Who Wants To Be An MVPD?

FCC chairman Tom Wheeler dropped a pretty broad hint last month that the commission is gearing up to reclassify at least some over-the-top video services as multichannel video programming distributors (MVPDs) as described in the Communications Act, putting them on roughly the same regulatory footing as cable and satellite providers.

In theory, the change could make it easier for services like Sling TV and Apple’s long-rumored subscription video service to add local broadcast channels to their Federal Communications Commission (FCC) Chairman Tom Wheeler gestures at the FCC Net Neutrality hearinglineups because it would extend the same retransmission consent rules to online video distributors as apply to cable and satellite providers.

Under the current retrans rules, broadcasters are required to enter “good faith” negotiations with any qualified MVPD for carriage of their signals. Similar rules, which presumably would also be extended to OTT services, require that cable networks owned by or affiliated with cable operators, such as the NBC Universal cable networks now owned by Comcast, must make their programming available to all other MVPDs.

Whether any OTT services actually want to be classified as MVPDs, however could be another matter. Read More »

Music Streaming’s Hidden Fees

Apart from precise dollar figures, there’s little in Sony Music’s original licensing contract with Spotify, uncovered by The Verge, that would surprise anyone familiar with how the major media companies do business with service providers (the full contract, which ran from 2011 to 2013, is here). Most of the money due to the label is payable upfront, in the form of a recoupable advances ($42.5 million over the three year term of the deal in this case), it includes a per-play minimum fee irrespective of Spotify’s own income, and it contains most-favored-nation (MFN) language assuring Sony that none of its competitors gets a better deal — all standard stuff.

Nonetheless, the contract provides a pretty good roadmap to where the money from streaming actually goes (hint: it’s not to artists).

spotify_1200x630_bThe advances payable by Spotify to Sony under the contract were recoupable (using a complex formula based on a fixed percentage of Spotify’s gross revenue, Sony artists’ aggreate share of total streams during the payment period and the minimum per-stream royalty) but non-refundable. If the actual payments due to Sony, as calculated under the formula, were less than the advance Sony kept 100 percent of the advance anyway. Read More »

Blu-ray: Licensed to be killed

Back in 2008, explaining the lack of Blu-ray Disc drives on Apple’s newest line of notebooks, CEO Steve Jobs famously described the licensing process around the format as “a bag of hurt.” After this week’s announcement by the newly formed BD4C Licensing Group, he’s going to need some more bags.

Photo: ArsTechnica

The members of the new group, Toshiba, Warner Bros., Thomson and Mitsubishi, claim to own, collectively, a portfolio of patents “that are essential for BD Products.” Though none of the four are known to have contributed much original IP to the Blu-ray spec, they do own a number of patents essential to DVD products. Insofar as the Blu-ray spec requires that BD devices be backwardly compatible with the older format, device makers are stuck (or stuck up, depending on which end of the deal you’re on), to the tune of $4.50 per Blu-ray player, $7.00 per Blu-ray recorder and $4.00 per Blu-ray drive.

Blu-ray media manufacturers and replicators are also on the hook, the group claims, for 4 cents per disc and 8 cents per BD/DVD flipper disc. Read More »

Alarm bells come too late for Sony Pictures

The memo Sony Pictures co-chiefs Michael Lynton and Amy Pascal sent to employees Monday announcing massive layoffs, most of which will fall in the home entertainment and IT divisions, obviously wasn’t meant to be made public. But it’s fitting that it was leaked when it was, the same day that Bernstein Research analysts Michael Nathanson and Peter Choi published what amounted to an obituary for packaged media as a profit driver for Hollywood.

According to Bernstein:

  • For 2009-2012, we [previously] forecast overall U.S. home entertainment industry revenues to decline at a -2.1% CAGR. This underscores the mature nature of the industry, plus the importance of share gains for individual players. Over this time frame, aggregate operating profit declines of low single digits are also expected.
  • Now one year later, looking at the cold hard facts of 2009, retail spending on sell-through DVDs and Blu-Ray discs dropped by -18% while rental of these products actually increased by 4%. As a result, the sell-through of physical discs declined from 63% of the market to 57%.
  • This massive change in behavior continues to have negative implications for studio profitability as every home video executive would rather book the $16 of profit contribution per transaction from selling a disc vs. the $3.50 to $1.40 per disc profit contribution from rental.
  • [snip]
  • Our analysis also shows that the Blu-Ray format is having a more modest acceptance rate that traditional DVD. In 2009, three years after its introduction, Blu-Ray’s penetration of TV households stood at 4.4%, compared to 13.0% for DVDs in 2000. We also find that Blu-Ray [sic] has seen lower numbers of titles shipped per converted household relative to DVD. We don’t see Blu-Ray stemming the decline of physical sales. Read More »

iDisney

One of the more interesting subtexts to the battle between Disney and Sony Pictures over the work of the Digital Entertainment Content Ecosystem consortium (DECE) is the degree to which the studios have come to resemble each other. Sony Pictures has long been a captive of Sony Electronics. Decisions on what technologies or which formats to support are not made independently by Sony Pictures; they’re made by Sony Corp. in accordance with Sony Electronics’ technology or device strategy. That’s why Sony bought Columbia Pictures and CBS Records, after all: to be sure it had content to feed its devices.

steve_jobs_mouseketeerIn Disney’s rejection of DECE we see a similar dynamic at work with respect to its technology master, Apple. The parallel isn’t exact; Apple doesn’t literally own Disney. But Steve Jobs is Disney’s largest individual shareholder and sits on its board of directors. He obviously has a loud voice on what technologies and which formats Disney supports.

How do I know Apple is a factor in Disney’s DECE stance? I don’t have direct knowledge of it, of course. And I’m sure Disney executives would sputter and fume at the allegation. What makes it a reasonable conclusion, I think, is that there is no obvious or compelling reason for Disney not to support DECE, at least officially, if not enthusiastically.

I can see lots of reasons to be skeptical of DECE. It’s already taking too long to produce results and it’s likely to require so many compromises as to be only marginally useful at best. But I don’t see a big downside for a studio in keeping a hand in. It could, of course, turn out to be a waste of time, but the studios waste time on inter-industry groups all the time. Disney Home Entertainment president Bob Chapek has, himself, served as chairman of the Digital Entertainment Group, for instance, which is a complete waste of time, to say nothing of the $10,000 per company in dues. It’s possible the work of DECE could lead to something useful, which can’t be said of the work of DEG. I don’t see the downside to a studio from being involved, or the upside in trying to scuttle it.

Apple’s opposition to DECE, on the other hand, makes perfect sense. Apple has never believed in device interoperability, unless they’re all Apple devices. And it has done very well by following that strategy, as its Q3 earnings report this week makes clear. But a large part of Apple’s success in the device business has also come at the expense of content owners, as the music companies can explain (Disney, of course, was the first studio to sign a deal with iTunes). DECE’s success would be Apple’s failure. But it’s hard to see how it would harm Disney, were it not for Steve Jobs’ interest.

comcast-nbc-monopolyAs is happens, another major studio, NBC Universal, could soon come under the control of another technology company, Comcast. Comcast’s interest comes at a time of technological upheaval in the pay-TV business, and Comcast officials have made no secret of their desire to control the technological exploitation of NBC’s content assets, particularly its cable networks.

Should a Comcast/NBC deal come to pass, three of the six major studios will be controlled — if not literally owned — by technology companies with distinct agendas regarding the evolution of media business. Rather than playing kingmaker among technology providers as in the past, the studios are becoming the pawns.

Dear Sony, F@%K You, Love, Apple

Fascinating story in the Wall Street Journal this morning about a new digital delivery system for movies being pushed by Disney. Fascinating not just for the ostensible news it contained — Disney hopes to replace lost DVD revenue with a new system  for letting consumers access movies across multiple digital platforms called Keychest –as for the timing of its appearance and its sourcing. Clearly, this was a torpedo sent by Apple and aimed squarely at Sony.

The backstory: Sony is the driving force behind the Digital Entertainment Content Ecosystem (DECE), a consortium comprised of five major studios and several technology company, and chaired by Sony Pictures exec, Mitch Singer. DECE’s goal is to create a system to, well, let consumer access movies across multiple digital platforms. Though progress has been slow, work has continued. In fact, DECE principals are scheduled to meet Thursday in Seoul, Korea, for the next round of talks. When the WSJ story appeared here on Wednesday, of course, it was already Thursday in Seoul.

grenadeAmong the companies conspicuously missing from the DECE consortium are Apple and Disney. Apple, in particular, has shown no interest in cooperating with an industry-wide standard, perferring to go it alone when it comes to digital delivery. And Steve Jobs, of course, is Disney’s largest individual shareholder.

It’s pretty obvious that the story in the Journal  was planted by Apple and Disney and intended to blow up any progress DECE was thinking of making over in Seoul this week. How do we know Apple was involved? Because Apple went out of its way to make sure people knew where the story was coming from.

 According to the story, “people in the entertainment industry say it would be reasonable to infer that Apple would cooperate with” Disney’s initiative.  By “people in the entertainment industry” it would be reasonable to infer the reporter means “people at Disney” and possibly even people at Apple. As a reporter who has covered the entertainment and technology industries for many years, I can assure you that Apple almost never, ever cooperates on stories like this, even on background. For that sentence to be in there, someone at Apple had to either provide it directly or give the green light to someone at Disney to pass it on to the Journal.

Oddly, Disney Home Entertainment chief Bob Chapek more or less gives the game away by admitting the studio doesn’t expect Keychest, “to deliver tangible financial results for five years.” Apart from being a stupid thing to say in the Wall Street Journal, it also telegraphs the strong likelihood that Keychest isn’t quite as ready for primetime as the planted story tries to make it appear.

Nope, this was a hand grenade, rolled into the meeting room in Seoul, to inflict maximum damage.

Orphans in the storm

Pity Judge Denny Chin, the federal district court jurist in New York presiding over the Google Book Search case (The Authors Guild, et. al. v. Google, Inc.). Having steered the long, complex class action to within sight of the finish line he suddenly finds himself the object of an intense last-minute lobbying campaign from interests that were not party to the case and at the center of budding international incident.

google-books-imagen1In my previous post, I discussed the commercial interests that began lining up last week in support or opposition to the proposed settlement between Google and the class-action plaintiffs, including Amazon, Microsoft, Yahoo and Sony. Now, foreign nations, and perhaps whole continents, are throwing down markers.

On Tuesday, lawyers for the government of Germany filed a strongly worded brief (pdf) with the court declaring that the settlement, if approved, would “run afoul of the applicable German nationallaws,” “irrevocably alter the landscape of internationalal copyright law” and potentially violate U.S. treaty obligations.

Some European Union officials, meanwhile, have come out in favor of the settlement’s terms (if not its legal implications) and have suggested importing it to Europe. A meeting on the issue is scheduled for Sept. 14 in Brussels.

How did it come to this? Read More »

Sony's long-shot e-book strategy (and a shameless plug)

Sony formally unveiled two new e-book readers today, slightly ahead of schedule because details of the announcement began to leak on the web. The big news: one of the two models is priced at $199, a hundred bucks cheaper than the least-expensive Kindle (the fancier Sony device goes for $299). Clearly, Sony’s strategy is to position its Reader as a more mass-market friendly device by getting under the Kindle in price.

“They are not trying to beat Amazon at its own game—they are trying to redefine the terms of the game,” Forrester Research analyst Sarah Rotman Epps told the Wall Street Journal. “Where Amazon went bigger with the Kindle DX, they’re going smaller.”

sony readerFair enough, but trying to compete on price in the e-reader market is likely to prove a tough nut. First, Sony isn’t the only one trying to work the low-end side of the street. UK-based Interead introduced its Cool-er e-reader earlier this year is also playing the price game.

The bigger problem for Sony, though, is the cost of manufacturing e-book readers. It ain’t cheap.

As I detailed in a new report on the e-book market that was released yesterday byGigaOm Pro (subscription required), the essential technology in e-book readers is the electrophoretic electronic-paper display (EPD), which uses reflective electronic ink on a static background to produce the image, rather than electronic pixel elements on a backlit screen. That makes the experience of reading more like ordinary ink on paper and yields a huge savings in power consumption.

According to a tear-down analysis by iSuppli Corp., the EPD is by far the most expensive item in Amazon’s $177 bill-of-materials for its $299 Kindle (Amazon claims the BOM is much higher than $177), at $60, followed by the wireless broadband module at $40. Read More »

Lipstick on a pig

The Digital Entertainment Group takes the Sarah Palin Rouge-Lipped Hockey Mom Prize this week for slathering lipstick on the runtish snout of the home video market. The industry spinmeisters reported that total consumer home entertainment spending for the first half of 2009 was down a mere 3.9% compared to last year. Not bad, you say, in the depths of the Great Recession.

From the perspective of the Hollywood studios, however, things aren’t looking quite so “not bad.”

blu_ray_300pxMost of the good news, such as it was, came from DVD and Blu-ray rentals, which surged 8.3% through June, raking in $3.4 billion for the likes of Netflix, Blockbuster and Redbox’ dollar-a-night kiosks. The studios see a much smaller slice of the consumer rental dollar, however, than they get from DVD and Blu-ray sales, which fell a painful 13.5%. In a break from past practices, DEG didn’t break out DVD and Blu-ray sales this times. But Video Business calculated that DVD sales were down a whopping 17%, partially made up for by 91% growth (from a much smaller base) in Blu-ray sales.

The other “good news” came from digital sales and rentals (movie downloads) and cable and satellite video-on-demand, which combined grew 21% for the half, to $968 million. It’s not clearly exactly how DEG is counting things, but if that total includes Netflix’s subscription streaming business, that’s not really helping the studios much, either, since they see an even smaller percentage of that than of traditional rentals.

Bottom line: Consumer spending has shifted massively away from the studios’ most profitable channels into less profitable channels. And Blu-ray has done nothing to stem that tide.

While VOD is a good business for the studios, it remains tiny compared to other high-margin channels, to say noting of low-margin channels like DVD rentals and subscription streaming.

Sony Pictures Home Entertainment president David Bishop was at least honest about where things stand. “People are trying to save money, and there is strong evidence that consumers are trading down. They are renting instead of buying,” Bishop told Video Business. “That is the growth category now in DVD.”

Morning read: Sony, Microsoft We-too Nintendo, Zucker gets one right

Slow news day unless your into games, in which case you can gorge yourself on news from E3 in LA. Both Sony and Microsoft introduced wireless motion-detection controllers for the PS3 and Xbox 360, respectively, aping Nintendo’s breakthrough wireless wand for the Wii. Write-ups here, here and just about everywhere.

Back here in Washington, the Justice Department is probing Google, Apple, Yahoo and Genentech on the possibility that they maintained an illegal conspiracy not to recruit each others’ executives, sources told the Washington Post.

jeff-zuckerThe morning’s most interesting item, though, is not really breaking news. It’s contained a the transcript of NBC CEO Jeff Zucker’s conversation with Kara Swisher at the D7 conference last week, and which the Wall Street Journal  has now posted.

In it, Zucker acknowledges something that has been too slow in dawning on media executives generally: scale–and the economies that go with it–is a thing of the past: Read More »

Morning read: Google takes on Amazon, Sony still pining for synergy, more

Topping the news this morning, the New York Times reports that Google was telling publishers at the annual BookExpo over the weekend that it is committed to launching a new service by the end of the year that would allow publishers to sell ebooks directly to consumers at prices set by the publishers. That would put Google in direct competition with Amazon, setting up a potential clash of titans that will likely bring renewed attention to the ebook market.

google-amazonAccording to the Times, publishers are thrilled with the plan because it would let them fix retail prices while Amazon insists on loss-leadering ebooks to promote sales of Kindles. The new program would be separate from Google’s proposed settlement with publishers in the book-scanning case, which awaits court approval and is under investigation by the Justice Department. Meanwhile, Ars Technica reports this morning that the EU may also being looking into the deal.

Elsewhere this morning, Daily Variety has an inadvertantly funny story up about Sony’s latest effort to spin the combination of Blu-ray and PS3 as a good idea: bloated gameware that can only fit on Blu-ray discs. “What Blu-ray has allowed us to do is build these epic experiences,” SCE’s Scott Rohde tells the Hollywood trade. “When you have more room on the disc to store more assets, you can do a lot more with your titles.”

And when you have a Blu-ray drive in your game console you have to charge more for the console, making it uncompetitive with the Wii and Xbox 360.

Sony will introduce a bunch of first-party Blu-ray games at E3 this week. Variety‘s Marc Graser manages to scrounge up one third-party developer, Naughty Dog, to offer a tepid endorsement of the Blu-ray as a publishing platform. Wait’ll they see the replication bill.

In other Sony news, some leaked video and photos have made the long-rumored PSP Go the buzz heading into E3 (per the BBC). The big news: UMD is out as the storage medium, and a 16 gig flash drive is in.

Across the Pond, the U.K. film industry wants to government to introduce “speed humps,” on the Internet to slow down illegal file-sharing, the Guardian reports (alas, Media Wonk’s speed-humping days are mostly behind him…). The studios “are proposing that Internet service providers (ISPs), some of whom have previously sent letters to persistent illegal file-sharers warning that their actions could land them in court, should put in place technical measures that would shut off or warn about sites used by pirates.”