming into VMIX's platform. More will surely follow.

There are plenty of other examples of how the ecosystem supporting mobile video is being built out, such as Clearwire announcing this week $1.5 billion in additional capital raised for its 4G WiMax network, Verizon leading a group of venture investors in a $1.3 billion "LTE" 4G opportunity fund, Adobe releasing Flash Player 10.1 targeted for mobile devices, AT&T accelerating deployment of "HSPA 7.2" technology in 6 cities to boost 3G speeds and Akamai launching its "Akamai HD" network, which among other things supports HD video streaming to the iPhone. These and many other examples form the foundation for ever more robust mobile video experiences in the future.

One of my predictions for 2009 was that after many fits and starts, mobile video finally seemed poised to take off. Nearly 11 months into the year, I think we're seeing ample evidence of this happening. I expect only continued growth going forward.

What do you think? Post a comment now.

Last week's piece in Cable Digital News, "Comcast Forges Excalibur for IPTV" generated a number of emails to my inbox. Despite an oddly misleading title using the primarily telco-oriented term "IPTV," the substance of the article caught lots of people's attention. It explained that Comcast, America's largest cable operator, has set up a new division, "Comcast Converged Products" (CCP) and that Comcast "...would put all IP services, including video, into a common provisioning and management system."

VideoNuze readers who contacted me interpreted Excalibur as being the basis for a potential out-of-market, over-the-top (OTT) plan by Comcast. These folks were referencing a post I wrote in September, "How TV Everywhere Could Turn Cable Operators and Telcos Into Over-the-Top's Biggest Players," in which I asserted that the next phase of TV Everywhere - "TVE 2.0" as I called it - could well find incumbent service providers invading each others' geographical turf with an IP/broadband-only service. While this type of move would represent a major break from traditional industry norms, I suggested that it may be irresistible for growth reasons and inevitable for competitive reasons.

I talked to a Comcast spokesperson yesterday to learn more about Excalibur and to ferret out any indications that it could indeed be the basis for a Comcast OTT play. According to the spokesperson, Excalibur's mission is to "use IP to deliver cross-platform interactive services." The spokesperson noted that it would be a mistake to think of these as solely video-oriented. Comcast already uses IP technology extensively in its network and Excalibur is meant to find ways to "improve the consumer experience across platforms." One example cited was a feature like checking your voicemail from the Comcast.net portal.

When pressed for specifics on CCP deployments, new products or timelines, the spokesperson said there are no specific plans at this time. The spokesperson did confirm that Sam Schwartz (formerly the head of Comcast Interactive Capital) has been appointed president of CCP, but said the "core Excalibur team" is smaller than the 100 people that CDN reported. I referenced my recent OTT post and the spokesperson had no comment on my speculation Comcast would go out of footprint.

Admittedly that doesn't add a lot of new detail about Excalibur. From my perspective, I'm dubious that the company would reassign Schwartz to anything that wasn't highly strategic. While using IP to enhance the customer experience is worthwhile, Comcast has major competitive battles brewing that are critical to focus on. Yesterday's news that Apple is floating a $30 subscription offering is a reminder that the Steve Jobs lion will pounce at some point. Similarly, Netflix, which just reported superb Q3 results, broad usage of its streaming feature, an integration with PS3 (and a rumored one with the Wii) is looking more and more like a national cable competitor, leveraging myriad CE devices. Others to be mindful of include YouTube, Hulu and Amazon. These are of course in addition to fierce satellite and telco rivals.

Given all of this, Comcast's smartest move would in fact be to reassign its savviest tech-oriented executive, given him/her a large team and task him/her with ensuring the company's competitiveness in the face of new entrants. In particular, gaming how to compete with Apple should be near the top of the list. Apple has shown an uncanny ability to reinvent markets with its easy-to-use, ultracool devices. While gaining access to cable programming is far from a slam-dunk, Apple's ability to innovate is unmatched, potentially making it a totally new kind of cable competitor.

Last week, coming out of the CTAM Summit, I expressed concern that the cable industry was not fully recognizing online video as a bona fide new medium, which it needs to embrace and capitalize on. For now Excalibur's real agenda is murky; time will tell how aggressive it is.

What do you think? Post a comment now.

Yesterday's WSJ article about Disney's new DRM initiative, dubbed "Keychest" was another sign that in the digital era, Disney keeps walking to the beat of its own drummer. Combine Keychest with Disney CEO Bob Iger's repeated skepticism about TV Everywhere and the need for Disney to receive incremental payments for online distribution and it's not hard to conclude that Disney envisions retaining much more control over how its content is delivered and priced going forward. It's also not hard to conclude that Disney's largest individual shareholder Steve Jobs's influence is being felt in the company's decision-making.

The Keychest DRM initiative in particular shows a real streak of separatism by Disney given the critical mass that DECE (the Digital Entertainment Content Ecosystem) has gained. DECE counts among its members multiple studios (Sony, Warner Bros., NBCU, Lionsgate, Fox), technology providers (Microsoft, Intel, Dolby, Philips, HP, Cisco, etc.) and delivery outlets (Comcast, Best Buy). Granted, DECE hasn't shown a whole lot of progress yet, but that's pretty much to be expected when you have this many big players at the table. Still, even getting all these companies to join forces is a hopeful sign of inter-industry collaboration.

And as the WSJ article underscores, the need to introduce some form of standardized DRM for movies in particular is growing more urgent. DVD sales, the industry's cash cow for years, are off by 25% at certain studios, yet movie downloads don't yet come close to filling the gap. Downloading is not only still a new experience for many, but it introduces key limitations (lack of portability, non-ubiquitous playback and confusing usage rights) that are significant inhibitors for future growth. Let's face it, not a lot of people are going to invest in building downloaded movie libraries when it's difficult or impossible to do something basic like play a movie on 2 different TV sets in their home. Downloading's issues need to be solved quickly if it is going to take off.

Meanwhile, Disney's posture on TV Everywhere has created real questions about what the company's goals are in online content distribution. VideoNuze readers know that I've been bullish on TV Everywhere because it's a win for the 3 main constituencies - incumbent video providers (cable operators and telcos), cable TV networks and consumers. By forcefully advocating a plan to offer TV Everywhere as a value-add to existing subscribers, with no incremental fees, video providers laid the logical foundation for cable networks not to expect incremental distribution fees ("We're not charging anything extra, so you shouldn't expect to either.").

From my point of view, rationale cable network executives should be excited with the prospect of TV Everywhere, as it provides them an on-ramp to online distribution (which they've been shut out of to date, given the absence of a sound online business model and fearing a backlash from paying distributors if they offered their content for free streaming) while preserving their incumbent dual revenue-stream approach and expanding their advertising potential.

Nonetheless, Disney seems unsatisfied. CEO Iger continues to float the idea of incremental payments for online access, even suggesting it will launch its own subscription services. That could mean consumers face the prospect of paying twice for the same content, which is unrealistic even for ESPN's vaunted sports coverage. Disney has seen success with ESPN 360, its premium online service, but it offers distinct content (supplementary pro-sports coverage and niche sports coverage) from its flagship channels. And it should be noted that broadband ISPs pay for 360, not consumers directly.

I tend to believe we're seeing Steve Jobs's influence behind the scenes with both Keychest and Disney's posture on TV Everywhere. That's pure speculation on my part I'll admit. But "Think Different" is more than a slogan for Jobs and Apple. The company's ability to succeed by pursuing a non-conformist, innovative path (e.g. iPods, iTunes, iPhones, Macs, etc.) in the face of market norms is beyond dispute. Emboldened by Apple's success and understanding the strength of Disney's franchises as an insider suggests Jobs would encourage Disney not to be constrained by nascent industry-wide initiatives. At a minimum Apple provides Disney with a pretty compelling case study of how to succeed by zigging when others are zagging.

No question, Disney has incredible brands, and is probably in the best position among major content providers to influence how things will unfold in the digital era. And its investment in Hulu shows it is willing (albeit belatedly), to align with joint industry initiatives. Still, its Keychest project and resistance to TV Everywhere raise the possibility that in pursuing its own path it could not only miss out on or delay benefiting from the efforts of others in the industry, but could also be over-reaching with the result being consumer confusion and discontent. Disney holds strong cards, but it needs to be careful how it plays them.

What do you think? Post a comment now.

Following are 4 news items worth noting from the week of Sept. 7th:

1. Hulu's boss says it needs to charge for content - Bloomberg ran a story this week quoting Chase Carey, deputy chairman of News Corp (Fox's owner, and therefore a part-owner of Hulu) as saying at a BofA investor conference, "Ad-supported only is going to be a tough place in a fractured world....You want a mix of pay and free."

VideoNuze readers know that while I've admired Hulu's user experience from the start, I've long been critical of its thin ad model, which falls well short of generating revenue/program/viewer parity with traditional on-air program delivery. That lack of parity has caused Hulu's owners to cordon off access to Hulu on TVs for most viewers. But the networks' fear of cannibalizing their own P&Ls only frustrates loyal Hulu users, who neither understand nor care about such legacy concerns. All of this and more led me months ago to conclude a subscription offering is inevitable from Hulu. The impending TV Everywhere launches, which further marginalize ad-only business models, and now Carey's public remarks, solidify my thinking. We'll soon see some type of Hulu subscription tier.

2. Move Networks notches a win with Cable and Wireless deal - Score one for Move Networks, which this week announced Cable and its first tier 1 telco customer. Move enables C&W to deliver an HD, linear multichannel video service, plus on-demand and broadband content to its broadband customers, all through existing DSL connections. Move's repositioning, which I wrote about recently, obviates telcos' need to invest billions in upgrading their networks to get into the IPTV business. Indeed, Roxanne Austin, Move's CEO told me yesterday that C&W has for years considered all the various options for getting into video, but has never pulled the trigger until now. The deal covers up to 7 million homes and interestingly, rather than getting a license fee, Move will be paid a share of subscriber revenue. Roxanne says another big deal will be announced shortly.

3. iPod Nano gets video, battle with Cisco's Flip escalates - As you likely know, Steve Jobs unveiled the new iPod Nano this week, which incorporates an SD video camera. Following the iPhone 3GS adding video recording capability, I think it's pretty clear that Apple has decided video is the next big thing for its devices. As I suggested recently, Apple's embrace is going to drive user-generated video - and YouTube, as the undisputed home for it - to a whole new level.

But one wonders what this all means for Cisco's recently-acquired Flip video camera, and others from Creative, Sony, Kodak, etc? Cisco in particular has a lot on the line since it just shelled out almost $600M for Flip's parent Pure Digital. Granted Apple's devices are still SD, while Flip now emphasizes HD, but still, getting video recording "for free" as Jobs put it at the launch is pretty compelling for consumers. Even if the Flip deal doesn't work out as planned, Cisco will still be selling a whole lot more routers to handle all of this newly-generated broadband video, so it's a winner either way.

4. AT&T Wireless adding 3G capacity - In last Friday's "4 Items" post, I noted a great story the NY Times ran showcasing the frustrations that AT&T Wireless customers are experiencing due to the millions of data-intensive iPhones clogging up the network. AT&T has been hearing complaints from all sides, and this week announced 3G network upgrades in 6 cities this year, with plans to cover 25 of the top 30 U.S. cities by the end of next year, and 90% of its current 3G footprint by the end of 2011. These upgrades can't come soon enough for iPhone users. Meanwhile the company's YouTube video, featuring "Seth the blogger guy" explaining how AT&T is addressing network issues itself came under attack, as AdAge reported. There's no pleasing everyone.

Enjoy the weekend!

Following are 4 news items worth noting from the week of August 31st:

1. Nielsen "Three Screen Report" shows no TV viewing erosion - I was intrigued by Nielsen's new data out this week that showed no erosion in TV viewership year over year. In Q2 '08 TV usage was 139 hours/mo. In Q2 '09 it actually ticked up a bit to 141 hours 3 minutes/mo. Nielsen shows an almost 50% increase in time spent watching video on the Internet, from 2 hours 12 minutes in Q2 '08 to 3 hours 11 minutes in Q2 '09 (it's worth noting that recently comScore pegged online video usage at a far higher level of 8.3 hours/mo raising the question of how to reconcile the two firms' methodologies).

I find it slightly amazing that we still aren't seeing any drop off in TV viewership. Are people really able to expand their media behavior to accommodate all this? Are they multi-tasking more? Is the data incorrect? Who knows. I for one believe that it's practically inevitable that TV viewership numbers are going to come down at some point. We'll see.

2. DivX acquires AnySource - Though relatively small at about $15M, this week's acquisition by DivX of AnySource Media is important and further proof of the jostling for position underway in the "broadband video-to-the-TV" convergence battle (see this week's "First Intel-Powered Convergence Device Being Unveiled in Europe" for more). I wrote about AnySource earlier this year, noting that its "Internet Video Navigator" looked like a content-friendly approach that would be highly beneficial to CE companies launching Internet-enabled TVs. I'm guessing that DivX will seek to license IVN to CE companies as part of a DivX bundle, moving AnySource away from its current ad-based model. With the IBC show starting late next week, I'm anticipating a number of convergence-oriented announcements.

3. iPhone usage swamps AT&T's wireless network - The NY Times carried a great story this week about the frustration some AT&T subscribers are experiencing these days, as data-centric iPhone usage crushes AT&T's network (video is no doubt the biggest culprit). This was entirely predictable and now AT&T is scrambling to upgrade its network to keep up with demand. But with upgrades not planned to be completed until next year, further pain can be expected. I've been enthusiastic about both live and on-demand video applications on the iPhone (and other smartphones as well), but I'm sobered by the reality that these mobile video apps will be for naught if the underlying networks can't handle them.

4. Another great Netflix streaming experience for me, this time in Quechee VT courtesy of Verizon Wireless - Speaking of taxing the network, I was a prime offender of Verizon's wireless network last weekend. While in Quechee, VT (a pretty remote town about 130 miles from Boston) for a friend's wedding, I tethered my Blackberry during downtime and streamed "The Shawshank Redemption" (the best movie ever made) to my PC using Netflix's Watch Instantly. I'm happy to report that it came through without a single hiccup. Beautiful full-screen video quality, audio and video in synch, and totally responsive fast-forwarding and rewinding. I've been very bullish on Netflix's Watch Instantly, and this experience made me even more so.

Per the AT&T issue above, it's quite possible that occupants of neighboring rooms in the inn who were trying to make calls on their Verizon phones while I was watching weren't able to do so. But hey, that was their problem, not mine!

Enjoy the weekend (especially if you're in the U.S. and have Monday off too)!

VideoNuze readers will recall that back in Dec '08, my 2nd prediction for 2009 was that mobile video was finally going to take off. Among the drivers I identified, the main one was clearly the massive, and growing, popularity of the iPhone. But despite all of its gee-whiz capabilities, the iPhone 3G, which was then the latest one on the market, and was running the iPhone OS 2.0, still wasn't really optimized for video.

Flash forward to June '09 and the release of the iPhone OS 3.0, which is downloadable to iPhone 3G, and pre-installed on the iPhone 3GS, and we can see that Apple now has the architecture in place to fuel a massive takeoff of mobile video streaming.

Following is a deep dive explanation of why that is, based on a detailed conversation I had John Bishop, SVP of Business Development & Strategy at Inlet Technologies, an encoding company that's involved with recent iPhone video apps, an excellent new white paper from Akamai, "HTTP Streaming for iPhone Best Practices" and other research I conducted. (For those that want to get further into the weeds, note also that Akamai, Inlet and Turner Sports have an upcoming webinar on this topic.) If you're a video provider looking to capitalize on mobile video distribution, and the iPhone in particular, all of this is crucial to understand.

The most important video-related elements Apple has released are support for HTTP streaming, a new protocol for adaptive bit rate (ABR) streaming and a new iPhone media player that can handle both. In addition, a significant increase in battery life (especially important to retain phone functionality) is enabled by a hardware-based video decoder. And the iPhone supports "HSDPA," an enhanced 3G protocol AT&T is rolling out, which provides up to 7.2 megabit per second delivery, guaranteeing outstanding video quality. All of these elements, when combined with the iPhone's open (well, relatively at least) App Store and web browsing, offer video providers a breakthrough mobile video environment.

Apple's new ABR streaming protocol means a far superior user experience that obviates disruptive buffering and users having to make confusing choices like "hi res" or "low res." ABR streaming was pioneered by Move Networks. Microsoft and Adobe now each have their own ABR streaming approaches.

Importantly, because the iPhone supports H.264, video providers can use existing encoding vendors like Inlet to simply create multiple iPhone-compatible video files encoded at different bit rates that are then delivered to their CDN for iPhone distribution. No intermediary "encapsulation" step needs to be taken to support Flash for example. As the iPhone's media player auto-detects available mobile bandwidth, it continuously re-selects the optimal video file to stream. Inlet makes a key contribution in this process by doing "key frame alignment" - essentially allowing the new file being streamed to start at the same frame where the old file left off. Pretty cool stuff.

From the content provider's standpoint, iPhone-directed video can either be embedded in a web page, or as part of an app, for distribution in the iPhone's gigantic app store. The open web approach of course means it's available for all to see. On the other hand, the app route means greater control of the brand, user experience and business model (e.g. free, paid, authenticated, etc.), though it will involve time and money is needed for development.

This whole paradigm is still so new that we've only begun seeing the first iPhone video apps come to market. Examples include the updated version of MLB.com's At Bat app, the live Aug. 7th concert from Underworld, the PGA Championship app from Turner Sports and the PGA, and yesterday, the launch of the HSN "shop app." I can relate to the value of the PGA app - I was in a car on my way back to Boston on Sunday afternoon, furiously - and unsuccessfully - trying to follow the Yang-Woods showdown shot-by-shot on my Blackberry (I'm a Verizon sub, so no iPhone for me, grrrr....). If I'd had an iPhone, would I have spontaneously paid $1.99 for the PGA app so I could watch the action? In a heartbeat.

What do you think? Post a comment now.

Following are 4 news items worth noting from the week of August 10th:

Discovery Channel signs onto Comcast On Demand Online trial - Comcast added yet another cable programmer this week to the roster of those participating in its TV Everywhere trial. Discovery will make available episodes of "Man vs. Wild," "Swords," "Stormchasers" and "Verminators" though with some delayed windows that take a little edge off their appeal. Comcast has made a ton of progress corralling networks for its trial, but 4 of the big 5 cable network owners - Disney, Fox, NBCU and Viacom - remain holdouts. No coincidence that the first 3 are Hulu's owners.

Swarmcast powers MLB.TV on Roku, introduces "Autobahn Live for CE" - Following on Roku's announcement this week that it is offering MLB.TV, Swarmcast announced it was powering the service through a new offering called "Autobahn Live for CE." Swarmcast's COO Chad Tippin explained to me that integrating with CE devices that drive broadband/TV convergence is a key company goal. Chad is confident that Swarmcast's high-quality, scalable HTTP streaming service will work on these various CE devices, and that as the number of them deployed swells, a new "long tail of live sports" will flourish. Live sports and events (e.g. concerts) could be a significant contributor to device adoption. For example, picture getting a coupon for $50 off the purchase of a Roku when you buy a pay-per-view of a streaming blockbuster concert.

Babelgum grows to nearly 1.7 million unique visitors in July, 2009 - I heard from Michael Rosen, EVP and Chief Revenue Officer at Babelgum this week, with news that the site has grown to nearly 1.7 million unique visitors in July (comScore), following its U.S. launch in April. I profiled Babelgum back in April and was cautiously optimistic about its approach to curate high-quality, independently-produced video into 5 channels (music, film, comedy, Our Earth and Metropolis). The site is fully ad-supported. Babelgum's growth comes on top of a slew of made-for-broadband video initiatives I detailed recently. The NY Times also had a great story this week on how independent filmmakers are taking distribution into their own hands. Despite the recession, this corner of the broadband market seems to be hanging in there.

Zune HD coming Sept 15th - Microsoft at last announced this week that the Zune HD digital media player will be in retail on Sept 15th, with pre-orders now being accepted. Zune HD introduces a touch-screen interface, 720p video playback, HD radio and other goodies. It is sure to raise the visibility of high-quality portable video another notch. But I find myself wondering: as the iPhone and other smartphones incorporate video playback (and recording) into one device, how large is the market for standalone high-end media players like Zune? Related, the iPhone's risk of cannibalizing the iPod has become a hot topic recently. Things to ponder: will users want to carry 2 devices? Or might they appreciate the ability to drain their battery watching video without risking the loss of their cell phone? Lots of different things in play.