Internet Service Providers: Bright Future or Dumb Pipes. William J. Raduchel Telesoft 2008 VC Ecosystem San Francisco, California 7 October 2008

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1 Internet Service Providers: Bright Future or Dumb Pipes William J. Raduchel Telesoft 2008 VC Ecosystem San Francisco, California 7 October 2008

2 Comcast Interactive Media Fancast entertainment and information Comcast.net for broadband customers ThePlatform video management services DailyCandy fashion- and lifestyle e-newsletters Fandango movie ticketing Plaxo social networking

3 TV 2.0 Accessible from your TV (multiple ways to do this) Start Page: entertainment pointers, social networking, friends recommendations---requires Internet YouTube : long-tail Internet entertainment content: short clips Broadcast high-value content: sports, contests and live events (could be DVB-H as well as broadcast TV) Early-tail content: replay of recent high-value content: Hulu, network PVR, PVR, on-demand Mid-tail content: on-demand access to older content: Comcast commitment to more than 10,000 titles (also AppleTV, PS3, NetFlix/Xbox, DirecTV Internet, ) Major challenge: existing conditional access incumbents

well as broadcast TV) Early-tail content: replay of recent high-value content: Hulu, network PVR, PVR, on-demand Mid-tail content: on-demand access to

4 What s missing but possible? Messaging especially realtime though CBS is testing Activity sharing ala Virgin America Red: let your friends know what you are doing Clip sharing with friends Friend-driven program selection Integrated access to rankings and reviews Tagging

sharing ala Virgin America Red: let your friends know what you are

5 DirecTV HD DVR: Same Model Subscription and PPV >100 HD channels >100 hours DVR Speculative downloads Remote scheduling OnDemand pay and free Walled-garden Internet access New Tivo deal

6 TV 2.0 Business Model Bundle TV and Internet access into one monthly fee Subscription content bundled with on-demand access Pay per view Heavy contribution from adult content Expect theatrical day-and-date rights Advertising linked across all viewing (but deep-packet analysis may be blocked) Google attack on net-neutrality is an economic battle not just principle

Expect theatrical day-and-date rights Advertising linked across all viewing (but

7 Many Cost Curves Ever cheaper LCD displays will spur demand for HD Bandwidth is getting cheaper but is not free, and HD requirements are large. IP not privileged at all at left side of the tail Cheaper processors allow more compression, higher quality and more tuners Cheaper storage allows more DVR hours and more speculative downloads (cache start for Internet downloads) Any business model can be implemented

IP not privileged at all at left side of the tail Cheaper processors allow more compression, higher

8 Surprisingly Successful

9 AppleTV Syncs with itunes for music, pictures and video (TVconnected ipod ) YouTube Buy or rent movies Lose money on day and date releases Full HD support Internet connected Brilliant integration

10 Surprising Competitor Sells 40% of all DVDs Mainly at a loss Investing to have a huge library of on-demand DVDs Kiosk market Simplicity No need for broadband

11 CE Challenges Falling prices mean falling margins TV manufacturers trying to take back position as sound source and as switch Rushing to add Internet access to TV (bad idea probably) Blu-Ray players are Linux-boxes that become network connected Network operators and Google want dumb devices that they program User interface challenges lessening but still hard

probably) Blu-Ray players are Linux-boxes that become network connected Network operators

12 Now, exactly what problem was I trying to solve with the Internet? I need interactivity and connectivity. I do not need the Internet per se. Internet will become a part of everything but in that process disappear as a distinct offering.

13 Supply Outstripping Demand Technology is dramatically lowering the cost of creating content Technology enables content creation where none was possible before (mobile video) Free Internet sites provide mass distribution DVRs are growing rapidly in size: thousands of hours is reasonable in a few years Much---maybe most demand---is nonspecific: bad news for advertising Proximity concerns further limit ad potential Lack of trusted metadata

distribution DVRs are growing rapidly in size: thousands of hours is reasonable in a few years Much---maybe

14 Digital Content Ephemeral Except for optical media no physical instance : Getting it often now little more than a few clicks Sharing a copy means you still have it and culture condones it so piracy is rampant and very hard to stop Psychological impact may be most important: content just seems less valuable Similar impact in music with loss of virgin play Blu-ray sales disappointing: is VuDu HDX the future?

rampant and very hard to stop Psychological impact may be most important: content just seems less

15 Seemed so obvious Just become ad-supported But getting even $1/month/unique is hard and that is just not enough for many sites---especially newspapers Advertisers not finding value Biggest U.S. advertisers were subprime and proprietary student loans---they are gone. Almost no web site sells more than half its inventory CPMs range from $0.25 to $300 3 in 1,000 banner ads generate a click-thru

advertisers were subprime and proprietary student loans---they are gone.

16 Target the ads Just get $300 instead of $0.25 Need right audience Placement rules increasingly sophisticated and proximity a major concern Sites with great demographics lack impressions and sites with impressions lack demographics Not that many ads available at $300 Local ads on Mobile keyed to current location may get $100+ CPMs but how many such ads are there?

concern Sites with great demographics lack impressions and sites with impressions lack

17 Complex Tradeoffs Complexity: It may take a decade more to make TV 2.0 bulletproof enough for mass adoption. Rights: Consumers will want their content available anywhere on any device on any network but business models need you to pay more than once for that. Distribution: Need some means of cost-effective multicasting (e.g., broadcasting) for live, high-value events. DVB-H with MHL may work. In U.S., off-air may be enough. Derivatives: Clips and mashups. Privacy: Who owns what you do: Google Chrome.

more than once for that. Distribution: Need some means of cost-effective multicasting

18 Mobile Wild Card MHL turns mobile devices into content distributors Internet usage is structured more than browsing (see but is probably the same as TV usage DVB-H and multicasting make them better than broadband Bandwidth will be there (Xohm at 40 Mbps per cell)

com/mobile-report) but is probably the same as TV usage DVB-H and

19 Observations Walled Gardens may do much better than anyone thought a year ago Advertising is probably inadequate alone as a business model for most sites Look for networks to beginning paying for premium access for their subscribers Content rights remain critical---clip rights will be invaluable

sites Look for networks to beginning paying for premium access for their

20 Thank You!

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