Posts filed under ‘Media’
Widgets And Idjits
Intel (INTC) and Yahoo (YHOO) recently announced a venture to develop a platform–dubbed “The Widget Channel”–that in effect turns your TV into an Internet thin client. Seth Gilbert over at Metue.com has a great summary.
Developers can write software widgets that can be uploaded to your TV and run in the background. You could check email, share photos with friends, bid on eBay, anything a widget on your Mac or PC can do. All while watching your favorite TV show or sports event.
Of course, you’ll also have to buy a new TV or Set-Top Box (STB) that is equipped with Intel’s CE3100 Media Processor. Good luck with that.
[I wonder sometimes whether anyone ever sees the obvious disconnect between relatively fast new media business development cycles--i.e. "Internet time"--and the much slower frequency with which people upgrade expensive items like TV sets. Many, many firms are vying to deliver a "convergence" solution. Which, if any, will be sufficiently compelling and have enough staying power to become embedded within a sizable share of TVs or STBs?]
Overall, I’m a bit skeptical of this and other similar initiatives.
What I do like is that it’s expected to be a relatively open standard (from the software point of view, at least–you still need Intel processors). Tapping the creativity of the wider software development community is a proven method for both good product and built-in viral marketing. iPhone apps, Google Maps mashups, and Firefox extensions are just a few examples. However, this alone won’t guarantee consumer adoption of the platform, just ensure functionality is available.
At the end of the day, do consumers even want this? Here’s what I think is true:
- People like to use the Internet for a growing variety of things, including watching video.
- People enjoy watching TV, preferably on a TV set. (I’d hazard a guess that most people watch TV with someone else in the room, but typically watch video on the PC alone.)
- Many do some form of Internet activity (surf, email, etc.) while they watch TV.
- Past attempts at interactive TV–at 15 years and counting–have been underwhelming, and that’s being charitable.
What isn’t at all clear, is whether those surfing are paying any attention to the program while doing so. What also isn’t clear is what the other people in the room are doing. Most likely, they’re actually watching the program.
So what happens when the surfer starts fiddling around with widgets, essentially “doing Internet stuff” while others are watching the show on the same screen. Even if the video portion of the screen is undisturbed, wouldn’t that be a bit distracting? Why does everyone seem to assume the surfer wants or needs to use the TV screen anyway? Aren’t they using a computer already?
Sometimes it seems like much of the Internet/TV/PC convergence is a supplier-driven attempt to create a market where there isn’t one. Perhaps it’s simply another self-reinforcing delusion, where media and equipment companies living in an echo chamber of trade shows, developer conferences, and press events convince themselves a market exists where it doesn’t. The 21st century’s equivalent of the videophone–a technology so compelling that consumers must want it. Except they didn’t.
I’ve seen this kind of thing countless times, especially in large, bureaucratic companies like Intel.
Someone somewhere (fairly high up in the management ranks, to be sure) has a brainchild for a new, compelling offering. A sure-fire way to help the company grow and break into new markets. So it’s funded, momentum builds, staff are assigned, and hilarity ensues.
Soon, lower level employees–who actually do the market research and understand what’s going on–figure out the idea is D.O.A. But nobody wants to tell the top brass they’re wrong, or especially that they’re “idjits” (idiots), in a shoot-the-messenger world. Particularly when their whole department was formed around the initiative. Job security will out, you know.
As the old joke goes, as you go up the management chain, crap becomes manure, then turns into fertilizer, which is recast as a way to grow the company. That’s when the flowery press releases begin. Companies rarely issue a release about how the initiative is abandoned some months later when the market fails to materialize.
Is The Widget Channel crap, or dynamic growth? It’s probably too early to tell. I suspect it’s got a decent chance to beat the competition, whatever that means. However, what’s more important is whether there is even a market to win.
Disclosure: I hold no position in any of the stocks mentioned here.
Rim Shot
Here’s an object lesson in how stocks with thin trading volume can get hammered.
Monday, Rimage Corporation (RIMG) reduced 2nd quarter guidance, citing the economic slowdown. Revenue expectations dropped from $24-26M to a new target of $20-22M. Earnings projections plummeted, to 9 to 12 cents per share, from previous guidance of 22-27 cents. Analysts estimates were–predictably–within the previous guidance ranges.
Rimage (pronounced like the French, i.e. “rim-AHZH”) makes high-capacity disc publishing systems that replicate CDs and DVDs as well as customize discs and print/apply labels. It also does a high-margin business selling blank discs and labels.
If you’ve ever ordered a custom-mix CD from Wal Mart, it was printed on one of Rimage’s units.
While Rimage sells its publishing systems into the media industry for music, movie, and software storage, it does a substantial amount of business with large enterprises that create custom discs for product promotion or employee training purposes. It also sells to data-intensive industries needing quick, simple records storage. In particular, the medical industry is one of Rimage’s most important end markets.
I never wrote on Rimage as an analyst, but I do keep it on my radar screen, as its business model not only ties into Digital Media but also fits a theme I’d developed on creating value at the edge of markets (in this case, disc replication). However its trading volume, averaging about 77M shares daily, is less than 1% of the float.
This makes for a very illiquid stock, especially one that until Monday was at a market cap of $170M. Which is the biggest reason it’s covered by only 2 analysts.
As you might expect, Monday the stock dropped a hefty 22%. I’m convinced a good piece of that was due to a lack of buyers for an undercovered, thinly traded name. But many pundits will claim a major reason is that Rimage’s business model is dead. After all, we’re in the iPod generation, discs are passe. With high speed broadband everywhere, and ubiquitous media players, nobody needs plastic anymore.
Bzzzt! Wrong answer.
Sure, any company that reduces guidance so much, particularly one that’s so thinly traded, is going to get a serious haircut on its stock price. And I do believe that eventually, all data storage will be on drives, and delivery will be via broadband. But the key word is eventually.
Recall Amara’s Law (often erroneously attributed to forecaster Paul Saffo): “We tend to overestimate the short-term impact of technological change and underestimate its long-term impact.” As much as we think broadband has already taken over, we forget that not everyone has fiber to the home, nor have they all junked their CDs for a portable mp3 player. The iPod has not reached 100% penetration. Netflix still expects to be renting DVDs for some time. Hell, 20% of Americans have never even sent an email. Not to mention the fact that there are numerous other applications for discs besides personal entertainment media.
These transitions always take longer than we think. Expect discs of some type to be with us for at least another 10 years.
Even at less than half its recent earnings growth rate (8% vs. a 2-year CAGR of 17.4%), Rimage has a PEG ratio hovering around 1.0, based on trailing twelve month earnings. And with a solid cash flow (price-to-FCF ratio is about 7), it’s likely to be able to milk that disc market for some time to come. Perhaps not a value play, but certainly not overvalued either.
Just watch that trading volume and liquidity. Yes, an upside surprise can really rock a thinly traded name like Rimage. But risk management is the name of the game, and you don’t want to be the last one out of the exits if the bottom falls out.
Disclosure: I hold no position in any of the stocks mentioned here.
I Want MyTube, Not YouTube
Maybe I should have called this “A One-Channel TV, Redux”.
There are two recent bits from NewTeeVee about the last 10-foot problem, and especially getting YouTube to the TV. Whether via a special-purpose set-top box, or integrated into your TV, both still fall short.
How difficult can it be to get all the video services (current and future) into my TV? The answer may not be as simple as a browser, which is probably not the right user interface for the living room. But perhaps something close to that. Couple that capability together with a simple way to stream all the content you already have on your PC, and it’ll sell like hotcakes.
But yet another box with only a couple of services? No thanks.
Disclosure: I hold no position in any of the stocks mentioned here.
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?
- The studios’ love affair with DRM, artificially reducing the availability of video fare and making it difficult to transfer media to other devices
- 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.
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?
- Gee, if only my book was portable, I could take it with me…
- Pushing a button to bookmark my place is SO much easier than bending a page corner.
- Those nasty paper cuts.
- 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.)
- 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?)
- I want my reading material to break if I drop it.
- 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.
Will The Madness Never End?
Am I the only one out there who’s sick and tired of all the speculation about Yahoo and Microsoft?
Will Steve and Jerry tie the knot? Is Rupert going to swoop in and rescue the fair maiden? Or is Jerry destined for the arms of another, like say AOL, or Google?
Who cares, really? Yahoo shareholders ought to. Take the money and run, that is. No matter how much “synergy” there is, or how much sense this makes strategically (for either party), these things typically work out only one way–value gets destroyed, and some upstart comes in and disrupts the big guys.
Oh, they’ll hang around for awhile, sheer weight will see to that. But in a couple of years the market for search and advertising will look completely different than it does today–and neither Yahoo or Microsoft will be at the top. So why bother?
Let’s just get this over with one way or another, and go back to our regularly scheduled useless tug-of-war: Hillary and Barack.
Don’t Bug Me
Michael Learmonth over at Silicon Alley comments on a NY Times article about how NBC is seeking to get advertisers to sponsor entire shows, as they did in the early days of television. It’s an attempt to help bypass the impact of TiVo-like ad skipping.
While the expectation is that sponsors will have some input into the show, I think the ultimate model is a bit less…. participative.
Expect to see TV shows broadcast with corporate logo “bugs” included. You know, those little icons in the bottom corner of the screen that are somewhat intrusive but usually bad only when they cover something you want to see. One or more sponsors could purchase a certain amount of bug time during the show. It might not stop piracy, but it would mean TiVo viewers can’t completely avoid the messaging.
What’s more, with the advertisement now firmly attached to the video–sort of a cross between a product placement and an ad–the networks may be able to grab more coin from sponsors, as the ad would travel with the video wherever it was syndicated (cable, TV, web, even reruns).
MacroStar: Vision or Hallucination?
This morning Macrovision (MVSN) reported it has completed the divestiture of its software business, including the FLEXnet and InstallShield product lines, raising $200M. With the previously announced sale of its games unit to RealNetworks (RNWK), Macrovision is well on its way to completely transforming its business. What remains is to consummate the merger with Gemstar/TV Guide (GMST).
The company believes that with the cash raised from these recent sales, it has reduced the amount of debt needed to finance the Gemstar purchase by nearly 20%, to just $650M. Expect to see a good portion of this remaining debt retired early, as Macrovision spins off non-strategic portions of Gemstar once it’s folded in–notably the TV Guide print business, which I believe is orthogonal to MVSN’s core strategy. This could significantly shorten the loan payback on the purchase from the 2011 date CFO James Budge originally estimated.
That all assumes, of course, that the deal goes through. Many Gemstar shareholders were none too happy when the merger was first announced in December. Ditto many Macrovision investors, who either did not understand or did not believe the vision management articulated. I would argue Budge and CEO Fred Amoroso did a poor job of explaining it at the time, using lots of effusive, scripted prose but leaving behind what felt like a distinctive snake oil residue.
However, there is a method in the madness here, a bit more visible now that extraneous bits have been spun out. The key is to understand Macrovision’s three key constituencies: Hollywood studios, consumer electronics manufacturers, and cable companies (MSOs). Traditionally, the studios paid for copy protection, manufacturers licensed the tech for VCRs and DVD players, and MSOs paid to ensure compatibility between studio copy protection and their headend gear. Great high-margin cash business. All good.
But a year or so ago, Macrovision acquired Mediabolic, which gives it technology to enable (copy-protected) video transfer between PCs and multiple devices within the home. Say, to cable set-top boxes. They have already signed Scientific Atlanta (CSCO) as a customer, and I believe either Motorola or NDS is also on board.
Next, they bought All Media Guide, which provides metadata for video and music. By acquiring Gemstar, Macrovision gains television guide info–again, metadata. MVSN can now license both algorithms and information to device manufacturers and cable companies, while helping Hollywood protect its content wherever it is transferred. In the bargain, consumers would get a seamless home video capability.
Your existing set-top box becomes a media hub. Can you say “AppleTV“? I knew you could.
Arguably, Macrovision has made some missteps with its strategy in the past. The software business had low margins relative to MVSN’s licensing unit, and games was pretty much a bust. But unlike many firms, it has been fairly quick to recognize errors and dispose of losing businesses. And this vision, however poorly spelled out by management, feels right.
Based on April 1 closing prices, and assuming no change in the original terms, the Gemstar deal is now valued at about $2.22B, 21% below the original $2.8B figure but slightly above the current market cap. This compares to a 9% drop in the S&P500 over the same period, and largely reflects the poor reaction of traders to both sides of the deal. The SEC just declared the S-4 effective and proxies are being mailed out. As both boards are already signed up (including Rupert Murdoch, with 41% ownership), it looks like the merger will go through.
Given the margin expansion that will follow the spin out of the poorer performing Software and Games units, Macrovision may be somewhat undervalued, even allowing for the anticipated share dilution. But for Gemstar investors who believe this vision could become reality, there’s substantial upside post-merger if the firm can execute properly.
Disclosure: Author holds no positions in either Macrovision or Gemstar.
Whither–or Wither–Stage6?
I was one of many who were saddened and disappointed by last weeks shuttering of DivX’s Stage6 site. It was surely among the best and most groundbreaking of UGC video sites–YouTube for adults. Moreover, I think they really got the community part of it right, and it served as a model for others wishing to combine social sites with video.
Many in the blogosphere, who didn’t understand either Stage6 or DivX’s business, dismissed it as just another video site destined to bite the dust because it “lacked scale”. This always irked me.
Like DivX itself, the centrex of Stage6′s popularity lay abroad, not in the U.S. So it’s no wonder wags who look only at ComScore, Compete, etc. failed to notice its popularity (and why Jordan Greenhall, DivX’s former CEO and Stage6 founder, always referred to Alexa statistics). For example, according to Compete, Stage6 only had about 1M monthly unique visitors, vs. 6M for Veoh and 60M for YouTube. But using Alexa’s worldwide stats, Stage6 was among the 100 most popular sites in the world; dead-even with Veoh. Hell, it had 1/6 the traffic of Facebook, which regardless of your thoughts on exact valuation is worth beaucoup bucks.
As an interesting aside, deviantART, which is part owned by DivX, is ranked 60th worldwide per Alexa, which was a big surprise to me.
As someone who covered DivX as an analyst, I understood the drag it had on the company’s financials. But still….it’s unfortunate that the realities of business (and Street sentiment) did not allow them to hang on long enough to develop Stage6 into a standalone concern–or spin it off as planned.
Others have written either more eloquently, or more breathlessly, about the reasons DivX’s Board chose to retain Stage6, and the circumstances surrounding the departure of Jordan Greenhall and the bulk of the DivX/Stage6 founding team. Personally, I think the rumored $90M post-money valuation sounds high, particularly in light of recent concerns about the difficulty of monetizing UGC video through advertising.
It seems much more likely to me that despite initial interest from potential buyers, the combination of an uncertain monetization and the threat of lawsuits (Universal) likely drove the value of Stage6 unacceptably low. That could explain the departure of the founders, particularly if they came to believe–rightly or wrongly–that DivX’s board somehow botched the negotiations.
As to the fate of DivX itself, that’s an interesting one. The company certainly has an impressive installed base, a compelling value proposition with electronics manufacturers for its licensed technology, and exciting potential to move into licensed content with its recent deal with Sony and its purchase of the leading MPEG-4 AVC vendor, MainConcept. The loss of Stage6 doesn’t diminsh that user base as much as many fear. And based on my personal experience with a beta unit, DivX’s Connected platform–which can turn any piece of electronics gear into a more open AppleTV–is a winner.
But despite a good 4th quarter, management whiffed on guidance for 2008 and the stock tanked. I suspect they are conservatively projecting a slowdown in electronics sales worldwide. I also believe the takeup of (DivX-certified) Blu-ray players will disappoint in 2008, as consumers delay HD player purchases in anticipation of cheaper prices down the road. Nor will any of DivX’s other promising initiatives gain traction until 2009.
Still, the firm has plenty of value. Are they for sale? Sure. Everyone is at the right price. Management are big believers in the firm’s potential, and won’t let it go easily. But with the right buyer and a decent price, it’ll go. My bet? Dolby Labs. They have the size, synergy in business model, a common customer base, and need for new growth platforms. And video is one they’ve already said they want to move into more strongly.
Any way you look at it, this is one company–and stock–that’ll continue to generate excitement and speculation.
Beginnings (apologies to the Allman Bros.)
Well, here we go. After several years, and numerous suggestions by friends and colleagues, I’m taking the plunge. Guess I’ve got things to say, and need a rooftop to shout from. Wish me luck.
by Michael Mauboussin
