Democracy in Media

Thoughts on the TiVo Announcement

I think this is a great step forward for TiVo and one that I have been yelling that TiVo should focus on for some time. However, I think it doesn’t go nearly far enough. TiVo wants to set up a new gated community of video that they approve and that will download to “their” box. We approached TiVo about the ability to download any video to a customers TiVo box and their response was that they would need editorial control. They would need to be able to pre-filter any content that went to that customer’s TiVo box. This is just an untenable position. 

So, as with remote scheduling, we’re building CozmoTV’s TiVo services without TiVo’s participation or assistance. It might not thrill them, but they’ll understand the value once we’re through. We’re going to drag them kicking and screaming into the future…:-)

TiVo Download Service and the Future of Internet TV

TiVo recently announced a video download service that will enable third-party video to be downloaded directly to a TiVo unit via their broadband Internet connection (well, not directly, but close enough). Most people have been focused on the “TiVoflix” potential of this development, but the potential is so much greater than a slow release of independent DVD titles via TiVo’s device. This service is a clear indication of what is possible with a hybrid approach to video delivery and the primary reason why TiVo could still generate enormous earnings (if they can continue to focus on important development efforts like this).

The reality today is that we as consumers are witnessing the relatively rapid birth of Internet TV. But this birth is merely a logical progression of video content delivery from a closed network to an open network. The problem with this transition is that the speed is hampered by lots of things, ranging from copyright concerns, to profitability in existing distribution channels, to consumer habits, to network topology and bandwidth constraints. None of these issues will prevent video from making the complete leap from cable/satellite/DVD delivery to Internet delivery, but they will all play a significant role in the pace of this transition.

So, how do we get from here to there? Most approaches appear to just abandon existing distribution and focus on Internet delivery only. The problem is that a majority of the video content that people want to watch is still being delivered through the old network. You go to your TV to watch “The Sopranos” and your computer to watch “Rocketboom.” This is fine, but there is no reason why these two experiences cannot be more closely integrated. I would still prefer to go to one place and watch both types of video. This is what TiVo’s download service enables. TiVo provides a necessary hardware bridge between the old method of content delivery and the new.

This is also one of the reasons why I have been screaming that TiVo’s relationship with Comcast is actually such a negative move. Comcast has a vested interest in delaying the transition to Internet video delivery as long as possible. They make much more money delivering this video via cable than via cable Internet (not to mention vastly superior negotiating power with content owners). But a successful transition to Internet video delivery would make TiVo a much more valuable stop in the video distribution supply chain (potentially even more powerful than Comcast). TiVo could start to resemble Apple more than some tiny licensor of technology. Comcast is not going to want to see this happen.

I’ll talk a bit more about the implications to TiVo’s business model in a future post (and the role CozmoTV plays in this model). But I will say that the advent of devices that provide both cable/satellite and Internet video access are very powerful platforms that will speed the revolution that is Internet TV. These advancements will never emanate from Motorola, Scientific Atlanta, or Dish specifically because these technologies erode the power of their customers. So keep cheering for TiVo to survive lest we be stuck with Microsoft as our only option for integrated cable/satellite and internet video. We’ve seen how that movie ends…

Tags | tivo , internettv , comcast , cozmotv

Why Comcast + TiVo is Actually Bad for TiVo (Sorry)

Well, everyone seems in a bit of a tizzy over the Comcast announcement. On the surface, this certainly looks promising for TiVo. Access to lots of customers. The drowning of those pesky “TiVo Deathwatch” people in an ocean of good PR.  From what I’ve been reading, everyone’s pretty much calling this the saving grace of an otherwise doomed company. Unfortunately, this strikes me as more of a coup de grace. It actually reminds me of another “smart move;” Apple’s ill-fated announcement that it was going to begin to license its operating system to third party vendors. Seemed like a good idea at the time and a lot of people said “Phew, finally. Apple did what they should have done a long time ago. Imitated Microsoft.” Well, it turns out that this wasn’t such a brilliant move and the majority view was way off base.

Anyway, let me explain why this deal will eventually suck for TiVo and its customers… TiVo has had an internal power struggle between two camps for some time. One camp, led by Ramsay, felt that TiVo needed to focus on generating substantial (i.e. profitable) monthly fees on TiVo services, while (most importantly) retaining control over technology direction (i.e. ability to innovate). The second camp has been all about driving consumer growth through carrier channels (as it turns out, at almost any cost.) It appears that this internal struggle has run its course and the latter group has prevailed. I believe that this is a bad thing for TiVo’s customers, and therefore a bad thing for TiVo in the final analysis.

Here’s the problem, TiVo is going to start to resemble a two-headed monster (and not in the positive sense of that term)…

1. Head 1: Right now, TiVo gets substantial subscriber growth from the sale of DirecTiVo devices. These sales ultimately add very little to the bottom line. In fact, I would say that at $1/month, TiVo has been right to downplay the value of this revenue and this relationship. As with DirecTV, it appears that the Comcast deal should add substantial additional subscriber growth, although also at a price point less than $1. (I would anticipate that the final number represented the amount at which TiVo felt that they actually broke even on the deal. They have a good idea what that number is now having dealt at length with DirecTV.) Now, since they don’t make any money on the hardware (certainly in this case since they’ll be integrating with Moto boxes) and they won’t make any money on the service, this head is all about maximizing the leverage that a large customer base will afford with advertisers. For this head, advertisers are king, not customers.

2. Head 2: While TiVo does not generate substantial growth from the sale of devices directly to consumers, these sales are their bread and butter. These sales are where TiVo generates all of its margin-rich revenue. While the cost of marketing has escalated, TiVo can actually make money on their current subscription fees if they decided to ramp down marketing expenditures considerably. As I believe Ramsay said in an IR call recently, “FY 2006 is all about $12.95 per month” (Well, not quite Mike…) Anyway, the point is that for this head, the goal is all about maximizing the value of the product for consumers to ensure people keep buying boxes, paying a monthly fee for service, and generally talking positively about the TiVo service. For this head, customers are king, not advertisers.

I frankly think this is a bad position in which to operate a cohesive strategy moving forward. I mean what are you, a company that produces great products for consumers, or a product that attempts to aggregate eyeballs for advertisers? You can’t be both (at least not very successfully.) Some constituent is going to suffer at some point, maybe not tomorrow or even this year, but soon. As time progresses, TiVo will be forced to focus more and more attention on pleasing folks like Comcast until eventually, their priorities change completely. As a result, I believe that the new priority list for TiVo is going to evolve into something more like this:

1. What’s important to Carriers,

2. What’s important to Advertisers,

3. What’s Important to Consumers.  

As a consumer, I don’t like this priority list. But either way, they need to resolve this issue or risk disappointing all their constituents (as TiVoToGo clearly demonstrated.)

Bottom line. In my opinion, this move was all about satisfying “The Street” and placating a jittery board who had lost faith in TiVos current trajectory. The board of TiVo got freaked out about missing the boat on this whole PVR thing (TiVo “Deathwatches” springing up all over probably didn’t help) and struck a deal that, in my opinion, shortchanged the long-term advantages that TiVo had for the near-term benefit of minimizing the risk of outright failure. I think this was a mistake.

Comcast was in the process of getting their PVR act together, agreed. TiVo had issues around their business model, agreed. But Moto’s PVR was always going to be fundamentally limited due their focus on the needs of their primary constituent (Comcast) and their secondary constituent (Advertisers). Moto wasn’t (and isn’t) going to drive for the introduction of a new, more open architecture that allowed users to develop applications for their devices. Moto is not going to open their device up so that consumers can choose whether they get their content from the “closed” network of their cable company, or their “open” broadband Internet connection. Moto doesn’t have the incentive to do so (as a matter of fact, it has the direct incentive not to.) TiVo has the opportunity to move beyond the first phase of this technological evolution (pausing and rewinding live TV – whoopty f*cking do!) and participate in the most important second phase of this transition, the movement to, as Jeremy Allaire puts it, the “Internet of Video.” This is the giant killer opportunity of this whole adventure, and I think TiVo is trading it in, for large part, because they got confused somewhere along the way about who they were building products for. (TiVo says home networking, broadband, and multimedia features will stay. We’ll see what features Comcast actually allows in the device. My guess, they’ll be a “little” limited.)

In my opinion, this is actually a sad day for TiVo and its customers. They will certainly stick around as a result of this deal, but I think that three or four years down the road, when all is said and done, people will remember this day as the day in which TiVo traded its uncertain but arguably bright future for a future that was more certain, but certainly and substantially more diminished.

I hope I’m wrong.

Why Apple Won't Buy TiVo

I may be swimming against the tide here, but the rumors surrounding the potential acquisition of TiVo by Apple has really got the blog mill running overtime. While everyone likes the idea of Apple buying TiVo (hey, they’re both swell companies and TiVo really deserves a nice place to retire for the long twilight of its life), I still haven’t heard a single compelling argument as to why Apple would be better off after such a transaction. I think that’s because they’re isn’t any, or at least if there is, it’s a reason that’s not obvious. (I can, however, think of plenty of reasons why it would make some TiVo customers fall in love all over again.) 

So here are a few reasons why people seem to think it might happen, and why none of these reasons make any sense… 

1. TiVo has lots of loyal customers. Yes, but these happy customers are not really profitable at this point (as a matter of fact, a lot actually appear to be ready to start finding those nails for the coffin) and TiVo's existing model of subsidizing hardware with service fees isn't Apple's model (Apple likes to make money on their hardware, software, and services). Apple would want to roll out their own devices at the next upgrade (Jobs seems to like controlling the whole user experience). How many of those 3 million customers would convert?  DirecTV's consumers probably wouldn't because News wants to push NDS anyway (plus DirecTV TiVos are going to be very obsolete very soon). In the final analysis, TiVo has customers, but they don't really convert very smoothly, no matter how passionate they are. The main customer growth would come after the acquisition and Apple doesn’t need TiVo to show it how to acquire loyal customers. 

2. TiVo has great engineers. Yep, they do. And the Strangeberry acquisition did a lot for the brain trust over at TiVo. No doubt they have an excellent engineering team that will continue to try to innovate in the face of a repressive market environment. But you know what; Apple has some pretty crack developers as well. Last I checked, they had a lot more of them and could probably even hire a few more for a lot less than $388MM. 

3. TiVo has a nice UI. Well yes, but Apple is probably one of the few companies that could outdo them. Apple’s whole core competency is making stuff like TiVo really easy to use. As good as TiVo's UI is, Apple would replace it with something better, Mr. Jobs would have it no other way. 

4. TiVo is a great brand. Again, yes, it is a great brand, but Apple is better. Apple would subsume the brand name relatively quickly and replace it with some thing more Apple-like (maybe iTV or something). Another unfortunate factor is that with all this TiVo death watch stuff going on, TiVo just might find itself “Munsoned” (oblique ref. to Kingpin) That won’t be no wagon to hitch Apple’s rocket ship to. 

5. TiVo has IP. This is the one place TiVo has some potential value, but I don’t think Apple is the kind of company to buy a bunch of patents to go sue everyone else. They could use it defensively once they were in the market, but Apple is an innovative company, not a SCO. 

6. TiVo has domain expertise. Well, so does Apple. A PVR is not a difficult thing to build. Integrating with the cable/satellite providers is the bitch and Apple knows it. Jobs has said this is the primary reason why he would avoid the market, he doesn’t want to deal with those guys. Nothing has changed since he made those statements; in fact the situation has gotten worse. Apple is not in the business of selling      through channels, especially pain-in-the-ass channels like the cab/sat guys.

 Nope, Jobs will wait for the IP video market to mature a bit before entering the fray. If Apple decides to go after the TV market, Jobs will do it the way he has done it with everything else, with his own hardware and software through his own channels because he believes he can do it better than anyone else. And frankly, coming off the iPod success, he’s got a right to feel that way.

 Don’t get me wrong, I love TiVo and believe strongly that it can survive and even thrive in this market if it plays its cards right. But, who knows, maybe Jobs looks at TiVo and remembers back to a time when another company seemed similarly doomed and hears a little voice telling him, “It’s time to do what others have done for you, Steve, it’s time to give a little back.” Stranger things have happened.

Why Save TiVo?

Well, I’ve been getting more involved in this whole “How to Save TiVo” discussion over the past few weeks. I’m somewhat new to this whole media blog community (other than being a casual observer in the past) and I think I’ve been yelling from the stands long enough. I’ve been responding to postings at BuzzMachine, PVRBlog, A VC, Om Malik, The Long Tail, etc., but I think it’s time I used my own forum to better encapsulate my argument or risk sounding shrill in others. (This blog is about 10 days old, so please excuse the dust while I settle in.)

Looking at my postings from the past few days, I’m afraid that I sound a bit like some sort of blindly faithful “TiVotee,” refusing to accept the dismal position TiVo finds itself in because, well, I just love the product that much. But my reasons are a bit more complex than that, and while I do think TiVo is a good product, I’m under no delusions about its relative merit or the weaknesses in its business model. TiVo is indeed in a precarious situation, one in which mere rumors of its demise could be enough to actually kill it. This is not where any company would hope to be at this critical stage in its life cycle. By my feelings about TiVo are more related to my desire to see TiVo fill a role that I think is desperately needed in this market.

Due to the structure of this content distribution market, economies of scale and the necessity to absorb enormous financial risk have consolidated power in the hands of a small number of corporations.  Now, before you hang up the phone, I’m an avid free marketer and believe that economic systems do find equilibrium, but I also believe that individual markets at their peak (or nadir) tend to distort market forces and need to be disrupted from their current trajectory. (It’s why we have laws against monopolies). I believe that the content distribution market has been in such a state for some time and the conditions necessary to disrupt this market’s trajectory are finally emerging.

 I’ll admit to being a bit impatient about this process. But this system, unlike most systems in our economy, is unique in that it plays such an important role in shaping the prism through which we all look at the world. Companies that have reached domination in any mature market will fight like hell to thwart attempts the change market fundamentals in such a way as to erode their strategic advantages. This market is somewhat unique in that those who normally drive such change (the consumer) are so heavily influenced in their perception of this market by the very same companies that have so much to protect. (The fact that news organizations are being lumped into the entertainment divisions of these companies makes me no less squeamish.)

 Anyway, back to the point. Why Save TiVo. TiVo is a largely independent company in a sea of more “effected” players. (I say “more” because TiVo is owned in part by these same incumbents and has also been forced to modify its behavior in the past to mollify these shareholders and ensure survival.) The problem with ceding this emerging PVR market entirely to Motorola, Scientific Atlanta, et al. is that the set-top box is one of the more critical links in this media supply chain. Wrestle the consumer’s device from the incumbents and you can begin to drive change in the whole market. Unfortunately, Moto and SA are poor substitutes for TiVo in this capacity as they are so beholden to their distribution partners. It is amazing to me that so many people are so willing to let TiVo die knowing what waits in the wings. I mean, really, what revolutionary set-top box did Moto or SA release before TiVo and Replay emerged? Without someone pushing the envelope, Moto and SA will ease back into providing solutions to the industry’s problems, not the consumer’s.

 TiVo serves an important position in the market, in much the same way Apple has served a role in the PC market over the past two decades. Like Apple, TiVo can focus much more attention on what the consumer wants than any other viable competitor. TiVo can open this market up to consumers, in a way that no other competitor is willing or able, and help empower consumers to begin exerting more control over what is produced and delivered to their homes, cars, cell phones, etc... ( no panacea, but a start) And while TiVo is a poor choice to shoulder this responsibility in an ideal world, the world isn’t perfect and we’ll have to make due with what we’ve got.  If TiVo does die, I’m confident that something else will eventually emerge in its place, but again, I’m not that patient.

How to Save TiVo

The discussion wouldn’t be complete without an explanation of how I think TiVo could pull this off. There have been a lot of conversations about how Apple should buy TiVo (never going to happen) or that TiVo should be giving away more units (not viable with their current balance sheet or access to public equity) or numerous other approaches to ensuring their survival. I don’t claim to know better than anyone else, but I think TiVo is already beginning to execute the right strategy; it just may be a little late in the process to do so. Some steps…

1) TiVo needs to fix this PR mess that’s gathering steam. The one thing that Ramsay appears to do really poorly is communicate with the public. There are real perception problems out there (hell, even www.tivocommunity.com is beginning to sound the death knell) and TiVo needs a full court press to stem this tide or it will be all over, solid subscriber growth or not. TiVo needs to stop spending gobs of cash on esoteric print advertising and start spending more time repositioning itself and communicating this new position to the public through more efficient channels like PR and Web advertising. Merely getting the word out that TiVo exists and is cool will not prevent any buyer from hearing that TiVo is about to die and waiting for their Comcast guy instead. I think Jeff Jarvis was closest to the right message when he said that TiVo should “market (itself) as the alternative to cable that does cable and the internet and more, as tomorrow's everything, anywhere, anytime, any way ticket to media freedom.” Needs some work, but nonetheless, it’s moving in the right direction.

2) TiVo needs to continue to support cable and satellite, for now. A lot of focus has been paid to retrenching and shifting completely away from cable and satellite to IP delivered content exclusively. This is a nice idea and it would cure a lot of headaches, but there is simply not enough compelling content available via IP... yet. TiVo’s subscriber growth would not only stall, their existing subscribers would flee en masse. TiVo would never survive the canyon of losses that exist between today and the vibrant IP content market of the future. Instead, TiVo must remain distributor agnostic and work aggressively to make set-top/TiVo integration more robust. I know this is easier said than done, and technologies like CableCARD are far from perfect, but unfortunately access to that content is still too valuable to abandon.

3) TiVo should stop focusing on structuring cable and satellite distribution deals (a bit like slamming your head against the wall repeatedly at this point). Thoughts that a deal might still happen keep investors on the hook, but it just isn’t reality. Structuring deals with telcos would make more sense although most of the RBOCs would carry similar baggage to the cab/sat guys (especially in terms of TiVo deciding their technology direction and earning a few bucks). But smaller independent regional providers and emerging wireless broadband providers could be a really interesting play and there will be a lot of those guys out there soon. They could really use a margin-rich service like TV to deliver over their networks and TiVo should still have a strong TV brand when these services start to go live.

4) TiVo must continue to open their device up to outside developers. While this is a difficult thing for TiVo to do (it kills a lot of the control TiVo might exercise in the future), it is also next to impossible for their competitors to do (with the possible exception of Microsoft, but they have their own issues). I’ve seen some interesting applications already and the SDK is incomplete and has only been out for a couple of months. Give that community more control and more time to enrich the platform and TiVo should find itself with a value proposition that accelerates well past what Moto and SA will be able to deliver anytime in the near future.

5) TiVo must focus on providing access to IP content as quickly as possible. By opening the device up to any IP content (and when I say “any” I mean substance, not format), TiVo again distances itself from what Moto and SA will be willing and able to do. By structuring deals with content aggregators, or even content owners themselves (although this is messy and time consuming), TiVo can begin to better justify the consumer’s investment in hardware and services. People spend money on devices and services if they provide them simple access to content (they do so today for iPods, satellite radios, satellite TVs and DVD players with Netflix and at much larger dollar amounts). However, people don’t like paying a service fee for something they don’t really see as a service (like Programming Guide data), especially when they get that stuff for “free” elsewhere. TiVo should bundle a bunch of IP content with their service (and simple access to more content) and gradually increase their fees over time by providing packages of content (much the same way as cab/sat does today). Then they can subsidize their own devices while still providing decentralized access to an exploding content market.

6) TiVo must get their s*it together with HD. Their first foray was a disaster. Most of the comments I read about the advantage of Moto’s Comcast box these days focus as much attention on the HD support as the cost differential. I know the hardware is a bit more expensive and they don’t have the economies of scale to deal effectively with that right now, but if they can’t get a decent box out at a decent price, even at a loss, this will kill them as fast as anything else. On this one, unfortunately, I don’t have an answer as I don’t have enough information on their hardware situation to do it justice.  But it’s a problem that needs attention, badly.

 There are some other details, but these are the main points. And again, I’m not sure this stuff is all that different from what TiVo is trying to do right now. But I sure hope they pull it off, this market needs a TiVo and I’m not sure who will take their place if they falter.