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Variables in the Digital Video Logjam

When asked how much the war in Iraq would cost, former U.S. Defense Secretary Donald Rumsfeld said, “What we have done is we have taken estimates looking at different variables… but there are so many variables that the numbers of possible point answers create a range that simply isn’t useful.”

Rummy should’ve been a CEO in today’s broadband video game.

Instead of pandering to a public fearful of weapons of mass destruction and eager for 9/11 retribution and fielding softball questions from journalists and elected representatives who had largely abrogated their watchdog roles, the former defense secretary would face highly skeptical investors, a wildly unpredictable consumer base and a complex technology matrix.

And that’s before he would confront a competitive environment that’s only grown more daunting in recent months.


The number of new announcements has been dizzying. Sorting through them all reveals several of note:

  • Apple TV announced its Version 2.0 upgrade and deals with all major studios under a simplified pricing plan à la its iTunes music scheme—$14.99 purchase and $3.99 rentals for new releases, $9.99 and $2.99, respectively, for older ones;
  • Apple TV competitor Vudu announced a price cut of its entry-level set-top box to $295, and a new version of its software allowing its customers to archive movies they buy on Vudu’s servers;
  • Netflix, which earlier announced licensing deals with several manufacturers to produce set-top boxes, unveiled a Roku Netflix player for $100, which allows customers to digitally rent films for about $9 per month;
  • Amazon’s Unbox service, through which TiVo and other set-tops can access the online retailer’s movie listings, announced streaming deals with several major studios, and will soon offer HD content;
  • Blockbuster said it will soon offer a set-top box for streaming video directly to customers’ TVs through the Movielink service it purchased last year;
  • Hulu, the streaming video service backed by News Corp. and NBC Universal, announced it is expanding its free content (OK, so there are ads) beyond the current 250 TV shows and 100 movies; and,
  • Joost, the streaming video service from the founders of Skype, for which users have had to download its client software, said it’ll make a Web-based version available soon and begin streaming more live content.

Whew. Now before you either rush out to use one of these dazzling services, or invest your latest government refund check, consider Rumsfeld’s words of wisdom: The devil’s in the variables. But which ones?

Let’s start with the first if.

If the evolution of broadband video content takes the path music did, then someday soon we will all be using the video equivalents of iPods and iTunes. Why were these two so fabulously successful?

Where Apple resonated with consumers was in the clarity and persuasiveness of its value propositions: a slick device with massive capacity, a vast online library, and simple, attractively priced legal downloading.

Companies attempting to strike video downloading gold have stumbled in all three areas: their devices haven’t been powerful or intuitive enough to get Web-streamed or downloaded video to your TV; they haven’t had all the studio and TV content libraries available; and their pricing terms, to rent or own, have been too steep or convoluted.

But much of Apple’s success was owed to its illegal predecessor, Napster, whose own rise and fall illustrates a more powerful variable involved in this grand equation.

How will consumers view broadband-delivered video, on their TVs or through the Web on smaller, perhaps mobile devices?

The answer, of course, is all of the above. What’s clearly shifting in the viewing paradigm, however, is the rate of online video viewing (much of that is user-generated content).

Research firm comScore recently reported online video views jumped 13 percent in March 2008 over the previous month, to 11.5 billion. That’s up a whopping 64 percent more than the March 2007 figures. ABI research, meanwhile, forecasts the number of people watching online video will top 1 billion in the next five years.

Major media conglomerates seeking to monetize their video content through broadband delivery had best be wary lest consumers become accustomed to watching free video, which perhaps explains why studios are getting over their security fears and collaborating with device and service providers.


But all the hullabaloo raised by these announcements obscures two other boxes that already dominate the consumer landscape.

Cable set-tops, on the basis of their broadband connections, could still emerge as the dominant players. In spite of having high-speed connections, DVR-equipped set-top boxes and vast video libraries in place for over a decade, cable operators have been horrifically slow in distributing Web-streamed video to TVs.

That will soon change, according to Time Warner Cable Chairman and CEO Glenn Britt, who at a June 1 industry conference said the operator is developing a new wireless cable modem designed to solve that precise problem.

Microsoft’s Xbox, meanwhile, remains the dark horse. Its Xbox Live Marketplace could partner with Netflix or Amazon to offer Web-streamed video to Xbox owners.

Have all the variables discussed created a range of answers “that simply isn’t useful?” I don’t believe so. Device, library, pricing—and catering to consumer viewing behavior. The winners in this broadband video equation will have to succeed in all four.