SharkJumping

Cablevision DVR Plan Defeated in Court

As I blogged about a year ago here, Cablevision tried to introduce the concept of a "remote DVR" where a Cablevision video subscriber could access DVR functionality at the server level without having to purchase or lease a hard drive-enabled set top box for their house.  It is very cool functionality, but as I pointed out, it was unlikely to withstand legal challenge.

This week, as could have been predicted by anyone with even a remote knowledge of copyright law, US District court judge Denny Chin ruled against the concept since it was a clearly a service which did the copying, and not the end user, which defeated the legal underpinning of the case - actual ruling can be downloaded here. 

I dislike defending copyright holders' ability to hold back all progress, but it's hard to understand which  counsel at Cablevision thought this concept was going to pass muster unless it was just a negotiating tactic - try looking at the MyMp3.com case next time before the legal clock starts ticking.  That having been said, a network DVR should make a huge amount of sense for consumers and for cable companies - it just won't economically work once licenses are worked out with every content provider unless those rights can be granted as part of larger negotiations.

SlingBox - Now Ready for Prime Time

I reviewed the place-shifting Slingbox device/service a year ago (here and here), and concluded that it was a cool idea, but not quite ready for prime time.   That having been said, I took the box (now called "classic") out of the closet 2 weeks ago since we were heading to the mountains with no cable TV service, and I wanted to watch some NFL games over the Holiday week, as I am going to do today as well.  I downloaded the significantly revised software and attached it to my much simpler TV set-up on our 2nd floor, avoiding the Comcast DVR and more complex sound system downstairs.

The results were really good.  It's a much better experience than I first encountered (even with the same hardware), and I can now really recommend it for occasions where you emphasize access and mobility over quality.  It's like the rise of MP3's in digital music - enthusiasts argue that the sound quality is lower than either albums or CD's, and that the lack of the album diminishes the overall experience, but the other 99% of the population is willing to make that trade-off.  The Sling access opportunity totally trumps the quality issue now that quality in my set-up has reached a high enough level.

I have a good Comcast network at home in SF, and a decent wireless one in Tahoe, and overall result when I ran the laptop through the TV was pretty good, especially from 10 feet away, and that's a much tougher test than just seeing it on the laptop.  It occasionally cut out, and the channel switching is still painful, but I ran the box for hours each day and my entire extended family thought it was a big win over having to go down to the local bar to watch the games.  Definitely go get a SlingBox if you want more access to the content you already pay for. 

Of course, if Senators Feinstein and Graham get their way with their wonderfully titled PERFORM Act, then it's likely that Sling's service will be in jeopardy once they get around to including broadcast...

Atom Entertainment Deal: A Great Move by Viacom

MTV Networks/Viacom announced (see here) this week that they were acquiring Atom Entertainment (home of Shockwave.com, Atom Films and Addicting Clips/Games) for approximately $200M.  I want to be clear that I'm biased about Atom since CEO Mika Salmi is a friend, as are some of the other executives, but this is a simply great move by MTV, and it appears to be a fair price by both sides.

With Atom, MTV gets a great creative team, a select group of popular sites in games and video with 20M+ monthly unique visitors to plug into MTV's strong advertising team, and  another source of content for the rest of MTV Networks.  I have to tip my hat to the executives and investors of Atom who persevered for the last 7 years through the bubble mayhem, the downturn carnage, and now the steady upswing in their properties, with the end financial result being quite positive for all involved - plus it's yet another great outcome for a RealNetworks alum, as so many of us are.  I love casual games, and I think this purchase vaults MTV Networks right into a strong position in this rapidly growing category, and the Atom/Addicting video assets are a strong fit for both iFilm and for MTV's more mature video properties as a "farm team" or modern A&R team to find upcoming talent.

Great move for MTV Networks, and kudos to the Atom team for sticking it out through the grim times.  I think this move is being underestimated by the market for how much it will bring to the company.

Cablevision DVR Plan - Part 2 - Lawsuits Commence

The other shoe inevitably dropped this week in Cablevision's attempt to roll out the "Network DVR" discussed in this previous post.  3 movie studios and the 3 big television networks sued Cablevision (NYT article here), stating that the company didn't have the right to store their programs for use at a later time without obtaining a license first.  It's a big fight since the other cable companies will roll out similar functionality if Cablevision wins the case, possibly diminishing some of the copyrights of the programmers, so expect a long battle.  Cablevision's stock dropped 2% on the news.

DMGI & HNDH - Market Finally Behaving

I posted about the IPO of Digital Music Group (DMGI) here and the reverse merger public offering of Handheld Entertainment (HNDH.OB) here a few months ago, making the point that the initial market valuations were insane by any rational measurement, and that realistically, neither company should actually even be public.  The good news is that the reality of their respective market positions has begun to sink in to the general investor community, driving down their share prices and market valuations, and restoring some of my faith in the free market.  The bad news is I wasn't able to short either company, but hopefully others were able to do so.

DMGI went public in February 2006 at $8.50 and quickly spiked above $10.  The company had revenue of $721K in Q1, with a loss of $414K, and it's growing quickly, although there is still no reason for it to be public since it's tiny and not even a market leader in its own segment.  The stock is now around $5.75 a share, and should realistically settle in about $3-4 a share, with the only reason there is even that floor is due to the amount of cash raised in the IPO.  The amusing thing is that the only analyst to cover the stock comes from FTN Midwest, the bank that took DMGI public, and even he has a HOLD recommendation on the stock.

Handheld Entertainment reverse-merged into a public shell in early March 2006. (couldn't they do a deal with DMGI's investment banks?)  The stock started trading day 1 at $7 a share even though the private investors had literally just bought stock at $2 right before the offering.  The stock has gone as low as $3.10, but is now hovering around $4.25.  A quick look at the numbers - Q1 was a $584K revenue quarter, at a negative GROSS margin of 3%, with 97% of revenue coming from Wal-Mart, and that the 10QSB states that "it's reasonably possible we will not be able to obtain sufficient financing to continue operations".  I'd say there is no possible floor on this stock since they have only 2 quarters of cash on hand at current burn - going to zero or fire sale.

Legal Disclaimer - I am a terrible personal investor, not a legally qualified analyst and this is a blog, not a research report, so don't blindly follow my advice - do your own research :)

Vongo Review 3 - Tried Again

I have been swamped at work on Meez, so I haven't been blogging at all, but I was recently on a long business trip, so I thought it was the perfect time to try out the Starz Vongo video service again to see if it had improved since my previous attempt in January.

The short answer is that is has not improved in any meaningful way, still consigning it to a niche category not attractive to most users, even media junkies like myself.  The quality of the downloads is still too low in today's much higher resolution environment.   The quality of the video catalog is still really erratic, meaning that I had to stretch a bit to find 4 titles to watch out of the 1,000+ that were available, but that was a stretch (e.g. Stealth is a simply terrible movie, but it's the #2 movie behind the always memorable Bewitched).  The non-PC devices you can move the content to aren't yet widely held enough to be meaningful, which is not Vongo's fault, but is still an issue.  The best part of Vongo is its customer service - although they make you call to cancel, they quickly answer the phone, they're knowledgeable and polite, and they understand when you cancel.

Vongo is a good platform - with an increase in resolution and an expansion of the type of content available (why can't they add TV shows?), as well as the inevitable expansion in compatible non-PC devices, it may become an attractive service, but it's not there right now.

Cablevision DVR Plan = MyMP3.com?

Cablevision (CVC) recently announced that it would soon begin testing a network DVR which would allow their cable subscribers to record tv shows to Cablevision's back-end systems, and then stream them to the actual cable set top box, just as if the subscriber had recorded them on a separate DVR box on top of their TV.  The primary advantage to Cablevision is that they can deploy much cheaper set top boxes since there is no need for a hard drive, which both costs more money and has a greater chance of failure, as anyone with a DVR finds out at least once every couple of years.  Assuming the cable network can handle it, it's pretty cool from a subscriber perspective as well, although one worries that Cablevision won't allow commercial-skipping, or will somehow control the content in a way a Tivo user doesn't like.  So what's the downside?

Well...there once was this digital music company called MP3.com which was doing really well until they launched a similar service called MyMP3.com - this service allowed users who verified that they owned the CD to immediately access it online from a MP3 storage locker - they didn't have to rip it themselves and upload it a server.  The end result was a set of lawsuits, about $170M in legal settlements, and the eventual sale of the company.  I'm not a lawyer, but the crux of the case was that the court determined that MP3.com didn't have the right to rip and store music CD's on its central servers, even if they made the content available only to users who they determined to be rightful owners of the physical CD.  What's the difference here?

According to this Reuters article, Tom Rutledge, COO of Cablevision, makes the point that Cablevision will not pre-record any shows until the subscriber pushes the button to trigger the recording, just like with a standard DVR.  In MP3.com's case, they pre-recorded all of the content, and then made it available upon verification.  It's a subtle, but potentially important distinction when looking at new copyright law.   However, I can't imagine that every content provider is going to let this happen, so I would expect at least one lawsuit, and the problem is that the potential penalties are quite large, so it will be an interesting situation to watch.

Wow -$195M for Handheld Entertainment?

Now entering the DMGI category for remarkable valuations, Handheld Entertainment (HNDH.OB) started trading today at $7 a share, and currently sports an astonishing market cap of $195M - I have to give their financial backers credit if they can sustain this run long enough to dump the shares.  I'm trying to decide if these couple of data points are the start to a full scale bubble in the IPO market, where a company can get a public investor to pay FAR more than any private investor for companies which clearly shouldn't be public.  The plan appear to be to yell "iTunes", followed by either Digital Video or Digital Music, and you too can sport a market cap of $100M+, even if you have very little revenue.

Handheld Entertainment (ZVue) Sort of Goes Public

SF company Handheld Entertainment this week announced that they have finalized their reverse merger into shell company Vika Corp.  They also announced that they have raised $7.6M in a private placement, and that they would starting trading publicly as HNDH.OB on March 6.  Handheld is the home of the ZVue portable video player, which is a $100 portable video player sold primarily at WalMart (95% of 2005 revenue), and they are attempting to follow iTunes into the video delivery marketplace as well.

With about 14M shares outstanding, the valuation for Handheld should be about $28M when it starts trading, based on the $2 price the private investors just paid.  So what do you get for $28M?  Well the good news is that you get a hell of a lot more than you do with always-amusing and stupendously overvalued Digital Music Group (DMGI).   You have a company riding the YouTube and video iPod wave of Internet video content, and which offers the lowest price, secure media (including Windows DRM) video hardware in the industry.  Executive compensation is somewhat reasonable, although the most recent $.37 option grants may seem a little low to the IRS, given the 409A regulations just put into force.

The bad news is that you now have a small public company with $1.2M revenue run rate (25x sales valuation), a negative 10% gross margin (see earlier post on bad gross margin companies), a massive customer concentration, and potentially higher than industry average customer returns, at least according to its own documents.  It is also counting a lot on expanding its business model by trying to move deeper into the higher margin video services business - the primary issue is that Apple is the only hardware company which has shown an ability to create compelling software, services and revenue.  Sony is a typical example of a total disaster in those areas - has anyone seen Sony Connect or even a good PSP game in the last 12 months?  Maybe they can be on next season's Lost story arc.

The second issue is that we have one of the frothiest venture markets in the last few years, with hardware/services company Sling Media raising $46M in financing, but Handheld had only $38,747 in cash at the end of Q3, and apparently thought that the somewhat less than respected  "back door" (Wikipedia definition here) IPO was the best way to raise money - another example of avoiding the "smart" VC money by going with the "dumb" public money, as we often see in bubbles.

So why should any non-VC invest in this company?  Well, they shouldn't.  Small unprofitable companies generally shouldn't be public - the costs of being public (Sarbanes alone) rarely make the move worthwhile, especially since few stock analysts will cover anything of this size.  This makes this purely an arbitrage play like Digital Music Group, gambling that the company can raise money at a higher valuation in the public markets than private.  Even if correct in the short term for the company, it's rarely a good move for the general public investor since the risk profile is way too high - the company may do fine, but it should be private until it shows greater results.

Comcast Part Deux: A Superior Experience

I blogged about my lousy experience a few weeks ago attempting to have Comcast install TV and High Speed services at my house - see post.  We tried again last week, and it was a much better experience, with a great technician who showed up on time and who was pleasant, knowledgeable and efficient.  The short of it is that after a few days with the Comcast high speed and DVR/HD/OnDemand services, I don't think the satellite gang (DirecTV and Echostar) or telcos (ATT, Verizon) can match the cable offering, at least without the staggeringly expensive and time-consuming fiber build out that the telcos are doing.

High Speed
I'm seeing real world download speeds of 6MB+ from Comcast, about double what I was seeing before.  I didn't think that would matter in most cases, but it starts to be noticeable as we spend more time with rich media and as we attach more Internet-connected devices in the house.   I'm noticing a slight delay in the initial connection, but am not sure if that's Comcast or my network, and the speed is snappy right after it.  On the upload speed, 350KB+ is what I'm seeing, which is fine, but I still think the telcos could differentiate a bit for a decent group of users by focusing on a robust upstream offering (and no, I have not had the energy yet to dive back into the port-forwarding situation that is Sling Media to see if I can get that to work).

DVR and HD
I have a Motorola DCT 6412 dual tuner HD DVR with a 60 hour video capacity (15 for HD).  This was a key reason for the switch since DVR's break about once a year in my experience, and I definitely didn't want to pay $500+ for an HD one, as the satellite services want consumers to do.  The interface could use a little bit of work since searching isn't quite as easy as I hoped, but all of the basic DVR functionality is there, and the integrated box works nicely, especially now that I programmed the remote to skip 30 seconds forward.  You can record 2 shows at once, although not 2 HD shows.  You can't access the DVR from the other television, as I could with the Dish 522 box, but we never really did it, and you can access On Demand from there, which is a great alternative.  The HD programming is a little more limited than I have seen from DISH, but it has all of the basics such as local networks (key, especially for Olympics), premium channels, ESPN and a couple of others, and after watching the Olympics in HD, there is no way to go back to SD.

On Demand
I originally thought that the smaller hard drive size would be a big issue (vs my DISH 522 with 100 hours), but what has been the revelation to me has been the strength of Comcast's On Demand free VOD system, especially as a parent.  The non-kids offerings are a mixed bag of content, with some real gems, but also a lot of random stuff, and an interface overwhelmed by the amount of content.  However, the children's offerings are so good that there is no need to record any shows on the DVR since there is such a breadth and depth of kids shows.  Given that this is a feature which satellite can't easily match due to its delivery method, I can see why Comcast is pouring it on in this area, especially since it is almost like having a DVR on every TV.

Conclusion
When I switched to DISH 2.5 years ago, it was because the because the integrated DVR/satellite system was simply a better offering - more channels, high quality, big DVR and lower price.  On the high speed side, the DSL offerings were slower, but cheap enough that it didn't matter for that type of content.   I can definitely say that the landscape has changed right now, and that the Comcast offerings are clearly superior to the alternatives, and probably worth a 10-20% premium over competing systems, which is the premium I'm paying after discounts.  The only way I see that being challenged in the short term is by the new fiber systems from ATT & Verizon, but we're a long way from seeing wide spread distribution of those offerings.

Dick Cheney - just sticking in random hot search words to see if it matters to blog search engines