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 power of the network and links

Many in the blogosphere say that traffic is not a good measure of what blogs are but that conversation, as represented by links and indexes like Technorati, represent a more accurate view of the value of a blog. As a result, I decided to look at how may sites were linking to sites in the WeblogInc empire. Jason and Brian have been doing a great job at building a stable of blogs but it seems a large portion of their success comes from a single blog. Let’s dig into the numbers.

In the following table, I took a look at the list of blogs listed on the weblogs Inc. main site and ran the Technorati site numbers against them (duplicate entries in the weblogsinc list were removed as well as entries that pointed to sites which no longer exist).

Once you have this data, you can start doing some quick analysis. For starters, I started to analyze what percentage of the overall network linkage each blog represented. I then took that percentage figure and used it against three different financial scenarios which have been floated around: some people say the company received 25 million dollars in the acquisition, and others have mentioned a figure of 30–40 million dollars. The details look as follows:

However, in order to get a cleaner picture, I started to dig into more details. First, I analyzed the different segment performance:

What’s interesting here is that the consumer segment is responsible for the majority of linkage so I dug in much further. What I found is that the sum of the EnGadget linkage represents over a third of the overall network traffic (the actual number is 15,529 links for a 35.07% share of the network).

Data for the rest of us?

In acquiring Weblogs Inc., AOL has now provided us with some numbers traditional media are willing to pay for a blog. Looking at the numbers above, one can try to guess at the value of a link from an external site. a single link on the weblogsinc network represents 0.002258559942180087 percent of the overall network.

At the different rumored price points from AOL, it looks as follows:

I don’t know if those values are based on any real rationale but it’s nice to dream up the value of one’s blog based on this.

Should we now assume that traditional media companies are willing to pay between $500 and $1000 per site that links into a blog?

Not quite. The incremental value is in the size of the network and the underlying tools. Jason and Brian have been working on developing a blog authoring technology, called BlogSmith, that sits at the core of their network and one has to believe that AOL saw some value in the software too. However, one can easily say that blog valuations are going to be easier to make after this deal since it provides the first yardstick in that space.

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

IM

: One of the conditions for the AOL/Time Warner merger was that AOL open its instant messaging platform to other parties. By agreeing to interoperability between the AOL IM client and MSN messenger one, AOL will now be able to point to its “openness” while maintaining a relatively tight control over the progress of that tool. I am sure the two companies are interested in working together and somehow doubt that they will be very interested in opening the world to other competitors.

At the current time, IM has taken the consumer world by storm and is starting to make headway in the enterprise. Because of its presence concept (you can see whether the people on your buddy list are online right now or not), it will eventually become a critical tool in the enterprise, moving some data traffic from the phone and email to this new platform. Already today, enterprises that have implemented IM solutions are seeing large amounts of traffic on those networks as employees send the shorter requests via this tool. Enhancements in the collaboration aspect of those tools make them perfect to be used for setting up online discussions and document sharing. I suspect that, because AOL is forbidden from adding new features to its IM platform until it has shown to be more open, we will see the company point to Microsoft and get a free pass in terms of adding new features. This will be good for AOL because it will allow to enhance its enterprise offerings. It will also be good for Microsoft, as it will probably be able to increase its footprint into that space.

Long term, I would expect most of the development of this eventually ending on Microsoft’s lap, with AOL doing an asset transfer of its software division to Microsoft.

Digital Media

: Part of the deal includes a non-exclusive agreement for AOL to use the Microsoft Windows Media 9 software suite. Once again, this is good for both companies and bad for every single one of their competitors.

AOL will benefit from the lower cost of software acquisition moving forward. As it looks to move more into fee-based digital media services (with words that it could offer TV shows, music, movies, etc… from its vast assets collection) the company will make more substantial investments into those kinds of technologies. Since this is a partnership, I suspect the products will be heavily discounted.

Microsoft wins in that, if AOL, with its fairly large customer base, start offering more services running on Windows Media 9, it will make it easier for Microsoft to go after other media player and present its installed player footprint as a competitive advantage. The story will go as follows: use Windows Media 9 server and you will not have to worry about your customers having to download extra software. Of course, Windows Media servers will continue to run on the Windows operating system, which should increase sales in that market and protect Microsoft to some extent from the Linux onslaught.

Another important part of this portion of the agreement is that it will allow the two companies to set standards for digital rights management. DRM is basically covering how to ensure that copyrights and purchase rights are assessed on digital media. What this means is that a DRM system basically encodes a piece of digital media (whether it is a movie, music track or piece of software) to include information about what you purchased and how you are allowed to use it. For example, the Apple Music store currently sells music tracks that you are allowed to use on only three computers. Because AOL is one of the largest producer in the world of such media, and Microsoft regards this software area as a very lucrative market in the future, the partnership will give both players a substantial amount of power in shaping the future of digital media.

AOL wins in that it gets someone to do the heavy lifting on the software side to tighten up control of digital media. Microsoft wins in that it gets a better understanding of what large media companies will want and builds a solution it can then resell to other companies. Once again, this is also a good argument for furthering the number of implementations of windows servers as I suspect that Microsoft will strongly recommend media companies use their platform to handle this.

Browsers

: By now, the browser wars are, at best, a distant memory. While a few holdouts do not use Internet Explorer and considerable development and innovation is still happening by makers of non-IE browsers, the market for alternative browsers is relatively small. At last count, IE was controlling over 85% of the global market. The only bright spot in that market was a browser named Mozilla, an open source project for which Netscape, a subsidiary of AOL, was the largest contributor. Because of the bad blood between America Online and Microsoft, there were a lot of rumors about AOL implementing Mozilla as the core browser in its flagship client (it has already done so on the Macintosh computer). With the announcement that AOL will get a seven year royalties free license for Internet Explorer, it seems pretty apparent that support for Mozilla from the AOL camp will probably wane. The long term outlook for the Netscape unit does not look very bright, even if the AOL chairman said that they were not closing the unit for now.

Politics

: This announcement also shows some interesting development in internal politics within the two companies.

In the mid-90s, Microsoft was starting to move more into the general media space. With this agreement, Microsoft signals the completion of a shift back to its software roots. It is probably a realization that there is still a lot of growth in that arena and that it doesn’t make sense from their standpoint to try to get into the media world by acquiring and/or building media assets.

On the AOL/Time-Warner front, this announcement shows a clear power shift in who controls the company. The power is now in Time-Warner hands, with any concept of competing with Microsoft on the software end now a distant memory. Time-Warner understands media and figures that it is better to rely on an outside party to deal with the software side of the business than to try to develop things themselves.

I am sure I’m missing a few things but I expect this story to continue unfolding and having repercussions across the whole Internet space.

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

Here’s a crazy thought, why doesn’t the company break it all down into an access division (probably going to Road-Runner) and a content division (probably going to AOL). Using charge-backs, they would trade money back and forth and Road-Runner could keep focusing on access (inheriting a lower speed dial-up system in the process) and focus on converting dial-up users to broadband, while AOL would focus on developing content and tools (the AOL software) that would run on both system.

Obviously Road-Runner has figured out how to sell access and AOL is good at building software that is easy to use for the average computer user. Let AOL get rid of the access layer (the client already does TCP/IP) and focus on improvements to IM, mail, and content and let Road-Runner focus on selling access and you have a pretty powerful combo.

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

Bye Bye Boo!

You may have heard the rumors so let me confirm my departure from Boo after less than six months. The call was as to whether I wanted to work exclusively out of the UK or stay in the US. When presented with such a scenario, I decided that I would be better off working in the US only and, as a result, have left Boo. It wasn’t an easy decision as I enjoyed working with the folks at Boo but didn’t feel that it would be right for me to move to the UK for a couple of reasons: first of all, I like New York a lot more than I do London. This is a purely personal judgment call but after having spent several months in London, I know that it’s not a city I want to live in. Second, I have spent a lot of time establishing a ground base in the US. As many of you know, I’m French and have bumped around the world for quite a few years before finally settling down in New York. Since I did not intend to uproot myself again, there was not much choice. And last but not least, I think Boo has challenges to address that top management is unwilling to address. So I left.

Now you’re probably wondering what I’m up to next, so here goes…

A new company: Moveable Media

In late 1999, an idea started brewing in my mind about the potential to form a B2B and E-commerce consulting company around new concepts that pulls from my experience. While I can’t give more details right now, let me just say that I’m starting my own company. It’s called Moveable Media and will be very different from the current offerings out there on the Internet.

However, the business plan is quite strong and I already have had discussions with parties interested in backing me financially. As a result, I am now making the jump that so many have made before and starting my own company, which will launch its first offering this year (in 2000).

While the company is still in its embryonic state, I am looking to fill a few positions, including that of CTO so if you know anyone that might be interested in joining a dynamic, New York based start up headed by an Internet veteran (yes, folks, I have now officially landed that title, having been in the industry for 7 years), send them my way.

Many of the people I consulted about this have been asking me why it took me so long to make the jump back into entrepreneurdom. Well, the reason is really quite simple: I needed to get some experience. Having worked around C-level people for the better part of the last decade, I now feel that I’ve learned enough to build a reasonably successful company.

The TNL.net newsletter

You may have noticed a small change of direction in terms of the TNL.net newsletter. Instead of just covering new applications, I’ve recently sent out dispatches on industry events such as the AOL-Time Warner merger and the Transmeta announcement. In a way, this is more of a return to my analytical roots. As a result, I will send out more analytical pieces along with the regular offering of cool new technologies I uncover.

You may also have noticed that the frequency of this newsletter seems to have increased a little, with this already being the third dispatch this year (whereas last year saw about a dispatch a month). This is part of my effort to offer you something more current and I will try to make sure that you get better updates in general. So enjoy it and feel free to tell me whether I’m right or wrong in my approach with this. After all, it’s all about learning.

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

The Internet comes of age

A significant line in the AOL press release:

When complete, America Online’s shareholders will own approximately 55% and Time Warner’s shareholders will own approximately 45% of the new company. The stock will be traded under the symbol AOL on the New York Stock Exchange.

This essentially means that this is not quite a merger of equals but one where AOL shareholders will make more out of the deal than Time-Warner’s. It also means that Internet players are now taken very seriously, possibly supplanting traditional companies.

A major landscape change

Beyond the massive headline also comes a major landscape change. For starters, AOL Time-Warner will now be massive enough to compete with Microsoft. Microsoft currently stands at about $587 billion in market capitalization and AOL Time Warner will have a bit over that in terms of capitalization.

Furthermore, the new company has major holdings in every media field: TV, Radio, Music, Books, Movies, Online. This means that this is the emergence of the first completely cross-media company in the world.

Previously, companies had dominance in either online or offline spaces but not in both areas at the same time.

This also means that Yahoo!, Excite@Home, MSN, and other players on the portal space have to react very quickly. They might need to be able to offer access as well as content production and content delivery. Over the next year or so, expect one or two of those to essentially fold.

This deal also heralds the emergence of the click and brick business model. Much like many years ago, online players were talking about brick and mortar shops not having an online strategy, it has now become increasingly apparent that online companies need to look to the offline world.

Last but not least, it makes it possible to have Internet companies acquire or merge with non-Internet companies. Now that Time Warner has led the way, it will not look as bad if K-Mart were to merge with Amazon.com, or Doubleclick were to buy a large .bam advertising agency like Ogilvy, for example.

The old Chinese curse always said may you live in interesting times. Our times are definitely interesting. Whether AOL and Time-Warner manage to accomplish this merger is still up for debate (big mergers are very difficult and often fail to produce the value they herald) but it is now obvious that we are moving into a brave new world, where the smaller players might have to find a new way to fight the new giants created from such mergers.

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