The Difference Between Video and Music Business Models

The video business is different from the music business in one significant respect: where people routinely prefer to own their personal collections, they rarely want to "own" news, sports and most serial TV fare. That has some fairly signficant implications for business models. "Buy to own" makes logical sense for consumers of music. "Rent to view" makes more sense for most video and movie fare.

The historic example is the difference between adoption of cable TV and adoption of subscription music services. There are perhaps 20 million XM Sirius subscribers, compared to 63 million cable TV subscribers, plus three million telco video subs and 31 million satellite TV subscribers. In other words, there are 97 million video subscribers, compared to 20 million XM Sirius subscribers.

Most video watchers want to see news, sports and other events only once, movies once or twice. Most music listeners want to own and listen to some favorite songs over and over again. That suggests a stronger market opportunity for video subscriptions, compared to music subscriptions, and a larger market for on-demand video than on-demand music streaming.

iPhone to Go Multi-Network in 2011?

One likely would bet against Apple extending its exclusive U.S. distribution deal with AT&T past 2010, based on market share statistics gathered from around the world, including markets where Apple has an exclusive carrier partner as well as markets where Apple has a multi-partner distribution. Consider the Frech market, where Apple has multiple distributors.

"In France, the company now enjoys dramatically higher market share (in the 40 percent range vs. about 15 percent in ROW) than in countries with exclusive carrier agreements (such as AT&T in the U.S. where the iPhone has market share in the mid-teens).Gene Munster, Piper Jaffray senior research analyst.

Those market penetration figures should prove more compelling than the lower revenue per iPhone unit Apple gets in countries with multiple distributors, Munster argues.

Smart Phones, Broadband: Less and More, Respectively

One never should mistake media hype for end user reality. At the moment, perhaps 10 percent to 11 percent of U.S. adults actually use an iPhone, a BlackBerry or any other "smart phone." Most of the market has yet to adopt any smart phone.

Conversely, the mass media, and some within the specialized communications media, continue to insist that there is a major problem with broadband access. There are isolated issues, to be sure. But 70 percent of U.S. adults now use the Internet. Average household size is about 2.59 per home. About 74 percent are 18 or older. So adjust the household stats to 1.9 adults 18 or older per home.

Assume those 1.9 adults share a single fixed broadband connection at each location. In other words, a 70-percent "per capita" use of fixed broadband does not directly translate to "70 percent household penetration."

Conversely, 30 percent of U.S. adults do not use the Internet, according to Rubicon Consulting. Assuming those non-Internet-using households have the same average size as Internet-using homes, one might roughly assume that broadband penetration of U.S. adults is less than 70 percent, as studies suggest perhaps six to 10 percent of Internet users use dial-up connections.

Assume dial-up households also have the same size characteristics as Internet-using and no-Internet households. Then we might argue that between 60 percent and 64 percent of U.S. households now buy fixed broadband service. But those 60 percent to 64 percent of U.S. homes represent more than 90 percent of all Internet users.

In fact, if one adds users who use broadband at work, at libraries, using public Wi-Fi or mobile broadband, it is likely that more than 95 percent of all Internet users in the U.S. market already use broadband access the way they would prefer, given all their other buying choices.

The point is simply to keep in imind that what people talk about in the media is not necessarily fully reflective of reality.

Smart Phones Start to Differentiate, Because Users Do

Smart phone uses are starting to self sort themselves by lead application, it now appears. Though much could change as adoption becomes more mainstream, it now appears that Apple iPhone users value Web access while RIM BlackBerry users value email. To a lesser extent, Palm users favor calendar apps.

Patterns for users or Microsoft and Android operating system devices are less distinct. But that might be one reason new sales of Microsoft-OS devices are declining, relative to others. To the extent there is any distinction, Google G1 users put heavier emphasis on maps.

The clearest example that users are segmenting themselves by applications is that "the best-selling smartphones are the ones that most strongly associate with one or two particular features," says Michael Mace, Rubicon Consulting principal.

BlackBerry and iPhone each have one or two standout features that more than half their users rank as extremely important, he says. As you would expect, email access is unusually important for BlackBerry users.

BlackBerry users are also much more interested than average phone users in web browsing and calendar. Blackberry users are substantially less interested in price, size of the phone, and address book management.

The priorities of iPhone users are dramatically different from either typical mobile phone users or RIM users, says Mace. Browsing was the iPhone users’ top feature, followed closely by email.

But iPhone users were much more interested than RIM users in music, maps, 3G, and the ability to add new software.

The Windows Mobile user profile is similar to that of the BlackBerry, but less distinctive, says Mace.

The priorities of Windows Mobile users are similar to Blackberry users, with the exception that Windows Mobile users are a bit less focused on email and more interested in adding new software and using maps. But no single feature was noted by more than 40 percent of Windows Mobile users, indicating that it doesn’t have a very distinct feature identity in the market.

Palm users were also somewhat similar to RIM users, with the exception that they were quite a bit more focused on calendar functions, which was cited as the number one feature. But compared to Microsoft users, email and browsing were ranked less hihgly.

"It appears that RIM and Apple are siphoning off most of the people who care the most strongly about browsing and mail," says Mace.

"Calendar scored higher among Palm users than among any other platform, which probably fits with Palm’s roots as a PDA company," he notes.

But Palm application patterns do not have as distinct an identity as Blackberry and iPhone do.

Compared to all the other smartphones, the Google G1 “GPhone” has the least distinctive feature profile. It is cited for maps more than any other phone, but only 30 percentof users call that a top four feature. Relatively few G1 users said browsing is a high priority. Instead, browsing ranked far below iPhone, and on a par with RIM.

That may indicate that the marketplace has not yet decided what an Android device "is." BlackBerry is email, iPhone is Web browsing. Neither Palm, Microsoft nor Android seem yet to have grabbed a clear and distinct niche within the smart phone market.

These findings are important for very broad reasons. I have long argued that voice is, in fact, not a "commodity." The latest Rubicon findings suggest that mobile phones and smart phones likely are not true commodities either. At least in the case of the BlackBerry and iPhone, users have self selected themselves based on behavioral differences.

If that is true, it also should be true that service plans, application optimization and other ways of appealing to a distinct market niche are possible. The Rubicon findings also suggest it is important for Microsoft, Palm and Android to find and cultivate a distinct market niche. So far, none of them seems to have succeeded to the degree Apple and RIM have.

In other words, there is no such thing as the "best smart phone" for every user. That decision depends on what one wants to do most. Smart phones are becoming more like automobiles, in that sense, then has been the case in the past. Roadsters, vans, trucks, subcompacts, SUVs and full-size passenger vehicles have different "lead" applications. So, increasingly, do smart phones.

The key insight here is that communications products and services are less commoditized than most of us typically assume. It might be hard work to differentiate, but it can be done.

Perhaps the worst case scenario would be for most smart phones to ultimately be seen as general purpose mobile PCs. That would destroy the ability to differentiate.

June Online Video Viewing Up: Unusual News Events the Reason

Summer normally is a time of reduced video viewing, as users are out and about. But online video viewing was up 14 percent year over year in June, according to The Nielsen Co.

But it appears unusual news events, not a permanenet change in behavior, account for the upsurge. Unusual media events, including the memorial service for Michael Jackson and the civil unrest in Iran, likely were driving the heavier usage, comScore says.

Is there a business model for mobile TV?

The number of mobile TV users continues to grow but there is still no proven business model so far to market the service, researchers at Infocom say.

"Japan, South Korea and Italy are the leading markets for broadcast-based mobile TV services but mobile TV subscriber growth in these markets is driven mainly by free or partly-free access and rather large handset availability, Infocom says.

Much could change with time, but there are some features and services for which there is in fact no apparent stand alone business model. Consider the Wi-Fi hotspot business. For an increasing number of service providers, the business model is fixed broadband, and Wi-Fi access is simply an added feature of the broadband service.

The same thing appears to be happening in the multi-channel video business, as service providers test the idea of "TV Everywhere," where paying for a fixed video subscription also allows access to video from PCs and mobile phones.

Advertising might help, but possibly not as much as people suppose. At this point, it appears possible that the mobile TV business model is fixed network multi-channel video, much as Wi-Fi now is a feature available to broadband access subscribers.

Can Open Access FTTH Work?

Open access can work for fiber to home access, says Yankee Group analyst Benoît Felten.

Most observers might tend to agree that the thesis works better in countries without robust cable TV broadband penetration, where construction costs are high and where regulators allow a reasonable rate of return on wholesale activities.

Felton argues a wholesale approach does not reduce overall take rates or average revenue per user for the network owne, an assumption that obviously makes better sense where virtually all retailers use a single access network.

"When DSL networks started opening in Europe in 2002 to 2005, although there was often a small impact on the incumbent’s ARPU in the early stages, that ARPU climbed back to its pre-unbundling levels within a few years due to offer differentiation and the development of value-added services.

Incumbent retail market share of course drops. Felton notes that very few incumbents in Europe currently have less than 50 percent market share of broadband, and there is little reason to think that opening the DSL network has impacted their ARPU or penetration negatively.

What is different about U.S. markets, however, is that cable competitors have their own, ubiquitous networks, with a majority of market share for video and broadband access services, with growing voice share. For this reason, U.S. incumbent telcos cannot hope to serve perhaps half of all retail broadband or video providers, and perhaps 20 percent to 25 percent of all voice retailers.

"What we are saying is that our economic analysis suggests that having more than one fiber infrastructure in the ground is hard to sustain," says Felton.