The tech world is abuzz at the news that Google may start providing cable television service in the United States but there could be several challenges to their efforts as incumbents may have issues with this intrusion and may block them by withholding popular fares.

Economics of the TV business

To understand the challenges Google may front in entering the cable TV business, one must first understand that TV is not a monolithic entity but an ecosystem, with players in a number of different areas. At the beginning of the chain are the show producers, who develop TV properties, either on their own or with economic participation from a distributor. Then there are distributors, what we traditionally know as TV channels, who package groups of TV shows aiming at a particular demographic segment and then offer this up to advertisers as a way to reach a particular type of audience. This is traditionally what people think when they think of TV.

But in order for those TV shows to make their way to the end users, they need to travel to consumers’ TV screens, which themselves are controlled by a different set of aggregators, who put together groups of TV shows in order to attract consumers. In order to do so, they must pay the TV channels what is known as a carry or transmission fee, which depends on the popularity of a TV station and is negotiated individually between those aggregators and the companies that own the TV channels. Those aggregators are often known as cable companies or satellite TV companies. But there are also what are know as the TV networks (the big 4 networks are ABC (owned by Disney), NBC (owner by Comcast), CBS (owned by Viacom), and Fox (owned by News Corp.)), which are aggregates of local TV stations who deliver their wares locally over the air and negotiate carrying on cable separately.

Over the years, there have been fierce battle between the content players and content carriers over such fees, leading, for example, to TV stations not being available on certain cable channels as pressuring tactics during negotiations. Part of the reason is that some of the content players are now also owned by content carriers, leading to situations where large conglomerates that own both carriers and creators look to get an advantage by forcing higher transmission fees on their competitors.

Who are the big content owners?

Outside of the big 4 TV networks, it is hard to find data about who the biggest players in the content market are. Part of the difficulty comes from the fact that most ratings are based on the concept of shows and not on the aggregation of those shows. Last year, The Daily Beast put together an interesting list of what they considered the most valuable cable properties in the USA:

Looking at this, an interesting trend emerges: it becomes pretty clear that there is a high level of concentration in the hands of a few players. Of the top 25 owners, the list looks like this:

 Who are the big content carriers?

The next question to ask in order to understand what other players Google would have to compete with in order to succeed in the TV ecosystem requires a look at the distributors. Outside of the big 4 networks, the list of the top 10 cable and satellite TV companies looks as follows:

What’s interesting here is that we start seeing some overlap between some content owners and content carriers. Comcast, Time-Warner and Cablevision all have channels in the top 25.

Owner and distributors

But then you have to overlay the TV networks to get a fuller sense of where we sit in the content landscape. So we look at whether companies own networks, cable stations in the top 25 or both:

So, of the top 4 national networks and top 25 TV stations, all networks are owned by large distributors who also have ownership of some of the most popular cable networks. Of the top 25 cable networks, a surprising 17 (68 percent) are owned by content carriers.

Why you can’t legally get content online

The current content carriers have been eyeing the internet with some level of worry as internet protocols tend to turn what they impact into a commodity: we’ve seen that scenario happen for landline phone service (VOIP won those out) and music (offerings like iTunes and Pandora, decimated the music industry margins); We’ve also seen many other industries get decimated by contact with the Internet. How many travel agency were closed as a result of online travel booking becoming easier? How many stock brokerage firms found themselves competing with inexpensive online brokerage accounts. The internet has become a great equalizer and many of the incumbents are seeing this as a potential problem.

This is part of the reason offerings like Hulu or Netflix do not include recent shows in their offerings. It’s also why Google may have a hard time in its negotiations with TV content owners. Their corporate owners would probably welcome Google with less than open arms. The general view in many of those companies is that they do not want to be discounted as mere pipes and they will use their hold on content to ensure that the most favored pipes the content is running on is their own. To see a new player enter the market is, to them, an unwelcome feeling.

A different approach

But that feeling is one that is largely out of touch with the times. Increasingly, content consumers are looking to the internet as the place to go for content and the bundling of pipes with content is losing some of its allure. The first level of aggregation being created there may, in the end, be a losing strategy as the price of carrying content will continue to drop and, eventually, one of the players in the market will be smart enough to realize that they can gain market share by offering a lower cost alternative to consumers. We’ve seen that scenario in other countries; For example, in France, Free has emerged as one of the dominant providers of phone, TV, and internet service, on such a strategy.

Meanwhile, the content owners (the channels) have to realize they are sitting on pretty hot properties and should start offering online streaming of their stations for a fee. Today, they charge the distributors, who pass the fee on to the customer. But learning about their end users could be valuable for them if they were to go to direct charging for online streaming.

In a world where the most expensive basic cable channels fetches $4.08 per month, a content owner could easily charge $7.50 per channel for online streaming and make as much money than they currently are.

Many people may think “how is $7.50 the same as $4.08? Where did the other $3.42 go?” In the scenario I envision, the other $3.42 would go to building out and maintaining the infrastructure required for online streaming. I deliberately went with a high number to dismiss the argument that costs are too high to justify such an offering. I suspect the number would be truly be lower and eventually could lead to a $5 per month offering (also, remember that most channels do not get as much money as ESPN does so their offering could be adjusted downwards too.

Today, customers are paying a premium for channels they may or may not watch. By offering streaming for a fee, content owner could open up a dialogue with end customers that lets the free market decide which channels live and which ones die. But today, those same companies are using near-monopoly franchises in one field (distribution) to subsidize another… and internet live streaming of their stations could threaten that monopoly.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title No live TV streams: Here’s why?. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

The landscape so far

To date, many technology companies have tried to go after the TV screen as a market to conquer and most have failed. For example, Microsoft has, for a long time, tried to create a Media Center edition of their popular Windows operating system but outside of a few computer geeks, that concept never really took off. On the hardware end, companies like Boxee, Roku, WD (with the WDTV), Apple (with the Apple TV) and Google (with Google TV), have tried to offer a system that would connect users to a variety of internet content. Roku and Apple have had some early successes in the market, largely due to their pricing strategy.

On the provisioning end, companies like Netflix, Hulu and Amazon have started working as aggregators of streaming content that is delivered straight to your TV, without the need of a computer. Their strategy has been to work with consumer electronic companies to embed their players into DVD players and televisions. Along the way they have solidified their position in this market, going beyond early adopters and far into the mainstream.

And yet, something may have been missing from the equation to make internet TV a business that is as viable as computer or mobile software.

But things could change very rapidly.

A second wave for the third screen

In today’s busy media attention environment, there are three fundamental screens: your computer, your mobile, your television. The technology sector has successfully navigated itself in a position of control over the first two but a grasp of the third one has remained elusive. Consumers were mostly not interested in adding new devices to their entertainment centers, leaving even Steve Jobs to consider his own company’s attempts in the space as nothing more than a hobby.

But if recent rumors are true, the war is about to heat up again. A couple of weeks ago, Google announced it would acquire Motorola mobility. At the time, most people viewed it as purely a patent play. However, buried inside Motorola is a little extra reward: the second largest player in the TV set-top box provider in the United States (the other is Cisco). So if a cable TV box has the name Jerrolds, General Instruments, or Motorola on the front, it will soon be a Google box. And right now, those brands represents almost a third of all cable boxes in the world, giving Google a very strong foothold in the living room. The challenge for the search and mobile giant will now be to find a way to upgrade all those boxes to support the Android Operating System.

Meanwhile, there have been rumors that Apple is going to start building its own television, embedded with the iOS and all it supports. The rumors seem to be corroborated by a few facts.

In a January investor call, then-COO and now CEO Tim Cook mentioned that the company had secured access to supplies that were “focused in an area that we feel is very strategic.” In February, Apple paid close to $4 billion to secure supply of LCD screens for the next two years: at the time, the general consensus was that it was to cover iPhone and iPad screens but why make that assumption? It seems that some of those LCD agreements could be linked to the development of a TV set line, long rumored by Apple watchers and I would venture than when it comes out, it will be called the iTV (for Internet TV), explaining why Apple’s current set-top box product does not carry that moniker.

The revenue opportunity

Interestingly enough, when you look at Apple vs. Google, and some of their moves towards the living room, you seen pieces of their DNA show up. In Apple’s case, it’s all about optimized supply chain management combined with a piece of hardware that they will probably sell at a premium compared to the rest of the market. For Google, it’s about a subsidized hardware that is given for free or almost free to its users but generating through another channel (probably advertising).

At the same time, in both cases, the attempts will be towards trying to integrate their other offerings (for Apple, the iOS ecosystem and for Google, the search engine and Android) with the TV screen. In order to do so, they will not only have to work on ensuring a smooth transition from one screen to the other but alos provide development platforms and tools for others to build on their offerings (Today, for example, Roku, which initially was focused on streaming media, is offering a box that can now support casual games). I suspect as soon as the AppleScreen and GoogleTV start getting more mindshares, we will see more videogame offerings pop up on those devices, eventually upsetting Microsoft (with its Xbox), Nintendo (Wii), and Sony (PS3).

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title The third screen. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

An inexpensive patent bet

In his note announcing the acquisition, Larry Page made it clear that a lot of the acquisition was due to Motorola’s strong patent portfolio. At the current time, the company holds 17,000 patents and has filing for another 7,500.

Earlier this year, Carl Icahn, Motorola’s largest shareholder, estimated that the patent portfolio alone could be worth $4 billion. In June, Apple, Microsoft, and RIM banded together to acquire 6,000 patents from Nortel and keep them out of Google’s hands: the pricetag on that acquisition was $4.5 billion. This means that the consortium had paid about $750,000 per Nortel patents. If you were to apply the same number to Google’s acquisition of the Motorola patent portfolio, the price tag would be $12.75 billion. It is interesting to see how this number is extremely close to what Google ultimately offered for Motorola.

But it gets better…

Motorola Mobility, the unit Google is acquiring, has $3 billion in cash on hands, reducing the price of the overall deal to $9.5 billion and dropping the per patent price to just under $560,000 per patent, assuming none of the filed patents are accepted or under $390,000 per patent if you assume that Motorola will get all 7500 filed patents approved.

… and realize this is all based on a $0 valuation of the rest of Motorola’s assets.

So what’s in there? In order to get a better understanding, one just has to look at some of the patent-related lawsuits Motorola has filed in the mobile space. For example, last October, they assessed that Apple had violated 18 specific patents in areas like WCDMA, GPRS, 802.11, wireless email, location based services, device synchronization, etc…  The next month, they sued Microsoft around things like an online marketplace, map services, video coding, etc…

So the company has a set of patents that are covering large areas of what we now know as the smartphone space but that’s not all.

The handset business

A lot of people are going to focus on the fact that Motorola has a healthy mobile handset and accessories business. This business has been valued at about $3 billion and generated $3.3 billion in revenue in the last quarter. That business covers handsets, as well as accessories.

If Google were true to its word that it wants to continue working closely with its partners in the Android ecosystem, it might have to reconsider the handset unit as part of the asset mix it’s offering. A way to handle some of this could be through divestiture, by selling off some of the parts or exchanging them for patents, if that’s what Google is after.

For example, the company could hand off the accessories business (bluetooth headsets, etc…) to HTC, which has traditionally been a strong player in the manufacturing of such devices, in exchange for a guarantee that the company would continue developing on Android and/or some of the patents the company may have acquired in its recent deal with S3. The company should also look to sell Motorola’s manufacturing divisions to HTC, which could merge them into their more traditional contract manufacturing offerings.

The company could also sell the handset unit to Samsung in exchange for a similar deal.

Google would then be able to consolidate the patents and protect all companies in the Android ecosystem and avoid any potential channel conflict in the process.

The TV business

Another noteworthy part of this acquisition is the TV set-top business, which has been valued at $2.5 billion in the past but is also seen as having a value of near $0 in this acquisition deal.

Through acquisitions, Motorola has become the leader in providing boxes that connect cable and satellite broadcasts to television. In the US, for example, they are part of the duopoly with Cisco in the TV set-top box business.

This creates ample opportunities for Google and its floundering Google TV offering. Through this acquisition, the company now has a chance to control a large part of the future access to the living room. It won’t happen quickly but I would not be surprised if GoogleTV started showing up as part of cable package offerings over the next few years.

Along this path, Google acquires a large amount of relationships with cable TV providers which may help it in ts quest to deliver YouTube content to more people.

Winners and Losers

A deal of this size is so disruptive that it engenders its own set of winners and losers.

I would say that, at first glance, the big winner on this is obviously Google and the big loser is Apple. With this deal, Google has gone on a full assault on the Cupertino-based giant (which, just last week, became the most valuable company in the world.)

First, the cold war between Google and Apple has now gone hot: Motorola and Apple were involved in several lawsuits prior to this acquisition and I assume that Google will not back down from those.

Secondly, Google is not only going after the mobile business but gets to be disruptive to the movie and TV business (due to the set-top unit) and could potentially thwart Apple’s burgeoning AppleTV business while at the same time undercutting iTunes in the video space.

It is unclear as to whether Microsoft and Nokia are either winners or losers in this deal.

Microsoft could end up a winner if Samsung and HTC decide to spend less time on Android and use Windows Phone as a hedge. Or it could be a loser if it turns out that integrating hardware and software is the key to success in this market (the company acquired Danger a few years ago and was unsuccessful with its own handsets).

Nokia could be acquisition targets for Microsoft, which could make them winners moving forward. Or Google could offer free phones, killing both Microsoft’s chances at selling an independent OS and Nokia’s chances at selling many Microsoft-OS based phones.

RIM and HP (due to the Palm unit) strike me as the biggest losers in this market. Neither of them has a strong footing in the marketplace and today’s announcement seems to further strengthen the Android position, giving them less room to maneuver. Furthermore, the rich patent portfolio Google is acquiring may mean that the two companies will have to pay more royalties to a business that has been killing them. Either way, the future is, at best, uncertain (if they were to license their OS out, they may have a chance).

Conclusion

Today’s announcement substantially reshapes multiple competitive fields. The effects will be felt in both the mobile and living room spaces for months and years to come. It’s a bold play by Google but also one that is pretty conservative because the benefits accrued as a result of this acquisition are substantially larger than the price tag (let’s not forget that, considering Motorola’s cash reserves and revenue projections, Google is bidding less than 1x Motorola’s yearly revenue on this).  This deal seems like a real game changer with little or no downside for Google.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Google Acquiring Motorola. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Evaluating options

By breaking apart the service into two offerings, Netflix is now forcing its users to think of the services not as a bundle but as two very specific different types of offerings.

On one side, we have the DVD service which can be compared, to some extent to the Redbox and Blockbuster direct services. From that standpoint, one has to consider whether he/she wants to rent DVDs of popular movies from those services or dig into Netflix’s more extensive options. The challenge, for Netflix, is that the DVD offering is not quite as cost efficient as the streaming one. For each DVD, Netflix has to not only have the movie on hand but also pay for shipping and return of the plastic DVD. I’ve heard that those costs are in the range of $.50 per segment or roughly $1 per DVD shipped. By comparison, streaming costs have been estimated to be in the range of $.10 to $.25 per stream, which is substantially lower.

On the streaming side, however, the Netflix offering is now something that can be compared to Hulu+ or Amazon Prime, two services that offer unlimited streaming. The Hulu+ offering is priced at $7.99, a price that Netflix is apparently looking to match with its streaming service. Amazon Prime is $79 per year (or $6.58 per month if you break the price down) and include streaming and free shipping for goods bought from Amazon. In both of the streaming options, the products are different: For example, if one’s interest lies more in TV offering, then maybe the Hulu+ service works better. However, what becomes apparent from looking at the different unlimited streaming services is that the offerings are still relatively slim, compared to what one might get from regular or cable television.

The 2-DVD option

There is, however, a path that Netflix has left open for those who are interested in doing a little hacking. Imagine a plan that would cost $12.98 and provide you unlimited streaming with a small backstop for DVDs. Only one concession needs to be made: the willingness to only receive 2 DVDs per month instead of the theoretical 8 one could get under the unlimited DVD plan.

Netflix offers a 2 DVD per month plan for $4.99. The trick to getting it is that Netflix does not allow to sign-up for it online. You must sign-up for a streaming plan (which it now defaults to) and then call their support number. Once you have called the support number, ask them to allow you to switch to the $4.99 plan. The person on the phone will first try to sell you either the unlimited DVD deal or the bundled option. Turn those down and insist on getting the $4.99 option. Once you’ve accomplished this, you will have a DVD plan that allows you to get access to the extensive DVD collection Netflix has. This can serve as a convenient backstop to the online streaming option.

One needs to then either create a separate account on Netflix to get access to online streaming or get a Hulu+ account. In either case, it would be $7.99 .

A question remains as to how long Netflix will maintain that loophole but for now, it may be a better option than paying 60% more than you previously did and it brings to mind questions as to whether Netflix is really a solid alternative to cable or other TV-related options.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Netflix Options. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

If you look at the introduction of iTV as a set-top box connected to your TV set, you might notice a few features missing: no DVR –like or TV tuner capabilities. In my view, this is not a technical oversight, in my view but is part of Apple’s strategy to become the center of the media universe and expand the control they have acquired over the music industry to the video one.

The marketing

iTV is no different that Microsoft’s offering of the Windows XP Media Center extender but Apple seems to have a knack for making their products look like innovation when they are just fast followers.

First, there’s the name. While I doubt the final name will be iTV (due to the fact that there is already a TV network in the UK by that name and the fact that it’s a name that has been used as a standard for interactive TV), I suspect that Apple will come up with a similar sounding name, one that wil evoke a certain amount of coolness and connectedness. It will not be as jargonny as media extender. Apple is very good at marketing and it is clear that they now have their eyes set on the living room. As a result, the new name will evoke something that works as a natural in the living room.

Programming

People who have been tracking Apple’s effort in the space closely know that the company is now offering TV shows in a downloadable format either on a per episode or on a per-season basis. With today’s announcement, Apple is extending this model into the sport arena, with a partnership with the National Football League to offer season passes similar to the ones offered on DirectTV. This represents an interesting move into the sports arena and I suspect that announcements will eventually come for similar deals with other sports leagues. This is an interesting move in that it puts Apple clearly in a strong position as to TV programming and ensure that it gets a portion of revenue that could have gone to traditional broadcasters. What we may start witnessing here is Apple’s attempt to redefine television as a model where TV shows are sold by the show or by the season and not as part of a traditional channel offering or with advertising sponsorship.

This is an interesting gambit that flies in the face of existing business models for media distribution and it may impact traditional local broadcasters and TV networks. If Apple manages to disaggregate the content from a channel offering, the value of individual channels could eventually drop. Why watch ABC, CBS, NBC, or Fox when you can program your own channel. This is almost a natural progression in the media landscape changes that started with the introduction of DVRs at the beginning of this century.

Furthermore, if Apple is successful in its move, it may end up converting traditional cable companies into simple pipe providers, which would undermine the ambitions of players like Tim-Warner, News Corp., and Comcast in the integrated walled garden space. By moving content of IP based network, Apple would succeed and wrestling control of the channel distribution from those providers and force them to distribute their content over its store, picking up a fee for every show that is distributed.

… and then there’s Madison Avenue. Right now, a substantial portion of the revenue for television comes from models based on advertising. If Apple manages to convince a substantial portion of the public that buying a show from them is a better allocation of their entertainment dollars than subscribing to advertising-supported cable, we could see a major portion of advertising revenue evaporate. This would force TV station to focus more on live type of events, maybe even driving the broadcast networks away from a traditional mix and towards a more focused model, either centered around sports (which doesn’t necessarily work as a download as more people still want to see games live), news (with ample “from-the-field” type of coverage) and entertainment shows like “American Idol” where a low level of interactivity (“call this number to vote for your favorite star”) is tied to the programming, ensuring a required “live” showing. Sitcoms and TV dramas, as programmed type of entertainment, might be nearing the end of the advertising supported model. If you look at it in historic terms, this is part of a trend that was started by some of the pay channels like HBO and Showtime when they started producing original TV series. Because the series were more “edgy” and turned out to be quite good from a creative standpoint, people didn’t mind paying an extra $10 a month to watch them. Eventually, those series became available on DVD and found new audiences in that way. Apple took it to its logical conclusion by breaking them down to episode level, which allow you to get a taste, and season pass, which mirrors the DVD model but ensures that Apple gets a portion of the revenue.

Movies

And then there’s today’s announcement regarding movies. The movie downloads, while expensive, represent an interesting move into the video-on-demand arena. I suspect that, as time goes on, the price of downloads will drop and that Apple will extend their FairPlay DRM to establish a 24 hour or X number of plays model for a lower price. Because Apple has insisted on being able to release the movies in their store at the first time as they are released on DVD, it gives Apple a slight edge over the pay-per-view or cable TV model. Traditionally, Hollywood has distributed movies in theater first, then a few months later on DVD,then a few month later on pay-per-view, and finally on TV, traditionally on pay channels first and then broadcast ones last. Apple has managed to insert itself in the closest position to the theater release. Granted the price is high (in a lot of cases, equivalent to the price of a DVD with none of the added value and production cost) but I don’t think that Apple is looking at the DVD market right now.

They are trying to beat out the pay-per-view market for now so the release window is more important. If they successfully implement this strategy (and here again, the partnership with Disney makes sense as Pixar makes content that kids will want to see again and again in a variety of form, possibly getting parents to agree to purchase the movies online instead of DVD because they may be portable from one Apple device to another one), Apple will start impacting another revenue for traditional cable providers. As they do so, they might see more people buying movies, which will give them more power in dealing with the movie studios, which will result in their dropping the price first to $10 a movie and eventually to somewhere between $5 and $10 for a 24 hour or single play rental.

The Ecosystem

As I mentioned earlier, there is no DVR or traditional TV tuner built into the device. I believe that this was not due to a technical limitation but rather as part of a wider play to create an eco-system around the new device. Much like Apple initially allowed other companies to develop components that played well with the iPod, I believe they are trying to get a new ecosystem built around the new device. This will allow them to gage innovation in the space and identify which opportunities may be best for future integration or as components to add to the system. The initial connection will probably happen over the USB 2.0 connection on the device (which portends more connectivity options. Integration could also happen through some network type of interface connecting either wirelessly via the 802.11 connection (and notice here that they did not specify which flavor of 802.11 they were using) or the Ethernet connection.

This also could represent another revenue play for them as they license out a “made for iTV” (or whatever the final name is) certification model that would allow them to receive a portion of revenue on every device that plugs into the new box. This is a strategy that has worked well for them in the iPod arena and could be reproduced around the TV screen.

Why announce early?

Most surprising in today’s news was the fact that Apple pre-announced this product. There can be one or two reasons around this.

The first one could be that the announcement was added in the last few days because Apple was looking to announce more partnerships with movie studios but failed to get the contract signed in time to make the announcement (rumors have been that negotiations between the company and the movie industry have been tense, as studio heads want to avoid a repeat of what happened to the music industry and also fear ostracizing existing players in the DVD distribution world while Apple insists on making movies available through its store on the same day as DVD release). If you look closely, all the movies released in this launch are produced by Disney, which had little choice in the negotiations since its largest shareholder is Steve Jobs (as a result of the Pixar acquisition.)

Another possibility is that this is a pre-emptive move to stunt the arrival of Microsoft’s Zune product line. Microsoft has made it clear that Zune is part of an integrated device strategy that will allow them to take on the iPod. Considering that Microsoft already has multiple ways to get into the living room (Xbox, Media Extender, Windows Media PC edition), Apple may be worried about ceeding ground in that space and is working on a pre-emptive strike, announcing a product that will deliver everything the public want before Microsoft can make their announcement. The irony, if that’s the reason behind Apple’s announcement today, is that this is a typical Microsoft play: leverage a position of power in one market to spread fear, uncertainty, and doubt in another one, therefore stunting the potential growth of new competitors as the public waits for your offering (Om Malik seems to agree with me on this). By doing so, Apple may also be buying itself more time to force stronger negotiating positions with the movie studios.

Let the Living Room Start

So the war is on with a number of different strategies: Cable providers are trying to leverage the power of their set top boxes to protect their de-facto monopoly in the living room.Sony is trying to leverage the power of its PlayStation franchise to get people to adopt its BlueRay technology and use the PS3 as the new center of the media world. Microsoft is taking a throw stuff against the wall and see what sticks approach, offering up multiple products ranging from set-top boxes to media center to Xbox to Zune. Apple is trying to take the approach it took with the iPod: late to the party but providing better design, a better marketing message, and an interface that has less feature but is easier to use.

All and all, it’s hard to figure out who will win out this one but I think that, so far, Apple may be taking the right approach and could extend its dominance in the audio space to a whole new arena.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Apple Aims for the Living Room. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

A few weeks ago, the major TV networks held several events catering to advertising, expecting to sell some advertising for the fall TV season. This period, called the upfronts, is generally a good time for TV stations to attempt to scare advertisers into paying a lot of money for advertising, riding on the fear that their competitors might pick the best spot. However, something different happened this time: some advertisers decided to not join the dance.Â

The reason I’m looking into this effect is that there seems to be a major shift under way in the traditional media business and it is one that gives only two choices to traditional media company: adapt or die.

How TV works

The interesting thing about traditional broadcast television is that its model is based on large market inefficiencies. Let me explain: When a new TV show is created, the creator generally has to pitch the TV network, in an attempt to get the network to pick it up. The network then goes through some analysis in trying to figure out how the show might fare with its audience and whether the audience it attracts is one advertisers is willing to pay for. If they determine that the show could make them some money, they agree to fund a pilot, which is essentially one show that they can take around to test. If that pilot looks like it has potential, the TV station then orders up a few episodes of the show to put it on the air. In the process, they also make their affiliates, who own a geographical monopoly on distributing that content, that the show will be coming up.Â

TV networks make money from two sources: advertisers and fees from affiliates. They use some of that money to buy the rights to a TV show, which is often produced by a separate company. While the separate company may make a relatively small margin on the initial run of the show, a success can enable it to sell the show rights to other companies after the initial run. This is why some non-network TV station can run re-runs of older shows long after those shows are no longer producing new episodes.

TV is imploding

Jeff Jarvis uses the the term exploding TV to talk about the current changes in the TV industry. I believe is contention is wrong: TV is not exploding but rather, it is imploding. The current model is predicated on inefficiencies in the way content is distributed. However, in a future where IPzation rules, TV is trying to reform itself into something new and here, it runs into some problems.

The first problem that TV networks are going to encounter is that their whole living is predicated on something being big: big shows, big audiences, big money from advertisers. But the new model is about small: single episodes, smaller audiences, and less consumption at a single time. As a result, what was once the sweet spot of 8pm to 10pm, when most people had a limited choice in terms of what show they could watch, no longer exist. This happened as a result of both external and self-inflicted factors.

The first external impact was the introduction of the VCR, which allowed people to start shifting the time at which they watch a TV show. Technology constraints, however, made it difficult for the general population to figure out how to properly set up recording of TV shows. However, enough of a critical mass was formed to give people a taste of the concept. When digital video recorders like Tivo were introduced, they simplified the process and made it very easy for people to start shifting their schedule. However, this still gave the TV an hedge: while most people could shift schedule, they were still tied to the device and didn’t know how to get the content of that box.Â

Enter companies like slingbox, which created a device that took the concept one step further by allowing people to shift WHERE they’re watching TV. The second barrier to content being available anywhere anytime shifted, making it very difficult for TV stations to figure out who is watching their shows, when are they watching them and where are they watching them. As a result, they can no longer guarantee their TV affiliates an audience and are therefore finding some pressure in terms of the fees they charge those affiliates.

In an attempt to recover some of their lost revenue, TV networks are now experimenting with putting their shows online, either via their own sites (as ABC did) or through pay mechanisms like the iTunes store (which, surprisingly, Apple still calls the iTunes music store, even though it sells much more than music now). I’d venture that this creates another potential danger for the networks. Why? Because, at the end of the day, TV networks are just re-packagers, using other people’s content to support themselves. What value do they add? At the current time, they can claim that they have the audience, and they have the relationship with the advertisers: it’s a strong advantage in the short run but what about the longer timeline?

Organizations like myspace and the web 2.0 video hosting company of the week are similarly packagers and, while the quality of the video on their systems is still relatively week, one can envision a future where they could easily compete with the TV networks for audience. In some critical audience segments (for example, the much coveted 18–25 male audience), those distinctions no longer exist and, if you extend that trend out for a decade, ABC and youtube are on the same footing. The only difference is that ABC has contacts with the advertisers, where youtube doesn’t really. One can venture that something like Google AdSense is coming for the video space and this is bad news for packagers in general as it will relegate them into the space of just being bandwidth providers (and recent technology development point to P2P networks as not being far from being able to deliver TV quality video at a percentage of the bandwidth cost)

The reason I’m thinking that the new model is bad for packagers is that the brand identification is now going to shows, not to TV networks. Most people think and talk about shows, not about a network lineup so conversations are relating to Lost, the Simpsons, or American Idol, each of which is produced by an outside company. What happens when the creators find that advertising is good enough to support their effort outside of the network system. As TV and the Internet merge (an effort furthered by the recent announcement that Tivo will put web content on your TV), the control is going into the hands of the content producers, not into the hands of the packagers: in a future where the boundaries no longer exist, what happens if the producers of the Lost TV series, seeing that they have a large enough following, decide that they are going to distribute their show on their own and use an adsense-for-video system for ad insertions.Â

So what’s a network to do?

Under this model, networks are headed for the trashbin of history but they may have a way to keep themselves relevant. In order to do so, they need to :

• Recognize that audiences will be smaller
• Focus on a core audience
• Produce your own content
• Give a platform to newcomers

The first item is probably the harder one for them to deal with. Recognizing that audiences are going to be smaller, means that they will have to go through painful reorganizations and shrink themselves to fit the new reality. Such reorganization are always painful but will give them a chance to move to step two: focus on a core audience.

That focus will put them, however, in head to head competition with some cable TV channels, which have taken than approach and have successfully mined their audience. For example, Fox News is known as the news channel for right-leaning people, or lifetime is known as the network for women. And so on and so forth. This may mean jettisoning some existing fares like, for example, the presentation of a particular sport (or going to extreme, the presentation of all sports as the sports leagues are generally the content producers, getting paid large fees for their offerings).

Another tack is one where convergence, that much used but seldom implemented word, comes in. Most, if not all, networks are part of large media conglomerate. This gives them access to production resources to build up their own content. Some of the networks have already smartly moved in that direction, giving them more control of their destiny. Â

Last, but not least is establishing your network as a platform for newcomers. Fox, now considered the fourth network, managed to establish itself by presenting fares that were edgier and different enough in a world where triangulation to get a portion of the middle of the road audience had driven shows that were mostly bland. One interesting challenge, when building up on such a strategy is how one chooses their battles. In the United States, the FCC has made it difficult and sometimes expensive to produce more risque shows. But what if, using their new internet platform, TV networks were to offer two versions of their shows: one that is cleaned-up for television, falling under the proper guidelines for “acceptable” content, and one that is produced for the freer, more unregulated internet. Edgier content is, after all, how some cable channels like HBO have established themselves as powerhouses in the content space.Â

One interesting approach in terms of providing a new platform is that of current.tv. I initially wasn’t sure of what to make of it but I think it goes to the same impulse that has driven youtube to become such a phenomenon: users love to create content and, while most of it is probably not that compelling, such systems break down the stranglehold than TV networks programmers have on distribution.

So why this long piece?

There doesn’t seem to be much new in that piece to people who are interested in that space but I would contend that, when you look at it in perspective, it explains a lot about why TV stations are so interested in ending net neutrality. The fight over net neutrality is about imposing artificial barriers in order to protect monopolies. However, the new threats presented by upstarts like youtube are upsetting the apple cart and traditional companies are now trying to find a way to ensure that their monopolies are protected. Of course, they’re never going to say it that way but, ultimately, the fight over net neutrality is a fight over what content will be available. As I’ve mentioned in my earlier piece on net neutrality, the battle is primarily one happening around the future of the internet in the United States. And, in thinking some more about it, I’ve come to the realization that, at the end of the day, the US companies opposing net neutrality may be fighting not only for the benefits of the telco providers but also for the benefits of the large content producers.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Reshaping TV. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Voice Over IP

VoIP experienced tremendous growth in 2004 but it was just the beginning. This year, much more will happen in that space.

Cable providers will start deploying VoIP services on their networks and phone companies will start bundling VoIP services with their DSL offering as a way to compete. By year end, all major broadband providers, whether they are offering services over cable or DSL lines, will have a VoIP service bundled with their access service.

Unable to compete with the larger telcos, some smaller players in the market will merge on order to lower their cost per subscriber by bringing their infrastructures together. Also, independent VoIP companies will sign peering agreement with each other in order to bypass traditional telcos and lower the cost of connectivity from one independent VoIP company to another.

Further pressure will be put on all players on the American market as overseas companies will start targeting U.S. customers. Before year-end, at least one company will offer an unlimited calling to several countries plan. Other plans will provide unlimited calling to each continent. This will start putting pressure on established government monopolies in several countries, especially in Europe.

VoIP will also experience strong growth within the enterprise, with companies looking to open-source solutions like Asterisk to replace their PBX infrastructure with a lower cost alternative.

As all this happens, equipment will not only become cheaper but will also become much easier to use and install. Along with it, new sets will come out, with cordless VoIP offerings becoming much more common. Competition in this space will be on features available in new handsets.

With substantial portions of the phone network switching to VoIP, video telephony will start taking hold. However, the price of equipment will still be too high for those services to experience the kind of growth other sectors in the VoIP market will experience.

Entertainment Convergence

The convergence of the computer and other entertainment forms (television, radio, gaming, mobile phones) will continue, further blurring the lines in the convergence world.

With broadband now being the major way to access the Internet in the United States, Internet usage for new forms of entertainment will grow. Along with it, however, will be a continuing challenge to the established media order.

The challenges faced by the music industry with the introduction of Napster will now be the new reality for the movie and television industry. Five years ago, I started seeing the phenomenon emerge and believe the four step process of the digital asset dance will be full blown for the MPAA this year. The MPAA will spend part of the year suing companies and users for downloading movies. However, they are also better prepared that the music industry in that they are already offering legal download services like MovieLink.

While litigation will be one of the ways convergence appears on the front page, many providers will find a way to mine this new world for new dollars. Expect some companies to start offering legal download of television programs for a fee. As the Internet becomes the standard telecommunication infrastructure, content will start getting carried more heavily. Phone companies will start using this to offer bundle TV services with their DSL offering as a way to compete with the cable TV companies that have invaded the telecom turf. Before year end, at least one traditional telco will offer TV over IP. All that content will be protected by DRM systems, getting people more and more used to having less and less rights over the content they receive.

Meanwhile, on the wireless end, the introduction of more powerful mobile phones and the introduction of faster mobile phone networks will also play out in the favor of content producers. As voice traffic revenues continue to decrease, expect mobile phone companies to push data services such as downloadable movies and downloadable music more heavily. By year, MP3 will be the standard format for cellphones and Apple will offer a mobile phone version of the iTunes music store, allowing users to download music from the store and customize their phone with the latest hits.

On the non-Internet end of things, video on demand will continue the strong growth it experienced in 2004 and more programming will be offered in HDTV format, prompting an increase in sales of televisions and tuners that can receive those signals. Meanwhile, radio will follow the path taken by cable television in the early 80s. As satellite radio takes hold as the new “edgier” alternative to traditional radio, people will get more used to the idea of paying for radio. However, they will also require that those services be offered over the Internet as well as over the proprietary networks like XM and Sirius.

But not all content will be coming from big corporations. The grassroots will also play a key role in the distribution of online media in 2005. While podcasting has been the domain of a few geeks in 2004, easier to use tool will bring the phenomenon to the forefront and expect more audio services to be available from regular users. Following on the tail of this phenomenon will be an increase in videocasting from individuals. Much of it will be disappointing but a few gems will emerge, creating new stars who will emerge from the Internet and move on to more traditional media, based on the fame of their online offerings.

Business

Mergers and acquisitions will dominate the software world this year, as more companies realize that the only way into the enterprise is through a complete set of offerings. Expect several multi-billion dollar mergers and/or acquisition. In my mind, McAfee will be acquired or merge with either Symantec or CA; SAP will be acquired by Microsoft; Business Objects will be acquired by Oracle. As holds true for such precise predictions, none of this will actually happen the way I predicted it.

In late 2004, IBM left the personal computer business, selling its unit to Lenovo, a Chinese manufacturer. Expect the same to happen to at least one other PC vendor this year as the margins on personal computers continue to decrease, turning them into commodities.

Apple

Apple, which to date has resisted the price pressures other computer manufacturers have experienced, will introduce a cheaper version of their Macintosh. This, however, will not stem the continuing loss of market share they are experiencing. As Linux continues to grow, the Apple story in the computer business becomes more and more difficult and the company will increasingly rely on the consumer device business as its savior, building a new economy around the success of the iPod and iTunes music store.

The company will not, however, release a video player this year. Among some of the new features I would envision coming from Apple are:

• A flash-based iPod, which will be even smaller than the iPod mini and will be in the $100-$150 price range
• A partnership with a phone company to create a phone that will be able to download music from a special version of the iTunes music store and play MP3 ringtones
• An iPod with audio recording built-in
• A portable camera with iPod-like features
• A new way to send pictures from the iPod directly to printer via Airport express

While it focuses on the music business, Apple will not spend much time updating its laptop business. Adoption will drop in that part of the business as PC vendors start selling sub-$500 laptop PCs, making the iBook look expensive by comparison. Apple will try to enter the low cost market but not with a laptop: they will introduce a mac without monitor for under $500, offering integration with the iPod, and plugs to attach the computer to a television as its major features.

On the software end, the company will introduce a Word Processor and Spreadsheet program. They will release them, along with Keynote, as a complete package named iWork which will be aimed at students and small businesses. The package will be available for free on new computers.

Development

Blogs and RSS will continue their growth and will move strongly within the enterprise space. Adoption of RSS will continue its explosive growth but crest in 2005 as users start trying to find ways to cope with the information overload. New components in RSS readers will attempt to help organize RSS feeds but those basic efforts will initially fail and discussions will be set towards the end of the year as to the effective way to organize large amounts of data.

Weblogs and content management systems will start covering some of the same ground and enterprise will start using weblogs internally at the departmental level. Meanwhile, external employee weblogs will start becoming the focus of more litigations as corporation try to retain their intellectual property and fight the kind of transparency that comes from having employees talk openly on the web. Internal rules and regulations will be set in how employees can use blogs.

Meanwhile, in the development world, Service Oriented Architectures will continue being the approach to delivering next generation services. SOA will grow largely internally but some companies will start exposing some web services via XML to their partners. A new set of interesting new applications will come out as a result of those exposures.

Security and trust will continue to be big subjects and I suspect that trust will become an even bigger one with new standards emerging around the concept but no general agreement as to the best implementation.

Open source software will continue its strong growth, getting into more and more specialized fields. With the delays in delivery of Microsoft’s next operating system, Linux will continue to grow but complaints about price will start to arise. While the open source movement has offered free software, there will continue to be an increase in the price of supported version of the software.

Personal

I’ll promise to update the blog more often, will do OK for a little while and will then fall back into my regular pattern of a couple of updates a week. Or not… Either way, only the new year will tell.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title 2005 Predictions. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

The FCC and the cable TV industry recently came head to head when it comes to a la carte pricing . The concept of a la carte pricing is that consumers would be able to buy any TV channel in a model instead of being forced into buying a bundle of shows as part of the standard offering.
The cable industry contends that a la carte pricing is bad because it will wreak havoc with the economic model of the cable business. It’s true that it will do so as large media companies like Viacom and Walt Disney currently force cable operators to broadcast their less popular channels in exchange for the rights to broadcast their top properties, like MTV or ESPN and will no longer be able to do so if a la carte becomes a reality. They will also have a harder time selling an audience package to their advertisers as there will no longer be any guarantee that buying an ad in a package that reaches MTV and Spike will ensure the same kinds of hits.

However, where a la carte works is if a model is established to offer flexible pricing models for those channels. Smaller TV channels could be priced to consumers at a lower monthly rate but a higher premium could be gotten on advertising as they are representing a more targeted audience. This represents a much more difficult financial models for them as it gets closer to a pay for performance approach when it comes to advertising.

Another part of this effort should be to start offering a la carte TV channels over broadband Internet access. The cable packagers are afraid of this because it could represent an intrusion in their model, which packages cable television with broadband Internet access. If a la carte offerings start appearing for anyone with a fast Internet connection, the cable companies will now have increased competition from DSL providers as they would loose their competitive advantage (since no one else can currently offer television and broadband access over the same lines.) This increase in the competitive landscape would eventually result in price wars in terms of package bundle that will benefit consumers. Consumers will eventually be able to either choose your own set of channels or buy some combos of popular ones. For example, a company could offer a deal that would include channels that cater to sports fans and a different deal to people interested in news.

Once again, the only smart approach is not to resist but figure out the best economic approach in this new competitive landscape. Since cable companies have already figured out, to some extend, how to offer bundles (they do offer them on premium TV channels like HBO and Showtime), they are ahead of their phone company competitors. What they will do with that lead is still up in the air.

Tomorrow, we will look at how the telephone companies have their own issues to deal with when it comes to the modular by design approach.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Modular by Design — Cable TV. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

What is a module?

A module is the smallest logical unit of a product. Modules can generally be bundled in larger groups to create a new product. For example, if you look at the music business, a song would be a module and an album would be a group of modules.

A module is small and therefore is always the enemy of big. Because it is small, it moves fast. Because it is small, it sometimes needs to associate with other modules to create something big. Because it is small, it is inexpensive and because it is inexpensive, it resists bundling.

What is the modular by design approach?

The modular by design approach is a concept I would like to introduce which can be quoted as such:

A modular by design issue is one where a problem, industry, group, can be broken down into increasingly modular parts, revolutionizing the business models on which the aggregation of those small parts was based.

Who should worry about the modular by design approach?

In one word, everyone. When push comes to shove, the majority of today’s business models are based on some kind of aggregation. When services and products are packaged together, that’s an aggregated model; when your TV station offers a number of shows, that’s an aggregated model; when a company bundles hardware and software, that’s an aggregated model. Aggregated models can be seen everywhere; they are the enemy of modular design. And because modular designs are small and fast, they act as David did against Goliath, taking him down when people didn’t think that was possible.

In the next few days, I will examine the impact of the modular by design approach on music, digital downloads, broadcast television, cable television, telephony, news-gathering and software, highlighting how this approach has impact that is applicable to all of those. I hope you will join me for this journey and feel free to comment.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Modular by Design — Introduction. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

In the United States, cable television has what is called a tiered structure. That means that channels are grouped in packages that are then sold as a whole. The most basic service includes the regular “free” networks (for people who have low or no reception), the next package above that generally offers an extended set that includes CNN, ESPN and a bunch of other channels. Then, on the third tier, you can buy more expensive channels like HBO or Showtime, which are not supported by advertising.

If you were to draw a parallel to the online world, you would have Internet access being the basic package, then a pre-paid package which would offer access to a certain number of sites (similar to what AOL is starting to do by pulling Time and Entertainment Weekly behind its own service), and then would pay extra for a few one-off sites that may warrant it.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Paid Content on a tiered structure. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

His pointing out the fact that changes in behavior show that most people will steal music and movie content on the Internet is largely due to the fact that there are no clear alternatives. Attempts to offer a crippled service like the new Napster or Pressplay are not enough (After all, if I pay for a service, why does the stuff I downloaded expire). Give us an all you can eat legal buffet at a price point that does not gouge us and we will come. Or start paying the artists and your case will be stronger when you tell us that we are starving them.

Right now, many people pay for cable TV. Basic price gives you some access but other channels (like HBO) cost extra. However, people can still record shows and movies once they paid. Why can’t the same be true of music? And why do I have to follow the path the media industry is setting to get my content (for example, why do I have to go to a movie theater to see a first run movie? Why can’t I get access to it either on DVD, pay-per-view or online download on the same day? Yes, this would completely change your business model (couldn’t sell as much soda, advertising, and tickets at the movie theater) but it might be what the customer wants.

A possible way to change this would be to keep charging the same price for movie theater (and enhance the movie experience by getting rid of those commercials before the movie), offer the DVD for premium rental only at an initial point (for example, I could get today’s release from the corner store for $25, hence avoiding the ticket line and watching the movie on MY schedule (if I want to see the movie at 7:30pm or 8pm or 7:54pm, I currently have to find a theater that matches my needs). In the same fashion, I could open up a video on demand feed either on my TV and/or computer and watch the movie at my leisure for a 24 hour period.

Just a few random thoughts (and I just came up with those off the top of my head so there might be others out there): Start thinking of how your business will evolve or suffer the same fate as the dinosaurs.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Memo to Media Execs. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

The genie is out of the bottle

Yet, I can’t help but believe that the shutdown of Napster will not do much in terms of limiting distribution of online music. People will now move to alternative services like Gnutella and Freenet. In other words, it’s time for the recording industry to face the music.

Shawn Fawning and his crew did, in the words of the judge,

create a monster

but I seriously believe that if the goal of the RIAA is to stop widespread distribution of digital music, this lawsuit is a moot point.

Back in March, I talked about Gnutella, a Napster-like client/server applications that escaped from AOL’s vaults. Since then, Gnutella use has increased, largely due to the fact that Napster was being sued and that Gnutella has no controlling authority. Since no one is officially in charge of Gnutella, no one can be sued. And since the service can’t be sued, it’s a much tougher one to deal with as far as the recording industry is concerned.

With the shutdown of Napster, I believe that people will look for alternatives. After all, 20 million people have gotten hooked on the chance of getting free music, why would they immediately stop? And Napster, the phenomenon, will live on, as more Napster-like tools start proliferating around the net.

So what should the music industry do? Should it go out and try to shut down every single such service that pops up? I seriously doubt that such an effort would succeed. What I believe they should do is look at ways to use those tools for promotional uses and try to create a new revenue scheme for online music.

New revenue models for online music

Subscription: One of the most popular model being floated around in terms of making money from online music is the concept of subscription-based all you can eat models. Emusic is a pioneer in that space, now offering a monthly $19.99 subscription giving users access to 125,000 MP3 tracks. I believe this model is correct but I am still having a hard time with the price. The basic question is one of price. Why would people pay as much for music as they do for connectivity? I believe that this model will work only if the price is lowered to around $10 per month.

However, I’d like to offer a couple of different models.

Music as premium

: In the United States, there are two kinds of cable TV service: basic and premium. The basic set allows you to have access to a large number of advertising-supported TV stations. The premium channels are available for about $10 each and are offered without any advertising. They usually offer movies and special programming not available anywhere else. I believe that an ISP could look at a similar model. Pay $19.99 for basic access and, for an extra dollar amount, $5 to $10 maybe, get access to a music collection. There might be some incentive for particularly new music sets. Or companies could offer certain songs for free, as a promo, and give access to the full album or collection for a few more dollars. That way, the music industry gets some revenues from the distribution of digital music and everyone’s happy.

Digital Jukebox

: This is a little more complicated technically as it requires some kind of micropayment mechanism. Basically, think of it as Napster with a pay system. Songs would be available in a model similar to Napster but, for each song, a price would be attached. This price would have to be equivalent or lower than the price the user would pay for a CD, and the user would receive a bill at the end of the month for the total amount of dollars they have to remit. Access to the service would still be free but some of the songs would cost money. As a result, the music companies would see the revenues they think they are losing and post some of the promotional material for free. However, the problem with that particular approach is that it does not cover replays. As a result, a user may download a particular song for � cent and not have to pay anything extra. A possible solution to this issue would be to take the cost of a CD, subtract the production costs, divide the remaining number by the number of tracks on the CD (let’s assume that, on average, the production costs for a CD, its case and its cover is around $3. If that CD sells for $12 and has 10 tracks on it, each track would cost 90 cents) However, in order to make this truly attractive, this would still be considered a high price. Drop it by a factor of 10 or more and it may start becoming low enough for people to consider it.

Pay-per-minute model

: This would be somewhat similar to phone service. Users would pay for minutes of airtime on a service. However, the price would have to be low enough to make it tempting for the users. Something along the lines of a portion of a cent might be reasonable.

Advertising-based model

: This would essentially have the music label distribute the music around the net but tack a front and a back bookend advertising message. They would charge advertisers a premium, as the message would be played every time a song is run. Even though I am suggesting this, I’m still dubious as to its effectiveness, as users might find a way around it.

I don’t believe that any of these are the sole answer but I am putting them out as as suggestions. If evolved properly, they could be the beginning of a new way to sell music.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Napster Shut Down. You can follow him on twitter here or receive his weekly newsletter by subscribing here.