|
2002
11/2002 - Happy
Talking Wall Street Analysts Miss the Boat by Describing Investors
as "Emotional"
10/2002 - Will PVR*
Sales Continue Growing?
09/2002 - September 11, 2002,
A Smaller World Means a Bigger Awareness
09/2002 - How to Fix
Cable Stocks - Ode to EBIDTA
08/2002 - Time to Relax
and Go Back to 1995
06/2002 - Who's Winning
the Multichannel Race in Europe? You May Be Surprised...
05/2002 - Sports VOD - A
Churn Inhibitor?
05/2002 - Why On-Demand
Economics Argue in Cable's Favor
04/2002 - Success of Sexy
VOD Still Depends on Consumer's Perception of Value
03/2002 - Streaming Media
Isn't Dead – It's Just Taking a Breather
01/2002 - IP Streaming
over Peer-to-Peer (P2P)
2001
12/2001 - Independent
Industry Analysis & Journalism Key to Sustained Technology
Growth
10/2001
- Communications Technology - A Solid Investment Even Now
10/2001
- Will Internet Video Usage Surge in the Aftermath of September
11?
09/2001 - Attack
Aftermath: Waking up the Sleeping Giant
08/2001 - Who's the
Best Target for (IP) Streaming Advertising?
08/2001
- The Price of Streaming Advertising - Has it Bottomed Out?
08/2001
- Why Do U.S. Cable Operators Seem So Bullish?
05/2001 - Digital Cable
and Satellite Valuations Turned Upside-down?
03/2001 - Fiber Glut?
A Critical Question for Opportunity Seekers
02/2001 - What's
Next for Napster
01/2001 - Another
Opportunity for Cable to Keep its Subscribers and Make a Profit
Happy Talking
Wall Street Analysts Miss the Mark by Describing Investors
as “Emotional”
Savvy Individual Investors (SIIs) vs. Wall Street Happy
Talkers (WHTs)
November 2002
Several times each day, Wall Street’s happy-talking
analysts come up with reasons for market shifts. Coke’s
profits or Sun’s lack of profits, or a Weekly Unemployment
Report, they claim, sent the market up or down on a certain
hour, day or week.
That may have been true in the 1930s or 40s, when analytical
tools were not available to the Savvy Individual Investors
(SIIs) who are sitting on the sidelines. As stated by research
firm Ned Davis Research, the PE ratios of today’s 30-ish
levels, followed by next year’s projected 17-20 levels,
still are too high to replicate any of the previously sustained
post-bear recoveries for more than a few days time. Historically,
rational (long term) investors (not Program Traders) came
back into the market when PE Ratios returned to 10 or 11.
The point being missed by the Wall Street Happy Talkers (WHTs)
is that the SIIs already know the game: It’s the Program
Traders (large brokerage houses & institutional traders)
that cause daily and weekly stock market fluctuations.
SIIs also understand the impossible conflict of interest problems
of Analysts who work for Investment Banks (AIBs); and Consultants
who work for Accounting Firms (CAFs)—all of whom are
part of the WHT complex. SIIs also understand how the SEC
stands on the brink of being emasculated if the Levitt (ex-SEC
chief) reforms cannot be implemented to separate Analysts
from Accounting and Banking firms.
So all the Happy Talk from the WHTs won’t bring today’s
savvy investors back. After being forced back to basics about
how stocks work, SIIs will be anything but emotional about
investing what’s left of their portfolios.
For more information about some new long-term investment opportunities,
consult U.S.
Wireless LAN Market Competition and Forecasts, U.S.
Nanotechnology 2002: Technologies & Application Development,
or Home
Gateway 2002: Worldwide Cable Market Forecast for Digital
Settops & Related VOD, PVR & ITV Services.
©2002 MRG, Inc.
Will PVR*
Sales Continue Growing?
Yes, but Time Shifting Technology is a Better Long-Term
Investment
October 2002
Recently, PVR supplier TiVo announced a six-fold increase
in Q2/2002 revenues over the same quarter in 2001. (Also,
Sony, Microsoft, HP and others have announced adding PVRs
to new products.) How can TiVo, with about 1/3 of the PVR
market share, jump from $4.1 million to $23.9 million in
quarterly revenues in just one year? Is this one of those
growth sectors? We say "probably through 2005”;
but integrated Time-Shifting Technology is a better long-term
bet.
A PVR allows you to select a TV program once, and automatically
record (and erase) it for the balance of the series—all
without moving from the TV set. This is called “Time
Shifting,” and it marks a major change in consumer
behavior. People who own PVRs report a big jump in satisfaction
with TV viewing because they can get more value from their
cable or satellite subscription.
However, PVR owners are “early adopters” who don’t
necessarily represent the mass market. Our research shows
that integrated PVRs (i.e., built into the Set-Top Box,
or STB) will become commonplace in STBs by 2004, some able
to record well over 200 hours. It also shows that, for large
upgraded cable operators, centralized time-shifting (through
networked SVOD, or Subscription Video on Demand) is a powerful
way to enhance subscriber satisfaction and loyalty without
installing a new STB.
While Time-Shifting represents a new revenue stream for
multichannel video operators (i.e., cable, satellite, digital
terrestrial and DSL operators), it also represents a big
increase in value for the consumer’s subscription
in multi-channel video services.
For more information on the PVR/VOD/Time-Shifting sector,
see Home
Gateway 2002: Worldwide Cable Market Forecast for Digital
Settops & Related VOD, PVR & ITV Services, and
Home
Gateway 2001: Worldwide Digital Settop, Service & Server
Analysis & Forecast. For information about an upcoming
PVR/Home Gateway Conference, see Storage
Visions/Home Gateway.
* Sometimes called DVR (Digital Video Recorder), a PVR is
primarily a large hard drive (Set-Top Box) that records
the cable/satellite or off-air programs (up to 100 hours
in 2003, increasing to over 200 hours by 2004). Cost is
about $200-$400.
Note: MRG, Inc. and its principals do not have financial
holdings in TiVo or Sony.
©2002 MRG, Inc.
September 11, 2002,
A Smaller World Means a Bigger Awareness
September 2002
The New Challenge to Western Media
Our world got smaller on 9.11.01. With a force like that
of a large jetliner slamming into a huge building, we were
hit with new realities few of us have considered before.
How many of us have followed Afghanistan politics before
9/11/01? Now we do. How many of us have followed closely
the Israeli/Palestinian relationship? Or the Pakistani/Indian
relationship? Now we do.
We want to commend the news media for expanding their coverage,
so that average people can understand the global forces
in play. Print and electronic news media have invested heavily
to increase coverage in “distant” places like
Afghanistan, Pakistan, India, Saudi Arabia and others. We
also commend the bravery of many reporters, like Danny Pearl,
who gave their lives in the pursuit of understanding these
new realities.
Western media has to continue with courage its war on terrorism,
which includes an aggressive war on ignorance about “distant”
countries and cultures.
In the next 5 years, our world will continue to “shrink,”
as our awareness will continue to “expand.”
©2002 MRG, Inc.
How to Fix
Cable Stocks – Ode to EBIDTA
September 2002
Perhaps the investor shyness about the stock of of cable operators
and suppliers can be resolved by a simple return to basic
accounting. Here’s how it may work in rhyme:
Ode to EBIDTA* – 3 Quarters to Transparency:
Hail to you EBIDTA,
the unfortunate acronym that lulled us to sleep.
Now that we’ve awakened,
we sit buried in the paper we’re loathe to keep.
If all Net ops (like cable and satellite)
stopped this plague among us,
we think we’d find, in 3 quarters or so,
your PE ratios would again inspire us.
*Earnings Before Interest, Depreciation, Taxes and Amotization.
For more information on the global cable business, see Home
Gateway 2002: Worldwide Cable Market Forecast for Digital
Settops & Related VOD, PVR & ITV Services.
For more information on the global multichannel video business,
see Home
Gateway 2001: Worldwide Digital Settop, Service & Server
Analysis & Forecast.
©2002 MRG, Inc.
Time to Relax
and Go Back to 1995
August 2002
Pretty much everyone you talk to has lost 20-70% in worth
from their stock portfolio or 401K since 2000. That’s
roughly equal to a five-year regression going back to 1997
levels, to be possibly followed by another two-year regression
(going back to 1995 levels).
Psychologically, if we go back to values of the pre-bubble
market of 1995, we can then relax and start building on value
based on reasonable price-to-earnings ratios and earnings-per-share.
Two new long-term (5-10 year) technologies worth watching
are Wi-Fi and nanotechnology. Again, it will take years for
these industries to bear fruit. But at some point it will
be worth our while to invest cautiously in long-term plays.
Meantime, as investors, let’s not lose sight of the fundamentals.
For more information, consult U.S.
Nanotechnology 2002: Technologies & Application Development
and U.S. Wireless
LAN Market Competition and Forecasts.
©2002 MRG, Inc.
Who's Winning
the Multichannel Race in Europe? You May Be Surprised...
June 2002
Forecast A Growth of European Subscriber Markets by
Service Type(s)
|
Subs 2001
|
Subs 2002
|
Subs 2003
|
Subs 2004
|
Europe SOM 2001
|
| Cable:
Europe (M) |
26.582
|
29.241
|
32.165
|
35.381
|
60.0%
|
| Digital
Cable: Europe (M) |
2.45
|
3.156
|
3.865
|
4.632
|
|
| Digital
Satellite: Europe (M) |
17.7
|
22.1
|
27.7
|
34.6
|
40.0%
|
| Cable
and Satellite: Europe (M) |
44.282
|
51.341
|
59.865
|
69.981
|
100.0%
|
Forecast A Analysis
The fastest growth scenario shows cable starting at
60% SOM in 2001 and slipping to about 50% SOM in 2004. This
SOM slippage is due mostly to heavy debt taken on by the cable
companies for infrastructure upgrades, which will detract capital.
Growth assumes injection of new funds and management with aggressive
marketing that (US-based) Callahan and Malone are known for.
Satellite grows from 40% to almost 50% SOM in the same period
(2001-2004). For satellite, the biggest risk for growth lies
in regulatory push-back by governments who object to outside
ownership of satellite operations, putting off growth for
several years. Total multichannel subscribers in Europe are
expected to grow from 44.2 million in 2001 to nearly 70 million
in 2004. Much of this growth rides on the streamlining of
currency exchange, standardization of prices and the standardization
of technology that has been occurring in the last half-decade.
Forecast B European Cable vs. Satellite Growth 2001-2004
Chart 2: European Cable vs. Satellite Growth 2001-2004
Commentary Charts 1 and 2
Expect Satellite to gain almost 10 percent of market
share in 4 years. This should happen due to the lower costof
deployment of satellite than digital cable; and to the relatively
early stage of cable's HFC[3] upgrades (with a few exceptions
in the UK, Portugal and Scandinavia) that will require major
infrastructure investment. In systems that have an upgraded
2-way HFC infrastructure, expect to see "triple-play"
offerings similar to those in North America, including IP Telephony,
Broadband Internet Services (using standardized Cable Modems),
and VOD/SVOD (Video On Demand/ Subscription VOD) services (including
Enhanced TV [ETV] and Interactive TV [ITV]).
Conclusion
Opportunities exist in Europe for suppliers of cable
infrastructure upgrade products and services, especially in
the IP Telephony,Broadband Services and On-Demand areas. Providers
of satellite hardware/software/services are also expected to
act aggressively in rolling out new digital settops with PVRs
(Personal Video Recorders), Interactive services and (possible)
On-Demand content that downloads to the PVR. Much of the success
of satellite in Europe depends on the regulatory response to
the expansion of satellite in various countries; and to the
inability of cable to launch new digital services.
For more information about who is winning the global digital
settop war, consult Home
Gateway 2002: Worldwide Cable Market Forecast for Digital
Settops & Related VOD, PVR & ITV Services – 2002-2005
and Home
Gateway Report: Worldwide Digital Settop, Service, & Server
Analysis & Forecast-2001-2004.
©2002 MRG, Inc.
Sports SVOD - A Churn Inhibitor?
SVOD Packages Become Cable's New Weapon
May 2002
ESPN recently announced its intention to release a SVOD (Subscription
Video-On-Demand) subscription package focusing exclusively
on extreme sports programming. The network will also offer
a companion IP-VOD version of the programs, aimed exclusively
at the cable operators' broadband (Internet) subscribers.
For digital cable, ESPN's On-Demand combo package can be another
strategic weapon in its growing arsenal against digital satellite.
Unless cable operators continue to roll out more of these
compelling SVOD packages, it risks having churn exceed the
reported 4% per month level in recent months (or almost 50%
per year), even among digital cable users. Fortunately for
cable, Fox Sports, Discovery Networks, Rainbow Media Holdings,
The Weather Channel, and others are also developing On-Demand
packages designed primarily for digital cable.
From where we see it, cable simply has no choice but to restructure
its pricing and start playing from its strong suit, namely
On-Demand services distributed from its configurable networks.
That means keeping video and valuable Internet subscribers
with some "sticky" services, like SVOD and IP-VOD,
while delivering improved quality on both the digital settop
box and the cable modem.
It will take at least a year and a million subscribers for
us to know whether ESPN's extreme sports On-Demand venture
will be a success. Early response trials using SVOD showed
subscribers like this service and are willing to pay, but
the question remains: can cable operators deliver these new
services fast enough and smoothly enough to stave off these
high churn percentages?
For more insight into this question, consult Home
Gateway 2002: Worldwide Cable Market Forecast for Digital
Settops & Related VOD, PVR & ITV Services – 2002
-2005.
©2002 MRG, Inc.
Why On-Demand Economics Argue in Cable's Favor
May 2002
As stated in an earlier commentary, digital VOD for cable
is very hard to get right, and should not be seen by cable
as the roll-off-the-log solution to the substantial threat
from satellite. Having said that, there are still some economic
facts that argue in favor of healthy growth for on-demand
services for U.S. cable.
There were about 2.07 million cable homes VOD enabled at the
end of 2001 in the U.S. alone. About 24% of that number, or
just under 500,000 homes, make use of on-demand sometime during
each month - a very slow and cautious start. By the end of
2002, our projections show the U.S. cable industry should
achieve over 50% growth in on-demand capacity and usage, due
to the new cost structures and to the completion of the upgraded
last-mile cable networks that took almost 10 years to finish.
Furthermore, costs for supplying a VOD-enabled stream to a
cable household is about $300-$350 - down by about 75% from
the late 90s.
Therefore the economics argue in favor of accelerated growth
of on-demand digital cable services to households already
having digital cable. As an incentive to convert analog subscribers
to digital, some U.S. cable companies (like Comcast) have
already achieved highly aggressive rates for basic service
with optional on-demand packages. So we think on-demand (digital
cable) has finally arrived, and should grow significantly
in the next few years.
If you want to know more about the on-demand market and worldwide
market opportunities for cable, please consult Home
Gateway 2002: Worldwide Cable Market Forecast for Digital
Settops & Related VOD, PVR & ITV Services – 2002
-2005.
©2002 MRG, Inc.
Success of Sexy VOD Still Depends on Consumer's Perception
of Value
Whoever Said VOD Would Be a Slam Dunk?
April 2002
VOD (Video on Demand) is a highly attractive service that
can sell itself – if people can get their hands on it.
But to get VOD, consumers first must have a digital settop
box (STB).
In a recent study, we looked carefully at cable operators'
strategies worldwide to deploy digital STBs to combat the
threat from digital satellite. Most cable companies know that
getting consumers to switch to digital from analog takes a
strong incentive. In North America, specifically, the idea
of on-demand for a fee is being implemented as a major strategy
to combat the threat of satellite. VOD may be that incentive,
but cable companies still must package it according to people's
needs. SVOD (Subscription VOD) is another example of an on-demand
service that cable will deploy.
The ROI analyses done in this study show how PVRs (and other
alternatives) may be used by cable operators to keep subscribers
and generate more revenue.
No matter which strategies are pursued, selling and implementing
on-demand services is a challenging big task for cable, and
will depend on new pricing and bundling by cable operators.
For more information, consult Home
Gateway 2002: Worldwide Cable Market Forecast for Digital
Settops & Related VOD, PVR & ITV Services – 2002
-2005.
©2002 MRG, Inc.
Streaming Media Isn't Dead – It's Just Taking a Breather
March 2002
Streaming Media (sending rich media over the Internet)
has run into some rough times recently. In reality, it has
run into the same hardships that other new digital media technologies
have encountered. So, as a business sector it needs to "catch
its breath" and then move on. People who came into the
business for the fast buck are gone – as they should
be.
Take VOD (Video on Demand) as an example of a struggling new
digital media service. In 1996, the industry was declared
dead by purveyors of conventional wisdom, because the costs
were about 10 times what they should have been to make economic
sense. Now that costs have fallen 90 percent, large cable
companies like AOL Time Warner and Comcast are using it as
one of their main strategic advantages against digital satellite.
Promotion alone, however, does not guarantee the success of
VOD. Yet, the prospects look very good for cable operators
who know how to keep costs and operations under tight control,
and who know how to do cross-departmental preparation for
the large scale VOD launches now underway.
Likewise, Streaming Media has not gone away. It will continue
to thrive primarily in the corporate, security and educational
sectors, despite an 18-month slowdown experienced in 2001-2002.
For more information on streaming and VOD markets, respectively,
see IP Video and Streaming Media 2001: Worldwide Server, Services,
Content & ROI Analysis with Market Forecast – 2001-2004
and Home
Gateway 2002: Worldwide Cable Market Forecast for Digital
Settops & Related VOD, PVR & ITV Services – 2002
-2005.
©2002 MRG, Inc.
IP Streaming over Peer-to-Peer (P2P)
January 2002
Companies like AllCast and others have recently made announcements
about doing radio and video distribution in a peer-to-peer
environment. The idea behind peer-to-peer is to use unused
capacity in real-time distribution of rich media.
We've gone on record as stating that using idle infrastructure
(backbone networks, routers and CPUs) to deliver time-shifted
media is a good idea. Sending a movie (with appropriate encryption
and copyright protection measures built in) to a paying end-user
overnight on unused capacity is a high-potential idea. A real-time
peer-to-peer network, however, is very tricky to do. Since
many corporations (and other owners of infrastructure) don't
want their "unused" infrastructure used by an outside
agent (for security reasons), many problems still exist.
So will peer-to-peer (P2P) ever compete with the big CDNs
(Content Delivery Networks) like Akamai, Digital Island and
others-all of which have slashed prices by up to 90% in the
past year for delivering and hosting rich media? We say that
peer-to-peer vendors have to survive first in the corporate
streaming media world before moving into the consumer streaming
business. Corporate streaming is where today's biggest budgets
now exist to pay for it.
For more information on the global streaming media applications
markets, see IP Video and
Streaming Media 2001: Worldwide Server, Services, Content
& ROI Analysis with Market Forecast – 2001-2004.
©2002 MRG, Inc.
Independent Industry Analysis & Journalism Key to Sustained
Technology Growth
December 2001
Solid journalism, like solid industry analysis, depends
on independent thinking - based on independent information
and data acquisition. Investors need independent analysis
now more than ever.
One of the main contributors to the mania and greed of 12-24
months ago was the tremendous, unfettered power given to securities
analysts working for securities banks and companies who held
positions in the dot-com bubble companies.
They had (and have) the power to impact a stock's price with
a single recommendation. As disclosed during recent SEC hearings,
most of these "securities analysts" are not monitored
for insider buying and selling the way corporate executives
are.
VCs also need to rely on independent sources of robust industry
analysis. In describing the media hype of 2000 at a recent
Churchill Club event in Silicon Valley, one well-known VC
described it this way: "We started drinking our own bathwater."*
That's why we believe a healthy industry needs independent
analysis and independent journalism.
Best Regards for a Prosperous 2002,
MRG, Inc.
*Stated by Jim Breyer, Accel Partners, Palo Alto, CA.
©2001 MRG, Inc.
Communications Technology - A Solid Investment Even Now
October 2001
It has been obvious for more than two decades that the US
communications technologies work better in times of conflict
than simple munitions and methods of destruction. Communications
technology has been one of the West's strongest strategic advantages.
In the 80's, good examples came out of the space program.
In the 90s' ultimate success in the Balkans also relied heavily
on restrained diplomacy, surgical strikes, cooperation with
regional religious leaders and the use of superior intelligence
gathering and analysis. That is why the communications technologies
developed and tested in the U.S. are so important to the resolution
of today's global crisis.
Telcom is not dead, as some have predicted. It's going through
a new pre-growth phase. The Internet and IP Media distribution
represents another major step forward in how people and organizations
think and communicate. It's one of this country's strongest
trump cards in resolving the current economic slowdown. Now
is time for the U.S. and the West to enhance their communications
capabilities instead of pulling back.
For more information about how IP Media is changing corporate
and consumer communications habits, consult IP
Video and Streaming Media 2001: Worldwide Server, Services,
Content & ROI Analysis with Market Forecast – 2001-2004.
©2001 MRG, Inc.
Will Internet Video Usage Surge in the Aftermath of September
11?
October 2001
In the aftermath of the September 11 tragedy, video conferencing
and video email vendors have reported a sharp increase in demand.
Does this up tick mean a sustained boom for videoconferencing
and video email companies like Polycom, Cisco, Talkway and helloNetwork?
Not so fast.
Continued video email/conferencing usage will grow mostly where
it helps work groups in distant locations collaborate on "mission
critical" projects. Video helps restore the personal and
visual elements of face-to-face communications. Telemedicine
applications also show much promise (where a patient talks to
a doctor over a video conference call in a distant location),
as do applications by college and pre-college users and by the
security/surveillance industry.
In corporate settings, significant time and money can be saved
by using IP video in place of travel-especially if IP telephony
is already installed. However, success also relies on ease of
use, quality of the video, the users' comfort level, and priority
given to these applications by corporate and network management.
For more examples and ROI analysis of Internet video usage,
consult IP Video and Streaming
Media 2001: Worldwide Server, Services, Content & ROI Analysis
with Market Forecast – 2001-2004.
©2001 MRG, Inc.
Attack Aftermath: Waking up the Sleeping Giant
September 2001
The September 11 attack on the Pentagon and World Trade Center
was an opening volley by terrorists who are (in the words of
Secretary of State Colin Powell) "a horrible blight on
the civilized world." Now, it's up to us to understand
more about the many terrorist groups than they do about us.
The U.S. and its friends stand at the beginning of a long struggle
against fundamentalist-driven suicidal terrorism. The struggle
will require us to use the tools of cool reasoning, excellent
communications and the best possible information about growing
numbers of terrorist cells worldwide. The technology of networking,
collaborating and surveillance will help. Likewise, a new commitment
to understanding the needs of the many Middle Eastern political
states (and sub-states) will become an ever-more important tool
for our success.
As an analyst group, MRG, Inc. wishes to express our confidence
in the ability of civilized societies to solve these new problems
and keep the economic health of the world on track. This is
a wake-up call unlike any before it.
In the words of NYC Mayor Giuliani, "We will grow stronger
than ever from this experience-emotionally, psychologically
and economically."
Send us your thoughts at info@mrgco.com.
©2001 MRG, Inc.
Who's the Best Target for (IP) Streaming Advertising?
August 2001
In general, there's not much empirical data available on the
effectiveness of IP-based (Internet Protocol-based) streaming
ads. A new report by MRG helps solve this problem by including
14 case studies (including ROI analyses) of companies using
streaming.
Companies using streaming for promotion report they know streaming
works well and they do not want to discontinue using it; yet
they are not able to accurately measure the impact streaming
has on sales.
Streaming advertisers also report that there is one general
demographic that is the most desirable user of streaming advertisements:
1. Hard to reach on primetime TV.
2. Has broadband at home and/or at work.
3. Spends some time on the Web each day.
4. Wants to get on and off a certain site quickly. Interested
in fast, low-latency, experiences.
5. Has an above-average income.
Streaming advertisers believe this broadband owner prefers the
streaming ad (over banner) if the ad is properly targeted, well
produced and works quickly. Therefore, the best audiences tend
to be those with broadband to the desktop or laptop (including
users with at least 100kbps service, or roughly twice the speed
of 56Kbps modems). By the end of 2001, over 9 million North
American homes and businesses will be broadband subscribers,
with another 23 (estimated) broadband users being served with
high-speed service to their (LAN-based) desktops at work.
For more information about this new demographic, IP
Video and Streaming Media 2001: Worldwide Server, Services,
Content & ROI Analysis with Market Forecast – 2001-2004.
©2001 MRG, Inc.
The Price of Streaming Advertising - Has it Bottomed Out?
August 2001
Pricing for Banner ads are still floating. We're not sure when
they'll bottom out.
Streaming ads rates are more firm where vendors can provide
feedback about how long someone watches, related clickstreams,
etc. Streaming is more effective in reaching the hard-to-reach
(non-TV watching) demographic who has broadband. So if you're
targeting someone who already has broadband at home or T1 at
work, streaming ads could be very effective. If you're targeting
someone with a 56K modem, it's still unlikely (even with a Flash
plug-in) that you can reach them.
Be sure the content suits the targeted demographic. Quality
is more an issue today than a year ago, when people watched
streaming ads out of curiosity.
For more information on streaming applications consult IP
Video and Streaming Media 2001: Worldwide Server, Services,
Content & ROI Analysis with Market Forecast – 2001-2004.
©2001 MRG, Inc.
Why Do U.S. Cable Operators Seem So Bullish?
August 2001
At a recent CTAM convention in San Francisco, the level of enthusiasm
by US MSOs (Multi-Systems Operators, or large cable operators)
was almost giddy. Why weren't these people gloomy and crest-fallen
like people in some other parts of the telecom sector?
One reason for the bullish outlook is that MSOs' long-term broadband
upgrades are finally generating revenues, thereby providing
new weapons against (incumbent) Telco and Satellite competitors.
Some of these new weapons include:
·Open Access, which allows narrowband ISPs (like AOL and
Earth Link) to upgrade to cable broadband. MSOs now consider
this a very good weapon against DSL (broadband Internet from
the Telcos), because it enables them to expand their own business
and add value to ISPs. This almost baffling turn-around in attitude
toward Open Access reflects cable's new-found ability to move
quickly when it sees an opportunity.
·Personalization services for (broadband) Internet subscribers
also are being used as a weapon against DSL to reduce churn
(turnover). MSOs believe that once subscribers gain their online
identities on cable broadband service, they're far less willing
to change to satellite and lose their chat- and email-buddies.
·Providing free VOD for past programs will help fight satellite's
call to cable subscribers to switch to PVR-equipped satellite
(video) services. This gives MSOs a better weapon against the
powerful threat from PVRs (Personal Video Recorders), and helps
them buy time to develop their own PVR-equipped settop boxes.
·Internet telephony (or Voice over IP) has become robust
enough for MSOs to offer it profitably to customers. Internet
telephony promises to become a major offensive weapon against
the large Telcos.
Will this MSO optimism be inundated by a "Perfect Storm"
backlash from Telco and satellite operators? We suggest "Not
in 2001." For more insight into these and many related
issues about who is winning the race for (worldwide) emerging
digital services (video, voice and data), consult these reports:
IP Video & Streaming Media
2001: Worldwide Server, Services, Content & ROI Analysis
& Market Forecast-2001-2004 and Home
Gateway Report: Worldwide Digital Settop, Service, & Server
Analysis & Forecast-2001-2004.
©2001 MRG, Inc.
Digital Cable and Satellite Valuations Turned Upside-down?
May 2001
According to Michael Smith, the CEO and Chairman of
DirecTV parent Hughes Electronics, the valuation of satellite
subscribers reflects some unusual mathematics. Based on actual
costs per sub of $735 per satellite sub vs. $1,200 per cable
sub, Smith questions the validity of Wall Street's valuation
of $2,300 per satellite sub vs. $4,500 per cable sub. He questions
why analysts have stuck with this established way of thinking.
We agree.
In the ROI analysis completed in our recent report Home Gateway
Report: Worldwide Digital Settop, Service & Server Analysis
& Forecast 2001-2004, the digital satellite industry has
lower basic costs and lower roll-out costs for new (digital)
services than cable, making it easier for digital satellite
carriers to reach profitability on new services. Although the
cable operators have a network architecture enabling them to
deploy attractive new edge-server and client-server technologies,
the satellite carriers are the ones aggressively deploying new
services and technologies. Shouldn't faster break-even cycles
mean the valuation per sub for digital satellite should be higher
than for digital cable subs, rather than 1/2 the valuation currently
used?
For more information on the emerging digital settop and services
market, consult Home
Gateway Report: Worldwide Digital Settop, Service & Server
Analysis & Forecast 2001-2004.
©2001 MRG, Inc.
Fiber Glut?
A Critical Question for Opportunity Seekers
March 2001
Recently articles are appearing on how much extra bandwidth
has been installed and how cheap high-speed network access will
be in the near future. Don't bank on it!
This sounds a lot like the hollow promise of "ubiquitous
free bandwidth" in the late 90s, which had a ring similar
to that of the "free Internet access" offers in the
same period.
Excess fiber exists (its called dark fiber) and is installed
to accommodate future demand. Most network operators (or carriers)
know they have to turn on more backbone capacity the minute
they hit 50%. (Some claim as low as 30%.)
The real problem is still a) the last mile or b) the last 100
feet or c) the last 10-15 feet especially in the residential
use and small business markets.
Since, DSL will continue to gain on Cable modems this year and
will likely pass Cable in the US market by mid 2001, the installation
and deployment of high-speed (broadband) Internet services is
still a growth market. Driven by at-home offices and business
who need to increase productivity, the broadband Internet market
(US & Europe) should continue growing steadily and offer
opportunity to hardware, software and service providers.
Remember, tiered pricing/bitrate will continue to dominate.
(Forget "Free"!)
For more information...see Home
Gateway Report: Worldwide Digital Settop, Service & Server
Analysis & Forecast 2001-2004 and IP
VIdeo and Streaming Media 2000: Server, Services, and Content
Market Forecast and Analysis - 2000-2004.
©2001 MRG, Inc.
What's Next for Napster
February 2001
What Happened?
Four months after hearing the case, a 3-judge panel of the San
Francisco Appellate Court essentially supported the July decision
of the lower district court to grant an injunction against Napster
with one important qualification. The difference is that the
Appellate Court directs that Napster must only remove the content
it knows, or has good reason to believe, is infringing on copyrights.
We believe that district court Judge Patel is likely to re-issue
her injunction with the conditions of the Appellate Court applied
within a matter of weeks. The labels can provide a list of compositions
that they believe should be removed from the site. Napster must
then take down the content that the labels put on the list.
Napster is permitted to appeal the decision, and they have requested
a hearing by all of the judges of the 9th Circuit as opposed
to the 3-judge panel that made today's ruling. However, there
is no requirement that the full complement of judges hear the
case. At that point the only remaining appeal is to the US Supreme
Court.
Impact on Napster
Assuming Patel issues a new injunction, and the labels provide
extensive lists of infringed material, Napster will have to
block members from swapping the relevant files. We believe that
traffic at Napster will probably drop off sharply as the truly
popular content becomes unavailable.
If Napster's active membership drops to a fraction of its current
total, it may seek to sell its assets, which might include the
name and the membership list. This occurred in the case of Scour.com,
which was the second only to Napster as a music file sharing
community. Similar to Napster, Scour was sued for copyright
infringement and filed for bankruptcy last October. The assets
of the company, including its name and membership lists, were
then sold to CenterSpan Communications (Nasdaq: CSCC) in December.
CenterSpan intends to re-launch the website as a subscription
service. Since Bertelsmann has loaned Napster funds to keep
the site operating, it might also be a logical buyer of the
Napster assets. It could then re-launch the service with BMG
content. Purchasing only the assets provides the advantage of
avoiding the liabilities, including the contingent liabilities
of the lawsuits. Bertelsmann is also attempting to purchase
EMI and if it can get access to the EMI catalogue, then a reborn
Napster under BMG ownership might have enough content to make
an interesting subscription service.
Napster User Implications
Perhaps the most important consequence of the Court decision
will be the unpredictable reaction of the Napster users. Napster
claims now to have over 50 million users. If true, that number
rivals Yahoo and AOL. Even factoring-in the realization that
the Napster membership numbers may be inflated by multiple registrations,
the fact remains that the number of peak simultaneous users
on Napster is around 1.5 million...a figure that also rivals
AOL and Yahoo. There is almost certain to be some kind of Napster
user reaction. Here are three plausible scenarios:
1. Congress gets involved to require mandatory licensing. If
there are truly tens-of-millions of users at Napster, then the
potential for a political movement gets to be genuine. There
is something of an historical precedent. In the '30s and '40s
the content rights holders demanded that the radio stations
pay them sizeable fees in order to play their songs on commercial
broadcast radio. Ultimately, this resulted in compulsory licensing
at reasonable rates off of a fixed schedule, although in this
instance there was no Congressional involvement. In the end,
the broadcast radio turned out to be a major force benefiting
the songwriters and record companies by popularizing their compositions,
even though only the songwriters (music publishers) were paid
a licensing fee. The compulsory terms required no payment whatsoever
to the record label companies.
Despite the fact that we may wag our fingers at the Napster
users for questionable conduct, they may have a strong political
voice nonetheless. Consider the prohibition era. While the public
was breaking the law to patronize bootleggers, they ultimately
had the political power to force the repeal of the Prohibition
Amendment.
2. Erstwhile Napster users go to various "workaround"
websites like AIMster, limewire.com, bearshare.com, and iMesh
or use software like Gnutella, and Freenet. This means that
unrestrained file swapping continues via other means. In response,
the record label industry will rain lawyers the offenders like
the plagues of Egypt. This may force the operations offshore
into some political jurisdiction that has a different interpretation
of the copyright privileges possessed by the label companies.
Consider a place like Antigua, where gambling sites are popular.
Even though gambling over the Internet is not legal in the US,
it's easy for citizens to open accounts in the island nation
and commence gambling from their PCs.
3. Renegade versions of Napster may start-up in the types of
political jurisdictions noted in (2) above. There is not a shadow
of a doubt that Napster has demonstrated the existence of a
huge market for digital online distribution of music. Some adventuresome
entrepreneurs are likely to try and tap that market in a way
the exempts them from the legal problems here in the United
States. If such websites are successful in attracting US citizens
in large numbers, the record label industry will be faced with
anarchy. Such a situation might well force them to be truly
assertive about offering digital distribution of music.
Reaction of Record Label Companies
The court decision is an almost unqualified victory for the
record labels from a legal viewpoint. Barring unforeseen events,
Napster may to soon be required to block access to the vast
majority of popular content.
Unless one of the three "forcing factors" noted above
begin to have an effect, the Napster decision will probably
lead the conventional record label industry to move into digital
distribution even more slowly than it than it has to date. They
have channel conflicts with their traditional terrestrial retailers
and distributors who still account for the vast majority of
CD sales. Unless some competitive online developments somehow
lead to a decline in CD sales they have little incentive to
move away from their traditional distribution channels.
Bertelsmann's BMG Records, however, may be an exception. As
noted, the company has loaned Napster money to keep operating
and to develop secure methods of content delivery. They have
also been active with sales of physical CDs over the Internet
through their purchase of CD Now. Having loaned Napster money,
they are sometimes viewed as "off the reservation"
as far as the other labels are concerned. BMG sees the potential
and seems to be a leader among the Big 5 in terms of its assertive
movements toward digital distribution.
Impact on Public Companies
Of the digital media companies that we have under coverage,
those most impacted would be MP3.com (MPPP: NASDAQ: Market Perform),
Launch Media (Laun: NASDAQ: Market Perform), and Real Networks
(RNWK: NASDAQ: Market Perform). MP3.com benefits if Napster
is shut down because it has a licensed music locker service
that may be an alternative for those individuals that like to
listen to music at their computers. The benefit is limited,
however, since the My.MP3.COM service is only for those CDs
that the subscriber already owns. Lauch could get a mild benefit
as well since it also provides popular music streams from its
website. Unlike Napster, however, it does not permit MP3 downloads.
Finally, RealNetworks (and the others too) could benefit if
the record label industry gets faced with any one of the three
"forcing factor" scenarios above that could lead them
to license their content to websites. Real, Launch, and MP3
are all websites that we believe have an interest in gaining
access to such licenses for a subscription.
Phil Leigh
Vice President
Raymond James & Associates
The author of this article can be contacted at:
pleigh@ecm.rjf.com
To learn more about the media distribution market, consult IP
VIdeo and Streaming Media 2000: Server, Services, and Content
Market Forecast and Analysis - 2000-2004.
©2001 MRG, Inc.
Another Opportunity for Cable to Keep its Subscribers and
Make a Profit
January 2001
In a recent study of worldwide industry executives (from the
digital cable, satellite, terrestrial and DSL industry), our
new ROI analysis shows that digital cable services can be a
potent weapon against digital satellite, as cable (worldwide)
faces more competition from digital satellite wherever it turns.
Specifically, the ROI analysis shows digital cable upgrades
(infrastructure and a new high-end settop) can pay for themselves
in less than six quarters. In addition, the upgrade package
provides the platform for many new ITV/ETV/VOD services (also
analyzed in the study). With the advent of the PVR, satellite
is getting especially aggressive in adding new services and
products, making it all the more important for cable to move
fast.
For an immediate update on the global digital settop and home
networking markets, consult the new study Home
Gateway Report: Worldwide Digital Settop, Service & Server
Analysis & Forecast 2001-2004.
©2001 MRG, Inc.
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