SharkJumping

AOL announced today that they had hired Erik Flannigan to run Programming, managing AOL Music, AOL Radio, AOL TV and Moviefone, continuing to be based out of the LA office.  Erik was briefly a colleague at RealNetworks as we were acquired, but we previously knew each other from the Mr Showbiz days and he soon moved on to run programming at Disney's ultimately cancelled MovieBeam movie service.  He's a talented executive with true creative credentials and a skill for effectively motivating his teams - it's a great move for AOL, especially as Yahoo and MTV beef up their teams in those areas.  It's another example of Real's large and often successful alumni group.

Everyone is throwing around buzz words such as Web 2.0 and CCC (Consumer Created Content) these days to reflect this recent trend of mixing and matching web technologies and user content to create a whole new set of services.  Normally, CCC reminds me of the Americas Funniest Home Video of the cat flying around the ceiling fan because much of user generated content is either staggeringly derivative, boring or just bad.

However, what recently struck a cord with me was the realization that multimedia search engine GoFish had cleverly used Wikipedia content to replace what was traditionally licensed content from Muze or AMG - click any GoFish artist listing and you'll see the content.  So rather than have paid editors spending their days writing artist biographies, GoFish uses the Wikipedia user-generated artist reviews (and I'm assuming at some point, wikipedia could add album reviews, etc) in place of paid content from others.  Not so good for AMG or Muze, but it's showing a path to using the collective intellect of the Internet to create content formerly done in a more top-down manner.  Yes, not all of it is incredibly good right now, and there is not necessarily a consistent editorial voice, but it will be compelling for a range of companies, especially as it inevitably improves.

Crave Games jumped the gun a bit yesterday in announcing our licensing deal for Tringo GBA, but it's all good news in general.  For those folks who haven't played this wildly addictive game, you can play a beta online version of it on our site here, but it can also be seen in full multiplayer glory in the virtual world SecondLife where Tringo's creator Nathan Keir originally built it.  The GBA product is slated to ship in November, and next steps are to focus on finding a developer/publisher for the mobile version of it since it's a natural fit for a handset.

Having now played with a new for the past few days, I am simply amazed at how Apple has continued its winning streak with this new player - it's quickly become an object of Techno Lust among friends and employees, even those with functionally-comparable iPod Minis whose value must be plunging on eBay this week.  And no, I don't own stock in Apple, and in fact, competed fiercely with them for years, so I have no great love for the overall company, but the product simply rocks.

There are numerous positive reviews of the product, including one by Walt Mossberg in the WSJ this week, but it's hard to explain how attractive this package is until you actually hold it in your hand.  The combination of the tiny size/weight (between Mini and Shuffle), simply great screen for pictures & album art, and the usual brilliant overall design blows away any other MP3 player I have used.  Since a recent study by Solutions Research Group has shown that the average iPod user has 504 songs on it, the 2-4G size is just perfect for the sweet spot of the market.  And since it continues to use many of the same accessories as the previous players, there is a huge ecosystem around the new player, in addition to the new accessories created specifically for the new player.  Apple deserves huge rewards for taking the chance of replacing their leading SKU (the Mini), instead of just continuing to add feature bloat such as just increasing storage for the new generation, as others would have done.

So what's most interesting about the Nano from a business perspective?  It's the fact that my entirely and admittedly back-of-the-envelope calculation of Flash costs would lead me to believe that not only is Apple now the largest consumer of Flash RAM in the world, but that its cost of 4G of Flash is probably almost as low as the equivalent 4G of hard drive costs, meaning that the immense scale of Apple is now making it almost impossible for competitors to match it on a cost basis, which is an astonishing shift from Apple's 3% market share in PC systems. 

If the production and sales rumors are true that Apple will sell an astonishing 30M iPods in 2006, then we can reasonably guess that 75% of them will be Flash-based, with probably 50% of the total being Shuffles due to lower price points.  If we guess that the average Shuffle is 750K of Flash (50/50 split between 500K and 1G) and that the average Nano is 3G of Flash (50/50 split between 2G and 4G), then Apple will consume 34 Million Gigs of Flash in 2006.  There are other large scale flash consumers, but the most often quoted large one is from mobile phones (although digital cameras and basic Flash memory sticks are presumbly also large).   800M mobile phones will be probably be sold in 2006 and the average Flash memory, including all the lower end ones in developing countries, is around 32MB according to recent storie, at least in Western phones.  If that large assumption is true, then the entire mobile phone consumption of Flash is around 26M Gigs, which is significantly less than Apple's solo consumption.  Another way to look at it is that Apple has contracted for 50% of Samsung's entire Flash production, which was 1/3 of the entire market in Q2 2005 - that would put apple at 17.5% of the worlds Flash market, clearly larger than other players in a very fragmented market.

This is not to simply say that size matters, whether it's Nano form factor, or the size of the global Flash market.  What's key here is that Apple has not only out-designed every other firm on earth for the 3rd year in a row, but that it has taken the ROI competition to a new level, where only their purchasing scale can allow them to offer 4G-based MP3 players at costs similar to what others will sell 4G hard drive players for - it's time for competitors to go back to the drawing boards yet again.

Yes, I'm ignoring the ROKR iTunes phone - I've had a Treo with 1G of music on it for almost 6 months ago and have used it once - the form factor, software and battery life simply don't compare to what I can do with a true MP3 player, so I don't yet think we're going to be tossing our iPods for MP3 phones.

I think it's great that Tivo's new CEO, Tom Rogers loves digital media.  In fact, he loves it so much that his digital media requirements are built into his new employment contract, as is detailed Apparently a $750K annual salary, $500K annual bonus. and 2.3M+ stock options, stock appreciation rights, stock grants, etc. are not enough to cover Tom's personal digital media needs.  Therefore, his new deal entitles him to be reimbursed for up to $15K in media equipment for his home office and up to $6K in annual home media services (that's a lot of Rhapsody, Movielink and iTunes purchases).  I suppose it's better than the usual golf membership reimbursements...

The veteran digital music company formerly known as Savage Beast recently launched a new online radio service called Pandora.  (Note: I have known company founder Tim Westergren for a few years now and spent a little bit of time with the Pandora team during the beta period).  This may seem like an obvious statement, but a radio service differs from an on demand service (e.g. Napster) in that it offers music streams which adhere to a certain algorithm that limits the number of consecutive tracks by an artist or from a certain album within a period of time, but which often still offers a degree of customization and the ability to skip songs.  Unlike an on demand service, a radio service receives an automatic statutory royalty rate rather than having to negotiate deals for every single song, so the rates are lower and you can offer all songs, not just certain ones.

My thoughts on the service are generally positive from a product angle, but mixed from a business perspective.  I admire the fact that they are taking the great core editorial assets they created in Savage Beast and are rolling them into a high quality radio product, similar to what we did at Listen when we moved from an editorial directory model to the Rhapsody music service.  I think the Pandora service is easy to use since it's all Flash based, it offers a high quality MP3 stream, and that it offers a greater degree of customization down to the song level than almost any radio service I know.  The service is free for 10 hours and then requires a $36 annual fee, but it has no commercials.

However, from a business angle, I'm not sure that it addresses the primary issue, which is "Is it Better than Good Enough?".  This means that most enthusiast music consumers have adopted a client-based music service such as Rhapsody, Yahoo Music, Napster or iTunes, which offers them a wide range of features, as well as editorial and radio.  Novice or less experienced music consumers are probably pretty happy with free options from AOL Radio, Launch or MSN Radio, as well as bundled ones such as Comcast Rhapsody Radio.  The strong recommendation features of Pandora and its subscription price tend to aim it at enthusiasts, while the flash-based, low feature nature of the service would seem to aim it at novices, so I think it's stuck between 2 masters. 

However, from my point of view, the most interesting part of the approach is that that Pandora should be a great partner for syndication partners or advertisers who are interested in embedding an easy to use, high quality, radio service into their web pages - e.g. Ford F-150 Country Radio - there are no longer any viable players in this sector, and I'd focus Pandora in that direction since I believe it will be a lucrative one. 

In any case, strong congrats should go to the Pandora team for delivering a high quality music service and for continuing to build on the great work done by the Savage Beast team over the past few years.  Other Pandora overviews are here - http://www.ventureblog.com and http://www.techcrunch.com/?p=167.

In what will come as little surprise to those who follow the video game industry, the bankruptcy trustee of Acclaim Entertainment has filed a $150M lawsuit against many of the executives and directors of the firm.   The lawsuit (here - ) alleges that they systematically looted the company, paid large sums out to insider-owned entities, granted each other ludicrously large pay packages, manipulated the financials, etc., all while the company was drowning in red ink. 

Acclaim was a pioneer in the video game business, once having a larger market cap than Electronic Arts, but it missed the platform transition to 32 bit, had a tendency to make bad games with expensive licenses, and often had a rather interesting approach to executive compensation.  Some would argue that the recent Delaware Disney decision essentially gives Board of Directors a free pass when it comes to personnel decisions, so it will be interesting to see how this one plays out.  However, the general business practices laid out in the complaint point out the video game industry's earlier roots as a series of family controlled firms less concerned with shareholder returns than with running the company in any way the executives felt was justified.  As the industry has grown, along with market caps of leaders such as EA, Activision and THQ, much of this activity has thankfully gone away, but recent missteps such as the Hot Coffe mod problem of Take Two's Grand Theft Auto still show the relative immaturity of the industry.