SharkJumping

The CEO of Tivo, Tom Rogers (earlier post here), announced that Tivo may give away its DVR's for free with a long term subscription.  What was the market and industry reaction?  Yawn....   Why is that?  It's because Tivo is unfortunately no longer a market or thought leader.  When was the last time someone talked about their Tivo?  It's a big change from being featured on sitcoms ("My Tivo thinks I'm gay) a few years ago, and where users like me were bragging about how cool this service was.

Why the changes?

• Tivo hasn't kept up with the technologies - there is still no stand alone dual tuner box (can watch 2 shows at once) and still no High Def box, leaving the opening wide for the cable and satellite companies to pitch their superior offerings.
• The cable and satellite firms have redoubled efforts to address the category after ignoring it for the first couple of years - the bundled offerings give users fewer boxes and are easier to set up.
• News Corp's DirecTV unit, responsible for 2/3 of all 4M Tivo subs, has started to sever ties with Tivo in order to very aggressively push its own DVR's.  Tivo doesn't have any real control over its existing DirecTV subs, so its actual addressable customer base is much smaller than what it first appears.
• The better Tivo software and user interface hasn't improved all that much in the last few years, allowing competitive services to get closer in functionality and appearance.  Although Tivo is probably still better, it's not $5-10 a month better...
• Which is why its announced deal with Comcast to offer Tivo as a premium DVR option no longer is attractive as it first seemed since the market has caught up with them.  I just don't believe that even a small percentage of users are going to choose to pay an extra fee to download the Tivo interface to their Comcast box.
  
• Finally, some of the really cool offerings with the Tivo2, such as the ability to offer extra functionality through the box like movie tickets and Tivo-to-Go portable content, haven't taken off due to either better alternatives or a lack of applicable portable hardware.

So what's the future?  Not much, unless Tivo can protect its IP with a win in its lawsuit against DISH/Echostar, which would then presumably be followed by additional lawsuits and possible settlements.   A year ago I would have thought that they would be an attractive acquisition for a variety of companies, but I think they're instead just sliding into irrelevancy - Comcast would seem to be the most likely buyer, but I suppose any set top maker, such as Cisco, would be interested as well.

It's nice to see that a European liqudation and a US bankruptcy can't keep perennial Sharkjumping whipping boy (see stories here and here) Gizmondo out of the press.  In a "only could happen in LA" story, disgraced former Gizmondo executive Stefan Eriksson apparently smashed his million-dollar Ferrari Enzo (only 400 made) into a power pole at over 120MPH while allegedly racing another car, and then of course, fled the scene, as any supposed former Swedish Mafia member must be taught to do - more here from LA Times (registration required). 

It's hard to track the Carrington-like cast of characters at Gizmondo, but Erickson was the one who resigned from Gizmondo after is was revealed that he had been convicted on a number of financially-related criminal charges in Sweden - I guess the Ferrari was where he put his $100,000 annual car allowance - see Gamesindustry.net story here. 

Now that Infinium Labs has decided to make keyboards rather than video game consoles, we're running out of humor in the console business.  Maybe we can start a web site speculating which day Sony will actually ship the PS3 - given how wide the range of possible options are, we could probably sell over 500 pixels on it.

I blogged about my lousy experience a few weeks ago attempting to have Comcast install TV and High Speed services at my house - see post.  We tried again last week, and it was a much better experience, with a great technician who showed up on time and who was pleasant, knowledgeable and efficient.  The short of it is that after a few days with the Comcast high speed and DVR/HD/OnDemand services, I don't think the satellite gang (DirecTV and Echostar) or telcos (ATT, Verizon) can match the cable offering, at least without the staggeringly expensive and time-consuming fiber build out that the telcos are doing.

High Speed
I'm seeing real world download speeds of 6MB+ from Comcast, about double what I was seeing before.  I didn't think that would matter in most cases, but it starts to be noticeable as we spend more time with rich media and as we attach more Internet-connected devices in the house.   I'm noticing a slight delay in the initial connection, but am not sure if that's Comcast or my network, and the speed is snappy right after it.  On the upload speed, 350KB+ is what I'm seeing, which is fine, but I still think the telcos could differentiate a bit for a decent group of users by focusing on a robust upstream offering (and no, I have not had the energy yet to dive back into the port-forwarding situation that is Sling Media to see if I can get that to work).

DVR and HD
I have a Motorola DCT 6412 dual tuner HD DVR with a 60 hour video capacity (15 for HD).  This was a key reason for the switch since DVR's break about once a year in my experience, and I definitely didn't want to pay $500+ for an HD one, as the satellite services want consumers to do.  The interface could use a little bit of work since searching isn't quite as easy as I hoped, but all of the basic DVR functionality is there, and the integrated box works nicely, especially now that I programmed the remote to skip 30 seconds forward.  You can record 2 shows at once, although not 2 HD shows.  You can't access the DVR from the other television, as I could with the Dish 522 box, but we never really did it, and you can access On Demand from there, which is a great alternative.  The HD programming is a little more limited than I have seen from DISH, but it has all of the basics such as local networks (key, especially for Olympics), premium channels, ESPN and a couple of others, and after watching the Olympics in HD, there is no way to go back to SD.

On Demand
I originally thought that the smaller hard drive size would be a big issue (vs my DISH 522 with 100 hours), but what has been the revelation to me has been the strength of Comcast's On Demand free VOD system, especially as a parent.  The non-kids offerings are a mixed bag of content, with some real gems, but also a lot of random stuff, and an interface overwhelmed by the amount of content.  However, the children's offerings are so good that there is no need to record any shows on the DVR since there is such a breadth and depth of kids shows.  Given that this is a feature which satellite can't easily match due to its delivery method, I can see why Comcast is pouring it on in this area, especially since it is almost like having a DVR on every TV.

Conclusion
When I switched to DISH 2.5 years ago, it was because the because the integrated DVR/satellite system was simply a better offering - more channels, high quality, big DVR and lower price.  On the high speed side, the DSL offerings were slower, but cheap enough that it didn't matter for that type of content.   I can definitely say that the landscape has changed right now, and that the Comcast offerings are clearly superior to the alternatives, and probably worth a 10-20% premium over competing systems, which is the premium I'm paying after discounts.  The only way I see that being challenged in the short term is by the new fiber systems from ATT & Verizon, but we're a long way from seeing wide spread distribution of those offerings.

Dick Cheney - just sticking in random hot search words to see if it matters to blog search engines

Unfortunately, as I predicted in this July 05 post, the labor market here in SF has significantly tightened up, particularly at the executive level.  Last week I received 4 separate headhunter calls looking for senior executives at consumer-facing start-ups, 1 in consumer technology, 2 in User Generated Video, and 1 in mobile gaming.  All of these companies had raised at least one legitimate VC round and were looking to expand across the board.  The good news is that it looks like there are lots of opportunities again for those employees unhappy with their current jobs, although we still can't find the brilliant 3D game engine programmer we need - see listing.  The bad news is I didn't have even one name to give the search guys since everyone I know is either tied into a great job, or is starting their own firm.   

Outside of a fun work environment, a great location, and competitive pay/equity/benefits for full-time employees, here at Donnerwood we are using a mix of outsourcing options (just set up a deal for a DBA that way), off-shore options (1/3 of our resources are in India), short-term contractors (to fill in gaps) and the recruitment of a tier of more junior employees which we can train.  I think every company will have to look at some mix of these options in order to grow through this frothy environment.

I was originally going to write about my failed attempt to find anything of value in IP video service DaveTV, but it broadened out to a look at the overall sector, including which analogies I could draw from our earlier music services which faced similar issues.  What surprised me was that it pointed out to me how strong Apple's position is, especially if they enter the set top or DVR marketplace.

The alternative video distribution concept is a good concept, but a tough one to execute, especially in the short run.  We're seeing an explosion of cable-bypass alternatives (see post), including video iTunes, XBox 360 Marketplace, Akimbo, Windows Media Center's various content providers, Google Video, You Tubes, etc. but they have such a mind boggling set of challenges, that it's hard to see how it will work for the next few years, especially while forward thinking traditional providers such as Comcast and DirecTV launch additional VOD offerings.

The general concept is that the Internet broadband explosion is finally creating the types of video opportunities that Long Tail followers have dreamed about for years - go around the distribution gridlock of traditional retail & broadcast (Wal-mart, Comcast, etc.) and create compelling niche services for Internet users, starting with their PC's, but rapidly moving to portable devices and to the TV itself, generally through some type of additional hardware.  Eventually the mainstream content will come on board, and millions of users will follow ("let a hundred flowers bloom" - Chairman Mao)

In the short run, however, the overwhelming obstacles make even the music business look compelling, and that's saying something :)

1. Content:  only iTunes is reaching any type of critical mass in certain content areas such as TV shows - the rest of these services have a mixed bag of niche content (porn being a common winner here), but not enough of any one area to truly provide a good experience for those followers.   I understand the issues with getting enough content coverage - when we launched Rhapsody in 2001, it was primarily Classical and independent music, but we had great coverage in both sectors for consumers interested those categories.  So if you can only get a limited set of of content, don't scatter it around like I'm seeing today  - Stand for Something, whether it's Bollywood movies or Kiteboarding videos, but cover it better than anyone else!   BTW: I can see why Sling Media (See post) likes their model since it relies on a set of content already produced and captured by the end user - now if I could only get my routers to forward to each other for more than 30 minutes at a time.
2. Devices:  only the video iPod is selling in enough volume to create a viable marketplace in portable players, with Apple claiming 12M paid video downloads to date.  Sony can't seem to connect services correctly to the PSP, leaving its content to be provided by homebrew methods.  No one has ever bought a PiMP/Portable Media Player, so there is no market there.  On the TV side, the requirement to offer yet another hardware box is a killer for all of those companies, while XBox 360 hasn't yet sold enough to create a viable Media extender market.  The PC is working incredibly well for America's Funniest Home video equivalents (You Tubes, Revver, etc.), but isn't a great platform for most other content.  But again, focus on the key platform (in our case at Rhapsody, it was initially the PC), optimize your service for that platform, and only later expand into the sexier, but smaller categories such as portable or TV.
3. Pricing Models:  Only iTunes has a consistent approach, which means $1.99 for shows and $.99 for music videos - it's incredibly clear what the proposition is.  The rest are a total mess, with some mix of free, a la carte, and subscription, without any coherence that I can find, and no easy way to filter them - e.g. on the Windows Media center, I can't for the life of me figure out what I'm paying Akimbo for since it looks like everything requires an additional fee.  When we launched Rhapsody, we had one value proposition - unlimited streaming to a PC for $10 a month - it wasn't meant to appeal to everyone, but it was very clear what the value was.
4. Interface:  Why is this so hard?  Again, only iTunes has a consistent interface, which fits its simplified business model.  DaveTV and Akimbo are next to useless when you attempt to wade through their offerings, never pointing out what is free or paid and having almost no programming approach to offset the mixed bag of content (e.g why is there a Podcast category on DaveTV if there is nothing in it?)  For gods sake, hire a couple of editors and deploy some content management tools - it's a pretty cost-effective way to make your site seem more alive, to focus on content you have, and to program away from program holes.

I don't own a video iPod, and actually don't see any reason to do so since I think well executed subscription models are much more compelling (e.g. if Vongo was better - see post), but I never really looked at how Apple is approaching it until now, and they would seem to be the likely short term winner here, just as they were in the music space due to the same reasons - content, pricing, hardware, interface.  I think the XBox 360 could still provide an alternative in the TV space in a couple of years when the price comes down and the installed base goes up, but I can't imagine why the rest of the players (outside of pure User Generated Content sites like You Tubes) will make it.

Similar to the podcast advertising rage, one wonders if the video game business can realistically support the amount of venture capital pouring into "in-game" advertising companies.   One of the press releases indicated that in-game advertising is poised to grow to more than $1B before 2010 while another said it will be $2B+ by 2008, although I can't find the exact research except from DFC Intelligence saying it will be $500M+ by 2009.   

There is no question that consumers, especially the always desirable young male demographic, spend ever increasing amounts of time in front of video games, some of which will be web-connected ad environments (the majority of PC's today, and I would think maybe 25% of consoles in 3 years).  Although there is an amazing tolerance for advertising where it's not too intrusive, it's hard to see how much of it will make sense in any video game where there is a specific story and environment involved, e.g. in a wild west game or in Halo, how many advertisers could plausibly insert ads, meaning how many Pepsi machines do we really think were around in the 1840's, or in the science fiction future?   And who is going to stop to click on the ad, meaning it's more product placement than advertising, which makes it a much smaller market.

On the other hand, it should work quite well in modern games such as Grand Theft Auto and most sports games, where EA has traditionally had product placement and advertising opportunities.  And it's true that most game publishers are desperate to find additional revenue sources as development costs explode upwards, especially if the hoped-for $60 price point doesn't hold for next generation console titles.

So assuming that the market will actually develop, let's tally the players in this small but potentially lucrative market:
1.  Massive - the grand daddy of game ad networks, I'm told it's raising money at a $200M+ market valuation.  Has raised at least $17M in the first 3 rounds, and has a series of video game partnerships.  It's apparently up and running although I've never seen an actual advertisement in a game.
2.  - announced a $12M A round of financing today.  Has a proprietary in-game advertising technology called Radial.  Has not announced any partnerships.  Cleverly owns the URL InGameAdvertising.com
3.  - hired Geoff Graber, formerly of Yahoo Games, and announced a $10M A round 11/05 led by Accel, and moved the company to SF from Israel.  Has announced no partnerships.
4.  There is at least one more currently recently funded in-game ad shop which has not announced its funding yet.

Plus there are players like Shockwave.com who have plans to do in-game advertising themselves across their large casual game network, and probably more that I don't know about.

So we have at least 4 well-funded independent in-game advertising providers, plus some who will do it themselves.  The key question is what should an ad serving and selling network be worth?  It should be some small percentage of the overall advertising market since the vast majority of the value goes to the site or game which is delivering the user.  If the in-game ad market is theoretically worth $1B by 2010 (in 4 years), than it's reasonable to assume that the folks who deliver the ads are worth maybe 20% of that number, assuming a competitive marketplace.  Therefore, you have the total market value at $200M at most, which doesn't jibe well with the series of announcements so far. 

I would assume one will see Massive continue to lead in the console space, while the others focus efforts on sectors such as casual (probably the best place for advertising due to slower game pace, fewer story line issues, and lots of game breaks), mobile, and handheld, but there is already a crowded marketplace on the supplier side.

For the small percentage of those readers who have not yet installed StatCounter, I must highly recommend the software/service.  The free version gives you very detailed data about your web site visitors (visitor count, key word analysis, user path, visitor length, browser, etc.), and the reasonably-priced paid versions increase the log files to track more popular sites beyond the last 100 visitors.  It's easy to install on your web site/blog, and it appears to be a very reliable source of data, especially if your statistics from Typepad keep falling over like mine do.

I assume there are better and more expensive enterprise-style paid tracking services, but I'll say that we will launch Donnerwood's consumer platform next month with StatCounter as our primary tracking mechanisms since it's the best value for the money (we'll pay for the higher level service).  It's amazing to me how far we've come when I think that this service provides far better data than we had when we launched Listen.com's music service in 2000, in spite of the long hours we put into creating the tracking service of that time.

This is a key example of the new types of web services available today, along with the improved Shareware-style business model which allows a company to provide a robust low-cost service at very little cost while making up the revenue on the upgrade options - the log file premium option allows Statcounter to offer a full product experience without any type of DRM or time-out measure, but still incents many of us to upgrade to the paid package - a great model for the future.

3rd and Final Sling Box Blog

Spent 30 more minutes tonight finally getting the Sling Box to work correctly by fiddling around with connectors, rebooting the router and switching some plugs.  Was actually working well as I walked out the door for the weekend - could remotely switch channels, record shows, pause, etc.  Got up here to Tahoe, and it no longer works at all.  My guess is either the DVR has gone into Suspend mode (which I'm pretty sure I turned off), or more likely, I have had some type of router bounce, and the connection is no longer working perfectly since I've seen that warning light on the Sling Box once or twice before.

End result is that I think the concept is really cool, but that there are too many failure points at this time, between the various hardware units and the connectivity points, not including the significant issues setting it up.  Unless one has a rock solid AV/Internet system which never suspends, bounces, shuts down, etc., then you can't seem to leave the unit alone for more than a few hours without some problem occurring, which doesn't really work for remote viewing since I can't rush home tonight just to reboot it again. 

It's a good start, but I'd wait for the next gen system before buying one.

This ongoing hardware saga may be painful for some, but it points out the opportunities and inherent difficulties in connected-consumer hardware businesses.

After yesterday's aborted attempt to install my Sling Box, I called customer service this morning.  After a somewhat long 6 minutes on hold, I worked through the issue with a helpful customer service rep, but it was not an easy set of fixes.  The audio and video issue turned out to be a connector problem - my guess is that this is a common complaint due to a potentially less than perfect design, since the rep immediately understood the problem - he directed me to pull out the audio/video plug, clean off the tip, push it in hard, and then twist it.  Lo and behold, I had a picture.

The downside was that the picture was of the 2nd tuner in the DVR, not the primary one (since we had connected the Sling through the free secondary output plugs, not the primary ones which were already being used), and the Sling can't control the 2nd tuner, which is a problem in all newer multi-tuner DVR's, not just mine.  So we had to plug the DVR directly into the Sling, and then plug the Sling into the home theater receiver.  This solved the problem so that I could now control and see/hear video on my PC from the primary tuner on the DVR - Success!  The not-so-minor problem was that there is now no TV reception on the TV itself, but we ran out of time, so I had to run for work.

Unfortunately, after gathering people around my PC to show them the Sling functionality, it doesn't appear to work anymore, even when I go off of our network and connect through a wireless card to avoid any firewall issues.  So it's back to working on it this evening...

I may have more problems than some users, but our set-up is not outrageously complicated or expensive, especially for a an early adopter Sling user.  It's a standard heterogeneous mix of hardware pieces, ranging from 1-10 years old, and yet, it's incredibly complex to set up new devices, in spite of a lot of help, and good documentation.  Hopefully, this process will get easier, but the need to support all legacy plugs and formats really makes this more complicated than most users will put up with, and I can see why the phone and cable companies are scared to death of these types of devices since they can't easily or financially support them.

I received my Sling Box today ($219 at Amazon with no tax or shipping) and attempted to set it up.  just raised a $46M round of financing (from Liberty Media, Echostar/DISH, and others), and has won numerous awards for its hardware which allows you to use your PC (and soon, your cell phone) to watch your TV from outside the house, including accessing your DVR.  We don't have cable access in Tahoe, so I thought we'd give this a shot, and in any case, it's the geeky toy of the moment, so it was worth checking out.  The good news is that I have a fair amount of experience setting up digital media adapters, TIVO, etc., so I'm familiar with some of the more complex issues, but the bad news is that after 2.5 hours, I had to give up for the evening without getting it to really work.

I'll say that Sling Media goes absolutely out of their way to make it as easy as possible - there is a huge assortment of cables included within the box, the device is quite attractive, relatively small, and incredibly well labeled.  However the end result is that it's still too hard to ask average users to add yet another device to their AV stack, especially one which requires both connections to the legacy AV units such as your cable box, TV and/or DVR, as well as connections to your network router.

The first big issue is that you have to attach an IR emitter, the bane of many people's existence when adding new devices.  This is because you're asking the Sling box to control a legacy device (a DISH DVR since Comcast never showed up to install their system two weeks ago - see post), and the only way to do that is through an over-ride of the IR emitter on the DVR - it's not complex, but nowhere does DISH actually tell you where the IR emitter is on the front of the DVR, so it's a trial and error approach until you correctly place the IR device.

The rest of the AV set up is nicely laid out, but the second touch point is the router connection.  In my case I needed to move a secondary router into the home theater system, but it apparently conflicted with the primary router in the basement, so I had to go deep into the "Port Forwarding" section of each router's online menu to open up a port so that Sling could make it outside the walls - that's a lot to ask for most users, but I'm not sure how many have their primary router already near where the Sling Box will be connected, so this may be a common issue. 

So at this point I can remotely change the channel on the DVR, as well as turn it off and on, but I can't yet see any video or hear any audio - clearly not working.  This is not all Sling's fault since they have one of the best set-ups I've seen, but similar to the problems I've had getting the XBox 360 to work as a media extender with Windows Media Center, this process is sometimes just too hard due to the issues with connecting legacy AV devices to newer IP connected devices - or it could be just my incompetence   And you wonder why Best Buy is excited about the revenue potential of the Geek Squad...

Hopefully Sling's customer service can help tomorrow.

Note - we appear to have a calendar publishing problem with Typepad, so this post actually appeared 2 days ago, not today.

On the heels of the mysterious Mosaic Theory concept of Google Tunes last week (rumor is that Tom Hanks may star in the lead role), we today had the "Google buys Napster" rumor, which was reported by the known investor newspaper The , as coming from analyst Kit Spring of the investment bank Stifel Nicolaus.  Luckily the free markets reacted insanely by driving up Napster's stock over 70% in a few minutes to almost $5, before settling back down to $3.91, still 25% above the previous day's close with a trading volume massively higher than normal - see Signs of Bubble 2.0. 

The good news is that we now know the names of a public investment bank and analyst we had never previously heard of (which happened to have done a stock offering for its own stock 2 days ago).  The bad news is that there were no facts or logic involved in this speculation since Google could make far more money around music rather than providing music itself.  The analyst made the argument that Napster was valued roughly at cash value, and the value of the subscribers was far higher, ignoring the debt involved, low operating margins, and significant operating losses in the business.  Google emphatically denied the rumor, and I can't find any financial reason to support the purchase theory, outside of the need to generate news. 

But the best related segment news is that Digital Music Group IPO appears to be on track, which is a guaranteed Seinfeld episode for at least a year, especially now that Gizmondo is in Ch 11.

I have to say that I admire the chutzpah of the Digital Music Group guys, and their banks FTN Midwest, and I-Bankers Securities.  They absolutely jammed that future penny stock company public, raising $33M, and giving them 6 months to build a big enough story that the stock will hold up until the lock-up ends, or whenever they agreed to end it.  The next steps will be use the cash to attempt to roll up or aggregate other players in the space such as larger competitors The Orchard, IODA, DRA and Iris.  I would expect a flurry of deals in any case, and given that they have raised much more money than their competitors, it will be an interesting year.

As I have been absolutely clear in multiple previous posts, there is no possible rational way to value this company at anything remotely close to the current levels.  It is currently worth more than a company in a similar category, but one which generated $7M in revenue last quarter.  It's starting to approach the valuation of a digital music company with over $100M in the bank and a quarterly run rate of $24M.  As a comparison, DMGI's revenue was about $235K in Q3 2005.  Or another way to look at is that the independent digital music aggregation category is now worth over $1B, if you add up the revenues of the top 5 players, and apply DMGI's valuation metrics to all of them - clearly insane.

My guess would be the vast majority of the shares were sold to retail investors.  Given that the Shorts can start descending early next week, I think we'll see the Dogs Come Out.  And yes, I'll be personally there with them since there is rarely such an easy way to make money in a free market environment, but this is one of those opportunities if you can find shares to short.