Jun 042012

I own an XBox 360. I also own a Kinect peripheral. It’s a nice setup. I can play any number of really cool games with it, and with hooks into services like Netflix and HBO Go, I can also watch a pretty extensive library of movies and television shows. That’s about the end of the value proposition, despite all the talk I’ve heard about Microsoft soon-to-be dominance of the living room in pieces like the one that appeared in Forbes. What evidence is presented in David M. Ewalt’s “Microsoft Xbox Is Winning The Living Room War. Here’s Why.”?

In some ways the Xbox is emerging as an alternative for those who want to cut the cable cord. On-demand movies and TV? Xbox can stream more than 200,000 high-definition titles. Premium channels? Game of Thrones rages on via HBO Go on Xbox. Live sports? Xbox has ESPN, every regular-season Major League Baseball game and Ultimate Fighting.

Last I checked, the availability of “on-demand movies” wasn’t a compelling reason to “cut the cord”. Every set-top box has the ability to download on-demand movies – as does every cable service. Premium channels? Try “cutting the cord” on your pay TV subscription service and see how much content from HBO and ESPN you get. And I don’t think MLB gives their stuff away for free either. You can find out as much by looking at Apple’s MLB app on the AppleTV. You need the cord to cut the cord, which is the opposite of what people are looking to do when they say they want to “cut the cord”.

I will, however, give credit to Microsoft for “working within the system”. One of the major announcements from E3 was WatchESPN, which gives XBox Live members access to 24/7 programming from all of ESPN’s channels. Again, you have to be a subscriber of these services (currently through Time Warner Cable, Bright House Networks, Verizon Fios TV or Comcast Xfinity TV – apparently DirecTV is still sitting on its “stepchild” status, like it does with most of these services). Although I can’t imagine that this type of extended programming will stay exclusive to Microsoft, I said the same thing about HBO Go on the AppleTV and I’m still sucking it.

This new low price (for the XBox) looks even better when you consider you don’t need to buy a new TV, which is what Samsung and, soon, Apple want you to do. “If you want to start a phenomenon,” says Ballmer, “it doesn’t start with thousand-dollar-plus devices that sell at unreasonably low volume and need major room redesigns.”

The “new low price” that the author refers to is Microsoft’s latest gambit of charging you $99 and locking you into a 2-year subscription that leaves you paying more for the device at the end of the lock-in. Works for phones, I guess. There’s also the gratuitous comparison with an unannounced product from Apple, a talking point that more and more authors are getting comfortable invoking. Despite the words from Microsoft’s CEO on the topic, people don’t buy TVs for the express purpose of getting access to content. People buy TVs because they need a TV; access to connected content is a feature. The XBox 360 is not competing with SMART TVs. One could however make the argument that you need a TV to use an XBox 360.

In fact, Ballmer is working to persuade the big pay-TV players—Comcast and Verizon are already Xbox partners—to allow their customers the choice of an Xbox over a cable set-top.

“Will a TV need both boxes? No,” says Ballmer. “We ought to be able to relieve the world of the expense of having a set-top box. … There’s no economic value in having two boxes that do the same thing.”

Good luck with that, champ. I won’t hold my breath. In the real world, Microsoft is competing with other game consoles and set-top boxes like those offered by Apple and Roku. If these devices offer the same access to content available to these other boxes (with the noted exception of HBO Go and ESPN), the only thing that separates an XBox from these devices is access to games. If we’re talking about gaming devices, the 360 currently does this better than its competition in that space. But it costs more – either up front or if at the end of Microsoft’s “2 year XBox” program.
One other advantage that the author waxes on about: the Kinect, a note on which I’ll end. I’ve intimated this before, but I’ll say it plainly now: Kinect sucks. As a gaming peripheral, it’s a novelty, at best. With the exception of some dancing games, the Kinect is an absolute immersion-breaker. With fitness games, its registration of your movements is infuriating. There’s not a single decent title designed for people over the age of 6 that relies on it for core gameplay, which is probably why the author of the Forbes piece chose to lead with a description of Kinect Sesame Street TV in describing the device’s value.
So while I will concede that the XBox 360 offers superior features when compared to its console competition, and is currently in the lead in terms of connected content from providers, this “winning” comes with caveats: you need to spend more for the device itself, shell out $50/year for an XBox Live Gold membership and you still need a cable box to use it. That said, Apple needs to get off its ass an bring some of this content to the AppleTV. This is Microsoft we’re talking about here.
 Posted by at 5:35 pm
Jun 042012

In Part 1 of my vision for how Apple could make a major play in television, I talked about the hardware that I thought would help take the AppleTV from hobby to full-time job. But as the AppleTV has proven, just because Apple makes it doesn’t mean it’s going to take off. The AppleTV’s limitation is one faced by all technology companies that want to serve up television content: the networks that control that content don’t seem to be all that eager to share. If you want an extreme example of what that can do, just look at Google’s attempt at a set-top box.

Ownership of movie and television properties in this country is complicated because it is so distributed. Sports franchises own networks. Toy companies have stakes in networks. Several networks are owned by more than one company. Household names such as A&E, Lifetime and The History Channel are actually split 3 ways: Comcast and Hearst each own a 42.5% share while Disney owns the remainder. What’s that you say? How can a cable company own a network? Actually Comcast and Time Warner Inc. own over 50 networks, including NBC, CNN and HBO, to name a few. You might ask yourself: doesn’t that pose a conflict of interest? That would be an excellent question for the Federal Communications Commission, whose job it is to approve deals such as the one Comcast closed for NBC Universal this year. And people wonder why a la carte programming isn’t going anywhere.

While the parties are numerous and the relationships both complex and incestuous, there are a select group of heavy hitters: the top eight companies own the vast majority of networks. Here’s a list of these “great eight” companies complete with their most notable network assets. As you can see, almost your entire cable guide is represented by these companies, which is a good thing if you’re a company negotiating for a play in the television landscape.

If Apple is going to break new ground with these content owners, there are some existing relationships that are no doubt being exploited. I would contend that the 2 most intimate relationships that Apple already has are with the 2 most important content providers. Before I explain why, let me introduce the companies.

As most people following Apple know, The Walt Disney Company has a lot of shared history with Apple’s co-founder and former CEO. Steve Jobs sold one of his non-Apple projects, a little company called Pixar, to Disney in 2006 for $7.4 billion, making Jobs Disney’s largest shareholder. Bob Iger, Disney’s current CEO, is a member of Apple’s Board of Directors. That relationship has already borne fruit: the Disney-owned ABC Television Group was the first network to break ranks and offer TV episodes in iTunes.

In what on the surface seemed an odd pairing of a die-hard conservative and…someone who wasn’t, Newscorp’s Rupert Murdoch went out of his way to endorse Steve Jobs and the iPad, specifically for its potential to revitalize a lagging print industry. Murdoch introduced “The Daily”, the first native iPad news app that featured original content, in February 2011. Murdoch allegedly made major concessions to Apple in order to bring The Daily to the iPad, and established a relationship with Apple that will hopefully lead to other things.

So why do I believe that these two represent the most important content providers that Apple can rein in? Because they have a major presence in the kind of programming that is the most difficult to secure: sports.

Sporting events are very resistant to the a la carte model. I think the reasons are twofold: first, fragmentation of sport franchise ownership has led to a plurality of interests, which has led to the formation of many different network entities that are owned by numerous parties. MSG, a NYC-based network that broadcasts many Rangers and Knicks games, is now owned by the same people that own Madison Square Garden, after they were acquired from Cablevision in 2010. The YES Network, which broadcasts Yankees and Nets games, is owned by Yankee Global Enterprises, LLC (the entity that owns the Yankees (as a separate company)) and Goldman Sachs. Although they still have an agreement to broadcast New Jersey Nets games, the Nets are actually owned by NYC real estate tycoon Bruce Ratner. And those are just two examples of convolution taken from my local market. Secondly, there’s what I call a “currency problem” with sporting events. Sporting event viewing is fundamentally different than watching most episode-based television. If you don’t watch sports live, its value to the viewer fades faster than it does with serial programming. You don’t get plot synopses from “Lost” on the 11 o’clock news, but you do get the outcome of sporting events. Once a game is “in the books”, the desire to view it diminishes significantly.

In addition to being two of the largest network-owners, Disney and Newscorp own the rights to a ton of sports content. You may not know this, but it’s the most expensive part of your cable bill. In a wholesale listing of Digital Cable Network subscriber monthly fees released by All Thing Digital’s Peter Kafka in 2009, ESPN and Fox Sports Net were the two most expensive networks on the list, costing $4.08 and $2.37, respectively. The next network on that list, TNT, was $.99. Sports television is a huge business. Disney (80% owner of ESPN) and Newscorp (owner of Fox and all of the numerous sports networks carrying the Fox name) are major players in sports programming. It is well-known that ESPN carries huge sports assets; it’s all they do. With 5 major presences (ESPN, ESPN2, ESPNews, ESPNU and ESPN Classic), they also have their own 3D network, ESPN 3D. But Fox is also a huge player in sports, even more so than ESPN. To illustrate, here’s a listing of Fox sports networks from my provider, DirecTV:

  • Fox Desportes
  • Fox Soccer
  • Fox Soccer Plus
  • Fox College Sports
  • Fox Sports Tennessee
  • Fox Sports Carolina
  • Fox Sports South
  • Fox Sports South Plus
  • Fox Sports South Plus 2
  • Fox Sports Florida
  • Fox Sports Florida Plus
  • Fox Sports Ohio
  • Fox Sports Detroit
  • Fox Sports Detroit Plus
  • Fox Sports North
  • Fox Sports Wisconsin
  • Fox Sports Midwest
  • Fox Sports Kansas City
  • Fox Sports Indiana
  • Fox Sports Southwest
  • Fox Sports Southwest Plus
  • Fox Sports Houston
  • Fox Sports Oklahoma
  • Fox Sports Arizona
  • Fox Sports West
  • Fox Sports San Diego

This list doesn’t even include all of the content carried by their flagship network, which has major deals in place with the NFL, Major League Baseball, the NHL, NCAA and a host of others. They’re even breaking into Ultimate Fighting programming with their UFC on Fox.

If Apple could leverage its prior dealings with Disney and Newscorp, it could not only lock in two major network players, it could also secure a majority of the popular sports programming available. Partnering with Apple would lay the groundwork for other juggernauts with significantly less incentive to offer a la carte programming (Comcast and Time Warner) to follow suit.

As far as how this a la carte system would work, it could take on a variety of models; some of them could even offer limited “bundling” of content (which I imagine is a practice these companies would be loathe to part with). The “ESPN Package” from Disney would be x; the full Disney package would be x+n. There could be packages specific to sports networks, networks that feature primarily serial content – the combinations are almost limitless. While it would be ideal to have a “pay x for network y” model, I can’t see it being one the content owners would be willing to accept, at least not as a first pass.

In terms of a “delivery UI”, Apple did file a patent in 2006 for a DVR interface that illustrates a possible model. In addition to DVR functionality, Apple’s filing contains numerous figures that depict a channel guide, search UI and how an external device (in 2006 it was a device resembling a third-generation iPod nano) would interact with the system. This filing, more than anything Apple has made public to date, shows how Apple could bring the dream of a la carte programming to its AppleTV devices. In the bowels of Cupertino, I’m sure the concepts represented in this filing are being kept current to reflect the latest Apple hardware.

Obviously ripped from the DirecTV iPad app

If Apple is going to make a serious play for the television market, it has to break the rebus of network control over content. By leveraging relationships established and built upon during Jobs’s tenure as CEO, in addition to the huge market power reflected in Apple’s current iTunes offerings, it stands the best chance of any technology company of seeing it through to fruition.

 Posted by at 12:32 pm
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