The Consumer Electronics Show (CES) is a great opportunity to sit back and watch the technology industry and its mass delusion. Every year it is something new that is trendy — the same thing that eventually ends in tears and lost opportunities. This year’s “what the hell are they smoking” award should go to any and every company that is trying to chase Netflix (s NFLX) and Amazon (s AMZN) Prime in the streaming video business. Here are some of the recent annocements.
- Verizon is going to offer a streaming service powered by Redbox and it will launch in March 2013.
- AT&T is going to offer a streaming service called Uverse Screen Pack.
- Intel wants to do streaming video and has teamed with Comcast. (FYI, Last year Comcast came up with Streampix, but it is still not clear if that is a failure or a middling success.)
- Sony is jonesing for the streaming video business as well.
Given the torrent of announcements (and I am pretty sure I missed a few), what I am not missing is this feeling of deja vu, all over again. (Hat tip, Yogi Berra.) A few years ago when digital download music was all the rage, thanks to Apple and its iPod/iTunes, we saw a similar scenario play out. Industry players including Cingular, 7-Eleven, Best Buy, Wal-Mart, Verizon and AT&T lost their collective minds and in the end were spanked by the marketplace in their derrières with a wet bamboo cane.
In 2007-2008, it became fashionable for companies to offer video downloads. Wal-Mart was going to crush Apple and in the end, it hightailed it out of the market. AOL and Google, too, had to bow out of video download movies. The reason those efforts failed and the reason why none of the new efforts are primed for a pole position is because they don’t solve the problem of people.
They are part of some bureucratic decision and a corporate checklist that allows management to say: hey, we are trying something new and innovative — even though, in reality, it is a terrible execution on ideas that are not original. The members of the new streaming video herd are going to be hard to distinguish from each other. AT&T, for example, is starting with about 3,000 titles from a handful of studios. When I compare them to Netflix or Amazon Prime Video, I don’t see any advantage to switch to them.
Netflix is a great casual viewing package for me. Sure, it might not have the latest movies, but neither does TBS or TNT channels. Amazon Prime is actually a great deal — it is free because I pay for Amazon Prime delivery service. Between those two and occasional downloads via the Apple store, I am pretty well taken care off from an online video watching perspective.
If I am Intel, I should really focus on trying to actually get mobile chips out that can compete with Qualcomm (s QCOM) and Mediatek, rather than screw around with video services. How this video service helps the company’s core business is hard to understand.
AT&T and Verizon — well, they shouldn’t try to do consumer services because frankly they exist to punish their customers. Sony? Given how Samsung is eating its breakfast, lunch and dinner, shouldn’t they focus on making great televisions instead of making online video services? I often wonder why the companies that are under most duress often try and do things that distract from the problems that are eating away at their core.
I like to think Sony, AT&T & Verizon are having a Quantum Leap moment, where they somehow leap into a new body and a new experience. And then boom, it’s off to another body & another adventure.
Lol @ Rick
Yep. Not to mention Netflix is NOT a profitable company … why would someone want to get into that space… the Studios track profits and raise their licenses to eat any distribution profits.
Cameron
In response to your Netflix profitability comment, according to their Q3 statement
“We remained profitable this quarter with $8 million of net income, and $0.13 EPS. Compared to Q2, net income was essentially flat, as increased domestic streaming contribution profit (up $8 million) more than offset a $3 million decline of DVD contribution profit, a $3 million increase in international losses, and a $2 million increase in global operating expenses.”
They had a profitable Q1, losses in Q2 and are expected to be profitable in Q4 2012.
Thanks for your comment.
Everybody is selling/streaming media, everybody is doing smart TVs, everybody is doing online storage (and calling it cloud) , everybody is designing websites for tablets, ruining the desktop experience (gigaom included). It’s sad and amusing and never stops.
Doesn’t image fidelity count at all any more? All of these streaming video services look like dog shit compared to top quality HD cable-tv (eg FiOS), which in turn pales against good quality Bluray or 4k (which in turn pales against real 35 or 70mm film that wasn’t post-processed digitally). Are we abandoning the lean-back entertainmment environment? Why are we bothering to develop OLED and 4k resolution TV sets, if our only content choices will be crappy 5mbps video streams??
AT&T will get new releases before netflix because of their U-Verse business
Very well written. One of the big reasons why huge companies try to do these things is simple. When their core business is booming and successful, they have a lot of people supporting it as the revenue growth from that product line can accommodate these things. Example: Intel had a boat load of people working on making movies available exclusively on Intel’s laptops. The laptop business line probably was supporting that. Now that the laptop business is dying, that product line pulls out. Intel suddenly has a 1000 odd people and so a new product emerges!
Thanks @why
Doesn’t WalMart have a solid position with Vudu? They’re a distributor for Ultraviolet digital copies for at least some titles (I think my copy of The Dark Knight Rises was a Vudu digital copy), so they’ll get registrations just from that. Flixster is also in the Ultraviolet distribution business (they’re owned by Warner Bros, so that makes the whole Dark Knight thing odd, but I just double-checked that Vudu was the insert in my Blu-Ray case).
Vudu kinda sucks, personally I would rip my movies to mkv and use mediacore to stream them. Setup the mediacore server to access outside of my personal network and bam, cloud movies.
Vudu.. They were never a useful service for me.
I don’t think you really understand what business Sony is in. The TV-selling part of Sony hasn’t made money in more than a decade. The content side, on the other hand, does.
I’m not suggesting a half-baked Netflix clone solves their problems, but things like Music Unlimited, video sales, etc. are part of a strategy a la Xbox Live that might be the only thing that rescues the consumer side of Sony from oblivion.
Mark
I think I understand Sony and for now most of their problems are stemming from the fact that as a brand that made consumer electronics, they don’t make those devices well and are getting pummeled. They need focus before trying to do services – they have sucked forever whenever they have tried to do software or services.
It’s like vod bandwagon. Netflix is a great service. All these other companies should just quit while they are not ahead. I am a netflix subscriber, the only problem I have with it is Reed Hastings. I don’t think I have to explain why I don’t like him.
@brian
Why don’t you like reed Hastings? U don’t really have to work with him or talk to him? Just wondering
Although I share some of your scepticism it would be a shame if firms just sat back and let Netflix & Amazon clean up. Intel is clearly stretching too far but AT&T and Verizon are both already firmly in the video aggregation business with their fixed offers and surely it makes sense for them to follow the TV everywhere trend
186k
I would rather see Microsoft try this via its XBox service than Verizon or AT&T. When was the last time you associated those phone company monopolies with customer happiness. They should just sell us the network access, gouge us like they do, thanks to their friends at FCC and the political firmament.
Agreed, would be nice to see Xbox compete here, but I think they are smart as they know they can’t make money, so they aren’t going to try.
Last year, they came out and said that their plans for a Xbox streaming subscription service would not work, from a business standpoint, as content licensing costs were too high and the rate that consumers would pay each month for such a service was too low.
Microsoft said they could not make money with such a service, and that’s from a company who has more devices in the home in the U.S, connected to the TV, than anyone else.
Hulu can’t get rid of ads in the Hulu Plus service as they CEO said they would have to charge consumers $20 a month, which they know they won’t pay, yet they can’t make money on $8 a month fees, without ads.
Verizon, Redbox, Intel and others are clearly underestimating the costs involved with content licensing, on a mass scale, if you want to give consumers a real choice.
Very well said Dan. Thanks for your comment.
Intel’s virtual cable/OTT offering — and any other’s — would be differentiating and compelling if (as rumored for Intel) they are successful “unbundling” certain key cable channels (think ESPN here) from traditional cable programming packages that are “take it or leave it” for consumers now. To offer a la carte programming is the holy grail for these new OTT service providers. Apple has tried, and failed thus far, to make this happen — which is a fundamental inhibitor for the launch of its much-anticipated “iTV.” If Intel — or any one of these new entrants into the market — can crack this code, then they really got something here.
Peter
Explain to me how Intel is going to make it happen and how it is going to scale and how it is going to become a business that can rival the margins of their chip business.
Frankly, they are getting their clocks cleaned in the mobile at a time when the world is essentially going mobile. The online service is the equivalent of playing the fiddle while the Rome burns.
I have yet to see any plans from Intel on getting
– scale
– profits
Sorry, this is a company completely playing the wrong game.
While I agree that ATT and Verizon are destined to fail in this market unless they use their power as broadband provider to limit data from competing services (I’ll be shocked if they don’t attempt to do that), I’m not so sure about Sony and Intel. Sony is not just a middleman or retailer, they are a content creator and have an advantage over Netflix – if their CEO says so, their studios have to give their internet distribution division a good deal. Which would put pressure on other studios to follow.
Intel’s goal is to sell advanced STBs which require more powerful processors. I don’t think they are about making money on selling video service any more than Apple cared about making money on iTunes when they started it, it’s really just an ecosystem for their hardware.
Don’t we hear over and over it’s all about execution? Until Mike and Fred conclude it’s not[1,2].
Original ideas are hard to come by, successful ones even harder and they don’t show in spreadsheets first. Then it’s a hard slog to implement. Easier to look at some random numbers, press articles as example, and implement another crap thingy one doesn’t understand.
1. http://techcrunch.com/2012/12/30/im-bored-whats-next/
2. http://www.avc.com/a_vc/2012/12/putting-2012-to-bed.html
Ronald
Welcome back. I have missed your comments and a very happy new year. Hope you will be keeping it real in 2013 for us.
As to your points, you know I rarely disagree with you 🙂
One of the bigger issues I see with all of the streaming service competitors already available (Vudu, BestBuy CinemaNow, a handful of others) is that they offer a limited amount of essentially the same content as Netflix and Amazon. If I want to see movie X, it seems to be either “available for streaming on most services” or “not available at all.” For me, competition comes in the form of different content; simply having another location to watch the same stuff doesn’t sway me as a consumer.
Jerry
Thanks for your comment – the problem is precisely that and what’s worse the user experience isn’t any better. From casual comparison, Netflix still has more options.
These companies are all like guys dressed up but nowhere to go because the girls’ parents won’t let them out of the house. You should read Cringely’s article on how Silicon Valley can Conquer Hollywood.
http://www.cringely.com/2013/01/04/silicon-valley-conquers-hollywood-part-3-think-small/
Intel has a long history of follies like this. Around a decade go, it inexplicably decided to enter the web hosting business……
Stephen
And here i was thinking that only I remember that disaster. Intel is a company that used its chip-monopoly prices to experiment with things it shouldn’t be mucking about with.
Agree on all counts, except one. “…Google, too, had to bow out of video download movies” – I understand Google Play is doing extremely well?
Thanks for such an excellent and succinct piece. I too use Netflix, Amazon Prime (which had before streaming was introduced as well as iTunes, so I am well covered. None of these services do something new, in any innovative way. Ttheir future is too easily seen and it is not pretty.
The content delivery industry is a lot like blogging, very few make money on it and everyone HAS to do it for the love.
Netflixjust happened to be the first and contrary to what the press would have you believe, it enjoys a loyal following. For sure with me! So can you imagine what the ramp up is to enter the market for ANYONE, let alone large corps.
Om – I totally agree with you. The two key factors for the streaming business is an ecosystem and the content and Netflix have both of them. I dont think others will catchup in this race. The content deals are expensive and if you dont have good content then you will not get subscriptions. This will be going to happen soon with Redbox, they have EPIC content which Netflix and Amazon already have, so what’s the value add? In next 6 months when Netflix have all there original series out, then I would like to revisit the status on other streaming players.
Sony common work on your SmartTVs they suck compair to Samsung’s etc. Intel should compete with Qualcomm, they will soon takeover them in mobile chips.
Do you have a technical background?
Sorry I am not going to educate you why Intel wants to enter the business. Intel may fail in this attempt, due to execution, not the idea itself.
Do your research first before you publish something stupid.
Not sure what was stupid about the article. It’s simply pointing out that companies should play to their strengths first or fix what’s broken before they go off on an adventure that is so fraught with failure, they will just be wasting money. Netflix specializes in one product – streaming. I don’t see the company getting into Online Shopping just because Amazon needs competition nor go into hardware production because Samsung is kicking people’s butts on the TV side. Why do you think a technical background is needed to explain a simple concept?
I get diversifying your business, Verizon and AT&T both did it successfully with their U-Verse and Fios products. It helped their terrestrial services survive as the home phone model has shriveled up with the price points that mobile service now offers. The venture into a streaming service given their deals with companies such as Microsoft for distribution of content is not completely nuts if only they had chosen to do it correctly! I personally enjoy Netflix for its children’s content and its abundance of documentaries. Redbox/VZ venture has decided that was not their focus and as such unless they are getting new titles much earlier than Netflix I don’t see how they will have the ability to compete given netflix’s comparative libraries, and this is a chosen self blow per statements made from Verizon. That is the single biggest mistake and hindrance I can see…. if your going to do it. do it right.
“torrent of announcements”, really? Lol
It’s amazing that some companies think that Netflix was built in a day. With 30+ Million Subscribers, there must be something compelling besides the price point that drives people to fork over $8.00 month after month. Everyone and their moms want to go into streaming business and yet they have been coming up short everytime. Netflix does not sit on their butts waiting for the competition. They forge forward and disrupt the media while other companie are still trying to figure out how to get subscribers to make sense of their offerings.
I can only see someone with content to offer that the others don’t having the slightest chance. Try to get to the technology and price point that Netflix and Amazon are at will take and effort (check out Neflix’s techblog – i.e. something posted on gigaom today)
A fantastic and well written article, Om. I greatly enjoyed it, thanks!
Chris
As I worked for a technology offering service company it is so easy to explain why companies they to get in to the foreign field and try offering services that does not benefit the company nor consumers. These things gets decided in board rooms with barely and research and support in order to rescue the company and gets its name heard. But also its very important to undeestand new development and service will make the company look good on paper as it expanding. Most ofbthe time top VP s will get huge bonuses as the expense of companies failed and damaged reputation. After spending alot of money and resources on these alien tereitories normally they go back to what they know and start collecting the pieces