Metered Pricing

Like it or not, metered Internet access pricing is coming your way (if you don’t already have it where you are). The days of downloading torrents all day long for $30/month are going to be over soon.

Like many other ISPs, Comcast is experimenting with traffic shaping/bandwidth caps or whatever you want to call it.

ISPs have allowed their infrastructure to lag and now with HD video, VOIP and other bandwidth hungry applications, their networks can’t provide the speeds and services people want. They tried to get the content providers to pay for needed upgrades, but the whole net neutrality issue nixed that idea. The only other person they could get to pay for it is the consumer (they’re certainly NOT going to pay for it out of their profits).

ISP often quote a figure that about 5% of their users consume 80% of the bandwidth.  These are the people who download music, movies, and other large files all day long.  They do a lot of file sharing so there is constantly data moving over their part of the network.  Contrast this with someone who checks their email a few times a week and goes to Yahoo.com for some news and you can see that it really isn’t fair for both users to be paying the same monthly fee.  The heavy users consume more resources and require the ISP to spend money to upgrade the network to provide a stated level of service for everyone.  All your other utilities are billed in a “pay for what you use” manner so why not Internet access?

By setting the limits high enough where only those 5% of the users will be affected, they can provide good service for everyone while inconveniencing only a small number of people.

However, all this only delays the inevitable.  If you want to deliver high-bandwidth, low latency services over your network, you need to spend the money on upgrades and infrastructure improvements.  At some point in the future those people who were just checking their email a few times a week are going to be streaming music and movies all day long.  The switch to IPv6 and even more connected devices will only place greater demand on networks and ISPs.

So what does all this have to do with video and DVDs?  Well, some people who are delivering content on physical media are looking to electronic delivery to save money and time in distribution.  For now, that might work since I can download your content basically for free as part of my $30/month ISP charge.  But when metered pricing kicks in and I have to “pay” for each bit and consider the value of your content compared to other content, I may think twice about whether I really want to view your content.  The cost of consuming the content has been pushed from the seller to the consumer.  A physical disc returns the economic cost to the seller.

I have no doubt that in the LONG run electronic distribution will be the norm.  Network infrastructure improvements will be made, storage will get cheaper and bandwidth caps and traffic shaping will affect only a small percentage of heavy users.  It’s hard to say when that will be, but until that all happens, there is going to be some pain for both content providers and consumers.

One Problem With Electronic Delivery

The rallying cry from many is that the Blu-Ray/HD-DVD war was pointless because we’ll all be getting our media delivered over the wire very soon anyway.

I have no doubt that will be true eventually, the real question is when.

In the mean time there are some significant problems to overcome with electronic delivery.

In a recent article in Slate, the author compares using desktop computing applications to software-as-a-service web-based applications.  The problems he runs into are pretty much the same ones you would run into with electronic delivery of video or other media.

For the time being, physical media still offers significant advantages in many areas.  There are certainly projects and applications where electronic delivery is a better choice, but it’s going to be a while before it’s the right choice for most situations.

Physical Media Isn’t Dead Yet

According to Disney, they have sold 4 million movies and 40-50 million videos through iTunes, resulting in $123 million in revenue.

That sounds like a lot until you consider than Disney has $35 billion in yearly sales and hopes to make $1 billion from digital services this year.

Clearly physical media and other distribution methods still hold a lot of interest for consumers.

(Perhaps the more interesting part of this is the estimate that Disney makes $14.50 from every movie they sell at iTunes.  I wonder how much they make from selling physical discs at retailers and to rental chains.  If it’s significantly less than the iTunes amount, you can bet that they are going to be pushing hard for electronic distribution simply as a way to grow revenue.)

The Format War Continues

As you probably know, some manufacturers and retailers of HD-DVD players recently lowered the price of their hardware dramatically. This has reignited the Blu-Ray/HD-DVD format war.

Blu-ray Disc Association director Bill Sheppard recently spoke with Fortune/CNN about what the Blu-Ray camp is doing in response.

You can also watch/listen to the interviews directly here and here.

Is Physical Media Dead?

In a recent column in PC Magazine about the high-definition format war, Dan Costa claims:

no matter how you dress up a disc, it’s still a physical entity that needs to be mastered, packed, shipped, sold, and stored on a shelf—and that’s not what consumers want.

I really think he is wrong about that. Consumers have proven to like physical media and continue to purchase it in large quantities.

I would agree with a different comment he makes, that “all current technology trends point to a future dominated by digital distribution.” As storage gets cheaper and bandwidth gets faster, digital distribution will clearly be a bigger factor than it is now and will certainly take over in certain areas, but I do not believe that physical media is ever going to go away, particularly in the mass consumer distribution area.

Happy Birthday

Thirty-two years ago today.

June 7, 1975: Sony introduces the Betamax video recorder.

Revolutionary for its day, the Betamax format was on its way to becoming the industry standard until the appearance of JVC’s VHS a year later. Betamax was probably a bit sharper and crisper, but VHS offered longer-playing ability, which made it possible to record an entire movie on one three-hour tape. The two formats were locked in a struggle that was eventually won by VHS.

One item in the article I find amazing, “Sony built its last Betamax recorder in 2002.” Who was still buying a Betamax deck at that point?

AACS Encryption Key Released

The current buzz is the release of the AACS encryption key from the software DVD player WinDVD.
Knowing the key would allow you to decrypt any High Definition content so you could make a “backup”, transfer the content to another format and/or device, or, obviously, pirate it.

This is just part of the ongoing game of cat and mouse. The key will be revoked, current WinDVD users will need to upgrade and we’ll be right back where we started. Dealing with software players is one thing. The whole thing gets much more interesting if a hardware player’s keys were obtained. Can you imagine if the keys to the PlayStation 3 were released?

Obviously, a majority of the people who are clamoring for DRM-free content want it for non-legitimate purposes, but there needs to be some solution here because right now everyone is losing. Consumers are losing because they are not being offered content they would pay for, and content providers are losing because consumers are rampantly pirating their content since material they would pay for is not legally available.

Clearly something needs to be done about all this. Content providers are not allowing consumers to use the content in reasonable ways and consumers are not respecting the property rights of the content providers. If the content providers would include (for example) a DRM-protected, iPod formatted version of the movie on the DVD, consumers wouldn’t need to rip the disc or download one so they could watch the film on a second device for their legitimate personal use.

I’m Not Dead Yet

Like many before, a recent article in Slate discusses the oft-proclaimed death of the compact disc.

Yes, CD sales have been declining for years. Yes, it is almost certainly due to downloading and other delivery methods. Yes, there were hundreds of millions of discs worth $10 billion sold in 2005.

The article primarily deals with music CDs, but we have seen a similar trend with our business-to-business customers. In the same way sales of discs from chart-topping artists have declined due to downloading and music-sharing, we have seen a decline in the use of CDs by some of our largest clients. These are the companies that have the money and the infrastructure to support digital delivery.

While just putting a file up on a website and having people download it seems easy and free, if you want more than a handful of people to view it, you need an entirely different back end network to support that. There are many companies that make a very nice living proving hosting and bandwidth for streaming media. Serving media files to hundreds of viewers is very different from serving HTML files to a few dozen people.

When it comes to the smaller, independent artist, we have noticed the same thing described in the article happening to the small business customer. Smaller companies that cannot support moving to digital delivery for any of a number of reasons, continue to expand their use of CDs and other optical media.

CDs are still a great way to deliver your message. When you send someone a CD, you can be nearly 100% certain they will be able to view it or listen to it. They can use it in a variety of machines, and when they are done with it, they can give it to others.

For the smaller artist or company a CD provides a lot of advantages and can help increase the perceived value of your product. The illegal downloading of music and other digital content has helped to devalue all forms of digital content. Many people do not consider illegal music downloads theft simply because no physical item was taken. This contributes to the perception that digital music, movies and software have no real value. But a CD or a DVD, those are real physical items that have real value.

Sometime in the future digital delivery methods probably will kill the CD, but for now, the rumors of the CDs demise have been greatly exaggerated.

Flash Memory

Will flash memory ever replace optical discs or hard drive storage?

I don’t think so. All three should be able to happily co-exist for a long time. Each media type has significant advantages over the others.

While flash memory is small, fast and getting cheaper all the time, it is still extremely expensive on a per unit basis compared to optical discs and hard drives.

Today, you can buy a 2 Gig USB drive or flash memory card for around $50. You can buy a 250 Gig hard drive for less than $100. That’s more than 100 times the storage for less than twice the price. Optical media is relatively cheap also. 4 Gigs of flash memory will cost you at least $100. A 4.7 Gig DVD-R can be had for much less than $1.

Prices of flash memory are dropping all the time, but so are hard drive prices; and capacities of both are increasing just as quickly.
Let’s take a look at some of the pros and cons of each type:

Flash Memory:
Pro – Small, super fast access times, usable in a wide variety of devices, doesn’t require constant power, capacity increasing and price decreasing all the time.
Con – Very expensive per unit of storage.

Hard Drive:
Pro – Enormous capacities, fast sequential access times, extremely low cost per unit of storage, price decreasing all the time.
Con – Susceptible to magnetic effects, relatively slow random access times, small drive failures can render all data unreadable.

Optical Media:
Pro – Impervious to magnetic effects, cannot be overwritten so useful for archiving, reported lifespan up to 100 years (under good storage conditions), failure of one part of the disc may not affect other parts, usable in a wide variety of devices, low cost per unit of storage.
Con – Relatively fixed capacity, media decays very quickly under poor storage conditions, cannot be reused, painfully slow random access times.

As you can see, each type of media has benefits the others can’t match. In the future, as they do now, each type will have its place. Flash memory will be used for situations where quick access times and portability are paramount. Hard disks will be used where capacity is the primary concern. Optical media will be used for long term archiving and media distribution.

Will movies and other media ever be distributed on flash memory? I don’t think so. Optical media will always be cheaper for that purpose. The only method for wide scale distribution that is cheaper than optical media is digital distribution. That has its own problems, which is a subject for another post.