We have a distinguished group of panelists.
Russ Seigelman -- Kleiner-Perkins, ran MSN for Microsoft
Bob Meyers -- President of CNBC
Salvador Arias -- IBM consulting, communications practice
Rob Glaser (via video) -- RealNetworks CEO
Eric Schmidt (via video) -- CEO of Google
Thoughts from each panelist.
Russ -- big believers in broadband. what happens next? hard to know. what's going to happen to usage? broadband drives more use of the Internet. believes that 1:1 video calls will be a big growth driver, will happen in mobile and at home. business model of broadband is different --- lots of infrastructure investment will mean that there will be more tolls in front of the consumer. it's the only way this will happen.
Eric -- the industry has been in a disaster for 2-3 years. the issue has to do with the fact that computers are getting more powerful, and the value equation hasn't kept up with PC capability. great thing about broadband is that it's the only technology that can meet the capacity of PC/CPUs. mostly broadband has to do with persistence of connection (always on aspect) means a very different usage. last year world switched from analog to digital devices in the consumer world. new generation of digital devices, combined with broadband persistent connection, is the killer app. vast majority of broadband adoption will be non-traditional, self-published audio and video. result will be new works of art.
Bob -- work at CNBC, part of NBC, part of GE. seek out environments where there are new challenges. challenge of working on point-to-point, interactive versus broadcast world. who's gonna pay for Internet delivered content? who's gonna make the transition from traditional media into networked, IP broadband environment? in the old day you have a dumb receiver (TV), receiving from a dumb but efficient network (VHF, Cable). now the receiver and the network have more intelligence. and the programming itself has a lot of intelligence.
Rob -- want to add to the comments already discussed. Real's focus is on delivering a/v apps on the Internet. started with narrowband, but focus was to design for the broadband world. our sense is that in the mid-term, the medium will have the same transformative impact that cable had over broadcast, in terms of impact on business and programming models. Real sees growth from dozens of channels that are profitable, to tens of thousands of profitable new channels. Result will be increase in consumption. There will be a substitution effect. Global medium, no channel or spectrum constraints, spans consumer and business equally. Takes issue with Eric's idea that it won't be traditional programming/video that has distribution. Real is now broadcasting 50 MLB games live over the network today, way more capacity than any cable provider. ABC news is now doing 24/7 live news, all delivered over the Internet. This is meaningful from a traditional media distribution perspective.
Salvador -- still focused on what's happening with the pipes and the economics of consumer adoption. four key factors: 1) competitive dynamics b/w suppliers are driving prices/offers down, 2) need to have enough bandwidth to enable compelling apps (e.g. above 1.5MBs, esp video centric apps), 3) pricing elasticity having an impact, lower cost structures helping, higher demand equates to economies of scale 4) government intervention --- what will happen with government support to drive adoption; still uncertain, mostly industry driven now. momentum is building for government supported investment protection (e.g. tax breaks, subsidies, etc.).
My question --- original programming, what will it be, will new companies emerge.
Rob. Lots of tries during dot com era, and most tries were too early. Will play like cable tv, like early days when MTV and others started with low-cost programming. Even ESPN and CNN were very parsimonious with cost structure. Kinds of programming --- number one thing that you can do that you couldn't do in the past, is to add interactivity as an intrinsic component to the video. Customization of programming, personalized information tools. Other applications include community integration and real-time communications around the programming. Social environment in addition to a programmed environment.
Bob. Do you want to make it a business? It's hard to make a business out of a much smaller niche service than we have today with large-scale media already. As far as adding elements of interactivity, to realy create a new channel that will be video based, person-to-person; not sure how to do it, how to find it, but he can't see a way to a breakthrough that this will be a new business for them.
Russ. There are now cable channels that are connected to live events on the Internet --- polling, video, community interaction.
Question: how much control will consumers have over timing of viewing of programming? hard to imagine Tivo'ing CNBC, he says. need to watch it live. says the key for broadcast is getting people to want to see it live.
Rob. RealityTV interesting use case. Doesn't have script format like other programming; it's the environment where media companies are combating traditional programming constraints; aggresive integration of marketing and advertising into programming. Media companies will integrate marketing/ads into programming to combat Tivo style recording where you can skip advertisements.
Russ. Time-shifting will work and people will pay for it.
Question: what will happen with paid content?
Rob. We jumped into paid content big time. As advertising online collaposed, broadband grew, so the only business model became paid content, with a set of free content around it. Pragmatic approach today. 900,000 paid subscribers with a broad range of paid content. Free consumption is still there and promotion and advertising supported, and its at an all time high in use. These two models reinforce one another, because the free model creates an audience, which in turns drives more paid premium content, which in turns draws more people to the medium. A la carte in music is just about to happen, its the play to save the music industry.
Eric. He disagrees with a few things. Says he's a huge fan of CNBC. Majority of broadband entertainment will be ad supported media. The advertising model is broken because of lack of ability to do sophisticated targetting. Tivo model enables the ability to interlace targetted advertisements. Online delivery in general supports this. High-levels of personalization will mean a fragmenting of audiences, with a deeper mixture of blended advertising, marketing and programming (as Rob suggests). Sees a huge change brought on by precision in advertising, and this is the revolutionary change on broadcast.
Question: cost of technology and running a media system is still extremely high, much higher than even labor costs. Couldn't break even on their projects.
Rob. Two different cost drivers. One thing you saw in the bubble was that there was lots of capital, and so people were used to spending tons of new capital. Real change since then and people aren't willing to do this so are looking for outsourced usage because its more cost efficient for the broadcaster/supplier. Second thing is the rapid drop in bandwidth cost. This variable cost is getting cheaper and cheaper, dropping 50% per year. And it's accelerating. So things like video on demand are now becomming feasible.
Russ. It's true at the backbone, but not at the end-points. This is still too costly and for not enough speed.
Rob. The guys going bankrupt are the CLECs, but the ILEC/encumbant, they're doing fine, and actually are growing and profitable. Those price points are a chokepoint on growth. This is a glass is 2/3 full situation. Broadband growth is happening. Cable guys are nailing their numbers every quarter. They're not seing a saturation at $50/month. We'd love to see $20/month and the dramatic growth that would happen with that. But this is a temporary inhibitor, and we're still seeing strong growth. Government should have a policy to drive prices down with subsidies, and yes, two player oligopolies don't price compete.
Question: broadband is turning the communications and media industry inside out. And that it's not having a lot of relevance for corporations?
IBM guy is talking about how all is good...not sure what he's really talking about....trying to incorporate IBM OnDemand marketing pitch...not connected....
Question: we're really dealing with duopoly. isn't the real issue price? won't there be real price competition.
Russ. The real competition will be from wireless for the last-mile, perhaps powerline. Real question is whether there is a price umbrella that will drive demand? We're doing well now in terms of adoption, but it's still a long way before we get to 70% penetration. Some scenarios could come in and really change the model, such as WiFi mesh networks. Mostly theory now, but could happen quickly with real business model innovation.
Eric. If you look at the adoption rate for tech as a proxy for the future, one of the fastest adoption curves is 802.11b/g. Everyone is embedding this uniformly --- MANs, corporations, homes, etc. Still some sharing, billing issues with mesh networks. It's pretty clear that the change to add the third wire will be distruptive, and will affect the pricing model in unanticipated ways. The way to get it down under $10 will be by users bearing some of the capital costs, and then participating in the mesh network.
Rob. These new environments become real new platforms. For example, I picked up a Cisco ATA router and have a VoIP phone device, and it really works. This is one of a number of apps that switch over to the broadband pipe. Big fields like education and health care could switch over to this medium.
Salvador. Telco thinks, if I got to an IP based platform, can I really simplify my cost structure positively. Lots of investment in their back haul and there's a concern about a displacment impact.
Question: the conversation has been around innovation around broadband, and talking about continuous video streams. the Internet showed that a very servicable pipe happened when the browser happened and people had power at the end-point, and the innovation was around what you could do at the end-point, not the pipe itself. real innovation is in the richer combination of media, communications, interactivity at the end-point.
Eric. There are a couple of historic transformations. The cost of published information --- any media type --- have dropped dramatically because of the digital revolution. How do we get more useful media? useful is in the eye of the beholder, and there will be thousands of capabilities. Blogging is the other trend, which is a constant stream of thousands of perspective. The Internet model gives the end-user more power and this is the real transformative impact on the broadband media world. On another note, people are using broadband to transfer to physical media -- e.g. CD and DVD burning.
Rob. DVD and CD burning, etc. The role that broadband plays in catalyzing media delivery in and around the home. Once you have it in the home, it gives the user much more control to redistribute to fixed media, to devices, to get it to other fixed end-points (e.g. stereo and TV).
Question: how many users will we need for the dramatic impact to society?
Critical mass will be 50% of households.
Question: how do you se this playing out in a nice near-term number --- say 2008? what will we be saying?
Russ. It depends on what your expectations are for the outcome. Maybe I'm just a dreamer. I want to walk around everywhere and have a video phone and have it be high-quality and everywhere. We'll be there after 2010. It must mean that the majority of people have that. It's not a 2008 kind of thing.
Bob. It doens't matter. We've reached a tipping point. The comparison between TV to Cable change isn't appropriate. We're talking about a communications medium, a revolution, becuase it's two-way. The things people do on broadband they already do on narrowband. Broadband just lets me do it better. Nothing radical happens in the next five years, we'll just keep evolving and the network effect will take hold.
Eric. In 2008, we'll all live in a parallel world. At the same time, a subset of us will have new digital device with all of the worlds information available immediately, on the device. I think there will be many thousands of chanells, derivative of what we see today, but highly personalized, and the vast majority will be small entities, with small audiences. Much more information and end-user empowerment.
Salvador. 2008 the cable world will have significant improvements, such as one network that does IP, video, voice, etc. It will clearly wipe-out dial-up and a broadband IP majority in the US. It's not going to be video as we think of it, lots of community oriented stuff, real-time communications, gaming oriented content. The world will be more on demand for us. Broadband will get there.
Rob. There will be multi-channel access to video and programming. He shares Eric's vision of the portable revolution, with highly reliable, caching enabled devices, driven off WiFi hotspots. Financial markets will see a great come back because of the inevitable progress of the Internet.