Trick or treat.

So, How Long WIll It Take For Hollywood's Legacy Leaders To Fail?

I've been having an e-mail debate with a friend of mine over the last couple of days over the eventual transformation of the video content business.  He thinks that the transition will take a long time and the result will a complex mesh of existing a new players.

I am not so sure.  It's true, I do want to see the new players triumph (I've got a vested interest), but judging by other examples in industrial history, it seems like incumbents generally do not survive technological transitions.  The changing nature of the S&P 500 is itself a testament to the speed with which companies can turn over.

In the moment, it can seem like big companies can last forever.  But they can disappear in a flash - much faster than most people imagine is possible.  And people forget the losers very quickly.  Ask a person in New York for directions for the Pan Am tower and you'll see just how quickly memories fade.

I think a typical pattern of industry transformation looks like this:

1. New companies enter market with new technology, lots of hype, and low revenues
2. Hype dissipates and incumbents make half-hearted efforts to ape new technology
3. Industry "experts" announce existing technology will dominante for a long time, think incumbents can dominate both new and old technologies
4. New entrants reach critical mass, start rapid market share transition
5. Incumbents see their "new" products are too weak to compete, plunge suddenly to irrelevance

(I loved this book on failure)

Stages 1-3 can last for decades, but once stage 4 arrives, companies that have survived for decades can disappear in a year or two.

This pattern keeps getting repeated in industries that are subjected to intense technological change.  The New Yorker has an excellent recent article on the failure of Blockbuster and, more generally, the failure of traditional "Category Killers" to make the transition online despite analyst expectations that they would do so.  (Link)

One reason, I think, that whole industries that seem so strong can collapse nearly overnight is the typical structure of US companies.  Shareholder-capitalism demands that companies return cash and profits to investors and use debt as a tax-efficient financing tool  While individually controlled companies like Apple or Microsoft can amass billions in cash, shareholder-driven companies like IBM tend to disperse it quickly and keep little on hand.

This works great as long as "conventional wisdom" supports the continued viability of the industry, credit and capital continue to be available even if key players have significant weaknesses.  Once investor and creditor sentiment turns, however, the slightest weakness can be fatal.  Covenants in loans mean they can be called in quickly and fickle markets and suddenly deny credit to troubled companies.  One day you can roll over your loans, a week later, you can't.

There are lots of industries that have suddenly failed or been rapidly and radically transformed in bouts of intense creative destruction.  You could write a whole PhD in economics on the decline of industries (which I might enjoy if I had the time)  Here is my take on a few:

1. US Electronics Companies

Throughout the 1970s, companies from Japan like Sony gained share at the expense of traditional US electronics companies.  Japan's electronics companies were better at manufacturing and miniaturization than their US counterparts, not to mention quality.  Despite numerous efforts to "fix" the industry, it largely folded in the 1980s.

Critics recognized the troubles of the US electronics companies in the early 1980s and in less than a decade, most of the were gone.

Time from global leadership to irrelevance: 1950-1985: 35 years.

Before the Fall & Lucky To Survive.  Time Magazine (also lucky to survive)

2. US Automotive Industry

Critics of the US automotive industry were already taking on the industry in the early 1970s, but it wasn't until 2009 that the industry folded.  The enormous barriers to entry and special government favors for the US auto makers kept them in business for 40 years after they lost their competitive edge.

Had you asked any smart industry analyst in 2005 if GM could be Bankrupt in 2009, they would laughed at you. (In researching this, I found to my amazement that while there was virtually no discussion of the risk of bankruptcy for GM in 2006, this was one call that S&P actually got right - they cut GM's credit rating to junk in May 2006)

Time from global leadership to irrelevance: 1950 to 2010: 60 years.

3. Japan's Electronics Industry

Japan's reign at the top of the global electronics has been short and bitter.  In the 1980s, Sony was the world's most desirable electronics brand.  The PlayStation 2, introduced in 2000, may be recognized as Sony's high water mark and final hit product.  The company has been in decline for more than a decade, along with the rest of Japan's electronics industry.

Thanks to unlimited loans from Japan's government, the Japanese industry will never go bankrupt in the spectacular fashion of the US automotive industry, but it has already faded from relevance in the global market.

Time from global leadership to failure: 1985 to 2005.  20 years.


So where is Hollywood in this equation?  The traditional players in Hollywood peaked in 1999.  Before the internet had made file sharing rampant, while people were still buying DVDs and VHS tapes of their favorite movies and renting them at Blockbuster and paying late fees.  Before you could subscribe to Netflix.

So where are we 10 years later: I think we're somewhere around stage 3 or 4 of the failure cycle.  Hype for online media has faded and many experts think it looks like traditional distributors are going to have a strong role in both online and traditional distribution.  Like Blockbuster, they're trying to have their cake and eat it too.

The Economist recently announced that old media firms are "firmly in control of internet video."  Perhaps there's no surer sign of impending transformation that authoritative pronunciations to the contrary.

Wishful Thinking.  

But the online component is taking off at an exceptional rate.  Netflix has achieved or is close to achieving critical mass along with Hulu and YouTube.  56 million Americans have ditched live TV, of which 22 million don't even bother with a DVR - they skip TV altogether or watch it purely online.

And the traditional TV networks, what are their real assets:

• Broadcast television stations
• Brands
• Program rights for current and past TV shows
• Cable television stations and brands
• Advertising relationships and sales forces

Every single one of those assets is far less valuable than many people believe today.  Take broadcast TV stations.  In a country where more than 80% of the population has cable TV, not necessarily an essential asset.  And the truth is that the networks themselves do not actually make most of their TV shows.  The production companies sell to the highest bidder.

And the network brands and advertising relationships?  They are utterly worthless.  What does NBC stand for?  When you think NBC do you think of a specific product? Of course not!  Their legacy as providers of lowest-common-denominator entertainment mean that high end product (30 Rock) is jammed together with low-end reality TV.  The brands do not stand for anything at all and the advertising relationships are equally worthless.  Google will do a better and cheaper job of selling your airtime and content in the very near future.

Some people think the implosion of the traditional video distribution industry can't  happen for two key reasons: that the cable companies threatened by the transformation control the IP pipe into the home and that the size of video content will send the cost of broadband soaring to unreasonable levels.

I think both scenarios are unlikely.  Take blocking the IP pipe into the home.  It's true today in the US that cable companies dominate the IP delivery pipe.  They dominate but they are not the sole provider.  And while they have great power, there are several checks on that power.  To start with, they are selling broadband as a service.  Enraging your customer base is not good for business.  (well, let's be honest, cable companies have been doing that for years anyway).  More importantly, cable companies are regulated monopolies subject to control by the FCC and municipal authorities that grant those monopolies.  They do not generally smile upon the strangulation of new industries.

The leaves a second option: surging broadband prices or costly bandwidth caps.  History also makes this seem unlikely.  Every few years people announce that the internet is about to break.  Amazingly, it's still working.  People used to think that streaming music was going to do the internet in.  Bob Metcalfe, the inventor of the Ethernet, forecast the internet would collapse in 1996.  Oops.  In fact, despite demand surging from email to web pages  with pictures to music and now, finally, video, the internet has not collapsed.  Broadband has never been cheaper.  Why would 20 years of technological progress stop now?

So, yes, I guess this is a long-winded way of saying I think the end is nigh.  You won't seem on the corner of Hollywood and Vine with my sign, but I will be watching with eager anticipation.  And that failure will be good for America.   Because the happy ending, at least in America, is that every wave of corporate destruction is followed by one of re-birth.  Even as GM dies, California is churning the first wave of new auto startups in decades.  And after the whole US electronics industry collapsed, Intel, Cisco, and Apple rose from the ashes.  Before Hollywood can have a happy ending, it needs a crisis.  Every good script writer knows that.

Companies are not people. They're organizations for making money - regardless of the consequences.

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The flood of cheap tablets is starting. This one seems like good deal for the home at $99, I'd let my kids use it.

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More total Big Picture awesomeness. 15 investing rules to live by.

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On The Internet, Nobody Knows You're A TV

There is something ridiculous going on in the IPTV space: the silly differentiation  between using the internet on a TV and the internet on your PC.  Hulu blocks users who visit their site from "TV" browsers.  I, for one, just hooked my PC to my TV and was done with it.  There are already about a million people hooking up their PCs to TVs and that number is going to keep growing.

Sure, a Roku is $59, but a net-top is about $150.   You can save the difference in monthly fees alone in about a year just from the value being created, and that differentiation is only going to get smaller and smaller.  In the meantime, I hope more and more people will start finding work-arounds.  It's not hard to pretend to be a browser that you're not on the internet.

And, most importantly, I hope Google will take the gloves off.  The company should help users spoof standard PC browsers and get their IPTV and be done with this silliness.

Time for Google to take the gloves off.  Picture creative commons Templeton Photo

Cool logo craziness.

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Dinner at Bar Tartine for my father's 70th birthday.

Facebook mail melt-down!

iPhone Apps & The Backroads of Puglia

I just got back a couple of weeks ago from an amazing week long biking vacation organized by Backroads.    Actually, technically, it's really an eating vacation where you have to bicycle between meals.  I am pretty sure despite biking about 40-50 miles per day, I actually gained weight during the week.


Backroads does an amazing job, organizing the trips and bringing terrific hosts together with great hotels and restaurants.  The van that's available during the passes you occasionally, checking in to see if you need help.  I think for the first time in my entire life, I did not take advantage of any special assistance at all in an athletic endeavor.  (In high school, I would have been the first person in the van).*


Throughout the week, I used my iPhone to keep track of my location.  I got an app called Gaia GPS (also available on Android) that let's you track your activity on terrain maps.  And so each day, I was able log our rides.  Gaia GPS keeps track of all the data - location, climb and speed, as well as generating GPX trails.


The GPS trail for one of our rides looked like this:

The GPS files for our rides are all here.  You can actually load them into Google Earth and then follow your own rides around, if you want.  Just click on the link to download the file:





Title: Day 2
Date: 10/4/10 0:33:35 PDT
Distance: 65.61 km
Time: 04:36:31
Average Speed: 14.2 km/h
Max Speed: 69.5 km/h
Ascent: 835.02 m
Min/Max Altitude: 26.12 m, 312.90 m
Started: 10/4/10 0:33:39 PDT - (40.92389, 17.27645)
Ended: 10/4/10 6:30:03 PDT - (40.92425, 17.27672)


Title: Day 3 AM
Date: 10/4/10 8:47:51 PDT
Distance: 36.02 km
Time: 02:44:46
Average Speed: 13.1 km/h
Max Speed: 52.3 km/h
Ascent: 576.66 m
Min/Max Altitude: 69.70 m, 412.38 m
Started: 10/5/10 0:23:36 PDT - (40.92388, 17.27658)
Ended: 10/5/10 3:08:22 PDT - (40.76838, 17.36097)


Title: Day 3 Afternoon
Date: 10/5/10 5:33:49 PDT
Distance: 29.12 km
Time: 02:23:26
Average Speed: 12.2 km/h
Max Speed: 48.9 km/h
Ascent: 376.62 m
Min/Max Altitude: 363.11 m, 454.53 m
Started: 10/5/10 5:34:02 PDT - (40.76839, 17.36098)
Ended: 10/5/10 7:57:28 PDT - (40.67610, 17.33039)


Title: Day 4 Morning
Date: 10/6/10 0:42:43 PDT
Distance: 18.19 km
Time: 00:59:07
Average Speed: 18.5 km/h
Max Speed: 47.4 km/h
Ascent: 132.76 m
Min/Max Altitude: 364.97 m, 456.72 m
Started: 10/6/10 0:42:54 PDT - (40.68567, 17.30907)
Ended: 10/6/10 1:42:01 PDT - (40.78269, 17.23893)


Title: Day 4 Afternoon
Date: 10/6/10 3:03:44 PDT
Distance: 40.18 km
Time: 02:25:19
Average Speed: 16.6 km/h
Max Speed: 54.6 km/h
Ascent: 263.53 m
Min/Max Altitude: 0.19 m, 419.32 m
Started: 10/6/10 4:22:29 PDT - (40.78274, 17.23894)
Ended: 10/6/10 6:47:48 PDT - (40.85170, 17.42715)


Title: Day 5 Morning
Date: 10/6/10 23:58:22 PDT
Distance: 40.39 km
Time: 02:56:59
Average Speed: 13.7 km/h
Max Speed: 56.8 km/h
Ascent: 657.28 m
Min/Max Altitude: 3.02 m, 401.66 m
Started: 10/6/10 23:58:29 PDT - (40.85098, 17.42543)
Ended: 10/7/10 2:55:28 PDT - (40.73247, 17.57422)


Title: Day 5 Afternoon
Date: 10/7/10 2:56:02 PDT
Distance: 23.64 km
Time: 01:18:48
Average Speed: 18.0 km/h
Max Speed: 38.8 km/h
Ascent: 82.01 m
Min/Max Altitude: 15.51 m, 213.50 m
Started: 10/7/10 4:46:20 PDT - (40.73258, 17.57411)
Ended: 10/7/10 6:05:08 PDT - (40.85120, 17.42541)


Title: Day 6 Coastal Loop
Date: 10/7/10 22:55:14 PDT
Distance: 25.19 km
Time: 01:28:19
Average Speed: 17.1 km/h
Max Speed: 32.6 km/h
Ascent: 159.16 m
Min/Max Altitude: 2.97 m, 57.11 m
Started: 10/7/10 23:01:33 PDT - (40.85102, 17.42533)
Ended: 10/8/10 0:29:52 PDT - (40.85128, 17.42691)

Overall, the trip was one of the best I've been on - good riding, great food, great guides and hotels.  The other folks on the trip were also terrific an impressive group of very accomplished people.  We'll definitely be taking another Backroads trip in the future.


*Quitting your job that involves flying 500,000 miles a year and starting to bike to all your meetings instead really helps.  As I live in Silicon Valley, everything is just a few miles apart.  I get about 12-15 hours of biking in every week now - just going to meetings.

Second Time Around: What Have We Learned?

A great analyst post caught my attention the other day, talking  about the apparently defensive behavior seen in Apple's most recent earnings call.  It's hard to see why Apple might feel defensive - but there are a few reasons: Android devices are surging into the marketplace and they're, collectively, taking leadership.

Is it just me or have we seen this movie before?  A standardized operating system commoditizes hardware, leading to a wide variety of devices and very low costs.  Consumers, bedazzled with low up-front prices abandon a superior product for the cheap one.  In the end, the makers of commoditized devices destroy each other in an lethal price war, driving most out of the business and leaving the rest with a miserable slog through commodity hell.

From one standpoint, given the story-line, Apple could just stand back and say: guys: go for it!  Destroy each other in an Android price war ( make no mistake, the days of the $600 unsubsidized handset are coming to an end) and when you're all done killing each other, we'll be on top.  The problem with this is that while all the hardware makers may slaughter each other, that still leaves Google as the new Microsoft and Apple as a niche player (albeit a very profitable one).

I can't believe that anyone at Apple wants things to replay this way.  So what's the plan to avoid this?  How will Apple deal with the burgeoning volumes of device hardware and what are likely to be plunging device prices?  Apple does not want to sacrifice all it's margins and it does not like making crazy numbers of complex devices either.  Apple is never going to be like HTC or RIM - producing dozens of similar but not quite the same devices.

So what are Apple's options?  I have a few ideas - but I believe that Apple must have a vision going forward:

• Grow the number of devices and allow margins to decline, but refuse to license or enter into an all-out price war.  Settle for market leadership (e.g. the biggest player in every market) but not necessarily dominance.

• License selectively.  Let some partners take MacOS and iOS into specialized markets like ruggedized devices.

• Attack The Low End.  Use Apple's powerful supply chain to drive drastically lower pricing in a category of new, lower priced devices.  Use Moore's law to start making iOS devices like the iPad into the very low end of the market.  In one to two years, a new iPad could cost as little as $99 at retail

I won't beat around the bush: Apple's a great innovator.  I'm rooting for them to succeed.  I just hope we're not going to see a sequel in 2012 of 1993.

Please, don't make us go through this again.  Photo from Flickr.

"Share" as defined by Andrew Yost-Brody. Sharing is when you give me some of what you have. As in "share you raisins."

What's Slowing Down Your PC? It's the Hard Drive

There are lots of things that slow down PCs: bloatware, viruses, badly written applications.  One thing that does not slow down your PC most of the time: the CPU.  CPUs have become faster - much faster than hard drives - while at the same time we're doing more and more things that demand hard drive power - like synchronizing files and indexing them.

With the hard drive becoming the bottleneck, I'm sorely tempted by the growing popularity of SSD devices.  They can read and write several times faster than regular hard drives and they can handle the massive disk searches that go on with indexing, syncing, or anti-virus scans much more smoothly.  The result: a much faster PC.

You can try it out too at the Apple's stores.  If you look carefully, you can sometimes find a MacBook Air with a solid state drive.  Check it out, just launch every single program on the task bar at once.  It's amazingly fast.  So, despite the fact that my current MacBook is only 16 months old, I'm tempted by the new ones.  Let's see what Steve has to offer this morning.

Solid state drives for all?  Let's hope so!

Seriously funny stuff. Love TechDirt!

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Time to stop thinking of Apple as a niche company. They dominate every business they enter.

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Korean companies look set to do to Japan's car makers what they did to the electronics industry there.

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Finally, an accurate global map.

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And sure enough...shareholders are already getting angry and demanding disclosure of political spending.

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Excellent comparison of Netflix across multiple platforms.

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IVI Wars: Updates

IVI.tv is a Seattle start-up the streams TV online.  The company is trying to be a virtual cable network operator, operating under the same laws that permit cable companies to operate.  The legal show-down is on-going, but for the moment, IVI.tv is still operating.  I plan to check in periodically and see how both the service and the legal battle are evolving.

I'm crossing my fingers for them.  I don't know what the legal position is, but this is an industry that will benefit from transformation.

You can check them out here.  

When Electric Cars & Automated Driving Come Together

In a book I worked on several years ago, we talked about how different innovations can come together to deliver entirely different experiences.  When you combine health care diagnostics and remote monitoring, you don't just get remote monitoring, you get peace of mind for patients.  When you combine two hydrogen atoms with an oxygen, you don't get three atoms of gas, you get wet.

And so it will be when electric cars and self-driving cars come together.  

Electric cars are only just emerging in the market, but they already look different from traditional cars in a number of ways.  To start with, they're a lot simpler.  With fewer moving parts, they're easier to make.  They also use more off-the-shelf parts.  Those changes are already upsetting the established order - letting companies like Tesla into an industry dominated by oversized bureaucracies.  (Link)

Self driving cars are on the way in the near future as well.  The New York Times has a big article about Google's further experiments in this area, And they look promising (link).  Google's cars are driving themselves through the bay area, in traffic, on freeways, and even on side streets with pedestrians, all quite safely.  And what's exceptional today will, thanks to Moore's law, be common place in the not too distant future.

Google's Car, Photo from the  New York Times article linked.

Self driving cars could have a big impact on society - less congestion on the freeways, fewer cars, and greater productivity as people can finally text & drive at the same time.  Oh it's a miracle.

And as the two technologies emerge at the same time, it could completely change society and the automotive industry.  Today, people buy cars and they care about performance.  But if you're not driving the car, why do you care about performance?  If your acceleration and braking are set by the computer, who cares what the 0-60 performance is?

People may stop buying their own cars, choosing to rent them buy the mile.  And once that happens, concerns about the distance that can be covered by electric cars may disappear.  Need to go on a long trip? You can just rent a gasoline car instead.  That could transform rental car companies into the real power brokers, erasing the traditional direct sale of cars to dealers and on to end customers.  Given the reduced complexity of electric cars, they might as well just source them from a big contract manufacturer rather than a traditional OEM.

Self driving cars could reshape our physical landscape as well - leading to a massive new round of urban sprawl and transport consumption.  If you don't have to drive, why worry about how long the commute is?  You can be on the phone the whole way.  If you don't have to take the kids around between soccer and after school activities yourself, why worry about how many trips are involved?

It may all seem quite farfetched today, but the future can arrive quickly and suddenly.  In my experience, it usually arrives long after futurists expect it to and just before incumbents think they are ready for the transition.

A perfect evening in Bari. Drinks. Hors d'oevres. Dinner.

Blackberry's New PlayBook looks like fun

Everyone's been chasing Apple since the beginning of this year and since then, despite a lot of press releases and announcements, there's been remarkably little action.  Samsung's Galaxy Tablet is a worth challenger, but it's not clear at this time if Android is ready for primetime on the tablet.

Research In Motion's new PlayBook tablet was announced last week.  The announcement was long on promise and short on details.  The technical specifications are promising - substantially better than Apple's iPad in CPU and memory.  The device will also rock Adobe Flash and HTML5 as well as offering a new generation of BlackBerry applications.

I have to admit, I expected BlackBerry's tablet would suck.  Lately, RIM has managed to underwhelm on one new product after another.  The PlayBook, however, looks like it's going to be a good user experience.  Even better, the device can closely connect to the BlackBerry phone, sharing a single internet connection - something Steve Jobs won't allow for the iPad.  That alone could transform the economics of owning a connected tablet.  Add in enterprise-grade security and they could have a winner.

The BlackBerry PlayBook.  No Price Announced Yet.

The newest BlackBerry devices are pale imitations of Apple's iPhone,  with an aging and clunky operating system.  With the PlayBook and the QNX acquisition, it could be well be the start of a new era for RIM and an opportunity to salvage the company's market-leading position.  Lately both LG and Nokia have stumbled in the global market for Smartphones and RIM's share has been eroding as well.