Posts filed under ‘Video’
Stage6 Resurrected?
Davis Freeberg has a piece out discussing the apparent return of Stage6, or at least a potential clone. Vreel.net (previously DivxIT) is said to be ready to launch a site that it hopes will recapture the spirit, if not the user base, of the original. It also seems to have the blessing of DivX to use its webplayer and codec.
Davis did a nice bit of investigative work here. Some in the blogosphere have commented that it won’t fly, since Veoh (originally endorsed by DivX when Stage6 folded) is where all the old Stage6 users went. But if you look at recent Alexa stats, there’s no uptick in Veoh traffic that corresponds with the dramatic drop in Stage6 as it went off the air. So they’re still out in the Ether somewhere.
I hope Vreel (or someone) succeeds, but I have my doubts. The ties between Stage6 and DivX’s software, community, forums, and tech people had a lot to do with its original success, as well as Jordan Greenhall’s vision. Further, there seems to be no paid subscriptions and therefore no business model (yet). Presumably an ad-based model can be added later, but in the meantime it’ll be damned expensive if traffic builds to anything like Stage6.
We’ll see.
Disclosure: I hold no position in any of the stocks mentioned here.
DivX: Juvenile Delinquent?
Did everyone see this morning’s announcement from DivX (DIVX)? TVs that are DivX Certified, from HP and LG. Yawn. DivX has had an HP TV certified for some time, and the rest of this was distressingly devoid of details. (Nice to see the SKU count up, though.)
Particularly curious was the mention of Internet video streaming capability on some models, but the wording suggests DivX isn’t involved in this part. If any of these SKUs incorporated DivX Connected technology I’m sure it would have been announced.
All in all quite a fluffy release, without much new in it. I wouldn’t have thought DivX was one to use puff pieces prior to earnings. But then…
Parents are always on the lookout for those telltale danger signs in their kids: falling grades, withdrawal from family involvement, strange friends, mood swings, glassy eyes, smoky odors clinging to clothes, etc.
I wonder. Is DivX a troubled kid?
First, there was the Stage6 imbroglio, with Jordan Greenhall and most of the founding team leaving for parts unknown. Stage6 was neither retained as an (expensive) venture investment nor spun off to others, but simply value destroyed. Complete with swirling rumors of hot tempers and incompetence.
Then the departure of SVP Sales & Marketing Pamela Johnston early this month. These things are rarely explained adequately, or truthfully. Might be poor performance, might be strategic disagreement. But it could have been “time to get the hell out of Dodge”.
Third, sagging guidance for 2008, leading to a reduction in analyst estimates on the stock. The 2008 mean estimate has fallen 8% to $0.47, while the 2009 estimate dropped 15% to $0.55. The stock price followed. Everyone had been holding their collective breath for the end of the Stage6 drag on costs, but the MainConcept deal has brought unanticipated expenses and 2008 is now being billed as “an investment year”. I thought 2007 was the investment year.
Finally, I have heard rumblings lately about layoffs at DivX. If true, this could really hit the stock where it hurts, although any associated cost is almost certainly already in management–if not analyst–estimates.
DivX is cheap. It’s trading at about 15 times forward earnings, and has an enterprise value on the order of only $100M. This is simply nuts for a company with high gross margins and rapidly growing license revenue. It generated $13.3M in free cash flow last year, and that was when it was burdened to the tune of about $20M by Stage6. But some of the points above help explain why this thing has been so badly ostracized by the investment community, which is understandably nervous after a long roller coaster ride.
I like DivX. I use their tech and it’s excellent, especially DivX Connected. Their user base is rabid and involved. I like the management team. They’ve made impressive announcements recently about licensing and content deals which should prove lucrative. The DivX format will soon incorporate perhaps the best H.264 codec.
But like a good kid going through a rough patch, their potential always seems to be receding into the future. And like most teens, DivX can rightly complain that “nobody understands me.”
On the other hand, maybe it’s just puberty.
Disclosure: I hold no position in any of the stocks mentioned here.
A One-Channel TV
Got to thinking the other day about the last 10 foot problem, i.e. getting media from either your computer or the Internet to the TV. No shortage of available or announced solutions: TiVo, AppleTV, XBox, etc. Even Nintendo is apparently trialing a service in the U.K. to get the BBC’s iPlayer to your living room via your Wii console.
I’m still a bit puzzled about the underlying strategy for this, however. There’s obviously an attempt to differentiate each box, but I just can’t see how it might drive sales by itself. XBox delivers movies, AppleTV allows YouTube access, Wii incorporates iPlayer, DLink’s DivX adapter had Stage6 (sigh). I guess for a select few this might make sense, that the service tail might wag the electronics dog.
Me, I want it all. I want YouTube, Hulu, iPlayer, Veoh, as well as any video currently on my PC. Not to mention whatever hot new thing comes out tomorrow. But since nobody offers a consumer electronics solution to provide all these, I guess I’ll just….wait.
And wait.
After all, who would want to buy a TV that only receives a few channels?
Certainly, one could always hook up a PC to their TV directly. Or use a Media Center PC of some type that provides most/all of this. But that’s likely too much trouble (and technical savvy) for joe sixpack and sally soccer-mom.
Is it any wonder that there is no surefire convergence solution? It the holy grail here simply a browser on your TV?
Until that time, perhaps the PC still needs to be in the equation somehow. After all, everything on the internet is already accessible via the PC, including not-yet-dreamed up video sites and (this is important) easy billing solutions. Maybe trying too quickly to bypass the computer is a mistake. Maybe this is a two-phase process:
- First, something that allows easy, format-agnostic streaming of anything on or accessible by your PC.
- Evolution to a pure Internet TV (or a simple internet front end to the TV).
Why would I ever buy a box that didn’t do at least one of these things, unless it had another purpose (e.g. gaming, DVR)? The problem, of course, is that the industry is trying to manage the profit stream by linking boxes to services, cutting special content joint ventures, building new advertising paradigms, etc. That approach largely ignores the consumer.
Where would the television industry have been if RCA had cut a deal to deliver ABC content and local news, while Panasonic TVs showed only CBS and the weather? What if Sony VCRs had only played movies from Disney and Sony?
Disclosure: I hold no position in any of the stocks mentioned here.
CinemaNow, Technicolor Become Enablers
CinemaNow and Thomson’s Technicolor (NYSE: TMS) just announced a partnership to provide an end-to-end platform for online content delivery to consumers. CinemaNow will contribute its studio-licensed content and a storefront, while Technicolor will provide encoding, encryption, rights management, and content delivery services. (I hadn’t known until now that Technicolor runs its own CDN, but it does.)
The platform will extend all the way from content origination to consumer devices. The press release mentions CinemaNow partners such as Samsung, Archos, Dish Network, and HP as providing compatible hardware for the platform.
What isn’t mentioned is the engine “inside” that will make this work at the device level. I’m sure Macrovision (NASDAQ: MVSN) is in the mix, as it already has deals with CinemaNow and Samsung for its Macrovision Connected technology. Presumably Dish/Echostar set-top boxes will get the Connected treatment also, which is certified DLNA compliant.
There are advantages to the middleman model, especially in providing a mechanism to drive digital living technology into more electronics gear. But is it a long-term solution?
Making it easy for anyone to become an online content retailer will lead to… well… lots of online content retailers. Most of them poorly differentiated and few with any staying power. And when the customers dry up, where will the middlemen be?
Imagine the early days of television, except with dozens of TV networks. If they had all broadcast the same programs, or nearly the same, how many of those networks would have survived? Sort of like Internet video portals today. Home video delivery will be no different.
I think to succeed as an online retailer will require one of two things:
- Exclusive content. Not really in the best interests of the content providers, who want as broad a reach as possible and who are tired of being restricted by their distribution partners.
- Something to make the channel sticky. My best guess remains either unsurpassed ease-of-use (e.g. iTunes) or most likely some form of social networking. DivX’s Stage6 had a fair amount of success here.
Those few online retailers that get the formula right will probably try to disintermediate the enablers. Or the middlemen will acquire the portals. Or both. (Me? I’m a big fan of horizontal separation.)
In the meantime, look to partnerships such as this one to facilitate the home viewing transition from discs to a full media download market.
Disclosure: I have no position in any of the stocks mentioned here.
Carl Icahn Channels Ed Lampert
Well that was quick. Just sitting down to my morning eggs when I get them all over my face.
The Wall St. Journal reports this morning that Blockbuster offered back in February to buy Circuit City (NYSE: CC) for $6-$8 per share, a hefty premium to current prices. Apparently there’s been no (positive) response.
Contrary to my previous post where I argued Blockbuster should be shuttering stores, it seems to be embracing retail. The game’s afoot! With what looks like a generous price (in cash, yet) I wonder why Circuit City hasn’t been cooperative? Could it be that Circuit CIty’s board has no interest in becoming part of a REIT?
This deal smells like a private equity-type play for real estate driven by Carl Icahn (Blockbuster board member and dealmaker extraordinaire). I hadn’t considered this angle before, since I was focused on the digital media point of view. But if your biggest asset is real estate, you might as well take advantage of it. Ed Lampert has done this with Sears and K-Mart, where the real estate is still probably worth more than the underlying businesses and the company’s market cap.
Presumably Icahn and Blockbuster CEO Jim Keyes think they can squeeze inefficencies out of operations, shutter underperforming locations, and introduce product/service synergies. Yadda, yadda. You can take the man (Keyes) out of 7-11, but you can’t take the 7-11 out of the man.
No other motivation makes sense. Vertical integration seems a wrongheaded strategy these days. Though it would make it easier for Blockbuster to market an otherwise doomed standalone movie rental set-top box (rolling my eyes, here).
Who knows, maybe they could pull this off and end up adding value to both companies. Still, with market-savvy Apple (NASDAQ: AAPL) using content to sell boxes, I love the irony of someone thinking that buying a box retailer was going to help move the needle on film rentals.
Disclosure: I have no position in any of the stocks mentioned here.
Blockbuster: Driving Off A Cliff?
The Hollywood Reporter had a story last week that Blockbuster (NYSE: BBI) will soon announce a movie rental set-top box. Everyone who has written about it has noted it will compete against–among others–Apple TV (NASDAQ: AAPL).
That’s true, if you can call “eating dust” a competition.
To the extent such dedicated set-top boxes ever catch on (and I have doubts), Apple TV is Lightning McQueen to Blockbuster’s Mater. Apple is in the hardware business, you can bet it’s in this race to win. Frankly I doubt it even cares that much about the movie revenue. But those rentals are Blockbuster’s raison d’etre.
Blockbuster still seems like a deer caught in the headlights, and has been playing follow the leader with Netflix (NASDAQ: NFLX) for some time. This recent development simply copies the deal Netflix announced with LG Electronics awhile back. While I wouldn’t go so far to say it is doomed (yet), Blockbuster needs a serious strategy tune-up.
First it has to rid itself of the retail store “boot”. For too long Blockbuster has focused on driving traffic to its locations, which it naturally feels obligated to earn money on. But this is the digital age, and despite trying desperately to leverage them, Blockbuster’s locations aren’t the assets it thinks they are. Instead of trying to earn a return on real estate, Blockbuster should have been shedding stores. I understand the real estate market was pretty good last year, probably a great time to divest. Oops.
This is the same mistake Toys-R-Us made, dipping its toes into the on-line pool but afraid to jump in until it was too late.
Blockbuster does have some options left. The purchase of Movielink gives it a leg up in on-line delivery. Going to market with its own STB is a mistake, however. First, it’s not at all clear there would be much demand for the box; just look at Vudu. Second, Blockbuster doesn’t exactly present a compelling co-branding opportunity for CE manufacturers. And depending on the arrangement, the costs associated with such a move could easily outweigh any additional revenue generated.
Far better to package Blockbuster-to-the-TV as a service. True, Apple and TiVo (NASDAQ: TIVO) aren’t likely to sign on. But it could partner with multiple CE manufacturers who can build home media transfer capabilities into their DVD or Blu-ray players, using technology from the likes of DivX (NASDAQ: DIVX) or Macrovision (NASDAQ: MVSN).
These solutions (perhaps not so coincidentally called “Connected” by both firms) are licensed to CE manufacturers, vendor neutral, and built-in at the chip level. Movielink gets films to the PC, and “Connected” easily gets them to the DVD or STB, without requiring an additional box. In fact, DivX has a good relationship with LG already–wouldn’t surprise me to see Netflix go with DivX Connected on an LG box instead of with a branded version.
This makes even more sense when you consider the other advantage Movielink brings to Blockbuster: a partnership with Sonic Solutions (NASDAQ: SNIC). Sonic’s Qflix is the only legal way to burn a studio DVD remotely, which allows Blockbuster to say goodbye to much of its costly inventory. It will soon be feasible to download movies to PCs and then burn them at home. (The disc is dead, long live the disc.)
Blockbuster still has a chance in this race, but it had better get out of first gear. Fast.
Disclosure: I don’t hold positions in any the stocks mentioned in this article.
Pando Bears
Dan Rayburn has a note out this morning about the lack of traction that P2P vendors such as Pando Networks and BitTorrent are experiencing with Content Delivery Networks. Dan’s the most knowledgeable guy I’ve read about CDNs, and I agree with him here. P2P certainly has its commercial uses, but as Dan points out:
From what I can tell in the market, P2P is not as big of a story as it was at the end of last year. The topic has cooled off a bit except when its being discussed as it pertains to carriers blocking or filtering of P2P based traffic on their networks. Aside from that, customers are not asking me about P2P and 55.2% of those we surveyed about their content delivery needs said they did not plan to even look at P2P as a delivery solution for 2008.
Cost is usually touted as the primary reason to use P2P for content delivery, and as I’ve argued before, this won’t scale–ISPs will eventually demand their pound of flesh, one way or another. Plus, as Dan says over and over, cost isn’t even the most important factor for most content providers. My view is that P2P will eventually take its place as a valuable niche method for video delivery, and several of the larger players will gain traction (and/or be acquired). But it’s likely to remain a total delivery solution only for file traders and small content owners.
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.
Joost Passin’ Through
Hey, it’s always nice to be right, even when it isn’t for exactly the reason I predicted. Lots of fodder recently, here and there, about how P2P video startup Joost is becoming increasingly irrelevant in the land of VeohHuluTube.
In addition to its P2P strategy not scaling, Joost’s software client ran slow on my machine, and apparently many folks resist having to download and install it. But going to a more mainstream web or browser-based presentation won’t save the company either. It makes them no more compelling than any of the other portals (remember that word?) angling to become video “on ramps”.
In fact, it seems to me that all of these sites–including the much lauded Hulu–are not where the money is. It’s the content, dude. Content owners now spray their wares onto any website it’ll stick to. Site owners have no leverage left, especially as the advertisements become more attached to the content and less to the site. How would ABC or CBS have ever differentiated themselves if you could have found the same shows on any channel you switched to?
Only the sites that provide something unique (social connectivity is the big one that springs to mind) have a chance. Joost seemed to have recognized that–with a built-in capability to chat with other viewers–but its technology and presentation prevented it from catching on. Now it’s probably too late.
by Michael Mauboussin
