Apple | THE CABLE PIPELINE

Why Quality Applications, not Quantity Bundling is the future of Video

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Apple (Nasdaq: APPL), led the way with the $.99 download price for your favorite iTunes rather than purchasing a CD with one song you really liked, and eleven others that could be thrown away, in want for a better excuse to use them. It then went on the create iPhone, and with a mind-set to share knowledge, created an Apps Store to build function and connectivity in what customers wanted from their mobile experience.

Cable/Telco and DBS companies have long used the model, more is better, and delivering customers a bundled package of mass channels at, an economy of scale price, is a good model. Depending on what consumers want to watch, one particular channel could cost you the price of many channels. That model worked fine in the past since prices were relatively cheap and channel quantity was high. Today, prices and channel availability are high all supporting high infrastructure and programming costs.

Now Google (Nasdaq: GOOG), is set to introduce a new Android based TV UI software at its upcoming Developer Conference in San Francisco which promises to lead the way in how consumers connect to their favorite TV programs. In addition, Google will be partnering with Sony, Intel, and Logitech to introduce Google TV, a web based platform to offer all the applications consumers want in a TV/Internet marriage.

What does this mean for the Video Industry? It confirms that competition is beginning to emerge from some of the giants in Internet proliferation who understand that a market does exist for Internet based TV. That market differentiates itself from the traditional bundling and mass distribution of linear programming which the Cable TV Industry has developed and distributed so well.

Google TV will be joining the ranks of Apple TV, Netflix, Roku, and others who have struggled to carve out an alternative niche in Internet TV viewing. And it will all come down to a Set-Top-Box delivery system along with serious applications giving consumers a wide variety of experiences over this venue. Currently, BluRay, Xbox, Roku, Apple TV and others have STB’s which will need to be upgraded and refined to compete with the formidable Cable Industry which has been developing their unique boxes for years.

This marks the spot where real competition will begin within the marketplace. As Google, Apple and others enter the Set-Top-Box market, only needing a high-speed broadband connection to operate; the game may change in favor of more choice and less mass bundles to offer consumers what they really want from both Internet and video.

Goggle has previously announced its intention to build a one-gigabit enable broadband pipeline in various test markets to indicate a belief that fiber-to-the-home is feasible and economically viable. But there continues to be unanswered questions regarding this initiative, mainly whether the revenue Vs cost models will hold up under their own weight. Verizon (NYSE: VZ), has also tested these waters with FIOS, and is now halting all new market construction in favor of concentrating build-outs of existing commitments. Sufficed to say, the economics are still yet to be determined over the long haul with such a high build-out cost on the front end of FTTH.

The bright side of the equation is that Set-Top-Box’s and associated applications have potential in creating more of a competitive landscape in traditional video markets, but does not necessarily correlate in the build out of more infrastructure other than in underserved markets, which fall under the Broadband Stimulus Plan. Traditional Telco’s have the best chance of competing with infrastructure based competition with their existing Telco based parallel lines with Cable. However, all companies competing for the video customer realize that applications based competitiveness is a must in this changing arena.

Report: Google Will Soon Unveil Android-for-Television (wired.com)
Google reportedly preparing to intro TV software next month (arstechnica.com)
Google and Partners Seek Foothold in the Living Room (nytimes.com)

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How can Residential Gateways spur Competition?

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The FCC is addressing the failure of CableCARD‘s in its National Broadband Plan that takes further steps to encourage development of the Home Gateway, a device in which consumers can easily and seamlessly access video programming from all distributors.

In a proposed Network Gateway-NOI and CableCARD NPRM, the commission is seeking input on how to best rework the CableCARD rules to make Set-Top-Boxes more universal in nature and easier for consumers to connect and network throughout the home to any video provider offerings. The question remains; is the FCC suited to take on another attempt to create competition within the Set-Top-Box market? Or should it leave this to market forces?

A Universal Provider Gateway Concept could be flawed

Most, if not all video providers want control of the user experience in their Set-Top-boxes, or proposed Gateways, and are not willing give up that control universally. That means each provider wants to create its own Gateway and harkens back to the premise of why CableCards did not work. Companies are not willing to share the proprietary customer relationship with other competitors. This is why only a few set-top boxes are in the market. Cable companies created their own devices to offer video content to customers, while investing billions to do so; but as market forces continually change the demand for a more competitive STB/Gateway continues to emerge. See (FCC to “improve” CableCARD rules this month)

A Sub-Market of Over-The-Top competitors

With the advent of Hulu, and YouTube along with NetFlix, Apple TV, Roku, Blu-Ray, and X-Box the concept of a possible competitive residential gateway, or STB if you prefer, has taken hold. Video programmers have accepted these non-traditional video providers as a new pipeline to distribute their wares. See (Park Associates Blog). But should these companies be looking to themselves to have unique home gateways built for home distribution which will connect consumers with mainstream video, Internet, and phone services? I think so, and this also means contracting with an Internet Service Provider-Video Provider-Telephony-Wireless Provider for a residential service interface to their STB. This may be easier said, than done.

Drive Private Sector competition

Near term competition does not lie in building hard-line infrastructure, although Google is testing those waters; it lies in the sub market of Over-The-Top competitors willing to create their own unique consumer experience, and compete with traditional providers with a superior customer interface that delivers video-wireless-Internet-telephony to the hardware within homes. It will not work to have a mandated universal gateway that all competitors must share. This means that competitors must contract with video programmers, wireless and telephony providers, or build their own networks to compete. Cable-Telecom providers have a huge advantage on that market segment. That is to say they have invested billions in infrastructure, hardware, wireless, and telephony products to offer consumers through their networks and STB’s. This is where potential competitors must look to have a chance at capturing an all-in-one home gateway market share. See (Hot Boxes: The Explosive Potential for Residential Gateway Devices)

Solution

View the Residential Gateway as a unique way for all providers to connect with their customers. It should be specific to the company with all the applications consumers’ demand, one that is easily interchangeable to all home hardware. This requires competitors to take on risk and invest in new ideas and concepts that will capture that market segment. As new markets unfold, the best and the brightest will be there to take advantage of any changing landscape in residential gateways to the consumer.

This again, goes back to whether the FCC should involve itself in manipulating the market to create more competition. It should encourage competition; it should incent competition within the marketplace by tearing down barriers to compete. But it should never mandate private companies to compromise their markets by opening up their STB’s, or consumer gateway.

FCC’s Proposed Gateway Mandate Misses Opportunity for Alignment with Pay-TV Operators’ Incentives on Open-standard STBs – IMS Research (eon.businesswire.com)
TiVo, Sony and others to FCC: ‘gateways’ should replace CableCARD (hd.engadget.com)
Apple introduce its own HDTV? I think not (feldmanfile.blogspot.com)

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Industry Demand calls for quick approval of FCC’s Wireless Spectrum recommendations

Cambridge Wireless + DCKTN: Spectrum and the N...

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There is increasing demand from the Wireless Sector that opening new spectrum, as championed by the FCC, would speed application roll-outs for broadband in the immediate future. Mobile providers are clamoring to offer increasingly sophisticated applications to connect users with everything on a Mobile Internet.

The recent CTIA Wireless convention in Las Vegas purported a salivating by Mobile operators to upgrade their networks in anticipation of increased demand by consumers and businesses alike to expect newer and better applications from mobile devices. This continues to drive a tremendous need for additional spectrum for the Wireless Industry. See (Cellphone firms see big opportunity in wireless Internet)

Approval of additional spectrum critical

Without the speedy approval of additional spectrum for the wireless industry both new and innovative applications, speeds, and wireless access will suffer. In addition, new job creation for struggling and unemployed workers will not materialize. Sufficed to say, the approval of the proposed plan to reallocate needed spectrum from the broadcast industry to wireless is essential in keeping this sector of the economy growing and creating new jobs. See (Recommendation 17-National Broadband Plan)

Broadcasters failed to innovate and use needed spectrum

The broadcasting industry failed to use its existing spectrum to innovate its way out of a declining ad supported revenue market. As any entrepreneur will affirm, innovation, change, and speed to market are an integral part of the continual and fast changing dynamics within a competitive marketplace. The FCC has outlined plans to compensate the broadcasters for this spectrum, and it is now time to move forward. We can no longer wait and haggle over how spectrum should be used, or whether current owners have the right to sit on it. If anything, their dormant spectrum use should be considered abandoned.

Reward Opportunists

The key phrase is (seizing the opportunity). Our government must support and reward companies that seize the opportunity in creating new, innovative, and competitive products; companies that create a new niche market, or offer products which no other has contemplated; the Google’s, Cisco’s, Facebook’s, Twitter’s, and Apple’s of the world, just to mention a few. This is what our economy is all about. It is a mantra that creates new jobs and works to lower consumer prices. The FCC is on the right track in seeing a demand and moving to fill its needs.

Cell execs say more steps needed to meet demand (seattletimes.nwsource.com)
FCC wants 120MHz of spectrum from TV stations (computerworld.com)
Wireless Carriers Celebrate FCC’s National Broadband Plan (blogs.wsj.com)

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Broadband Competition and Pricing: Lessons Providers must Learn

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I believe everyone can agree that Broadband Competition and Pricing are high on their lists of (all things broadband). Yes, consumers and businesses alike want a high quality broadband experience with dynamically fast upload and download speeds, and with seamless and unbridled applications to fill their Christmas wish lists.

It seems as though we are going in that direction, at least on the applications front, with innovators like Apple, Cisco, Motorola, and others, where competition is a daily fact of life; where CEO’s champion innovation, and speed to market, while continuing to find cost savings ways to offer a competitive product.

How are the incumbent land-line Broadband ISP’s fairing in the realm of innovation, speed to market, and cost innovation in producing a high quality product at a competitive price? I will give them a (C) on any standardized testing metric. And the reason remains that without sufficient competition, see (New FCC Report Boosts Case for More ISP Competition), a company’s desire or motivation to innovate; to produce a high quality product; provide the best customer service, at the lowest possible price, is just not there.

This kind of mindset can permeate throughout an organization where the (status quo) is accepted and championed; where being first to market with a great product is not needed, with no significant competition to worry about, see (ISPs Raise Broadband Costs — And Advocates’ Ire), and where a mature and declining linear programming market is continuing to produce significant returns, albeit in the short term. But wait, these companies built their networks with private funding and made them hard to emulate, while producing their innovations (during their day), and are now enjoying the spoils.

However, incumbents must act as though they have competition, simply because they will at some point – maybe sooner than later, and this must be drilled into every employee throughout the organization; not just in the isolated places where some level of competition exists. They must model themselves after the Apple’s, Cisco’s, and Motorola’s, and other innovators of the world.

This is a defining moment for the industry, as legislatures through the mantra of the FCC look for ways to create a Broadband competitive market, either through legislation or competitive factors, see (What Would Broadband Competition Look Like?). Now is the time to let go of the status quo and create new markets defined by innovation and price competitiveness. It is happening with the likes of Apple, Netflix, Boxee, Hulu, YouTube and others that value customer service and retention. So, roll up those sleeves and get to work; time is running out.

FCC Commissioner rips ISPs on broadband prices, competition (arstechnica.com)
Clyburn Blasts Price Hikes (techdailydose.nationaljournal.com)
FCC launches broadband test site for consumers (computerworld.com)

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Set-Top-Box Quandary: Let Market Forces Rule

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The FCC has just issued a Public Notice: Comment Sought On Video Device Innovation NBP Public Notice # 27, to spur innovation within the set-top-box market currently being served by individual Cable & Telecom companies as monthly rentals to consumers. First, these providers have invested in their own versions of set tops which interface their products with consumers for a wide variety of enhanced services.

The problem the FCC sees in this configuration is that it somehow stifles competition within the marketplace therefore making it difficult for consumers to delve into the now wide range of new services like Internet TV from different providers. This makes for a hodge-podge of connection/interface devices consumers must rent or purchase to experience what they want. Examples would be X-Box, Blu-Ray, Apple TV, Netflix, and others which connect consumers to Internet content through their TV’s.

The FCC moved to solve this problem through CableCards that mandated providers to modify their equipment to be CableCard Ready. It is probably in understatement to say that this mandate has failed without bringing inter-connectively any closer to the consumer than what we have today, individual provider set-top-boxes. So, where does the solution to this quandary lie?

To say that Cable-Telecom companies are not aware, stifling competitors, or not working on solutions that will take advantage of IPTV seems ludicrous within a competitive market realm. The last thing this market needs is more regulation or mandates to companies on how they should run their businesses, or how they should spend capital to give products that market forces will demand on its own.

Personally, I would like to see Home-Gateways as a solution to this problem. Each provider could custom design their own device to interface with the Gateway, therefore routing different services to each entertainment or communications platform within the home. It would be much simpler and efficient in handling the needs of consumer demand. And this should not be mandated, but left to the innovators to come up with a device which would take any companies encryption product as a plug-in; problem solved.

Being realistic, this solution is much easier said, than done. My point is that innovation, competitiveness, adoption, and lower prices do not come from mandates, they come from market forces where demand and supply rule. With unencumbered innovation the market will solve the set-top-box dilemma the FCC is delving into from a regulatory stance. In essence, let market forces rule, not the FCC.