The Network Garden - Mark Sigal's Blog

Why Netflix is betting on Apps over Channels: It's All About Being 'Native'

"Look at the bigger picture." 
- Francis Underwood, House of Cards

Netflix CEO Reed Hastings has written an 11-page essay that's embedded below. It's quite excellent, and lays out his vision for the future of Internet TV (Peter Kafka of AllThingsD has a crisp summary of the key bullet points HERE). 

In particular, it underscores why Hastings' Netflix deserves to be mentioned in the same reverential tones as Apple, Amazon and Google.

For one, there is the clear articulation of a 'North Star' that guides the company forward; namely, winning more of their members 'moments of truth' - i.e., those times when a consumer could play a game, read a book, chat on the phone or watch conventional TV, but chooses Netflix instead.

The virtue of having a North Star is that it instructs clear narrative-driven thinking, tightening focus, process and execution. It is one reason that we readily associate Apple, Amazon and Google as the gold standard companies of their industry, and so few others.

It's also one reason that it almost feels inevitable that at some point, Google (4.3% of their market cap), Apple (2.8% of their market cap) or Amazon (10.3% of their market cap) will **need** to acquire Netflix (I'd add Disney as a dark horse candidate).

After all, TV viewing captures a billion hours a day of consumers' time, and Netflix has created a model whereby 30 million of these consumers are paying a monthly subscription fee for access to the service.

In other words, despite all of the various activities that fight for consumers attention, Netflix is winning at: A) securing members; B) monetizing those members; and C) growing their base through differentiation. 

Talk about **earned attention.**

Netflix is Betting BIG on Apps

It is with that backdrop that I took particular interest in Hastings' assertion that Apps -- not streams -- but Apps --will replace Channels as the primary construct for delivering Internet TV. He mentioned the term 25 times in the document, no less.

I think that there are two things that one needs to keep in mind relative to the "apps" versus "channels" topic. 

One is that a channel is simply a payload, and an app is simply a wrapper for delivering that payload.

It's no different in that context from saying that Apple turned the phone into an app. We don't need to think about it in that context because the phone app does what a phone is supposed to do.

Quite the contrary. We now think of the iPhone as much more than a phone, right?

Two, is the unlike a simple envelope, the wrapper of an app can actually enable to DO stuff; namely, show you related content, extend the context with communications, enable you to share the content, rate it, excerpt it, roll it into a play list, etc.

The point is that an app can do things that a simple stream can not, and Hastings clearly groks that this is about delivering **native experiences.**

This is also why a show like 'House of Cards' launched with the entire Season 1. In Netflix, binge viewing is a native behavior, right?

Along these lines, Hastings specifically dispels the idea of Netflix even having a fixed notion of what constitutes a 'season' in their model.

It's all about being native, something that I have written extensively about, most recently HERE.

Related:

1. Apple’s North Star vs. Earth’s Gravity: Four Takeaways from Apple’s Earnings Call
2. Built-to-Thrive - The Standard Bearers: Apple, Google, Amazon
3. Mobile 'native' publishing: Why our concept of content must evolve in the post-PC era

Netflix Ir Letter

Pattern Recognition: Passbook is Apple's eWallet; Fragility; TV Business Collapse

My goal is to write one 'Pattern Recognition' a week. Just the top 3-4 stories that stayed under my skin. Here's what stuck this week:

1. Passbook is Apple's eWallet: In my analysis of Apple's forthcoming iOS 6 (part of my WWDC Keynote article), I saved my biggest WOW! for Passbook, noting that while Apple presented it as a consolidated place to organize things like gift cards, flight itineraries, movie tickets and the like, I believe that it's the true beginning of Apple’s foray into being the defacto eWallet. Happily, I stumbled upon this exceptional Quora thread about Passbook. Definitely worth a read, as I believe Passbook is a game changer. Excerpt: "Apple has entered into the mobile wallet marketplace by sticking just a toe in the ocean of mobile payments. In the process, Apple will change just about all aspects of discounts, ticketing and payments."
2. Fragility - How to Detect Who Will Go Bust: Nassim Nicholas Taleb is unquestionably one of my favorite writers/thinkers. Fooled by Randomness provided intellectual framing for comprehending how biases cloud our judgement, and how we frequently misfactor the role of chance. It also introduced the concept of Black Swan events into our lexicon (although Fooled by Randomness is a better read than Black Swan). His newest book is called Antifragile, and in it he espouses a methodology for figuring out if our miscalculations or misforecasts are more harmful one way or the other (than they are beneficial), and how accelerating the damage is. This article provides a nice overview. Anything pertaining to risk mitigation is a worthy ounce of prevention in these turbulent times.
3. Is the TV Business Starting to Collapse? I've read many arguments that TV programming is destined to go ala carte and unbundled, breaking the stranglehold that the cable, satellite and broadcast providers hold on consumers. This piece by Henry Blodget does an excellent job of detailing the many reasons this could happen, but I just don't see it happening any time SOON. Someday, sure, but not in the next 5-10 years, I believe. Why do I say this? One, is that the affilate fees that the cable companies pay to the content providers (e.g., ESPN, Bravo, TNT) are the consummate golden handcuffs. The day that ESPN wants to go ala carte is the day that Comcast can stop paying ESPN $4.69 per household per month. Plus, there is the factor of the selfish gene at work; namely, even if the content creators and network operators saw the wisdom of embracing new models, the individuals in power seats have a vested interest in protecting their fiefdoms, something that I blogged about HERE. "Not on my watch," is the unspoken operating logic here. How about Apple? Won't their rumored TV disrupt the business? First off, I believe that they are a more likely set-top box play than a TV maker, but more to the point, when Apple built the iPod, they worked through the record labels, didn't replace them. When they launched iPhone, they worked through the carriers, didn't replace them. I think the same equation will play here. Two related takes on this story. One is that our thirst for live sports (and perhaps, live content in general) is insatiable. It's why ESPN is ESPN, and why ESPN is the true profit center for Disney. Two is that original programming becomes the differentiator for long-term success. It's the reason that HBO can command the fees it does, and maintain high subscriber retention. It's why people care about AMC (Mad Men, Breaking Bad), and it's why TBS/TNT is no longer the place that syndicated shows go to die (although they do plenty of that, too).One other moral of the story is that creating this TV programming that viewers are loyal to is A LOT harder to produce, distribute and market than news content, which is why blogs could kills newspapers, but YouTube hasn't killed the networks. When someone figures out a different format or production methodology that changes the equation, look out.

Pattern Recognition: The Integrator's Dilemma; iTV Disconnects; Buy a House

I read a ton, and while much of what I read captivates me in the moment, very little gets under my skin, and into my bone's by week's end. These three narratives are the ones that kept percolating to the top:

1. The Integrator's Dilemma: There was an interesting article written by Horace Dediu on the topic of 'What retail is hired to do: Apple vs. IKEA.' It basically looks at IKEA's global success, its dearth of competitors, durability, and relativity to the Apple Store model. As a devotee of Strategyn's 'Jobs, Outcomes and Constraints' model, which is one of the primary inspirations for Clayton Christensen's excellent book, 'The Innovator's Solution,' I am a firm believer in the precept of hiring products and services for specific jobs. In parallel, I have have been ruminating alot on how the Internet is changing the job that retail can viably perform from an economic perspective (see 'Retail Needs a Reboot to Survive' at GigaOM), so the topic is near and dear to me. When I net it all out, I am left with a narrative that goes like this. Once upon a time, the premise was that businesses should be horizontal and focused on solving just one piece of the product or service equation, and outsource the rest. The rise of the PC and the growth of Big Box category killers (Comp USA, Best Buy, Barnes and Noble) all seemed to affirm this approach. As the Internet took hold, the idea that this model was universal became conventional wisdom, as Google was all about being open and loosely coupled; and Amazon become the biggest online retailer by (seemingly) building very little, but selling everything. But now, this wisdom is getting turned on its head, as undifferentiated retail is dying, commodity PC makers are dying, commodity mobile and tablet device makers are dying, and the winners are folks like Apple and Amazon and Nike that are the antithesis of loosely coupled. In other words, conventional wisdom is dead. Not only are these companies integrated across their value chains, but they have built into their DNA truly differentiated positions. To me, this is The Integrator's Dilemma. It's not enough to assemble a bag of components. You have to do it in a way that is truly differentiated, which often means, a hybrid of hardware, software and service, which is hard to execute. In retail, I look at someone like Gap as an example of a company that confused brand and hit-making with clear vision, agility and differentiation, and once they stumbled, they never came back. The irony here is that most individuals would get fired for not taking a holistic (integrated) approach to getting their jobs done, yet paradoxically, few companies embrace this ethos, preferring the path of comfort, entropy and obsolescence to the path of discomfort and reinvention. And we wonder why there are so few catalysts for job creation in our economy.
2. iTV Disconnects: Ever since Apple analyst Gene Munster starting asserting that Apple was going to build a full-fledged TV set, I have struggled to get my head around the concept (see my analysis HERE). TVs, after all, are low margin, bulky to deal with from an inventory perspective, and infrequent buys. Plus, the actual TV viewing experience is essentially "good enough." By contrast, Apple's last three game changing devices -- iPod, iPhone and iPad -- are the kind of devices that several members of the family might buy, and those same members would likely replace and upgrade every 2-3 years. Moreover, those devices created entirely new experiences to fix fundamentally broken models or to define new ones. In the big picture, the TV set is closest to, but doesn't even look as good as, the Mac model, where you buy 1-2 Macs for the household every 4-5 years. It just doesn't fit that Apple would build a device that looks more like the relatively low unit Mac model when their universe is all about high unit sales and high device refresh frequency. And the only scenario where content is a compelling, high margin business for them as rationale for such a device, is where Apple is partnering with the cable and satellite providers for a slice of the monthly subscribers' bill. But, that's a set-top box play, more so than a TV play, in my opinion. The only other scenario I can theoretically see is where the so-called iTV is really an iWall; a widget device that is flat like an iPad, but made to perform the task of the smartest, most interactive wall frame ever. Yet, the rumors persist. (See also: 'Your iPad Could be Your TV' in MIT Technology Review.) 
3. Let's Go Buy a House: Felix Salmon did some interesting analysis looking at the correlation between rental rates and mortgages in America, on the premise that when you can get a mortgage (if you can qualify) for equal or less to what it would cost you to rent in the same market, housing values are, or should be, compelling. This truth is even more so when you weigh the fact that the historical market data shows that rents go up pretty predictability over time. In other words, the value of your house today, if nothing changes, should only get relatively less expensive than renting over time. You can even rent it out. So, let's go buy a house! 

 

 

Apple's iTV and the implications of what Steve said (O'Reilly Radar)

If I accept conventional wisdom, Apple is getting into the TV-making business because:

1. The living room is the last consumer segment that Apple has yet to completely remake in its image.
2. Apple creates new markets where none exist, and it isn't satisfied with merely improving upon existing ones.
3. Steve Jobs allegedly said that he'd cracked the code for creating an integrated TV set.
4. If the iPad is really "just" a big iPod Touch, and has already sold 55 million units, then a TV that is "just" a big iPad could do gonzo business.
5. The business of making TVs is broken, and Apple has to fix it.
6. Cable and satellite providers are evil, and Apple has to liberate consumers.
7. Tim Cook "needs" a hit.

As I stated in my last post following Apple's gaudy earnings numbers, I don't accept conventional wisdom because conventional wisdom is dead! Apple killed it.

Read the entire piece here.

UPDATE:

1. UK's ITV reportedly warns Apple not to brand their yet-unannounced smart television, 'iTV.' Meanwhile, Google updates YouTube for a better experience on Google TV.
2. MIT Technology Review cites my Apple iTV article in assessing Apple's TV plans.

Related:

1. The magic adapter: Apple TV and the battle for the living room
2. It’s Time to ‘Think Different’ because Conventional Wisdom is Dead: Thoughts on Apple’s Q1 Earnings Call
3. Apple's Segmentation Strategy (and the Folly of Conventional Wisdom) 
4. Apple, TV and the Smart, Connected Living Room

Game of Thrones, Season 2 Teaser: The Cold Winds Are Rising

 

I can not wait for season two to begin in April. Such a deep, amazing show.

Comic-Con, Convergence and the Rise of Integrated Media

"Here’s my prediction: Almost every dotcom idea from 10 years ago that failed will succeed." - Marc Andreessen

When I got into tech back in 1994, convergence was was the holy grail.

It was borne of the idea that one day the then-immovable boundaries between the following industries would collapse, enabling a new kind of integrated value chain to emerge:

• Television
• Motion Pictures
• Music
• Consumer Electronics
• Internet
• Telephony
• Print Media
• Advertising
• Videogames
• Computing

The promise of this concept led Sony, the inventor of the Walkman, to acquire Columbia Pictures. It led regional phone service provider, Bell Atlantic, seeking to re-factor the communications and entertainment landscape, to pursue a merger with cable TV giant, TCI.

In fact, over the next decade, the 'promised land' of convergence drove a flurry of mergers and acquisitions, reaching its apex when Time Warner merged with AOL.

That many of these deals failed disastrously (in the case of AOL Time Warner) or were never consummated (in the case of Bell Atlantic-TCI) is besides the point.

Poor execution aside, the pursuers of convergence were simply ahead of their time, a truth bounded by the way that:

1. Apple has reshaped so many of these industries by vertically integrating them across media, mobile and tablet device form-factors from distribution channel to software platform, apps and media marketplace.
2. Comcast has leveraged physical connectivity to so many homes (and a commensurate billing relationship) into owning NBCUniversal, extensive cable channel holdings and a growing telephony business.
3. Amazon has emerged as Walmart, Cloud Computing platform and Kindle/tablet maker, rolled into one.

Put another way, as a VC friend of mine once said, "It's as lethal to be too early, as it is to be wrong."

It's this truth that gives folks like Marc Andreesseen the confidence to predict that many of the lamest ideas of the dotcom period will yet be vindicated (I think that he's right on this one), and it's this same truth that was on display at Comic-Con 2011 aka San Diego Comic-Con International.

A Snapshot of how 'Integrated' Media has Become

For me, the AHA moment in planning my Comic-Con experience was attempting to digest a priori an event guide that was almost 200 pages, and it was full of...actual events!

Consider, a four-day long event that literally envelops the city and county of San Diego, bringing in over 130,000 fans of comic books, horror, animation, manga, games and fantasy, making it the single largest convention in America.

If you want to see how integrated media has become (and can become), ponder an event that provides a unified sandbox for:

1. Content Producers to showcase, screen and publicize their new Comic Books, Movie Releases, Cable TV shows, Videogames and Toys;
2. Fans to meet cast members, industry luminaries and their favorite artists, and get their autographs; see their latest projects and hear them talk about them; and, oh yeah, dress up as their favorite characters;
3. Vendors to sell Books, T-Shirts, Posters, Toys, Artwork, Comics and other industry paraphanelia;
4. Artists to present their portoflios for review and potential hire by content producers.

Btw, if you're familiar with the integrated media unit known as a "home page takeover" on a web site, consider what Syfy channel did in taking over an actual, physical restaurant (Maryjane's Coffee Shop in Hard Rock Hotel), and rebranding it for the event as Syfy's CafeDiem, down to the signage, tabletops and menus.

One can only wonder if the boring, staid Oscars and Emmy Awards events were reinvisioned as a like-type festival for producers, fans, vendors and artists alike if, maybe, just maybe, the industry would foment a deeper bond between their audience and their slate of programs/movie releases, not to mention the publicity and promotion food chain.

The Moral of the Story

When I think of the enormous success of Comic-Con (especially relative to the general lameness of the trade show industry in general), and I ponder the recent blowout earnings of both Amazon and Apple, I think about how often conventional wisdom gets things wrong specifically by creating false 'Either/OR' dichotomies.

In the tech business, for the longest time it was not only conventional wisdom, but it was the gospel and hardline religion, that you had to be horizontally organized, and focused on one thing, one discrete line of business, or you were destined to the scrap heap of history.

The truth of the matter is that a lot has to go right, both tactically and culturally, for convergence and integration to work.

But seeing how much of a win (for all types of users) such integrated platforms are across Post-PC (Apple), Commerce (Amazon) and Media (Comic-Con), I think that it's just a matter of time before the next wave - Convergence 2.0 - is born.

After all, where visionary leaders show the way, smart students will follow.

Related Posts:

1. Ruminations on MacWorld 2011 and the Future of Trade Shows
2. The Programmable Fan Site: A New Media/Ad Unit Model
3. Apple's Segmentation Strategy (and the Folly of Conventional Wisdom)
4. Thoughts on Book Expo America trade show: Rebooting the Book - Part Two

 

The Unmanned Air Force: Rise of the Machines

Imagine being able to deploy a remotely controllable squadron of unmanned planes (drones) that can view the activity on the ground from 10,000 feet or higher with incredible clarity, day or night.

These planes are able to remain aloft and stationary for up to 24 hours at a time, and at that height, are virtually invisible and make no noise. 

Not merely eyes in the sky, these drones can fire laser-controlled 500 pound bombs, all directed from a central command center thousands of miles away. 

You can see how such an approach would change the game, militarily speaking.

But while it all sounds like science fiction, would it surprise you to know that next year is actually going to be the first time that we (the United States Air Force) are buying more of these unmanned planes (known an Predator and Reaper) than manned ones?  Blew my mind.

Surreal, but real.  Watch the video below from ‘Drones: America's New Air Force’ (on Sunday’s '60 Minutes'), and see for yourself. 

Excerpt: From 10,000 feet above, the Predator was able to zoom in and send back a very precise image of Logan and the 60 Minutes team standing on the grounds of Creech Air Force Base. The Predator couldn't be heard or seen by the team, even though they knew the exact whereabouts of the drone.  The Predator's camera even followed the 60 Minutes team as they drove off the base's flight line. It's this ability that makes it difficult for enemy fighters to escape.

See The War: Ken Burns Documentary

"I don't think there is such a thing as a good war," says Sam Hynes, a fighter pilot. "There are sometimes necessary wars. And I think one might say 'just' wars. I never questioned the necessity of that war."

Such is an entry point into The War, Ken Burns’ documentary about World War II.  Up close, you see how necessary and just this war was.  You see how horrific it was. Its massiveness. 

You pause at the great honor and courage that drove so many people to come together at an unbelievably pivotal point in history.  The outcome was anything but foregone, which is what makes the story so jarring and real.  It cuts deep.

You know the axiom about those who forget history are destined to repeat it. See The War.  You need understand this part of our history.  I know that I do.  Here is an excerpt from an excellent review of the documentary:

"The War" invigorates history - in an honest fashion. Burns succeeds precisely in the areas that looked most daunting before he started. He tells the story from the ground up, from the people who fought the war and those who waited for them at home. "The War" is less about generals and tactics and the wonky talking heads of history lessons than it is about the experiences of veterans who can say, plainly, this is what I saw, felt, experienced and took with me. This is what happened to me and the people I knew on the battlefield. Here's why I went and how I'm different for going.

One of the brilliant aspects of "The War" is how every time people open their mouths on camera, it's as if Burns coaxed a secret or a memory from them that they wouldn't have offered up anywhere else - maybe not to their own families. This isn't a regurgitation of facts or memories or battle plans, as on the History Channel. It's people whose entire life's essence was the war, though they would never have chosen it to be. And in "The War," they open up about it in ways that will have tears flowing across the country.

One the one hand, there are some parallels to what is going on in our current world.  On the other, the present is something completely different.  We are too far removed from the reality of what it means to be at war.  See The War.

The Final Word on Kramergate?

As a big time fan of Seinfeld who can no longer quite watch the show with the same eye post Kramergate, I thought that this mashup, which merges news and real content from the show, captures the paradox within the paradox.  Enjoy.