Gary Arlen's blog

Bob's Back: Johnson's Media Return Is Digital

Robert Johnson, who made his fortune as founder of Black Entertainment Television, is back in the media business, this time with a focus on developing and distributing content “to all media platforms, including broadcast and cable, DVD and Blu-Ray, digital downloads, and digital streaming,” as he puts it.

A great emphasis will be on the latter two platforms, if you interpret Johnson’s focus in announcing two acquisitions and the creation of RLJ Entertainment Inc. this week. He made it clear that the new venture is intended “to reach a broader audience across the expanding number of media outlets.”

The newly created RLJ Entertainment, which intends to go public later this year, on Monday revealed that it has acquired Image Entertainment a southern California movie and TV distributor, and Acorn Media Group, a suburban Washington, DC, distributor known for its library of British TV programming. The new public company will be based in Los Angeles.

Image controls a library of more than 3,700 comedy, horror and urban genre titles, many of which are available via Netflix, Hulu and iTunes. Acorn, which last month bought a controlling stake in the Agatha Christie literary estate, has been active in developing original content for adult mystery/dramas and for its Acacia lifestyle brand, which offers yoga, fitness and other video programs - many of which are available digitally. Acorn also has a thriving catalog and ecommerce business. (Disclosure: I served on Acorn’s advisory board for several years during the last decade.)

Johnson’s RLJ Acquisition, Inc. is rolling up the two media companies; it paid $22.5 million in cash and promissory notes for Image and $105 million in cash, plus 1 million in common shares for Acorn. RLJA is a Special Purpose Acquisition Company (SPAC), also known as a “blank check company” that seeks to acquire privately-held operating companies.

In recent years, Johnson has parlayed his BET prominence and fortune into a variety of ventures in banking, lodging/hospitality and sports. The creation of RLJ Entertainment is a reminder that his media roots run strong - and he continues to see it in terms of specialty content delivered through the best new platforms. That’s how Johnson leveraged his role as an NCTA lobbyist (where he developed great industry contacts) and his vision for an African-American channel into the breakthrough BET.

Johnson sees the merger of Acorn and Image into RLJ Entertainment, expected to finalize by June, as “a unique way to transform the way minority content can come to the marketplace,” as he told The Washington Post. “We’ll be in a position to say to minority producers and content creators that we can help you value what you produce by getting it distributed across all distribution platforms.”

There’s that competitive, cross-platform agenda again.

Johnson will serve as executive chairman of the combined companies and will, according to the RLJ Entertainment announcement “leverage his substantial expertise in media, consumer branding, and strategic relationships to accelerate growth and drive value creation.”

It starts with diverse, urban, mass market content - with a British accent - and a whole new way of bringing it to living rooms and hand-held devices.

Gary Arlen is president of Arlen Communications LLC in Bethesda, Md., and a long-time interactive TV enthusiast. Reach him at GArlen@ArlenCom.com  

Two More Ways Microsoft's in Control (or Wants to Be)

A patent for “control-based content pricing” that Microsoft received a few months ago is suddenly stirring a lot of interest as digital advertisers discover its potential to charge viewers dynamically for skipping commercials or for replaying program segments, such as big plays during a sports telecast.

Patent Number 8,065,696 would let a content provider (network operator, programmer or other) charge viewers an extra fee when they push a button on their remote control, which signals a “client device” (pronounced “set-top box”) to trigger a “valuation application” from a remote content server. In turn, that server pulls the appropriate on-demand media content (or skips over it) from the content storage host.

The patent’s illustration includes a schematic that starts with a familiar STB remote control, although conceivably the interaction could be delivered through any online interface device. Microsoft’s technologists filed the application just over eight years ago, but the flurry of interest has escalated since the issued patent drew greater visibility two weeks ago. It prompted an official statement from the Redmond behemoth:

“Microsoft regularly applies for and receives patents as part of its business practice,” said a company spokesperson. “Not all patents applied for or received will be incorporated into a Microsoft product.”

This one, however, seems destined to find a market (and conceivably some infringement protests). It fulfills the long-envisioned vow to give viewers the option to pay more to see a show without commercials or to request on-demand viewing of specific show segments. According to the Microsoft concept, pricing may be assessed as a debit or credit function; for example, viewers could get a credit to watch a commercial before receiving the video content - whether via a TV set or online video connection.

Separately, another Microsoft patent published this month offers an alternative peek into the company’s control and viewing agenda. This one involves a 3D “heads-up” viewing feature delivered via goggles or a helmet. Ostensibly, it’s for use with Xbox 360 videogames, but it’s easy to imagine that the goggles (actually more like enhanced sunglasses) could be used with mobile devices and other gizmos that increasingly interface with “wherever you’re looking” so that you can see a virtual image. The current specs envision a 16:9 aspect ratio image visualization as if it a 21-inch diagonal image about an arm’s length from your face.

Significantly, both Microsoft patents are part of Silicon Valley’s agenda in the living room and beyond. Google and Apple, among others, are also working on interactive goggles/glasses to enhance personal visualization, and especially the advertising/revenue opportunities of personalization. And their own advertising ideas go toward greater customization.
Hence, although it was surely coincidental, on March 20, within days of the Microsoft control-pricing patent brouhaha, the Patent Office issued to Google a patent for “advertising based on environmental conditions” - likely a mobile implementation, but potentially one with in-home characteristics.

Patent 8,138,930 matches “the environmental condition …based on a signal output from a sensor” to deliver an advertisement that matches the weather conditions.

That’s a lot of interactive advertising and control capability popping up within the same month as the cutbacks at Canoe Ventures. Now let’s see what actually comes to market — and how soon.

Gary Arlen is president of Arlen Communications LLC in Bethesda, Md., and a long-time interactive TV enthusiast. Reach him at GArlen@ArlenCom.com  

Social TV Is Dying. Viva Social TV.

Among this week’s strangest “rush to judgment” moments is a blog suggesting that social TV has already begun to founder.

The “evidence”: a trending chart from Topsy Labs, which tracks a downward slide in the number of references to #socialtv, from nearly 1,000 on February 26 to barely 100 on March 16. In between there was a small spike in mentions, presumably during South by Southwest week or coinciding with a New York conference about social media - both of which included dialogues on the topic of social TV.

Topsy Labs chartAs a researcher, I know better than to focus on any short-term, narrow data point to jump to a conclusion. I also recognize the reality that metadata today, such as the analyses of Twitter and Facebook “mentions” used in the Topsy Labs report, are important tools to identify moods and directions amongst consumer and B2B audiences. And I certainly acknowledge a blogger’s right to opine based on the appealing data glut - no matter its soundness.

The aberrational downtrend in “social TV” references just struck me as a routine factor in the rapid-cycling social media environment. The recent slide proves that talk (or texting) about a topic surges for any variety of reasons after which we get tired of it for a while.

My reason for trying to figure out the “faddiness” factor stems from my own current preparation of several reports about social TV. I am awed by the amount of effort to spawn this long-awaited version of interactive TV by MSOs, networks, program producers, advertisers, social TV aggregators and consumer electronics manufacturers and electronics makers. Yes, social TV apps have been under development for several years, with this latest incarnation often taking a second-screen twist.

Indeed, that Feb. 26 peak in Topsy Labs’ social TV report coincided with the Academy Awards telecast, which generated 3.8 million simultaneous online comments from 966,000 viewsers. (”Viewsers” is a neologism for interactive viewing users.) That staggering example of social TV engagement, by the way, paled against February’s other two big social TV events: the Grammy telecast with 13 million “social media comments” and Super Bowl XLV’s 12.2 million comments from 5.4 million people, according to BlueFin Labs’ tally.

Moreover, during the past week, Trendrr’s monitor of social TV engagement demonstrated the continuing appeal of social TV, based on viewer involvement, not just industry discussion of the topic. Tracking TV programs that generated the most simultaneous social chatter, Trendrr identified that five of cable’s top 10 shows and three of broadcasting top 10 chatter-generators were NCAA March Madness basketball games. (For what it’s worth, AMC’s The Walking Dead triggered the week’s most social TV activity, with nearly a half-million Tweets, posts, check-ins and other actions.)

Trendrr’s tiny slice of research happens to underscore a perception that Todd Walker, senior vice president of product management at Comcast Cable, expressed. He oversees the MSO’s social TV initiatives and told me that some programming “lends itself to interactivity, with voting, polls, trivia and additional information and other programming does not.” He also acknowledged that some programmers prefer “to allow social interactivity on the primary television screen, interacting with the remote control, while others are placing their efforts on second-screen experiences for laptops, tablets and smart phones. We want to allow flexibility for programmers to reach our customers and interact with them in the best way possible, which may be different for various programmers”

Walker’s points emphasize the real, ongoing dynamic in the social TV category today. Shawn Cunningham, chief marketing officer and co-founder of yap.TV Inc. told me that users who are experienced in turning to their tablets and smartphones favor the two-screen format because they “prefer not to pollute the first screen with social TV content.”

“They like 1080p on the first screen and expect the second screen to be used for interactivity,” Cunningham said. “Our experience has been that consumers prefer the second-screen companion experience and prefer their first screen for the full HD experience.”

On the other hand, my contacts at Sony, Panasonic and LG Electronics, among others, all believe that the social TV evolution will focus on the big flat-panel TV, although all acknowledge a role for second-screen engagement. Again, their work reemphasizes that social TV is hardly in decline, even though fewer people may have been chattering about it during a short period.

During my recent social TV research, one of the most obvious yet insightful remarks about the current social TV dynamic came from Mike Abary, who oversees social TV ventures as senior vice president-business development at Sony Electronics Inc.

“Everyone is taking their own stab at how to come up with their own solution,” Abary said.

His words reminded me how confusingly competitive social TV is right now and also that just because a topic is not trending this week does not mean that it isn’t important or vital.

Except to people who believe that things are ONLY important if they have immediate buzz.

Gary Arlen is president of Arlen Communications LLC in Bethesda, Md., and a long-time interactive TV enthusiast. Reach him at GArlen@ArlenCom.com  

How To Interact During Super Bowl Interactive Ads

You can be sure that Comcast’s advertising seers and their minions at Canoe Ventures will be keeping a keen eye on the array of interactive commercials during Sunday’s Super Bowl, carried on Comcast-owned NBC-TV broadcast channel.

With an estimated 60% of viewers holding their smartphones and tablets close at hand, and at least one-third of the commercials “Shazamized” for the two-screen experience, SB XLVI will be a crucible for interactive advertising.

Yes, once again, “This is the year when interactive advertising takes off.”

And thanks to the two-screen environment, along with the convergence of economic and technical factors, maybe that decades-old expectation will actually come true this time. As social TV makes its mark, big automotive and soft-drink commercials are embedding viewer-response options into their Super Bowl spots. The Chevy Game Time app (available for iPhone/iPad and Android devices) lets viewers compete for 20 vehicles and other prizes. Coca-Cola’s polar bears, programmed with countless reactions, will be “puppetted” to respond to game play on the field via the second screen, accessed via Facebook.

Those campaigns, if successful, will keep viewers jockeying between the big and small screens, which is just what advertisers - in their quest for social media engagement - are hoping. Shazam for TV, the app that lets advertisers embed digital info within video ads, is being used by several (not yet identified) Super Bowl advertisers, that will amplify their on-TV ads with targeted mobile content and real-time offers to handset viewers. Promotions will include sweepstakes, lead-generation pitches, special content and free music download offers.

The Super Bowl ad frenzy is part of the escalating two-screen approach, which includes new ventures such as Viggle, a new venture from Function(X) Inc. Viggle is a handset app that rewards viewers when they check in to say they’re watching a TV show, offering prizes such as gift cards, music downloads and movie tickets. We’ve heard of several similar ventures that plan to bring aboard major advertisers for viewer-reward projects based on actual responses to on-TV advertising.

Meanwhile, Comcast’s social TV initiative - the subject of a recently revealed patent application - would reward viewers for encouraging other subscribers to tune into a show they are watching.

We’ve just seen the power of the two-screen ad opportunity. At last week’s ESPN Winter X Games, the worldwide leader used Shazam to interactivate viewer involvement in the sportscasts. Shazam also recently cut a deal with SyFy, USA and E! (not coincidentally all part of the Comcast/NBCU empire) to enhance programs and ads with second-screen information, offers, coupons and deals.

With the New York Giants- New England Patriots game as a powerful stalking horse, Sunday interactivated Super Bowl will be a closely watched - and huge - field trial for the opportunities in two-screen advertising. I asked Canoe Ventures about its views - but, typically, there was no comment since its members are not involved in broadcast programming (which conveniently, of course, overlooks member Comcast’s ownership of a certain broadcast network; hint: its initials are the first letters of the previous three words in reverse order.)

Admittedly, Canoe’s just-below-the-radar interactive advertising objectives and trials are different from the real-world pizzazz of Super Sunday. So let’s watch to see if the two-screen ad assault will offer lessons for future interactive ad campaigns, or if it will be a launch-pad for ads that, beyond the transmission system, don’t particularly need the cable infrastructure.

Just don’t get too much Buffalo wings’ grease on the thumb that controls your iPad interactions.

Gary Arlen is president of Arlen Communications LLC in Bethesda, Md., and a long-time interactive TV enthusiast. Reach him at GArlen@ArlenCom.com  

Intensifying the Spectrum War

As if the battle for wireless bandwidth isn’t volatile enough already, would-be participants keep finding new ways to ratchet up the confrontation.

Even the most well-intentioned suggestions are likely to delay any decision-making, as policy hounds try to calculate the consequences of spectrum reallocation. For cable operators and content suppliers, the battle for wireless broadband bandwidth will raise new barriers to business development.

Among the latest factors is a suggestion from Rey Ramsey, chair of the One Economy Corp. that “Congress look at public purpose when spectrum is being relocated.” One Economy, a non-profit that has supported and funneled funding for minority-oriented Webisodic series such as “Diary of a Single Mother” and “Los Americans”, believes that such socially relevant content deserves an easy-to-find place in the new video landscape. It expects that such programs will find advertiser support, Ramsey said at the Minority Media & Telecom Council’s “Broadband and Social Justice Policy Summit.”

Ramsey’s plea for wireless spectrum that can be used for socially relevant programming added to the renewed frenzy about what to do with the airwaves. Earlier from the same MMTC rostrum, Blair Levin, the former head of the FCC’s National Broadband Plan task force, renewed his assault on the House of Representatives’ spectrum bill, which he called a “long, complicated piece of proposed legislation … [that] undercuts the structure of one of the most successful government programs of the last two decades”: the incentive auctions.

Expanding on his remarks earlier in the month, Levin, now an Aspen Institute fellow, chastised the Congressional plan for giving broadcasters too much leverage in the spectrum auction.

“It’s odd that the House thinks it is in a position today to say there is no conceivable change in the market that would justify any kind of constraint on who would be eligible to participate [in auctions] and no conceivable change in technology that might increase what we want to allocate to unlicensed or opportunistic uses,” Levin said. He also contended that the “constraints in the House bill will limit the revenues.”

His remarks reflected his views about public purpose, which were a core of the National Broadband Plan. And Levin’s comments marked the start of a week-long assault on the Congressional auction plan.

A few days later, his former FCC boss, former Chairman Reed Hundt, at another Washington conference, called the House spectrum legislation “the single worst telecom bill” he has ever seen” and urged that it ” should be rejected, not compromised with.” Hundt’s remarks at a Capitol Hill event sponsored by the Wireless Innovation Alliance and the New America Foundation, focused on the House Republican proposal that would restrict the FCC’s ability to impose conditions on companies that win spectrum auctions.

Also at the Capitol Hill conference, Sen. John Kerry warned that restricting unlicensed spectrum is “unbelievably shortsighted and remarkably self-defeating.” He said that he would like to see the FCC open even more unlicensed spectrum for wi-fi and new technologies, noting that Congress is in no position to predict what new services will emerge that need more unlicensed spectrum.

Back at the MMTC, top government officials also had talked about the untapped - and unknown - opportunities that will be part of the spectrum mix. NTIA Deputy Administrator Anna Gomez emphasized that whatever happens with spectrum assignments, commercial services will have to co-exist with government-run wireless services, possibly in some frequency-sharing process.

And that’s what makes this new round of spectrum rhetoric even more significant throughout the conduit and content categories of the telecom world. As more special interests stake a claim on the airwaves, and as their political objectives are more deeply inserted into the debate, policy paralysis is inevitable - especially in the current toxic Washington environment.

For services - including the expanding cable home management ventures that rely on wireless broadband technology - the inevitable stalemate, along with the heated verbiage, is likely to delay or stymie important opportunities.

Indeed, the battle may become one about whose opportunities are better or more important. That’s a war which everyone loses.

Gary Arlen is president of Arlen Communications LLC in Bethesda, Md., and a long-time interactive TV enthusiast. Reach him at GArlen@ArlenCom.com  

Facebook's First Movie Debuts on February 24

What is it about new media’s proclivity for disaster movies? The original Poseidon Adventure debuted the same year (1972) as Home Box Office, and it became a staple of the new premium network’s programming lineup.

That historical tidbit came to mind when I noticed that Facebook will debut Tomorrow, When the War Began, its first feature film offering, on Feb. 24. The movie is a two-year-old Australian hit about teenagers fighting back against a military attack. It is being released on Facebook, day-and-date with a very limited theatrical distribution (not available in New York, Los Angeles and other major markets, and we know what that usually means.)

Milyoni Inc. (pronounced “Million Eye”), which calls itself an “f-commerce” (as in Facebook commerce”) social media provider, is handling the Facebook release. The movie will also be distributed via iTunes, Vudu, Amazon, YouTube and In-Demand.

Tomorrow, When the War Began, even if it goes viral among Facebook’s target audience, may not become a cultural icon on the scale of Poseidon. But it will earn at least a footnote in the evolutionary history of digital distribution competition. Facebook will get a 30% share of revenues from the movie’s streaming, according to published reports; the price of the movie was not yet announced a week before the debut.

Like Google, Facebook has let it be known that it intends to play a big role in the development and distribution of feature films - competing with cable and other legacy providers. The added value of such delivery, as Milyoni emphasizes, is that viewing via a social media platform lets fans watch and chat simultaneously, creating “a massive social frenzy that would be impossible to duplicate anywhere else.”

We’re at a very early stage of this re-invention of movie distribution. Warner Bros, for example, has had a Facebook deal for a year, but it is largely a promotional vehicle for hawking Warner content. There is, predictably, immense buzz that Warner may do something spectacular online with Dark Knight Rises, its final Batman installment due out in July. But, of course, that is just buzz.

Yet this buzz comes amidst a continuing avalanche of research to demonstrate that viewers are migrating their platform preferences. Last week’s Ooyala Video Index for Q4 2011 is the most potent proof of concept: online video attracted more than 100 million unique monthly viewers. That jibes with separate studies that point to greater reliance on video delivery - especially from trusted alternative sources.

For example, market research firm Chadwick Martin Bailey, in a study released last week found that 16% of all pay TV customers say they are likely to reduce their level of pay TV service in the next year. More than half (54%) of all consumers have already tried alternatives to pay TV (i.e. Netflix, Apple TV, or a network’s website), the study found.

Separate research from Parks Associates correlated the growing use of Internet-connected TV sets and found that nearly one-third of U.S. broadband homes have watched movies and TV show via the Internet on their flat-panel digital TV sets.

Hence it’s worth taking seriously the competitive factors posed by the Tomorrow, When the War Began option on Facebook and other new online content options. Some media old-timers are gloating that made-for-online shows, such as Hulu’s Battleground and Netflix’s Lilyhammer, debuted to mediocre reception. To be sure, both shows are derivative of existing TV programming, produced by veteran video creators who moved over to a new platform in its earliest days.

Which reminds me of HBO’s other big program of its premiere year: a Pennsylvania polka party. Previous results are no guarantee of future performance. In other words, awkward beginnings do not always equate to long-term failure.

Gary Arlen is president of Arlen Communications LLC in Bethesda, Md., and a long-time interactive TV enthusiast. Reach him at GArlen@ArlenCom.com  

It's about Bandwidth, not just Spectrum

Methodology is meat for wonks. We thrive on the variables that define a study’s results and augur dramatic changes ahead.

That’s why Cisco’s “Global Mobile Data Traffic Forecast for 2011 to 2016″ is so fascinating. It’s not just about the incredible numbers - 10 billion mobile devices for the globe’s 7.3 billion inhabitants within the next five years - but about the accelerating velocity of growth. And you can’t ignore the broader implications for all transmission options (including cable) - not just mobile/wireless. Moreover, Cisco’s study underscores the looming dominance of tablets as preferred media access tools.

As colleague Todd Spangler reported, Cisco’s latest Visual Networking Index (VNI) shows that mobile video traffic, which now accounts for 52% of all wireless data usage, will grow 25-fold by 2016. By then mobile delivery to tablets, smartphones and other transportable devices will account for more than 70% of total mobile data traffic. Hence, it will be an even greater competitor to cable-delivered video than it is today.

Beyond those extraordinary bullish figures is the incredible change in just a year. In 2011, when Cisco issued its forecast for 2015, it predicted that we’d be using 6.3 exabytes per month. Now it’s saying that the 2015 figure will be 6.9 exabytes (an increase of nearly 10% from last year’s estimate) and that by 2016 usage will grow to 10.8 exabytes per month, an annual 56% jump. (An exabyte is equal to one quintillion bytes; that’s a billion-billion bytes or 10 to the 18th power, compared for example to a gigabyte, which is 10 to the 9th power. Basically: a lot of data.)

Not only does that amount of mobile video consumption represent incredible growth, but Cisco’s benchmark change from last year’s figures goes well beyond spreadsheet manipulation. It underscores the fundamental role that wireless/mobile will play in the bandwidth battles ahead.

Cisco’s latest mobile forecast is punctuation to the company’s major VNI, which comes out in June and encompasses wireless as well as hard-wired broadband usage. Cisco timed its February wireless forecast so that it’s a conversational theme at next week’s big World Mobile Congress in Barcelona The report also coincided, within about a day, of Congress’s “spectrum compromise” that could pave the way for more U.S. wireless allocations, which would help fulfill Cisco’s usage predictions.

Arielle Sumits, a Cisco analyst who worked on the massive report, told me that the reason for the semiannual update of the wireless segment is that “mobile moves rapidly” compared to landline broadband growth. She pointed out that Cisco now expects tablets and smartphones to drive more traffic than laptops.

“Last year we thought laptops would [access] about half of the traffic,” she said. Now she expects that the laptop segment will drop to 37% in 2015 and just 24% in 2016. Sumits emphasized the “media centric” role of tablets is now being heavily factored into the Cisco projections.

In its detailed analysis, Cisco also points to the continuing importance of WiFi, which will represent 80% of mobile traffic by 2015. Sumits says the VNI’s look at 3G and 4G traffic also includes WiFi “to get a sense of how much is offloaded.”

“When we looked at all portable devices, we found that by 2015, WiFi will still be a five times higher quantity of traffic than 4G or 3G,” she said.

As I wandered through Cisco’s bullish outlook, I recognized the subtle distinctions between “wireless” and “mobile” delivery, two terms that are often used interchangeably. They represent different aspects of the unwired world - and more importantly, underscore the important role of WiFi and other fixed services in the arsenal of cable and telco providers.

Cisco has been predicting the overwhelming role of video in the broadband delivery mix for more than a year. Its latest bullish outlook underscores the inevitability of wireless video service in the broadband battle.

That means competition based on technology - but also on pricing, quality of service and accessibility. The insatiable appetite for video content requires that facilities of all technologies must be prepared for the onslaught of demand via whatever routes appeal to viewers.

Gary Arlen is president of Arlen Communications LLC in Bethesda, Md., and a long-time interactive TV enthusiast. Reach him at GArlen@ArlenCom.com  

Duopoly Demise: A World without Motorola or Cisco

Whenever a company professes “110% support” for an ailing element of its operation, the only digit I hear is the final “zero” in that number.

Hence, Cisco’s staunch vow to maintain its set-top box business triggered visions of an imminent sale. Cisco’s top executives uttered their utmost support for the STB line-of-business in response to reports that the company is shopping around that legacy cash cow acquired from Scientific-Atlanta six years ago.

Simultaneously, thoughts turn to Motorola’s STB business, which could be in play at the same time “if” (pronounced “as soon as”) new owner Google decides to abandon the home hardware line it gets with its Motorola Mobility acquisition. Google has been very tight-lipped about its STB plans, not even awarding it “110% support” status. But, according to sources, Google has advised Motorola Mobility’s top echelon that “all is on track” for a transition without changes. Which probably means “changes.”

Are ARRIS, Samsung, Ericsson, Pace, various Chinese vendors and public equity firms listening? The prospect of overhauling the Motorola/Cisco duopoly and its joint 85% share of the U.S. STB installed base is also a rare moment for the MSOs. At last: possible relief from the long-simmering love-hate relationship, even though new owners may tilt the price equations that operators can control.

Like Cisco, Google’s focus is on cloud and IP-based services. STBs may transmogrify into IP gateways, but they still represent the past, not the future for Silicon Valley-centric purveyors. Even Google’s recent commitment to build a fiber optic broadband operation in Kansas City doesn’t necessitate that it manufactures the home equipment.

So what happens if both major U.S. STB makers abandon the industry? And what’s the outlook for service and maintenance to the tens of millions of STBs that will be in homes for a decade or longer? Depending on who buys the companies — and how long the deals take — we could face a year or more of uncertainly, not particularly comfortable for MSOs in today’s environment.

Craig E. Moffett, the prolific cable and satellite industry analyst at Sanford C. Bernstein & Co., LLC, is sanguine about a duopoly exodus.

“It’s a sign of the times,” he told me. “With or without Cisco, the industry isn’t shutting down, it’s simply moving to Asia. Cisco’s margins in the STB business were and are unsustainably high. So were Motorola’s.”

Moffett believes the dual exit would not be “the end of the world. Samsung will happily step in to fill the void.”

Another Wall Street analyst agrees that the STB makers are “likely to find a home in private equity, where they can get the cost center of the business.” This analyst, who prefers to remain anonymous, believes that Cisco will keep the STB business even though it is detrimental to margins. Indeed, he admits that keeping the STB line may seem counter-intuitive because it “dampens profitability.” But he sees it as a way for Cisco to reassure customers that “we’ll be there” for end-to-end service.

So what happens next?

Asian electronics companies — which have been trying to crack the U.S. STB market for more than a decade — are the most obvious suitors. Yet, Panasonic’s decision early this year to abandon the U.S. STB category reflects the downside. True, financially-troubled Panasonic had plenty of reasons to quit the market, just as Sony did a few years ago. Several Chinese electronics up-and-comers may poke around, much as Huawei Technologies did recently.

More obviously, existing competitors with a smaller U.S. footprint could step in, offering MSOs the assurance that they, at least, understand the U.S. cable business. British-based Pace plc. is the most obvious opportunist, along with Arris Group Inc., which could integrate (with some effort) STBs into its services for design and engineering of broadband networks.

There are also plenty of wild-cards. Ericsson could see U.S. opportunity, now that it is out of the U.S. handset business thanks to the recent sale of its stake in the Sony-Ericsson joint venture to Sony. Ericsson has plenty of credibility in the back-end of cable operations, but it has not been active in the STB sector lately. With its acquisition of Tandberg TV last year, Ericsson plunged deeper into its own version of the end-to-end game.

Lots of attention is going toward private equity, which may focus on STB fundamentals, such as Comcast’s purchase of seven million STBs per year (at least for now). We’ve heard interpretations that some prospective buyers, notably ARRIS, would not work with private equity companies after recent unhappy experiences on unrelated ventures.

Meanwhile, speculation raises fascinating options as “what-if” scenario often do. One insider with no particular inside information, whispered the name “Ed Breen,” the former General Instruments executive who ascended to Motorola President in 2002, then seven months later was lured away to become Chairman/Chief Executive Officer of then-troubled Tyco International Ltd. While Breen’s possible interest is pure speculation, there have been plenty of examples where departed executives ride to the rescue of their corporate alma maters.

It’s hard to get pumped up about declining businesses such as STBs, except that tens of millions of “regular” cable viewers will be using those commodity boxes for a long time. Small operators will still depend on the hoary devices, even as the largest MSOs migrate to other technologies. That’s why the Cisco/Motorola ownership situation will continue to get — and deserve — plenty of scrutiny.

The Art of New Media Migration

Sometimes you have to consider the poetry, not just the technology, of innovations that affect “business as usual.”

So, as I visited the Phillips Collection art exhibit about the effect of photography on Post-Impressionist painters, my thoughts kept drifting to today’s transformative media upheaval. Maybe I had been reading too much that day about the Netflix “threat” or Aereo’s competitive disruption, so I was thinking about how new marketplace tactics generate creative responses.

Whatever the reasons, I was attuned to the concept that today’s world isn’t simply about the transition from analog to digital or RF to IP. As it was in these artists’ environs a century ago, the changes go beyond updates of the same old products and programs,

This exhibit demonstrate how a new technical/creative option can trigger totally different ways to look at, use and adapt your role in an evolving environment. You can translate the tools into your own vision for business as well as design. There’s truly an art, not just science, in implementing a new creative process.

In this art museum example, the most obvious analogy involves the creative production, not the distribution side, of the media business. There are lessons galore about how different artists embraced and adapted the new viewpoints that cameras enabled. I kept thinking of the ways that story-telling (visual in this exhibit’s case; dramatic, comedic or informational performance in the media world) are altered by a new influencer and by audience expectations based on their own exposure to the new technology.

It would be presumptuous to contend that today’s migration from wired to wireless delivery is comparable to the shift from stuffy painted portraits to informal family snapshots. Yet, as you look at the 120-year-old photos, you can sense the change in the Belle Époque-era air. And you understand the lessons of how to adopt and adapt the ways you work.

There’s nothing new in the recognition that the late 19th-century expansion of photography drove some painters into new ways of creating art and seeing their world. Composing, cropping, lighting and more techniques have all been documented and attributed to the lessons that artists learned from early cameras. What makes the Phillips exhibit “Snapshots: Painters and Photography, Bonnard to Vuillard” so fascinating is the juxtaposition of painters’ own snapshots (often photos of their children, friends, fashions, picnics and tourist scenes) adjacent to the paintings they inspired. Clearly, many of the images are experimental for that era, as the artists explored different ways to see or create their visions.

Ironically, the Eastman Kodak company — whose vintage cameras are featured in the exhibit — was at the heart of the artistic evolution. As that iconic firm faces a deadly decline, it’s impossible to ignore the technology arc that companies and technologies encounter. Kodak’s earliest innovative and commercial juggernaut powered an artistic evolution and, as the exhibit demonstrates, inspired a generation of creators. Whatever happens next at Kodak, the company’s historic impact was formidable.

And then there are the off-shoots: think of them as new lines of business.

On the evening I visited the museum, a special event featured modern interpretations of a “magic lantern” show, the popular entertainment format of the pre-cinema era. Using hybrid projection equipment that they designed, the light-artists presented an enchanting animated 30-minute performance in the museum’s theater. Shadow silhouette figures moved and interacted in a story accompanied by a live musical performance. Again, I kept thinking of how the performers’ Victorian predecessors’ used “old” tools to pave the way for modern moving-image technology.

Confession and disclosure: I was not searching for meaning or century-spanning lessons when I went to the Phillips, although I do enjoy early photography. I am certainly not an art critic and actually was somewhat disappointed with parts of the Phillips exhibit, although I appreciated its scope.

What I did find was “relevance.” The artistic process showed the inspiration of technology. I was struck that the painters (at least most of the ones included in this exhibit) did not seem threatened by technology. They found ways to integrate the new photographic tools into their repertoire. I’m still pondering how that process translates to digital developers, who are opening new doors for content and services. Will they succeed in appealing to and engaging viewers as did the artists of more than a century ago?

Most significantly, the side-by-side pairing of paintings and photos served as an important reality check. They were reminders of the fin de 19ème siècle context, with glimpses of the breakthroughs in industry, engineering and culture taking place at that time. Those changes influenced the creativity of the era, just as social TV, digital commerce and spectrum battles are the backdrop for today’s agenda.

One of my favorite sections of the Phillips exhibit featured Henri Rivière’s photo images and graphic interpretations of the Eiffel Tower construction - a blissful blend of art and contemporaneous technology, portrayed by both the camera and the artist’s hand.

If your next Washington pilgrimage comes before May 6 and you can use a thought-provoking cultural hour, head over to the Phillips Collection near Dupont Circle. It’s a way to perceive how creative businesses respond to, even exploit, the changes coming their way - and how it all fits into the big picture.

Gary Arlen is president of Arlen Communications LLC in Bethesda, Md., and a long-time interactive TV enthusiast. Reach him at GArlen@ArlenCom.com  

'Fans' Engage More with Ads on Facebook; A Lesson for Cable Digital Advertisers

In digital advertising, Canoe Ventures and other interactive cable ad dreamers can learn a lesson from a recent Facebook experiment that showed the value of having customers “like” you.

The conversion rate — the percentage of prospects who actually buy something — was six times greater among people who had signed up as “fans” of a company than among people who merely saw a Facebook ad for the same merchant. And the conversion rate was four times higher than for ordinary displays ads, according to a GigaOm analysis of the late summer test.

Even more significantly, company fans spent 30% more on their purchases than did customers who came to the site via other ads or search. And although only 14% of the fans saw a message on the day they made the purchase (airline tickets in the case of this experiment), they knew to go to the airline’s site thanks to their “friendship” with the advertiser.

Overall, the experiment showed that branded fan pages are among the best ways to advertise on Facebook. That’s a message Facebook will certainly be telling prospective advertisers, using real-world evidence from the recent test.

Those conversion and up-sale response rates are staggering. They offer a lesson in the new dynamics of digital commerce. They also demonstrate why Facebook is focusing so intently on new types of advertising — and why Madison Avenue is so immersed in these new ways to secure relationships with target customers. Facebook’s 2011 ad revenue is expected to hit $3.8 billion, which would be nearly 90% of its estimated $4.27 billion total revenue. Those numbers are more than double the 2010 figures.

Facebook’s advertising juggernaut is at the core of the social network’s mission to convince marketers to focus on “engagement,” not just click-through rates. If Facebook is successful — and I believe it will be — more marketers will rethink their approach to digital advertising. And with that, they will redirect their ad budgets towards media that can not only deliver the appropriate targeted audience, but also provide a platform for measurable response and actual transactions.

Given Facebook’s growing attention to streaming entertainment programs (such as its Warner Bros. deal), the advertising connection becomes even more impressive. As studios and producers explore new product-placement and consumer experiences, the opportunity to be a “fan” will open even greater - and more appealing - marketing options.

Advertisers have always been interesting in customer engagement. The Facebook approach not only fans that enthusiasm, but enables advertisers to make new friends and fans, a/k/a customers.

Gary Arlen is president of Arlen Communications LLC in Bethesda, Md., and a long-time interactive TV enthusiast. Reach him at GArlen@ArlenCom.com

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