Ultra HD: Lessons learned from the Microsoft-Intel duopoly

Why it matters

Microsoft-Intel created a virtuous cycle as the two innovated in lock step to keep consumers buying the new “new”

Content providers and TV manufacturers, operating in a looser cabal, have had similar success moving consumer through upgrade cycles from analog to digital to HD.

Ultra HD is not likely to cause wholesale upgrades of consumers, and will be more of a high-end niche offering.

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I am headed to Amsterdam in a just a few weeks, along with many others who work in the digital TV and media industry. I fully expect to see a lot of Ultra HD logos and marketing pitches while there, which reminds me of the good old days when Microsoft and Intel had a lock on the PC market.

 

A trip down memory lane

Remember, when Microsoft and Intel were in a duopoly alliance?

One would continuously develop ever larger, power-hungry versions of the same operating system, and market it to consumers as “the next big thing you can’t afford not to have.” This justified to consumers the need for ever more powerful hardware, running, of course, on the next generation of the Intel CPU.

What a simple, powerful model the two behemoths had, ensuring margins and their continued dominance.

The legislators and regulators (either the Federal Trade Commission, or the European Commission) tried to rein-in their power … but all they could do was to nibble at the margin, on smaller issues such as the bundle of Microsoft Explorer, or the Intel – AMD compatibility fights.

Yet, it is a paradigm shift which neither of those two companies had foreseen, nor could foresee, which slowly eroded their hegemony and market position.

They had built their strength on the paradigm that computing was about utility, and productivity.

And suddenly, the advent of faster broadband speeds allowed video to creep into consumer services, applications, and devices.

And, within less than 5 years, the market shifted to more nimble devices, to tablets, mobile devices, to a computing paradigm focused on media and entertainment.

That wave also took down RIM-Blackberry, Nokia, and countless others.

With this backdrop and history now laid out, let’s look at premium video.

Premium video and its repeated attempt to feed the hardware beast

In my view, the same search for an “industry level” alliance animates the TV OEM manufacturers and the content providers.

The major shift toward the creation of a virtuous upgrade cycle happened twenty years ago, when the TV and content industries began the migration from analog to digital.

The jump was “Big Bang” like, allowing a visible huge jump in image quality, and, mostly, an exponential rise in content choices.

Consumers are prompt to whine that there are “1,000 TV channels and nothing on”, but they miss the fact that everyone now has the power to choose their top 10 favorite channels among those 1,000.

That is the power shift which rocked, and still rocks, like earthquake aftershocks, the content industry.

However, there were many different TV OEM manufacturers and content providers, each with their own competing interests. When they went to battle they lacked the cohesion of the Microsoft/Intel duopoly.

Nonetheless, manufacturers started selling digital TVs to the world, and over the past two decades have saturated the world TV markets. This has helped drive digital adoption to the point where now analog transmission is a thing of the past.

The set-top box (PayTV or analog to digital converter) was also involved in the evolving content/hardware alliance. It provided the “transition device” delivering a constant revenue flow to manufacturers, until the chipsets achieved cost-reductions sufficient to bring digital standard definition video into the television itself.

However, one needs to continuously feed the hardware beast to keep consumers buying televisions.

Samsung, LGE, Vizio, Panasonic, Loewe and countless others, are, at their core, hardware companies and need to ship hardware devices. Consider thatin the United States alone there are around 35 million TV sets sold each year ([1]). To maintain that sales level, TV manufacturers need to convince TV householders to buy a new TV set every three years.

What to sell consumers, after the Standard Definition Digital TV market became saturated?

The manufacturers and content owners prepared the High Definition wave, another marketing pitch to sell the “new”, the “better”, the “future”.

While manufacturers were fueling hardware demand with large screen flat panel HD screens, content owners and studios were pushing ahead of the piracy wave with bandwidth and memory space hungry video streams and file formats.

As in the analog to digital transition, sports content help provide the industry alliance with the justification consumers needed to upgrade their TV set from SD to HD.

The model was established by the top CE manufacturers and content providers – the Grand Alliance - to keep consumers upgrading to their latest format.

However this passage from SD to HD was the last time a clear, video quality based justification would be successful in marketing the “new” to consumers.

And then followed a plethora of video formats and associated hardware, including HD-DVD, Blu-Ray, and 3D.

Remember 3D?

Panasonic went as far as funding the development of 3D movies with its marketing funds, attempting to prime the pump of content creation in 3D. Unfortunately the investments in sports, news, live TV cameras never followed suit. Oh, and not to mention the unanswered question of holding a family movie night with the eyeglasses.

The heart of the problem with the 3D value chain was that:

• there were too many players, with widely diverging business goals
• these players follow vastly different R&D, CAPEX investment and product sales lifecycles.

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Diagram 1. The more complex world of hardware and content / services and applications

Here, we are now faced with a much more complex world which delivers premium video offering to consumers:

• TV OEM manufacturers, which need to sell “something new” every four years, are condemned to seek a set of “new features” to appeal to consumers who are increasingly growing weary of being sold useless gimmicks they need don’t need… while consumers search for seamless experiences… which makes the bed, by the way, of Apple success in media experiences
• Content owners and creators, which are structured in a tightly held group of mega media conglomerates, and try to define the specifications of the next generation of content, trying to sometimes lead, sometimes follow the devices innovation
• Distributors, whose network bandwidth needs to accommodate the traffic and transport of such content, sometimes over:
• public goods like the broadcast free to air spectrum
• privately managed networks such as Cable and Telco, which are now under legal attack to be treated as public spectrum by the legislator under the “Net Neutrality” debate

Their business life-cycles aligned perfectly during the passage from analog to digital…

But public service broadcasters no longer can afford to overhaul entire infrastructures, from content creation / camera / production / post-production to contribution, distribution and display, every four years…

Content distributors are caught between the necessary infrastructure upgrade to higher bandwidths, and wireless, while the legislator and political climate calls for Net Neutrality and treating the private networks as public goods, just like free to air spectrum.

So the three business constituents of the premium video are not aligned, like Microsoft and Intel were, to go to battle.

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 Table 1. The three constituencies of the premium content world

 

Meanwhile, what do consumers care about?

The root of the problem with 3D is exemplified by a consumer poll I ran while GM of TV at place-shifting pioneer Orb Networks, in 2007. The results were published for the Internet TV conference in July 2007.

The survey asked consumers if they preferred programming choice over video quality. Their answer was clear: by a resounding 75-25% ratio, they voted for programming choice.

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Diagram 2. Image quality over programming choice

Breaking down this question by content category, the result is even clearer.

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Diagram 3. Image quality over programming choice, by content category

The only categories where survey participants were swayed from programming choice to image were sports and movies. The jury was clear: consumers want content choice, first and foremost.

Anticipating in 2006 / 2007 the market evolution towards multiscreen, I asked maybe a prescient question: will you prefer programming choice over video quality?

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Diagram 4. What consumers care about

This 2007 data illustrates the foundation for the success of companies like Netflix, which invested heavily in catalog choice.

Later, those companies added ubiquity of device presence, and voila, they had a market winner.

The true challenges of the industry still remain today: the delivery to multiscreen, over IP, support for the plethora of mobile devices, and access to deep and rich catalogs of quality content.

Back to Ultra HD

Through the lens of multiscreen delivery and the failure of 3D, should we say that Ultra HD and its cousin 4K are still-born?

Perhaps we should not be so harsh. However, we can say that Ultra HD will not be the panacea that the Grand Alliance would like. In other words, it will not continue to feed the television and content upgrade beast at a pace anywhere near to that of the move to HD and to digital.

There is too little content, and the infrastructure investments will be too great to accommodate its ascension in the consumer mindset. This will take many years, if it happens at all.

For now, it looks like Ultra HD will remain a solid R&D project for the coming five years. It’s likely that market actors will throttle and “right size” their Ultra HD investment, focusing on testing, integration, and interoperability along the entire distribution chain.

Rather than moving in lock-step, as Microsoft and Intel were so adept at doing, the various players of the premium content world are going into battle in a disorganized fashion. This is certain to lead to many self-inflicted wounds.

For example, Comcast, Verizon and Netflix will continue to disagree and have tough negotiations, like they did in 2014, over bandwidth speed, bandwidth throttling streaming.  This will slow down the progress of 4K streaming at scale in the United States. This will have a knock-on effect,  slowing the cost-reduction so necessary for chipsets to increase volume, scale and ultimately market adoption.

Apple will continue to drive its closed format ecosystem for years to come. It can be argued that Apple is actually focused on the right thing: delivering a seamless and awesome consumer experience, powered by its closed software and hardware ecosystem. Although it is still separate and incompatible with the rest of the content world, the Apple volumes are still too huge to ignore for all the content owners of the Grand Alliance.

Content owners will continue experimenting with direct-to-consumer subscription models (e.g. HBO Now, Viacom Noggin, Lifetime, Movieclub). Aside from the possible revenue derived from these standalone services, they are also giving themselves a tool to gain leverage in negotiations with Pay TV operators over TV Everywhere rights 6 to 7 years from now. Those agreements today prohibit the cable channels from streaming their Pay TV offering directly to consumers, unless such consumers are already Pay TV subscribers. However, little by little, content owners and programmers are preparing bundles of original programming (i) which are not breaking the TV Everywhere contractual constraints, and (ii) which are starting to teach the audiences (starting with the younger generations) to pay, monthly, for content.

In the coming years it is thus likely that the content market will split between:

• “Ultra-premium” content packages, with increasing prices breaking the $200 bar per month, delivered in 4K or Ultra HD quality over managed networks, which are only offered by incumbent PayTV operators. This market will be reserved for 10% to 20% of the market in 2025
• A plethora of cheaper, smaller content bundles and services, marketed to targeted consumer audiences, with more and more direct competition between content owners and distributors… delivered over managed or un-managed network access.

In that sense, I see Ultra HD becoming a “niche” offering in a vast universe of content packages and distribution models.

Where is the real fight?

In that sense, the real fight is truly in answering the underlying challenge laid out on diagram # 1.

Competition is good for the consumer, which has, by the way, been handed the ultimate power of choice since the analog to digital transition.

But content creators, distributors and equipment vendors should deeply think about their software and metadata strategy.

Apple, in its closed ecosystem, is showing them the power of alignment of their hardware based experiences by a solid, software driven strategy.

Google Android and Comcast X1 are the prime competitors for the media OS of the future.

How Google plays its embedded OS is relevant to content owners, distributors, and device manufacturers.

Whether Comcast makes its X1 software solution accessible to all other industry players will be key (maybe even, imagine that, on an open source basis).

Whether Samsung can continue to push, market, and support its own Tizen platform as an Android alternative remains unproven.

Hollywood studios also need to think deeply about the role and control of their content metadata in this new world of complex digital distribution – and stop treating it like an afterthought.

This is why my focus at IBC in Amsterdam will not be on the myriad Ultra HD announcements that are sure to accompany the show. I will be paying more attention to the software and metadata that is powering the real revolution in video distribution and consumption.

That is where the real fight will be in media for the next ten years.

[1] http://www.statista.com/statistics/220739/forecast-of-dvd-player-shipments-in-the-us/

The biggest magic trick ever played on all of us

I am not an economist, but I call for them to look at my data, rebuke it, and maybe improve it.

I am a business executive with, I hope, some common sense.

I want to write today about what I see as the biggest magic trick played on all of us by the US Federal Central Bank... and now the European Central Bank (BCE, or ECB).

Maybe it's a good trick, after all, which has propped us all over, and avoided a catastrophic collapse of the world's economy, after the 2008 bank failures and the sub-prime crisis.

My argument is simple.

Quantitative Easing ("QE") is a currency devaluation which does not say its name.

QE is a program which was started in 2008 to basically help the balance sheets of the banks, by replacing, through a set of accounting entries by the Fed, monetary and debt instruments by "cash". This article here explains it well, in somewhat simple terms.

However, and this is the key to my argument, the Fed did not have "cash" attached to gold. It simply created "cash" line items in their books by "buying" Treasury instruments with money it did not have, but could create because of who they are.

My argument is that QE is basically adding to the monetary mass, thus devaluing the Dollar currency.

In the past, devaluations were a hard pill to swallow, because the emotional impact on the public was known. People's assets, purchasing power were hurt. Demand would be hurt. More importantly, public policies, politicians, would be affected by this "penalty", the plague of the last century, which would lead to social unrest and riots in the streets.

The magic of QE is that we have been devaluing the dollar, and thus the world's assets, without integrating the emotional consequence and pain of doing so.

By how much have we increased the US monetary mass?

By this much:

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Now, are you still with me?

Let's now look at the parallel evolution of the stock market, and the monetary mass changes, all mapped to their levels of January 1st, 2008. To track the stock market, I look at three indices: the Down Jones Industrial, the NYSE, and the Nasdaq, and compare them to the monetary mass equivalent devaluation coefficient, all indexed at 1-1-2008.

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As one can see, the stock market started going down by 30% to 40%, scaring investors and the public authorities. QE1 was put in place, and its effects soon take hold, helping the stock market recover from the collapse.

Crisis averted.

But by now, the banks and financial institutions had understood they could replace "treasury notes" by actual cash holdings. And they were hooked.

Note how Q2 helps a bit... and when it stops, the stock markets fall again.

But the stock markets recover on their own, after the end of QE2.

And yet, QE3/4 were put in place, and continue to this day.

Were QE3/4 really needed? I posit not.

However, their continued effect means that the true value of the currency continued to devalue. If we multiply the average of the 3 stock market indicators by the monetary mass growth as an indicator of the currency devaluation, below is the real performance of the stock market since 2008: "only" 40% average growth in equivalent currency value from the 1-1-2008 levels, instead of an "optical" gain of 20% (NYSE), 40% (Dow Jones) and 100% (Nasdaq).

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And that is what the Fed and the central banks do not want the consumers to see, or realize. We have diluted asset values, in equivalent 2008 levels, by a huge percentage. 80% to be exact.

The Fed, and QE, have thus fabricated an artificial consumer sentiment that "things are returning to normal", just to keep us buying.

The sense that the stock market is going up greatly again is a complete mirage.

People know it in their bones: they do not see their purchasing power increase... they sense it's decreasing... and they're right.

This is the source of a major, extremely dangerous "divorce" between the public and the elected officials. Until someone will stand to explain all this, and be a statesman (or stateswoman), the politicians will continue "pretending" that their policies will have effects.

When in fact, the Fed and the ECB are the true guides of the world's economy.

To put a final sharper pencil on the picture, I compare the US GDP growth and the US monetary mass since 1970.

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One can argue that the controlled monetary mass rise was supporting a transition from an industrial society to a services society, with more financial instruments supporting this transition.

But 2008 marks a departure. Mind you, I do not argue that QE1 was not needed, or a clever way to stop a catastrophic collapse of the stock market.

But I argue that the politicians and consumers, who cannot understand what QE is really about, got fooled by the financial world, who got hooked on QE.

I argue that when the US GDP is multiplied by "only" 3.4 since 1970, the monetary mass should not be multiplied by 64.

Alas, the ECB has started following suit since January 2015, which immediately caused the slide of the Euro by 20% to 30%, a devaluation which does not say its name.

I feel that our large economies are now in a silent race to the bottom, in terms of asset devaluations... with the currency markets and fluctuations just representing how much faster we're all sliding down the slippery slope.

Three questions remain:

- what is at the bottom of the slippery slope and are we at the brink of the collapse of another financial institution, artificially propped up by QE, with no realistic grounding in true financial performance, with the risk of a snowball effect ? 

- what could consumers do to put pressure on the politicians to force the regulator to rethink their strategy? Do they even understand this enough to have this power?

- who will be the winner in this picture? China? Or will there just be losers?

I look forward to your comments, refinements, challenges, and answers to those three questions.

Musings about Netflix' House of Cards

When I wrote my Tweet about House of Cards, I had no idea it would be so successful, retweeted and favorited so much.

I'll save for a drinks or dinner discussion why I think it resonated with you, and the followers of my followers.

For now, I want to share with more than 140 characters what I wanted to develop, and what lessons I see in Netflix' House of Cards.

1. Content rules

At the heart of 'House of Cards' is an excellent story, well told and delivered. Well acted, well written, well presented.

Despite some observations of a few of my followers, I doubt that data analytics have anything to do with the inspiration of the writers of the show.

Sure, I grant you that some level of market analysis must have gone to track the TV trends which are compelling these days. The wave of zombies movies and TV shows is surely a sign that when content marketers see a trend, they measure it, track it, replicate it.

But, in Hollywood, New-York, and any digital shop out there, a good story, a good writer have been, are, and will always be the life blood of the industry (not that they are the highest paid of the food chain... but that is a different debate).

Consumers and audiences, us humans, really, have always been mesmerized and captivated by a good story. It fuels our imagination, it propels us to project ourselves outside of our reality. 

Content is a legal drug which we cannot wane ourselves from.

So, in the decade ahead as the content distribution business evolves, we, technologists, must remain humble and continue to recognize that the greatest attractor of eyeballs to our technology innovations will actually be content, and stories, not whether our gimmicks and toys are cool.

2. Format innovation

This does not mean that we, technologists, are not going to bring innovation to the table.

The best area of technology-powered innovation I see, is what I call "content packaging", or "content formats".

By "format" I do not mean video encoding format, or resolution format (16x9, UltraHD etc).

I mean the innovation which comes from how a story is told.

The jump from the broadcast main event, to a follow-on broadcast show where the anchor interviews cast members. AMC leads the way here, with the Walking Dead and the Talking Dead.

The pivot into conversations with the actors on Twitter, maybe followed by unseen footage, cut scenes available on-demand on your tablet...

Netflix version of this "content format" innovation is in the delivery of "binge TV", with all episodes of a show season released at the same time. I suspect that Netflix is working on more exciting ways to innovate in content formats.

Broadcasters, programmers, studios and over-the-top players are also testing the waters, and trying to measure what resonates with audiences. The primary axis of their content format innovation are, for now, 2nd screen experiences and apps, synchronized or not.

The only 2nd screen synchronized application platform I see out there capable to make a dent in the marketplace is actually Shazam. But more on that in a future post.

The next decade will thus be about innovation and experimentation in content formats.

3. A decade of experimentation

I say a decade, because we, technologists, must also remain humble.

We need to accept and realize that it will take at least one decade for consumer behaviors to change at scale, with all those new content format innovations being tested.

For it to matter (economically, to the advisers), I posit that we need to reach at least 40% of the population to engage with a TV show on a second screen on a consistent, sustainable basis for it to matter... i.e. so that the digital dimes turn into digital dollars.

For now, for the foreseeable future, we will continue to see low percentage penetrations on all those experiments until broadcasters and marketers understand what works, and what doesn't.

Nielsen reports that, apart for the major sports events (SuperBowl and sports leagues finals), most of the sports events generate just a few million tweets. Successful shows like Glee garner up to 800,000 tweets per show...

We have a long way to go until those new content formats and engagement platforms become real eyeball aggregators having real economic power.

4. Marketing good content remains expensive in a digital world

At the same time, marketing quality content will continue to require a lot of money to reach mass scale audiences.

Therein lies the (valid) argument which the cable industry is making to the legislator, in asserting that "a la carte" does not work.

In other terms, big commercial content successes are needed to pump enough money in the system to fund the creation of more niche content.

If the benefits of such large content successes were kept in the legal entity created for its production, no studio or programmer would step up to produce a show like "Looking", for example.

Studios like Warner Brothers are, yes, experimenting with low budget, high quality, made for the web productions.

But I see this as internal R&D experimentation, targeted at learning what it takes to prepare for such times, if they come ahead, where they may be forced to produce "cheap" high quality content.

So the stage is set for the large content companies and distributors to assert their might, and continue to sway great negotiation power on the industry.

Small, independent production companies will remain small, and can only hope to be acquired, in the decade ahead.

Finally, the Silicon Valley does not know how (or want) to fund content, and I don't see that changing any time soon.

5. Digital dimes ramp-up slowly

In conclusion, I thus see a slow, decade-long march, which will take us from a "digital dimes to digital dollars" world.

It will take time, surely.

It will take an un-coordinated movement from all the pieces of the industry to slowly refine their weapons: 

(i) the advertising industry to refine its definitions, measurement and tracking of "engagement"

(ii) the advertisers to refine their organizational understanding of the digital world, which has been kept opaque from them, voluntarily, by their ad agencies

(iii) the content producers and programmers to refine their understanding of consumer usage of the new content formats

(iv) the distributors to refine their technologies in service of the new content formats

All of those actors will then start expressing, during their annual advertising contracts negotiations, the "digital revenues", separately from, and with measured metrics, the traditional broadcast dollars. I don't see that happen until 3 to 4 years out, though.

The pieces of the puzzle are starting to emerge.

And I am happy to help you shape your path in the digital woods.

In an age of big data, asking the right (business) question shapes value

As the 2014 Consumer Electronics Show opens today in Las Vegas, the buzz is already on wearables and intelligent health related sensors, captors, body activity measurement.

I will forget for a while the whole “UltraHD / 4K” noise. It is an understandable next push of the industry to keep the TV set market afloat. But it is also, in my humble opinion, one wave which comes too soon at consumers, who are not yet ready to surf it. 3D came and went, and I think that 4K comes at least 5 to 8 years too soon.

Back to health monitoring and big data in general.

As we enter, irreversibly, in a world where data is created, generated, tracked, stored, manipulated about every physical object, human being, behaviors, we are entering in a new age of humanity.

This is exciting, and fuels the conversations on the buses of Google, Twitter, and other tech giants’ young engineers who never had to conceive a world without this big data.

However, this all reminds me of the California Gold Rush.

There was a lot of dirt moved, for very few to find gold, and just a few more to make in fine much more money just selling jeans to the workers, and picks and shovels.

How ready is Marge Simpson to see a daily histogram of her heart beats, number of steps, and draw by herself the right conclusions to change behavior?

If the recent 23andme.com public debates with the FDA is any indication, there is a vast task at hand: educating the consumer marketplace about all those health and medical related tools, for them to be understood correctly. Billions of dollars of liability, malpractice, consumer product liability and related insurances ride on it.

So I posit that asking the right business questions is going to be the way we extract value out of this big data world.

·         What is the valuable question we can take action on?

·         What actions are we taking, based on which data set?

·         How are we applying the right filters to the raw data to ensure that we extract meaningful responses?

·         What are the mathematical algorithms and rules we will apply to the selected dataset, to make sense of it?

·         How do we visually represent the results? (note that this is the big danger of the big data world: there may not be a “product” anytime soon if every use requires some form of custom visualization… venture capitalists, beware)

·         How do we map those results and translate them into laymen language?

Those questions are applicable to both a B2B, B2C and B2B2C environment.

A big data strategy has to start by asking the right questions.