This is my last week at Flux/MTVN. I have mixed emotions about leaving. When I left Yahoo! in July 2007 it was for a lot of reasons, but primarily I wanted to find a role that was closer to product and strategy side of the organization – the running of a business. Joining Flux gave me the opportunity to get back to what I love best and work on marketing, product, organizational leadership, and of course doing deals and managing a business development team. It was a wild ride, we cranked out a lot of groundbreaking products and worked with a ton of great partners. The acquisition of Flux by MTVN was a great outcome for our investors and for our employees, and it gave me the opportunity to help lead a team through the often difficult process of integrating with a large media organization. But its become apparent over the last few months that my career path will take me in another direction and that now is the time to go. Good luck and a big thank you to everyone at Flux and MTVN, keep making it happen.
When I was looking through my desk drawer a few weeks ago I noticed that the cowbell that we rang (loudly) when we closed a new partnership and got a new site live was tucked away there, and hadn’t been rung in a long while. Somwhere between being a scrappy fast moving startup and becoming a division of a major media company you stop doing things like ringing cheap cowbells when you get up on the scoreboard. I’m not sure whose bell it was originally, and I hope they don’t mind that I’m taking it with me to my next gig.
The intellectual output coming from Peter Strauss’s cabana is truly impressive. It must be the water. In Jonathan’s latest post (with graphs!) he makes a compelling argument that introduces the “Piracy gap” that exists between a passive/defensive online content strategy and an online aggressive strategy. The theory clearly illustrates what happens in the space between trying to lock your content down and embracing the future in which all content is ubiquitously indexed and freely available. I would tweak the graph slightly (see below) to account for Ian Rogers’ attention scarcity theory so the gap becomes defined by both piracy and people moving to the next most marginally valuable piece of content on the infinite playlist that is the internet. I.E. if you make your content a pain in the ass to use people will either steal it or consume something else. Which makes Jonathan’s point even more salient (piracy is better than no eyeballs at all!).
Jonathan’s excellent post does however repeat a somewhat faulty point of view that is shared in countless articles, blog posts, and music industry forums about the state of the music industry and just how wrong the labels got it. It is *not* true that investors value the long term survival of the company over short term profits. They actually value the net present value of all future cash flows – classical Finance 101 is about trying to predict what those cash flows might be and correctly assign a present value to them in order to make investment and management decisions. So as the CEO of a company (both public or private) you have a fiduciary duty to your shareholders to try to maximize that number within the constraints of myriad other variables. I find that critics often make this mistake when breaking down the recent history of the music industry. Put another way:
Sometimes the most profitable/ethical course for a business is one that sets it on a path to obsolescence.
One of the best 5 or 6 classes I took at Anderson was a Business Ethics course given by Bill Cockrum (a legendary finance/entrepreneurship professor at UCLA). The framework he taught for ethical problem solving was essentially one in which we identified all of the stakeholders for a given issue and detailed the outcome from each point of view. So a hypothetical problem involving gender equality in the workplace would be looked at from many points of view: shareholders, male employees, female employees, residents of the local community, etc… Interestingly, one common theme that came from our casework is that managers often incorrectly overvalue a company’s survival at the expense of creating shareholder value. Most executives try not to work themselves out of a job.
To oversimplify, consider a case in which a CEO has to choose whether or not to create a new product that will require expensive-to-the point- of-bankruptcy new R&D and marketing. All of his analysis tells him that the product’s probability of success is a binary coin flip: 50% of the time it will be incredibly profitable and increase earnings 5X, 50% of the time it will put the company out of business. Given those odds the right answer from the shareholders perspective is to green light the product – they’d gladly flip a coin to risk $1 to make $5. But from management’s point of view its not such an easy decision. Heads I get some kudos and maybe a bonus, tails I lose my job in disgrace. This ethical problem is pretty much why companies like to compensate their executives with stock and stock options, and also why big companies are typically not good at taking risks (its one thing to bankrupt a startup with a few dozen employees, quite another a big public company with 100o’s of employees).
Now lets take a look at what happened in the music industry. Say you could wind back the clock to the Napster era in 1998 and provide the heads of the labels with perfect clarity about their probability weighted expected returns for 3 courses of action.
Lock It Down and Sue Your Customers: If you follow this strategy, you slow down the death of your existing CD sales line of business to the greatest extent, but you alienate your customers and allow smaller nimbler players to take all of the future online profits, putting you out of business in 10 years.
Hybrid: You drag your heels somewhat, slowing down the rate of cannibalism of the CD sales business and developing alternate forms of business that allow you to fumble your way into an evolved but less profitable business model in 10 years time.
Open It Up and Survive: You clearly embrace a customer-centric view of the future, and rapidly develop long-term winning strategies for content consumption that hasten the demise of your existing business but put you on a long term path to sustained profitability.
Now lets calculate the net present value (discount rate=10%) of your hypothetical expected cash flows.
Clearly, given this spectrum of expected returns, the best course of action is the one in which you drag your heels into planned obsolecence.
NOTE: I’M NOT SAYING THAT THIS IS WHAT DID HAPPEN OR WHAT SHOULD HAVE HAPPENED!! IT’S AN OVERSIMPLIFICATION. The labels did not act rationally in possession of omniscient foresight, just as the other media companies actions wrt Boxee etc. are not likely profit maximizing.
In most cases profits are maximized by reinvesting profits from cash cows into evolved business models that strike a balance. The intended take-away is that in the case of killing highly profitable cash cows, its incorrect to argue that all decision making should be predicated on long term viability as a business. Sometimes the most profitable (and correct) course kills you.
If you haven’t used Boxee, its an interface for media based on the XBox Media Center (XBMC) platform. You can install it on your Mac and it’ll scan all your media folders and give you a browsable interface thats compatible with the little white Apple remote. It also does a good job with streaming content sources (like Hulu, Comedy Centtral, etc) and it is social (you can make friends and see what they are watching, etc.)
But what really had people excited was that you could install Boxee on AppleTV and access all the same functionality on your living room on your sweet HDTV with your home stereo etc. I’ve been following this space for a long time and it seemed like just maybe someone had finally cracked the living room media center code, which has seen hundreds of millions of dollars in flame outs. Why? An open architecture that would work on any living room based linux box with a good mix of streaming vs. owned media and a nice UI and some lite social networking. No DRM, no prepackaged content deals with a locked partner set. And a small company with a moderate burn rate that didn’t need to become a behemoth to be successful and provide a good return to its investors. Success would mean that the streaming/caching models that are developing on the internet would work on your best media-watching screen.
And Boxee has been going about their business the right way. They preserve the Hulu interface, preserve its commercials, don’t allow stream ripping, etc. Its basically the same experience you can have right now on your PC. Any Macgiver with some duct tape and some patch cables can already put Hulu on their TV. Boxee just made it easier.
I don’t actually use Boxee a ton, but it’s great for what it is. I NEVER watch live TV, I always time shift so I never watch commercials in my living room. The only exception being on Hulu on Boxee on Apple TV.
So if you are a media company and you’ve already come to terms with putting your content on Hulu, why on earth would you not want entrepreneurs to figure out ways to get that content on more screens? Of course this means that existing models and franchises (like Sat TV and cable TV esp.) are threatened, but that was the case before Boxee. And as Mark Cuban has so elequently (and correctly) argued the internet is a long way from being able to replace satellite and cable for breadth of on demand HD content in the living room at a mass market level. Companies like Boxee are exactly the kind of companies you want innovating for you, because if the innovation doesn’t happen there its all hacks and hackers and torrents. Plus if they start picking up steam you can buy them and have them help you evolve and live to fight on. Its like our experience with the music industry all over again.
The living room TV is a screen, just like my phone and my computer screen. Captive media audiences are a thing of the last century, you can’t lock down the content and you can’t completely control distribution. If you can’t figure out a way to create loyal followers with great user experiences, your content is useless. Pissing off early adopters is a horrible way to go about evolving your business.
MTV just launched a cool site that has legal embeds for their entire music video catalog. Its also integrated with Flux, which is excellent. Here is a Wilco vid grabbed at random. As of now there doesn’t appear to be any advertising, although I’m betting that will change.
Saw this last night, found it interesting and informative. Whether or not these two men hold any culpability for current crisis is a debate worth having, but it isn’t the main point of the interview. The main line of discussion Charlie went after was a) what are the potential outcomes of the current crisis, and b) what should policy makers be doing. Rubin and Summers advocated finding a bi-partisan process for making short and long term policy course corrections that admit a) current spend and borrow policy is an epic mistake that has 0% of chance of success in the long run – the balance sheet must be fixed. and that b) we are going to have to make some hard decisions which will require leadership, trust, and communication with the American people. Can’t we all agree with them on that?
Congrats to my friends at Topspin Media for helping David Byrne and Brian Eno release their new album today. I’ve been a fan of David Byrne since he wore oversized jackets (“geek is chic”). I drove 2.5 hours to Indianapolis to see him in college in an old van that had no business being on the road – his music was way ahead of its time and totally blew us away. And is his show last summer at the Bowl was epic. Good times. And I have listened to Eno’s Music For Airports on headphones in coach coming back from somewhere east (and a few times west) of California more times than I can count since my brother-in-law Sam introduced me to it probably a decade ago. I listened to the new album this morning, and I agree with everyone else – it’s great. You can stream it here for free, and then there are a bunch of options for purchasing direct from the artists’ site itself.
For the first time ever, I found myself hitting refresh on a liveblogging Jobsnote this morning. (Engadget blew away Techcrunch in the coverage, clearly). There was nothing surprising about what they announced (slightly different form factor, 3G, GPS, push Outlook) except for the we’re-ready-to-grab-market-share pricing. The phone’s only Achilles heel is that the keyboard doesn’t work as well as a berry’s. Its a calculated trade off versus slim form factor and big beautiful screen. Wonder if they are considering a flip keyboard form factor?
Great consumer electronics products are not merely the sum of the feature set. If I had a nickle for every time a CE maker told me that their fill-in-the-blank mp3 player was better than the iPod because it had an FM tuner, I’d have at least a quarter. Damn iPod still doesn’t have an FM tuner. Even better example: GPS. Obvious that its a killer app for mobile phones – every phone will have it 5, 10 years from now max. I use the poor resolution triangulation version on the iPhone *all the time*, its awesome, I don’t know how I ever got along without it. GPS on the iPhone is probably reason enough for me to drop $300 on a new one. But before iPhone had it, phones that had it jammed in to their overloaded interfaces and subpar form factors, weren’t superior phones. They were inferior phones that had GPS.
Brand matters. Working on another blog post about that (TEASER ALERT!) but anybody who has ever owned an Apple product knows what I’m talking about. There isn’t another CE/Mobile/PC company in their class, not even close.
Don’t release a feature until it is rock solid. Supposedly (this is an unconfirmed rumor but it could be true) GPS was an iPhone 1.0 feature but they backed off because the battery drain was too great. They were right to wait a year and get it right.
ABC announces that they are introducing a video-on-demand service that doesn’t let you skip commercials. I’ll be about the millionth person to pile on, but this is such an amazingly bad idea I can’t help myself. “As we developed this at every stage, there was an agreement that however we put this together, disabling the fast-forward function was key.” As my friend Adrian used to say “That’s a stupid comment, and you’re a stupid person for making it”. Why don’t you build a better car by disabling the gas pedal?
Some of the comments refresh the tired old “pile on the music industry” meme, but this is sooo much worse. Its 2008. We know how this movie ends.
If you haven’t seen it yet Chris Anderson (author of the seminal “Long Tail” theory) wrote an excellent article about how “free” works on (and off) the Internet. There isn’t anything terribly groundbreaking in the article, but it’s really well written. Maybe someone at ABC will read it before they embarrass themselves like it’s an all-night naked karaoke session.
Update: Read/WriteWeb has an excellent rebuttal to the Freemium article. Good points all. Musicmatch was one of the greatest “freemium” product of all time in terms of cash flow conversions, but the model wasn’t a good match for Internet scale when we tried to port it to Yahoo! One of the reasons that “unlimited mail” storage works at Yahoo and Google is that most people can’t use a lot of that storage – it doesn’t have a lot of utility to have tons of files in mail. I’m interested to see how the “media locker” product evolves over the next 5 years. There is no doubt that either Yahoo, Google, Amazon, or some well funded third party (or all of the above) will offer unlimited free media storage in the next 5 years with a decent player interface. That will put the freemium model to the test.
Another interesting development will be all these tech companies going carbon neutral via offsets, increasing the marginal cost of networked computing. I’d love to see what that cost of storage curve is projected to look like with the offset costs overlayed.
I bought an Apple TV on a spur of the moment as a Christmas present for my wife (lame, it was really for me). I had never really given the product much thought before, I bought it primarily to be able to access the huge number of mp3s I have on hard drives in my house from the living room. We live in a relatively small place, I really only need to send music to 1 set of speakers with 1 control panel so I didn’t need to do much thinking. When purchasing the Apple TV (I got the $300 version with the smaller 40G hard drive), I sort of felt like I was overpaying for a box/functionality that if I did some research I’d be able to get much cheaper.
But I knew (instinctively, that the Apple solution would look good, minimize cables, and work with my iMac and home network out of the box. So I said screw it and shelled out.
Damn what a great brand they have. There are all kinds of case studies you do in business school about brand marketing, but my experience with Apple in the last year basically tells you all you need to know about brand marketing. Oh and don’t forget the engineers and product people, because the whole experience has delivered.
After this latest free software upgrade here is what I can do with my 6 button remote.
Access all the music/photos/video on my iMac and any external drive connected to it
Browse iTunes and purchase music
Browse iTunes and purchase or rent movies and TV shows
listen to or watch free podcasts
Youtube
Flickr
I can’t power the thing off, oddly enough, which I don’t get.
But there isn’t much more internet functionality I really want on the TV. I’d love to add some tweaks on the margins and I’m sure new stuff is coming, but for really anything else (ie. requiring a keyboard or mouse) I can grab my phone or laptop or sidle up to the desktop. A year ago I was hoping Apple didn’t get the internet, now it’s obvious they really get it.
I’ve been working on the fringes of the Interactive TV space since I went to an international conference on the subject in the fall of 2000. eNow/Relegence founder and product genius Edo Segal had the web 2.0 server-side xml/rss syndicated feed model down before just about anyone else and I was over there looking for distribution opportunities for our content indexing tools. WAY too early of course, thank god my Amsterdam boondoggle was the limit to our investment in interactive TV at that time. Of course at Musicmatch and then Yahoo I had lots of meetings and numerous deals with hardware companies, software companies, MSOs, and retailers about digital home products and concepts. It would be scary if I actually listed them all out. I even helped launch and market a few. The “digital home” space is a lot like mobile on a smaller scale: there have been a lot of entrants, a lot of ideas, a lot of money spent bringing failed products to market. Big corporations with vested interests in yesterday’s cash cows creating walled gardens, copyright issues muddying the waters, competing standards, etc. Meh.
So where are we in 2008 on the digitl home front? There are basically 3 products that can be considered really good in the market: Tivo, Sonos, and Apple TV. And Apple TV is by far the best (I think – I don’t have a Sonos or a Tivo anymore, but I know people that do). Not to flog a dead horse as Ned Martin would say, but notice none of the products were brought to market by cable companies, satellite companies, non-Apple PC companies, MSFT (although Xbox 360 deserves honorable mention even though they have lost close to $30B on it), Intel, telecom companies, etc. My DirecTV DVR sucks, but I had no choice if I wanted dual tuners which is the killer app. And I have no hope that it’ll ever improve to the Apple TV level.
These 3 products have a few things in common
They set out trying to tackle specific problem (time shifted TV integrated with personalization and guide; synchronous or asynchronous streaming music in every room of your house, getting the content from your computer onto your TV/stereo) and avoided extra features that added complexity.
They were willing to lose money at the beginning (and for a while) as the market filled in
They charge a premium for the device, making sure it has a feature-set rich enough for early adopters, and avoid the temptation to compete downmarket with undercutting products.
Generally this is is the model that worked so well for Apple with the iPod. Focus on making the hardware excellent (interoperable, reliable, easy to set up). Don’t aim for the mass market at first. The last point is the interesting one IMO, because it goes against what we are taught usually happens in consumer electronics and PC businesses. Calculators, walkmans, boomboxes, CD players, HD TVs – they all started diving in price almost immediately upon release.
Of course, Apple needs to open up Apple TV at some point – same problem they have with iPhone. Let me add cool 3rd party apps. And I’m not buying any content with DRM on it (ill happily rent DRM’d content though). But they definitely nailed it with this upgrade.
There is only one true artist, and his name is Gordon Savicic. He used a Nintendo DS and some good old fashiond German ingenuity to invent a corset that inflicted pain when he was in a Wifi zone. And not just a little pain judging from the scars. Apple/ATT should have this guy stand in front of the silly black screen and tell his vignette. Gordon – Prost!!
This is my last week at Flux/MTVN. I have mixed emotions about leaving. When I left Yahoo! in July 2007 it was for a lot of reasons, but primarily I wanted to find a role that was closer to product and strategy side of the organization – the running of a business. Joining Flux gave me the opportunity to get back to what I love best and work on marketing, product, organizational leadership, and of course doing deals and managing a business development team. It was a wild ride, we cranked out a lot of groundbreaking products and worked with a ton of great partners. The acquisition of Flux by MTVN was a great outcome for our investors and for our employees, and it gave me the opportunity to help lead a team through the often difficult process of integrating with a large media organization. But its become apparent over the last few months that my career path will take me in another direction and that now is the time to go. Good luck and a big thank you to everyone at Flux and MTVN, keep making it happen.
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For the first time ever, I found myself hitting refresh on a liveblogging Jobsnote this morning. (