AOL and Yahoo!: Fingers in Google’s Dike

AOL and Yahoo! both revolutionized the Internet. And both  have completely lost their way.

Back in the 1990s, AOL introduced millions of people to email and online content. Yahoo! taught people how to find things online.

Now both seem reduced increasingly to saving their businesses, not innovating. In today’s lightning-fast tech cycle, that’s a recipe for failure.

Take AOL, Yahoo! and Microsoft’s decision to sell advertising on each other’s sites to fight Google’s dominance. That’s like putting up levees to stop a hurricane: you know you’re still going to get clobbered in the long run. As if to spite them, Google display ad chief Neal Mohan said in a blog today that its top advertisers nearly doubled their ad spend over the last year

On Monday, AOL announced the departure of the TechCrunch’s  acerbic founder, Michael Arrington, in a terse press release moments before Arrington appeared on stage to launch its namesake conference . So much for a $25 million acquisition designed to bring Arrington’s unique voice to AOL.

Arrington left after clashing with AOL content queen Arianna Huffington. AOL purchased her Huffington Post for roughly $300 million earlier this year. And what did AOL get for its money? The media world’s most effective search engine optimization vehicle — wire service material carefully labelled to attract the maximum audience — along with an army of mostly unpaid bloggers. (Arrington sported an “unpaid blogger” T-shirt during a brief appearance at the conference, which I attended.)

AOL wants to build a content juggernaut that will attract millions of people. Sound familiar? It should. Think AOL Time Warner in 2000.

Yahoo!, meanwhile, gave up its raison d’etre when former CEO Carol Bartz signed a 10-year deal for Microsoft’s Bing to power its  back-end search in 2009. Yahoo!’s 43% stake in China’s Alibaba, worth $2.32 billion last March, may or may not have served to protect its interests in China. It did nothing to freshen the brand.

Bartz, of course, was fired last week and replaced by Yahoo! CFO Tim Morse, who reportedly once joked that managers who didn’t make their numbers would be electrocuted at one of the company’s data centers. Cute, but you get where his focus is.

Some speculate that Yahoo! and AOL’s problems might be solved if you merged them together to create critical mass. A bigger mess is more likely. Sadly, the best thing to do with either is probably to dismantle the parts and sell them to companies that actually know how to make content profitable. Time Warner might even be interested again in a morsel.

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Lord of the Ringtones

One Telecom to Rule Them All

One Telecom to Rule Them All

Everyone’s focusing right now on whether AT&T’s proposed merger with T-Mobile will give it too much power in wireless. But that’s only part of the worry.

AT&T also wants to sell you a so-called “triple play” of cable, telephone and Internet service. Or better yet, a “quad play” of cable, telephone, Internet and wireless. Arch-competitor Verizon has the same game plan.

Already, more than 75% of AT&T U-Verse cable customers receive their service as part of triple play or quad play services, according to research firm Strategy Analytics. The average revenue per triple play customer has increased 8% to $175 a month. Now add wireless to the picture, and you’re talking well over $200 a month paid to Ma Bell.

You’ll be paying just as much for Verizon FIOS TV for its quad play bundle.

If AT&T’s merger with T-Mobile goes through, it’s a virtual certainty that Sprint will have to hook up with Verizon to remain alive, giving a duopoly vast control over how much you pay for phone, mobile, Internet and pay TV service.

What of cable powerhouses like Comcast and Time Warner? Well, since they don’t have strong wireless offerings, they’ll be at a competitive disadvantage — especially since people who sign up for quad-play services are much less likely to “churn”, or switch to another provider, according to Strategy Analytics.

I’m not particularly sympathetic to cable companies’ woes — Time Warner already charges me more than $200 a month for my triple play — but you have to ask yourself what these mega-companies do when they feel their “pipeline” is threatened. Well, what did Comcast do when it wanted to ensure steady access to content? It bought NBC Universal (surprisingly blessed by the Commerce Dept. and DOJ in January).

Could you imagine Comcast merging with Verizon? How about News Corp. buying a stake in AT&T now that BSkyB is effectively scrapped?

To be sure, cable and entertainment companies will remain on the acquisition war path even if AT&T/T-Mobile is scrapped. Smart money has T-Mobile (and probably Sprint, too) looking for other sugar daddies if the deal doesn’t go through.

DOJ’s lawsuit at least serves notice that at least someone’s minding the government till these days, unlike the previous administration.

There really is no endpoint to mega-mergers once you open the door. As David Lazarus of the Los Angeles Times noted some months ago, AT&T could just as easily argue that the best “economies of scale” and peerless wireless coverage would be gained by merging with Verizon.

Yep, one big mega-company to rule them all and in the darkness bind them. And if you think that company’s going to have your interests at heart, you’ve probably been reading too many fantasy novels.

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Spotify and Music’s Two Mega-Trends

Daniel Ek is an unlikely prophet for the music business. The founder and CEO of Spotify is a computer geek who spouts terms like “real-time data trends” and  ”cost for distribution”.

But the young Swede was (forgive me) spot on in his predictions at the Fortune Brainstorm Tech conference. He sees two mega-trends that he believes will power his online music service from 10 million to 50 million users: social media and connected devices.

When you join Spotify through Facebook, you are immediately connected to your friends and can see their entire music library (yes, you control who sees that library). As you learn about new bands, share your favorites and build playlists, your loyalty to the service will grow — certainly more than your loyalty to Walmart, anyway.

“Back in the day, the most interesting part of Napster was discovering new bands,” he said. “That’s what we want to create but make it even simpler.”

All that’s free. If you want to get rid of the ads, you pay $4.99. If you want to stream from your phone at up to 320 kbs or download tracks to play offline, that’s $9.99.

The take-away: you probably don’t want to listen to your music on just one device. Spotify hooks you on your computer for free, and then lures you to the mobile phone with a premium offering. Naturally, you can also buy the songs outright if you choose.

Whether Spotify, which launched recently in the U.S., will achieve its 50 million person goal remains to be seen. It’s up against entrenched online music competitors like Apple, Amazon and Rhapsody.

But its freemium model and its social stickiness could give it an important leg up.




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Katzenberg: ‘Bloom is Off the Rose’ for 3D

Jeffrey Katzenberg may be the Billy Graham of 3D. But not bad 3D. And he’s seen a lot of bad 3D movies recently.

The studios’ greed for profit – charging premium prices for poor-quality 3D movies – has dampened the public’s enthusiasm for 3D, he told attendees at the Fortune Brainstorm Tech conference in Aspen.

For the public, that means the “bloom is off the rose” for 3D, he told attendees at the Fortune Brainstorm Tech conference in Aspen.

“There were unfortunately a lot of people who thought they could capitalize on what was a great, genuine excitement by movie goers for a new premium experience and just deliver a low-end, crappy version of it and people wouldn’t care or wouldn’t know the difference,” he said.

“Nothing could have been further from the truth. Hollywood has managed to grasp defeat the jaws of victory here.”

It’s not all bad. Upcoming 3D films by master filmmakers like Martin Scorcese, Steven Spielberg, Peter Jackson and James Cameron will reenergize the genre.

Also, TV viewers, at least, can look forward to “OK” 3D without glasses in “a very few years” and high-quality 3D without glasses in four to six years. (3D movies in theaters without glasses is 10 or 15 years away, although Katzenberg expects it to arrive in his lifetime).

3D’s problems reflect a broader malaise in filmmaking, Katzenberg said. Studios are focusing too much on commerce and too little on their art.

The last seven or eight months have seen some of the worst movies of the last five years, he said.

“They suck,” he said. “It’s unbelievable how bad movies have been.”

Add to that a killing recession and new distribution technologies that have caused DVD sales to plummet

By contrast, the television business – particularly cable – is “on fire”, driven by “brilliant” shows like “Breaking Bad” and a strong demand for content on hundreds of channels, Katzenberg said.


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Going Gaga at Amazon

OK, so Amazon might have guessed that launching a one-day sale of Lady Gaga’s latest album for just 99 cents –$11 less than iTunes — might provoke millions of rabid fans to swamp its online music store. It has only itself to blame for its servers crashing yesterday and royally pissing off said fans, some of whom loudly told the press they won’t come back.

But that’s not the real news. Here’s the real news  – or, shall we say, the data points:     .

  1. If you price music reasonably, people won’t bother to pirate it;
  2. iTunes’ near monopoly on legal digital downloads will evaporate the moment someone comes along with a more attractive model;
  3. Streaming music from the cloud will become a huge factor in music industry sales over the next year or so;
  4. You don’t have to make money on digital music sales to drive your overall business to profit.

I  use the term “data points” because none of my points above will surprise anyone who’s been following digital music sales over the last few years, least of all the music executives who  mule-headedly continue to tie the industry’s fortunes to CD sales and $12-an-album digital downloads in the face of all countervailing evidence.

Why has the RIAA’s countless suits against pirates had virtually no impact on the “infringement” of music by non-payers? Because it’s not a moral or legal issue in the minds of most people. It’s a supply-and-demand issue. Give the public a better alternative, and they’ll fly to it in a heartbeat. That’s point 1.

Those of us who do try to do the right thing by buying music on iTunes — and try to force our children to do the same — do so with gritted teeth, completely aware that most people could care less. Give us an alternative and we, too, will fly to it in a heartbeat. That’s point 2.

Point 3 is self-evident. Streaming from the cloud has arrived.

Finally, Amazon clearly didn’t do this deal because it wanted to make money — not when Interscope presumably charged Amazon about $7 for each Lady Gaga album Amazon sold. It probably didn’t even primarily do the promotion because, as some suggested, it wanted to get a jump on Apple’s own expected launch of a music cloud service over the next month or so.

Why then? Well, isn’t it possible that if millions of people think Amazon is a cool place to download music, they’re going to buy other stuff, too –say,  iPhones, iPods, iPads, cell phones, computers and other stuff to play all that great music on? Does Apple make most of its money from iTunes or from devices that support it?

At some point, some people decided they’d better eat the costs of their mule herd and invest in tractors to haul stuff if they wanted to survive. Which side of history is the music industry on?

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This Phone Call Is Brought to You by Coca-Cola

Around 1999, I moderated a Bay Area panel in which a crazy Swedish billionaire argued that telephone calls were just another form of content and that in the future AT&T would run ads during conversations.

“I’ll be in San Francisco having a free long-distance phone call with my girlfriend in Sweden, and an ad for Coke will come on,” he said.

We all laughed.

It was the first thing I thought about when Microsoft announced today that it will buy computer telephony service Skype for $8.5 billion.

Why  would Microsoft pay so much for a service that most of its users don’t pay for? Surely not because it thinks it can charge extra money to call landlines or cellphones, as Skype currently does. Skype’s annual revenue of around $860 million is small change to Microsoft, which had revenue of $16.4 billion in its third quarter alone.

My guess is that Microsoft sees Skype as a way to keep its core products relevant, driving consumers who use free phone and texting services to use its core Office products — Outlook, Word, Excel, PowerPoint and Access — and vice versa.

This is, after all, what Skype already does. Anyone who uses the service frequently knows that it includes a setting to call people in their Oultook contacts or  emails.  I would expect that the Skype of the future will include copious ads for Microsoft products that link seamlessly to it.

Cable and big phone companies (including AT&T) already know that trick. They’re bundling cheap telephony with TV programming and Internet because the more they can satisfy the consumer’s every media need, the the less likely that consumer is to fly to another service. The cost of telephony is approaching zero, and you can already buy TVs that let you have Skype video calls while you’re watching.  Can phone ads be far behind?

Come to think of it, that billionaire wasn’t so crazy after all. Maybe that’s why he’s a billionaire.

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The Good and Bad News About ePublishing

Self-publishing used to be largely a vanity thing. You’d plunk down around $10,000 and a book would pop out. Friends and family were the primary target, although a lucky few actually managed to find distributors and large readerships.

Epublishing has dramatically lowered the costs of publishing, distributing and buying books, triggering a revolution at least as profound as that roiling the music business. As in music, authors can increasingly bypass publishers entirely, while lower barriers to entry and piracy will eventually drive prices toward zero. In that environment, publishers (like labels) can only remain relevant by becoming marketing juggernauts — packaging authors, arranging book tours, selling related merchandise, and so on.

We’ve been printing on paper since around 1439, the year when Johannes Gutenberg started using movable type. By 2039, I’ll wager that  books published on paper will be as relevant to most people as CDs are today. Bookstores, to the extent they survive, will be boutiques that sell a lot more than books, just as Amazon does today. Don’t worry: the cafes will survive.

Take a look at this recent Wall Street Journal article,
Cheap E-Books Upend the Charts. The cut line “99-Cent Titles From Unknown Authors Put New Pressure on Big Publishers” reveals a surprising truth: many people are buying books online based more on their price than whether they were written by famous authors. Of the top 50 Amazon best-sellers, 15 were books priced at $5 or less, according to the Journal; Louisville businessman and part-time thriller writer John Locke, whose CIA thrillers sell for 99 cents, accounted for seven of them.

That compares with the big publishers, who sell their books for $9.99 and up on Amazon and generally give authors miniscule royalties. Locke gets 35 cents from Amazon for his books, and claimed to have income in March of $126,000.

For writers, this is good and bad news. The good news is that authors can now choose to bypass publishing gatekeepers who often judge a book’s merit solely on how well it sells, and who cut most authors only a tiny piece of the revenue stream. Like Locke, some authors will make a fortune.

The bad news is that self-publishing without proper promotion is generally about as successful as putting a book in a closet and closing the door. And, of course, if you write a book that stinks, no amount of promotion will help.

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Are You Sure You Want to Friend Facebook?

I read a somewhat hysterical post on Facebook yesterday claiming that today, the social network will “become owner of the publishing rights to ALL your private photos”, and warning me to make adjustments to my privacy settings to prevent Facebook from doing some potentially really nasty things.

I don’t know whether this is true. Personally, I’m not terribly worried that Mark Zuckerberg is going to hock my son’s high school prom pictures to the highest bidder. But I do think that Facebook, Google, Comcast, Time Warner, Disney and other gatekeepers of our connected world are acquiring an extraordinary amount of personal information about us that could be badly misused.

The media business (and yes, since Facebook and Google put content on screens, they are part of it) is entering a Brave New World where marketers are learning with extraordinary specificity our occupations, state of health, social status, hobbies, favorite movies and music, sexual proclivities and practically every other piece of meaningful information about us. We are told that this will improve the rate of return on advertising by orders of magnitude, and I believe it.

But the downsides are potentially enormous, and haven’t been thought through. If information is power, we are handing power on an unprecedented scale to the people who control what we see and hear on those broadband pipes. When Barack Obama joked at Facebook last week that “I’m the guy who got Mark Zuckerberg to put on a coat and tie”, he was a lot closer to the truth of his position in the scheme of things than he realized.

Think about what Facebook is doing — with our willing cooperation. It begins by compiling a highly detailed database on each of us based on our voluminous descriptions of ourselves and our likes and dislikes. It hones that information by asking us to pick the advertising we like, examines what kind of friends we have and then encourages us to “simplify” our lives further by using Facebook to connect to any other compatible social network.

Then Mark tells us that by being on his network, we are tacitly agreeing that our information will be publicly shared — and by extension, with advertisers — unless we tell him not to. By the same brilliant logic, if I show my friends photographs at a restaurant, the restaurant should have the right to show those photographs to anyone it likes.

It’s easy to demonize Facebook, but other media  and telecom companies are close behind.  Comcast’s reach is equally disquieting. We all willingly buy into the country’s largest cable operator’s “bundling” programs that give us “lower” rates on cable, TV and telephone service, but we are also giving Comcast a treasure trove of cross-referenced information about each of us — what shows we like, when we watch them, our Internet habits, who we call, and so on. This is before we factor in the NBC acquisition. We have the illusion of “choice” but really we increasingly become predictable data points in their bottom line.

I don’t think these companies and their executives are evil. I don’t think we can prevent this new world from emerging, nor do I think we’d be better off if we could. But if we buy into this ridiculous idea that we cede all right to our most personal data the moment we log into a network or turn on our TV, and if government abdicates its responsibility to protect the privacy of ordinary individuals by passing strong laws, then, yes, I think some really nasty things are going to happen.

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TV in 2020: Best Guesses

So where will television be in 2020? I posed the question last week at a panel I led during NAB with execs from DreamWorks, Sony Electronics, Starz, Nielsen and  Technicolor.

Of course, nobody really knows what TV will look like in two years, let alone most of a decade. But the panel took some educated guesses. To wit:

All TV Will Be a la Carte. Consumers are sick and tired of paying for channels they don’t want — and will demand operators give them exactly what they desire, said Jim Mainard of DreamWorks. Programming, (Shrek, anyone?) will be king. Operators, notice how consumers pick whatever mobile apps they want?  That’s your TV future.

Bundling Will Be Alive and Well. Au contraire, said Stephan Shelanski of Starz. Unbundling programming would create a cacophony of programs and channels: programmers would have trouble promoting their product over the din; consumers would be confused. Also, operators would have to make their money somehow, so the price of individual channels and shows could soar. Not going to happen.

You Think This is High-Def? 24 frames a second is so 2011. How about 150 fps or higher? That could be standard in 2020, said  Peter Lude of Sony Electronics. Get ready for shades of magenta and other colors you’ve never seen on a TV.

3DTV Arrives… Sort Of. 3D will be better and there will be a lot more content, but consumers will be selective about what they don glasses for. Sports, yes, talk shows, no. And yes, there will probably still be glasses. Glassless technology will be largely there, but beyond most consumers’ pocketbooks.

Interestingly, 3DTV will be driven by movies and mobile. Turns out we can already display 3D just fine on devices like the Nintendo 3DS, which is selling well in the U.S. market. Expect mobile phones, tablets and laptops to increasingly go 3D over the next few years, helping drive adoption of 3DTV.

Connected TV Will Be Universal. Broad agreement here. Consumers will buy shows on demand over the Internet and view web video on their TVs. However, expect some kind of tiered presentation, possibly built around bandwidth. You’d be willing to pay more for bandwidth to watch “Game of Thrones” than dog skateboarding, right? Wait until after the premiere over the weekend, you say?

Speaking of bandwidth, it’s going to be a very big issue. Connected TVs running 3D video at super-fast frame rates will require many more megabits per second of throughput than today’s pipes.

Touch Devices Replace Remotes. No love lost here. That awful point and click will be replaced by touch-sensitive devices, most likely the items we carry around every day. We’re already texting and checking the Internet as we watch, after all. But things will be a lot more slick in 2020. Nielsen SVP for Product Development Scott Maddux demonstrated audio watermarking technology that allows TV signals to synch with iPads and mobile phones — allowing BMW, say, to create an interactive extension of an ad playing on TV that matches the on-screen action in real time.

Don’t expect to be gesturing at your TV or talking to it, a la Microsoft’s Kinect or Minority Report. People won’t be ready for that by 2020, although they may be by 2030. I was surprised by that, but then I also thought the gestures in Google’s GMail Motion introduced earlier this month were really cool.

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