Urlocker On Disruption

Updated: Television Disrupted? A quick look at Joost and Vudu

Many contenders are trying to make the next big internet play out of television. Let's look at Joost and Vudu as case studies.

Mark Goldberg has been looking at the beta trial of Joost, the new alternative Internet-TV-thingee from the two guys who invented Skype, a free phone service.

Joost is supposed to bring authorized TV content to the internet and to create a new advertising-based service, including full episodes of CBS shows like CSI, Viacom programming such as MTV (explain what MTV was to your kids) and independent films. The service is expected to launch commercially soon.
 

Mark is not convinced of its value:

"It is unclear to me that Joost is delivering enough on its potential to be a truly disruptive force... Is Joost an example of what I have called The Iridium Syndrome' - an engineering-led solution solving a non-existent problem resulting in massive flushing of cash?"

Mark, a telecom expert, is clear about what he considers to be deficiencies of the Joost system, at least in so far as it exists in the early trial version:

• Absence of live sports, news and current affairs
• Absence of new release movies
• Absence of suitable archive/indexing/searching mechanism
• Low quality relative to High-Definition TV

I took a quick look at the Joost beta (by invitation, sorry) and while I was entertained for a few seconds with a Rocky & Bullwinkle cartoon, I tend to agree with Mark's conclusion.  The top issue a new service must answer to become a sustainable business is "What new problem do you solve for consumers?" This is essentially the same problem that Vonage, a so-called disruptive threat to telephone companies, faced from day one: What is the new market?

It's quite possible that the Joost execs have this under wraps and will reveal all later. Or they can evolve the business to answer that question. But it is also possible that their hybrid strategy ("Joost combines the best of TV and the best of the Internet") goes badly. Most hybrids fail because they tend to 'cram' the new disruptive thing (Internet) into an old business model (broadcast television) in order to prop up the old declining business.

This doesn't mean that Joost won't make a lot of sense to companies that need a life raft, such as CBS and MTV... but it may not make sense to consumers.

I am much less concerned with Mark's valid observations (absence of sports, low resolution vs. High-Definition, etc.) that could be summarized by saying Joost is inferior to cable-TV.  The reason is that most successful market disruptors start with inferior goods or services that are aimed at marginal markets.

Recent example: BlackBerry started in 1999 as a non-Windows compatible, non-Palm compatible, non cell-network compatible, non-phone, non-text message, non-web, e-mail only device. It was inferior to mainstream cellphones in most every way... but it did one new thing really well by solving a new problem: It gave access to instant information anywhere.  And the technology was improving.

Onto Vudu

The New York Times reports on Vudu, a Silicon Valley startup that has dozens of movie studios signed up and enthralled with the potential. Founder Tony Miranz promises a disruptive approach to movie economics: "“Other forms of movie distribution are going to look silly and uncompetitive by comparison,” Mr. Miranz asserts." Makes Apple TVC look like Betamax, says TVSquad.

Gizomodo says Vudu has what it takes as a "video store in a box."

**Other Information**

PC World says Joost is still working out the kinks, but has a positive observation: "Research shows that TV viewers' main problem is this: "What do I watch when I don't know what to watch?" I give Joost kudos for providing several tools to help answer that question."

A year ago when I rated Vonage (pdf) using The Disruption ScoreCard (xls), it got a 'C,' still the lowest rating of any company I have looked at.  You can download the scorecard to rate Joost and offer your feedback.

Here's a disruptive alternative to boring TV, at least for hundreds of thousands of French-Canadians. Perhaps this reinforces the point... By many standards this is 'inferior' to mainstream TV. But in Quebec, where the audience always wants more local entertainment, this Monty-Python type of comedy sketch service solves a problem.

Of course, pirated TV services are all over the Internet according to the Wall Street Journal, but they don't usually represent sustainable businesses.  In fact, they come and go based on enforcement of copyright rules. However, the popularity of Apple's iTunes music service shows that premium services can compete against pirates, if they recognize where the value is by solving customer problems.

Samples from a few of these pirate services, in this case, episodes of local version of The Office, from the U.S., the U.K. and France, subject of course to disappearing at little notice:

Online Videos by Veoh.com

The Office (UK) S01E01 - Part 1
Uploaded by dme

A Case For Medical Disruption

Here's a disruptive new business from AOL co-founder Steve Case that solves some very clear information problems for consumers:

• Help me assess my symptoms. 
• Help me find the right doctor. 
• Help me solve paperwork problems with my insurance company

This is disruptive because it solves:

• important problems,
• frequent problems
• problems that consumers are already trying to solve but can't address adequately through other methods.

TO STEVE CASE: I WILL GLADLY PAY A PREMIUM FOR THIS SERVICE.

J&J, Other Advertisers Click Off TV

Johnson & Johnson sharply cut its overall ad budget by 20% last year, with TV spending down further at 25%. J&J is now investing its efforts online in dozens and dozens of its own medical information sites, says the Wall Street Journal's Healthblog.

Net impact on sales for the big medical and consumer products company? A healthy 8.5% sales growth in the latest quarter.

The table at the left from the Wall Street Journal shows a worrisome trend: The big drops in ad spending by car makers is understandable given their financial crisis (another story on disruption), but when media companies like News Corp. (-2%) and  Time Warner (-12%) are cutting their ad spending, what does this signal? 

This trend was marginal last year, for example when Australian brewer Fosters cut its U.S. TV ads.

Broadcasters, newspaper publishers and others who depend on the healthy ad spending of big corporations to subsidize free consumer access to content need to face this problem before traditional media becomes entirely commoditized.

And yet, there are many opportunities to create new premium services from media companies, if the focus is on helping consumers solve their information problems. New services focussing on medical, financial or local communities may not resemble traditional 'newspaper' or 'TV' services any more than Google resembles an encyclopedia. But customers will value and pay for such services if they tackle problems that are:

• Important problems
• Frequent problems
• Problems that consumers are trying to solve already, but can't address on their own

The media company that solves new problems that consumers face but can't solve today will lock itself into a position of long-term value.

Some questions for media executives:

• What are the problems that advertisers are trying to solve but can't yet solve online?
  
• And what are the changing information needs of consumers that media companies can fulfill?
• What is the impact of new media and new technologies (digital video recorders like Tivo,  websites, blogs, free commuter newspapers, aggregators and Youtube) on the value of current advertising venues?

**Other Sources**

Author Shelly Palmer says in Television Disrupted, that the role of television is changing to 'Networked TV' in which viewers have more power and control than programmers. 

Ben Compaine at Corante shows the declining TV trendline in context of other media, with internet advertising doubling  since 2003.

OpenGardens looks at the decline in newspaper advertising yet finds an interesting point of value in local newspapers.

FP: Deal or No Deal? Three Questions to Boost Merger Success

April 5 update: Chrysler takeover is bubbling up but no clear information on a deal yet: "It really depends on what kind of creature the spinoff of Chrysler will be and the crux is the legacy costs," said an analyst.  Is there an opportunity for some of the Chrysler assets to be used in a dramatically differerent way?

April 2 post: Mergers are on the rise again, with news pending on a Chrysler takeover, various newspaper publishers, a handful of software companies and the two major satellite broadcasters.

Yet most corporate mergers fail to deliver value to shareholders, with studies estimating as many as 83% (pdf) of mergers fail by financial measures.

We are in an era of increasing mergers because of the rise of private equity and, in my view, the increasing disruption of industries including telecom, newspapers and television broadcasters.

Here are three simple questions to ponder as executives ask themselves "Deal or No Deal?"

• What are the new services or products that can be created as a result of the merger?
• Who are the unserved customers that will be reached as a result of the merger?
• When the cost cutting is done and scale achieved, does the company have a new different business or is it just a larger business with the same fundamental problems, as is the case for  Alcatel-Lucent?

Read the full article which discusses mergers in telecom, autos and the food sectors, published in the Financial Post.

Full archive of On Disruption columns published in the Financial Post.

**Other Sources**
Ever heard of revenue dis-synergies? Apparently Goldman Sachs has.

Scott's blog on why the Daimler-Chrysler merger failed. Dealscape looks at the options available.

OnDisruption Flashback: Here's a view from last March when talk of an Alcatel Lucent deal re-emerged: "If you merge two non-disrupting companies, each saddled with commoditized products in non-growth markets, do you get a better company as a result? You might be able to cut costs for a while, but by disruption standards, the answer is a clear no."

The Effects of Mergers: U.S. Free Trade Commission Draft Report 2003 (pdf): Excellent roundup of various studies on the long-term impacts of mergers by Paul Pautler.

F.M. Scherer: A new retrospective on mergers. Scherer, who wrote the definitive book analyzing mergers in the 1980s, re-examines the failings of mergers identifying some of the root causes in business schools.