Hulu Plus: the battle is joined

Launched around two and a half years ago, Hollywood's internet TV consortium, Hulu, has progressively garnered a growing viewer base and is now profitable.

Earlier today, Hulu announced Hulu Plus,  its long-awaited next step: a simple, subscription-based, internet-delivered television service which complements the original, free offer.

While it's way too early to tell how well Hulu Plus might do, the explosion of internet-capable mobile devices (triggered by the launch of the original iPhone, nine months before Hulu) is now converging with the first rudiments of a Hollywood-backed alternative distribution model for commercial television.

Hulu Plus sounds like a big step forward in starting to clean up original Hulu's content windowing chaos. Consortium members have agreed to simplify and standardize what have often been confusing policies, while broadening the range of available full-length episodes. And so it's likely that Hulu Plus will please viewers who were often frustrated trying to do more than snack on show clips and highlights or watch shows from a very spotty and unpredictably changing content inventory.

Even more importantly, Hulu Plus is aiming squarely at the "iWorld" of iPhone, iPod Touch, and now iPad devices, not to mention laptops. This will come at an awkward time for the lumbering and clumsy "Television Everywhere" initiatives from television's "frenemy" distributors: cable and to a lesser degree, satellite.

US cable, largely unimpeded by Hollywood so far, has been progressively drifting into new strategic territory with a deeper video-on-demand library, increasing amounts of quasi-VoD "replay/start-over" functionality and, of course, attempts to extend their distribution from the set top box to the laptop and beyond. (see Television Everywhere: strategic view) 

Hulu Plus is a next strategic step forward for Hollywood . The 'Plus' makes the potential audience bigger by adding more places (mobile devices) and more shows. And as we've said before, the myth of internet TV delivering "digital dimes" instead of dollars, is just that - a myth. Over time, as the audience gets big enough, there will be plenty of dollars because, as it scales up, internet TV is potentially more profitable than linear TV, not less.

In the long run it's quite possible instead of Television Everywhere as promoted by the cable industry and its suppliers, we can have "Hollywood Everywhere" - a scenario which is great for viewer choice and even better for Hollywood itself (see Hollywood Everywhere: migration and endgame).

The primary ingredients of this strategy are: (1) patience and staying power (something Hulu has already demonstrated), (2) continued control over content (which Hollywood, by definition, has), and (3) completely reinventing how the internet helps viewers find what they want (the so-called "discovery" problem), something no one has yet come remotely close to solving, but which Hollywood could solve better than just about anyone else.

Stay tuned...

Hollywood Meets the "Third Place"

Can Starbucks replace your cable box?

Starbucks CEO Howard Schultz describes their 10,000 or so US retail stores as "a third place between the office and home." Their purpose: synthetically recreate what used to be (and in other countries, still is) the role of independent coffee shops and pubs. Part community hangout, part momentary oasis in a busy day, these spots are ideal places to go for something more than refreshments, like brief interludes of music and entertainment when winding down and socializing.

With this in mind, Schultz took to the stage next to Steve Jobs in September 2007 at Moscone Center and announced a partnership enabling free access to the iTunes Wi-Fi music store at Starbucks locations. Starbucks subsequently hit a series of operational potholes. The partnership went largely radio silent, Schultz returned to his role as CEO to stem a major decline in sales and, evidently, re-evaluated what to do about music.

A couple of weeks ago he announced another try:  Starbucks Digital Network ("in partnership with Yahoo!") arriving in Fall 2010. Speaking about the Starbucks brand and the new portal:

"... [the Starbucks brand was] built quintessentially by the experience, and comes to light every day because of the sense of community and the trust in the physical environment, the coffee, and our people. Free Wi-Fi is, in our view, just the price of admission. What we want to do is create a proprietary way in which we're going to give access and new sources of proprietary information and content that you can only get at Starbucks."

Starbucks Digital Network could help solve a nagging and worsening problem: discovery of and engagement with media and entertainment. Thanks in part to the internet, music and television are massively fragmented markets. There's more content than ever and, Google notwithstanding, it's arguably harder than ever for consumers to make sense of it. Many simply don't bother. Plus there's the "Is Google Making Us Stupid?" problem of fidgety impatience and shortened attention spans, whereby people rapidly give up if they can't instantly find, access and consume media and information.

Starbucks can potentially create an important out-of-home setting which helps consumers in three ways:

(1) right time, place, and duration: at Starbucks, consumers will often be at a time and place in their day, mentally and physically, in which they'd be open to investing a few minutes browsing and sampling a convenient, non-overwhelming list of pre-selected media fare

(2) merchandising: less is actually more. Whether it's browsing hundreds of television channels, or a massive, cluttered iTunes catalog, sometimes consumers want guidance, opinion and fewer, better choices. This is analogous to the way a boutique or even department store pre-selects merchandise with a brand-related point of view. (More pretentiously, this is often known these days as "curating")

(3) simplicity and convenience: a button or app on an iPhone is an even more convenient way of consuming, say, Starbucks "Pick of the Week" music offer
than a small, physical coupon card and is likely to have much higher redemption rates.

Imagine this notion projected to television programming.

• A relaxed, out-of-home setting in which a consumer is in the mood to explore and, often, buy.
• A trusted, simplified set of current "trend-setting" offers, spanning an array of channels and shows.
• The ability to conveniently store, link to, bookmark or even watch a show which, under other circumstances, wouldn't come to the viewers attention or is easily forgotten and ignored.
• A setting in which viewers’ undistracted (or at least less-distracted) interest in new media discovery is made available, often more than once a day, and can set the stage for more in-depth media consumption later that day/evening.

Which cable box does this, again?

 

Technorati Tags: Television,Media,Starbucks,Yahoo,iTunes,iPhone

While Hollywood Slept?

The FCC wants US television to give up almost half its over-the-air spectrum. Doing so may end up prying away strategic options that are an important part of Hollywood's as-yet-undefined future. The television industry should take a closer look before it's too late, reframing the debate away from technical matters and "broadband strategy" and towards TV's own future. 

Somewhat buried in the Federal Communication Commission's National Broadband Plan  is a step to "reclaim" about 120MHZ of the 300MHz broadcasters use to distribute television signals over the air.

Positioned as a technical initiative, the government rationale is to make more efficient use of scarce wireless spectrum in the aftermath of the national transition to digital television. The FCC asserts that, after assorted transmission inefficiencies and spectrum housekeeping are taken care of (station "repacking", antenna reconfiguration, selective spectrum sharing, etc.), broadcasters will be left with more than enough spectrum to deliver their signals.

Even with HD broadcasts, goes the story, with a little left over for adjustments to avoid signal interference, broadcasters won't notice the difference and will be compensated by sharing in the proceeds of a national spectrum auction in which their excess and voluntarily-relinquished spectrum is resold. The reclaimed spectrum would then contribute to overall national broadband goodness by significantly increasing wireless broadband capacity.

In a recently released technical paper, the FCC envisions an aggressive schedule in which rulemaking is concluded next year, spectrum is reclaimed and auctioned to new operators in 2012, and the spectrum is cleared for new use in 2015.

To its credit, one of Hollywood's trade associations - the National Association of Broadcasters - has taken a very skeptical view of this agenda. While politically astute enough to praise the overall National Broadband Plan, the NAB has warily questioned the offer-to-good-to-refuse voluntarism of the proposed spectrum measures. The NAB has raised legitimate, albeit vague-sounding concerns about backward-looking government intervention potentially ill-suited to rapidly changing technology.

There are two major premises underlying the government's position that
broadcasters wouldn't really be giving up anything they needed anyway:

1. it's not like over-the-air TV is going to grow: multi-channel TV is widely available from cable and satellite and (implicitly) will be increasingly accessible via the internet
2. Mobile TV isn’t your department: you win by letting others have the spectrum and developing those services

If we were sitting in, say, Bob Iger's or Rupert Murdoch's office, we'd make the following counter-argument:

• irreversible? Keep in mind that once you give up/sell-off that spectrum, the chances of getting it back aren't very good. So how about we take the time to think through some potentially valuable uses before being railroaded into relinquishing these un-/underused assets?
• who says OTA won’t grow? Maybe. Admittedly it’s late,  but why completely rule out Freeview-style initiatives in the US?
• what’s the rush? You're in the still-early stages of figuring out how TV and the internet fit together - it's quite possible spectrum in your station groups currently being used for unwatched digital subchannels could be
  be used to redefine what a "channel" means and, when combined with simple interactive technologies, become a major means for viewers to discover and engage with an increasingly complex and overwhelming array of programming, both “linear” and internet-delivered
• phone guys? you’re kidding, right? Why assume "others" should/would be better at implementing mobile TV with your spectrum than you? Maybe if we were talking about Apple, but phone companies? Cable companies? Qualcomm? Cisco? Their sorry multi-decade track record of technology-centric TV futurism is unlikely to produce meaningful advances that viewers and advertisers will value. Why not have people who actually know and run the television business in charge and contract out technology work instead of vice-versa?

Let's not be in such a rush to "reclaim" spectrum before Hollywood has a chance to stake its own strategic claim to television's future.

 

Technorati Tags: mobile,tv,broadcast

Revenue Requirements: An Idea Whose Time Has Come… Again

Eons ago when we were new to telecom, the first time we heard the term "revenue requirements" it struck us as kind of odd and presumptuous. A bit like walking into a job interview and steering the subject right off the bat to "salary requirements."

The term is actually commonplace in a variety of regulated utilities and simply refers to an amount that must be recovered from customers in order to cover costs. As you might guess, such numbers were the subject of imaginative and often mind-numbingly complex cost accounting devices, not to mention regulatory negotiation. And revenue requirements went up, not down.

Of course, "revenue requirements" were about much more than cost accounting. They were a mind set. Combine the notion of revenue requirements with "rate base" and you've pretty much mastered, conceptually at least, the business model of a regulated monopoly. In US telecom, this mind set has persisted waaaaay beyond the official end of the Bell System in 1984.

Along came wireless carriers: structurally separate subsidiaries, largely de-regulated, but whose services remained metered and billed on a minute-by-minute basis. When combined with roaming charges, this price structure led to wildly unpredictable and expensive monthly bills.

In 1998, Dan Hesse blew all that up. Then president of AT&T's Wireless Services subsidiary, he instituted "Digital One Rate", and the flat-rate, minute bucket pricing structure which was rapidly copied by everyone else has governed the US wireless industry ever since. Providing price predictability, eliminating roaming charges, when combined with rapidly declining handset prices, the new pricing plans paved the way for the wireless industry's explosive growth.

Back when the only thing subscribers bought were minutes, carriers began creating pricing loopholes in these minute buckets in order to entice customers their way - "rollover" minutes, "nights and weekend" minutes, "friends and family" minutes, and so on. The good news for carriers: preserving the relative stability of their revenues while "giving away" incremental minutes that often cost nothing (low network traffic at night, for example).

And so a new form of revenue requirements was born. Revenues are mixed and managed across a widening set of service categories, but against a fixed target. The goal is to hold "ARPU", or monthly subscriber revenue, constant by providing an assortment of additional services (texting or SMS, 3G data, family plans, multi-device plans, etc.) which, when averaged out across the subscriber base, yield reasonably stable revenue per subscriber.

The wireless industry kind of stumbled its way into this. Somewhat unexpectedly, declining voice revenues were offset by large and hugely profitable revenues for texting, providing the industry with the breathing room it needed until "real" data (e.g. 3G) services took hold driven by the smart phone wave.

The new revenue requirements model is, essentially, "we don't really care what they buy as long as it adds up to $x, or $y, or $z per month depending on the type of subscriber." And so plans are gradually becoming simpler and fewer, varying by how voice- or data-centric they are, or how "unlimited" they are.

On balance, this is good news for both carriers and (despite grumbling about high prices) subscribers as well. Wireless carriers have largely given up on the distracting pretense that they will be "moving up the value chain." The marketplace wave which includes the Apple AppStore , and Android Market and so on have already taken care of that. By focusing on what they're supposed to be good at – running a communications utility – and getting out of the way of wireless innovation, one can only hope that wireless carriers both improve their service and keep up with the onslaught of mobile data traffic (see somewhat dubious exafloody Cisco forecast).

 

Technorati Tags: wireless,mobile,telecom