Thomas Edwards, VP, Digital Television Testing & Evaluation, at Fox, was speaking this morning at the Digital Cinema Summit at the Las Vegas Convention Center, one of the many conference programs running concurrently with the NAB Show over the next few days. Fox, of course, is a sister company to BSkyB under the News Corp parent, and BSkyB, as we have regularly reported, is a firm advocate of 3D as the next major business opportunity. So it would be interesting to see Fox and BSkyB executives debate the business viability of 3D after Mr Edwards’ comments that he “doesn’t know if 3D can make money”. Edwards listed some of the obstacles he is facing as Fox experiments with 3D production and broadcasting. 3D equipment, particularly cameras and rigs, are still “hard to obtain”, and are fragile, large and heavy. Stereographers, the specialists responsible for the 3D experience, need to be trained. There are design issues such as placement of the score box and other graphics. There are issues of quality with broadcast 3D, which today (under BSkyB and Fox’s current side-by-side approach at least) is sub-HD quality. And there are challenges associated with keeping the 3D material in synch throughout the various stages of production. Edwards also didn’t seem to be convinced that 3D necessarily improved on the 2D experience when it comes to sports productions. He noted in particular that wide shots, such as a view of a full half of a soccer pitch, tended to reduce the players to “matchstick figures”. In certain close-ups, however, 3D clearly offered a benefit, allowing viewers to appreciate the positioning of players more accurately than in 2D. Edwards called for the beginning of mass production of 3D cameras, rather than the current range of custom-produced two-camera rigs, and that they should be much smaller than present designs. No doubt we will see some examples of early “integrated” 3D cameras here at the NAB Show, with Panasonic for one expected to announce its first model. Register for Strategy Analytics' Analyst Breakfast at the NAB Show Client Reading: Global Audiovisual Market Forecast

Viacom is not happy. It is not happy sharing ad revenues with Hulu for their hottest TV shows. It believes the shows should worth more than Hulu can offer now. So Hulu has to remove Comedy Central’s The Colbert Report and The Daily Show With Jon Stewart. Here is Hulu’s blog post about the issue with Viacom. This is clearly bad for consumers, who want to have their content access all at one place rather than going to different sites. As Internet is playing a more important role in TV and video content distribution, consumers benefit from the openness of Internet, where they can search for specific content they want. Meanwhile, they also have to live with the pain that content distribution is so fragmented online that they have to jump around a bunch of video websites to watch different content. Some media executives say that media industry is a convenience industry. What it means is that one of media companies’ major value propositions is to provide convenience to consumers to purchase and to enjoy media content. It is apparently true. If a media company creates great content, but makes it hard or unaffordable for consumers to access, it would end up for consumers either pirating the content or looking for something else to entertain themselves. This might not be the case for the two Viacom’s show, as consumers can still watch the show at TheDailyShow.com and ColbertNation.com, but it at least suggests that Viacom hasn’t found its ideal content distribution practice online. Hulu, founded by NBC and FOX in 2007, provides consumers an single gateway to access content from NBC and FOX as well ABC now. Its owners like Hulu, as it is their own distribution channel online that is fully controlled by them. 100% of the revenues generated by Hulu goes to the shareholders proportionally, after subtracting the costs. However, for an outsider like Viacom who does not have a stake in Hulu, the video aggregator is merely like another YouTube with more targeted audience, as Hulu will take a cut of the revenues generated by Viacom content. We at Strategy Analytics have been long positive at Hulu’s business model than at YouTube’s, given that Hulu is not required to pay upfront minimum guarantee to its owners, while for YouTube, the upfront payment is usually needed. But in Viacom’s case, Hulu has no difference from YouTube for them. I believe it is a loss for both parties to remove the show from Hulu, as Hulu loses great content whereas Viacom loses audience, despite Viacom believes that its own loss is not as big as Hulu’s. So is there a solution for the issue? Probably. Viacom could join ABC, NBC and FOX’s club to own a stake in Hulu, which could let them enjoy Hulu’s long-term growth in stead of caring about short-term money. Hulu would also benefit from Viacom’s high quality programs enhancing its current competitiveness. Consumers will love it since they don’t need to jump to different websites to watch the videos they like. Certainly, there are several barriers that need to be tackled in order for this to happen. First, it is unclear if ABC, NBC and FOX are willing to let their competitor to own a part of Hulu. Even they are, conflicts on the control of the site among these large media companies could be an issue in the future. Second, Hulu would be declared as a monoply if they gain investment from most of the big media firms. A similar online video service proposed by BBC, ITV and Channel 4, Project Kangaroo, has already been blocked by the UK Competition Commission.  Stay in the status quo or go to buy a stake of Hulu? Now it’s up to Viacom to decide. Jia Wu Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence! Technorati Tags: Online Video

The rapid re-emergence of 3D in the television and video industries is beginning to reach “real” consumers. I was tempted into the Sony Style store in Boston’s Copley Mall recently by a window poster offering the chance to “see 3D in action”. After circling the store with no sign of said “3D in action”, a sales consultant pointed me, with slight embarrassment, to a PS3 connected to an LCD TV. “This should be showing 3D, but we were sent the wrong box.” Further inquiry revealed that “Singapore”, whatever might be there, had shipped a faulty hard disk drive for installation in the PS3, and the store was awaiting a new module, presumably along with the sort of firmware upgrade to be offered to all PS3 owners later this year to enable 3D Blu-ray playback. Personally I have seen enough 3D demos to last a lifetime, so this disappointment represented no great loss. But Sony will clearly have to avoid such problems for US-based customers interested in 3D Blu-ray players and TVs once they are offered for sale. Effective in-store technology demonstrations have always been one of the major obstacles to commercial success, and 3D will be no different. Minor issues such as these will be overcome as the technology matures, but they will be replaced by other practical questions such as how 3D glasses are stored, demonstrated and secured. Retailers will have other headaches too, as an excellent article in specialist trade publication, CE Daily, revealed last week. The incompatibility of passive (side-by-side) and active (eg Blu-ray) 3D systems is one of the major faultlines in the realm of 3D standards. The Blu-ray 3D standard specifies only the active approach, which is generally accepted to offer the best quality available today, and will be compatible with TVs with active displays and the transmitter necessary to communicate with active shutter 3D glasses. Panasonic recently became one of the first major companies to announce sales of new, active 3D TVs. It will sell 50” and 54” plasma sets in Japan, starting at around $4800. One pair of glasses will be included in the bundle; additional pairs will retail at around $112 each. But, as CE Daily’s Barry Fox reports, it seems, as long suspected, that some TVs will be launched which will only support passive 3D technologies, from vendors such as Hyundai and JVC. These TVs, which are likely to cost considerably less than the first active 3D sets, will be suitable for broadcast 3D services from Sky, which are only using the passive approach. But they will apparently not be compatible with 3D Blu-ray players (including the PS3), at least not without some modification or add-on transmitter device. They will also apparently not incorporate the latest HDMI 1.4 ports required for 3D Blu-ray and other potential active 3D systems. We wrote nearly a year ago that BSkyB, which had just announced its intention to launch a 3D service, was unconcerned by 3D standards issues. But that narrow perspective ignored the dilemma which now apparently faces retailers anxious to push sales of new 3D devices and software. Sky’s 3D customers will need new TV sets; but will retailers tell them (will they even know) that some of those TVs may not play 3D from Blu-ray discs? Buyer, as always, beware. Client Reading: Consumer Imperatives for Digital TV Media Browsers

The final session this morning explored the emergence of online television services such as the BBC’s iPlayer and Hulu. Many of the audience saw Hulu demonstrated for the first time and were clearly impressed. Hulu is now reaching around 40M users a month in the US and looking towards international expansion for its next growth opportunity. Johannes Larcher, Hulu’s Senior Vice-President, International, indicated that the UK was clearly the first priority and that the company “is talking to everyone”, without naming names. He suggested news of Hulu’s arrival in the UK would come “not too far in the future”. The Q&A session brought up the question of the differences in the UK and US broadcast regulatory environments which apparently allowed Hulu (owned by Fox, Universal and, now, Disney) to launch without problems, and yet Kangaroo in the UK, a similar venture, was blocked by the regulator. One audience member pointed out that, although only two of the US majors were the original partners in Hulu, and therefore had a relatively low market share, historically the US has blocked many previous attempts by the Hollywood studios to join forces in various ventures which involve distribution of their product. It was therefore “surprising” that Hulu has been able to go ahead, particularly with Disney now becoming a partner. It was suggested that it might only be a question of time before Hulu did come under the US regulatory spotlight because of its exclusive access to first run online content. In the UK, meanwhile, the BBC’s Anthony Rose suggested that whatever new services arrived in Europe, the rights issues would always be complex and will determine success or failure. He also indicated that Project Marquee, which will make iPlayer technologies available to other public service broadcasters, is currently being reviewed by the BBC Trust with a decision scheduled for mid-July. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

New research from NDS suggests that digital video recorders have improved relationships for nearly 80% of couples. In NDS's survey of DVR owners in the US, UK, Italy and Australia, the question was asked: If you have a DVR, has it improved your relationship with your partner? The responses were: If you have a DVR, has it improved your relationship with your partner? United States Yes 79% No 21% United Kingdom Yes 62% No 38% Italy Yes 78% No 22% Australia Yes 78% No 22% The survey offers no explanation as to why fewer UK DVR owners feel their relationships are improved than in other countries. Perhaps UK couples already exist in such a state of cohabiting bliss and harmony that nothing, not even the miraculous ability to record television programmes, can possibly improve their sense of well-being. Unfortunately the official divorce figures would suggest otherwise. You may be wondering why this motley selection of international markets was chosen for the survey. Not entirely coincidentally, they happen to mirror the leading countries in which NDS’s DVR software is deployed, namely on the Sky (UK and Italy), DirecTV (US) and Foxtel (Australia) platforms. The survey’s other findings highlight the relative importance of different household gadgets and appliances. The report says the DVR is second only to the mobile phone as something people could not live without. The iPod and games consoles are ranked amongst the items people are least likely to want to keep. These surveys are always good for press headlines, but the results should be treated with great caution (hence the general tone of this entry). The survey respondents were all owners of DVRs, who represent much less than half of the population in each of the countries surveyed. They are not representative of the population in general and the results should be treated accordingly. A survey of all iPod owners would undoubtedly find that a majority would want to keep their iPods, while I know of few children who use games consoles who would be happy to see them banished from the house. I imagine we are some way from DVRs being mandated in every household by governments and regulators anxious to reduce the impact of family breakdown on social security budgets, although we should never underestimate the ingenuity of our policy makers, and I’m sure DVR manufacturers would welcome such an initiative. Putting cynicism to one side, there is no doubt the digital video recorder has helped to transform television usage for the minority of people who own one, and it is one of those technologies from which there is no going back. Having used Sky+ for seven years, I am still bemused every time I have to watch television where a DVR is not available – pausing and rewinding live TV quickly becomes second nature and is sorely missed. Whether it saves marriages or not, I had better refrain from further comment… Visit us at IBC: Web TV and Virtual Worlds Analyst Presentations

Disney's ABC Networks has recently beta-launched its new online HD service. US surfers can now stream HD versions of popular shows such as Lost, Desperate Housewives, Grey's Anatomy and Ugly Betty. ABC is using Move Networks technology, a company it invested in December 2006. Other technology providers are also moving into the online HD space. In terms of video performance, we have been most impressed with Vividas, whose approach involves downloading video players on a one-time basis to the user's PC and thus, the company claims, avoids many of the pitfalls associated with traditional peer-to-peer streaming approaches. Itiva is another company to watch out for. ABC claims to be the first network to stream HD on a regular basis, but Fox has also been offering HD shows at www.myspace.com/fox. It seems clear that online HD, in spite of the obvious network and technology challenges, is firmly on the roadmap for media conglomerates. As they explore this new approach to reaching and keeping customers, they are likely to find that traditional access providers, such as cablecos and telcos, may resist their attempts to bypass their carefully managed HDTV services. The net neutrality debate is not dead yet. Strategy Analytics clients can read more here.