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Careful, or you might get VOIP’ed

July 2, 2007

I have been spending a lot of time with broadband video players. It seems every day, a new one emerges. Democracy was one of the first. Then came Joost. Now there is FireAnt, BabelGum…the list goes on. Clever names are not the only thing these properties have in common. All have similar content and functionality. Each has rudimentary search. Each has an equally rudimentary program guide. Each integrates P2P and has the basic playback functionalities you would expect.

There are some differences. FireAnt makes it easier to put videos on portable media players. Joost is integrating chat and community applications to its viewer. BabelGum is putting greater focus on international content. But ultimately, all of these players serve a similar purpose: relegating the broadcast streaming function into nothing more than an application that sits on a network. Given this, can the future of cable and other traditional video providers look that different from the phone companies?

To me, these video applications mimic VOIP in several critical ways. First, they are supplanting a closed, proprietary system with an application that sits on an IP based system. Second, by taking advantage of this more flexible and open system, the applications are able to provide attractive functionality with a fair amount of ease, relative to their proprietary predecessors. For example, VOIP was quickly and easily able to provide features like voice mail over IP, numbers that you can travel with you and choices of area codes. Similarly, these video players are integrating features and interactivity that traditional broadcast systems can only dream of such as search, chat, etc. This will become more true once we start integrating ad systems with sophisticated targeting and delivery systems, and will drive consumer conversion the same way functionality drove the second wave of VOIP conversion. Third, by operating off more flexible technology that requires less capital investment these systems, these video players stand to drive down the cost of broadcast delivery…and to passing that savings on to the consumer (namely by providing the service for free).

Of course, there are still a few hurdles standing in the way of making this a complete reality. The biggest of these is the extremely protective broadcast deals the cable companies have in place with the large content providers. The user experience on these video players leaves something to be desired as well: not only is it still hard to port to a TV, the players are still a bit clumsy, the channel guides are confusing, and search and recommendation are laughable. That said, at the very least, these video players should shift the leverage from the cable providers to the content owners, now and when negotiating time comes along. And with so much competition in the video player space, user experience should improve quickly, as should TV portability. On the whole, it is very simple to think of these video players more as a next generation of programming aggregator who, rather than making huge investments in technology, are able to build sophisticated applications that duplicate and improve on the previous functionality. Sound familiar?

So what does this mean for cable companies? For starters it means their cash cow (as was the case with copper based voice) should come under attack soon enough. The cable companies and the phone companies (telecoms companies from here on out) have both been competing for access to customer homes by encroaching on each others’ product sets: the cable companies have been offering VOIP services while the phone companies have been scrambling to package TV services. All of this seems like a lot of scrambling over a bunch of marginal product sets when the real prize is the access line to the home.

To me, telecoms companies need to, at the very least, accept their inevitable fate – at the end of the day, they are network providers. They provide access and bandwidth, and must compete by providing a better network then competitors. And that may not be a bad thing. As anyone who has tried to watch streaming video at peak internet hours can attest, speed is important, but so is quality of service. Nothing hurts a viewing experience more than constant buffering, constant pixelating and constantly dropping packets. That may not matter much when the video experience is about watching the Turkish remake of Star Wars on YouTube. But when you are streaming the Super Bowl to your home media server and porting it to your 52 inch high definition TV, network quality will take on a whole new tangibility. And as Verizon Wireless has proven, people are willing to pay for premium network quality. And we haven’t even touched on network security issues.

Beyond this implied productization of the core network features, there are a few ways telecoms companies can move, in my opinion. First, they can innovate at the point of access: provide cutting edge products that enable better access to applications like voice, video, and data. Better partnerships with set top box manufacturers and software manufacturers to improve user interfaces, DVR functionality, home networking features, etc. should be a core focus as well. Comcast, for example, is moving slowly to this route with their recent deal with Tivo (which will power its DVR functionality). Closer partnerships with hardware manufacturers could reap significant rewards as well. Imagine the competitive advantage a Verizon could get by signing an exclusive deal with Apple, integrating various hardware and software components to provide complete out of the box solutions around connected and networked home theaters.

A more robust and risky way to proceed would be to acquire hardware and software providers outright and innovate at the platform level. For example, what would happen if Comcast acquired Tivo and Joost? Or better yet, what if Verizon liquidated its wireless holdings for a major stake in Apple Computers? These are far out strategies for sure, but as a Time Warner triple play customer who avoids Apple and its closed systems like the plague, I would certainly be tempted to take a second look at a combined hardware/software/access offering from Verapplezon.

What I know for sure is that in a few years, I will certainly not be willing to pay Time Warner a bunch of money for access to a bunch of programming. That well will have run dry by then. Hopefully the telecoms companies won’t be standing around waiting to drink.

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