Earthling

Summary:
Doesn't it feel like it's about time somebody made sense of all of the different digital services coming in to your home? Technology-wise, we've reached a point where most if not all of your communications and entertainment needs could be meet by one pipe. Your voice, data, and entertainment/information services could all be handled by one company. But no one's doing that yet.

Who will that one company be? Will it be the phone company you've used for years? Will it be your cable television provider? Your internet service provider? Your favorite tv stations? Or will you have a crazy fast connection coming in to your house, and choose for yourself which providers to use for each of the things you want to do with it? As a consumer, who cares about how it will get to you, but who will be sending you a bill each month in the future, and how much choice will you have in making your experience your own?

This is an incredibly complex issue, and the stakes are really high for the companies involved. Industries that are used to having comfortable and stable ways of doing business are being forced to rethink, and that's uncomfortable. Clearly the balance of power for content delivery and communications service is bound to change and there will be some losers.

The panel's discussion brought up many questions and made a few forecasts, but there was no broad consensus. That's not surprising, as there is no broad consensus to be found anywhere on this. It's a very interesting time, there are a whole slew of companies working right now on competing and collaborating to find the best model.

Gartenberg brought up the term "disruptive technologies." These are new wrinkles that come along and challenge the traditional business models. In themselves they aren't solutions, but they point the way to new challenges and force the bigger fish to think harder. Some examples of this are TiVo when it first came out, and Slingbox, which is a device that lets you send your home television signal out through the internet so that you can watch it away from home on any laptop computer.

Even if only a small number of consumers use them, these technologies force the industry to make their services more flexible. The functionality that TiVo offers is now available through all of the major cable and satellite providers. Many observers believe that Slingbox will cause an even bigger adjustment -- they are all starting to realize that there's money to be made in letting consumers move their content around.

Another insight was that with new technologies, either the upfront price has to be very low, or the monthly fee has to be low. Examples abound of products like TiVo and the Treo, where once the up-front price dropped, the product found a much wider acceptance.

Where does EarthLink fit in to all of this? On the panel, Executive Vice President of Access and Voice Mike Lunsford explained that our approach has always been to provide the user (however it is defined, internet user, voice user, or entertainment user) with the best tools possible to use the broadest set of services possible. As an ISP, EarthLink partners to bring content offerings to users, but does not consider itself a content provider as such. Unlike some other ISP's, we are striving to keep our broadband pipe open to as many services and content streams as possible.

As far as the who and how of broadband services in the future, it's still a wide open race.

Below you'll find my informal and unofficial transcript/notes if you want to root around for more specifics. I'll go back and clean up typos and formatting at a later date.

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Michael Gartenberg of Jupiter moderating - Sea change in consumer lifestyles - everything used to be in its own category, and now everything is starting to talk to each other.

Access has become critical.

Idea of "digital ubiquity" - bits are bits and all of your digital content needs to be everywhere.

Two main discussion areas are Connectivity and Services.

Seth Kenvin - with BigBand Networks.

Conrad Clemson from Broadbus Technology.

Mike Lunsford from EarthLink.

Matthew Marnik from Nortel/IPTV.

Jim Olsen from SkyStream Networks.

Russell Zack from Cauldron Solutions.

Q: Who will lead this industry, voice, data, content?

Marnik: whoever that leader is, isn't here in North America. Activity around IPTV(broadband content through IP) has come from Europe. Governmental entities and regulation is making it difficult to happen quickly in America. Though some big steps have been made here.

IPTV is not the same as TV-over-internet. IPTV is a clsoed, secure network delivering entertainment at broadcast quality. Internet television is something you could pull up over internet/broadband everywhere. Internet television is limited to the quality of your internet connection (example - net congestion causes loss of service). And also, the security and digital rights environment on the internet is less controllable for providers.

IPTV will be rich 2-way connection - not just tv, but photo exchange, music, dating, video conferencing, ip-telephony -- a variety of content and function. It's not "voice video data" anymore, but one thing that does more than cable and internet alone.

Clemson: Two big effects have driven behaviors. 1. Telecommunications Act of 1996 handicapped how telcos will invest in infrastructure. Let the cable guys in the US get ahead. Elsewhere in the world, Telcos and DSL won the data war, and had better access and infrastructure.
2. Content. The US is way far ahead of the world with depth and breadth of content we put up on television. Hundreds of channels, with 70 or 80 new ones each year.

In the last 30-60 days, the content creators are all saying we are going to find ways to get our content to the consumer other than broadband standard cable.

Lunsford: Today, this panel/CES reflects early adoption, ahead of curve of what we're talking about. Average consumers haven't figured that out yet and what it will mean for how they will pay for content. EarthLink has always stayed out of content side on purpose, and just provide the tools. We partner so that consumer has content options. We're in a good space with this.

We've found that we need to invest on the network side in the US. The networks -- it's hard to deliver over broadband. Go to Korea and you have perfect satellite tv on handsets. EarthLink as an ISP will pick up the first wave because of how we operate, but we need massive adoption before it takes off in this country.

Kenvin:

It has been claimed that perhaps the US isn't in a leadership in IPTV because of network cost. But as a result of all sorts of investment here in cable, your living room experience is much better than anywhere else. Korea may have the advantage on phones, but their home experience is not as robust as ours. We're at different starting points, but we're seeing some of the advances in cable in VOD services and the like.

Gartenberg: consumers don't care about the protocols, technologies, etc. We do, but consumers don't want to deal with it. They want to push the button and have it all work without thinking about it. It does not matter to the what's happening on the back end.

But we found 56% of consumers were interested in getting broadband in their telcos, but there was no clear preference between telcos and cable.

But they have grown used to certain standard of service. Can a cable company provide the same quality for voice service that a telco can? Can a telco provide content with the standard of service that a cable company can?

Or will it be better for the various players to stick to what they are good at?

Zack: it will be hard for Telcos to deliver revenue-generating service on their own. They have to pay more for content like HBO because their subscriber numbers are lower. One example we found is that customers were scared about 911 support, and that stopped people from switching to VOIP.

The size of the bill gives sticker shop. Paying one provider a big chunk of money is a shock, even if the services increase.

Gartenberg - monthly phone bill is lower than its ever been, but all of the other stuff that I am paying are new expenses that are adding up. Perceived as higher.

Olson - Consumers do not care how they get it. It's all about switching. How do you get someone to switch? Satellite tv in the early 90's had people switching from cable because of (1)customer service and (2) quality of signal. So what will cause customers to move around? Biggest problem telcos have is this.

Gartenberg - Problem is choice. There have not been many choices until now. Does choice matter to the consumer?

Olson - we're looking backward at why they did switch. Looking forward, telcos can move into this pretty quickly. So what will drive switching?
(1)choice and personalization
(2)control
(3)interactivity
(4)mobility
(5)portability - ipod, etc.

Who cares what network I get content into itunes with? Once I get it in, i can move it whereever I want.

Gartenberg: Slingbox - moves your tv content to your computer everywhere. How do you deal with destructive nature of portability? Content creation companies are disrupting the standard channels, they don't like Slingbox. How do you deal with that?

Zack - they don't like consumer having all that control. Slingbox is an early adopter device still. But the programming network also wants the relationship. it's no longer about comcast, it's about relationship with ESPN. Now it's about the content, not the service operator.

Gartenberg: but the people who control the bitpipes want to control all of it. They want you to pay to take the service with you.

Zack: One executive called it a "packet racket". If we see one service running over our pipe, we won't guarantee their content will get there. Messing with the network connectivity unless it's their content.

Clemson: If I brought you a product like this, it sounds archaic. it's not quite there. what you want is just to get the content on your device, not necessarily your home tv service.

Gartenberg: As a concept, it's disruptive to the current pricing model. Moving off tv to other "screens".

Clemson. Now it'm with you -- why is it ok to grab it once it's been sent to my house, and i can use it freely. But if I bring it back up to network and shoot it over to user, Comcast says that it's illegal and we're not allowed to do that. What's holding us back is clearing those rights hurdles.

Lunsford: there's a business model issue. now in negotiations, today I can't buy a virtual circuit to send anything. I can now only buy a high-speed data connecion *that's not video, that's not voip*. That's going to hinder this.

Gartenberg: So we're living in a siloed mentality where voice bits have to live in this network, video has to be here, data can only be here.

Lunsford: Economic Issue. Someone has to pay according to the negotiating partners, and it's difficult to figure out who.

Gartenberg: Should it be a free market? Does it need to be regulated?

Olson: That's where it will end up. Consumer will have other pipes if one shuts them off.

Gartenberg: Back a few years ago there was only one. Now we have choices. But no one is exploiting choice it seems.

Kenvin: Yeah, but that's not going to work. I've also heard "duopoly". We're close to having multiple pipe options in the home. We're imminently at the point where it will be a free market economy. It's ludicrous for operators tot hink they can get in wya of consumers getting what they want. EarthLink is a good exanple of empowering consumers to let them use what they want and enhancing services to become a smart pipe and stay relevant. Comcast is a great example too. Getting involved with every aspect. Not fighting by shutting down access but by making their own competencies better and get involved with all of the services.

Zack: Adding content at the same price and making devices easy to plug in. Apple has a model that is device, price, and content-oriented. Their suite is compelling.

Gartenberg: And they control the experience end-to-end. and apple has taken control of the home network too, if you buy apple products. Ecosystem.

Questions?

Business models shaking out - how and where will they be purchasing these things?

Marnik: No perfect answer today. Advertising model is changing. Seeing christmas ads when you watch your recorded program 2 weeks later is wasted money. Variety of ways to do this. Service provider could partner for content, for example. On the other hand, service provider could take a different provider from the EarthLink approach, and offer co-branded or their own services. No one approach is dominant yet. Variety of things.

Clemson: 2 models -- Comcast will sell digital entertainment. It will be a long time before that's commodified. Different levels of service, different stuff. Other model - content provider coming to you. HBO coming to you directly (see STARZ downloadable service). We'll see that on the internet, but there will be cool, targeted advertising. It's not mass market advertising, adn that will make the ads better. And there will be pay content if it's good enough. The bet is you won't be surprised by cost.

Marnik - one caution to the second model is that consumers would have to work hard to go out and get their own content. might not be mass-market enough.

Lunsford- Microsoft's Hailstorm was poorly rolled out, but something like that will happen.

Olson - I think the model will be heavily service provider-driven. War for your bill. But then, those folks will be kept honest by the disruptive people - slingbox, netflix, itunes, and apple. One example is EchoStar -- introduced pocketdish which lets you take video around from your echostar dish to your pocket viewer.

Gartenberg - Service Providers have resisted this.

Kenvin - ABC/CBS/NBC in the last few months.

Gartenberg - consumers are going to where they can find the full content. not putting up with it. strange models. who woudl think a tv show woudl be worth 1.99 or a song worth 99 cents. Whoever puts out Lost will make more money. No longer will bad content be subsidized by good content.

Question: From a user standpoint, bundled vs;. unbundled products

Marnik - Do you want to get into the business of providing the whole service offering? that's a lot of infrastructure. How possible is it? And for what gain to pull it off in the U.S. There will be some unique technological runarounds.

Lunsford - We are building out Philly Muni. It will cost us millions but when it's done, we can offer broadband service for 15-20 bucks. The throttle is only 1 mb. So it's not really that compelling for video. To build out true video the public wants to see we'd have to leverage some existing networks. If you look back over time, Satellite, for example, when upfront pricing went to 0$, adpotion came. Treo is another example. It's hard to sell $40 or $20 month broadband and phone on top of it.

Gartenberg - The one model that doesn't work is expensive device and monthly fee. One or the other works. As tivo dropped price, they did much better.

Question: As you reposition yourself, EarthLink is getting problem calls that 30-40% aren't related to your service? Do you see it as your job to respond?

Lunsford - We do see it as our job, and it's gotten increasingly difficult. If we can get to IPv6 that will make the ISP's job less difficult, but in the interim we'll ahve to struggle with it. VOIP has been a real bear with that.

Another question about advertising:

Zack: Advertising is going to radically shift and change without the mass market to depend on. But it will become more of a relationship.

Kenvin: Maybe fewer impressions, but it will get more relevant, more rational.

Gartenberg: Two phases. First is going to be how do i protect my old model. Second phase is recognizing how it has to change and how it will change. We've discovered that good ads get watched. People watch SuperBowl just for ads. "Viral" marketing ads - honda ad that was passed around. Or buzz around starbucks ad. No reason it's going to die, it's just going to have to adapt like every other industry.