what’s been going on in the mobile phone market—people flipping providers. You need to find ways to make the content experience sticky and personalized enough so that people don’t want to switch. If you look at what’s been going on in the service provider market for the last five to 10 years, it’s been about bundling and price discounting, and they need to shift the rhetoric to being about value-added services and making the experience better.
X: But do you really see the cable and satellite operators improving the experience fast enough to prevent mass defections among people who have figured out that they can now watch a lot of their favorite shows on the Web, right on the network sites or using video aggregators sites like Hulu or Boxee or Zinc?
KK: The cable providers have been circling the wagons. What you’re seeing them do now is very clearly starting to say that the vast majority of content that you get as part of your cable subscription will not be available online, in any comprehensive form, at least not legally. They may put some of it online, but you’re going to have to be a cable subscriber to get it. If you look at the revenue at the cable networks, the vast majority of it is affiliate fees paid by cable operators, and a minority is advertising. The economics don’t make sense on broadband, where no one is paying affiliate fees and the advertising dollars are measurably less. So it’s not a very compelling proposition to those cable networks to make their content available online.
Now, like most consumers, I’m thoroughly fed up with paying $100 a month for the 2 percent of the stuff that I actually watch. If they unbundled it, I would be more than happy to say that I’ll pay a certain amount for each of the things that I do watch. But I don’t think the Internet video aggregators are going to solve that problem. They are going to present more opportunities for on-demand content, but it won’t be the same as broadcast.
X: I’m more than fed up—I actually canceled my Comcast cable TV subscription and my digital voice service about a month ago. So far I’m getting along fine with just my cable Internet service. I really can find most of the shows I watch at the network websites or on Netflix or Amazon.
KK: That’s the risk these guys face—the great promise that Will Richmond [president of local market research firm Broadband Directions and producer of VideoNuze] and others talk about, the syndicated video economy where consumers speak with their wallets. The service providers are going to try very hard to have that not happen. Some of the improvements have not happened because the companies are monopolies, and others because it is complicated and requires a lot of capital investment, and they haven’t really seen a need to do it. But that’s definitely changing, and we will see more of these services [from the cable and satellite companies] if for no other reason than that they will see competitors doing it. Now, that may not happen on a timeline that is consistent with you continuing to pay them $100 a month.
X: If Verizon had brought FiOS to my building by now, I might have considered switching to them, rather than ditching my subscription TV altogether. Is Verizon’s project lighting a fire under the cable providers at all?
KK: The telcos are aggressively targeting this space. The cable providers will have to make bold moves in order to hold on in large urban centers. But the telcos are well behind the media companies in terms of having media distribution DNA in their organizations. The main reason I didn’t sign up for FiOS last year is that it didn’t have the NHL Center Ice package—I’m Canadian, so that is a must-have. But now they do, so there is no question I’m going to consider switching.
X: I wrote a piece recently about Verivue, which raised a $40 million Series B round to build and market switches that can transcode video content for different end devices. That sounds a lot like what you were talking about a minute ago—are they competitors of yours?
KK: We know a number of the guys there. I would refer to Verivue as underlaying what we do. They basically are the infrastructure piece that can more cost-effectively enable this triple-screen universe for the network providers and the content distribution networks. At Extend we have to manage the interfaces between multiple hubs and multiple access technologies; if your network ran on a system like theirs, then you’d only have to talk to one subsystem. There still needs to be software the enables handoff between devices, integrates different ad servers, handles the different commercial models and payments. That’s all our world. They are very much a next-generation piece of technology designed to deliver rich media on a network.
X: It must be nerve-wracking to try to do business in an industry that’s evolving so fast—where nobody is sure which business models are going to work.
KK: The uncertainty in an emerging market that has as much potential as this one is actually great for us, because it leads to a high degree of experimentation. That is a huge advantage for us because we’re unique. I don’t mean to pick on Brightcove, but they are not a bad example in the broadband video publishing space, and their technology is very much designed to deliver Flash video to PCs and Macs. If I were a large rightsholder or service provider, I would not be sure that was the right or the only model. Technologies like ours provide them with insulation—the ability to reach any device with any business model. We provide a platform that lets the providers and ultimately the consumers choose how they want to consume video.
X: How might that work out in practice?
KK: We believe in the world we’re heading into you’re going to take a low-resolution or standard resolution service and provide that free of charge, probably in streaming format, to build market share, lower the friction, and get as large an audience as you can. Then you can begin to introduce upgrade paths. The next logical one would be the notion of a subscription or pay-per-view level that would be higher definition, and where you own the right to keep it locally. Our product allows you to start in that cycle anywhere you like.
