mediamax

Is Net Neutrality the best way to promote broadband adoption?

FCC's Net Neutrality rules require ISPs to not discriminate Internet access based on content or applications. A media company cannot get preferential access to users, and an Internet user cannot pay more to get faster access to a specific publisher.

The rationale is that the carriers, given that they control the access pipes, should not get to play favorites amongst content publishers - or give preferential treatment to their own content portals.

However, access capacity is limited - and this limitation is clearly evident with wireless services. Phone calls over AT&T wireless in San Francisco frequently get dropped because of heavy iPhone usage of data-intensive apps. By treating all content alike, the ISPs do not have a way to manage heavy bandwidth applications, that hog up the access network at the expense of other kinds of content - and as a result, all content and applications suffer.

Here is a better alternative, that should encourage broadband adoption, investment, and keep users and media companies happy, is as follows: Allow ISPs to manage their network differently for different apps/content, but in exchange, require the ISPs to offer a basic tier of service for all users, in a neutral, free-for-all manner at a subsidized cost, and to offer the higher-tier access fairly across all content and application types.

Specifically, the FCC could allow ISPs to differentiate between various content/apps, as long as those ISPs (i) are impartial across various content owners, including their own content portals, in tapping into such higher-tier services, (ii) offer a basic tier of "neutral" bandwidth, that would not differentiate between different content/application types. This basic tier could comprise, say, the first 1.5 MBPS or 25% of edge capacity at a residential location for that ISP, whichever is higher, and (iii) subsidize the basic tier, enabling more people to get on to the broadband highway. 

I think that this may satisfy the needs of the ISPs (increased revenue opportunity.. and hopefully, incentives to invest in access capacity), the users who today can't afford broadband (lowered prices), the users who are willing to pay more so as to watch certain video sites in better quality, and the media companies (QoS access, better ability to compete with non-IP video delivery).

In conclusion, I believe that differentiated services, if structured thoughtfully, could enable fairer access to broadband. Net Neutrality, in the way it has currently been proposed by the FCC, by dumbing down all apps and data-types to the lowest-common-denominator is not necessarily the best way to realize such fairness.

Rejected MBS Bailout can

Bailing out Mortgage backed securities...
http://gregmankiw.blogspot.com/2008/09/put-your-mortgage-backed-securities.html

About $1 Billion in ad spending shifts to the Web, from TV and Newspapers

Interesting article on how Online Advertising spending has increased by about $1 Billion over the last year, while spending on TV and Newspaper ads have reduced by an equivalent amount over the same period.

Whether online ads would continue to increase in absolute dollars at that same pace is not that clear. As an IAB report indicates, web advertising infact decreased, to $5.8 Billlion in Q1 2008, down from $5.9 Billion in Q4 2007.

Newspapers have indeed suffered significantly due to the 12% y/y decline in ad spending, as reflected by their falling stocks, as this post indicates. In response, newspapers are scrambling to get exposure to the ad distribution options that the web represents, as indicated by GCI's recent investments in startups.

LightReading reviews MediaMelon in their report on HD Videos

LightReading reviews MediaMelon in their in-depth report on HD Videos, in their report titled "HD Video Goes Over the Top".

As the report says, "HD video delivered over the Internet could wreak havoc with the business models that now underpin conventional video services, including IPTV offerings that are just now getting off the ground. The ugly "D" word – disintermediation – looms as at least a possibility, if content owners have the means to reach consumers directly with high-quality products".

Internet delivered HD content, at economics that make sense for publishers, is likely to be a significant opportunity for companies like MediaMelon as well as broadcasters and viewers.

On Market Volatility

A popular thought is that as the markets become more fluid, globalized, and interconnected, we have tamed market volatility.

For a while that seemed to be true. See chart below that shows CBOE's VIX (an index to measure volatility, developed by Prof Whaley at Duke). http://finance.yahoo.com/charts#chart5:symbol=^vix;range=20010102,20080405;indicator=volume;charttype=line;crosshair=on;logscale=off;source=undefined

Fed rates were at low, inflation had been stable and low for several years, and we seemed to have weathered recessions much better than what we had been able to in decades before. Low rates and plenty of credit had made people believe that credit was going to always be available. However as the chart shows, volatility has sprung up very rapidly in recent months.

It may indeed be the collective thinking that volatility has been tamed that may have led to the increase in volatility. As the gov't, policy makers, investors and consumers get increasingly comfortable that asset prices would keep increasing, and credit supply would be continually available at its attractive rates, they were prone to make irrational bets.

Music Industry vs. Recording Industry

The popular opinion is that the music industry is in trouble, brought about by file-sharing and MP3s. However, in reality, the music industry is alive and kicking. More music is being created, more artists are being discovered and more music is being consumed in various forms and the hip-hop stars are very much on the Forbes' list

So, the music industry seems to be doing fine, but whats changed is the fortunes of the recording industry, at least the industry in its traditional form. Recording labels have traditionally offered two values --- promoting and marketing the artists & retailing and charging for the music. Today, it is not that hard for artists to communicate and promote themselves directly to the fans, via MySpace and others. So the value of the label's promotion/marketing is lesser. On the payments front, in addition to fans not paying, many artists themselves don't want their fans to pay for their music.

So how is money being made? From concerts, merchandising, guest appearances in other shows, branding, etc. Hip-hop stars like G-unit and 50cent are at the forefront of this trend, possibly helped by their younger, tech-savvy fan base.

The RIAA (representing the recording industry) is still suing people for piracy and promoting all sorts of other regulation. However, I think that that is a losing battle. The days of $20 CDs are long antiquated --- Tower Records went out of business two years back. Most of the music on iTunes and iPod are not paid for.

My suspicion is that the recording industry will change dramatically in the near future. They (and the RIAA) would stop suing people and instead start promoting file-sharing and other ways to get the music out there for free in as many ways as possible. They would make money and help the artists make money by selling services around the music and the artists  -- such as product placements in the lyrics, custom lyrics for events, clothing and lifestyle brands, and the managing concerts/events. There may still be money changing hands -- but it is more likely to be driven by some value-add around the process of the fan's acquiring the music track... such as additional metadata about the music, being able to connect with other fans of the artist or getting a custom mix of the track

In other words, access to plain-vanilla music is no longer a scarce commodity and hence it is tough to act as a gatekeeper for it. The industry has to invent other scarce commodities surrounding the music that they can control and hence extract rent. Ideas and tools for creating, controlling and monetizing such scarce commodities is where the future is.

Similar trends are being seen in the TV and movie industries and that is where startups like MediaMelon can help bring value to both the content owners and the end-consumers.

DVD rentals, and DVD Kiosks

While doing some research on DVD rentals, I came across the growing role that DVD Kiosks are playing in the market. DVD kiosks are DVD vending machines that rent out titles for around a $1 a day. The two main DVD Kiosk service providers are DVDPlay, a VC funded company, and Redbox, which is owned by McDonald's and Coinstar (CSTR).

I have not seen much of them, but apparently there are 10,000 such kiosks, typically at supermarkets, each generating $30-40K in annual sales. They are expected to garner 25% of DVD rentals by 2011, according to Bloomberg.

This is likely to represent another threat to Netflix/Blockbuster's traditional DVD-by-mail business model. DVD Kiosks would likely require much lower operating costs and capital, and offer convenient 24-hour access. The number of titles may be relatively limited at a kiosk, but that number should likely include the top hits that people are most likely to to be interested in

In addition, USPS said that they may charge a 17 cent surcharge on Netflix mailings, because their mails require special manual handling. This could potentially result in NFLX's operating income per subscriber to decline by 67%, from $1.05 to $0.35. I think that they will soon renegotiate the surcharge or redesign the offending aspects of their envelopes, so the impact may not end up being that drastic.

First year over year decline in DVD Sales

DVD sales decreased for the first time, year over year, in 2007. DVDs are the largest revenue generators for Hollywood. Factors contributing to this could include increasing popularity of VOD, online videos, and competition from other forms of entertainment such a video games.