It looks like Hollywood is in a twist over $1 movie rentals from popular kiosks like that run by Redbox. The cheap rentals are “costing” Hollywood a billion dollars, at least according to some analysts.

I doubt it. Fact is, most of those purchasing the rental would never go out and buy the movie in the first place. I’m pretty sure Redbox probably winds up a net positive for studios for the time being. Claims to the contrary seem a bit foolish. You know, like they’re coming from advisers who got the predictions wrong.

The deeper question here is about media markets, and the inherent value of the service Hollywood is providing. I’m not alone in thinking that the Hollywood studio system is pumping out a lot of worthless crap these days. Apparently $1 rentals are very, very popular. That could mean one of several things: first, that DVDs (even at their currently discounted rates) are still too expensive to purchase, and second that $1 is probably too low a price (but it is a convenient marketing pitch).

The value of a DVD has diminished over the last few years for a few reasons: the most notable being the final victory of high definition over standard definition. DVD video quality isn’t quite up to snuff, and so the value of those discs has diminished. The other problem is convenience. As online systems like Netflix increase in popularity (and deliver in HD even over mediocre Internet connections), the DVD value drops even more. Even at $10 per month, the Netflix system is a value for those who watch enough movies and value the convenience of instant, last minute viewing choice.

So, what are Hollywood movies valued at by consumers? Not a lot. At least not at the moment. There are no real viable online solutions at the moment. Netflix’s library is small at the moment, and there’s a lack of competition at the moment. We won’t know for several years what the final pricing solution will be.

One thing is clear, though: Hollywood placed a huge number of bets on continued DVD sales that simply aren’t materializing. Blu-ray remains underwhelming in its adoption rates (though it is doing better now that hardware prices have come down). Hollywood greenlit some movies based on potential DVD sales, but now that money has dried up. That means smaller movie budgets in the short term. Once again, Hollywood made a sucker bet. It’s been clear the last few years that physical media for movies was going to follow physical media for music, and Hollywood didn’t adequately prepare. Who exactly is working over there these days? Don’t any of them keep up with the technology?

tags: markets, media, movies, technology
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I don’t normally do lists, but I recently saw a list of technologies that we use today that will be gone in ten years. Now, I also don’t like to make tech predictions (they’re always wrong). So I’m not going to do that. Instead, I’m going to list a few technologies/industries that I think should die. And soon.

1. Network Television/Movie Studios/Recording Labels

I’ve thought quite a bit about this over the years, and I wish that television networks would die. And movie studios, for that matter. With the internet, there is an easy, low-cost distribution mechanism for artists. I would prefer something like a guild system, where artists of similar styles or goals share resources and distribute directly to consumers. We get lower prices, more direct contact with the artists, and no more of the intervention of studios in the artistic life of writers, musicians and actors. Good riddance.

2. Drive media

By this I mean optical discs of all types. There’s simply no need for them anymore. Download things off the Internet. If you want to save them, save them on a mass storage device like a hard drive. For portability, flash storage is smaller, more durable, and more convenient.

3. Coax Cable

I’d like coax to die and be replaced with fiber. It’ll be a long and expensive road, but in the end we’ll have so much bandwidth we won’t know what to do with it.

4. Cables, period

There’s no need for cables. Wireless bandwidth is enough for nearly all data within a home. Why shouldn’t my audio components simply know when my TV is nearby? Why shouldn’t my laptop instantly be able to stream music directly through my stereo system just by being in the same room? Why shouldn’t my iPod simply see any home speakers and be able to use them without connecting things with a cable? And why can’t the same thing be true of power?

5. DRM

Data, as the saying goes, just wants to be free. The fact is, we have a difficult time at the moment knowing precisely what people would pay for digital content. Purchased data is so heavily encumbered by rights management that I can never be sure of its true market value: I purchase a song or video on iTunes, but can’t share it easily between my systems. Certainly DRM free movies, television shows and music would result in an immediate deflation of value. But eventually I imagine a market could emerge where people who want the data will pay for it on their own, not because it’s how they get the data, but because its the only way they can guarantee they’ll get more of what they like.

There’s more I could think of. There’s also some tech that I imagine we’ll still be stuck with in ten years. Some have said that the keyboard and mouse are on the way out. I am not convinced of this. Along with the keyboard and mouse, I’ve seen people predict the end of the standard game console controller. Only someone who has never played games could say this. The reality of motion and touch controls is that they remain far more inefficient than standard controllers today. Just as voice recognition has been on the cusp of acceptance for thirty years, the mouse and keyboard is the mousetrap of computer interfaces. It’s too simple and intuitive to be easily replaced. Why? Because it just works. Anyone who has struggled with voice recognition systems and Wii motion controls knows this first hand.

Wired telephones are already going, replaced by cell phones. I rather suspect gasoline cars will be gone within my lifetime. Perhaps within twenty years. I hope to see more distributed power generation. In fact, I might go so far as to make a general prediction about technology in the next twenty years: distributed systems, rather than centralized systems, will prevail. Distributed power. Distributed data. Fewer gatekeepers. At least, I hope that is the case.

tags: drm, markets, media, technology, whatever
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A couple of weeks back I got a notice from my Internet service provider that I was using too much bandwidth and would have to curb my Internet usage or lose my account. My ISP is one of many who have imposed bandwidth caps (limits on how much data one can download). Comcast imposed one last fall (250GB) which was excoriated in the tech blogs.

Be happy, oh ye oppressed of Comcast. My cap is a paltry 100GB.

To get a sense of how ridiculous that is, on my 10mbps connection, I can use the full speed of my connection for just over 50 minutes per day during the month. Less than an hour. Split that between Amy and I, and you’ve got about 26 or 27 minutes per day for each of us.

But we’re just surfing the web, though, which uses virtually no bandwidth, right? Well, no. We stream movies from Netflix and Hulu. We download music. I play games online (a huge bandwidth hog). I download game demos. I blog. I can easily blow through 100gb in two weeks if I’m not paying attention. And why should I pay attention? When I purchased the service, it touted its being “unlimited.” Pshaw.

As bandwidth needs increased, providers ought to have come up with more bandwidth. Comcast took a lot of heat for limiting people to 250GB. I suspect they would have had a lower cap if they could have gotten away with it. Alas, my own provider is a nothing little Reading-area company. Our local phone company provides DSL without such a cap, but at half the speed. I’m considering switching despite that.

Then I came across this article today:

A report out today from Nielsen shows why Internet Service Providers and telecommunications equipment vendors are increasingly demonizing video. It consumes a lot of bandwidth, and could compete with an ISP’s existing video businesses, but the worst part is that it’s rapidly becoming more popular to the average consumer.

Duh. I could have told them that. They hardly had to pay for a report. Where have these guys been the last few years?

Two things are driving these trends: Better access to content in the form of PC-to-TV hardware and services like Hulu, NetFlix and iTunes HD downloads, and faster connection speeds that make downloading movies in HD possible.

These guys are rocket scientists, I tell you. The real explosion has been since 2005, and can be attributed (mostly) to a single source: the Xbox (and a year later, the PS3). These consoles were built to download and stream video directly from the Internet. Microsoft and Sony saw something that the cable companies and media companies didn’t: that consumers hate the current methods of transmitting video. Consumers want large amounts of content on demand. Cable’s attempts at providing it have mostly fallen flat.

Why the caps, then? Because a lot of the ISPs (including my own) provide their own video on demand because they are also cable companies. They’re using their leverage with bandwidth caps to keep people sucking down video through cable, even though that’s not what people want. And as most cable systems are single-provider (ie., you only have one company to choose from, with no competition) there is no free market to correct the cable companies’ attempts at keeping their faltering business model intact.

Since DSL is almost always a lesser choice (DSL technology is inherently less capable than cable, and always will be - again, for technical reasons), phone companies don’t themselves provide a significant market threat. The real solution is to break cable monopolies and offer new bandwidth solutions. Cable is pretty much tapped out in terms of the bandwidth it can support (theoretically it can support 30mbps, but everything I’ve seen so far seems to indicate that 15 is about the realistic limit for existing cable infrastructure). In other words, the long term solution is to switch from copper to fibre optic and convert the current cable system from the current model to one based on TCP/IP (ie., the Internet).

tags: markets, technology, television
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Here’s an interesting article that suggests if your favorite show is threatened with cancellation, don’t bother getting your friends to watch on TV in order to save it:

Trying to convince more people to watch a struggling show on TV is entirely useless. The television industry is not a democracy; the only votes that count—scratch that, the only people allowed to vote at all—are the 12,000 to 37,000 households that have Nielsen boxes sitting above their TVs.

To be honest, I had no idea that the number of Nielsen households was so low, although I couldn’t really tell you what I thought the number really was. Anyway, if there was ever a time when Nielsen ratings were accurate (I doubt this), it is certainly not today. How do they choose these households? I suspect this is like the recent problems with political polling: if your sample is skewed, it’s going to tell you things that simply aren’t true. Sure, the ratings tell us that 3 or 4 million people are watching Dollhouse, for instance, but is that really true? We can’t know based on the way that television ratings are collected.

If the sample is skewed, not only are Americans not getting the kind of television they want, advertisers are paying for ad views that don’t exist. I’ve always thought that ratings were a lie, and this article agrees:

The television business rests upon the central lie that it knows what you’re watching. In the old days, it was impossible for the network to keep track of who was watching what. So, instead, Nielsen started asking a sample of Americans to keep diaries of their television use. Eventually, that methodology largely evolved to a digital one, involving a box that transmits a viewing log back to Nielsen HQ. But the country has only somewhere between 12,000 and 37,000 homes reporting back with data. Compare that with the more than 112 million television-equipped households in this country. Now, even if we assume that these Nielsen readings are accurate—and there are many who believe that’s not the case—the huge gap between 12,000 and 112 million means almost everyone is stripped of an actual voice in the process.

Answering the sample question is difficult. How large a sample would really be needed? Sure, a carefully selected sample of 1500 people may be adequate for an election with two or three candidates. But TV is populated with hundreds of shows, dozens of which are on at any given time. And I’m not sure how Nielsen chooses who gets the box. Are they selecting from a carefully balanced picture of Americans? Somehow I doubt it.

I have no illusions about a careful sample being helpful. It could be that in the case of Dollhouse, fewer people are watching, and that the ratings are being inflated. But it’s also possible (I’d say likely) that Nielsen households are too concentrated in specific demos, which is why certain kinds of shows dominate.

The conclusion is to watch TV where it is counted: online. Go to Hulu.com and watch your show, if it’s in trouble. That’s a confirmed view, in a venue where (by necessity) the commercials can’t be skipped. I actually like Hulu quite a bit. I’ve been catching up on The Office on Hulu, and the ads don’t bother me at all there. I’m just waiting for when I can access Hulu over my Xbox, and I’ll be in heaven.

More importantly, though, networks will actually know what I’m watching. That’s good for advertisers, good for networks (who have to make those difficult decisions about which shows stay and which shows go), but more importantly, it’s good for consumers.

tags: markets, technology, television
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TV by the Numbers has an article up on how DVR viewing is affecting television ratings and advertising:

Since TV advertising is sold/measured based on the average commercial minute watched within 3 days of airdate (also referred to as C3 or C+3 ratings), and the very limited amount of data we have seen suggests that for most shows their Live+SD program rating and their C+3 ratings are very similar, my conclusion is that DVR viewing beyond the Live+SD time period has little advertising value

This may be true, but there are alternative arguments to make. First, this assumes that most people watching TV live actually pay attention to the ads. I know I never really did. And it assumes that DVR viewers don’t watch ads, which I know is false because I regularly stopped to watch ads (mostly for movie trailers, etc.) when fast forwarding during my DVR viewing.

Also, it’s important to note that time shifting with DVRs isn’t new. People have been doing it for most of my life, first with VCRs, and now with DVRs.

But it’s true that technology is changing the way we watch TV, and eventually the networks are going to have to adapt their advertising model to the new reality.

I’m mostly concerned about this because I tend to enjoy genre shows (like, for instance, Dollhouse) which routinely do better on DVR than live. I happen to be of the opinion that genre TV can’t quite make it on major networks anymore. Networks seem to prefer low-cost shows with high appeal like “reality” shows and other unscripted programs (for the life of me, I can’t understand why people watch those shows, although I did enjoy [briefly] watching Hell’s Kitchen). Still, I’d like to see more scripted shows, and if that means moving them to secondary networks (like FX or SyFy) where their ratings will be more comparable to other programing, that’s fine. And cable seems to be where the good shows are: Eureka and Dexter immediately come to mind.

But the trend is clear. If networks can’t capitalize on people actually watching the show, then they need to find some way of changing that. Dollhouse, for instance, is shaping up to be a solid show but will likely be cancelled because Fox, for whatever reason, seems incapable of figuring out how to get people to watch the ads.

Like with content creation in general, everything old is new again. As I’ve suggested content creation guilds as a solution to the problem of content distribution, I think sponsored shows (as in the early days of TV) might be a solution to the ad problem. A mix of direct financing from viewers and contributions from limited sponsorship might be enough to keep our best content creators in business.

tags: markets, television
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In the past I’ve noticed that some tech reaches an almost ridiculous pinnacle before a quick demise in the market. The most recent example of this is Blockbuster Video, which up until a few years ago was a seemingly unbeatable force in movie rentals. Until, that is, technology made movie rentals moot. Old fashioned. Silly. Now Blockbuster is on a long, slow spiral of market death.

I’ve been wondering the same thing about video game consoles lately. There are three major gaming consoles this generation: Nintendo’s Wii, Microsoft’s Xbox 360, and Sony’s PS3. Nintendo seems to be winning this fight for the moment, with Microsoft firmly in second place and Sony bringing up the rear, at least in terms of sales. Some transparency here: I own an Xbox and a Wii. I play on both of them, although the Xbox is what I usually end up playing. I don’t have anything against the PS3, but I don’t much like Sony as a company.

The problem with three consoles is obvious: games are expensive to make, and to assure that developers make their money back on games, they are usually developed for either the two HD gaming consoles (Xbox and PS3) or for all three (although ports to the Wii tend to be very different). This defeats the purpose of having different gaming consoles. Despite fanboy enthusiasm, both consoles are roughly equal in performance. Neither has games that look dramatically better than the other. And mostly, the games for both are the same. So it’s a massive drag on game developers to create the same game for two completely different consoles. And since the Xbox is essentially a PC, it is far easier for developers to make games for the Xbox and PC than for the PS3. Developers want to make money (and gamers should want them to make money), so they make decisions based on the widest installed base of platforms. That’s been the PC and Xbox this time around.

But what if the console didn’t matter? What if game developers could be assured that everyone could play the games, no matter what hardware they had? What if they had no hardware at all, really?

That’s where OnLive comes in. It’s a new system for renting video games. Yes, renting. If there has been any new development in media over the last few years, it’s been the media-as-service model, where you pay for broad access, rather than paying for specific titles. Like Netflix’s on-demand system, you pay a fee and you watch what you like. So far, indications are that this model not only works well in practice but is extremely popular. But will it work for games?

How it works is simple: rather than buying a console and individual titles on DVD, you purchase a box. The box is not a console, per se, it is simply a network device that receives signals from a gaming controller and sends them over the internet to the OnLive server, where the game is running. The server sends back streaming video (720p resolution, which is the most common on HD gaming systems right now) of the game, which the box sends to your TV.

Initial objections were obvious: what about lag? After all, the signal’s got to go from the controller to the box over the internet to a server somewhere across the country, then the signal has to be processed, the game reacts, and then the video has to be compressed, sent back across the internet to the box, then to the TV. What about lag? So far, it looks like the company has that problem licked.

The benefits to this are enormous. First, the box itself (because it has no media drive, no advanced processors or memory) is relatively cheap. Second, no one needs to mass produce all the game discs and crap that goes with the game to the retailer. Third, because all the games run on back-end servers, there is never a need for individuals to upgrade their consoles. All the hardware upgrades go on the back end. Once a new generation of games is announced, everyone has access to them without buying new hardware.

I still have some reservations. First, that’s a lot of computing power at any given moment. It also requires that everything be done over the internet, and I’m not convinced that current infrastructure can really support that much active bandwidth. But it’s also clear that both computing power and bandwidth are increasing at decent rates. And an Xbox 360, for instance, compared to current desktop computing power, simply is not that demanding.

For developers, the boon would be fantastic. They’d no longer have to worry about developing games for multiple consoles. Microsoft, Nintendo and Sony might be out of the console business, but the business model has been dead for some time: console makers take losses on console sales up front in order to make money on the games. It remains to be seen what would happen with online services such as Microsoft’s popular Xbox Live, but they might survive in some other context.

In short, I think the idea is great and worth pursuing, but it probably needs some development before it’s market-ready.

Oh, and there’s the real benefit to all this: the death of endless, pointless, ridiculous fanboy arguments over which console is better and/or has better games. That benefit alone is enough for me. Sign me up.

tags: gaming, markets, technology
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I can’t imagine too many people who think video games aren’t too expensive. Wii and PC games retail for $50, while Xbox 360 and PS3 games retail for $60. They are expensive enough that most gamers do the play-and-trade shuffle at Gamestop. Occasionally I buy a full retail game (if I’m particularly interested in playing it) and trade it in when I’m done, usually knocking $20-30 off my next game. I might play four or five games a year, but I rarely pay more than $30 for them.

Gabe Newell of Valve (makers of the Half-Life series, and creators of the Steam internet distribution service) seems to think that games are too expensive as well:

On the PC-only Steam service, a wide range of prices are attached to games, and attractive weekend deals throw more pricing variability into the mix. Although Valve was initially afraid that volatility or variability in pricing would confuse or anger its customers–or even cannibalize retail sales–Newell says that was not all the case.

In fact, it dramatically increased sales. Illustrating his point, Newell showed the results of a Left 4 Dead promotion Valve ran last weekend, which cut the price of the game in half to $25. The discount (and promise of new content for the game) rocketed sales of the game on Steam by 3,000 percent.

That doesn’t surprise me. Heck, if I could have picked up Left4Dead for $25, I probably would have. But I don’t play on the PC, I play on the 360. Dang.

Anyway, Newell says that it’s easier to play around with pricing via Steam than in retail channels, and he’s right. Steam allows some price variability, allowing the market to find a sweet spot. Some failed titles might have sold much better had the rigorous $60 price point on the PS3 and Xbox 360 been alleviated. Very few titles appear on the market for the less-than-$60 retail price.

Honestly, the $60 price raises game expectation. Gamers expect a certain number of playable hours, modes, features, graphics, etc. But not all games really have $60 worth of content in them. Microsoft has the Xbox Live Arcade system, where games appear for anywhere from $5 to $20 on their online service, but those games are almost uniformly of lower production value. The two-tiered system doesn’t really allow for quality games at mid-range prices. Big sellers like Fallout 3, Halo, Metal Gear Solid, and Grand Theft Auto might not suffer from the $60 price point, but a lot of other games do. By the time their prices drop on the shelves, they’re out of the public mind.

I think a better price point for most next-gen console games would be $40. Some bigger titles could come out at $50 or $60. I think it’s great that Steam is experimenting a little with this, but I’d like the experimentation to extend to the console market as well. Better to get this all sorted out before the next console generation comes out. Indeed, if the console makers could give their machines adequate disk storage, an online distribution service like Steam could work very, very well on consoles.

tags: gaming, markets
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Most Americans really don’t know much about economics. Economics isn’t taught consistently in high school, and is virtually ignored in college. What I know about economics I learned by reading Adam Smith and Friedrich Hayek: hardly comprehensive.

But I’m more and more convinced that macroeconomics is about as reliable as reading tea leaves. The current debate over the so-called “stimulus package” is a great case in point. Will Wilkinson explains it better than I can (read the whole thing, it’s a great post):

In the debate over economic stimulus, I hear many otherwise brilliant people making a lot of baseless conjectures about mass psychology — about consumer and creditor “fear” and “uncertainty,” and what to do about it. But, as far as I can tell, none of them has even a rudimentary theory about the causes of micro-fear or how it scales up to aggregate consumer demand or aggregrate credit supply, etc. So I feel like I’m hearing a lot of smart people talking out of their asses about a subject they’ve never actually studied –the psychology of coordinated expectations — and pretending it is “economics,” a subject with much greater rhetorical prestige and political power than amateur psychology.

I’ve probably said this before on this blog (I know Amy has heard me say it) but the economy of the last five or six years has hardly been bad, despite what the media have been saying about it. Even now, while the economy is facing some challenges, the overall outlook is hardly bleak. And much of the current hand-wringing over the economy has more to do with what people think than what actually is.

(more…)

tags: culture, markets, movies, politics, war
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First Obama decided to keep some of Bush’s foreign policy team on for awhile.  Now he’s basically adopting Bush’ economic policy (that is, tax cuts):

The size of the proposed tax cuts — which would account for about 40% of a stimulus package that could reach $775 billion over two years — is greater than many on both sides of the aisle in Congress had anticipated. It may make it easier to win over Republicans who have stressed that any initiative should rely more heavily on tax cuts rather than spending.

Hey, I’m not complaining.  Much.  I mean, it would be nice to see tax cuts and spending cuts, but I won’t hold my breath.  But it says a lot that when the economic times are tough, Dems run against their Keynesian ideological principles.  I mean, it’s almost as if they think Keynes was wrong!

Or, it could just be that they’re hedging their political bets by trying to include Republicans in on the “stimulus” in order to blame them if and when it fails. (UPDATE: Jon Henke seems to agree with me on that possibility).  Of course, with tax cuts it’s less likely that this stimulus will fail.  But without necessary spending cuts, it seems most likely that the stiumulus will have only a so-so effect on the economy.  There are other more significant variables at work.

So, this gives me hope that Obama won’t be the disaster he would have been if he actually did the things he said he’d do last year before the economic picture changed.  Still, this idea of embracing tax breaks for corporations to create jobs: it’s a Republican thing.  Democrats have always bought into the Keynesian deficit spending theory.  I don’t get it.  What “change” exactly are we getting?

Not much–thank God.  As I’ve said before, Bush’s economic policy was essentially sound.  What got us into trouble was a mixture of government interference in the mortgage market and willingness of congress to look the other way.  It’s been a long series of dominoes crashing to the ground.  Credit crisis spreads to the already-dysfunctional auto industry, meanwhile the tech boom (still going, in fact) is changing markets all over the world.  We’re still in the early days of the information revolution, people.  There’s more displacement coming, and it won’t be pretty even if it is necessary and good in the long run.

This may not be change that Obama’s supporters will be happy with, but I’m not complaing yet.  Hell, I can imagine some supporters are wondering what the differences between McCain and Obama were at all.  So far?  Not a hell of a lot.  Still early, though: and he’s not president yet.

tags: markets, politics
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Glenn Reynolds notes that there has finally been a GDP contraction for one quarter (the definition of a recession is two straight quarters of “negative growth.”)  Of course, the way people have been talking about it, we’ve been in a “recession” for two years.  Obviously that hasn’t been the case, but when you have people talking down the economy, is it any surprise?  Growth for the previous three quarters was 2.8%.

Strangely, though (at least to me), the contraction was only 0.3%.  Given the financial crisis, I would have expected it to be worse.  However, it’s also important to note that there already appear to be some natural market corrections at work.

Of course, the last thing you want to do in this kind of economic climate is increase government spending dramatically.  So Obama’s got himself in a tough position.  He’s promised a boatload of new government programs, with a trillion or so in new spending.  And he’s promised to cut taxes for 95% of Americans (I’ve yet to hear how this is possible, when about 40% of Americans pay no income tax).  I mean, really: how much more progressive can you make our tax system?  Answer: not much.  Obama’s going to have a tough time keeping any of his promises next year, if he wins.

On the other hand, I rather suspect that if there is an official “recession,” that it will be neither particularly long or difficult.  I guess part of the problem is that a number of industries seem to be in transition.  Manufacturing, in particular (including the auto industry).  I think these are aftershocks from the dawn of the information age.  We’ll see how traditional businesses adapt to changing consumer demands from Americans.

Like usual, the current slowdown seems to be the result of a confluence of issues.  But the solution always appears the same to me: lower taxes to ease the burden on taxpayers; freeze (or better, cut) government spending; encourage free trade and free markets.

tags: markets, politics
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