Thursday, January 8, 2009

Post-CES Hoopla: We’re Still Not Connected

The big void in 2009 connectivity is centralization that allows consumers to discover and coordinate every kind of content and communication in one place. That means filtering TV programs and films, music and text, maps and data through universal templates that provide the same common functions, socialization and commerce everywhere.That means seamlessly moving all things digital from mobile to home TV to PC and back again.

Despite the announcements this week from players as diverse as Microsoft, Netflix, TiVo and Yahoo to bring more interactive access and choice to the living room TV, home connectivity remains a disjointed, even dysfunctional goal for the average digital consumer. Ultimately, it requires ubiquitous software interface for disparate platforms and devices used in and out of the home.

For now, companies generally remain in their vertical fiefdoms: from cable and TiVo set-top boxes, to game consoles and digital TVs, to computer-savvy phones and PDAs. They sort of interplay with each other.

Netflix jumped ahead of Internet streaming rivals like Apple and Amazon by integrating its software into some LG and Sony plasma and LCD high definition TVs. TiVo is providing search. Apple iTunes is offering DRM-free content to iPod, iPhone and home, but still no social networking. Yahoo’s widget engine built into TVs like LG, Sony and Samsung is helping to usher into the home an Internet ecosystem of services from MySpace, eBay, and Flickr to Amazon VOD and Blockbuster. Boxee has the software that unites social networking with streaming Internet film, TV and radio content on home TV or PC hubs. The endless list of Consumer Electronic Show interactive video announcements, while impressive, represent diffused solutions for consumers who don’t want to work so hard at bringing it all together.

The logical next move is for smart TVs (mandated to be digital this year) to access and download all streaming video, as much from Hulu.com and YouTube as from branded aggregators. There must be more consistency among diverse home devices—from DVRs, cable set-top boxes and on-demand services, game condoles and Blu-ray disc players. Amazon has the cloud access, infrastructure and social community elements to facilitate universal video exchange. Still, there are too many content libraries with limited offerings, high fees and garden walls to make consumer selection and sharing less complicated and costly, especially in a recession. By and large, consumers remain suspended in the industry’s shift from disc to digital, and from home anchored TVs and PCs to all things mobile.

Consider some of the numbers: nearly 80 percent of Americans have cell phones, which is more seven times the number of cable subscribers. Millennials (ages 14-to-24-year-olds) prefer the PC to the TV, according to Deloitte. The majority of 140 million US consumers paying for mobile broadband by 2013 will want texting, video streaming, and easy interface, according to the Pew Internet Project. Even now, three-quarters of Internet users watch video on their PCs, according to IBM, and half of all mobile users want phones with better Internet capabilities including streaming video and GPS, according to the Kelsey Group. More than three-quarters of of domestic mobile users rely on their phones for social networking, 26.3% for video and photos, and 21.5% for texting, according to comScore.

So, before media-related companies start planning for next year’s CES, they should stop and listen to the marketplace. The company that figures out the ultimate universal dashboard software that eases pain and price of being a digital consumer wins the whole shooting match.

Wednesday, January 7, 2009

Everywhere Car Radio on the Move


The first Internet radio for cars unveiled by Blaupunkt at the Consumer Electronics Show in Las Vegas this week suggests that Sirius XM satellite radio could have more trouble ahead in the form of new competition.

The news:

According to an account by VentureBeat's Dean Takahashi, the in-dash car stereo can play 20,000 conventional AM/FM as well as Internet radio stations streamed in real time via a Bluetooth connection from the radio to your 3G cell phone. Rather than endlessly browsing by genre, station or keyword, the radio can be programmed with preset stations selected on a Web portal. Potential early drawbacks include spotty domestic 3G coverage and the need for speedy drivers to bulk up on extra bandwidth to assure unbroken radio reception. While economics remain fuzzy, it appears Blaupunkt and partner miRoamer will sell the Internet car radio option for just under $400 domestically the second half of 2009, perhaps with some subscription options.

What it means:

It is an example of how alternative technology is an ever-present check on self-ascribed industry leaders. It may take a few tries to get mainstream in-car Internet radio right, but fears about the recently merged Sirius XM satellite radio monopolizing the market could soon be thwarted. Sirius XM continues to sift through the financial rubble of its protracted merger at a time when automotive sales are expected to remain at record lows in an economically depressed year. About $1 billion in refinancing remains uncertain and merger synergies must be demonstrated as debt-strapped Sirius XM works to post improved performance. What the company—like so many other dominant sector players—may not have been betting on is rigorous competition. The new Internet radio once again demonstrates the point: There always is the prospect of a better, cheaper alternative courtesy of an entrepreneurial tech community that never sleeps…even during a recession.

Time Warner Losses Harbinger of 2009 Media Outlook

The $25 billion one-time charge at its cable, publishing and AOL segments announced by Time Warner and nearly $400 million in fourth quarter charges resulting in essentially flat 2008 earnings underscore media and entertainment industry vulnerability in this recession year. In addition to advertiser and consumer spending pullback, media companies also are wrestling with their own structural issues and financial commitments as well as the weakness of third party vendors.

The news:

Time Warner’s previous forecast for 5% growth in 2008 adjusted operating income has been reduced to a mere 1%. The culprits include a $280 million legal judgment against Turner Broadcasting related to the sale of its sports team, the loss of rent from bankrupt tenants (Lehman Brothers) of its Time & Life Building in Manhattan, and potential credit losses due to troubled customers such as bankrupt Circuit City.

Time Warner also concedes a “more challenging economic environment” and strained advertising at AOL and its publishing assets. JP Morgan analyst Imran Khan partly attributes Time Warner’s revised guidance to an 18% year-over-year decline in AOL advertising revenues of about $64 million as marketers shift from display to search. An estimated $15 billion of the $25 billion write-down will come from Time Warner Cable, the second largest domestic cable operator which expects to record a loss for 2008. As a result of the impairment charge, Time Warner expects an overall operating loss in 2008 compared to $8.9 billion in operating income in 2007.

What it means:

Media companies will continue to be hurt by reduced consumer and advertiser spending while wrestling with less obvious financial demons including economically ravaged third parties, shortcomings in their own operations and meeting their own financial commitments. While the shift to emerging digital business models and revenue streams prevail, it won’t offer much immediate relief. Time Warner will have the advantage of $9 billion in proceeds from its Time Warner Cable spin-off, putting it in the company of cash-rich peers like News Corp.

Still, a bevy of unknowns and unsettled business are festering just below the radar at many media concerns. AOL is an example of a business model change complicated by a severe economic downturn, the value of whose business has been written-down on other occasions. Bernstein Research analyst Craig Moffett suggests Time Warner Cable’s decision “could prompt Comcast to examine its franchise rights more closely.” Hypothetically, a similar 40% reduction in fair value, comparable with Time Warner Cable’s announcement, would yield a $13.7 billion pre-tax write-down for Comcast this year, Moffett says. Writing down the value of AOL and other Time Warner businesses is an exercise other media companies are sure to endure as valuations continue to fall and readjust. Time Warner and other major media companies’ problems in 2009 will not be limited to a 10%-plus decline in US advertiser spending, flat online ad spending and a mere 5% growth in pay-TV, according to Goldman Sachs. The real question is how much of a financial hit could be represented in 2009 by all the other unknowns?



Tuesday, January 6, 2009

Digital TV Fiasco Hurts Stations, Aids Online Video

It turns out those pesky radio spots featuring Federal Communications commissioners warning consumers they might only see snow on TV sets without digital connections after Feb. 17 are prophetic. Human nature and government bureaucracy being what they are, it appears last-minute takers for $40 coupons subsidizing the cost of the digital converter boxes are out of luck. With more than 100,000 people on a waiting list for the coupons, the National Telecommunications & Information Administration (NTIA) says it has hit its statutory maximum of $1.34 billion in funding for the program designed to bridge the analog-to-digital gap.

Demand will exceed the NTIA’s authorized limit for 51.5 million coupons, leaving more than 8 million homes without signals and 11 percent of TV stations (about 196) reaching fewer people. Since the government already has raised $20 billion auctioning the 700-megahertz band to Verizon Wireless and AT&T, it is logical to assume funds are available to properly finish the converter coupon job.

This is no ordinary government folly. The digital transition that has been in the works for years now coincides with The Great Recession. Consumers who will not receive their $40 converter coupons in time have choices, all of which benefit big business. They can purchase full-price converter boxes, subscribe to cable or satellite, or invest in a new home digital television center, the FCC advises. Or, they can watch their favorite television programs, news and even commercials when they want to as streaming video online; a relatively cost-effective option that requires high-speed Internet access. Considering that consumers are viewing nearly 13 billion videos online monthly on sites such as YouTube, Yahoo and Hulu.com, according to comScore, the behavioral die has been cast.

A great unknown is whether a large portion of "unprepared" U.S. households will choose to watch TV content on computers, cell phones and PDAs. That puts the onus on television manufacturers to get smart connected interactive home hubs in place before consumers improvise and TVs go the way of land line telephones. Still, the biggest initial losers of this digital transition could be the TV broadcasters and viewers the program was designed to assist.