Verizon Trademarks Reveal LTE "Video Messaging" Handsets?

Verizon apparently has applied for trademarks relating to"'video messaging" devices. That tends to suggest some new handsets will be brought to market for the LTE network that have video messaging as a lead application.

Though all smartphones are, by definition, multi-purpose devices, it has been clear for some time that devices can be differentiated by highlighting and optimizing a particular lead app. BlackBerry arguable was an "email" optimized device. Other devices have been optimized for Facebook, social network updates or Skype use.

It now appears video messaging could be another of the lead apps.

Verizon Trademarks Reveal LTE "Video Messaging" Handsets?:

It's a Good Thing App Developers Aren't at the Mercy of the ITU

If you want an excellent example of why it is a very good thing that software development now is viewed as occurring in "layers," where underlying communications protocols are abstracted, consider the situation facing mobile software developers.

"If you’re realistic you’ll admit that mobile “strategy” is a 12 month window into the future at best, where very few decisions are robust," argues Nick Jones, Gartner distinguished analyst.

Devices, tools, vendors, network contracts, business requirements, customer attitudes and competitors will change rapidly, probably invalidating some aspect of a strategy every couple of months.

For that reason, it is a very good thing that among the complications an application developer does not have to worry about is uncertainty about communications protocols in layers one through four of the "stack."

If there were tight linkage between layer-seven apps and layers one to four, developers would be in a pickle, now that the International Telecommunications Union has first created WiMAX and Long Term Evolution standards no real-world network uses, and further has complicated matters by saying that existing advanced 3G and pre-standard 4G networks are, in fact, 4G networks.

See this  and this this  for more details.

It's one thing to create standards that allow global networks to communicate. It's a good thing to have an evolution plan for networks that support greater functionality. It isn't so clear how useful it is to create a well-intentioned standard that first defines all existing networks of that type out of existence, before backtracking and declaring all of them to be "standards-compliant," and then to stretch the definition to include some advanced 3G networks as well.

App developers would face much greater uncertainty were they forced to create tools and products that had to track those sorts of changes.

Mobile developers can learn from the oil industry

A Look at Teen Texting Behavior

What is Netflix's Long-Term Position in Online Video Business?

Netflix has confounded naysayers for years. The basic argument has been that the DVD rental business would be replaced by online video, and that Netflix would not make the adjustment.

So far, Netflix has proved doubters spectacularly wrong. By all accounts, it is making a steady transition to online delivery, and its customers seem to be adapting as well. So perhaps a new consensus has developed: that Netflix is among the firms that will survive the transition from physical media delivery to online delivery.

If you have been in most Best Buy outlets recently, you get a sense that Best Buy is serous about ultimately phasing out sales of physical media content, to the extent that floor space is an indication of what a retailer expects to sell.

Perhaps oddly, then, one might ask the question of whether online delivery is an unalloyed good thing for Netflix. Some might argue it will pose new, and different questions, for Netflix.

Up to this point, most seem to agree that switching to online delivery saves Netflix money because the company avoids paying postal fees for delivery. That's true.

But content owners are becoming more aggressive about protecting their online rights, and it is a reasonable prediction that Netflix will have to pay much more, in the future, for access to content it can stream. That obviously could pose issues for the revenue model, given the low costs Netflix now imposes on users of its library.

If its content acquisition costs rise, Netflix will face margin pressure, with the obvious choice of raising prices or watching its margins tumble. Higher prices might limit growth, but higher prices seem almost inevitable, at some point.

In the chart, for example, note the blue bar, representing streaming content costs, compared to the white bar, which represents  DVD content acquisition costs.

At the same time, a switch to streaming, rather than DVD rentals, will cost Netflix more, over time. Now, Netflix can buy a DVD, pay once, and rent the disc until it is worn out. When streaming, the typical deal is that the content owner gets 60 percent of the gross rental fee. So there is more financial leverage when sourcing content by buying DVDs.

Other distributors pay similar amounts, of course, but generally price each viewing at higher rates, ranging from $1.99 to $4.99 per movie (or more) on Apple's iTunes, Amazon On Demand, Vudu, and cable, satellite or telco video on demand services, for example. TV show rentals might cost the end user $1 per episode.

Netflix now offers a $7.99 per month unlimited streaming service, and you can guess that the economics can invert, given reasonable volume. You might wonder how Netflix can even offer the unlimited $7.99 streaming plan, and the answer is that it has agreements that were very generous. But it takes no insight to argue that future agreements will not offer such advantages.

The Netflix deal for Starz contnet, signed in October 2008, gave Netflix access to approximately 2,500 Disney and Sony movies for less than $0.15 per subscriber per month for its content, compared to the $2 to $4 per subscriber per month that TV operators typically pay Starz.

Netflix signed a deal to stream content from Epix, which is owned by three studios, Paramount Pictures, Lions Gate and Metro-Goldwyn-Mayer. The exact terms of the deal haven't been disclosed, but numerous reports say it's for up to $1 billion over five years.

Importantly, Netflix won't be able to stream Epix's movies until 90 days after they have reached Epix's distribution window, which is typically 6-12 months after a movie is first available on premium movie channels, so this deal won't address Netflix's problem that it offers no current releases.

On the operating cost side, one might argue that more streaming means less mailing of DVDs, and hence less cost. That's correct. But one might quickly conclude that Netflix will have to pay more for streaming rights than it can possibly save in postage and fulfillment costs.

Perhaps the impact already is being felt. In the third quarter of 2010, Netflix's operating margin was 12.6 percent and net margin was 6.9 percent, down from 14.9 percent and 8.4 percent, respectively, in the second quarter. Some would say that is the result of higher content payments not balanced by an equal reduction in distribution cost.

There are other issues as well. At some point, if consumers start paying for bandwidth consumed that accounts for higher video consumption, the implied cost of streaming delivery will grow, increasing the "price" part of the "value versus price" equation. That could make other alternatives, especially a multichannel video subscription plus digital video recorder, a much more attractive "value."

That will especially be true for wireless providers, as people are getting used to watching video on their mobiles, and viewing on an iPad or wireless-connected PC also can be a satisfactory experience. Sanford C. Bernstein analyst Craig Moffett, for example, expects the revenue per megabit for wireless providers to fall from 43 cents today to just 2 cents in 2014.

Down the road are other potential risks to the business model as well. In September, the U.S. Court of Appeals for the Ninth Circuit issued adecision that calls into question the First Sale Doctrine. Though it was a case related to re-selling software, the court observed that the policy implications might affect movies as well.

To get early access to fresh content, Netflix will have to pay more. If it chooses not to do so, the value of its library might weaken, from a customer's perspective. If it pays more to acquire more, and fresher content, its costs go up. So Netflix might have to raise prices. That could change its place in the market.

Netflix could accept lower margins, up to a point. Amazon certainly seems willing to do so. But assuming Netflix can manage those challenges, it does seem that a strategic choice has to be made. Netflix can offer a wider array of current content at higher prices, or a more-limited range of library or catalog content at lower prices. Some would argue it will do both, offering "enough" content at "good enough" prices to establish its position within the overall online video market.

Even in the more-established "premium" channel space, there is content differentiation between HBO, Starz and Showtime because none of the networks can afford to buy rights to all "new release" movie content, for example.

The trick will be to build on the library while adding just enough fresh and recent content to remain competitive. It's a tall order, but Netflix has confounded its critics in the past.

Whitney Tilson: Why We’re Short Netflix - Seeking Alpha:

TV Viewing Fragmenting Across Devices

Fully 87 percent of users age 13 or older say they have played video games of some kind for Xbox 360 and Wii, with 80 percent saying they have done so for PlayStation 3. Much of this is the result of traditional offline play, but nearly half of Xbox 360 and PlayStation 3 users say they play games online.

read more here

But that might not be the most-important development in the gaming console space. The second-most popular use of consoles is for watching DVDs/Blu-Rays, most noticeably for PlayStation 3 but also for Xbox 360 (DVD playback is not a standard feature on the Wii.

PlayStation 3 users indicate that DVD/Blu-Ray viewing occupies 27 percent of their time with the console, about the same amount of time as users spend with offline gaming. DVD viewing occupies 11 percent of time on an Xbox 360

Video-on-demand and streaming services such as Netflix, MLB Network and ESPN3, account for 20 percent of Wii users’ time, 10 percent of Xbox 360 users’ time and 9 percent of PlayStation 3 users’ time.

In the second quarter of 2010, the average person watched more than 143 hours of television per month. What is perhaps new is the growing amount of time spent using gaming consoles for some of that viewing.

read more here

Online Video Will Probably Follow the Early Steamship Model

Over-the-top video clearly resonates with consumers. The big challenge is figuring out a revenue model for the content owners and providers that supplies the content people want, at prices they are willing to pay.

Some might predict that the interim business model will essentially be the same as was adopted by sailing ships as the "age of steam" arrived. At first, sailing ships were outfitted with boilers, and used both methods of propulsion. Only later did virtually all ships convert to steam-only propulsion.

That's probably going to happen with entertainment video as well.

Verizon's "Flex View for FiOS" is one example, as is "TV Everywhere." FiOS subscribers can rent or purchase on-demand content and watch it on up to five devices.

Netflix takes a somewhat similar approach, allowing consumers to rent either DVDs or stream content, all as part of a single subscription.

One suspects that is going to be a dominant pattern, for the time being. Content owners and networks will not want to move too quickly to essentially cannibalize one existing revenue stream while trying to grow the new one.

Yankee Group :: Research Report

Not Enough Competition in U.S. Broadband Market?

Many people believe there is not enough competition in U.S. broadband access markets, which will come as news to the firms that actually compete in the market. But it's always easier to criticize somebody else's business than your own, one might observe. read more here

Sometimes the argument is that the alleged "lack of competition" means slower access speeds in the U.S. market, compared to some others. And the U.S. does feature typical speeds than some other nations do. With no exceptions, those nations are territorially small, have high population density and also tend to have had heavy financial sponsorship. The first observation means any advanced network can be built faster; the second and third observations mean any advanced network can be built more affordably.

The simple fact is that no large country, especially not any country with continental size, ranks in the very-top of broadband speeds. And there are simple reasons for that situation: Very-large networks, covering very large areas, with highly-varied population density, cost much more to build, and simply take longer.

Despite those background factors, the United States ranks about where you would expect, in line with the United Kingdom, France and Germany, for example, in most measures of broadband speed or coverage. The United States is not at the top, and likely never will be. The United States never ranked much more than 14th globally for fixed-line voice, either, and nobody seems to think voice service has been an impediment to economic growth, social equity or anything else.

The other issue is consumer demand. Broadband penetration in the United States in right in line with PC ownership. About a quarter of U.S. homes do not seem to own PCs, making broadband a rather useless product. Now that broadband adoption is up around the 70 percent level, most people who own PCs buy broadband.

The other angle is consumer demand for various speed tiers. There just isn't much demand for the fastest tiers of service, with most buyers purchasing services virtually all surveys indicate they are happy with. In other words, U.S. consumers choose services offering moderate speeds, and moderate prices, not the fastest speeds sold at the highest prices. Unless you think people are irrational, that sort of makes sense: people buy services that meet their needs, not "just because" faster speeds are available.

The FCC also notes that 66 percent of U.S. consumers already are buying access services running at bandwidths between 3 Mbps and 10 Mbps. Most service providers will tell you that this represents the bulk of current buying behavior. Will people buy services of higher capacity in the future? Most people think so. Are they likely to pay much more than they do now? Perhaps, but only if some other part of their current budgets can be shifted. There is little, if any, evidence that the percentage of household spending devoted to communications changes very much from year to year, running about 2.3 percent or so of budgets, and growing very slowly over time.

Broadband access is a means to an end. People might want the Apple iPad because it, in itself, is seen as having high value. Price has not been an impediment to robust adoption. But broadband access isn't that sort of product. There isn't the same "need" to buy the fastest service, as there might be to buy a Lexus.

One might argue that 3 Mbps is good enough for most people who pay with their own money. The Federal Communications Commission's latest report on the state of U.S. broadband access services took a look at locations by zip code, and estimated that 48 percent of U.S. households had, at the end of 2009, the ability to buy downstream service of at least 3 Mbps and upstream service of more than 200 kbps from at least three fixed-network providers. You might not say that is fast enough, or that three providers are not enough. Fair enough, but that's a value judgment.

read more here

Some 44 percent had the ability to buy such service from at least two fixed-network providers.

About 22 percent of househoulds could buy service of at least 6 Mbps/1.5 Mbps from at least two providers, while 57 percent could buy from at least one provider. Some 20 percent of U.S. households could buy service of at least 10 Mbps from at least two providers, while 58 percent could buy service from at least one provider. Some work needs to be done there, but upgrades are on-going, and those gaps will be closed.

If one adds in wireless providers, the FCC found that 58 percent of U.S. homes could buy wireless service of at least 3 Mbps/200 kbps from at least three providers, while 35 percent could buy from at least two providers and six percent had at least one provider.

But what makes a market workably competitive? That might not be a tough question in the abstract. Most people would probably agree that multiple competitors in any market are good for competition, and therefore good for consumer welfare. read more here

Matters are tougher when looking at capital-intensive industries. But how much facilities-based competition is actually possible in the wireline or mobile broadband industries?

Some would argue from experience and study that much more than two or three facilities-based competitors in a fixed-neetwork business, in a large market, is about as good as it gets. read more here