Tuesday, May 14, 2013

Despite Lawsuits, Aereo Marches Through Atlanta; Why Their Model Works

The folks at  are not cowed by broadcast television interests who are afraid of their efforts to repeat publicly broadcast television signals on the Web. Even as they are taking on legal battles with CBS and other major TV broadcasters in their initial pilot markets, Aerero is expanding their Internet-based broadcast TV retransmission program to the city of Atlanta, Georgia. While there are some potential legal pitfalls in Aereo's arguments for this strategy, in general their opportunity stems from broadcast TV interests refusing to acknowledge that the Internet has changed fundamentally how the "ether" of public communications works.

When radio frequencies were first allocated for commercial radio and television,
the idea of a wide-area dissemination of a broadcast required radio antennas transmitting a powerful signal - sometimes as much as 50,000 watts of power on U.S. radio frequencies. The physics of such powerful signals is such that they will tend to interfere with other signals over a broad area. You can get a sense of what this is like when you experience interference on a car radio, mobile phone or Bluetooth-equipped accessory right under a well-equipped cell phone or radio tower. So, one big signal on one particular frequency actually meant that in a given area you could have only a relative handful of powerful signals available.

The Internet turns this model on its head. Any broadcast on the Web connects

with a low-power signal that can be repeated endlessly around the world via the Web at similarly low power at any given point. So, instead of one publisher/broadcaster determining the bandwidth required for services, the overall design of the Web ensures good service for receiving any Internet signal anywhere in the world. The government doesn't have to allocate a public resource - radio waves - to enable a specific broadcast source to go anywhere in the world. Internet service providers provide one signal to an end point at a desired frequency of updates, and that is that. Thus, the entire design of the Internet is antithetical to the notion that one signal is more powerful than another from the perspective of someone receiving it. The only performance requirements revolve around how many individual signals an Internet broadcaster wants to support, how many signals people want in a given area and how much they're willing and able to pay for them - none of which requires government licensing.

So the fundamental economics of the Internet are built around the notion of paying for signal, not paying for

content. Looking at the business model of , the presumption that some basic level of signal can't be free to citizens is also turned on its head - basic Internet service (about 1.5MB downloads) is available via Google Fiber for free, provided that someone can pay to install a piece of equipment no more expensive than a common television set, a cost that is subsidized by people who are willing and able to pay a nominal fee for about 660 times more signal.

What this means in sum is that using the most likely standards for Internet service that are likely to emerge in the U.S. over the next decade, any person should be able to receive one clear basic video "signal" at a given time - the equivalent of channel flipping - and for a few dollars anyone should be able to receive as many basic video signals as a typical cable service could produce - regardless of their source. So, today's Internet is an ideal public medium for basic television service.

Aereo knows this, and argues that all it is doing is providing better reception for a publicly available radio signal via another public medium - the Internet. That the economics of the organizations behind that signal are different fundamentally than the economics of PSY posting a video on the Internet that's been viewed by over a billion people is irrelevant ultimately to the public. 

Broadcast television frequency allocation was designed to provide the public with optimal reception of the most available signals, so that there could be competition for people's need for information and entertainment. The government's radio frequency scheme was not designed to restrict signals, but to propagate as many of them to the public as is feasible (with some wrinkles thrown in by powerful broadcast interests). The Internet's signal-neutral design carries on this concept, providing the greatest choice to a person and providing a quality of service based on how much service they want at a given time. It doesn't make sense to use the power given to broadcasters based on an old scheme meant to maxmize competition to reduce the reach of their signal on the Web - they should be willing to compete in public signal space no matter what technology makes their signal available as public broadcasters, it would seem. There's pretty sound logic behind Aereo's argument, overall.

So where's the potential catch for Aereo's strategy? Today's courtrooms are a mine field for intellectual property litigation, enabling any scenario, strong or weak, to have a chance of catching at least one court's ear, so even rational arguments may go astray. The intellectual property infringement angle is probably not their weakness - that seems to have been weakened already in court, as Aereo's claim to being IP-neutral seems to have held up. If there's any gap in their plans I'd have to say that it's in their forcing of the issue of television broadcast licensing economics. Broadcasters pay a lot for the right to purchase a given broadcast frequency in a given regional or local market, and they pay the U.S. government for that right based on exclusive rights to broadcast in that market. So in effect the government is implicitly negating the potential economic value of those licenses - taking the money and then changing the game, you might say.

But so it goes with technology - the government doesn't make a guarantee that they won't find more efficient use of public resources. Frequencies used for TV broadcasts are licensed, not owned, and the terms of the license can change. However, you can see where this is going - the TV broadcasters are likely to seek damages from the government for the depreciation of the value of their licenses based on their opening the Internet to TV signal retransmissions. It's hard to say how soon this may happen, or if in fact this strategy may in fact surface at all outside of conference rooms in corporate and government offices, but a bit of "corporate welfare" may be the payoff required to push broadcast television into the Internet era. Since that would mean doing so on the government's terms, it's possible that broadcasters would rather fight it out, but time is slipping away, and they may be wise to take some government cash now - before interest in their programming slips even further away from the awareness of today's Web-savvy television audiences.

Friday, May 3, 2013

Cracks in the Garden Walls: Barnes & Noble Opens Nook to Full Range of Android Apps

The Barnes & Noble +NOOK was an early entrant into the world of Android tablets, and it enjoyed early sales success as one of the first non-Apple devices to enable both ebooks and mobile apps in a convenient color touch-screen tablet. At one time the NOOK represented a significant share of all Android tablets on the market and powered a revolution at B&N's retail book stores as they began to take generous front-and-center display space with tech-aware staff on hand. The NOOK was also equipped with a relatively small range of hand-picked Android apps, most all of them available on a paid basis from an online NOOK storefront. All of this came in a unit that was aggressively priced at for least half of what an iPad would cost - it was the first wide-scale Android tablet to sell well near the magic $200 price point. Things looked pretty good for NOOK - for a short while.

But along came a host of other Android tablets, including Amazon's Kindle units, which offered a more complete line of Amazon's own electronic content from its online storefront and its own collection of Android apps. All of a sudden NOOKs became also-rans, statistical rounding errors in a market that now boasted hundreds of millions of Android tablets. It's really a shame, because the flaws of the NOOK strategy were evident from the beginning. Barnes & Noble's presumption is that people wanted a small number of apps that might complement the ebooks that they could buy from their own online storefront, that the typical ebook reader was more interested in flipping pages than playing "Cut the Rope" or watching YouTube videos. Like many publishers, Barnes & Noble viewed the Web as inferior to their ability to curate content and services.

Well, it appears that consumers have proven them wrong. Yes, people who want ebooks want a great ebook experience - but tablets are capable of so much more than that, acting as both "second screens" for Web videos from YouTube and high-definition libraries from Netflix and many other sources. And, of course, there's the Web - people want nothing less than the best Web experience possible, especially since the amount of programmable content now appearing on the Web is mushrooming as software developers take advantage of advanced programming tools like HTML 5, Dart and a host of other capabilities that make Web apps about as powerful as any app installed on a tablet, PC or phone. In short, nobody wants to waste a good machine on less than what it's capable of doing.

So finally Barnes & Noble has relented and come up with a better marketing strategy for NOOKs. As of now, NOOK HD and HD+ tablets will be able to access all of the native apps available on other Android tablets - including Google's own Play Store, Chrome browser for Android and YouTube videos. By adding the Play Store, NOOK owners will be able to access books, movies and music available for sale from Google as well as from other sources that have Android-installable apps available in the Google Play Store. All of this will be in parallel to the native NOOK storefront, which will now use the NOOK in essence as a street for commerce with other storefronts rather than a walled garden that it tries to control tightly.

Stephane Maes, vice president of product for Barnes & Noble, notes that "while we may lose some sales to Google, a rising tide carries all ships." In other words, if people like the NOOK as a tablet experience first and foremost, and NOOK content is particularly appealing on that storefront in a fair comparison, then the NOOK will help to market electronic content and services from Barnes & Noble more effectively - instead of getting lost in the shuffle as soon as a stock Android tablet is pulled out of a box. So although Barnes & Noble doesn't make a lot of money on these low-margin units, they do get better electronic marketing. 

You might say that their walled garden strategy has given way to a streetcorner bookstore strategy. Instead of assuming that a tablet is a device that a bookstore brand can own, Barnes & Noble recognized that their brand is but one experience that people want on a tablet, much as someone going to a downtown shopping area may have a visit to the local bookstore there in mind but also wants to visit many other independent merchants. With this in mind, instead of Barnes & Noble trying to be the Downtown Merchants Association and Zoning Board in addition to running its store, it's decided to sponsor free parking in the downtown area - its tablets - and hope that its good positioning along the "street" that's been prettied up by their design team will result in awareness and goodwill for their marketing efforts.

This is a good hybrid strategy that many other "walled garden" content services should think about carefully. Example: Cable television companies fight services like Google TV and Netflix head-on, trying to keep everyone in their walled gardens of subscription television services. But consumers are increasingly dissatisfied with the cable TV experience and branching out to choose services like Netflix from a wide variety of non-cable services. Instead of trying to pretend that walled gardens are sustainable for commodity TV content in a Web era, cable companies could instead sponsor units like Google TV and tweak their interfaces to promote their own subscription packages. Since Google's own cable company - Google Fiber - has headed in this direction anyway, why not cut to the chase and come up with a better promotional strategy for their services on the most competitive technology platforms available?

The bottom line is that publishers of all kinds can fight for distribution control over their content all they want, but at the end of the day consumers of content want the best content on the best technology platforms with the best choice available - period. No one vendor of intellectual property is ever going to own that entire equation. The smart ones, like Google, are willing to own just a part of the content sales picture whilst keeping customers happy with the best technology tools to enjoy it in an openly competitive environment. They are constantly inviting content competitors into their platforms, so that they can make their own teams work harder to make the best experiences possible. Google partners, such as mobile phone carriers and TV makers, are welcome to customize their Android software to create NOOK-like "sponsored downtowns" - or not. This flexibility forces both Google and the carriers to make sure that they're offering the best experiences for their customers.

So if you're using a walled garden content strategy right now on Web-connected platforms, consider whether you're trying to build walls around technology that's growing far too quickly for you to control it. If so, then consider how you can learn from Barnes & Noble and use technology sponsorship to become better promoters of your market position in an open market for content-oriented services. Your customers will appreciate your willingness to go with the most powerful technologies out there - and, experience seems to show, will reward your brand with better sales as long as you work hard to stick with the best technology services out there in an open market. Worth a shot.