Urlocker On Disruption

Update: Satellite Radio Disrupted by iPod

Update: Feb. 17, 2009

NYT: Sirius XM averts a close brush with bankruptcy, for now...

Things looked irretrievable only a few weeks ago.

Sirius XM Prepares Bankruptcy Filing

Meanwhile, equity investors have already been effectively wiped out in the past two years, losing more than 95% of their value.

Original post: Dec. 5, 2006

Satellite radio broadcasters are reporting unexpectedly slower sales for Christmas, causing the stocks to continue their descent to earth.

In Contrast, Apple's iPod is expected to sell its best quarter ever, with 16-20 million units to be sold this quarter alone, which is more than the total 12 million satellite industry has racked up in five years.

Sirius Satellite Radio Inc. had this to say in the Wall Street Journal today to account for the slower outlook:

Sirius said it wasn't sure why retail numbers weren't stronger, given increased awareness of the product and more Sirius radios in stores compared with last year.

What's going on?

It would appear that the two satellite broadcasters, Sirius and XM Radio, are being disrupted by the iPod. After all, iPods solve the same problem, of providing a large variety of music content to people on the go. 

Here are two important new indicators of the likely sustained success of the iPod:

• 70% of 2007 U.S. model cars will come equipped with iPod connectors
• Six major airlines announced last month that they would equip passenger seats for iPod connection as well

Meanwhile the satellite broadcasters have each more than $1 billion in debt and are still losing money.  Stocks are off 40-50% this year.

Apple's total cumulative iPod sales tracked on WikiPedia will cross 80 million shortly.

**Other Information**

Unless satellite broadcasters start by inventing new profitable niche services, they may not survive. Read my full column from the Financial Post, Satellite broadcasters face grave challenge from iPod (pdf).

Complete archive of On Disruption columns from The Financial Post.

The Cranky Consumer says the problem is that satellite radios are hard to install and  suffer distortion.

PopSurfing says Sirius and XM need to merge, which echoes the public musings of Sirius's CEO Mel Karmazin last week but certainly won't solve the iPod problem. 

Mergers are a typical warning sign of an industry in disruption.

Classic Disruption: Why Wal-Mart's Movie Plan Will Fail

Update Dec. 29, 2007:

Wal-Mart shut down its video download service.

Original Post Nov. 29, 2006:

Wal-Mart joins the battle for online videos in a disturbingly familiar way.

In the worst kind of compromise, Wal-Mart is cramming the new thing, movie dowloads, into the old business model, retail store purchases. To download a movie at home, you have to buy a movie at the store, at least to start, according to the Wall Street Journal:

The service represents a sort of halfway solution: The giant retailer will require customers to buy a DVD before providing them a "feature sticker" with instructions on how to buy downloads.

As Wal-Mart explained in the NY Times, it wants to maintain the old:

“We feel like it is really important that the DVD business stays healthy and stays quite central to consumers’ lives,” said Kevin Swint, a divisional merchandising manager at Wal-Mart.

Cramming seldom works for disruptive innovation because it compromises on what consumers want and it restricts the growth potential of the new innovation. Whenever you see an incumbent supplier adopt a new innovation but in a way that severely restrict or impairs its use in order to preserve the old and expensive cost structure, you've got cramming. Look for words like 'hybrid', or 'best of both world's' as warning signs.

Microsoft's early efforts in WebTV and portable devices would be examples of cramming the PC operating system business model in places where it did not fit. Note the absence of success despite years of effort and huge expenditures.

In the case of video downloads, Wal-Mart's new competitors that are not in the business of operating  retail stores would see no reason to restrict themselves with such compromises.

BitTorrent, a pirate download site which today announced legit content deals with Fox, Paramount and several other studios, and Apple Computer, which dominates the download music business, for example, won't worry about maintaining sales at retail outlets the way Wal-Mart does.

For examples of cramming, consider these:

• No record company created a simple buck-a-song download service because they could not see a way to do this without hurting their retail sales. (Apple, free of this worry, succeeded despite the fact that its biggest competitors were free pirate sites like Napster.)
• Nokia crammed wireless email, web, fax relay, phone, SMS and applications into the doomed Nokia 9000 Communicator, a brick of a phone that did nothing well and sold poorly in the early days of wireless e-mail;
• Every major newspaper publisher created online websites that replicated their old business onto the web. Very few have achieved any success.

**Other Views**
Harvard Prof. Clayton Christensen is the pioneer on disruptive innovation and he outlines why  cramming fails in this Working Knowledge paper.

The Disruption Group's site lists the benefits of disruptive strategy including higher-value to customers, new revenue streams and sustainable high return on equity. 

Mathew Ingram says the BitTorrent deal is not important because there is no BitTorrent network to speak of.

GoodMorningSiliconValley says the transition from pirate site to legit business is a difficult one.

TechCrunch says BitTorrent raised $25M bringing its total capital to $34M. The company's big challenge is to stay on the right side of copyright owners.

SeekingAlpha says Apple will eclipse BitTorrent and Wal-Mart's efforts.

Don't bet on BitTorrent, says Andrew Chen. After nine months of trying to commercialize a download service based on BitTorrent, he says it's too complicated for mainstream consumers and it doesn't provide the instant gratification they want.

Established Magazines Sink But New Titles Bubble Up

The game has changed for publishers of business magazines, as described in today's Wall Street Journal.  The old days of selling (or giving away) subscriptions to well-heeled executives and  piling on the ads for cars and financial services no longer seem to work.

Witness the declining ads at top-tier magazines like BusinessWeek and Fortune, as well as the thinning ranks of relatively younger titles with the demise of Business 2.0 and periodic reports of financial strain at Red Herring (again.)

Here are some of the warning signs of disruption that the Journal observes:

• Established management playbook fails
• Established suppliers continue to improve their product by old standards (redesigns and reorgs)
• New entrants with strange business models make inroads (Internet)
• New competitor takes share and is dismissed as 'inferior' (Conde Nast's Portfolio magazine)

Out With the Old...

I happened to be reading Warren Buffett's latest annual letter to shareholders yesterday and his comments on newspapers, including the Buffalo News, which his company owns, seemed relevant to magazine publishers:

"Eventually eroding fundamentals will overwhelm managerial brilliance.  And fundamentals are definitely eroding in the newspaper industry, a trend that has caused the profits of our Buffalo News to decline. The skid will almost certainly continue.

Almost all newspaper owners realize that they are constantly losing ground in the battle for eyeballs. Simply put, if cable and satellite broadcasting, as well as the internet, had come along first, newspapers as we know them probably would never have existed. However, the economic potential of a newspaper internet site – given the many alternative sources of information and entertainment that are free and only a click away – is at best a small fraction of that existing in the past for a print newspaper facing no competition... the days of lush profits from our newspaper are over."

And In With the New...
Of course not all magazines are dying. And there are occasionally startups that show a path to a new emerging market.

Muslim Girl, published by ExecuGo Media strikes me as a new disruptive medium because:

• It reaches a new market that was previously deemed unimportant to mainstream media: 400,000-500,000 Muslim girls in North America
• It is global in its appeal
• There is a worldwide shortage of popular media content directed at Muslims

One though: Disruptive products typically need disruptive distribution channels to establish themselves. The reason:Muslim Girl will struggle for space on news stands and will not initially be able to lure mainstream advertisers away from Seventeen, CosmoGirl and other established titles. Muslim Girl looks great in print and on the web, but wouldn't a mobile version on cell phones appeal to hundreds of thousands of teenage Muslim girls? Teenage girls and cellphones go together well. 

Disruptive Media: Newspaper Redesign

Many major newspapers across the U.S. and Canada have redesigned in the past year to freshen up their look. It's part of the ongoing battle to win back readers or at least to offset declines vs. the Internet and other news sources.

But can an underdog newspaper redesign itself to be more disruptive?

The National Post, out of Toronto, is aiming to do something different with its new design launched this week:

• Narrower page
• larger typeface, larger line spaces
• Shorter stories, more pull-out sidebars
• More specific investment angles on business stories
• Unusual vertical masthead

Some early reaction has been favorable, but to many readers, the new design seems like pretty mild stuff and not nearly as radical as the way insiders see it.

Seismic changes may indeed be what an underdog newspaper needs. But this goes beyond mere design and goes to the function of the newspaper as well.

A few months ago, I did an informal survey of Canadian investment professionals and it was clear that the National Post and its business section, the Financial Post, was less relevant to this group than it had once been. Also there was an increased perception that the newspaper was a pale imitation of its larger competitor,  the Globe and Mail.

Clearly, a more disruptive approach is necessary, but has the Post been focussed enough in its new undertaking?

Experience in disruption show that the newspaper can achieve great growth and deliver high value to customers if it focuses on any these attributes:

• solve important new problems for customers that they can't solve today
• increased accessibility
• increased customization

To the extent that the National Post helps readers solve problems, and is more accessible, it will succeed.  Even a relatively small change, such as if the business section were to focus entirely on buy/sell ideas for stocks, would clearly differentiate the newspaper and help solve important, frequent problems for readers interested in investing.

What problems do readers need to solve that they can't solve today?  Newspaper publishers (and most managers in any industry) don't normally think this way.

How far can a newspaper go with this? Here are four somewhat crazy ideas for new businesses, some of which lend themselves more towards new web services than printed pages:

1. Community-focused Medical Information: Help families find reliable, competent family doctors, specialists and physiotherapists. A Canadian version of www.RevolutionHealth.com
2. Family-focused Local Entertainment Services: Help busy mothers plan their days with activities suitable for toddlers through to tweens. An extension to informal “mommy blogs,” but created to be more consistent so that the service can be relied upon daily.
3. Rate my Broker: Help baby-boomer investors find reliable, trustworthy local stock brokers and financial planners. An investment version of www.RateMyProfessors.com
4. Desi Family Network: Help Asian families continue to hold multi-generational ties by sharing entertainment, social and family information.

**Other sources**

Newspaper Next is a joint undertaking of the American Press Institute and Innosight, Clayton Christensen's management consulting firm, to help revitalize the newspaper industry.  Their industry report is available for download.

Some thoughts on newspaper redesign from BrassTacks Design. Highlights: Focus; Admit shorter is better; Innovate like you mean it.

Like all potentially disruptive innovations, redesigns are risky because they can alienate current customers. Here are some scary charts on newspapers which have seen circulation declines accelerate after redesign from newsdesigner.com, a blog that tracks major newspaper redesigns.

FYI: On Disruption, a newspaper column on disruptive innovation, appears in the Financial Post. Archive of articles.  

Disruptive Media: Harvesting the Great TV Back-Catalog

The New York Times has an interesting story today about one of the few growth segments in big media: TV series on DVD.

"Although DVD sales are down this year, television series on disc have fared better than other categories. Sales of complete seasons are a rare bright spot, registering actual growth."

Let's think about this from a customer's persective.  What 'job' is the consumer trying to accomplish by purchasing these boxed sets of DVDs?

• Bring me up to date on a TV show I just discovered
• Let me watch a favorite show at my convenience
• Let me get to know a character or series better

The key issues seem to be that DVD boxed sets are more convenient, more flexible than broadcast TV and allow a deeper level of interaction. 

Here's are two questions for broadcasters, publishers and other media executives: Are there other ways that media companies can build more convenience and flexibility into their product offerings? Does the Simpsons movie, which grossed $500M in two months, fit some of these elements?

Also note how these boxed sets are sometimes sold through Starbucks and other non-traditional channels. Disruptive products typically need disruptive channels to be successful.

**Other Sources**
NPR carried a segment on how mp3 downloads has created a new business tapping into record back-catalogs (4:04min)  .

Simpsonize me: Create your own Simpsons character from a photograph.

Or is this just the long tail phenomena made famous by Wired Magazine's Chris Anderson? 

Long tail data doubtful according to WSJ columnist Lee Gomes.

TV screens get busier with more ads... and TV downloads rule at NBC; two related  NY Times articles.

Cellphone Video Works, But Does it Get the Job Done?

Today's Wall Street Journal has a story about how new services offer video on cellphones such as MyWaves, CellFish Media and 3Guppies.

These services are typically ad-supported and allow consumers to watch short clips such as music videos on their cellphones. Some allow you to upload your own videos onto your cellphone or to store videos from YouTube and other sources as well.

I have also experimented in the past week with a few other technologies to load video on my BlackBerry, including from Mobiola as well as BlackBerry video converters from Seabyrd Technologies and MediaCell.

And yes indeed, I loaded and watched a handful of videos on my BlackBerry, including a conference speech on disruption, a few music videos and (allegedly a techie's holy grail) full-length TV shows.  In some cases there were some problems with file-format errors or screen-resolution, but generally video on cellphones works.

But does it do a job?

Or put another way, does adding video to cellphones create any real business value or is it just a technology exercise in search of a customer need? Is this just another random splatter-campaign to create new (smaller) advertising venues to replace larger failing advertising venues such as broadcast TV?

Glancing at the websites for the various suppliers of these services and technologies, it doesn't appear that anyone has figured out a market for whom this works. For video on cellphones to be valuable, it must solve a customer problem that is:

• An important problem
• A frequent problem
• A problem that customers are trying to solve today but can't

In tech-land when new technologies struggle without a valid market, observers sometimes bemoan the absence of a 'killer-app." They are highlighting the same issue. Remember the video phone of 1964... or in 1992...or in 2002 or again from Vonage in 2005?

Nobody wanted it.

To find real economic need for cellular video --where people will actually value and pay for the service -- requires a re-think. 

I don't have answers on this, but I do have some questions that can help. Rather than chasing the mass market, video suppliers should ask questions along these lines to identify where the initial needs for this technology are strongest:

• Are there places where people can't afford full sized TVs but a lower-cost cellphone video service makes sense?
• Are there occasions when a video on a cellphone is 'good enough' because it is not convenient  or appropriate to fire up a DVD or TV, but a cellphone is ok?
• Is it possible to use a cellphone to give people access to important programming that they can't get through any other source?

**Other Sources**
This blog from Japan refers to "consumer confusion" about mobile video...Always a dark warning sign.

Monte Silver at Podcast Alley refers to the billions spent on mobile TV to no success, and concludes that podcasts --not commercial video-- will be telephone companies' salvation.

On Cannibalization: Big Disruption Ahead with iPhone

My colleague Paul Paetz, says Apple's new iPhone will disrupt the market but in a different way than most iPod cult-members think...

"The iPhone is disruptive because it isn't really a phone, or for that matter, an iPod. If it was either of these, then as cool and elegant and nicely designed as it is, it would still just be an incremental or "sustaining" innovation.

"The iPhone is a trojan horse...We desperately need a single, small pocket-sized device that can handle all our business needs while on the road and enable us to leave our 10 pound paperweights at home."

Read the full post here...

**Other Sources**

If anyone is going to cannibalize Apple's iPod business, it had better be Apple, CEO Steve Jobs tells employees, according to Infinite Loop Central.

Innosight's views of RIM's BlackBerry vs Apple's iPhone: It's all about integration vs. modularity.

RIM blasts the doors off latest quarterly results... stock up $28 in after market trade... Palm wilts.

NY Times says AT&T's slow network may overshadow iPhone.

Wall Street Journal interview with Steve Jobs: "The iPod halo effect has been real."

VIDEO: Should We Cannibalize Our Business?

The question of cannibalizing your own business is one of the most critical decisions any executive can make -- but most avoid the issue or dismiss it out of hand. 

Don't make the mistake Sony made.

In this video excerpt (8:10 min) from a presentation to the Conference Board's change management conference, I discuss two tools to manage competitive disruption. I look at a case study of why Sony Records, the company in the best position to create and dominate the downloadable music business, couldn't capitalize on the emerging trend towards downloading because of conflicting values.

This is the second of three excerpts from the conference. Part 1.

Rolling Stone Asks Who Killed The Record Industry?

Rolling Stone has a great article on the decline and pending death of the record industry.

It's the first in a two-part look at the record industry including numerous candid inside comments from industry players:

"The record companies have created this situation themselves," says Simon Wright, CEO of Virgin Entertainment Group, which operates Virgin Megastores.

"They left billions and billions of dollars on the table by suing Napster -- that was the moment that the labels killed themselves," says Jeff Kwatinetz, CEO of management company the Firm.

"The record companies needed to jump off a cliff, and they couldn't bring themselves to jump," says Hilary Rosen, who was then CEO of the Recording Industry Association of America. "

"A lot of people say, 'The labels were dinosaurs and idiots, and what was the matter with them?' But they had retailers telling them, 'You better not sell anything online cheaper than in a store,' and they had artists saying, 'Don't screw up my Wal-Mart sales.' " Adds Jim Guerinot, who manages Nine Inch Nails and Gwen Stefani, "Innovation meant cannibalizing their core business."

This is a classic case of disruption in six easy steps:

• Early download technology initially looked inferior
• Industry can't see a way to embrace the new thing without hurting its current business partners and destroying its business
• Industry barricades itself with high-margin products and new proprietary technologies
• Apple iTunes has an entirely different business model  without support initially from major record labels
• Eventually the bottom drops out on the old market
• The new market is hugely profitable and large for the disruptor.

The Rolling Stone analysis is correctly framed as a post-mortem because the disruption actually occurred several years ago.  Are other industries facing similar disruptions also in denial?

• Newspaper mergers would not seem to cure the 40-year decline of readership or relevance of newspapers
• Advertisers are increasingly turning away from television because its audience is shrinking
• WiMax technology is deemed too low quality to replace cell phones and landlines so most telcos ignore it

**Other Information**

Ain't nobody at Apple complaining these days. Wikipedia has a great chart to track iPod sales.

Shelly Palmer says look for TV stations to reformat and automate the way radio did in the past 20 years. Fox's plan to sell 9 of its 35 profitable local stations may be the early warning sign. "One can easily imagine a vast network of fully automated television stations across America with most of their revenue coming from the use of their new government granted digital spectrum."

Forrester Research has a good take on the shrinking of network television: "The top of the pyramid is getting narrower -- fewer big audience hits. And the bottom is getting broader -- more videos on YouTube and its brethren. The real problem happens next -- in this big morass, how do you find what you're looking for?"

A reader emailed in this comment: Remember when the Vinyl album industry was fighting off the dreaded eight-track menace of the 1970s? Look at this...

 

Cinema Disrupted: Opening Night Movies at Home

TV smart guy Shelly Palmer says it's about time to put an end to the hassles of going to the movies, just to see a film on the day it is released.  Palmer, author of Television Disrupted, lists the catalog of cinema woes:

• Commercials
• Previews
• Expensive concessions
• Noisy audience members
  

So when I will be able to watch a movie at home on opening day? How would I prefer to watch it (pay-per-view at a set time, on-demand or download-to-own)? And, what technology will be involved (set-top box, my computer, a combination)?

My friends at Comcast tell me "day & date" release, as it is known in the trade, is coming soon. There are no technical problems at all, just business rule issues. Comcast can distribute movies via standard definition pay per view today, they just need permission to do so.

Palmer points out that business issues between studios and cable cos are the biggest obstacle to giving consumers what they want. Of course, when you think you have a monopoly on an event or a type of media content, it's very hard to give it away or even rent it. Think about how this could change with the launch of Apple TV.

Hint: Don't ask the record companies for advice on this one. (Apple, which has no historic base in the music business, has 82% share of the download music market. Likewise, Apple has no historic base in TV or movies... yet.)