Thursday, February 25, 2010, 9:41 AM ET|Posted by Will Richmond
While in LA this week, I caught up with Phil Wiser, Sezmi's president and co-founder and got another good look at the Sezmi service, which just officially launched in the entire LA market with Best Buy. I've been covering Sezmi for over 3 years, and from a technical and product standpoint, I continue to be impressed with what it has accomplished, especially for a 1.0 launch. Out-of-the box set up is very straightforward and a series of intuitive menus quickly creates a personalized user profile complete with recommended shows based on your interests and selections from linear and on-demand channels.
Sezmi gained my attention early on because unlike other broadband-only devices (e.g. Roku, Vudu, ZillionTV, AppleTV, gaming consoles, etc.), Sezmi's goal has always been to become a full replacement for existing multichannel video programming distributors ("MVPDs"). That "boil the ocean" strategy has required it to develop its own hybrid broadcast/broadband content delivery system, sign up local broadcasters for access to their bandwidth, ink carriage deals with cable networks and design the user experience from scratch, among other things. Having done much of that work (with a key exception being to still get the remaining cable channels from Disney/ESPN, Fox, Scripps and A&E into the line-up), Sezmi's next challenge is to actually market the service and add subscribers cost-effectively. This could well prove to be Sezmi's biggest challenge.
The market for multichannel video subscriptions has never been more competitive than it is today. Deep-pocketed cable operators, satellite operators and telcos (and in some places 3rd party "overbuilders" like RCN) are beating the hell out of each other in many U.S. geographies. For example, here in the Boston area we're bombarded daily with ads on radio, in newspapers, in direct mail, through door-hangers and other means, to switch providers. While there are a lot of noisy promotional offers, there are plenty of product and technology-based pitches as well - more HD channels, faster broadband speeds, better VOD and so on. The "triple play" bundle of video, voice and data is a significant marketing lever. I don't know what the marketing cost per acquired customer is for Comcast or Verizon these days, but I have no doubt it has never been higher.
This is battleground that Sezmi is now entering after nearly four years of development. Many people are skeptical about Sezmi's odds of success (read TDG president Michael Greeson's well-done piece from last week for a rundown of the issues), at least as Sezmi is currently configured. Some of these concerns are very valid, in particular Sezmi's $299 upfront equipment fee (which is pretty much unique in the industry), its currently incomplete channel lineup (note also that HBO, Showtime and Starz are also not available) and the $20/mo rate which is marginally better than alternatives (but is likely to increase anyway as more channels and especially expensive ones like ESPN are added).
No question, Sezmi faces a steep marketing challenge. Still, I believe there are reasons for optimism. First, as Sezmi has said many times, it is not a box company and Best Buy isn't its only route to market. It plans deals with telco and ISP partners who will not only bundle its pricing but also erase the upfront charge through a rental model. The rental could be very aggressive depending on the partner's goals, opening up more pricing competitiveness for Sezmi. Second, Sezmi's user interface and certain product features are very compelling differentiators. Granted, incumbent MVPDs are not standing still (see Cablevision's "Media Relay" announcement just yesterday), but the fact that Sezmi owns its whole system from end to end gives it more control and flexibility to enhance the product (for example in VOD it is not relying on traditional vendors).
Lastly, and I'll admit this is where things get fuzzy, but I do think there's a segment of existing MVPD customers who hunger for something new, better and lower cost than is currently available. I've made the analogy for Sezmi to what JetBlue has done in the airline industry and I think that still holds. Depending on how distinctive Sezmi's positioning and messaging is, I think it could really resonate with younger, urban, tech-savvy users. One Sezmi feature alone - access to all YouTube videos - is a totally new value proposition. Phil and I quickly searched YouTube yesterday for "Alec Baldwin Hulu Super Bowl Ad" and in seconds there it was. Can any other MVPD offer that today?
There are plenty of reasons to discount Sezmi's chances of success, but I think that's premature thinking, especially given how dynamic the video landscape is today. But even if Sezmi doesn't thread the needle and fully surmount the marketing challenges ahead, the company still has a lot of value in its technology and products. If Vudu fetched a reported $100 million from Wal-Mart, and Sling got $380 million from DISH as announced a couple years ago, then there should be a palatable financial exit in store for Sezmi as well, even with $75 million or so invested to date. Of course its investors and executives are hoping for far more than just a "palatable" final chapter. The real test of what's in store for Sezmi is just now beginning.
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