I enjoyed my conversation with Mike, since this interview, TiVo has announced new advertising products along the lines of what we discussed.
TITANS OF TECH
When the Network Meets the Net
TiVo’s Mike Ramsay wants to plug viewers into more than cable and satellite — and bets his digital video recorder can make the connection.
By John Battelle, April 2004 Issue
TiVo (TIVO) is under siege. From Hollywood to Madison Avenue, the word itself is almost a curse. And those who aren’t muttering it are copying it. In the latter camp are most of the cable and satellite companies, which are mimicking TiVo’s groundbreaking digital video recorder — the Internet-era successor to the VCR that finds the TV programming you want, when you want it. Some 830,000 Time Warner (TWX), Comcast (CMCSK), and other cable subscribers now use cheap DVRs from Scientific-Atlanta (SFA), which has orders for hundreds of thousands more.
You’d think all of this would spook CEO Mike Ramsay. But Ramsay, a veteran of Silicon Graphics, is ready for the fight; he cheerfully mentions that TiVo has already battled Microsoft (MSFT) and won (Microsoft canceled UltimateTV, a competing DVR, in 2002). He’s bolstered TiVo’s subscriber ranks to 1.3 million with the help of DirecTV; half of them now come through the satellite-TV company. And he’s suing EchoStar, the other major satellite provider, for patent infringement.
Ramsay’s offensive plan is even more interesting. He’s trying to make friends on Madison Avenue by putting tiny video commercials, similar to movie trailers, in TiVo’s programming guide. (Fox and BMW are among the advertisers that have tried the new format.) Nielsen is adding TiVo viewers to its ratings panels. Despite the common wisdom that TiVo was toast, the little company based in Alviso, Calif., has thrived: Its stock has soared from a low of $4.50 a year ago to nearly $12 today.
In January, TiVo raised $74 million from big investors, and in February it cut prices on its entire DVR line. But Ramsay can’t outspend his cable competitors; he knows he’ll have to out-innovate them. In February he purchased secretive networking startups Strangeberry, whose engineers are working to take the DVR a step beyond, making its user-friendly interface the window into content downloaded over any wire, whether coaxial cable or high-speed Internet. Can Ramsay hook up broadcast and broadband? Expect TiVo to generate new business models, new forms of video content, new regulation, and a lot more controversy in the coming years. However it ends, we’ll be replaying this episode for years to come.
Janet Jackson’s wardrobe malfunction was the latest in a string of high-profile “TiVo moments.” So why aren’t there more TiVos in the world? Are you the next Macintosh, with Comcast as Windows?
We have been conditioned over the last five years with the Internet that if something’s hot, it gets into millions of homes overnight. But until recently TiVo’s been expensive. It’s also a brand-new idea — and history tells us it takes time for the average consumer to get used to a new idea. It’s sort of like when the PC first came out.
TiVo is a hard-to-explain thing. When you first describe TiVo, people say, “Well, all right, that’s great, but isn’t that just like a VCR?” And you go, “Well, no, actually it’s not.” Then there’s a five-minute conversation. You can’t describe TiVo in 30 seconds. You need TiVo to describe TiVo. In the past we’ve gotten a lot of mileage and effectiveness out of PR and product placement, generating word of mouth. Today there’s a whole lot more elasticity. Bring the price down, sales go up. Get the word out, do more promotions, sales go up. In February we unveiled a $50 rebate. And you’ll see more of that going forward.
To protect their advertising and pay-per-view business, won’t cable companies create “TiVo lite” — DVRs that they control, in essence?
Yes, but they are motivated by satellite — they are scared that satellite is taking business away from them. And to the extent that satellite has embraced DVRs, they have to respond.
Is the 30-second spot dead, and is TiVo responsible?
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That’s one school of thought: The 30-second commercial is dead because with DVRs you just fast-forward through them. That’s true. Time Warner Cable does half a billion dollars a year off advertising. If they have a DVR that skips commercials, then they’re somewhat compromised.
But advertisers are looking for what’s next. And the secret is that DVR-based advertising can be targeted to individual people, and you can get a direct response. That kind of direct marketing is something that has never been done on television. That’s a big deal. TiVo has just over a million subscribers, so we’re still pretty small, but this new form of advertising has turned out to be a reasonably significant part of our business.
What kind of new advertising models do you see emerging on the DVR? Will BMW, say, give viewers a month of free TiVo if they agree to watch a commercial?
I don’t think that would fly. But there are various things that I think could be quite attractive. One is giving an advertiser the ability to throw a banner up when somebody is fast-forwarding through a commercial. So let’s say you’re watching a Coke commercial, right, and you’re fast-forwarding through it, and up comes a banner that says “Free Coke,” and you can hit on that and it sends you coupons.
Right now TiVo gets its content from cable or satellite. What’s next? And how does Strangeberry factor in?
What if your TiVo were connected not only into broadcast but also to the broadband Internet? Strangeberry has developed some exciting stuff that I’m really keen to see happen. But with television, you’ve got to keep it simple. In the early days of TiVo, we banned the use of technical phrases. We decided it had to be really simple, and that’s how the TiVo user interface came about. Slowly but surely, people came around to this idea that simplicity was the key. That’s a challenge: To go from stand-alone TiVo to broadband Internet, you’re going down a path that can easily add complexity.
Once you’re connected to broadband, then you can ask how would you make that a real TV experience from the Internet, and how could you build an advertising business on that. Our ads, for example — today they’re stored on your TiVo at home, but they could be stored on a website, and anybody could create one.
The cable companies would hate that.
Well, they could either hate it or love it. They are trying to find a use for broadband. To that extent they should love it. But to the extent that it takes away from their broadcast revenue streams, they would hate it. Say I’m looking for Martin Scorsese movies, and I search for Scorsese on TiVo. Back comes all this stuff that’s on television, but there’s also some website that’s got an interview with Martin Scorsese that’s never been shown on TV. Say we can index that and it will show up on our program guide, so if you choose it, it’ll start to “record” — download over broadband onto your TiVo.
We’ve got the ability to integrate broadcast and broadband in a way that doesn’t change the user interface one bit. The paradigm is exactly the same. There is no shortage of ideas around this stuff. For example, there’s no doubt in my mind that in 5 to 10 years video-on-demand and pay-per-view and physical video rental will all collapse into one thing.
In taking on Napster, the music industry seriously damaged its relationship with consumers. Could that happen with Hollywood and TiVo?
Definitely. It took the music industry six years to get what the Internet meant to their business, and then they panicked and their response was to litigate. I think video and film content holders are looking at that experience and they have learned something. Plus, the practical limitations are greater — downloading movies is not easy. There’s an incredible paranoia in the media industry over the ability of one individual to take content and put it on the Internet.
Do you buy into that paranoia? Anybody with a Linux box, a cable feed, and a little bit of programming chops could rip video to the Web. But so far, we don’t have a video version of Napster.
They can, but it’s not easy. We believe in the concept of fair use. What does concern us is that as time goes on, the concept of fair use is being narrowed. And we hate that. It’s our job to broaden the concept of fair use while still giving the industry good protection for their content. And I think that’s a technology problem.
The analogy is not that dissimilar to copying a page out of a book, which is generally not regarded as a violation of the book’s copyright. But if you copy the whole book and sell it, then that’s a different issue. So there’s no logical reason you shouldn’t be able to copy a short clip. But you can’t. And we face even more ridiculous issues. For example, I can time-shift and record onto a TiVo, but say I want to copy that onto another TiVo in another room to watch it there. Am I violating copyright? Well, I think most people would say no. But technically, the content holders could argue that I am, under the Digital Millennium Copyright Act.
What is the media industry afraid of? Do they really think their customers are all pirates?
They’re terrified of change. The model they have for their content is fragile: It relies on multiple sources of revenue. If any one of them is broken, they have a problem. In the movie business, most of the money is made in rental. What if that went away? That would be a huge disruption. A lot of people look at that and they go, “Technology’s not doing us any favors here because if we change our business model, we’re going to lose a lot of money.” I don’t think they think the world is full of pirates, and I don’t think they think they’re going to save their business models by suing 12-year-olds. But they may be able to be in denial for a little while longer.
John Battelle is a visiting professor at the University of California at Berkeley and author of “The Search” (Portfolio, late 2004).
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