Consumers and business users in the developed world have become accustomed to technology, in all its forms, getting better and costing less on an extremely accelerated basis.  This is especially true when it comes to hardware – specifically processing power and storage.    Yet this internalized expectation of “Moore’s Law” has more or less betrayed consumers when it comes to cable and mobile.  The average cable bill has ballooned as the major MSOs (Time Warner Cable, Comcast, and the like) have added an overwhelming amount of live programming options, storage capabilities (DVR), and costly libraries of on-demand content.  In the mobile space, consumers have reaped increasing utility from smartphones’ data capabilities, but the simple fact remains that their bills have climbed accordingly.

There is, of course, good reason for this.  The new capabilities we have all grown to love over the last several years cost real money to the operators.  The question is whether this upward cycle of capabilities and costs will continue, and if so, who will pay for it.

Ryan Lawler at GigaOM recently summarized a research report from Bernstein’s outstanding Craig Moffett with some interesting data around this.  Rather than rehash those numbers, I’ll add some anecdotal evidence.  I recently moved back from Charlottesville, Virginia to Manhattan.  In both places, I used an iPhone with a standard package from AT&T and a fairly typical broadband and television package (Comcast in Charlottesville, TWC in New York).  Combining the two, I have been spending somewhere in the neighborhood of $250 per month on voice, data, and video services.  I can afford it, but many people I know with similar bills probably cannot.  Especially those who are recently unemployed or facing the looming specter of layoffs from financial institutions.

On a national level, with unemployment hovering around 10% and potentially getting worse, I wonder whether Americans will continue to devote such a substantial proportion of their after-tax income to these services.  And naturally, I wonder whether we can afford to have investments in next generation networks passed down to us through our voice, data, and video bills.

For a number of years, cable and telecommunications operators seemed to ignore this question, pouring unprecedented amounts of capital into fiber, cable, and wireless coverage in a battle for market share.  Yet there are macro signs that they are beginning to grasp the severity of this affordability issue.  The slowing pace of fiber to the home investment, (proposed) consolidation amongst major industry players, and attempts at creating wholesale data networks are just a few of the acknowledgements that the industry as a whole can’t withstand tens and tens of billions of dollars per year in capital expenditures while expecting to generate a healthy return on investment.

From an aggregate consumer level standpoint, it is difficult to envision how this plays out.  Sure, an increasing number of users could decide that “over the top” video offerings like Netflix, Hulu, and iTunes are a better bang for their buck and “cut the cord,” saving $75 or so per month while continuing to pay for broadband.  But two primary questions present themselves if this becomes a widespread trend.  First, will content owners continue to make premium programming available through these other avenues (while generating “digital dimes”) if they are losing the “analog dollars” en masse from pay TV subscription declines?  Secondly, and more to the point for this post, is whether operators would sit idly by, leaving broadband-only prices ($40-$70 per month) unchanged while losing pay TV revenue?

I am inclined to doubt that they would , unless competition continues to force their hands.  Which, of course, it might.  In fact, the cable companies are already beginning to exhibit a broadband-centric line of thinking .

What this question means for the competition between cable MSOs and telecom operators like Verizon and AT&T is where things get interesting for consumers.  I believe that this dynamic favors the telcos, because they continue to provide the one service that seems best positioned to continue to eat into our paychecks: wireless.  While their fiber-to-the-home initiatives have proven less economically sound than envisioned, next generation wireless networks should enable them to provide the services we want from one network – while generating a return on the investment required for one network.  Now, I’m not sure that the developing LTE infrastructure is going to take them there, but this is clearly the way wireless standards are trending.  And once we get there, I don’t believe that cable MSOs or satellite providers will be able to trot out a cost-effective, competitively-featured bundle.

Will this mean that we’ll see our bills plummet?  Doubtful.  But I believe that the increases in market share for the wireless companies will enable them to pay for their investments without any further dramatic increases.  Moreover, the single network future will make our data and content wireless, convenient, and portable while encouraging even further innovation at the application layer.

I hope I’m right.

More on this to come.

His recent article on sports movies, however, was spot on, and it got me thinking about the future of sports entertainment.

Sports programming will forever remain valuable in the modern media spectrum because of a few well-known and obvious qualities.  Games and matches almost have to be watched live, and are therefore somewhat immune to the DVRs and “time-shifting” that depresses the value of advertisements embedded in the programming.  The demographic is valuable, time-tested, and difficult to consistently reach with scale via other programming.  The audience is immensely loyal because of geographic, social, and academic ties.  And so on and so forth.

But recent trends in entertainment and content distribution are making the competition for eyeballs fiercer by the day.  Barriers to frictionless video consumption are eroding quickly, as quality programming is increasingly available on-demand via cable/set top boxes, DVD by mail, iTunes, and the myriad streaming services that are purchasing rights to more and more compelling and timely content.

So how does sports programming compete?  By making sure that more of its live events become “can’t miss” social moments.  Of course, the leagues have worked to maximize viewership through conventional scheduling means for years.  The NFL and MLB have long tried to line up rivalries and big-market teams on Sunday/Monday nights and attractive weekends, respectively, and the NBA has done a fantastic job the last few years of aligning rivalries and compelling individual storylines with their largest captive audience (Christmas Day viewers).

But I expect that we are going to see an explosion of promotional sports programming along the lines of HBO’s excellent 24/7 series, especially in support of sports on the fringe like hockey and boxing.  The mini-series’ are a great example of entertainment with the aim of promoting sporting events as “can’t miss” moments, and I believe that they will be seminal in shaping the way the leagues drive audience engagement moving forward.  Each of these mini-series offers an in-depth look at athlete and team preparation for upcoming events, and has been highly successful in luring pay-per-view purchases for boxing events and new viewers for the NHL.  The NFL has also worked with HBO to manufacture compelling storylines and team buzz with its Hard Knocks series.

How much of this content will sports audiences eat up before it loses its freshness and immediacy?  It’s hard to say.  But I can’t wait to see more of it, even if it comes at the expense of the traditional sports film genre whose demise Simmons laments so much.

I have long thought that providing a bridge between streaming, subscription, and downloaded music – on a synchronized and portable basis – would be the best way for Apple, Amazon, Google, or whoever to get the attention of mainstream music fans that just find it easier to shop on iTunes.

Apple clearly thought so too when they acquired LaLa last December, then shuttered the service a mere six months later.  The company has since been rumored to be developing a service that enables iTunes users to upload or somehow sync their libraries to Apple remotely for streaming anywhere.  In addition to being a logical step for Apple to take to make its dominance in digital music more flexible and nimble, such a move would enable the company to make bolder moves into the living room, perhaps via Apple TV, or a Sonos-like device.

Apple is known for obsessively developing products to be as perfect as possible in their first generation, and then improving their products through iterations that keep them at the head of the pack.  My question is: does this deal help force Apple’s hand at all?

As a music fan first and foremost, I sure hope it does.

Is it a big deal?  Absolutely.  Does it spell impending doom for the premium networks?  Of course not.

This deal is a coming of age moment for Netflix – an announcement that the company is serious about acquiring a competitive collection of video-on-demand (VOD) titles that extends beyond back-of-the-library films that content owners can monetize in no other way.  The company is clearly prepared to use its resources (likely approaching half a billion in cash by now) to compete with traditional VOD channels for eyeballs and prepare the company for a world without DVDs.  With a stock price that has doubled in less than six months, we’re talking about a $6.25B company here.

Yet this deal, in and of itself, is not the haymaker the company would have you believe it is.  Yes, Relativity is an ambitious and well-capitalized group that is among the more prolific production companies out there today.  And yes, despite a string of successful projects, the quality of their films is sometimes underwhelming.  But one issue is that, as Peter Kafka noted, Relativity doesn’t fully own the distribution rights for many of the films they produce.  They are relative newcomers to the scene, and many of their films are co-productions with major studios that either handle their own distribution or have long-term distribution arrangements already in place.  It seems likely that many of the films with the biggest budgets, broadest commercial appeal, and most sought after VOD rights will never make it to Netflix as a part of this deal.

That said, it is incredibly difficult for anybody to predict in advance which studios will produce the titles that consumers want to see.  By locking up a bunch of titles from a prominent production company, Netflix may very well end up with the most desirable pay TV window library.  Who knows?  For what it’s worth, I heard great things about some of their upcoming titles from buyers at Cannes.

In my opinion, it is important to view this deal with regards to the different directions Netflix and pay-TV networks are headed in the long-term.  While the premium networks are focused on attracting subscribers with exclusive original programming (supplemented by secondary pure movie channels and VOD), Netflix is striving to attract (and retain) subscribers with the deepest library of content to stream on-demand to their PCs, TVs, phones, tablets, and gaming consoles.  The pay-TV guys, perhaps led by upstart Epix, will certainly close the distribution channel gap, but competing on library depth seems impractical for the foreseeable future.  On the other hand, Netflix’s DVD service made its mark by combining popular new releases with an interminable long-tail of old and obscure titles.  Netflix’s future as a streaming service will be no different.

Increasingly, consumers want the ability to watch whatever they want, whenever they want, and however they want to watch it.  While the byzantine structures of film distribution rights may prevent any one company from turning this vision into perfect, seamless reality, I would not be surprised if somebody – Apple, Netflix, a studio consortium, a pay TV consortium – came close.

Then, amidst a well-publicized Foursquare fundraising process, it emerged that the company was in fact in acquisition talks with Facebook.  So when these talks fell apart and Foursquare announced a big financing from Andreeson Horowitz among others, it seemed to signal the official start of another battle between Facebook and a social start-up.  A potentially sticky situation, to be sure, with Marc Andreeson serving as both a Facebook board member and an Andreeson Horowitz partner.

I was surprised to see that an interesting quote by Andreeson in an interview with PEHub flew under the radar yesterday:

But won’t this investment present a conflict for you as a Facebook board member if and when Facebook builds out its own location-based service?

I’m not going to comment on anything Facebook might or might not do, but if I thought there would be great conflict — and obviously I would check these things first — I wouldn’t do the investment.

Clearly, Marc knows something that most people don’t about Facebook’s plans.

Fred Wilson, in discussing the financing and acquisition talks, added:

It allowed the founders to develop close working relationships with some of the most important Internet companies who can not only be acquirers but also distribution partners and monetization partners.

This suggests to me that a partnership of some kind is in the works.  I will be curious to see how the business terms might shake out, or whether Facebook will simply integrate Foursquare’s check-ins purely for the traffic and engagement.  A couple ideas off the top of my head:

• Revenue share from check-ins originating from Facebook’s app
• Joint ad/promotion selling leveraging Facebook’s relationships with brand advertisers

I’m sure they’ll think of something.

Alas, with all the press, attention, and adoration Foursquare has been receiving recently, I had wondered whether it was time for me to revise my previous stance on the service’s potential for mass market appeal.

In short, my answer is no.

While I have been very impressed with Foursquare’s user growth (0 to 1 million in 12 months!), my absolutely anecdotal experience remains the same.  Within the mainstream, Foursquare’s adoption has been similar to Twitter’s: 

• A minority signs up to see what all the fuss is about,
• A minority of that minority finds lasting value in the service
• A majority of that minority eventually realizes that they don’t have a sufficiently compelling need to communicate their thoughts and location to a subset of their social sphere

That being said, as I opined originally, I still believe Foursquare will build a very nice and lucrative business – without ever winning mainstream adoption.  They are well on their way, and I hope for the New York startup scene’s sake that they absolutely explode and manage to stay independent.  I just don’t believe Foursquare is ever going to be for everyone.

The concept sounds fantastic in theory. While developers have been able to reach a substantial portion of the app market via the Apple App Store, reaching the entire market meant writing and rewriting code for Android, Blackberry, Symbian, and Windows Mobile. A single platform that acted as a common framework for all mobile operating systems, whether via shared libraries or seamless porting capabilities, could in theory achieve the “write once, run anywhere” holy grail.

Perhaps more promisingly, the carriers could leverage their existing billing relationships with consumers to create a unified billing platform for applications. Such a global, cross-carrier platform could enable all kinds of services and allow mobile payments, remittances, and peer-to-peer transfers to finally blossom the way they should. That possibility alone is enough to get me excited about this announcement.

The reality, however, is that neither of these things is likely to happen. First of all, the carriers have a history of working poorly together, and the thought of putting 24 of them in a room to hammer out such a daunting technical task is borderline comical. And the technical task is indeed daunting, as evidenced by the limited selection of apps available on all mobile operating systems. While developers would love to write once, they know the difficulties this poses first hand, and are likely to be wary of developing for yet another platform without seeing a smooth, successful ecosystem in place already. Combined with the carriers’ insubstantial relationships with the developer community, this suggests that a formidable chicken and egg problem may arise.

Moreover, considering the pace at which existing mobile platforms are evolving, the carriers are going to need deep, coordinated collaboration with the major players – Apple, RIMM, Google, Microsoft – none of whom are on board, or likely to come on board unless their competitive position is substantially weakened and demands it. Collaboration with device manufacturers is going to be crucial as well, and the fact that the consortium includes only LG, Samsung, and Sony – three of the major handset manufacturers with the least to lose in the smartphone space – is telling.

Finally, a longer-term issue will be the blurring of the lines between device types and the applications that run on them. We’re beginning to see it already with the iPhone and iPad, and will begin to see it further as different versions of Android power new devices. “Mobile applications” are not just going to run on mobile phones and internet devices. They will be also be running on devices resembling traditional laptops, devices resembling televisions, and devices resembling nothing we’ve ever imagined.

Will the mobile carriers be the glue between all of these gadgets? It’s possible, and maybe even probable, but it’s no slam dunk. It’s much more likely that the glue is Android, some evolution of the iPhone OS, or both. Regardless, the app ecosystem at that point will be substantially more complex than it is now, and could make a consortium approach even more problematic.

All that said, I will applaud the carriers for making the effort, and hope they succeed in integrating a tremendously fragmented market. I’m just not keeping my fingers crossed.

What would make “virtual cable” work as a legitimate alternative for cable customers?  In short, a competitive collection of content priced at a major discount to cable – probably in the $30-$40 per month range.  Of course, striking this balance between content depth and margins will be the primary difficulty all potential providers face.

The first challenge will be to bring on the major content owners – NBC, News Corp., Disney/ABC, the major film studios, etc. at the right price.  The key to making this content available may be comparable subscription fees for cable channels as well as subscription fees for broadcast content.  I believe another way to juice the deal would be to show a minimal amount of ads, sold via the provider’s own sales force, with a compelling revenue share for the biggest content owners.  The idea would be to provide content owners with similar base economics plus potential upside as the service matures, while also staking their long-term interest in the service’s success.  Advertisements could take the form of traditional display banners, short pre-rolls, branded integrated marketing, or units designed to drive traffic to content owners’ other properties.

It is crucial that the service includes both streaming and on-demand content.  Users must be able to experience the programming that is best viewed live – sports, reality, awards shows, etc. – live (more on this in another post here).  If that portion of the cable experience can be replicated, a virtual cable service can begin to differentiate itself by making everything on demand as well.  Make the DVR – and all the problems it poses for advertisers – irrelevant.  Programming is either streamed as it is aired, or on demand at any point thereafter – with all the advertising it was intended to contain (ideally less than cable).  ARPU (average user’s bill) could be driven further by making older content available on demand for a fee – think the last season or x episodes of Always Sunny available free on demand, plus all previous seasons available for a season pass or per episode price.  Further differentiation could come from the sea of decent web content out there that the cable providers don’t have.

Tight integration with a potentially subsidized set-top device could enhance the experience further, with interactivity, social networking features, content discovery tools, web browsing, etc.  The provider should also work to make the service compatible with as many streaming devices as possible.  I believe as long as the box is priced less than, say, $200, consumers would go for it – especially without a contract.  Bundle it with service for less, and you begin to have a compelling alternative. 

Of course, many content owners will be wary to rock the boat, but as more and more fee negotiations go hostile, they may come to see competing services as a hedge/diversifying tactic/bargaining chip.

There’s also the issue of bandwidth – which in many consumers’ cases, is likely to come from the very cable providers they would be ditching.  But that’s another issue entirely.  Let’s see a viable service offering first.

The concept is pretty simple in theory: a company – i.e. Apple, YouTube, Netflix, Amazon, Hulu, whoever – aggregates enough quality, digitally-deliverable content to replace consumers’ need for cable.  One flat fee could get you all the shows and movies you want, and ideally enable a range of means to consume them – on your television, on the web, or on your phone or tablet.

The way I see it, there are two big hurdles here.  The first is to actually aggregate enough content to provide a comparable alternative.  To date, building a sizeable library has proved to be an uphill battle in movie streaming – Netflix has been at it the longest, and their selection remains laughable.  Hulu’s movies section is basically a repository for older titles that can be monetized in nearly no other way.  Apple has been able to put an impressive set of television shows on iTunes on a download-to-own (DTO) basis, but the price point is pretty steep, considering most users only watch a program once, and a season of their favorite series probably costs nearly half of the yearly television portion of their cable bill.  At a couple bucks per episode or $30 or more for a season, it makes a lot of sense for content owners to put their material on iTunes.

An all-you-can-eat subscription offering is clearly going to be a harder sell, and I wonder what it’s going to take to move the content owners.  Apple, or any other “virtual MSO” for that matter, would have to replace two streams of income: cable subscription fees (anywhere from a few nickels to a few dollars per subscriber per month) and advertising revenue.    I believe the expectation is that a subscription service would be ad-free, but I could envision a subtly ad-supported service developing over time.  Unfortunately, striking a balance between attractive value propositions for both content owners and subscribers may indeed be insurmountable in the short term.

The other major hurdle is a high-quality, user-friendly interface for delivering the collection of content to home televisions and displays.  While the set-top replacement options currently available are underwhelming, and range from hard-drive to display interfaces (Western Digital’s WDTV, Apple TV) to more streaming-oriented devices (Roku, web-enabled TVs), I believe we will see these approaches converge (more on this in another post).  More flexible and capable devices are necessary to make virtual cable possible, and subscription services will have to be deliverable to a broad array of devices to reach a substantial portion of consumers with a seamless experience.

Where do we go from here?

I believe we will see “virtual cable” services launched soon, but won’t see a viable replacement for cable for a couple years.  The first iterations will have subsets of major broadcast and cable networks’ content and a cadre of smaller cable networks with less to lose.  But the major content providers will demand comparable subscription fees, and eventually, the virtual cable company’s costs would add up to a number that won’t make for a price-based competitor to traditional cable.  I would expect streaming devices to remain fragmented in their capabilities in the short-term, while Apple works to revamp Apple TV and tightly integrate it with any upcoming offering.

I hope I’m wrong, because I think it can work.  Here’s how.

I must admit that Loopt and Foursquare have sounded pretty cool to me at one point or another.  I totally understand their appeal, and believe that they will be able to monetize their userbases pretty effectively with high-value, hyper-local ads based on what users and their networks are doing, saying, and using.  The stampede to invest in Foursquare was completely understandable, especially considering the eventual valuation was about $6M post-money.  In my opinion, this compares pretty favorably to other social mobile apps with high valuations and less potential (exhibit A: Bump, $10M post-money). 

Yet I continue to believe that the market for these apps remains extremely limited.  My experience with social location-based services may be anecdotal, but I believe it is telling.  Living in New York until very recently, I had an extended circle of friends I saw regularly that probably numbered 50 to 75.  Everybody was in their 20s, well-educated and well-employed, going out several nights a week, and using either an iPhone or Blackberry.  Not one of them used Loopt or Foursquare.  Exactly two of them used Google Latitude for Blackberry.

The bottom line is that most people don’t want to broadcast their location.  Socially speaking, most people have different agendas on different days and nights, and prefer to locate each other and make plans via voice, text, or Blackberry Messenger (BBM).  These means of communication are close enough to real-time but allow everyone discretion in choosing who they want to see and who they do not.  I could envision some of my friends playing Foursquare for fun, but I can’t see it lasting.

This is a classic example of the early adopter community being unable to see past its blind spots and failing to understand the way the majority of consumers operate on a day to day basis.  What sounds groundbreaking to the savvy members of the insular tech/startup scene merely sounds cool, and often less than relevant to the masses.  Even if the masses are smartphone and social network enabled.

That is not to say that Foursquare, Loopt, and the like won’t evolve into successful companies.  I suspect that they will.  I just don’t believe that the majority of the market is anywhere near ready to include them in the fabric of their day-to-day social lives.

He’s absolutely right about the added value of events that are better watched live and lend themselves to discussion.  The media world has a lot to learn about driving audiences to “premiere” airings and encouraging participation.  In addition to reducing time-shifting and the subsequent fast-forwarding through ads, larger audiences tuning in to a given viewing create the opportunity for free “buzz”, higher CPMs, and cross-promotional opportunities. 

To that end, the networks should be doing everything they can to foster television as a shared, live experience.  The obvious answer is social networking and real-time discussion as a way to do that.  Anecdotally, I can tell you that my CBSSports.com fantasy football league definitely tunes into more live games than we would otherwise because of the automatic chat room we are entered in on the live scoring page.  We talk about the games, what they are doing for our fantasy squads, and are way more engaged with the television than we would be otherwise.  And about half of these games are aired on, you guessed it, CBS.

To date, sporting events and reality TV (American Idol and other competitive reality shows in particular) are the only really good examples of this that I’ve noticed.  But I believe this principle can be incorporated into standard serials and sitcoms, too.  Sure, Fox has a 24 message board on its website.  But where are more advanced interactive features, like live chat rooms, or polls and contests encouraging viewer feedback on which character is the next to die/switch sides/whatever?  Where are the live Twitter updates with Seth MacFarlane side jokes to accompany first showings of Family Guy?

And where are advertisers on this?  They should be doing way more to make their ads interactive, engaging, and more relevant when seen live.  It won’t work everywhere, but interactivity and time sensitivity in advertising has the potential to squeeze more out of the ads people are watching and discourage time-shifting and subsequent fast-forwarding when deployed in conjunction with short shelf-life, high participation value programming.

There’s obviously a limit to the applicability of these ideas, and to some extent, that limit is the result of the newness of today’s social mediums.  But that doesn’t mean broadcasters shouldn’t be investigating and experimenting with everything they can to increase their live audiences and the value of their ad inventory.