A recent Business 2.0 story proclaimed Real Networks Inc. CEO Rob Glaser as the sultan of streaming — combining his two passions, baseball and Internet video delivery. On the eve of the Cable & Telecommunications Association for Marketing Summit in Seattle — where Glaser will deliver a keynote speech — the streaming pioneer talked to Broadband Week editor Matt Stump about Real's strategy behind Internet premium subscription services, the role its technology plays in the broadband space and why he's betting on the cable industry. An edited transcript follows:
MCN: Where are Real Networks's touch points with the cable industry?
Rob Glaser: There are two fundamental categories of touch points that intersect. One touch point is our infrastructure technology. We are the people who invented Internet streaming and have, what is today, the only universal media-delivery system that streams all of the major formats and allows for delivery of free and clear content and secure content with the industry's most reliable digital rights-management system. That's the base where we talk to the infrastructure teams of MSOs.
We're very, very happy to be working in that capacity, because it often lays the foundation for advanced services or creates a context where MSOs are comfortable [that] the advanced services they are going to deploy will have the characteristics in terms of reliability and scalability and performance.
The other side is delivering premium services based on [Internet protocol] in general, and the media infrastructure in particular. That's an area where we also pioneered. We were the first people to do subscription of audio and video services in any kind of mainstream way on the Internet. We have over 1 million subscribers.
Our thesis all along has been, with the growth of broadband, the right long-term relationship is for the broadband providers, the MSOs, to be the primary customer-facing relationship in terms of billing, integrating packages and tiering of premium services.
We want to work with MSOs and take this very broad range of services that we deliver — involving dozens of different content providers, from games to radio to music to audio to video — and help MSOs promote and package those services to consumers.
We have both of these approaches and we're not trying to cram a one-size-fits-all, let-us-take-over-your-portal on the industry, because cable has established a strong leadership position in high-speed data, and our philosophy is to build on top of that.
MCN: What percentage of Real Networks subscribers have broadband?
Glaser: We index much higher than the market as a whole in broadband. Figure 50% to 60% of our subscribers have broadband in their home. And, of course, we have other subscribers who have broadband in their offices. So probably 80% of them have broadband in one location or another.
If you believe there are 15 million broadband homes, we're talking about 5% penetration of broadband subscribers that are signed up for one or more of our premium services.
The significance of that is that it has happened largely without promotion [or] billing integration with MSOs. Our thesis is, long-term, the penetration rates of premium services in high-speed homes will get to the level of penetration of multichannel video in regular households. The key is to come up with the services and to promote and package them, so it makes it easy for them to sample them and buy them.
One of the reasons I'm delighted to be speaking at CTAM — and one of the reasons we work so closely with the cable industry — is I think cable's leadership share in high-speed data markets is potentially durable if cable builds on it the right way, for a couple of reasons.
One, if you have a lead, you can be ahead of the curve to provide a whole new set of services, you have the scale economics to do so.
The second element [is], unlike [digital subscriber line], cable has a promotion platform to explain new services. The local avails that MSOs have can be used to explain why you want a premium music-subscription service, like RealOne Rhapsody, or why you want a game service, like RealOne Arcade. One of the great opportunities that the cable industry has is the ability to explain new services to consumers and to have those consumers identify that not just as high-speed data services, but as cable services.
To this day, when we talk about CNN or ESPN or MTV, we call them cable channels, even though in a literal sense, they are available to consumers in two fundamental distribution paths today.
Cable is associated with introducing all those services. And there is an opportunity now for cable to play that same role with a whole set of premium interactive services, many of which already involved brands that consumers associate with cable.
MCN: You haven't talked a lot about churn. Can you give us any comparative statistics on how your churn stacks up against digital or basic cable?
Glaser: If I look at our churn relative to other Internet experiences, it's going in the right direction.
Because cable has now rappelled itself to be a utility in the minds of consumers, services that are tiered with or bundled with cable will have substantially lower churn than services that are à la carte, and that's one of the economic leverage points cable has.
Let's say an MSO rolled out a $39.95 tier for basic high-speed data and a $59.95 tier for higher speed that included a half-dozen services. I guarantee if those services were well-chosen and compelling, that the churn of that tier would be dramatically lower than the churn of the $40 product, plus the à la carte activity.
The act of bundling itself builds value that's measured by decreased churn.
I'll bet you dollars to donuts that the churn for properly packaged bundled tiers is less than half of what it would be on a stand-alone basis.
MCN: What have you learned about what people will pay for on the Web and what more do they want?
Glaser: In the first phase, we learned that live is very compelling, be it live news or live sports. That works from a number of standpoints.
One, it's very hard to pirate live content. The second element is that ease is very important. That's one of the reasons why [music file-sharing service] Napster worked — it was an easier way to get full access to music libraries than the legitimate services were able to offer until a few months ago, when the licensing rights got more flexible.
Given that there are already a lot of media choices out there, what's value-added to what's already out there? Giving access to consumers to content at the office late or at home. With NASCAR [the National Association for Stock Car Auto Racing], you can actually watch the graphic and click on the cars on the track, and have a level of interactivity that boxes don't offer in any standardized way.
You've got to have this strategy of differentiation.
MCN: What's the matrix of consumer purchases of your various subscription services? Do the same people who buy baseball buy NASCAR, or music and games?
Glaser: The best insight we can provide is that the demographics of purchasers are interesting. In the beginning, they skewed very male, in the 80% range, and they are in the 60% range now.
Since we're talking about a market that has to have a credit card, the ages are in the mid-30s, so they skew little older than the average Internet user, which is not that surprising.
In terms of the cross-promotional elements, we just started doing the data mining necessary to really understand which products cross-promote best. It's fair to say a lot of the music and radio products are going to be extremely horizontal.
We've been tracking users not so much on demographics but on psychographics. If users come to us from a news application, or come from a partner news site, we'll promote different things to them than if they come from a partner music site.
MCN: Broadband video streaming continues to move closer to TV-quality. What are you working on to make the PC experience better, and how soon do you think it could be as good as TV?
Glaser: If you look at RealVideo 9 encoded at the rates now available from some cable-modem service tiers, like 500 Kilobits [per second] or higher, it's already TV-quality. And for consumers with really high-end PCs, we can deliver HDTV content today. But we don't really look at it as a PC versus a TV thing.
The PC lets us offer the consumer some things that just aren't available on the TV, like following a golf tournament while working at your computer, which is what the [Professional Golfers Association] TourCast service on RealOne does.
We think the quality improvements also open the door for some interesting cross channel marketing efforts — for example, cable operators could use the PC to showcase HD quality to consumers who have a high-end PC but haven't yet signed up for HD cable service.
MCN: What do you think of Microsoft's Foundation Edition IPG product, which it pitched to cable operators?
Glaser: What's really going on here has little to do with IPGs. Basically the cable industry, via CableLabs, made a very smart decision to base its future interactive architectures on an open standard, Java, as part of the [OpenCable Applications Platform] specifications. For the next few years, Microsoft tried to get the cable industry to reverse its decision and instead base OCAP on Microsoft's proprietary .net architecture. After failing to get the cable industry to go from open to proprietary, Microsoft announced their new IPG, which is, in effect, a Trojan Horse for .net.
While there will likely be some trials of the Microsoft IPG, I don't think Microsoft's Trojan Horse will succeed. The cable industry deeply recognizes the value of a standard, open interactive architecture.
MCN: What did you think of Bill Gates's all-IP vision talk at the National Show?
Glaser: I was there, but I think I must have missed the vision part of the talk.
At Real, we've been focused on IP as the common exchange for media delivery since we started the company nine years ago. The key architectural question is not whether the world is moving to IP, which it is, but rather whether the applications and services are going to be built on open standards like Java or proprietary systems from a single company, like Microsoft's .net.
MCN: Given your interaction with the cable industry over the past few years, and as a prominent Internet player, what would be your chief criticism of cable, and the main thing on which you would compliment the industry?
Glaser: I would compliment the industry for exceeding my expectations [in] the coherence with which the cable industry approaches things. If you look at things like the [Data Over Cable Service Interface Specification] standard or, more generally, how they work together on an industry-wide basis, they've really had a 'hang together or hang separately' approach to next-generation services. Once the industry sets sail on a direction, they really roll it out. They really put their money where their mouth is building out high-speed data services. They sweated the details to get the stuff to work and deliver successfully.
There was some skepticism, even within the industry, whether cable could provide high-speed data with the level of reliability and quality that consumers wanted. The high-speed leadership cable now has is incontrovertible.
The flip side of that is that when it comes time to do innovate things, the cable industry at times, like the case with DOCSIS, will move collectively and get it right.
And at other times, when it comes time to do premium billing integration and premium services and getting out in front of tiering, it tends to be a little bit of, 'Well, who is going to go first? Who is going to really demonstrate that it works? I don't want to demonstrate on my nickel.' And as a result, the industry moves a little bit more slowly unless competition, as in the case with satellite, comes in or there is some regulatory prodding.
I would like to see an industry that balances the benefits of cohesion for things that have to be done in a standardized way with the willingness to do a little more pioneering and innovate things.
But if you look at those two in balance, you'd say: In a time when cable got two-thirds of the marketplace for high-speed data; when the industry has demonstrated with the rollout of digital cable that in most parts of the market, it's been able to deliver service that's compelling and quite competitive with satellite; and you've got the benefit of VOD and interactivity, I say the cable industry is who we want to be with.
The cable industry has done great things, and I think it will continue to lead the pack if it executes as it has in the recent past.
MCN: Are you relatively frustrated with the relative slow rollout of premium services on the high-speed platform by cable?
Glaser: Because we have an opportunity that we've been leveraging now for almost three years to reach consumers regardless of whether the MSOs are super active or super passive, our approach to MSOs has been: 'Look, we want to work with you to launch these services when you're ready. In the meantime, we're going to make them better and better and better. We're going to accumulate more and more subscribers ourselves.'
A year ago, we said, 'Hey, start trying to do something promotionally, start flexing your muscles.' The message now is: 'Now is the time to start deploying.'
When we crossed a million subscribers, that was a psychological wakeup point. When the music industry really started licensing all of its content and when you see our recent announcement that Rhapsody had over 11 million licensed tracks in June — and that's only talking about what subscribers actually consumed. You have really big numbers like that. We've got now about 150 downloadable games in the library Comcast is putting up there.
Do we think the industry should move faster going forward? Absolutely. Are we stymied in the interim? From our standpoint, we're not.
MCN: With RealArcade and Comcast, I think it will be packaged at a higher tier price. Are you OK with that model?
Glaser: It's not for me to announce their rollout plans. But as a general principle, one of the ways you'll get to that 70% penetration that basic cable has got to is you create a set of services that covers the waterfront with the basics of what most consumers would want most of the time. And you give people a very simple price point and packaging point.
The one thing that will be different about the high-speed data world versus the cable world is that the Internet is inherently an a la carte place. If you offer something that has superior pricing and has the basics of what people want, you'll still get very high penetrations with that type service, versus if you just made everything a la carte.
That was a big reason why we got to a million subscribers because we created SuperPass and then did other services. Those are all category-specific bundles.
It will probably end up being the case that there will be horizontal bundles or three or four category bundles. One of the cable industry's strengths is its ability to reach a broad mass market and leverage off basic tiers to get to an optimal result.
Our assumption is consumers will want to have simpler billing, rather than to have every show they can buy a magazine show. Tiers of service will probably be 60% to 70% of the economics of the industry on a gross consumer revenue basis.
MCN: If I'm a cable operator, I can view Real as running interference for me with rights holders, like Major League Baseball, and get deals I might not be able to get on my own. Or, I can look at Real and say, I could go direct and do those deals, and not need Real.
Glaser: When we talk to people about the 10-year view about where this goes, there are certainly different perspectives on how all the pieces are going to fit together. One of the hallmarks of how we work is flexibility. We don't say: 'Make a 20-year commitment to us or we're not going to talk to you.'
One thing we built into a lot of our deals with major media companies like the Viacoms or the Disneys or Time Warners on the programming side, we know you have a broad sets of agendas with the MSOs. If there is a pre-existing relationship for a piece of programming between an MSO and a programmer, we'll build carveouts into that. What we're trying to do is empower the future, not complicate it.