ABI Research conducted on current attitudes towards digital downloading and found out that 48% of all consumers say that they would never pay money to download a film.
In many ways this study is a little surprising and in many ways it s not. 48% is a pretty high number to say the least and with just about everyone planning on unveiling , many companies may be in for a bit of a shock when they find out that consumers really aren t demanding these services yet.
On the other hand, there could be hope if the studios get their acts together and offer a more compelling downloading product. I think that part of why this number is so high is in large part because of . First they give you limited selection, then they make you pay almost as much as a DVD, just to rent a downloaded film and finally they make it a royal pain in the neck if you want to watch it on your TV set.
Oh and to top it all, for doing the right thing and buying your movie instead of stealing it off the bit torrent networks, you get a large heaping dose of DRM with your file. No wonder half of the population isn t interested in this.
While the report didn t give the percentage, I wonder what it would have been if they asked about downloading music instead.
In the music industry there is plenty of variety, 99 cents is a reasonable price to pay, you can buy unprotected mp3s at places like emusic and you re allowed to put them on you mp3 players, your laptop, I can even get my music onto my cell phone.
When I see things like , where you not only pay to buy your DVD, but then they make you pay again if you want to download the film on top of it, I say no way. It s simply not worth the extra $2 for me to wait 6 hours to download some film when all I have to do is pop that same DVD into my laptop.
What the content owners don t realize is that they really aren t competing with DVDs when it comes to digital downloads, they are . Instead of penalizing consumers for buying their product, they should be offering DRM free products at a reasonable price. If they would open up their complete archives for downloading at $3 per movie, they d be able to compete with the pirates, but at $9.
99 for a DRM file, they ll continue to see leakage to the .
While I don t condone piracy, I do believe that consumers should have more control over their entertainment choices. Looking back, had it not been for Napster, we never would have seen pay music services take off, yet here we are seven years later and we still haven t seen a viable movie download service come to market.
If the studios want to keep dragging their heels then that s their right, but with consumers now creating their own content and with our culture, the six studios who ve controlled what we watch, when we watch and how we watch it are quickly losing control. If the studios want to convince that other half of the population to join in on the digital revolution, then they need to offer a more compelling solution to their customers. Over the last few months, DivX has undergone a pretty dramatic shift.
After years of being a closely held private company known more by the underground P2P community then, by the business suits on Wall St., they thrust the company into a wider spotlight by opening up their books and their business to greater scrutiny when they took the company public in . With the YouTube craze at a fevered pitch and a mainstream audience beginning to seriously think about video downloading for the first time, DivX s timing was impeccable and as a result, they ve by approximately 70% since their debut.
While the company was able to raise $145 million in cash from the proceeds of their IPO, it wasn t without a cost. Because they agreed to take cash from the public markets, it means that they now on their performance and disclose details that many public companies would be more then happy to keep as trade secrets. When I saw that the company was going public, I siezed on this opportunity to take a look inside a company that I ve known about for a long time.
As a technology enthusiast and a huge video fan, I ve used their codec for years and was eager to delve into all of the details that leak out during the very public IPO process.
Over the last few months and have helped to outline some of the strategies that DivX is employing in their quest to make the DivX codec in the digital home. As a result of my coverage, Divx s CEO Jordan Greenhall reached out to me and granted an interview to someone outside of the traditional press where I could ask some of the questions that I felt the business analysts and mainstream media were missing.
As a result, I an excellent conversation with Greenhall, where we discussed DivX strategy with their , the status on their talks with Microsoft, Sony and Nintendo over bringing support for DivX movies to the video game consoles and the reputation that the company has been labeled with by the open source community over the years. Rather then choosing to provide commentary on the interview or release select quotes, I ve decided to publish a complete transcription of the interview and the following is the conversation that took place.
If you could tell me about the history of DivX, how it got started, what the birth of this whole thing was up until the point of where we are today?
There are actually two entirely different threads that combine to create DivX. Which are you most interested in?
Mostly the start of the codec itself and how it turned into a business?
Ok, That s actually two threads, so the one thread is largely mine, the other is Jerome s, (Gej) Gej was the individual who actually created the technology. He was in Southern France at the time. He was working as a professional video creator and he needed to be able to solve a practical problem in being able to send video that he was creating to a remote location.
In order to do it he needed to be able to compress it and he wasn t satisfied with the tools that were available at the time, so he started looking for better tools and some people on IRC recommended that he take a look at some of the few things that were being done on the intertag standards reports on mpeg4 and he started working with that and he created an idea that he later called DivX. He started calling it DivX by version 2 or so, I m not sure what package that was. Particularly it just happened to be a very early version of a Mpeg4 asp technology that had to be able to create and maintain DVD level quality, it was really well optimized for D1 resolution and he got it down to a size that could reasonably fit on a DSL line, 784kbs.
It was built in an open environment and it included all kinds of technologies to make it happen. He used the .avi platform because there wasn t a good file format available at the time, and released it out to his various friends on IRC and they sent it to their friends and they handed it to their friends and rather rapidly people started using it a lot.
It just happened to hit at roughly the same time frame as Napster, maybe 6 months after Napster hit, it really became known as a phenomenon about a year and a half after the real pickup of mp3. This was largely the community of individuals who had really taken to the mp3 scene. They just took the technology that they were using for audio and took this technology and used it for video.
I actually had a completely different path and intercepted Gej s path when I was specifically looking for a technology that handled exactly like this. I had a strategic plan in place talking about the convergence and what the new media lens would look like after convergence and an expectation of what would be required to happen for convergence to happen and as it turns out one of the elements that I thought would be needed for this, was a piece of video compression software that allowed you to put images, video and audio that allowed for the reduction in size to the level where traditional mass market pipes, broadband pipes that would be in existence in a reasonable time frame. Even if you had broadband and there were relatively few at the time, we knew that this would be a catalyst, but we also knew we wouldn t have 10MBs pipes anytime soon.
When you went to look for the DivX codec were you specifically looking for video or for all three formats?
Video, I had worked at mp3 and I saw where audio went and had a good sense that there wasn t going to be a whole lot of innovation on the technical level, so audio was going to start maturing on the latter side of the convergence arc. Having to do with first the physics of the size and then the transformation of the actual music industry and I was actually spending time with Intervu, which later got bought out by Akamai, and Intervu was the company that built the first distributed network specifically focused on media.
At the company I had a lot of insight into what the state of the art was for moving media bits around the internet and when it goes straight to the internet it s difficult to stretch over the size that pipes had on the overall internet so as a consequence I believed that you needed to have another compression level come in and software is a better solution then hardware, because if you didn t solve the software problem it could be five or ten years before the hardware and pipe connection could meet the needs of convergence. So that was clearly what I was looking for, so I sent that out to a lot of friends that I knew from prior to it s inception and a friend of mine said hey there s this thing going on right now on some of the alternative p2p networks that s springing up around post Napster, called DivX which is being used for video, so I went and found one called Cutemx, I m not sure if it still exists, and logged onto a variety of chat networks to check out how this subculture works, got the nomenclature, found somebody who actually had some videos and downloaded a video which was exactly what I had hoped for.
It was not DVD level quality, there was certainly degradation, but it was roughly equivalent to where mp3 was with the audio degradation from CD, circa 97 .
There was degradation, but it was eminently watchable and the size was a lot smaller then an original DVD. It was small enough that over the net I could grab it in like 35 minutes, which is very reasonable and at that point everything falls from that.
So at that point I started to go out and try to find this guy, but to a certain extent he s a little , he was acting under a noms de plume, Gej.
I didn t know who he was so I had to track him down, but I was able to track him down and chat with him on where I thought this thing should ought to go, what kind of system could be built and he agreed and we got together and started working on the project, which we called .
How did you pick that name for it?
Initially that was a name that was meaningless, the domain wasn t owned, and it appealed to his aesthetic sensibilities.
We tried lots of code names, but it turns out that those three things are hard to get. Then we recruited these other guys to start the organization up and then about three months later Lee Gomes from the Wall Street Journal had followed exactly the same path to track this guy down and I got an email from Gej saying, uh oh and then an email from Lee Gomes saying we re writing this story about this new phenomenon of online video sharing around DivX and I d like to interview you for it, but if you don t want to interview for it I m still going to write the story, so we did the story and a lot of things happened after that.
One of the more recent innovations that you ve been working on has been the launch of your web video site Stage6, can you tell me how that fits into your longer term strategies and what piece of the puzzle that falls into as far as DivX goes?
Let me start at the top with our long term strategy and you ll see how easily it fits. DivX the company has three beginnings, it s literally why I was looking for this when I was looking at what does the new media landscape look like post convergence? More significantly there, we have to make convergence happen, so we have two missions, one mission is to understand a better media future, and to do that, on the one hand we are building what we are calling a common media language.
Which we believe is the underlying technology layer necessary to enable convergence to happen and you can see that in the codec, in the DRM, things like , going into cameras, going into set top boxes, etc.
The other mission is called the new new network, which is building the specific infrastructure that is appropriate to the functions of what media looks like post convergence. We have 20 year plan and we ve gone through 6 years of it and we re more or less on track.
If you assume and if you are positive that convergence will happen, and by convergence I mean literally the combination of all networks into some form of the internet, mobile, cable etc., some form of open network typology where all devices communicate with that network in a functional way. That is, they re not tied through medium, through the kinds of content they can consume, rather then a physical typology of their use case, so the cell phone is mobile and small and it fits into certain uses that it satisfies, portable devices, which are mobile and larger have another function it can satisfy.
Then you have a very large screen TV in your living room, which is fixed and therefore has limited functions it can satisfy, but they re not tied to any particular medium so it s just like broadcast television having immediate control over your TV set.
So thats how I define convergence at large. So a large part of what we ve been doing over the past six years has been ramping up the infrastructure for this to happen and having a common media language.
A set of protocols really that all being complete, can cut across all devices over an open network typology is required for that to happen and that s a role that we can play. Other requirements of course are the rollout of broadband, the rollout of 3rd generation wireless, affiliated co-married networks and things like that where we really don t have any synergistic role, so we re assuming that the market will take care of that on it s own and we ll take care of the rest.
A large part of the infrastructure that s developed around DivX has been from pirated material, do you have any numbers as to what percentage of DivX content today represents pirated material?
I don t, one of the features of pirated material is that they don t accurately report pirated numbers. If you take a look at the external numbers of the volume of pirated material over the world, it s certainly a very large number. I can t remember what the last report was, but in the music world it still dwarfs the amount of content sold in all collective commercial institutions.
I think in the video world, it would be an even larger fraction because online commercial video is still very much emerging whereas grey market online video is rather mature.
Have you talked with any of the major media companies about putting their content on Stage6 and has this issue with piracy complicated those talks at all?
It s actually kind of a funny story, the very first phone call we got when we started up our office, we had a phone on a box plugged into the wall, was from the MPAA.
The second was actually from Disney, so yes we ve talked with the major media companies for quite some time, in fact the way we first set it up, in an early conversation with one of the CEOs from a major media companies, he said look I think what you guys are doing is great and it needs to happen, but I hope that you understand that there is no way that we ll be doing any business with you for six years. I said that I completely understand and know the time frame around what was happening, so here s what I propose we do, what I ll do is, I ll say here s what I m going to do over the next six months and then six months later I ll come back and say here s what I said I d do, here s what I actually did and here s what I m going to do over the next six months and then just keep doing it. Sometimes what you ask me to do, I ll do and sometimes what you ask me to do I won t do, but over a period of three or four or five or six years, you ll start getting a sense of what we re about.
When we first said that, we knew that we would be in a position to make a realistic play and that s more or less how it s played out. We ve been involved in all kinds of interesting things with the media companies, we were part of the original high definition standard DVD forum. We were specifically focused on the use of red laser for high definition that took advantage of compression instead of advantage of storage for high definition.
That particular initiative didn t make it off the DVD forum world, so we spun it off ourselves and we re now promoting red laser high definition in an open market as opposed to a consortium approach.
If someone downloads one of your high definition files from Stage6 and burns it to a DVD, will they be able to get high definition on their traditional DVD player from the HDTV video they download off your site?
If you put it into a traditional DVD player you re not going to get anything, so at the very minimum it will need to be a DivX certified DVD player, but it would actually need to be an HD certified DivX DVD player to be able to handle high definition files.
How many HD DivX certified players are out there right now?
I believe we have right now. They are available, they re not particularly expensive and if you look at the way cycles work in CE, you always go through a cycle where you have relatively high end CE chips which are thick DSP s on the order of $50 - $60 bucks, which could get you traction to a final cost of $150 - $300 bucks, so you start at $300 and move down to $150, which if you are successfully you can then move into lower cost silicon, which is also a more mass market product.
We are now pricing our DivX DVD standard issue with lower cost silicon, particularly with lower cost products, so right now I think the cheapest DivX HD certified device you can buy is somewhere on the order of $150 bucks, but we expect to be able to get that price point below a $100 bucks when the next generation comes out with a lower cost mass market use silicon. Then when you start getting into our approach to high def, we believe that high def is really really cool and great, but it shouldn t be a whole new product category you have to buy $1,000 worth of hardware, it should be a feature, existing on a product category that you already had that s relatively already a commodity.
Do you ever see DivX HD Certified competing with HD-DVD or Blu-Ray or do you think it s designed to do a different thing?
I think we re competing with Blu-Ray/HD-DVD in terms of content, but I don t see us competing with those discs in terms of storage. I can imagine and expect to see DivX content, internet and high def on top of Blu-Ray/HD-DVD players, typically because you can fit 10 DivX HD titles on a single Blu-Ray disc just like you can put 10 standard definition movies on a single DVD, but DivX is a global company so we think on a global basis so we are already seeing significant interest in our user base for DivX discs to be sold in retail in high definition in markets where HD-DVD and Blu-Ray don t even exist at all, especially in regions where it s just too expensive.
How large is a DivX HD file for a 2 hour movie?
Will that fit on a traditional DVD at all?
Yeah, it s exactly that we can fit a regular 2 hour movie on a single DVD file. It s exactly targeted for that and at a quality level where you re probably going to see your Blu-Ray and your HD-DVD.
It s just using better compression.
Can you talk a little bit about some of that you ve announced with Canon and Pentax? What s the strategy there and how does it fit into your overall business plan?
It s all part of the same strategy for a common media language, so the way we see it is there are two interlocking ecosystems, one ecosystem is unified by the individual consumer s home. Deal with all the content that they ever play with. The other ecosystem has to do with interlocking between content creators and consumers, so the DVD player for example is in both ecosystems.
The consumer will use that DVD player to consume content that you re ingesting from external parties, from online, retailers, whatever it may be and then you also use that DVD player to ingest content that your getting from people in your relationship circle. Now when you ve got DivX on your PC and DVD player, if your a consumer who s going to be getting a camera that will be used to create video, whether it s a digital video camera or a digital still camera, you as a consumer have a very good reason for wanting that camera to be producing DivX anyway, so that they ll play in your personal ecosystem. That s really the beginning and the end of it.
We believe what comes with the DivX brand is associated with creating a higher quality media experience, so where a consumer has a reason for consuming a high quality video experience with video cameras, our role is to make sure that if you buy a digital cameras to make video, if it has the DivX logo on it, you re gonna know that you can create high quality video that s going to look good and that it s interoperable, that you ll be able to play it in all the different environments that play the DivX language.
That s a broad value proposition that we bring with our brand. You ll notice that what we re not doing is a whole lot in the digital video camera space, the DV camera space, we re really focused on the still camera space.
The reason for that is because we took a look at the marketplace and we actually believe that the highest quality user experience is being able to record on the fixed media card, in which we keep all together. It s very rapid, it s very easy to use, it s very easy to store, it s very easy to load into your hard drive and move around your home, and we ll be focused on high definition for straight video cameras for the next DivX period.
When your talking about bringing DivX to the mass markets, your talking more about SLR than the traditional video cameras that most of us think about then?
Yeah we ll hit both categories. We ll hit still cameras that have video as a mode and then we ll hit high definition cameras that are standalone video cameras that will preferably and will always shoot to hard drives.
As far as the compact cards go, how many hours of DivX content will you be able to fit onto a 1GB flash card?
You can fit 90 minutes on a 1GB flash card. It is in fact DivX quality so were able to get a lot of content on that card in high quality and interoperable, so you can see how the common media theme runs through everything that we do and it enriches and makes a better media experience, so we can do both simultaneously and make it fit and I think in the future you ll see that across the board.
One of the things that s clear from watching DivX s popularity online is that a lot of people want to know how to get DivX on their Xbox 360, the PS3, even this weekend some industrious hackers figured out a way to bring their , have you talked to the console companies about officially supporting DivX and how have those talks gone?
We actually talked to those companies back in the PS2 and the Xbox days and back then things didn t go particularly well. As a company we always have a basic launch where we start with the consumer and work our way back and as a consequence we tend to be more successful in marketplaces that are more influenced by market forces then top down strategies. Which is to say we do better in open vs.
closed, so if it s more open like a DVD player as opposed to closed, like a cable set top box or a cable provider, our systems will have more traction. We found that the second generation game consoles (or technically the fourth depending how far you go back), the PS2 and Xbox and before the gamecube, were still very closed in their way at looking at the world. Increasingly, for a variety of reasons, many which are random as happens to be the cases, we are seeing these next generation game consoles are taking a more open approach the way they are looking at the marketplace and so I have more optimism about our ability to get DivX to those clients, mostly because in demanding DivX for those clients.
We haven t gotten any concrete announcements about to happen yet, but I do tell people it s important and I do spend time focusing on it and certainly you can put me on the record as somebody who would be delighted to see DivX in all those media consoles. Also you can put me on the record as someone who recommends that if you don t currently have a Wii, that you buy one.
As far as the console strategy goes do you think that if Microsoft were to license DivX for the Xbox 360 that Sony would be under a lot of pressure to license the codec as well or do you see an opportunity where Microsoft could differentiate themselves there?
The pressure would certainly be on and then it s a matter of the politics of each organization. I would argue that on a pure market competitive basis, if Microsoft stepped up and put DivX on the Xbox, they would have a significant competitive advantage and the onus would be on to reduce that advantage by licensing DivX as well, but that doesn t imply however the Sony would have the forethought to do it.
One of the things that we ve seen is that people are creating for getting DivX content to the consoles and are utilizing software tools that allow consumers to transcode their codecs in real time.
What are your thoughts about these software tools and is this a threat to your business model?
Under the big picture heading of what we do, it may strike you as a little odd, but DivX is actually codec agnostic. I m as likely to promote using flash as I am for promoting DivX technology.
It s about the appropriate technology for the need that you have and the key is to provide the highest quality consumer experience. My criticisms for these particular transcoder s approach is that really, what they are is a stop gap. At the end of the day, it s a low quality experience.
It s not that different from the approach taken in the DV camera market, so it s clearly a lower entry solution if you were in a more stable system. If you could maintain both the quality, as well as ease of use for whatever the format is in all the way through the channels, but if you re somebody who wants to watch your DivX content on your TV and you ve got an Xbox and Xbox has DivX in it, it s the second best scenario. In any event, I would not vigorously endorse it, but I m also not completely antithetical because at the end of the day it s about providing the best quality experience to consumers.
By the way, this is a great segue back to your Stage6 question, Stage6 is our first significant toe in the water on what we call the new new network, the post convergence environment. In our business plan, in our 20 year plan back in 2000, we predicted that you d see a significant amount of user generated content around the time of 2005. I think YouTube bore that out, although it was a little later then we expected, at the same time it was a little bit bigger then we expected.
We specifically predicted that because it would be at the PC, it would be what at the time we called lean forward content, which I think is actually still a useful term. The way we look at DivX the company is that we re focused almost exclusively on lean back content. These are media experiences where as a consumer you want to become disembodied behind the medium.
You sit in the theater and your movie starts and you don t want to be interrupted by the growling in your stomach until the movie is stopped. That s the part that we focus on and that s the part that we think is important and by the way that can be entertainment content, it could be news content, it could be personal content, but it s lean back content, each one of those segments have different feelings associated with that environment.
The PC is really not the optimum lean back screen.
It s a lean forward screen. It s spectacularly short content, it s interactive, your multi-tasking, your checking your blog, your checking your MySpace page, you hit a link, you go to YouTube, you watch a clip, your out, you re very much involved in that environment, your not hitting play to sit back.
We look at it and say, YouTube is improving the use case and people are aware of it, the time is now ready for us to start sowing the seeds for what this environment looks like in a post convergence environment.
Still, we re a couple of years away from convergence being a true case, but the content language part of our business is now ramping now that you can say with confidence, that enough consumers can consume content from the internet on their television and that there is a materially reasonable marketplace. In the arc of that curve, as the ball is beginning to roll downhill, is that somewhere between now and 2010, convergence will happen and you ll be able to see a post convergence environment.
Stage6 is specifically focused on creating an environment for people who want to create engaged communities around a content brand for lean back content on the internet using a distribution medium.
And that s what it is, so if you go to Stage6 what you ll find is that we re really serious about content. It s not populated by short form clips, etc., it s populated by people who regardless of their particular content level are trying to create some form of expression.
That may be very very short form or an expression could be done in a second if you do it right or it could be long form and all of it is very high quality, so DVD level quality and high def quality is where things settle out for Stage6, but it s a different kind of community, kind of culture that is being built there.
Stage6 is actually an exemplar of behavior that we expect to see happening on a much more global basis. The strategy for Stage6 is to not Stage6 be a vertical portal for all people and all content.
Rather we want to use Stage6 as a way of showing, anybody who wants to be engaged in a lean back content environment, how they can do it and build an audience and build a marketplace and build other platform technology to make that possible more broadly speaking. So in terms of an open or closed environment, we definitely don t want Stage6 to be a closed environment, we want Stage6 to be one of many open typologies to turn the entire internet into creating brands and to consume that content.
Community has always been important to DivX and Stage6 is clearly an expression of this strategy, but at the same time, the creation of the DivX codec was also very much a community driven process.
What do you say to critics who feel like DivX turned their back on them in terms of taking the company private and not keeping this as an open source product and when people say that DivX took advantage of them, how do you answer that?
Well the first is that we never took advantage of the open source community whatsoever. There is a very interesting set of mythology in that environment.
The fact of the matter was DivX, as an original codec that Jerome created, was not open source. When we created the DivX company we very specifically looked at it and made the tactical decision that open source made sense for us to launch the original DivX codec, because we believed that to do it would create a more energetic and healthier environment. When we launched DivX as an open source project, on the one hand, while we did get some contributions from the open source community, it was relatively small in coded content.
By far the most significant contributor was a guy named Eugene Kuznetsov, code name Sparky, who we essentially brought into the company on a full time basis, hired him out of the community into what we do, but we ran into an interesting problem which is that a lot of the companies, particularly the electronic companies who we were very interested in having DivX be a part of their environment, would not actually use DivX if it was an open source codec. So as a consequence we created a closed source version of it, which we launched on the DivX website. It became an open source version, you could access the code page on the project Mayo website, so that we could provide the code out to particularly the consumer electronic manufacturers and to a lesser extent, third party software manufacturers like Sonic and Pinnacle and guys like that, who wanted to use the technology, but wouldn t use an open source technology for a lot of reasons some of which were not rationale, nonetheless were mandated by what we call their GC group.
What we found was that, then the consumer would invariably go to DivX.com where they could download the codec and nobody would actually use Project Mayo in the first place, so we re working in a fraction of an open source environment, so we just sort of let it die. Actually, we had already disclosed the source vis-a-via the open source project and at that point it sort of just ran out of steam.
Then a couple of the guys from the open source community who really wanted to be part of the final project, they said we re going to keep a copy of the final project and they went out and did it under the heading of XviD. We said, great run with it and in fact they ran into a situation where they had a hardware company that ripped off their codec and tried to close source their codec. We supported them throughout pretty strongly.
It s kind of interesting that there is this sort of mythology of tension between DivX and the open source community, but actually the people who are really the open source guys behind the open source codec, we actually have a pretty good relationship with them, we ve actually worked pretty closely with them.
DivX is a company that is focused on open as a typology. Open source is open, but only when it s effective, so if you take an open source strategy and by so doing you either A.
) Make it so nobody can use it or does use it or B.) Keep yourself completely destroyed by trying to use a closed source strategy in the marketplace, then you actually fail the primary mission which is to actually maintain an open content typology.
When you are looking at an open vs.
closed system, this is a pretty critical part of your business strategy and when you look towards things like set top box developers and iPod s and all of these different gadgets that are out there, do you think that DivX needs to be in a closed system or do you still see DivX as benefiting more from open products?
It s good that you mention that, one is that I actually have a strong hypothesis on a macroeconomic level that forces that are happening under the heading of convergence will ultimately lead to open networks across the board. So I m on the record as saying that if you are in the business of owning closed pipes, you better figure out how to get out of that business at some reasonable time frame.
The second question is, which because of the way that we actually approach the marketplace, our value proposition is at it s lowest ebb in the entirely closed environment, so we re not really, at the end of the day a technology company. We re not really a codec company. We had conversations with set top box manufacturers and cable guys in 2001 and 2002, but when they re trying to license your technology, component video technology, that s commodity pricing.
A penny for a million users in an interactive space, there s no real value proposition. Compare that to the DVD manufacturers where what we really brought was a community of users who are trained to consumer content over the internet and to have some way to do it without having a set top box or computer operate that particular phenomenon. So the fact that DivX technology is associated with that path is a really interesting physical manifestation, but the reality of the value proposition is that the market, the community itself is a value proposition, so what you ll find is, if you map our progress on a go forward basis, everything that appears in a DivX marketplace, there s actually strong evidence that the marketplace is becoming more open.
I ve heard DivX say that there are efficiencies with being able to record DivX directly to TiVo, Media Center, PVRs and Apple s upcoming iTV, why wouldn t they be licensing your codec if they could fit that much more content onto their hard drives?
Well there s a trade off between storage space and computational complexities. That content is a pretty powerful force, if you can buy the hard drive space for less then the cost of a silicon chip at half the size of the hard drive space, you re more efficient buying your hard drive space and we find that encoding chips have a slower cycle, then decode chips had, so the computational complexity is a lot higher, for encode then it is for decode.
It hasn t been until very very recently until like the last couple of months, that encode chips have become available for things like DVD recorders and DVRS to use with technologies like DivX. Now that these chips are just beginning to rollout, literally we re just able to sell these now, we re seeing an opportunity to break those chips into the OEM cycle for CE products, so it was only a matter of time. There will certainly be an opportunity, but you have to be aware of the limitations of the silicon cycle.
As a bonus to my interview I concluded my questions by subjecting Jordan Greenhall to a series of brutal choices in a lightning round session. I asked him to restrict his answers to no more then short sentences during the lightning round. The following were the answers that he gave during this session of the interview.
- PC or a Mac? (not for the office for personal use) -
- Do You Own A TiVo and If So Which Model? A and through the cable company
- Do You Read Slashdot or Digg?
- Engadget or Gizmodo?
- Netflix or Blockbuster?
- Do You Have An iPod?
Which is Better iPod or Zune? He owns an iPod and describes himself as a miniman , but may if the social networking actually works.
- Xbox 360, PS3 or Wii?
, although John Madden could tempt him to look at the 360 or PS3
- Pirate Bay or Torrent Spy? He hesitated on this one, but then I told him I was joking because I knew that the big media companies would be listening and he couldn t really answer. He said are a mess right now.
- What s Your Favorite Gadget Right Now?
- HD-DVD or Blu-Ray? because it has better storage
-Zooomr or Flickr?
I figured that he wouldn t know what Zooomr was, made me ask this one, but he said without hesitation.
- Canon or Nikon?
- MMORG or First Person Shooter?
December 14, 2006. , , , , , , , . .
For whatever reason there are always a number of brands that are able to command a premium amidst a sea of generic competition. Apple is a great example of this. Deep down inside they re just another computer operating system, but unless you are willing to raise advertising money by into your Mac notebook or by promising to with the Apple logo, it s insanely expensive.
Nontheless, people are happy to spend the money because they get a premium experience that provides value to them.
Not long ago, Sony was one of those brands, but over the last decade their media division has prevented their technology division from taking the necessary steps to protect their brand name in the consumer electronics industry.
When thinking about how to successfully integrate a business as diverse as Sony s, there are essentially two strategies that they can take.
They either want to create a horizontal structure or a vertical one. A horizontal structure tries to dominate a single product or category. Once you achieve critical mass you can save from cost savings and by being in a position to lead pricing.
Sony used to be in that position when it cames to television sets, but over the last decade, they ve lost their control over pricing and now Sony executives are publically worried that prices on LCDs are dropping so fast that it could have a material impact on the company s bottom line. Their response has been to even if competitors continue to slash prices and frankly, if they had a premium brand on TV sets, they could get away with this, but consumers are no longer willing to pay premiums for Sony TVs and if Sony insists on not staying competitive, they ll soon learn the hard way how much value their brand really has.
When it comes to vertical integration, Sony tries to save money by creating products that can compliment and drive demand for other divisions within the company.
Their studio division creates music and videos which drives demand for DVD and CD players mp3 players, which ultimately drive demand for televisions, computers and playstation consoles.
While on the surface this strategy seems like a sound approach for Sony to use, I can t help but wonder if conflicts within the company have prevented an otherwise stellar technology company from better capitalizing on the innovation we ve seen over the last decade.
Case in point, .
It used to be that Sony dominated the portable music industry, yet they were never willing to embrace the mp3 market until Apple put a gun to their head and forced them to innovate beyond that they tried to convince consumers to buy. Was this because Sony the technology company didn t want to sell a new product? Could it have been because they didn t see the natural benefits of being able to play mp3s or did they really believe that people wanted to buy their media again on a minidisc or carry around bulky CD walkmans that skipped everytime they tried to take a jog?
While I ve never been privy to the secret Sony executive meetings where they plot their delusions to try and control the media world, my gut tells me that Sony the music studio didn t want to embrace this crazy mp3 fad and was more concerned about protecting CD profits then innovating and bringing an mp3 solution to the market early on. The result of course was that their precious Walkman has very little brand value today and is more recognizable as a footnote of , then as a portable phone.
In looking at some of the other missteps that Sony has taken, I can t help but wonder if Sony the technology company would have if it weren t for their media division?
Somehow I doubt it.
Would Sony s PS3 divison have given up their lead on Microsoft just so that they could Who really knows, but Sony s insistence to include this technology has created a backlash against their PS3, higher prices that are going to be hard for the non-early adopter crowd to justify and delays in the number of units launched.
While it s possible that even without their media division Sony would have still lost their cool factor long ago, when I see desperate attempts to build buzz by , it s clear to me that Sony has lost their premium status in the marketplace.
If they can t get their users to talk about their product on their own, then something is seriously wrong with Sony s brand. Sony s sneaky attempt to try and influence the net culture with their fake internet site is a clear sign that the company has jumped the shark.
How devasting this loss of premium status will be to the company s bottom line is anyone s guess, but as long as their technology departments continue to answer to their media divisions, Sony will continue to fail when it comes to bringing new innovation to the market.
December 12, 2006. , , , , . .
During the throes of the tech bubble, Time Warner became enthralled with a little ole internet company known as AOL. At the time, technology was hot, the markets were robust and the media company was eager to take a stab at digital distribution. While Time Warner didn t know about the blood bath the tech market was about to face, in 2000, they started a romance with AOL and by the end of the year, their lovefest would ultimately consumate in a merger that has proved to be one of the in the history of the financial markets.
At the time, the merger seemed to make a lot of sense. AOL had a growing internet business. Time Warner had a dusty library of archived content that they were eager to release.
By combining both companies, they could create synergies that other media companies couldn t match. The result however, turned out to be nothing more then disasterous and when AOL back to Time Warner, they all but admited that their tech experiment had gone terribly terribly wrong.
Fast forward to 2006.
Time Warner has managed to completely transform their company. They ve ended their walled garden approach and albeit kicking and screaming, they ve led the other studios in embracing various digital strategies. With 2006 having brought about a profound revolution in online video, Time Warner has given notice that 2007 will for the company s film strategies.
On Tueday, Time Warner CEO Dick Parsons, sat down with investors at the Credit Suisse and gave a remarkably candid assesment of his company and their plans for the next year. In his conversation, he discussed the , the of the telecom markets and perhaps most importantly, Time Warner s digital plans in 2007.
In regards to the format wars, Parsons offered very little hope for consumers who would love to see .
When asked about the potential for the PS3 to be a leader in the HDTV market, Parsons downplayed it s importance and told the audience that the HDTV flat panel displays would be the real driver for HDTV content growth.
The format war is unfortunate almost by definition. Because it creates confusion in the minds of consumers, it doesn t allow a big group to line up behind either one of the formats and begin to drive the costs down so these platforms are going to be out of the reach of the mass market.
I mean what is the PS3? Like $600 bucks or something like that? However, even there, I think we re positioned to take advantage of what uptake there is on the new devices because we re one of the few studios, if not the only one that is putting out stuff out in both Blu-Ray and HD-DVD.
While I admire Time Warner for being one of the only studios to be format agnostic and leave it to consumers to decide which is the superior format for the future, I nonetheless disagree that this war was inevitable. The only reason why we haven t seen broad support for both formats is because of greed. Rather then trusting the markets to decide, both Blu-Ray and the HD-DVD camps have attempted to gain a monopoly on the format and it has clearly backfired as a result.
In discussing Time Warner s cable assets, Parsons shrugged off concerns about competition from the telecoms. He pointed out that even where FIOS has been deployed, the telephone companies have been acting rationally and are already raising rates in an attempt to profit even after a very limited deployment. While he confessed to not knowing how far the telephone companies would take this video war, he was less then optimistic on satellite s long term chances in the mix of things.
If you talk to the guys who really sort of understand, at a profound level, the sort of technological space we re moving into, a Gates or a guy like Eric Schmidt, and they are the guys who have told me that Geez Dick, you guys with Time Warner Cable or I ll say the same thing with Brian [Roberts] and , you don t understand how far ahead of the rest of the market you are with your platform, it is just that much more robust, it s going to take these other guys 5 - 6 years to catch up, if they make the investment. It turns out they re right. The cable platform is, in terms of delivering bytes into the home and giving functionality to all of the things you can now do in a digital world, it is just four, five, six years ahead, in terms of it s robustness and it s capacity to deliver the telco platform and unless somebody invents something that doesn t exist today, it will be permanently ahead of the satellite.
Over the years, we ve heard an awful lot of noise about FIOS, yet here we are today and there still is less then 1 million households subscribing to fiber in the US. While this is clearly important to the telephone companies, it won t easily replace the cable systems that have developed over the years. In the long run consumers will benefit from being able to choose between one or the other, just like they benefit from choosing from DSL or cable internet access today, but Parsons may be right that the future of everything on demand may be much further out then anyone expects.
While this would undoubtably help Time Warner as a company, I can t help but feel just a tad disappointed, that the technology is still so far behind where I wish it could be.
After Parsons presentation was over, he opened up the conference to a question and answer period. This has always been my favorite part of financial events because often times, this is where the biggest bombshells are released and this event was no exception.
When asked about the narrowing of digital release windows between downloads and DVDs, Parsons offered up far more information then I was expecting and mentioned that 2007 will likely be the year that we see burn on demand technology make it s way into retail stores.
I think that you ll see next year, our studios and possible others, going to a download to burn format. The reason we haven t done it yet is because this has to be worked out and done in cooperation with our existing channel of distribution, I mean you don t wanna go around the people you ve been working with in terms of builiding this business at this point in time, so we ve just seen Walmart for example, go with these little kiosks, it s all experimental now, these little kiosks in the store where you can actually go and have a download to burn experience instead of having the physical disc and if we do this right, it s a win win win for everybody.
It s a win for the distribution channel because they avoid a lot of inventory costs and shelf space. It s a win for the studios, because you avoid a lot of manufactuering costs and you get your product out there more quickly, and it s a win for consumers because they can get it when they want, how they want and in the format they want it.
I ve been fascinated with the DVD kiosk ever since I first had an opportunity and they showed me a DVD kiosk that already had burn on demand technology built into it.
While I walked away impressed at the technology, I knew that it would still take years for the studios to embrace a solution this radical.
With the DVD rental stores having been slaughtered in the financial markets and with over Apple s digital download plans of their own, it was only a matter of time before we saw the studios warm to the idea of bringing burn on demand to the retail store level.
By incorporating burning technology into kiosks and retail spaces, video stores and retailers could potentially stock 70,000 films and never have to worry about running out or about it taking up too much floor space.
The idea is powerful, the economics could save the DVD industry for another decade and if Parsons statement that Redbox is already testing this functionality at Walmart is correct, it may be coming sooner then even I expected.
While it s taken years for the studios to come up with a sound digital strategy and while I expect that it will likely take even more years to work out an HDTV digital strategy, nontheless I find it very exciting to see these developments. With 2007 marking the 7th anniversary of the AOL and Time Warner meger it is nice to know that consumers will finally be able to take advantage of the synergies that were promised when AOL and Time Warner first said that fateful I do.
December 6, 2006. , , , , , . .
For sometime, we ve know that DivX has been engaging in alpha testing of a We may not have known the details or the time horizon for deployment, but for the first time, we now have concrete evidence on the headway that DivX is making into the industry.
At a press conference in Hong Kong, Samsung , their first phone to officially support DivX. It will retail for $350 and will be publically available beginning in January. There was no mention as to which markets Samsung plans to release the phone, but with DivX s highest penetration in Asia and Europe, it wouldn t suprise me to see Samsung launch the product outside of the US.
The cell phone will have a 400MB internal drive and support for 2GB s worth of storage through a MicroSD card. By my rough calculations this means that a user could have 3 - 4 full length feature movies on the phone at any given time. The phone also supports .
wmv, mpeg-4, .avi and a whole host of other codecs, but it s support for DivX is what makes this phone truly unique.
The cellular market is one of the most important markets for DivX to expand into and will represent one of the most crucial challenges that the company has faced since going public.
Because of DivX s , it offers consumers the ability to store more content on a smaller hard drive, which could be a key differentiator for the cell phone manufactuers. While their compression technology is a huge advantage when it comes to the smaller drives, it is by no means a slam dunk for the company. Apple is currently a competing iPhone that uses their own codec and it remains to be seen as to whether or not DivX will be able to convince consumers to force manufactuers to add support for their codec.
If Samsung sees strong demand for their F500 because of the DivX support, then you can bet the other cell phone manufactuers will sit up and take notice, but if Samsung finds that consumers really aren t all that interested in getting their video onto a cellular phone, then DivX could take a backseat to other codecs that have made better in-roads into the cellular industry.
There is no doubt that the stakes are huge. With Microsoft currently dominating the smartphone category and with Apple gearing up for a major launch of their own, it won t be an easy task for DivX to break into this industry, but with an estimated being sold in 2006 alone, DivX will face a large addressable market if they able to penetrate into the industry.
While their plans are ambitious and they still face an uphill battle against incumbants established in this industry, DivX s technology will at the very least, give them a seat at the bargaining table and could hold the key to their success or failure. With cellular manufactuers always looking for a way to encourage consumers to upgrade, DivX support could be a key selling point. If DivX is able to actually take their technology one step further and incorporate their video compression into the recording capabilities on the cell phones, then you could very well see an industry standard quickly develop.
If they succeed it will certainly end up meaning great things for the company, but if they fail, then DivX could face dark days ahead as they look towards less lucrative product categories to expand into. December 5, 2006. , , , .
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TiVo may have disappointed the Wall Street analysts yesterday, but that hasn t stopped the company from moving ahead with several important inititives for the company. On their conference call , one of the themes that TiVo stressed was that many were too focused on the domestic markets for TiVo s service and weren t looking closely enough at the international opportunities.
To say that TiVo has struggled to get cable deals in the US is an understatement. While relatively early on, they were able to score a deal with DirecTV that netted impressive subscriber growth, they were never able to get very high royalties from them and when the deal ended, DirecTV still choose to go with NDS for their PVR solution.
Early on TiVo tried to play nice with the Dish Networks, but rather then licensing TiVo s software, Dish choose to steal TiVo s technology and then in a patent fight over the technology.
Two of the bright spots that TiVo has seen in the cable industry have been their deals with Comcast and Cox that are set to be rolled out in the first half of next year. While these deals should be highly profitable from a gross margin perspective, they did have to grant Comcast and Cox most favored partner status, if another cable operator is later able to forge a better deal.
TiVo scored a major victory in their licensing negotiations when they with the National Cable Television Cooperative, but because the NCTC s customer base is spread out, it makes marketing the TiVo software to their partners a tad difficult.
While they have already seen a few independent cable operators come on board from the deal, they still haven t made significant progress since the deal was announced a year ago.
TiVo s most friendly cable partnership to date has probably been with Cablevision, who has been selling standalone TiVo boxes beside their own Scientific-Atlantic boxes.
With so many problems gaining traction in the US cable market, it s no surprise that TiVo is to help them grow.
Their early early launch into the UK may have been a failure, but even today there are still many UK subscribers using the service. Since then TiVo has looked towards Canada for growth and currently there is a strong underground in Austrailia, where electronic programing guides have been made illegal.
Hot on the heels of a their most recent announcement to offer Tivo boxes and service to , Digitimes is now reporting that TiVo s Asia Marketing agent has said that the company has , Taiwan s largest cable operator.
Currently, Eastern Multimedia has an almost 25% market share in Taiwan representing a little over a million customers. While this deal is certain to bolster the prospects of TiVo s TGC inititives, it is just as likely to be seen as a set back for OpenTV, who just two years ago with Eastern Multimedia to provide their own iTV solution.
Interestingly enough, as part of the Eastern Multimedia deal, TiVo will not only be providing DVR software, but will also be offering internet access for $28 a month.
Bundling these two services together makes a lot of sense. TiVo s future is becoming more and more dependent on their ability to deliver content over broadband and considering that they see a sharp uptake in consumer satisfaction when subscribers have their TiVo boxes connected to the internet via broadband instead of dial up, it makes a lot of sense to bundle the two services together. While I don t expect that TiVo is going to let US subscribers use their boxes to surf the internet anytime soon, the rollout with Eastern Multimedia could provide valuable data as to whether or not consumers really do want this functionality.
With TiVo having to help market their DMRs in the US, it s not a big strech to see them expand their current bundle of DSL for $15 a month with a $13 TiVo subscription andoffer US consumers a similar service. While the company has steadfastly said that consumers don t want to surf the internet from the TV, if they were to offer this service domestically, it would give them one more way that they could differentiate their DMR service. December 1, 2006.
, , . .
launched an update to their website this week, that allows consumers to go beyond just being able to embed music into their blogs, MySpace and Facebook pages and to actually let them email the songs to people they know.
I tested out the email functionality earlier this week and had a lot of fun because I could find songs that either fit the personalities of my friends or songs that were comically related to topics we were discussing. When you email a song to someone, you give them your name, the email where you want it sent and a message to go along with the music. When your friend gets the email all they have to do is hit play and they can read your message while rocking out to the tune you selected.
I think that this is a big development for Sonific because it really makes the site much more appealling to a broader audience. According to a recent study, actually run a blog compared to my own unscientific research, that 100% of all internet users have an email account.
Sonific is basically a different way for consumers to get access to music.
They let you stream, on demand, any song from their catalog of 40,000 artists. This is much different then most internet radio that will only give you limited control over what you want to hear. The idea is that by not treating their , people might actually discover new bands and want to share them with their friends or buy an album to download.
While the site doesn t have many of the top artists that have signed with the major studios, it does have a great collection of lesser known artists that are still fun to explore. There are also a few better known artists, who would rather share then try and squeeze their fans for a couple of extra nickels. Because the content can be a little obscure, by incorporating the email functionality right next to where you listen to the songs, it makes it all that much more convenient for people to share new bands with their friends, as soon as they find cool music.
I suspect that would have a field day with the technology if he could ever figure out how to automate it, but if Prince Abakaliki of Nigeria ever finds the site, I ve already found the perfect song for him to use in his emails, where he so generously allows others to help him disperse of his father s fortune.
December 1, 2006. , , .
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