Jennlog

During the last few days, much has been written in the popular tech blogs about the throttling actions of Comcast vs. the proposed metering actions of Time Warner — suggesting that metering might be the preferred and fairer approach to restricting subscribers’ growing bandwidth usage habits. That discussion only focuses on a small part of the bigger picture, however.

From the network operator perspective, degrading service and metering service are mutually exclusive actions that create opportunities for monetization on each side of their operation at the application layer.

In the media distribution food chain, cable companies and telcos have always monetized either side of the communications relationship they are facilitating — at the application layer. Connectivity and access at the transport layer are not monetized by legacy communications infrastructure as it is with IP networks.

Cable companies charge, demand ad revenue opportunities or otherwise negotiate remuneration from television networks requesting availability to their subscribers and then turn around and charge subscribers for access to the television networks.

“Network Availability” (what AT&T and others are suggesting they need, in opposition to “Network Neutrality”) is about restricting and monetizing media availability to subscribers.

“Conditional Access” and DRM are about restricting and monetizing subscriber access to media.

In an application layer monetized world, if an operator can’t negotiate a revenue stream from a media producer or aggregator, availability of the media producer’s product is degraded or disallowed — If revenue can’t be obtained as a result of a subscriber request of a media product, access is prevented.

With the Internet, network operators have been left out of the media delivery monetization pie, other than deriving income by supplying “Naked” transport in to and out from their infrastructure.

Comcast and Time Warner are approaching the monetization of Internet-delivered media completely differently.

If Comcast can successfully negotiate frees from media producers and aggregators in exchange for not degrading their Internet-delivered media, Comcast has successfully generated a huge stream of perpetual income that didn’t exist until that deal.

If Time Warner can successfully implement fees from subscribers in exchange for delivery of their Internet-delivered media, Time Warner has successfully generated a huge stream of perpetual income that didn’t exist until those subscribers signed on.

This week, NetFlix and Apple launched online film distribution services and Time Warner Cable reluctantly announced their metered Internet trial. In context, this was a turning point in the evolution of home entertainment.

The future of film and television is definitely going to rely upon the world of IP networks. Between the NetFlix and Apple services, consumers will begin to relate to films and other visual media online, just as consumers learned to relate to television through a box of buttons when cable services began to dot communities.

Speaking of cable, Time Warner has set itself up to be the first sacrificial lamb of the MSO infrastructure evolution in response to the growing amount of bandwidth used by its subscribers. In my previous post on the Time Warner experiment I suggested that TW customers should bail on their broadband provider. In the near-term, I still suggest they find more lubricated pastures (I.e. unmetered, unlimited service).

As media products evolve to an online state, the infrastructure that delivers media must also evolve or become inoperable or obsolete. Cable companies really operate two competing video infrastructures:

1. The original RF-based television feed of 24/7 content pushed into the homes over 300+ simultaneous channels, and;
2. A newer IP-based “Broadband Internet” connection facilitating the pull of attention-derived content into the home.

The old television feed infrastructure is not optimized for the realities of an “A La Carte” attention-derived media. It’s interesting to note that even with 300+ channels of content available the average american television viewer rarely strayed outside of their five favorite television channels to view programming.

1990’s Cable Spectrum

Clearly, cable as a business and an incumbent infrastructure is no longer efficient or relevant and must eventually be sacrificed as consumers adapt to Internet-based media delivery.

The cable evolution has been helped along by federal mandates declaring the end to analog-based television signals. Cable operators have been repurposing their Analog spectrum into their digital tiers

2000’s Cable Spectrum

In the next decade, Cable operators will need to abandon their philosophy of spectrum slice segmentation that dates back to the early RF days of television and open their entire operation to packet-based organization.

2010’s Cable Spectrum

Cable has a phenomenal amount of bandwidth capacity deployed, the challenge for them is adopting a consumer-friendly business model and organizing and optimizing the capacity going forward.

Cable will eventually adopt “metering” industry-wide, but as they open their entire networks to IP, one will hope that they will learn how to productize “unlimited” and “capped” services once again.

(As a comparison, here is the typical incumbent telephone carrier network spectrum allocation:

1990’s Telephone Spectrum

Unlike the fiber coax hybrid-based cable networks, telephone companies rely upon a mesh+star configuration of fiber and twisted copper. The available spectrum of twisted copper is far lower than coax, influenced by the frequency footprint of the legacy service of the telephone company, voice communication — exponentially narrower when compared to video. This is why telephone companies are the champions of fiber to the curb [fttc] and fiber to the home [ftth] initiatives.)

Yesterday, Apple officially launched their new iTunes Video Rental service.

The film rental service is built upon the existing content management and distribution system that facilitates the sale of audio and video products across the Apple CE line, including a newly untethered and upgraded IP-based AppleTV set top product. I presume it will also work on iTunes for Windows.

Is this service revolutionary? No. Evolutionary? Yes.

Cable operators in the Americas and Europe have offered VOD-based rentals for almost a decade (in Asia, almost two decades), but have not expanded their focus beyond their prized set-top box — some have started developing parallel stream-based services on the Internet, but there is no cohesive product relationship. Cable-delivered services have started and ended at the television set.

In relation to online services, Disney’s MovieBeam and film industry venture Movielink both offered film rentals by all the major studios in the same price range as the new Apple service, but their products were not very accessible and alienated consumers.

Apple’s agreement with Hollywood enables iTunes to rent movies 30 days following a DVD releases. This is presumably done for the same reasons that Hollywood fragments their DVD distribution amongst several region codes.

Apple operates the world’s most popular electronic media distribution service and is clearly the manufacturer of the world’s most popular portable media players. This dominance feeds directly into the adoption of their iTunes audio and video manager/player, compatible with both Microsoft Windows and Apple’s own OS X — and closes the loop on a single-provider “fully integrated” Virtual Walled Garden Overlay.

Apple will be the first effective solution to bring wide-scale video from the Internet to television. On the other hand, YouTube and its clones that drive traffic through novelty and news will not escape the immediacy of the social media-driven browser universe — regardless of mobile and television-focused efforts.

While this product will be the service to popularize electronic film rentals to the general public, other services such as the unlimited electronic streaming delivery products from Netflix will equally share this vanguard, but in a more constrained and restricted manner.

After an agnostic media management and delivery infrastructure reaches the edges of the Internet, Hollywood will pull back control over their media and begin to pursue direct delivery of media themselves

Hollywood has a history of taking control of media delivery channels that cross over the boundary from experimental to mass market — acquiring their video tape manufacturers and distributors. Affiliate television stations are finding the territorial relevance that solidified their existence in the traditional television delivery value chain has been erased by the global and direct reach of the Internet enabling the parent networks to deliver television directly to consumers through websites.

Eventually, the proprietary FairPlay format of Apple will also be superseded by a consumer-friendly format, popularized by consumer media generation — enabling/allowing consumers to integrate their own personal media with acquired media across consumer-chosen devices.

Apple’s iTunes Rentals service is evolutionary — as a stepping stone. It’s not going to kill DVDs or DVD rental services because the majority of the movie viewing public won’t immediately change their habits to pay apple $3-6 to watch a movie.

Apple will see the world to the time when Hollywood (and all media producers) will be have the capability to deliver media directly into consumer’s lives with commodity technology, infrastructure and players with flexible billing/usage models allowing for purchase, rental, subscription, advertising-support, gifting, freebies, exchanges and situations not thought of yet.

Today, Netflix announced they are offering their subscribers “Unlimited Streaming” of movies and TV shows “on their PCs” — beginning today their “unlimited” DVD rental subscribers (tiers beginning at $8.99/month) may start streaming unlimited movies and TV shows.

The Netflix press release specifically refers to PCs as being the destination device for their unlimited streaming plan, but depending on the formats and encryption selected, a “PC” could mean any IP-based device connected to a television — an AppleTV or Mac Mini, Tivo, Slingbox or Microsoft Media Center. But, this information is conspicuously absent from the Netflix site which has me suspecting it’s a not-so spectacular Windows-only format.

The announcement of a “Hollywood-fed” full-feed pay-one-price video streaming service is huge, but only if the format is eventually transportable and compatible with mobile and wireline devices. If it is tied to Windows or restricted to a specific player, it’s just another proprietary footnote on the pathway to a useful service.

The number one loser in the market today due to this announcement has to be your local cable company. Cable companies will try to launch stream-based services, to keep their customers inside “The Garden” while they are out and about in Internet land, but will largely fail because cable doesn’t have the mind share when consumers start thinking of feeding their IP-based video devices.

If Comcast scrapes through the FCC hearing on their practice of degrading P2P services used by their subscribers unscathed, you can bet that they (and other operators) will start degrading all third-party streaming services on their networks unless direct per-sub revenue shares are negotiated.

None of the streaming deals are exclusive as far as I know, so as soon as someone in Hollywood starts to see a winning model emerge, they will start feeding the streaming channel directly. Netflix should enjoy their market success now, while it lasts — they will be in Blockbuster’s shoes in three to five years unless they develop some extreme competitive technical and marketplace advantage (highly unlikely).