Media Dojo

Archive for the ‘Cloudinomics’ Category

Guilty as charged for light posting over the summer. We’re moving from Whidbey Island to Bellevue which has sucked 99% of processing cycles out of nearly every waking moment.

However, I did find time this morning to attend a webinar focusing on the new Certificate in Cloud Computing offered by the University of Washington’s School of Professional and Continuing Education. It’s a nine month course conducted in-class and online with a cap of around 40 students that terminates with a UW certificate. The curriculum was developed by the UW Dept. of Computer Science & Engineering under the guidance of the eScience Institute.

In a nutshell, there are three courses that start with a broad overview of cloud computing in the autumn, a winter quarter emphasis on the tools and services, and a spring quarter course that drills into Big Data. The instructors Rusty Chapin, Anthony Stevens and Bill Howe are drawn from industry and UW. Between the three courses, the goal is to go the next step beyond “this is the cloud” programs in many schools. Aside from UW, Cal State Fullerton is one of the very few offering a more hands-on certificate in cloud computing.

When you parse the curriculum to its essentials, there is a focusing on handling data more than handling applications. While some might feel that concentrating mainly on tools and Big Data limit the UW program, the trade-off (after all, the whole thing is nine months) seems reasonable to me. Data dominance is the new high ground for a lot of business competition. The cloud has largely removed access to data processing infrastructure as a barrier to entry. Virtually no start-up in their right mind uses their seed or series A capital to build a data center. Simultaneously, there’s no large organization that isn’t exploring its options for migrating some of its data processing operations to cloud-based infrastructure. Given that dynamic, one can expect the UW program to be heavily subscribed but also ripe for modification once it starts serving actual students.

Interested people can attend an information session next month September 8 in downtown Seattle.

DISCLOSURE: Currently, I’m teaching a course on transmedia design in the Master of Communications in Digital Media program at UW. There is no direct connection between these two programs.

I’m up from a deep dive in which I developed a course on transmedia production and distribution for the Master of Communications in Digital Media program at the University of Washington. I teach the first class tonight as an adjunct professor and then take a crack-o’-dawn flight Wednesday morning to San Francisco to attend GigaOm’s Structure 2011.

Structure is hands-down the most important pure cloud computing get-together of the year for my money. All the players who matter are there as are a bevy of new start-ups. By and large, the agenda focuses on computing iron and performance rather than specific industry applications, which I think is good even though I consider myself a media guy first and a cloud guy after that. I make it a point to go because it’s how I top up the tech tank given the pace of change going on.

However, I do see this as probably one of the last Structure events in which there isn’t a hard-core industry track. Maybe not next year but definitely the year after that, Om and crew will need to start including the voice of the user beyond the obligatory hat tips to Facebook or Werner’s rapid-fire listing of various start-ups and enterprises using AWS in his state of the cloud presentation.

In the media space, the news is mixed. Sure, there is no way in hell that a new media start-up gets funded without being heavily cloud-based. But notwithstanding some Black Swan pop from a start-up, most of the development $ for media properties come from traditional sources and they are just getting started. It comes back to the old saw of people overestimating what they can do in one year and underestimating what they can do in three years.

That’s one reason why I’m 90 degrees into transmedia right now from a media services point-of-view. Just as e-business evolved from buzzword into something more substantial once it let go of the e-commerce angle and focused on how to deliver a superior customer experience through a network interface, so too will transmedia grow into something beyond trying to bounce people all over platforms once media creators realize that they’re still in the business of delivering an experience to the user.

That experience will rely on the interplay of creative narrative, applications/networks and social connections which most likely will be riding on computing clouds. That’s why I’ll be in San Francisco.

In media markets dominated by physical formats, channels and devices, insurgents must pull off the perfect heist.

The incumbents have not only capital and distribution muscle at their disposal, they’ve got a more deadly weapon which is time to analyze and react to competitive thrusts. One flaw in the insurgent’s plan or execution and the full weight of the incumbent’s advantages comes crashing down on rebel’s head.

When you flip that equation to digital media, incumbents must craft the perfect defense.

An insurgent has all the time in the world to find that one flaw to exploit. In the information security world, there’s an old saw that a software patch is the best advertisement for where an attacker will find their next meal. The gap between the release of a security patch and when the patch is universally implemented gives the attacker a precise road map for picking off weak or non-compliant users who don’t update their machines.

When I view how most of today’s incumbents are responding to the tidal shift of digital media from physical to virtual, from ownership to rental, from consumption to participation; I’m not seeing strategy.

I’m seeing patches.

Hollywood’s mass hysteria over streaming rentals as epitomized by Netflix isn’t as knee jerk as it sounds.

How would you like the prospect of reorganizing your business around $2 rentals as opposed to $20 physical DVD sales?

Effectively speaking, broadband and the rental model has started strangling the product sell-through business of video. Netflix is simply the current poster child of the fact that technology and some well timed licensing deals have created a more convenient model for consumers to access high-end paid video.

And as we know, convenience trumps EVERYTHING.

But let’s not get ahead of ourselves. During the 80s, the original video rental market started killing the sell-through market for VHS tapes. When the first VHS tapes for purchase came on the market, you were talking $39.95 or even $49.95 price points. So once Blockbuster started renting out tapes, people stopped buying because rental made so much more sense.

The studio response? Flatten the price curve. Drop the price for VHS to squeeze Blockbuster or force it to raise the rental fees. Tapes went from nearly $50 to more like $20. Then DVDs emerge to enable the studios to bundle in more content in a way to maintain prices for a while. And once DVD prices began their descent, physical rental became a secondary market and physical product sell-through became the big market.

Sure, Blockbuster and other physical rental firms like Hollywood Video made mistakes that hastened their demise. But it was home entertainment sell-through via cheap DVDs that killed them. People said , “screw it, I’ll buy the DVD at Walmart rather than troop down to the store”. Note, I’m not discounting Netflix’ DVD-by-mail launch model in the least. But let’s face it, if Netflix hadn’t gone the streaming route, we would start tuning up for its swan song rather than heaping praise on Reed Hastings.

Now Hollywood and the CATV industry are screaming bloody murder because studios like Starz and Epix cut deals with Netflix that offer literally digital pennies to cable dollars. Epix licenses content to the CATV industry at roughly $2 per sub per month according to some sources I know. The relative fee Netflix paid was on the order of $0.15 per sub per month. “Why the hell did you do that deal?!” bellow the studios while the cable guys are screaming just as loud “why the hell did you do that deal?!”.

“Stimulating the market” for paid streaming content may have been Epix’ motivation for cutting such a deal. However, the reality is that these deals have moved the price point down for paid video. Just like digital music prices must orbit around $0.99 plus or minus depending on features and bundling, so too are Netflix and its competitors ensuring that John & Jane Q Public believe that $7.99 per month is about right for paid streaming video.

Sure, there’s going to be a lot of words traded as the deal comes up for renewal. Netflix says it’s a friend of content providers. But they may not see things that way. In addition, the cable guys are re-evaluating what they’ll pay studios for content, especially reruns, which has a higher proportion of cream. Turner Broadcasting cited overexposure on digital platforms as one reason for not picking up “Modern Family”. True, it could have been a negotiating ploy but there’s also a grain of truth.

Thus, the battle lines are drawn. It’s a struggle by the studios to maintain physical/digital/some-kind of sell-through against streaming rental.

That’s probably why we’re going to see a lot of cloud-based digital lockers for storing purchased movie content in the coming months. The studios like the cloud because they’re betting that people won’t want to fill up their hard disk but will still want to own something. That’s Ultraviolet in a nutshell.

In the meantime, Netflix is habituating people to rental.

So what do you think? Will we look back at the original streaming deals cut by Netflix as the video equivalent of Bill Gates licensing QDOS (quick & dirty operating system) from IBM?

Over the next 1-2 years, it’ll boil down to whether studios/ISPs on the supply side or Netflix/social nets on the demand side will define the paid digital video market.

The content owners and distributors have only a short window to establish firm control over the paid digital video market lest they suffer a similar fate as the music labels. Netflix and its imitators too have only a short window to grow large enough to where they can negotiate from strength once the current clutch of licensing deals expire.

My money is on the demand side.

Yesterday, Netflix reported blowout numbers for subscriber growth in Q4 2010. The top line figures showed over 20 million subscribers, with over 3 million net additions in the past 90 days. The fourth quarter capped an extraordinary year of growth with over 7 million new subscribers in all. This came after management had predicted 3.6 million net adds at the start of 2010.

Reed Hastings and the rest of Netflix’ management are shrewd enough to realize that a victory lap is premature. A spasmodic backlash is brewing among the content and distribution side (especially given the greenlighting of Comcast/NBCU) to throttle Netflix through punishing renewal terms or even surreptitious tinkering with network performance. Studios remember how the music industry allowed Apple to gain insurmountable scale before realizing that the new model wasn’t an addition to the legacy music business, but a substitution.

Not this time, they vow.

I think they’re already too late. In common with generals who focus on preparing for the last war, most of the supply-side responses (higher licensing fees, bandwidth caps, tiered services) miss the most important difference between today’s paid digital video market versus yesterday’s paid digital music market.

Competitive advantage is no longer exclusively a format, device or channel game. It’s a battle for registrations and account information as the fundamental currency, which is a service-oriented rather than property-oriented way of looking at the world.

Consider how fast Netflix has grown its streaming services since late 2010 launch. More than 1/3 of new subs are signing up for the pure streaming plan (including yours truly). Netflix management is betting that percentage will grow sharply over time. In its Q4 2010 SEC filing, Netflix cited three factors that form the flywheel for scaling its subscriber base:

1.) More subscribers means more money to license content, which drives more subscriber growth.

2.) More subscribers means more word-of-mouth from subscribers to those who are not yet subscribers, which drives more subscriber growth.

3.) More subscribers means Netflix can increase R&D spend to improve its user experience, which drives more subscriber growth.

Nice theory some may argue. What’s not arguable is that Netflix marketing spend decreased 10% in Q4 2010 compared to a year before, yet it grew its subscriber figure by 63% year-on-year.

So what does Netflix gain in addition to cash flow from this “get big fast” strategy of subscriber growth?

In a sentence, it gains pole position in the digital video demand chain. As video capable devices and *contexts* proliferate, understanding the demand patterns of the audience is the most valuable resource of all. Streaming not only gives Netflix the distribution path to end devices beyond PCs and TVs, it provides a real-time feedback loop into the demand cycles of its audiences.

The fact that the company is openly discussing deeper integration with Facebook only solidifies its fundamental bet that digital video taste making and distribution is poised to become more social than music ever thought about. That’s really hard to do when the main product is physical media like a DVD in the mail. However, once you’re dealing with cloud-based media, the ability to integrate content with ancillary applications, services and social links (‘Like”) is limited only by licensing terms.

Netflix and other cloud-based digital video players are slowly but surely eating away at the classic entertainment product sell-through (eg. windowing and various formats). The new sell-through will revolve around customized enhancements of the core product rather than different versions of the same product (a future post on this blog).

In my view, the basic reality escaping the incumbent digital video players is that they’re looking at Netflix as just another entertainment distributor (a different flavor of a CATV channel) when in reality, it’s an e-commerce play with digital video at its center.

There was another e-commerce player that started out with books in order to “get big fast”. This company concentrated ruthlessly on demand chains in order to sell more things—and more different things—to its registered users. It eventually began to sell computation itself. The fundamental resource wasn’t exclusive rights to books or territories but one of the best registration and account databases in human history.

Now Netflix has started turning the same trick with digital video using Amazon Web Services. Jeff Bezos would be foolish not to eventually write that multi-billion $ check.

Tonight, I’ll be at the University of Washington (“UW”, “yoo-dub”) as a guest of the Master of Communications in Digital Media program. Brent Friedman of Electric Farm Entertainment, Russell Sparkman from Fusionspark Media, and myself will attempt to make some sense of transmedia in the context of Net Neutrality—specifically “those who own the pipes” a la Comcast.

You can catch the event via live streaming. From 6-630pm PST, Brent will be interviewed by Hanson Hosein for UW TV. Then, from 630pm, Hanson will open up things in a salon format with the Digital Media students and the public. That also will be streamed live albeit at a different web address.

I’m sure there will be a healthy dollop of Church/State gnashing of teeth over Net Neutrality, which has evolved into a 9 headed monster that’s feeding the coffers of both industry and advocacy groups. Both sides tend to push a stereotypic binary choice of either embracing or rejecting the dark side of the force—(e.g. discriminating/optimizing network traffic). A quick pass through Content Delivery Networks (CDNs), caching servers, edge servers, mirror sites, packet discrimination based on media type suggests that we’ve been doing this since day one.

Moreover, we’ve moved into a multi-flavored Internet. We’re using the basic protocol suite to have an Internet of documents which we call the World Wide Web. We’re linking sensors and devices into an Internet of Things. We’re linking data, processing and networking into a Cloud. We’ve launched an app-based digital economy on mobile. Facebook and other social networks have created an Internet of ID and personal history. In other words, it’s a hell of a lot more nuanced than either side would have you believe. But then again, nuance doesn’t lend itself to sound bites and fundraising appeals.

Enter transmedia, which pulls from almost all of the previous mentioned Internets. Now, you’ve got media that in theory moves across multiple devices and contexts while carrying with it the ability to transact. By transact, I mean that a transmedia experience doesn’t simply involve the audience “consuming” or even “experiencing” a story, but interacting with a story through making choices—where to enter, which character to focus on, which enhancements to bring into the story, which social objects to contribute to the story, with whom to share those stories. In other words, transmedia crosses almost all of the current instantiations of the Internet model of communications, content and community.

That makes transmedia one, big fat regulatory hairball. You’ve got QoS performance issues so the pipe owners have a say. You’ve got multi-device experiences so the consumer technology players have a say. As people interact, personalize and share their experiences within the property, you’ve got social and privacy issues that need airing. Transmedia is a full-employment-pay-for-the-kids’-college-tuition Act for intellectual property lawyers. And you’ve got a Great Lakes sized plankton soup for an X-Factor innovation that’ll blow the whole thing up yet again…

….sounds like a party to me!!

Over the next few weeks, I’m putting together a series of posts on how cloud computing and a changed media market will remix the digital media industry.

I use the term “remix” deliberately because what were once constraints (eg. bandwidth) are becoming assets and what were once assets (eg. channel specific rights to content) are becoming constraints. This remixing process is changing the face of competitive advantage in media.

A remix of the media industry is inevitable because whenever an economic good can be digitized and experienced on-demand; push oriented business models that depend on scarcity must necessarily yield to pull oriented business models that help consumers navigate a world of abundant choice. The fundamental challenge to today’s media industry is thus: what happens when end-users expect a persistent connection to media, applications and services regardless of their device or context, at a trivial cost or even free?

Murdoch plays Canute ordering the tide back with paywalls. The cable cos and the TV studios are locked in a fight over retrans fees. Netflix has Hollywood and Madison Avenue shitting kittens over near unlimited video (sans commercials) for $7.99 a month. Music execs remember how Apple pegged a music download at $0.99 and what that did to the industry. Of course, the notion of getting everything under the sun for one low price is irrational and short-lived. However, the problem—to paraphrase Keynes—is that consumers can stay irrational a lot longer than many of today’s media companies can stay solvent.

And what are the answers being offered to the media industry? Go to most any digital media event and you’ll find a conga line of professional conference whores advising media companies to link and/or twitter their way out of every problem, which is just a riff off of getting other people to whitewash your fence a la Tom Sawyer.

In the face of such uncertainty, I opt for a return to the recurring questions that affect any business: who buys? why do they buy? how do they buy? Media companies are in the midst of rephrasing their tasks as who engages with content, why do they engage, and how do they engage?

I contend that the Internet has solved only half of the problem of media, which is managing supply. The other half, demand is only being scratched. And yet, there’s nothing more powerful than knowing when and how a person comes into a market and is thinking about something they value. That’s scarce.

Moreover, the classic mix of product, place, promotion, and price doesn’t go away. I believe it gets translated into a new vibe—-a remix. The remix of media assets and constraints to create demand chains attacks the basic challenge facing media companies which is to produce media customers as opposed to producing just media content.

In this new world, owning the demand chain should be the goal of media companies.

—————————————————————————————————-

I plan to test some of these ideas in front of a live studio audience in a week. Hanson Hosein, who runs the University of Washington’s Master of Communications in Digital Media program has graciously provided a platform on January 18 with my fellow partners-in-crime Brent Friedman and Russell Sparkman. We’re going to riff at a public salon on Transmedia Storytelling and Distribution. If you’re around UW campus on that date, think about dropping in to tell me what’s wrong with this picture.

What day is it?

Summer is quickly drawing to Labor Day and I’ve hardly looked up from the screen, either at home or on a plane, in which I’ve spent a fair chunk of the summer. I’ve not been posting because I’m in the midst of helping one of the top three media companies put together a big-assed proposal for a media services cloud (soup, nuts, everything). We’re racing to a mid-September deadline. Then, like all things corporate, we wait.

I’ll pass the time by writing a report on the media business in the cloud for GigaOm and get back to more regular posting and interviews.

Also, I’m going back to Monaco this November for the Monaco Media Forum in order to do a main stage panel on Media and the Cloud. It will be almost evenly divided between media players and cloud players…will provide more detail as we get closer.

In the meantime, I appreciate the patience and will be serving up a lot more tidbits once kids get back in school.

Last week, I went to San Francisco to be a part of GigaOm’s Structure conference. One of the best cloud events by far, Structure gave me an opportunity to sit down with Michael Crandell, the CEO of RightScale. For media players trying to wrap their head around cloud computing, the cloud management space RightScale leads is destined to become one of their first ports of call. It’s not simply a case that a media company needs a control panel for spinning up or shutting down servers. The bigger play hands down involves how to use a cloud management offer as the vehicle that carries a project from sketched on a napkin to hard-core deployment and operations without needing to change a lot of the fundamental plumbing. Bob highlighted some of the work RightScale does with media properties like ESPN and Zynga. As always, you can check the Media Dojo Tear Sheet–RightScale

Media Dojo : Please describe RightScale and the problem it solves

Michael Crandell: RightScale is a cloud management platform that lives on top of an infrastructure as a service cloud. The big problem we solve is allowing companies to get quick access to cloud infrastructure, namely fast provisioning, pay-as-you-go and dynamic workloads. It’s an entire cradle-to-grave environment for delivering cloud-based IT resources. RightScale itself is a SaaS platform that’s a web-based management system. From there, you get a portal if you will into all of your data center resources regardless of where they are, whether they are in the same public cloud, different public clouds and regions, private clouds or hybrids.

MD: How does that play out in practice?

MC: It’s everything from an operational dashboard that gives you real time information around lower level things like monitoring and alerts to a whole tracking and auditing function, which is critical in a cloud environment. In a world where resources come and go, people need to know “what happened on that server that was running last Monday and it’s gone now—and everything about it is gone.” The server may have been part of a cluster of 700 servers that launched to complete a huge batch job or a grid job. It may have been running in a transient, scalable app front end. Now it’s gone. So you need to be able to go back and look at log data. We also track cost data along with the operational stuff. We can cut it any number of ways depending on the goals of the customer. There’s a metering function within RightScale. Related to operations and cost functions, there is a whole set of tools to establish user roles and privileges. You don’t want everybody to be able to push the Big Red Switch that literally stops all servers. There needs to have a high level of admin access.

MD: That’s fine for the cost side of the ledger. What about the revenue side?

MC: There’s also the area of design and architecture. We have IP around a concept we call server templates. These are innovations on the idea of machine images that allow dynamic configuration of boot time servers so they can adopt their role effectively, whether you’re adding another app front end, load balancer, database slave etc. As that server is booting up, it can find out via the server template and RightScale that it’s part of a given load balanced array of web front ends, for example. The server knows where the other front ends are. It knows where the load balancer to register with is located. It knows where is the database that it’s talking to. All of that is set in a template. The configuration is predictable with the variable information being fed in at launch time.

MD: Let’s switch gears to talk about how you work with the media industry..

MC: We work with a variety of media clients like ESPN with their fan profile site during March Madness as well as Sony Music, which uses RightScale to power their artists fan sites all the way to e-commerce. We also work with Sling Media, which uses RightScale to do a lot of back end transcoding so that a slingbox can handle most anything you throw at it. Sling Media’s problem is that they have all this content coming in from publishing partners that needs to be prepped on-the-fly for a variety of devices ranging from a phone to a big screen TV with different resolutions and codings. That’s a big back-end grid transcoding operation. In the music space, we do a similar kind of job with Tunecore. Then there are the social apps and games, Facebook type stuff.

MD: What do you see really pushing the cloud in the media space?

MC: We see a couple of things. In the gaming space, the console games are now heavily networked, which means there’s a big cloud component anyway. Aside from enabling MMORGS, another important aspect is that games are increasingly being played on lightweight front-ends (browsers and phones). Asia is leading this push not only because of high end phones and networks but also because on average, the discretionary spend once you get out of Japan, Korea, urban China is often lower than what you find in North America and Western Europe. So you might end up spending $3-4 hard currency to go to an Internet café and purchase some Zynga bucks to play whatever game. Those are almost entirely cloud based, resource intensive and are driving a lot of adoption and innovation as the demand scales. Last time I checked, RightScale powers the top ten Facebook apps that aren’t published by Facebook itself.

MD: Last question, looking out 12 months, what are you seeing driving the bus for cloud computing and media?

MC: What’s becoming a reality are hybrid clouds. We started day one with running solely on AWS. More public clouds then came on line as well as low level cloud management software like Eucalyptus, Cloud.com, VMware,etc. It’s now possible to organize your own internal data center resources under the cloud model. From our POV, that’s about more choice for the customer. We’ve been doing a lot of work on the private cloud side. Doesn’t mean you repeal the laws of physics. You’re not going to have your database in Philly and your web tier in Austin or Seattle. But you might want to have a disaster recovery footprint on a separate power grid in another part of the country. In the media industry, I think there will be a lot more streaming simply because the competitive thrust will be about getting media to the customer however, whenever they want it. People will also own copies of their content. Bandwidth has become fast enough to make that a reality. The cloud will be more important for powering that. Never forget, the lighter weight the device you’re using, the more that power needs to be somewhere like the cloud.

I’ve been submerged the past few weeks for both personal and professional reasons. On the personal side, we’re selling my 89 year old mother’s house, which has 45 years worth of stuff crammed into it. For those of you who’ve walked in those shoes, you feel the pain.

Professionally, I’ve started a consulting project with the senior operations people at one of the top five global media companies. You love their music, movies and plug in their consumer electronics—get the drift? I can’t give a lot of specific detail for NDA reasons. But it’s no great secret that the physical supply chains for media (eg. from a master file to a CD/DVD sitting on the shelf at Wal-Mart) are undergoing profound change.  I don’t think there’s a clean flip from all physical to all digital production and distribution of media. People still like to own *stuff* at the end of the day.

That said, the transition to a new media supply model has cloud computing written all over it. Go ahead and Google “Digital Supply Chain” to see why. The number of linkages between finished and semi-finished media goods, co-mingled professional and user-generated content, commerce and community functions suggests that the cloud just might be the only institution capable of taming that kind of complexity. There’s definitely no lack of challenge here.

I’ll document some lessons learned in a couple of months.