Archive for February, 2009

February 27, 2009

Hulu, Boxee and the disruptive cable TV model

In October 08, an up and coming internet TV start-up (Boxee) announced proudly that they now supported popular online video aggregation sites like Hulu, CBS and Comedy central. This was great news for all those looking to break the shackles of cable TV to watch their favorite shows streamed on demand via the internet to their TVs. (Though Boxee was not the only one supporting Hulu they brought public awareness to this concept)

Hulu, an online video website which hosts full length TV shows from many cable networks including Fox, NBC & Viacom has been growing in popularity since its launch. Hulu moved up from being 20th position amongst online video sites when it launched in March ‘08, to being 4th in Feb ’09 behind YouTube, Google video and MySpace video.

Just when things were looking exciting for consumers owing to a disruptive combination of a client and a service that brought TV on demand to the tube for free, Hulu on Feb 18th abruptly announced that it asked Boxee to pull down its Hulu support.

Why on earth would they want to do something like this, just when they were ramping up viewership?

To understand this, one has to look at the cable TV business model in the US. The book “Media Selling: by Charles Warner, Joseph Buchman” has a lot of insights into this and I reference content from it in the following paragraphs.

In the 70’s cable networks (that acquired and produced programming) would provide it to its affiliates the cable systems, which would distribute it to subscribers. The cable networks would make money from advertising and compensate the cable systems for their distribution costs. For example ESPN would pay the cable systems about 5 cents per subscriber per month. This was considered a carriage fee. Soon, they realized that their expectations on advertising revenue were exaggerated and started accumulating losses. This was when the cable operators/systems were charging their customers $15 per month as subscription fees. Cable operators thus not only made money from cable networks but also from their subscribers without any cost to them for programming

In 1982, ESPN decided that they would turn the tables around and ask the cable systems/MSOs to pay ESPN 10 cents a month for every subscriber. After intense negotiations they settled on a 5c per month per subscriber fee that the cable operators would pay ESPN as carriage fee. This was a disruptive model. It turned out to be a win-win situation though as the additional revenue that cable networks received was pumped back into programming. This resulted in better programs which in turn could be used to increase subscription fees and add new subscribers as it was delivering a better quality product.

The cable business model these days is a little more complicated with different cable networks& systems working with different business models – must carry rule, carriage fees paid to cable systems, carriage fees paid by cable systems.

Suffice it to say that many cable networks such as Viacom, Disney, etc. that have their shows up on Hulu get carriage fees from the cable system operators. The problem is cable system operators are concerned that subscribers will turn off their subscription if they can get the same content for free streamed over the internet right to their TV sets. This of course is a legitimate concern but far from being threatening.

If stats are to be believed then the number of hours people watched TV has actually increased since the coming of on demand TV shows. According to Neilson’s Three screen report – “Average time watching TV, online video and mobile video all increased in the fourth quarter, showing a robust market for video content, and that online video has not yet proven to be a viable substitute for TV consumption, but rather an additive medium

The average American watched 151 hours of TV a month for the quarter, or roughly three hours per day whereas the average online video watcher takes in about three hours per month.

The ability of CDNs to scale delivery of HD content to millions of TV viewers simultaneously is also questionable. Consumers who have paid upwards of $1000 for their high definition 42” LCD screens will hardly be satisfied by the low resolution fare being pumped out by the likes of Hulu. Moreover real time sporting events will for the foreseeable future continue to be watched on the HD broadcast network.

That being said the networks are not taking any chances.

Hulu carries content from several networks and makes available an RSS feed so that other aggregators like Yahoo TV, MSN video etc. can make them available on PCs. If this is the case then it seems odd that they block only those devices that connect to a TV. What’s to stop me from buying a PC that connects to Hulu via a web browser and connecting the same to my PC? I can build a custom browser that makes the content watchable and usable on the TV.

Chatter in media circles is that cable systems are planning on building a Hulu themselves. They will let consumers enjoy the pleasures of TV on demand provided they are already subscribers to cable TV. Maybe this will be at an additional cost or maybe not. However it doesn’t seem like a practical solution as consumers have already been exposed to what can be and anything less will not be as appealing. Technology will find a way to beat the system.

In the meanwhile, owned by rival CBS has announced that it will offer selected shows to its international audience, which Hulu has been unable to do so far. Clearly this is a move trying to differentiate from Hulu. Are the big boys beginning to take the battle to a new turf?

There is no doubt that Hulu and a networked media adapter is a disruptive business model that is bound to shake up the broadcast industry in much the same way as Kazaa and P2P networks shook up the music industry. While the music industry has to some extent come to terms with reality and changed its business models (iTunes, DRM etc.) the broadcast industry’s journey of realization is only starting.

An interesting time, if you are tuned in to this saga…

February 6, 2009

The unseating of Tivo

The Myka TV Torrent Box

The Myka TV Torrent Box

Every once in a while from the world of tech pops a ground breaking device. The Slingbox, the iPod and the iPhone immediately come to mind. But before all of these came Tivo. Tivo identified a pain point with analog cable and fixed it with a cool UI, intuitive program guide and most importantly recording features that not only allowed customers to watch programs when they wanted but also smartly skipped the annoying commercials. Before long, Tivo enjoyed a cult status.

Late 2006 saw Google taking over YouTube for $1.65B. While it didn’t seem obvious to some of us then, in hindsight it does seem like a fantastic move. Today more that 10% of all internet traffic is attributed to YouTube. Last year saw the birth of Hulu which stood out from YouTube by breaking away from the popular UGC (User Generated Content) and focusing on studio content from NBC and News Corp (Fox). They host all their popular TV shows (full length) on this site, to be streamed on demand. The personal video recorder on the web was suddenly born. This then led to the birth of set top boxes like VuDu, Roku and the likes that allowed you to watch the same streams on your large screen TV instead of on your PC. Tivo too has joined the bandwagon now by announcing support for NetFlix, Amazon Unbox and CinemaNow (Haven’t heard of Hulu support on TiVo yet).

There is still one fundamental problem with this approach. While the world is shifting to HD broadcasts, bandwidth limitations create a barrier to large scale adoption of streaming HD content. According to the Hulu website the minimum bandwidth requirement to view HD content is a 2.5mbps internet connection and this for a 720p resolution. Note that NBC’s regular broadcasts are at 1080i. Even with 720p there is 1.5mbps requirement. If streaming has to truly replace broadcast TV, the viewing experience has to be identical – no breaks, stutters, pixelization and ideally little or no latency.

However, increased bandwidth requirements imply increasing cost to the customer. In addition in countries like India where over 90% of  “broadband” is at 256kbps these shows are practically unwatchable. [Note that Hulu and many others still don’t allow you to view content outside of the US…but I believe (validated by text on the Hulu site) that its only a matter of time before they ink the legal agreements with the content owners to allow worldwide streaming.]

However there is a new model emerging that allows you to watch TV in HD without any of the breaks & stutters associated with a low bandwidth internet connection. Welcome to the world of video torrents. This when combined with TVRSS makes for a very powerful modern day PVR. Subscribing to a TVRSS feed allows you to get notified every time a new episode of your favourite program is uploaded. The RSS feedreader then picks up the torrent file associated with the program and the bit torrent client downloads the file from several seeds hosting the same file on their PCs/NAS boxes. Your show is downloaded  into your hard drive and will be ready for uninterrupted viewing at your convenience. TVRSS is not restricted to the 200 channels that your cable TV company broadcasts (which was Tivo’s forte) but in effect covers almost all media channels the world over. Here is an interesting article on how to set one up at home.

The recent announcement of the Myka box makes this setup a whole lot easier. I now see devices like Myka unseating Tivo (unless TiVo incorporates these features) and truly breaking the shackles imposed by cable and satllite TV companies.

The internet has changed media distribution forever and there will definitely be a fresh look at business models given the new distribution channel. Note that the internet is a very powerful distribution channel given its ability to target its viewers and collect metrics and viewing patterns when compared to one way broadcast channels.

Will Myka be the new Tivo? We’ll just have to wait and see.

Stay tuned….