Podcast Audio Videos

Phil Leigh If you would like to learn just how rapidly consumers are gaining interest in obtaining unlimited Internet access on their TVs, this podcast is for you. We have long predicted that consumers will ultimately want unlimited Internet access of their TVs. It enables them to watch any Internet video in a lean-back viewing experience from their living room sofa. Moreover, given a remote mouse and keyboard, it empowers them to use the TV as a giant window into the Internet for any purpose, including e-mail, online shopping, or Web surfing. Since at least the start of this year we have repeatedly noted that consumers are discovering how to get such access by connecting their laptop computers to their TVs. It’s an “under the radar trend” not officially promoted by any of the computer makers, but appears to be getting exponentially more fashionable. In short, we believe the trend will become a “forcing factor” leading set manufacturers to offer either (1) browser-centric TVs, or (2) TVs with an abundance of free applications permitting users to watch videos from the associated Websites. The growing popularity is partly inferred by way of proxy. Specifically, last March we posted an instructional video on YouTube describing “How to Connect PC-to-TV”. Initially we were getting less than 30 views per day, but in October the daily average was about 135. That translates to a 26% compounded monthly increase despite a summer slow-down.  Put another way, traffic was doubling about every three months. If the trend continues, daily viewership could rise to 270 by the end of January and to over 500 by the end of next April. When new factors obtain a green-field opportunity, they tend to grow exponentially during the early periods. Examples include bacteria in a petri dish, influenza virus among people, members of a Ponzi scheme, and nuclear chain reactions. Technologies that eventually become mass market standards also exhibit exponential growth in early adopter phases. Examples include, radio, television, railroads, automobiles, portable phones, air travel, and many more. In our analysis, the growth in consumers attaching laptops to their TVs is also likely to be exponential. Whether the function is 26%-per-month, or some other pace, remains to be seen. One possibility is illustrated by the chart below which projects the viewership of our instructional video based upon the best-fitting exponential equation provided by Microsoft Excel software. Growth in Video Views: How to Connect PC-to-TV The exponential trend-line is defined by: Y = 1,059e (exp.)0.1683x where Y is the number of monthly views and X is the number of months since February, 2009.  The equation predicts that next March our instructional video will have 9,400 views as compared to 4,150 in October and 811 last March. While the increasing viewership of our instructional video is only a proxy, the numbers are large enough for statistical inference. In short, consumer interest in getting unlimited Internet access on their TVs is rapidly increasing. It is important to understand that others posted similar instructional videos at about the same time, meaning that ours is not the only proxy. For example, this one had traffic growth that was about 70% faster thereby implying that consumer interest in unrestricted Internet access at their TVs is increasing even more quickly than the above graph indicates.

Phil Leigh During the first three decades of the twentieth century the most promising invention was radio. Scientists could see a clear evolutionary path for the technology that would revolutionize everyday life. The trip from the dots-and-dashes of Morse code, to audio transmission, and eventually to television, was all a matter of learning how to manipulate the electromagnetic spectrum. Unlike a fanciful speculation like teleportation, such things were undeniably possible within the theory underlying Maxwell’s equations. In 1912 the day following the rescue efforts prompted by Titanic’s SOS signals, American Marconi shares jumped in price on the stock exchange. From 1919 to 1929 revenues for RCA (Radio Corporation of America) rose from $2 million to $180 million, translating to a compound annual growth of nearly 60%. In 1928 RCA stock increased from $80 to $420 per share. It had formed the National Broadcasting Company in 1926. From a growth and stock perspective RCA was the Apple, or Google, of its time. But unlike (I trust) today’s Apple and Google it would compromise its innovative instincts in a Faustian bid to hold back the clock. Entering 1929 everything looked rosy from both a business and technological viewpoint. Recorded music was at the threshold of major advances from the pending launch of high quality vinyl long-playing standards. Two young television companies, Jenkins Television Laboratories and Television Laboratories, Inc., issued public shares. Both were respectable, although Jenkins utilized a mechanical image scanning technique that was much inferior to the CRT methodology developed by Television Labs. Despite the promising vantage point, broadcast television would not become a reality for another 17 years. Two developments strangled television in the cradle. One was the economic depression which also destroyed consumer demand for new recorded music formats. The second was RCA’s efforts to monopolize television. Companies like Jenkins and Television Labs found it hard to maintain funding as the financial markets collapsed. In 1932 RCA bought a nearly bankrupt Jenkins and put its technology on the shelf. Essentially, RCA was making too much money from radio to welcome the advent of television. For example, despite the Great Depression radio advertising grew from $27 million in 1929 to $185 million in 1939, thereby recording a 21% compound annual growth rate. Simultaneously, NBC grew even faster as it increased its share of stations. Since RCA controlled nearly all key wireless patents competitors could not introduce new products without licensing at least some RCA rights. In the matter of television, however, RCA faced a formidable rival at Television Labs where founder Philo Farnsworth pioneered CRT scanning. Ruthlessly, RCA attacked Farnsworth’s company with a multi-year barrage of legal patent challenges designed to bleed them white financially. When Television Labs gained temporary funding from Philadelphia Storage Battery (Philco), RCA threatened to deny renewal of key licenses for Philco radio products. The Farnsworth-RCA struggle unmistakably echoes the David-and-Goliath drama. For example, as a boy Philo entered the Naval Academy with the second highest entrance examine score, but dropped out after a few months to focus on television.  Despite having no college degree he was funded by San Francisco businessmen who unwittingly became the first venture capitalists. To demonstrate the safety of air travel for advantageously speedy business trips he took his wife aloft only to have her shout, “If you don’t make (the pilot) land, I’ll jump!” While the radio Goliath did not exactly win, its holding action combined with the Great Depression and the advent of World War II, delayed commercialization of television for nearly two decades. By that time Farnsworth was sadly alcoholic and worn out. Today the situation is similar. Revolutionary media changes are predictable based upon Internet and semiconductor technologies.  Unfortunately, we have stupidly led our economy into great difficulties. We bought houses we could not afford based-upon the obvious folly that prices would always go up and we could sell for a profit to an even greater fool. Our bankers lent money to unmerited borrowers simply because the lenders could divert the risks to the taxpayer while keeping all the rewards. We let ourselves forget that things that can’t continue forever, won’t. While the stock market recovery over the past year suggests that things might soon return to normal, rising unemployment and thinner consumer wallets cannot be ignored. No matter how promising our innovative products and services consumers need money to buy them. The new “normal” is not going to be so comfortable. Simultaneously, much like RCA in the 1930s certain powerful companies today would welcome a delay of innovations. Again, like RCA, they typically only want to compete in the court room or in Washington. They don’t want any changes unless they make them. Before he died in 1971, Farnsworth recovered from alcoholism and drug addition. Occasionally he was able to take on the role of obscure but venerated industry statesmen. When asked what he thought would be the future of television, he responded with a question: “What do you want it to be?” “If you can imagine something, sooner or later you may achieve it; conversely if you don’t imagine it, then there is no hope of it becoming a reality.” The natural evolution of media is toward the Internet. The advantages of immediate access, collaborative contribution, and massive economical distribution are overwhelming. Is that what we want media to be? To learn more about how your business can exploit or adapt to such changes, feel welcome to contact us. You may also want to consider buying our research reports Third Generation Television and Future Developments in Video Advertising.

Phil Leigh Will consumers pay to watch TV shows and movies at the hulu.com website? Hulu.com’s website hosts popular TV shows and movies after they have been released normally. Owners include Disney, NBC-Universal, and News Corporation (Fox). Viewers can watch shows for free but in exchange must also watch commercials since the videos are streamed and not downloaded. Last month, Chase Carey who is the President of News Corporation said that Hulu should start charging fees sometime next year. Presumably he envisions a premium subscription service providing more content or viewing time in exchange for a monthly fee. There are two reasons to be doubtful about the success of such a plan. First, as author Matt Ragas put it, “We all love the information highway, but we don’t want to pay a toll every five miles.” Second, incumbent media companies may be overvaluing their own content. Matt’s remark led me to examine my own subscriptions which are summarized in the accompanying table. Already I pay over $220 monthly for telephone, Internet, and video entertainment. Other services under consideration would advance the total to about $265 monthly.  Such an analysis makes me look for ways to cut, instead of add, services. Phil s Monthly Subscription Fees Naturally, I’ll focus on the bigger numbers first which come from the cable and wireless providers. However, if The Wall Street Journal (owned by News Corp)   editorial viewpoint prevails, the carriers will likely increase ISP fees even higher. That leaves consumers with thinner wallets to buy additional services from Hulu or anyone else. Even if cable and wireless charges don’t go up, consumers may calculate that they’re already paying enough in service fees. Readers of the Baltimore Sun seem to be strongly opposed to paying for hulu.com access. A polling button on the newspaper s website reveals that they voted 20-to-1 against it. You can see the results and review reader comments here. As for content value, the recent success of Paranormal Activity might serve as a reminder to media producers that we characteristically undervalue the works of people who are not like us. It’s reported that the movie was set in a single San Diego home and produced for $10,000. By the day after Halloween it had grossed over $80 million in box office receipts. Much like Internet publishing demolished the value of the printing press, low cost video cameras combined with computer-based film editing and an abundance of people seeking stardom and film-crew careers, necessitates an introspective reassessment of Hollywood’s self worth. Paranormal Activity is more than an isolated echo of The Blair Witch Project. Years from now we’ll look back to see it as data point in a connect-the-dots trend line pointing toward a future of content abundance. To learn more about how your business can exploit or adapt to thye future of media, feel welcome to contact us. You may also want to consider buying our research reports Third Generation Television and Future Developments in Video Advertising.

Phil Leigh Inexorable expansion of the Internet results in a lockstep growth in anxiety about threatened obsolescence among incumbent media participants. Yet whatever the changes affecting media, storytelling remains the timeless value. Even before humanity learned how to record them, the Greek Myths were passed down from generation-to-generation by oral repetition. Itinerate poets travelled around the Eastern Mediterranean retelling the stories of The Iliad and The Odyssey before Homer wrote them down about 3,000 years ago. While the media changed from spoken word to written text, the public appetite for stories was undiminished and may have even accelerated. Sometimes new media tells a story better than the old way, sometimes just about as well, and sometimes worse. Many of the screenplays of popular movies are based on earlier novels. Almost by habit, those who had read the novels often advise us that the book is better than the movie. A good example is Bonfire of the Vanities. Many consider it to be one of Tom Wolfe’s best novels and it was hugely popular. Yet as a movie it flopped at both the box office and by critical acclaim. Failure of the movie is odd considering the strength of the story and crew for the film.  The director had earlier hits such as Scarface and The Untouchables. The cast included Tom Hanks, Bruce Willis, Morgan Freeman, Kim Cattrall, Melanie Griffith, and Alan King. However, sometimes new media tells the story just about as well as the prior method. For example the film version of Pat Conroy’s The Prince of Tides seemed to measure-up to the novel. Perhaps it was partly because it was the only time that Conroy wrote his own screenplay, but Nick Nolte and Barbra Streisand played the lead characters about as I had imagined them. Finally, there are times when newer media tells the story better as in the 1960 film Home from the Hill. Based on a novel by a now nearly forgotten Texas author named William Humphrey, Vincent Minnelli used his actors with skill to draw the audience into the thoughts and emotions of the on-screen personalities. The screenplay added a character thereby changing the plot, but the changes seemed consistent with the author’s intent and augmented his message. Veteran actors Robert Mitchum and Eleanor Parker seemed born for the roles. Like Ann Margaret in Bye Bye Birdie, George Hamilton provided a debut performance in Home from the Hill that he never came close to matching in his long subsequent career. Similarly, a youthful George Peppard’s acting was never better. In short, from childhood onward we reflect an insatiable hunger when we request “tell me a story.” Whatever the medium, a narrative can be adapted to fit into it with greater or lesser results, depending upon how well the creator uses the capabilities of the medium.

Dr. Joseph Turow, University of Pennsylvania If you would like to learn what the public says about their attitudes toward behaviorally-targeted advertising, this audio interview is for you. A recent study conducted by the University of Pennsylvania and the University of California at Berkeley concludes that a two-to-one majority of Americans do not want marketers to tailor advertisements to their interests. The 1,000-person survey further indicates that nearly 90% of us particularly object to anonymous tracking of our Web-surfing for purposes of creating behaviorally-targeted ads. Our interview today is with Dr. Joseph Turow of the University of Pennsylvania who was one of the authors.   Despite the study’s conclusion it appears that consumers actually respond favorably to such ads. For example, both Amazon.com and Apple’s iTunes Store are hugely popular, yet both serve ads based upon our prior purchases and peregrinations within their websites. At Amazon.com the ads are presented as “suggestions”, but they are nonetheless advertisements. Such ads are thought to have some of the highest click-through rates on the Web. Similarly, the newspaper industry reports that the behaviorally targeted ads provided by Yahoo are among the most effective on newspaper websites. Although we sense that Dr. Turow would disagree, we are inclined to believe that the survey results partly reflect a natural human tendency to reject changes that we ourselves do not initiate. For example, a dozen years ago many parents tried to deny, or restrict, Internet access to their children. Today they recognize that the Net is as indispensible as TV. Although concerns remain, parents are unlikely to totally preclude Web access to their kids. Consider also that many terrestrial retailers have been tracking our behavior for years, but there seems to be little objection. For example, I get regular emails from Borders Books featuring special offers. Most of the time I simply delete them, but in a recent instance I was browsing at the store and recalled that I had received a 40% discount offer on any book of my choice. While at the store I read a few pages of Hallelujah Junction which is an autobiography of the contemporary classical composer, John Adams. When I got to the checkout desk, I merely showed the clerk the email discount offer on my iPhone. He said it was good enough, meaning that I did not have to print-out the coupon. In short, I saved 40% on the book. Furthermore, while reading it at home I discovered that I could sample some of Adams’ operas (Nixon in China and Dr. Atomic) on YouTube. The YouTube samples led me to Amazon.com’s download store where I purchased the symphonic version of Dr. Atomic. Unfortunately it was only available as complete album, so I had to also buy a second composition that I really did not want.  The second selection turned out to be okay, but I resented the fact that the label forced me to buy the entire album. I feel confident that label executives would similarly resent being forced to buy a $10,000 dealer-applied rust-proofing job merely because the new car they are buying is in short supply. In sum, everybody benefited from the behaviorally-targeted email from Borders Books. First, I got a 40% discount on a book that I would otherwise not have purchased at Borders. Second, YouTube got more traffic and a proselytizer for their Long Tail music videos. Third, John Adams connected with a potential buyer via the free YouTube samples. Fourth, the record label sold the music in the form of a $10 album instead of three individual tracks that would have generated only $3 in sales. (We may have more commentary on this in a later post). In conclusion, the basic premise of behavioral-targeting is to place more value in what people do as compared to what they say. Thus, maybe Turow’s study is more about what people say than what they will do.

Phil Leigh If you would like to learn how authoring will change in the next decade, this audio is for you. Recently I encountered a newly published book about the future of business in the Internet Age. Looking at the hardcover I found myself figuratively scratching my head. I could not understand why an expert would choose an aging form factor to describe the capabilities of an emerging medium. I was asking myself, “Why does this guy fail to structure the ‘book’ in a way that uses the medium itself to demonstrate the new applications he wants to promote?” Put another way, “Doesn’t a conventional book on such a topic unintentionally message the reader to ‘do as I say; not as I do’?” By contrast, authoring Third Generation Television and Future Developments in Video Advertising convinced us that our reports could much more effectively demonstrate future concepts by employing the multimedia characteristics of the Net itself. Thus, we sell them as PDFs, but each has embedded links to videos and animations illustrating the newer concepts. Sure, buyers can print-them-out and read them as paper documents, but they can also watch and see for themselves what we wrote about. Furthermore, our experience leads us to reason that such is the future of authoring in general. Later in this Century observers will likely glance back at the second decade to conclude that authoring was transformed “during the teens”. Authors will routinely use three Internet characteristics that are unavailable with paper and ink. First, is mixing media, including text, graphics, animation, video, and audio in whatever context is most appropriate. Second is ever-present access to the knowledge base of the infinite mind of the Internet Cloud. Third, is interactivity thereby permitting audience contribution to the narrative. The trends are already in place, they’re just not yet obvious. Increasingly blogs are embedding YouTube videos. The most successful ones enjoy active communities of visitors posting comments. The same is true for the online versions of newspapers such as The Wall Street Journal and The New York Times. The changes are exponential in the sense that they are happening at a steady rate. On a logarithmic chart, exponential change traces a straight line, but on an ordinary graph it traces a parabolic curve that rises ever-steeper with the passage of time. In the early periods exponential change is nearly imperceptible, but in the later stages it becomes overwhelming. For example, consider a pond with a single Lilly pad. Introduce a growth function whereby the number of pads doubles everyday such that at the end of 30 days the entire pond is covered with pads. On the 27th day fully 85% of the pond remains open water, but in the final three day the exponential (doubling) growth function results in a completely pad-choked pond. Changes in “authoring in the teens” will be similar. Such a transformation follows logically from the nearly forgotten wisdom of two Marshall McLuhan principles. First, “content follows form.” Second, “the medium is the message”. If you would like to learn more about the future of media, consider our market research reports, Third Generation Television and Future Developments in Video Advertising.

Phil Leigh What if sponsors paid for video ads only when they are actually watched? As John Wanamaker put it long ago, “I know that half of my advertising is wasted, I just don’t know which half.” For over half-a-Century Nielsen audience rating have supposedly addressed Wanamaker’s question for television ads. It’s the foundation supporting a $70 billion annual business. It’s supposed to tell advertisers which programs viewers are watching and for how long. Given present computer technology it’s downright stunning when one learns Nielsen’s techniques for collecting its data. With so much money on the table there’s a lot at stake. Some industry constituents want to update the measurement technology while others want no changes at all. Any changes are likely to upset somebody’s apple cart. That’s probably why progress in measurement methodology has moved at the pace of continental drift. Nonetheless, sponsors pay the bills and ultimately they’re going to demand more for their money. Nielsen’s flagship service tries to estimate the viewing habits of our entire nation from a polling process based upon imperfect diaries of 18,500 homes. Given the sample size, three-fourths of the 400 cable and broadcast networks are simply not watched enough to be accurately measured. Except for the top 20 markets, Nielsen mostly relies upon paper-logs that panel members (i.e. participating consumers) maintain on the honor system. Even in larger markets where Nielsen provides electronic log-entry, the company acknowledges that users sometimes press the wrong key resulting in a measurement error of up to eight-percentage-points. Owing to the shortcomings of Nielsen data, a number of vendors sell supplemental information. TiVo is one example. With several million DVRs deployed across the nation they provide more granular and real-time data. For example, TiVo can tell how long a viewer watches a commercial. Similarly, the CATV industry hopes to provide far more detailed and accurate data via its Project Canoe initiative. Unfortunately, Project Canoe faces a significant technical challenge. Data formats are inconsistent among different CATV systems. Some set-top boxes are incapable of capturing data and passing it back to the head-end. Each Multiple System Operator (e.g. Comcast, Time-Warner, etc) has proprietary elements in its networks. Proprietary inconsistencies are amplified to the nth degree considering that each MSO is by definition an amalgamation of independent systems typically acquired over decades. In sum, the problem of getting universally accurate measurements out of the legacy CATV and Satellite platforms is going to be as convoluted as the Gordian Knot. Ultimately, the solution could well be to simply cut the knot by putting all video on the Internet. Standards on the Net are decades old, uniform, and well understood by an abundance of developers all over the planet. Measurements can be in real-time and sliced & diced nearly infinitely. Most significantly, Internet sponsors are increasingly demanding Cost-Per-Action (CPA) advertising. Google AdWords conditioned them to expect that it is only necessary to pay when a visitor clicks on ads. Once video resides on the Net, sponsors may insist that they only pay for video ads that get watched.  The new paradigm will nearly eliminate the utility of audience measurement statistics as we have known them. We’ll want different data, but it will be more readily attained on the Net where the granularity and accuracy of measurement is infinitely better. To advertising executives who don’t want to be accountable for the performance of their ads, such a paradigm shift is so horrible as to be unthinkable. So they may choose to simply avoid thinking about it. To them, it’s a creation of Satan anyway, more destructive to their business as the ability of the iPhone to display its Internet Videos on a television screen. Yet, when sponsors pay for video ads only when they actually get watched, the ghost of John Wannamaker will break into a happy grin.

Typical TV Socket Panel If you would like to learn why the transformation of television only seems to be a recent development, this audio is for you. It only appears that television is transforming abruptly. In reality the trend has been in place for decades.  More importantly, its very longevity implies inexorable momentum. There is only just now an incipient awareness of the emergence of Third Generation Television. Our televisions are becoming dual function devices. On one hand they remain TVs as we have long known them, but on another they are giant windows into the Internet Cloud. Contrary to the cynics, the current state of affairs does not represent a sinister plot on the part of Hollywood producers, appliance makers, and computer manufactures against the Cable and Satellite Television industries. To the contrary, it all started in the early 1980s as TV makers sought to accommodate the CATV industry by offering more connecting sockets for attaching Cable set-top boxes to the TV. At the time, the Cable industry was expanding exponentially into urban markets whereas earlier it was limited to secondary territories. Gradually more devices designed to mate with TVs were introduced. Examples include video tape recorders, video game consoles, DVD players, camcorders, and digital cameras. As a result, connection panels like the one pictured above became the center-of-gravity for the transformation of television. Today the ever growing variety of connection jacks in the panel facilitates the attachment of Internet Connected devices such as laptop computers, iPods, iPhones, multiplayer video game consoles, TiVos, and dedicated appliances like Roku and Apple TV. The recent appearance of HDMI jacks is particularly significant because they permit the transport of High Definition video and audio in a single cable. In sum, even the most unlikely of today’s devices can exhibit Internet content through connections to the TV. For example, consider the iPhone. Since the unit has a built-in iPod it can purchase, or rent, movies from Apple’s iTunes online store. Alternately, it can download free video podcasts, some of which include popular TV shows.  Yet the iPhone will conveniently attach to a TV thereby providing a big screen display for the unit’s videos. As a number of instructional videos demonstrate, generally only the uninitiated insist that the set-up is too complex. An inevitable result of the increasingly versatile TV socket panel is vigorous growth in the practice of viewing Internet content on the TV. The proliferation of video rentals at iTunes and Amazon.com is only one example. But it is an example that portends the death of Blockbuster. Consequently, the amount of time consumers spend watching CATV, Satellite, and Broadcast TV must almost certainly decline. In our analysis, consumers will ultimately spend more time watching Internet content on their TVs than in watching conventional television. To learn more about how your business can exploit or adapt to such changes, feel welcome to contact us. You may also want to consider buying our research reports Third Generation Television and Future Developments in Video Advertising.

Adrian Ludwig of Adobe Flash Marketing If you would like to learn how Adobe plans to extend Flash Video’s market leadership on computers onto other Internet-connected devices such as mobile phones and consumer electronics appliances, this interview is for you. About 70% of today’s Internet Video is streamed in Adobe’s Flash format. That’s because nearly all computer users installed a Flash player. Consumers also like that Flash provides an “instant-on” playback experience, thereby avoiding the wait for a download. However, Apple’s iPhone does not support Flash. Even at YouTube, where Flash dominates, iPhone subscribers must use a special prepackaged application to watch the videos. When iPhone subscribers visit other websites streaming Flash, they simply cannot see the videos. As a concrete example, iPhone subscribers can watch Inside Digital Media video streams at our YouTube channel, but to get them directly from our website they must either subscribe to the podcast or click on the “download to iPod and iPhone” link. Obviously, Adobe is worried about the iPhone’s avoidance of Flash. The situation creates a conflict that is, as Don Corleone might put it, forcing the two sides to “go to the mattresses”. Our guest today is Adrian Ludwig who is the Group Manager for marketing Flash. His objective is to get Flash as widely deployed on mobile phones and consumer electronics appliances as it is on computers. In the marketplace, Adobe’s efforts are termed the “Open Screen Project” thereby stressing the fact that the Flash platform is open to independent developers. Thus, Adobe is giving developers more innovative freedom than enjoyed in the iPhone environment where applications can be rejected by Apple. Adobe hopes that the strategy will enable Flash to become a standard among the rapidly growing number of newer Internet-connected devices just as it did with computers. Apparently there are two accepted explanations for why the iPhone fails to support Flash.  One is that the AT&T wireless network is already overtaxed and cannot hope to accommodate all of the video demand that a Flash phone would induce. AT&T has mixed feeling about this explanation. On one hand it puts them at blame, but on another it gives them an argument to justify high subscription fees to finance capital investment. Our reflex reaction is to doubt the validity since travelers to Asia are able to make video phone calls in a number of countries where wireless Internet charges are often less than in the States. The second explanation is that Apple wants to insure a good video experience for iPhone subscribers.  Since Apple cannot know the bandwidth provided by each of the websites streaming Flash videos, they cannot predict how satisfactorily, or unsatisfactorily, they’ll work. Therefore, Apple prefers to have the video first downloaded to the iPhone and then played-back locally where bandwidth vagaries are eliminated. In our interview, Adrian discusses how Flash has been deployed on a number of Internet-connected devices aside from computers. Among them is the HTC Hero cellular phone that uses Google’s Android operating system. Unfortunately, Adrian declines to discuss why the iPhone fails to support Flash. Thus we are left to connect the dots without the benefit of his perspective.

If you would like to learn why many industry observers underestimate the potential for streamed movie rentals from YouTube, this audio is for you. Recently The Wall Street Journal revealed that YouTube is in discussions with selected Hollywood Studios to offer movie rentals as streams. While a number of industry observers conclude there’s not much opportunity here, we disagree. The pessimists gravitate toward three arguments. First, they suggest that few consumers will pay to watch rentals on a computer screen. Second, they conclude that the video quality of streamed-through-the-browser video will not be good enough. Third, they assume that few YouTube users will pay for content. The first argument ignores that 10 million Americans have connected computers to their TVs in order to watch Internet Video on a large screen. In our analysis, YouTube movie rental availability will accelerate the growth of this “under the radar” trend. In the typical configuration a laptop computer is attached to the TV thereby acting as the TV’s Internet Gateway over a WiFi home network. Given a wireless mouse and keyboard the user gets a lean-back viewing experience 15 – 20 feet distant from the screen. Generally, only the uninitiated assume the set-up is too geeky as documented by numerous  instructional videos.  Ultimately the laptop-as-Internet-Gateway becomes a forcing-factor leading to a new form factor such as browser centric televisions. Upon examination the poor picture quality argument also falls flat. One reason is that YouTube recently started permitting users to upload high quality video formats. No doubt, the attraction of premium content was one motivation. More importantly, to a great many viewers the “instant on” characteristic of streamed-within-a-browser video trumps the marginally improved picture quality of a time consuming download. Once people decide they want to watch a movie, they want it “right now”. Unless they’re using a monstrously large screen there’s little discernable video quality difference anyway. The picture quality argument is echoes disparaging MP3 comments from the record labels. To their regret the labels learned that convenience trumps quality. Finally the viewpoint that YouTube users won’t pay for rentals merely because they previously haven’t ignores the concept of the “latent market”. The analysis is much like the one that prominent consultants provided IBM in the 1950s when they advised the office equipment maker to avoid investing in Xerox. Specifically, Arthur D. Little reasoned that since the entire office copying market at the time was about $200 million, Haloid-Xerox stock was overpriced even if they captured a 100% share. The consultants failed to realize that the market for copies on plain paper was gigantic by comparison to the chemically treated paper copies previously available. In his memoir, My Years With Xerox the R & D chief at the time explained that Xerox repeatedly faced such skepticism when it sought business partners. He characterized the company’s journey as “the billions nobody wanted” and employed the expression as a subtitle for his book. About a decade later, Forbes Magazine listed Chester Carlson, who invented xerography, as one of the World’s wealthiest men. Years afterward Carlson’s widow corrected Forbes and explained that he anonymously gave away most of their money over the years.  But that’s another story, and a good one. In short, a better measure for the potential dimensions of a YouTube movie rental market is the annual DVD rentals business which approximates $4 - $5 billion in the U.S. alone. The added convenience of getting movies “right now” from our living room sofa adds a considerable “latent market”. The YouTube community is huge and constantly hungers for new content. Google claims that search queries on YouTube make it the second largest search engine. Such points are obvious to those routinely watching YouTube videos on their TVs.