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.
Add comment May 5, 2008
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?
- The economy sucks right now. Last thing people will do is buy another box, especially since–
- 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. )
- 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?
- 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.
1 comment May 1, 2008
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.
4 comments May 1, 2008
Can You Hear Me Now?
Don’t you hate your movie having a greater dynamic range than your hearing? Is that explosion too loud and the dialogue too faint? Getting tired of having to increase your TV volume for DVDs only to reduce it again to watch TiVo?
Me too. Now there’s hope.
Dolby Laboratories (DLB) this morning announced the first market availability of its Dolby Volume technology. Dolby Volume automatically adjusts for differing volume among separate video sources, which means that video streamed from your PC will be the same loudness as your TV, which will be the same as the DVD you’re playing. Should help with commercials blaring at you, too.
What’s more, it also adjusts the frequency response at lower volumes to optimize the sound and account for what’s happening on the screen. So for example it can boost the midrange so those explosions on Iron Man won’t drown out the concurrent dialogue.
Dolby continues to find ways to make itself indispensible to CE manufacturers. It’s business model is sound, and I have a bias for IP models with big moats that generate lots of cash. It’s going to have to come up with a bit more growth, however, to justify its current valuation. At 35x Free Cash Flow, it’s not exactly trading in the nosebleed seats, but it doesn’t leave much room for error.
Still, Dolby Volume should help. Good stuff, coming to your TV soon.
Disclosure: I hold no position in any of the stocks mentioned here.
Add comment April 30, 2008
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.
4 comments April 25, 2008
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.
Add comment April 23, 2008
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.
2 comments April 21, 2008
Another Nice Ceragon Quarter
Ceragon Networks was out today with 1Q08 results: Revenues $47.2M (up 39% year over year) and pro-forma EPS of $0.13, up 30% from 2007. (Net income rose 63% over 1Q07, but share dilution from last Fall’s secondary offering reduced the bump in EPS.)
Israel’s Ceragon is a favorite of mine, arguably the best “pick and shovel” play on the growth in mobile data. It’s backhaul radios are used in both WiMax and Cellular networks, and are leading edge in technology.
The stock’s been beat down mercilessly, largely due to Hedge fund shorts piling onto a very high price last Fall, as well as the dilutive stock offering. Still undervalued at todays prices, in my view (up 7% today in pre-market trading).
Conference call is just starting, I’ll add more if there’s anything interesting.
Disclosure: I hold no position in Ceragon Networks.
1 comment April 18, 2008
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.
1 comment April 16, 2008
Tainted Water
Quote of the Week: Paul O’Neill, former Treasury Secretary, is asked by the NY Times how the subprime problem could have escalated so far out of control. He alludes to how AAA-rated bundles of mortgage securities became untouchable when he says
If you have 10 bottles of water, and one bottle had poison in it, and you didn’t know which one, you probably wouldn’t drink out of any of the 10 bottles.
I certainly wouldn’t. Neither, apparently, did the market.
Add comment April 16, 2008
