Archive for May, 2008

Ass Backwards, Again

Blockbuster (BBI) has outdone itself now. It just announced a trial of in-store kiosks that will allow consumers to download movies directly into a portable media player (PMP) to take with them. For now, only the Archos player will be supported.

Let me get this straight.

Blockbuster wants you to hop in your car and drive to one of their outlets. Using soon-to-be-five-dollar gasoline. Just so you have the privilege of downloading a movie onto a portable player.

They do seem to have this whole thing ass backwards, don’t they?

Hello! Ever hear of the Internet? Why in the world isn’t this a download to your PC and then a transfer to the PMP? (Yeah, I know, the answer is the studios and their oh-so-customer-friendly Digital Rights Management fixation.) Blockbuster’s insistence on driving consumers to their increasingly useless stores has clearly reached new heights.

Meanwhile, Netflix (NFLX)–while noting its ultimate future is in downloads–predicts that its DVD mailing business won’t PEAK for 5 to 10 years. That tells me the smart money is on DVDs (either standard or Blu-ray) to last some time. I agree.

It’s not that downloads aren’t the preferred solution–personally, I can’t wait–but that universal adoption is a long way off. Why?

  1. The studios’ love affair with DRM, artificially reducing the availability of video fare and making it difficult to transfer media to other devices
  2. Still no inexpensive, simple solution in sight for getting video from the PC or Internet to your TV.

Here’s an idea: If you insist on making people drive somewhere, at least let them leave with a disc. Use Qflix technology from Sonic Solutions (SNIC) to print a fully licensed DVD out of the kiosk instead. That’s portability and ease-of-use in a single package. As I’ve noted before, this would allow Blockbuster to reduce/eliminate inventory, and get more Hollywood back catalog titles into customers’ hands.

[Sonic holds the key technology patents on download-to-burn, which has been approved by the DVD Copy Control Association (DVD-CCA). This allows discs to be burned with CSS encryption, pleasing the studios and making such copies legal commercial DVDs.]

Sonic was working with MovieLink, prior to its purchase by Blockbuster, to push this tech into the end user market. While disc burners for consumers probably won’t go mainstream anytime soon, Sonic is in trials with kiosk makers. It’s a nice transitional solution until discs are truly dead. Why Blockbuster has made no use of this technology is a puzzle.

But then so is everything else it does these days.

Disclosure: I hold no position in any of the stocks mentioned here.

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May 29, 2008 at 12:55 pm 1 comment

Book ’em, Dano

Goldman Sachs analyst James Mitchell is out with a report that estimates sales of the Kindle electronic book reader from Amazon (AMZN) were between 25,000 and 50,000 in the first quarter. This is hot on the heels of another estimate of 30,000 from Citi analyst Mark Mahaney.

I certainly can’t fault Mitchell’s methodology, which backs out non-Kindle items from Amazon’s unearned revenue line to arrive at an estimate (roughly 10% of that line item) for Kindle revenue and units. Except to note that he’s made some rather broad assumptions about the other items. If so, his subtraction is suspect. Notice also that Mitchell assumes his estimates of unearned revenue for the Kindle could be higher (up to 20%), but not lower, which reveals his bias.

Citi’s Mahaney has even gone so far as to suggest 3% of Amazon’s revenue (about $750M) will come from Kindles within 2 years. Worse yet, he assumes a sales ramp roughly half of the original iPod. Frankly, he’s smoking crack.

If Eliot Spitzer hadn’t brought an end to the practice some years ago (cough, cough), I’d almost think these two were trying to drum up business for their investment banks. Instead it’s probably something much more innocent, like say pumping the stock for the traders.

Why do I think e-books are, at best, a niche item? Because end users don’t need them. Yes, it saves money for publishers and retailers. But it’s unclear whether the savings that trickle down to users overcome the hassle of another $300+ device that needs to stay charged. Plus I like paper. Apparently, so do the multitudes who continue to print things out instead of reading them on a screen. (Remember the paperless society that computers were going to bring?)

Think about it: what problem is the e-book solving for consumers?

  1. Gee, if only my book was portable, I could take it with me…
  2. Pushing a button to bookmark my place is SO much easier than bending a page corner.
  3. Those nasty paper cuts.
  4. I can take my whole library with me. (Sure, I often read 10 books at a time. And I wish I could read fast enough to finish several books on a long flight.)
  5. I can download a new book whenever I need one. (Yep. And how long does that take over a pokey wireless link? EVDO isn’t everywhere. And can I read the first page while the rest is downloading?)
  6. I want my reading material to break if I drop it.
  7. It’s cheaper. (True, true. Unless you want to read blogs at $2/week or newspaper feeds at $15/month. That’s a lot to pay for portability.)

Kindle isn’t going to take off in its present incarnation. Yes, there will always be technophiles and other early adopters that get one because it’s new, or somehow cool. But regardless of whether the Kindle succeeds or fizzles, the buzz-induced sales ramp will tend to look the same at this early of a stage in a product’s life.

Have you seen hordes of gadget geeks flashing a Kindle around the way they did iPods or Razrs in the early part of the adoption cycle? I sure haven’t.

But let’s assume for the moment that the analysts are right, that Kindle will ramp smartly, that reports of large orders from Chinese manufacturers are accurate, and that Amazon won’t take a bath on the units.

Let’s even go so far as to assume e-book sales are completely complementary to paper books, that Kindle entices people to read more books and doesn’t cannibalize the traditional book revenue stream. (Live dangerously, I always say.)

How does that move the needle for Amazon? Whether you think the stock is a buy or not, is 3% of revenue really going to make it a game-changer? I don’t think so. Amazon’s a visionary company, they do a lot of things right, and I wouldn’t bet completely against Jeff Bezos.

But put your money on the whole company, and don’t pay attention to the noise.

Disclosure: I hold no position in any of the stocks mentioned here.

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May 20, 2008 at 11:01 am Leave a comment

Alias Mr. Moneybags

Who benefits the most from the recently announced Sprint/Clearwire deal? It may not be who you think.

This massive ($3.2B) infusion of money seems like a lot, but it’s just the beginning for this boondoggle. WiMax is a nice technology that works in some circumstances, with the right business model. But then so will WiFi, and it’s much cheaper. Besides, the mobile providers have a huge head start. Why buy new cards and sign a new contract when I already have what I need from my cell phone (or hotspot) provider?

In terms of becoming a successful business, WiMax is vying for the “most hyped” award with social networks. Expect more bags of money to be tossed into the trough before long.

So who gets what?

Sprint (S) – Removes one monkey from the back of CEO Dan Hesse as he is now free to focus on why Sprint has been shedding customers for so long. Also distracts everyone from noticing the delays in its own WiMax buildout.

Intel (INTC) – Intel has been peddling WiMax like a desperate streetwalker to anyone with an open car window. And its been seen hanging around the Clearwire convertible before. Intel wants to be the undisputed standard for WiMax chips, a role it failed to capture in WiFi. Not to mention selling lots of new processors for next generation laptops and smart phones.

Google (GOOG) – Yes, critical mass for Android will help extend its search and advertising dominance into mobile. And this network might turn out to be actually open. Despite Google’s game playing at the FCC auction, the “open” spectrum Verizon won will–in practice–be anything but. Fundamentally, Google has become a VC firm. A billion here, a billion there, something just might stick. All it takes is one 10-bagger to make it work. This ain’t it.

Time Warner Cable (TWC), Comcast (CMCSA) – the Rosencrantz and Guildenstern of mobile will be exactly as successful here as they were with Pilot, the failed MVNO venture with Sprint. And for the same reasons.

Clearwire (CLWR) – Now we’re getting somewhere. Big cash infusion, lots of media attention. The rights to resell Sprint 3G will allow it to grow its top line, giving it time to progress on the buildout. In the end, though, even with a working network it won’t be enough to either satisfy consumers or to make it a viable competitor to the telecableco ISPs. ( And I’m not alone in my thinking, here.)

But you see, by then Craig McCaw will have made his money.

McCaw has a history of promote, build, and sell. Usually at the top. And always with someone else’s money. He’s going to extract himself from this before long, and come out smelling like a rose.

Or a crisp thousand-dollar bill.

Regardless of what happens, whether the network succeeds, whether or not anyone else makes any money, you can be sure of one thing: McCaw has this all mapped out. There’s your winner.

Disclosure: I hold no position in any of the stocks mentioned here.

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May 9, 2008 at 12:17 pm 10 comments

MicroHoo: “Just Resting”

I don’t think this parrot is dead–yet.

Despite Microsoft (MSFT) walking away from the purchase of Yahoo (YHOO), there’s probably still more to play out in this drama. Ballmer will wait a bit for the share price to settle back into the low 20s, and try again, perhaps for even less than the original $31 this time. If Jerry Yang and the rest of the Yahooligans can turn the ship around, perhaps they’ll be vindicated. But don’t hold your breath.

As I commented elsewhere this morning, all of this reminds me of the property currently for sale on my street. The house is in such need of repair that it’s clearly a tear-down. As such, the market values it at the cost of the land minus demolition costs. But the owners refuse to set the price properly, figuring the house has value as a living space (natural, since they reside there.)

Similarly, Wang seems to believe Yahoo has a greater value than anyone else sees. So far he’s been unsuccessful in his attempts at home renovation. But In this case, Microsoft also has a problem: there aren’t any other suitable vacant lots available, and Ballmer can’t afford to wait too long to jump on this one, even if he has to pay more than he wants.

Frankly, both situations will be interesting to watch play out.

Disclosure: I hold no position in any of the stocks mentioned here.

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May 5, 2008 at 3:13 pm Leave a comment

Red State/Blu-ray State

As I expected, NPD reports sales of Blu-ray Disc (BD) players dropped precipitously over the last few months. This is contrary to the desires and expectations of Sony and others in the Blu-ray Disc Association, who seemed to think the BD/HD-DVD format war was the big impediment to HD adoption. Why should this drop have been obvious?

  1. The economy sucks right now. Last thing people will do is buy another box, especially since–
  2. Many consumers don’t see much advantage to Blu-ray over upconverted DVD players. (Of course, many people also bought HDTVs without any access to actual Hi-Def programming. )
  3. There’s virtually no player available (except Sony’s Playstation 3) that incorporates the full functionality of BD Live interactivity. Why would anyone buy BD now if the final feature set isn’t available?
  4. Oh, and did I mention that due to the lack of competition from HD-DVD, player prices have not only failed to drop, they’ve actually gone up. Doh!

By waiting as long as it did to settle the format war, the industry came perilously close to making discs irrelevant at the same time downloading is finally starting to gain traction. Its failure to prove a compelling Blu-ray value proposition for consumers is only making things worse. If this goes on any further, it’s game over.

Sony and its partners gave it everything they had just to win the battle, but forgot there’s still a war going on with the ultimate enemy–downloads.

Guess that makes High-Definition discs the Democratic Party of video.

Disclosure: I hold no position in any of the stocks mentioned here.

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May 1, 2008 at 4:40 pm 1 comment

Open Sezmi

Startup Sezmi is beginning to get some notice–in a short piece on NewTeeVee, and a longer one on Forbes. Sezmi is aiming to become a new video distribution platform, combining over-the-air broadcast and internet delivery. While their strategy is ambitious, I have some doubts.

What it gets right:

  • Video on Demand. These guys seem to get the transition from channels (called “nothing more than playlists for shows” by Sezmi co-founder Phillip Wiser) to VoD.
  • Storage vs. Delivery. Storage is still cheaper, and Sezmi will “pre-load” it’s Terabyte box with some content, based on the results of a predictive software algorithm.
  • Navigation. Sezmi is developing a viewing guide that will combine traditional TV fare with internet content, in customized “channels” that automagically group content by category.

What it doesn’t:

  • Content. None announced yet, and Sezmi is attempting to extract per-sub pricing from the networks that’s identical to what the telecablecos pay. Good luck with that.
  • Pareto’s Rule. The model relies on the fact that only a few shows account for most of the viewing at a given time. True enough. But take away the option for (or even impede) viewing that occasional odd show, and you’re D.O.A.
  • Inertia. Such a new paradigm will create difficulty with viewers who are more interested in plopping down in front of the tube than in learning a new technology, box, and way of viewing TV. Certainly not impossible, but not easy either. At least with TiVo (TIVO), consumers could always default back to their old habits if they wanted–Sezmi will require jumping in with both feet.
  • Cost Structure. This is where the wheels fall off, I think. Sezmi claims it can deliver TV for half the cost of cable, not having to pay for physical pipes. But it must pay to lease extra local broadcast spectrum. And it piggybacks on telecableco internet pipes that are largely cross-subsidized by the very content distribution it aims to disrupt. Let’s see how long that lasts. Not to mention beaucoup marketing and subscriber acquisition costs just to get off the ground–investments that incumbents like Comcast (CMCSA) and Time Warner Cable (TWC) have largely made.

My bet is that this will get lots of press, a few rollouts, and ultimately fail. If Sezmi is able to get some of its predictive algorithms right and create a useful way to combine internet and TV programming into a single guide structure, someone will buy it eventually–at a price disappointing to its VCs–for that technology alone.

Otherwise, Sezmi simply becomes Sezyu.

Disclosure: I hold no position in any of the stocks mentioned here.

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May 1, 2008 at 7:55 am 4 comments

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Scott J. Berry, NY area

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