Cross Platform Portability and the Spanish Armada

In an earlier posting, I argued that video platforms were like battleships, that as there was some combination of gun size and armor that made senses for a naval platform, there was some combination of screen size and computing power that made sense for a video platform. Further, as most unmatched naval platforms (the Graff Spee being an example) were failures; video platforms that had too big or too little screen size were not going to be successful. That equation has been somewhat upended by ever increasing screen resolution. However, as resolutions reach human visual limits, I think a new equilibrium is established. The image above is from History.net.

A new issue comes to fore that also has something of a naval analogy, that is screen aspect ratio. Apple recently modified the aspect ratio of the iPhone going to a 16:9 for the iPhone 5 form a previously more square format. The decision was motivated by a desire for a larger but not wider screen to retain its one hand use capability. 16:9 being the TV format is fortunate circumstances for "TV Everywhere" but most movies are, in fact, made in wider aspect ratios and cut down for TV. So, there is no guarantee, that future product might have even more elongated aspect ratios. Additionally, as new platforms develop (wearables, new forms of tablet notebook and TV) a diversity of aspect ratios might proliferate.

Currently content is supported by two complementary business models: purchased content and ad supported. The effect of differing aspect ratios differs greatly between the two models. In the purchased content world, as long as video content can be trimmed, or letterboxed with reasonable screen utilization, all is fine. In the ad supported world, with ads being placed in specific locations on the periphery of the screen,the actual layout of the screen is paramount if you are going to establish or maintain a multi-platform strategy. Maintaining any ad supported strategy gets more difficult in smaller and smaller screens as type sizes diminish into the unrecognizable. The art of placing ads on the periphery of the main content is one of the vexing issues for Facebook as it attempts to become more of a mobile app. But as I noted, the applicability of the ad supported model diminishes with smaller screen size and with uncertain aspect ratios. In the late 1580's, there was another multi-platform strategy that went down to defeat because of physical dimensions. The Spanish Armada was assembled with a core of actual Spanish warships and a variety of other ships that were mostly armed merchants. They all carried cannons, but the cannons were of different sizes and it seems that provisioning each ship with the right size munitions was an issue that the Spanish dealt with poorly. Many of the ships were unable to fire on their English opposition. The Spanish multi-platform strategy was a failure before it even left port.

TV makers have recently begun experimenting with "Cinema Wide" 23:9 aspect ratios to better accommodate cinematic content. New, "wearable computing" platforms are being developed, smart phone and tablet aspect ratios are the OEM's choice. Again, this fits well with a purchased content business model but not with ad supported content.

After The Storm

And after the storm,
I run and run as the rains come
And I look up, I look up,
on my knees and out of luck,
I look up

Opening lyrics to "After the Storm", by Mumford & Sons

In the February 2009 edition of “LCD TV Matters” I published an article forecasting a quick turnaround in the US TV set sales while the economy was still in free fall and shortages by 2010. The economy did recover somewhat and there were shortages for a time in 2010, but the recovery stalled and it continued to feel like we were in a recession in spite of a growing GDP. The reason for the forecast was simple. TV set sales, while certainly not recession proof; tend to be very steady over the long term. In a recession, set sales actually accelerate during the initial phases then plummet as the recession takes hold. However, these sales are not really lost, just postponed per the model developed by Jeff Johnson when he was at Philips. Long term set sales depend on things like interest rates and household growth. There can also be exogenous events such as the introduction of the VCR and the transition to HDTV that spur additional sales beyond that.

In the October 2012 edition of “High Resolution” I stick my neck out again. The article was actually written during the summer forecasting a bottom for TV set sales in Q2 of 2012. The reasons for the new forecast were largely as before even though the circumstances of “The Great Recession” were unique in the life of the TV industry. Housing prices had turned around and household growth was resuming. Other consumer durables, particularly auto sales were returning to per-recession levels driven by pent up demand. My reasoning is that many purchases were postponed during the recession. An aging automobile can be repaired rather than replaced but only for so long before it becomes uneconomic. New TV sets are usually purchased to update rather than replace a broken one, so a TV replacement would be further down the consumer’s priority list; but the fact that consumers are back to replacing some durable goods at per-recession levels means that the time is not far off for TV.

Apple was on a roll during the recession and has accumulated over $100 Billion in cash, so not all was bleak for consumer electronics. Today we learn that Samsung has done stunningly well as well and the good news is extending back to the display makers. LGD is profitable again. The US election is days away, the “Fiscal Cliff” with mandatory massive budget cuts has to be faced and there is still the possibility of a default on European sovereign debt. However, things are not nearly as threatening as they were and some are looking forward to 2013 rather than just planning how to survive.

An Apple TV and the Three Homonyms

TV
TV is actually a homonym. It can mean content, the delivery, or the hardware. Historically, this is understandable as the corporate entities were all one in the same. The broadcasters created the content, were the delivery, and designed and sometimes made the hardware. The original color broadcast system was designed by CBS and was later replaced by one designed by RCA. RCA which was the progenitor of NBC and ABC. NBC was also, at times owned by GE, another former TV brand, and the three notes that accompany the NBC logo are the musical notes G-E-C for General Electric Corporation. CBS was previously owned by Westinghouse (inventor of the active matrix LCD), and ABC is currently owned by the content creator Disney. So the TV industry has always been heavily integrated from content creation to the consumer through delivery, to the box (or now the panel) sitting in the consumer’s home.

As I discuss in “The End of Broadcast TV”, this level of integration has had a stifling effect on TV innovation, delaying both the implementation of color then high definition by over a decade on each occasion. Now the hardware industry is embracing 3 more changes to format (3D, Cinema Wide, and 4K) and no one is seeking to ask the broadcasters’ permission for the new formats. With the decline in over-the-air (OTA) reception, the role of the “broadcasters” has contracted into content creation. Further, with the increasing diversity of content choices, the broadcasters creative input has increasingly gone from shows like “60 Minutes” to “Honey Bubu”. Having to fill a broadcast schedule has always driven less than stellar content. Game shows and reality shows are the successors to soap operas. Soap Operas got their name from the fact that most were sponsored by Proctor and Gamble, the household products giant; being the source of the money, advertisers shape TV as well as fund it. The gap between some network shows and what is available on YouTube can seem quite narrow. Further, with increasing presence of internet delivered content and video on demand, the role filled by this time filler content is under assault as well. You can watch TV shows on YouTube. Soon you will be watching more of YouTube shows on TV via shows like “Tosh.0”.

Newsweek recently announced that it is ceasing publication of a physical magazine and is migrating to an internet only existence. The decision was no-doubt, motivated by the increasing expense of printing and physical delivery of a physical product. I do not have data on the cost benefit of broadcasters actually broadcasting their content but I would imagine the combination of “must carry” guaranteeing them business with the cable and satellite companies and the value of their spectrum dwarfs the advertising revenue value of the 3% of sets connecting via OTA broadcast.

(The) Display
Display is another industry homonym. As a long-time member of the “display industry”, I think of “the display” as the physical device that creates the image the consumer sees: the Liquid Crystal Display, Plasma screen, or OLED. In the internet world display (not The Display) is pop-up or other advertising that is triggered by the consumer’s content selection. In some sense, all advertising is display as advertisers always try and place ads adjacent (either in time or physical juxtaposition) next to relevant content.

There are some significant current issues with display. TV content was initially an ad supported medium. With the advent of cable, TV offered a mix of ad supported and direct pay content. Internet content began with both ad supported and pay options. That diversity will continue and may be spreading as it is rumored that Amazon is contemplating and ad supported tablet; ad supported hardware. These are not the only two models. Disney has been quite masterful at doing both and further integrating content with advertising. Disney has a variety of businesses: content creation, broadcast (the ABC network), theme parks, and merchandising. ABC, of course, runs third party ads, but all of the Disney contribution is all some form of advertising. The Disney TV shows, independent of any explicit Disney advertising, promote the theme parks and merchandise. The merchandise promotes the movies and TV content. The theme parks promote everything Disney. I will refer to this as embedded display. The Apple stores are something of an embedded display if not a full-fledged theme park. These competing models imply differing control over the ecosystems behind them. Disney controls everything Disney. Disney also has considerable sway in the hardware world as well. It was Disney’s decision to back Blu-Ray over HD-DVD that spelled the end for HD-DVD. Apple maintains tight control as well. Direct pay content is whatever you have a mind to watch. Ad supported content is somewhere in between.

A second issue with display, by necessity, display has always been some combination of graphics and necessarily text. As the focus moves from desktop and notebook screens to smartphones, the ability to condense a meaningful message into a vastly smaller space for text is a substantial challenge for both the advertiser and content deliverers such as Facebook. The resolution of the human eye is limited and while stuffing ever-more pixels into a mobile display grants bragging rights, ever smaller text becomes unreadable. This is one reason why TV has such potential; the larger screen could accommodate existing pop-up ads and then some. Largely passed by by the social media trend and not capable of the finely tuned display ads of the internet. Mobile has grown in part because it enables things that TV doesn’t, or hasn’t.

The Third Homonym
The third homonym is LCD, a banking term for Large Complex Deals. It has been widely reported that the Apple TV set is being held up by negotiations with the content owners. This may be true but I think that most of the discussion about an Apple TV set is limited in its imagination. The Apple TV set is discussed as Apple’s way of moving into an existing, low or no profit business rather than an expansion of the market. One of the things that Apple did for the smartphone market was to make the phone more of a social platform. While Apple may be in discussion with the film-makers and cable TV companies, I expect that they are also having some discussions with Twitter and YouTube as well. They will embrace, not only the existing content, but play a role in enabling new content. These changes may be reflected in the hardware as well.

Prior to the conversion to broadcast HDTV conversion, the 16:10 format was original selected by the Standard Panels Working Group (SPWG) as the standard for notebook computers. This was done to accommodate Windows. After HDTV conversion, with the widespread promotion of “16:9” many notebooks switched to a 16:9 layout. However, per Steve Jobs preference, Apple remained with 16:10 to accommodate a control bar at the bottom of 16:9 content. During the recent presidential debate, some networks ran a Twitter feed below the image of the two candidates. I could imagine that this could become a permanent part of TV viewing with the set recognizing who of those you follow, is watching the same content at the same time and display their Twitter comments at the bottom… When your team wins the Super Bowl, nothing like stuffing it in everyone else’s face. So 16:9 could easily become 16:10. The other format changes could be incorporated as well, particularly Cinema Wide (23:9) resulting in a 23:10. As to the others, 3D and 4K, they might be “A Bridge Too Far” in what is going to be an otherwise expensive set.

When showing 16:9 content, such a set would have room on the side for two 4:3 panels (the standard definition format) showing whatever the user desired, maybe Facebook or Ebay. Indeed, as with the internet, the model for advertising could shift from time slots to screen positions as with display ads today. Further, I would expect that if an iPad is not explicitly the remote for the set, the remote will have its own 7” display showing additional printed content and/or enabling the user to rearrange the content on the main screen. Other factors in the new TV as with the smartphone, a general purpose processor (maybe even a GPU rather than a CPU) and improved inputs (camera and microphone). There will also be lots of new software features, mostly ported over from those that already exist on the iPhone, but the hardware itself is the easy part.

Delivery is more problematic. When the iPod was developed, it was still most common to buy music on CDs. The content owners had no interest in CD makers or record stores, so cutting them out of the distribution chain was a small matter. Apple, itself, was enjoined from distributing music on physical media per its agreement with Apple Records. Video content makers moved from removable media to electronic distribution a while ago. Though AT&T gained a lot by being the first, and for a time only, carrier with the iPhone the same incentives are not there for cable or satellite providers. Additionally, in the era where cell phones were given away to get the consumer to sign a long term contract, locking the device so that it only worked with the provider network did not seem intrusive. It is to be discovered if consumers will buy a TV that only works with a specific provider. Such experiments in the past have failed. The new services an Apple TV set could be provided over the internet, but that leaves the majority of the content still coming through the traditional providers and not integrated with the sets new features. Integration and making it easy for the consumer has been a trademark of all Apple products.

In the switch from broadcast to other forms of delivery, a new (or in some cases old) cast could either provide cooperation or competition. Disney was a make or break decider for the last removable media format and will play a substantial role. Cisco provides much of the hardware that runs the internet. New formats and protocols will be much easier with Cisco’s help. Apple has had Cisco’s help before. Cisco actually owned the iOS and iPhone trademarks before Apple wanted to produce the products attached to these names. However, Cisco is developing a substantial brand name of its own; it could easily introduce a competing product. Similarly, if the range of new products extends into home automation, GE remains a powerful brand name and is cooperating with Apple. Samsung and LG have large appliance businesses as well.

In addition to the agreements that must be forged with film makers, broadcasters and such, there is a new ecosystem in Interactive Digital Signage that must be dealt with as well. As I have related elsewhere, there is nothing that says that the digital signage screen area could not eventually rank with that of home TVs. The digital signage advertisers will be most of the same companies that advertise on TV and will no-doubt want a coordinated, experience for Digital Out Of Home (DOOH) and in-home. The world’s top brand, by estimated value, is Coca Cola. Coke is a player in shaping digital signage and ultimately advanced TV as well. Part of this shaping will include how digital signage interacts with mobile devices. Near Field Communications (NFC) was notably absent from the new iPhone 5. If it becomes a standard part of interactive digital signage, it will become part of TV. Digital signage is also brings a new cast of companies in content creation and content delivery. Although Cisco spans both, the other new players may be folded into the TV ecosystem as well.

Conclusion
In the era where the broadcasters controlled everything from content to display hardware, understanding the industry was simple. It was made even simpler by the fact that other platforms such as smartphones, tablets, and interactive digital signage did not exist, all of the major players were operating on the same business model and all broadcasts were made using the same technical standard. There was no OS issue to divide competing ecosystems.

The influence of the broadcasters is declining; the emergence of new platforms, and new players, is making TV is much much more complex. With small screen devices bumping into the limitations of small screens, TV, the new big screen beacons. Working out all of these competing interests is a Large Complex Deal. If Apple launches a TV set, I doubt if they will have everything nailed down in the first go-round. Further, Competing OS ecosystems will not be as slow to respond.

The Rock, Paper, Scissors of Gadgets

There are three ways to make money on consumer hardware: you can charge more than it cost, you can attach a service and cover the hardware cost with service charges, or you can use the hardware as a vehicle to sell content or other products. There is nothing that says that you cannot do all three. However, in a competitive environment, the three different strategies tend to nullify each other. With cellular phones, the model had previously been to give the phone away at cost in order to get the consumer to sing a service contract. The problem with such a model is that when you are giving away the hardware, every component of the hardware is cost. Such platforms tend to not be a font of innovation as new or upgraded components means more costs. The incumbent hardware is highly vulnerable to new entrants that offer new capabilities and upgraded performance; the hardware rock breaks the cost cutting scissors of service subsidized hardware. The top cell phone makers during the free cell phone era are now struggling as the cost reduction race has tuned into an innovation race.

With hardware being rock and services being scissors, content becomes paper. The willingness of the content owners to support a hardware platform can make or break that platform. Disney’s decision to support Blu-Ray rather than HD-DVD spelled the end of HD-DVD. The video content owners’ reticence to sign an agreement with Apple seems to be a stumbling block for the much rumored Apple TV set. Paper covers rock.

The FCC with its “must carry” rules and the FTC with its antitrust enforcement makes it difficult for service providers to refuse content. So, scissors rarely cut paper, at least as far as content is concerned. However there are some examples and there may be more as the diversity of delivery mechanisms for content and product expand. As if it were a secret, Amazon made known that it is selling the Kindle at cost. The Kindle is clearly a sales vehicle for third party content and product. It has drawn a response from Walmart, which is ceasing to carry the Kindle. Indeed it would not be out of the question for Walmart to offer its own Tablet or to seek some linkage with a competing tablet maker.

Going forward, there are a variety of ways “rock, paper, scissors” could play out. As the OS owners, the managers of competing ecosystems, try and triangulate among products and services, a variety of either matching or blocking moves may occur. Microsoft is making closer ties with Barnes and Nobel. There is some speculation that tablets might get offered for free. This is ongoing in the smart phone and tablet markets. It would not be unreasonable to expect the battle to spill over into TV. Indeed, TV may be as big a prize as any.