TIVO is a provocative technology, and It has the potential
for adoption, but remember that if we do have video on
demand, where we can pull down anything that has been on
the cable satelitte spectrum in the past month, then
that will bypass TIVO. But that is 3 to 5 years out in
time and TIVO could expand significantly in that time.
the other issue is that the CEO of SFA was on cnbc and
when asked about TIVO, he said that the tivo type of
recording technology would be going into next generations
of the set-top box. Now if TIvo has patented or proprietary
systems or technology , then that would strengthen their
case.
I reprinting that long article as the NYT will take it away
from us going forward I suspect and we may want to
look back at it in 6 months.
JP
------------------------------
Boom Box
The new technology from Tivo and replay provides the
ultimate in television convenience. It will also spy on you,
destroy prime time and shatter the power of the mass
market.
By MICHAEL LEWIS Photographs by ALEXEI HAY
Video
• More on the Making of the Photographs Illustrating This Article
t is interesting
how new
technology
arrives. On the one
hand, there is
something arbitrary
about invention; on
the other, every
society seems to get
the technology it
deserves. Take ours,
for example. The
current phase of
American capitalism
began on Nov. 9,
1989, with the formal
collapse of socialism.
Suddenly, there was
no need to flavor the
free market with a
dash of something
else. The little
pockets of socialism that had been tolerated when socialism posed a threat
now, overnight, seemed horribly retrograde. Why have your capitalism
diluted when you can have it straight? Since then, as if by some marvelous
coincidence, a lot of new technology has arrived to enhance market forces.
The Internet is one such technology. It creates new markets and new
competition in old markets and helps to put a better price on everything. In
a few short years, it has pretty much gutted the principles of corporate
socialism -- jobs for life, employee and customer loyalty, all for one and
one for all -- and replaced them with Lord knows what.
On any time line that describes this phase of American capitalism, you
would have to include (in addition to Nov. 9, 1989) April 4, 1994 (birthday
of Netscape), Nov. 10, 1994 (birthday of Amazon.com), May 5, 1996
(birthday of eBay) -- and Aug. 4, 1997. Aug. 4, 1997, was the beginning of
the end of another socialistic force in American life: the mass market.
Forty years from now when you have your grandson on your knee and he
asks you, "Grandma, how did 50 million Americans ever let themselves be
talked into buying the same mouthwash?" you will say, "Well, you have to
know how things were before Aug. 4, 1997."
That was the day a pair of Silicon Valley engineers named Jim Barton and
Mike Ramsay started their own technology company. They had no idea
what that company might do. It didn't matter: all over Silicon Valley
engineers were founding companies before they had any idea of what their
companies might do; the urge to innovate preceded the innovation. The
Internet had created a climate of entrepreneurship. It was assumed that
even ordinarily smart engineers with the desire to create something new
could do so with impunity, and Barton and Ramsay were more than
ordinarily smart. They were so smart that a pair of venture capital firms --
New Enterprise Associates and Institutional Venture Partners -- advanced
them several million dollars to get them started, few questions asked.
"Three million dollars was pocket change," Ramsay explains.
Barton and Ramsay's first idea was to turn
the American home into a network.
Computer people have long imagined that
the ordinary American home one day
would be fully networked, leaving everyone
else to wonder exactly what that means.
Will the refrigerator order fresh milk
directly from the grocery store? Will the
furnace and the fish feeder and the vacuum
cleaner respond to commands from the
office desktop? Anything is possible. That
was the good part about home networking
as a business idea: the Internet had made it
feasible. The bad part about the idea was
that it was hard to see the point of it. Oh, it was easy enough to get
worked up about it with a fellow geek, but Ramsay and Barton discovered
they couldn't explain their dream to anyone else. Ramsay puts it this way:
"When you build a company around a technology and someone says, 'Tell
me again what this thing does?' you need to be able to say, 'It does this.'
We found that we couldn't say what home networking did."
And so, after a few months, they abandoned home networking. They went
back to their venture capitalists and told them that home networking was a
bad idea because they couldn't explain it to anyone but other geeks. They
had another idea, though. Instead of transforming the entire American
home, they decided to focus on the one appliance that was the closest thing
to the center of attention in the American home: the television.
Barton had become obsessed with the television a few years earlier, when
he worked at what was then the hottest computer company in Silicon
Valley, Silicon Graphics. In the early 1990's, Time Warner, AT&T,
Microsoft, Silicon Graphics and other big technology and media companies
fell in love with the same idea: that they could change the way Americans
watched television. A new device -- variously known as the telecomputer,
interactive television or the black box -- could be plonked down on top of
the American television to offer the viewer an entirely new experience,
one in which he would be able to e-mail, shop and access a virtual library
of movies from his couch. There ensued a mad scramble, and Barton was
a part of it. He helped to build the only interactive television that actually
worked, installed in late 1994 by Time Warner in 4,000 homes in Orlando,
Fla., and then watched in dismay as his beloved project was overrun by the
Internet. The Internet did a fraction of what the new TV's promised, but at
a fraction of the price.
Of the few people who dwelled on the way
the Internet had swamped interactive
television, Barton may have dwelled on it
the most. Like a lot of really smart
engineers, Barton has the air of a man used
to figuring things out. Ask him a question,
and a little smile and just a hint of self-satisfaction flickers beneath his light
brown mustache and reminds you, gently, that he knows a lot more than
the answer. But the TV gnawed at him precisely because he didn't have
the answer. He had sunk the better part of three years into building Silicon
Graphics' interactive television, and it had been a commercial disaster. The
box worked. And yet no one cared. There were several lessons in this:
No. 1: Brilliant gadgets for a mass market do not go anywhere if the
masses cannot afford them.
No. 2: A big company is not necessarily the best place to create a
revolutionary technology.
No. 3: The whims of the American consumer are the eighth wonder of the
world. They can wreak havoc with the most powerful establishments.
When Barton and Ramsay returned to the television, they had in mind
another black box, at once more and less ambitious than the interactive
television. They called it a personal television receiver, but never mind
about that. It was a black box. The main thing about the black box was
that it had a memory. It could record any program as it was watched, as
well as anything its owner instructed it to record. This is, of course, what
VCR's were designed to do but didn't, since no American, not even a geek,
could figure out how to make them work. The new box would be simple to
program. It was a VCR that did what it was supposed to do, even if you
were a moron. But it was far more versatile than that. The viewer could
record a great many hours of programming. Or he could simply tell the box
to go out and find him the kind of programs he liked. If he liked indiscreet
women, he could record and store every episode of "Sex and the City." If
he liked intelligent blood and guts, he didn't need to wait until TNT's Clint
Eastwood week -- he could just instruct his black box to fetch Clint
Eastwood movies as they played. Once the box was up and running, the
viewer's only constraint on choice was that the program had to be
broadcast by someone, sometime.
The black box also enabled the
viewer to treat all television --
even live television -- as
television he had recorded for
his own private use. All he
would need to do is start
watching a program a few
minutes after it began. Then, by
pressing a button, he could skip
the credits, the huddles, the
timeouts, the weather, the
endless clicking of the "60
Minutes" stopwatch and all the
other boring stretches of
television designed by producers
to lull the viewers into watching
ads. He could also skip the ads.
Over time, the viewer would create, in essence, his own private television
channel, stored on a hard drive in the black box, tailored with great
precision to his interests. His ability to do this would depend on the amount
of computer memory in this box. At the start, Barton reckoned, a black box
that cost $1,499 would be able to store about 28 hours of programming;
one that cost $699 would be good for six hours. But with the price of
computer memory falling by half every 18 months, the price of the box
would plummet: in less than a decade, a black box costing no more than
$100 would be able to store the equivalent of an entire Blockbuster Video
outlet.
There was one other cool thing that the black box did -- though Barton
didn't dwell on it much at first. While the viewer watched the television, the
box would watch the viewer. It would record the owner's viewing habits in
a way that TV viewing habits had never been recorded. The viewer's
every decision would be stored in a kind of private museum of whims.
Over time, the box would come to know what the viewer liked maybe even
better than the viewer himself. All by itself, it would go and record shows
that it calculated the viewer might like to watch. The box was more than a
box, it was a butler, and the more it learned about its master's whims, the
more it would be able to fetch what its master wanted.
The box had certain advantages over every other attempt to transform the
television -- and there had been many. One was its phenomenal simplicity.
Unlike, say, the VCR, it required almost no technical aptitude. The black
box would turn the television into a computer but without making any
computerlike demands on the viewer: all the consumer would see was a
slightly busier remote control. Another advantage was price. A revised
final advantage was that you could explain it all to an ordinary human
being. When someone asked Barton or Ramsay, "Tell me again what this
gadget does?" they now had a simple answer: "It lets you watch anything
you want to watch when you want to watch it."
Ramsay and Barton decided that in spite of appearances, TiVo, which is
what they decided to call their new company, was not a maker of black
boxes but a service for people who owned black boxes. TiVo would help
each and every American to create his own private television channel. Of
course, in the beginning, they would need to build the black box and sell it
to the masses. But the black box was not where the money was -- the box
was, in fact, a big money loser. To kick-start the market, Ramsay, 50, now
C.E.O., and Barton, 42, the chief technology officer, would need to pay
some consumer electronics company like Sony or Philips to manufacture
the black boxes and to sell them below cost. The trick was to get as many
black boxes into the American home as possible. Once the new boxes
were proved to delight their audience, TiVo would then offer its services to
the masses: the company's programming software would be in millions of
new homes either in tandem with existing cable boxes or, in the future,
embedded in new TV sets, cable boxes or satellite receivers made by
companies like Sony or Philips. Thus, the long-term goal of the black box
was to become unnecessary. "We'll know we've succeeded when the
TiVo box vanishes," Barton says.
The ambition of the
thing was
breathtaking. The
company intended to
plop itself down
between the 102
million homes with
televisions and the
$50 billion TV
industry. Once the
box was in place,
TiVo would be the
hub of the television
industry. The
company would come
to know the subtle
preferences of each
and every television
viewer. It would then be able to charge a fee to anyone who wanted to
locate TV viewers or groups of viewers: networks, cable companies,
advertisers. The trick was to get the box into those 102 million homes --
and that would cost money. Lots. Ramsay went back to the venture
capitalists and told them that he and Barton needed to lose between $300
million and $400 million before they became profitable. Prior to the Internet
boom, the capitalists were chary about sinking one-tenth of that sum into a
small, risky venture; now they didn't think twice. "Instead of saying, 'No,"'
says Ramsay, "they said, 'Great."'
What made the enthusiasm of TiVo's financial backers even more
astonishing was that a rival company had already sprung up. Anthony
Wood, a young entrepreneur, stumbled on the same idea as Barton and
Ramsay at roughly the same time. Wood, who made a lot of money in
computer games, had been frustrated by his inability to persuade his VCR
to record episodes of his favorite show, "Star Trek." He saw the same big
trends that had lighted a fire under Barton and Ramsay: the falling price of
computer memory, the TV viewer's desire for choice, the continued
inability of Americans to program their VCR's. In early 1998, not long after
Barton and Ramsay got their first financing, Wood generously agreed to
accept $8 million from the venture capitalists Kleiner Perkins Caufield &
Byers and Paul Allen's Vulcan Ventures. He called his new company
Replay Networks.
Another mad scramble to transform the television was under way, but this
time it was more attuned to the spirit of the marketplace -- the approach
came from the bottom up rather than from the top down. "This is the
Trojan horse for the computer industry to gain control of the entertainment
industry," says Marc Andreessen, a Netscape co-founder who invested his
own money in Replay. "It is the first box built by Silicon Valley that is
compelling enough that people want to hook it up to their TV sets."
The new companies were proposing to do politely to the television industry
what Napster was about to do to the music industry: help consumers to
help themselves to entertainment without "paying" the networks and
advertisers. Naturally, this disturbed the television networks and
advertisers. This winter, Stacy Jolna, TiVo's liaison with the networks,
appeared on a panel before the National Association of Broadcasters. Jon
Mandel, an ad executive with MediaCom, was also on the panel. "He
started by calling me and everyone involved with this technology 'the devil
incarnate,"' Jolna says. "And he went on from there. The basic attitude of
TV executives was that we were somehow going to destroy a $50 billion
business model."
By March 1999, the first TiVo and Replay boxes had already shipped. By
the beginning of this summer, several hundred thousand more boxes had
been rolled out. A Replay box with 30 hours of storage cost $499. A TiVo
box with 30 hours of storage cost $399 -- but then the company generally
charges a subscription fee of $9.95 a month. Until this June, the companies
had sold about 100,000 boxes between them, and they had done so largely
without advertising their products. Several market analysts estimate that
TiVo and Replay will have sold five to seven million boxes by the end of
2002 -- and that within a decade they will be in 90 million U.S. homes. But
that's just guessing. No one knows how quickly the companies can arm the
entire American population, or even if they will do so. The black box is not,
like the VCR, a winner-take-all market. There is room for a lot of different
companies to sell the same seditious technology and to coexist happily with
one another. They're seizing control of a $50 billion industry from its
creators; there's more than enough booty to go around.
"The one question our investors did ask us," Ramsay says, "is 'How long
will it take for the TV networks to hate you so much that they shut you
down?"'
alk to enough people at TiVo and Replay and pester enough people
at the networks and the big advertising firms, and you come to
realize that they have two stories to tell: an official story and a true
story. The official story is believed by practically no one, not even
journalists. It's pure ritual, made necessary by the desire of everyone
concerned not to dwell on the violence about to occur in a huge industry.
The official story is that these new black boxes won't destroy the television
industry as we know it; they'll merely enable its current rulers to make it an
even better place.
Right from the start, TiVo set out to persuade the networks of this pleasant
notion in the hope of avoiding lawsuits. To do this, they had to play down a
lot of what made their box desirable to a consumer. Instead of a button
that enables the viewer explicitly to skip commercials, for instance, Barton
designed one fast-forward button with three speeds, which might be called
fast forward, faster forward and faster-faster forward. The TiVo user is
able to speed through the commercials but not skip them entirely: the ad
still makes some sort of blurry impression on the viewer. "Network
psychology is to have a line in the sand mentality," says Ramsay. "If you're
on one side of the line, you're their friend. If you're on the other side of the
line, you're their enemy. Advertising the ability to skip commercials is on
the other side of the line. We designed the technology so that it doesn't
infuriate the networks."
Replay Networks, now called ReplayTV, at
first took the position that the networks'
interests were irrelevant. What the American
consumer wanted, the American consumer
eventually got, and so you might as well give it
to him right away. Replay's remote control has
a button marked "QuickSkip," which lets the
viewer leap ahead in increments of 30 seconds,
the length of a typical TV commercial. The
owner of the Replay box is thus the open
adversary of the television establishment. "I
spent a lot of the first year getting thrown out
of meetings at networks," Anthony Wood
admits. Then came a change of the Replay
heart, when Wood was replaced as C.E.O. by
Kim LeMasters, the former president of CBS
Entertainment, who saw the point of network
support. LeMasters struck a much more
conciliatory note. Though he wasn't able to
scrap QuickSkip, he let it be known that he
would not promote the feature. "The Replay
device doesn't do any good if it doesn't have anything to broadcast," he
says.
And so now the two companies are in roughly the same position of arguing
to the networks that a device that steals their power and hands it to
consumers is actually good for them. They offer two points to support the
case. The first is that the television viewer is too inert for the television to
change. Several times since the first commercial broadcast in 1939, a new
accessory has appeared that promised a revolution -- the VCR, the remote
control, cable TV -- only to be assimilated without greatly disrupting the
existing social order.
The VCR proved too unwieldy to be used for anything but rented videos.
The remote control enabled people to surf but not so much that they
spooked Procter & Gamble and General Motors and the rest. Cable TV
fractured the mass audience into slightly smaller pieces, but again, without
a huge effect on the economics of the business. True, the big three
networks had 91 percent of the viewing audience in 1978 and only 45
percent in 1999. But it is also true that of the $45 billion of television
advertising in 1999, $14 billion went to CBS, ABC and NBC, which is $10
billion more than they collected in 1978. (Advertisers have, until now, been
willing to pay the networks more for less. It's as if what matters to them is
not the absolute size of an audience but the relative one, and the three
major networks still offer them the biggest.)
The other point is that by making television more appealing, the black box
encourages people to watch even more of it. This prospect may cast
doubts on the future of intelligent life, but it should, in theory, be good for
TV networks. Replay now has actual data to prove that its new customers
watch, on average, three hours more television each week than they did
before they got the box. "Yes, we're messing with your business," they
argue to the networks. "But in the end, you'll love us for it because three
more hours a week means billions for you in additional advertising
revenues." Marc Andreessen, for one, believes this argument is persuasive
to networks. "They want to believe it because they are seeing data for the
first time that shows young people are watching less and less TV and
spending that time on the Internet."
That's the official story. It's the story that enables TiVo and Replay
employees to interact pleasantly with network and advertising executives.
But as I say, no one could possibly believe it, and it becomes less plausible
every day thanks to the information piling up inside TiVo and Replay about
how ordinary people use their new black boxes. They use them to
undermine, with ruthless precision, the interests of TV networks and
mass-market advertisers. The owners of the 100,000 or so black boxes
that have already been installed have two distinctly unsettling new habits.
The first is that they don't watch scheduled TV anymore. According to
Josh Bernoff, a television industry analyst with Forrester Research in
Cambridge, Mass., who closely follows both the black-box companies,
viewers "get into the habit of not paying attention to when the programs
are on and just watch what they've recorded."
Well. If it doesn't matter when programs run, then the whole concept of
prime time vanishes, and with it the network's ability to attract an audience
for a new show simply by broadcasting it when people have the tube
switched on. With it, also, goes the special market value of prime time --
though the market value of other broadcast space rises. Ditto the idea of
pitting one show against another by virtue of its time slot. In the age of
black boxes, every show ever broadcast competes against every other
show for the viewer's attention; for this reason, whatever advantage a
network has in the development of new TV shows disappears.
But that isn't the worst news that TiVo and Replay have for the television
networks. The worst news is that no one watches commercials anymore.
Eighty-eight percent -- 88 percent! -- of the advertisements in the
programs seen by viewers on their black boxes went unwatched. If no one
watches commercials, then there is no commercial television.
And yet -- and here is the punch line -- the major broadcast networks have
done nothing but encourage the new technology. In August 1999, Time
Warner, Disney and NBC, among others, sank $57 million into Replay.
About the same time, NBC and CBS, among others, handed $45 million to
TiVo. By the end of 1999, all three major television networks, along with
most of the major Hollywood studios, the two biggest Hollywood talent
agencies (I.C.M. and C.A.A.) and all the major cable and satellite TV
companies, had either made investments or formed partnerships with both
Replay and TiVo.
-------
thats the first half will try to copy the rest later. |
