When Bloomberg reported earlier today that Redbox was "developing an online strategy" to challenge Netflix, many seemed to think this was some kind of breaking news story. But in reality, those inside Redbox have been working on trying to develop a digital media strategy for over a year now and still face some major hurdles that will keep it from competing with Netflix anytime soon. Redbox's biggest problem is that the company has zero device penetration and can't get to a large install base anytime soon.

While many bloggers and analysts were quick to point out that Redbox could simply work with Roxio to license their platform, none of them seemed to actually do the math which shows that Roxio can't solve the device problem for Redbox. I see analysts saying things like, "Sonic technology is already in DVD players and TVs", yet they don't mention what the device penetration for Sonic is when compared to Netflix.

In a recent earnings call where Roxio spoke of device growth, the company said that the number of CE devices carrying their stores, under both their brand and those of their partners would be, "over 3M CE devices by June of 2010" and "nearly 30M by June of 2011". Yet for Netflix, simply between the Xbox 360, PS3 and Wii, Netflix already has more than 50M CE devices in the market today that are capable of streaming Netflix content. Not to mention, Roxio's platform still does not support Mac users, so even if Redbox licensed RoxioNow, it would do nothing in helping Redbox reach users who don't have a PC.

Redbox may come to the market with a digital strategy, but it will take them years to get on the 100 devices that Netflix will be on by the end of this year. While many are quick to talk about different companies challenging Netflix for their streaming service, I think they are forgetting that it took Netflix 3 years to get their streaming service to where it is today. It does not happen overnight, there is a lot of development work involved and it costs a lot of money. That's not to say that Redbox can't spend the money and time to offering something similar to Netflix in the way of streaming movies, but they won't be able to challenge Netflix with any scale for a very long time. And that's without even talking about how much inventory Redbox can amass and how long it will take them to do so.

I think many are forgetting or just don't know how difficult the online movie delivery business is. If it was so easy to replicate what Netflix is doing with streaming, then there would be many others offering the same service in the market, but there aren't.

Disclaimer: I am a customer of Netflix and Redbox and use both services.

Related:

– Detailing Netflix's Streaming Costs: Average Movie Costs Five Cents To Deliver

– Stifel Nicolas Analyst Has It Wrong, Hulu Is Not A Threat To Netflix

– Akamai To Become The Primary CDN For Netflix, But At A Very Low Price

– Breakdown On The Number Of Broadband Enabled Devices Sold In The U.S.

Today, Akamai released details on the number of streams they served for 24 global broadcasters into 65 countries during the World Cup. While traffic to World Cup websites saw a lot of growth from previous years, the number of actual video viewers for the live games peaked at only 1.6M simultaneous streams. Although many in the industry want to proclaim that online video is going to replace TV or become the new medium for viewing video in large numbers, as we saw with the World Cup, that clearly did not happen.

Compared to the Obama inauguration, where Akamai peaked at 3.6M simultaneous viewers, the World Cup was small in size. Akamai wasn't the only CDN to deliver live streams of the World Cup, but they were the largest. So even if you add in the number of simultaneous streams the other CDNs served, the total number of overall viewers watching World Cup games at any give time shows online video isn't displacing TV anytime soon.

Today at 2pm ET I'll be moderating a StreamingMedia.com
webinar with Microsoft on the topic of "IIS Media Services and Microsoft Silverlight". The team at Microsoft just released the Beta of IIS Media Services 4.0, and are busy working on the next release. Attend this session with Chris Knowlton, Senior Product Manager at Microsoft, to learn more about what is available today, and what is coming later this year, in IIS Media Services.

Topics to be covered include:

• IIS Smooth Streaming – including Apple devices, low-latency streaming, and multicast
• IIS Transform Manager – easily ingests and converts multiple formats to Smooth Streaming
• IIS Smooth Streaming Format SDK – add Smooth Streaming to your encoding application
• Silverlight Media Framework – a player framework with full Smooth Streaming support
• IIS Smooth Streaming Client Porting Kit – allows you to natively support Smooth Streaming

Be sure to bring your questions, because there will be plenty of time
for Q&A and on the last webinar, Microsoft answered over fifty questions on Silverlight and Windows Media subjects. You can register here for the free webinar.

Late in the day on Monday, Snapfish, the photo sharing service from HP, announced they had acquired NYC based Motionbox. The company, founded in 2006 by Chris O’Brien and Andrew Wason, provides consumers with a video platform service to easily upload, transcode, edit and share their videos. While terms of the deal were not announced, someone invested in the company tells me that Motionbox was valued at around $20M. Between 2006 and 2009, the company raised three rounds of funding totaling $17.2M, so if the valuation I’m hearing is accurate, this is one deal where the investors didn’t lose any money.

I still remember the first time I met Chris O’Brien, back when he was the CEO of SoftCom and I had just started a streaming media division for Globix. Looking back at my calendar, we first met up for lunch on November 17th, 1998 and since then, have had many conversations about the online video business over the years. When Chris co-founded Motionbox in 2006, and launched their premium service in late 2007, it was at a time when tons of UGC websites were popping up. But unlike the UGC sites that simply tried to get a lot of traffic and sell a ton of ads, Chris was always focused on keeping Motionbox as a service that protected customers videos, giving them the tools to quickly, easily and safely share their content online.

While Motionbox had nearly 3M members, for Snapfish, this deal was all about about Motionbox’s video tools and not their revenue or customers. HP has already announced that Motionbox will close down on August 10th and Motionbox customers can get a 30-day free trial with Snapfish and join their more than 90M members in 22 countries.

Congrats to the Motionbox team and hopefully this deal sets up similar companies like Magnify.net and others to get acquired next.

Update: This morning I heard from three other sources who said the $20M evaluation would be on the high end of the range and would only be achieved if certain performance goals were met. I don’t know what those goals are, but some of them are probably tied to how many of Motionbox’s 2.8M customers sign up for accounts at Snapfish.

For the past two years now, many in the online video industry have been falling all over themselves to hype TV Everywhere services and preach about how they are the future of the broadcast industry. But beyond all the hype, the fact remains that Comcast, who is the only major MSO to even offer such a service in the U.S., has stated that they lose money with Fancast Xfinity TV and don't know how they will turn it into a profitable business.

So it comes as no surprise to me that over the weekend, Comcast announced that for the second time in less than a year, they are raising rates. Starting on August 1st, customers in some areas of California and Pennsylvania will see their rates go up 3.5%. Comcast has been quoted as saying the rate increases are as a result of, "new technology, new features, additional programming, higher broadband speeds and improved customer service." In other interviews, they have said the increase is to pay for "digital services" and someone I spoke with at Comcast, who didn't want to be quoted for the blog, said the rate increases are helping to offset the costs associated with their Xfinity streaming service amongst other digital products.

For many customers, this is the second rate increase in less than a year as Comcast previously raised rates across the board on April 1st for what they said was, "part of our commitment to provide you with the very best entertainment and communications experience." And six months before that, in the fall, they raised rates again. While raising rates is something the MSOs have always done, no one that I have seen does it as often as Comcast. And with the Fancast Xfinity TV offering, all it does it give them an excuse as to why they have to raise the rates, telling customers that the service has value, even if many customers don't agree. While Comcast is quick to point out that they need to raise rates to pay for "better" services for consumers, it should also be noted that last quarter Comcast's operating income was $1.9 billion.

For those that think TV Everywhere is the future, it's not. In the U.S. at least, consumers are not willing to pay for the service, in the current state, and cable companies can't afford to offer a so called "free" service that they lose money on. If MSOs offered real TV Everywhere services that allowed for linear programming viewable to multiple devices, then consumers would pay for it. But no MSO is going to offer that as it then competes with their core business. The entire reason why Comcast doesn't charge a monthly fee for Fancast Xfinity TV is because they know they won't get enough people to pay to cover the cost of the service. So instead, they raise rates even for those who don't even use the service as they have no other way to try and get their money back.

Is this the kind of service and business model that the industry should be getting all excited about? Absolutely not. As I've written before, TV Everywhere is a pipe dream, something that people speak of without looking at reality, refusing to give up hope that it can save the broadcast industry. The first problem for someone who thinks this is that they are under the false impression that the broadcast industry needs to be saved. It doesn't. For all the talk about how great TV Everywhere is going to be, online video services are never going to replace cable and will always be a compliment to TV.

Another problem with TV Everywhere is the fact that there aren't enough large MSOs in the U.S. to make an entire business out of the service. Last year, the top 25 MSOs in the U.S. had a combined total of 60+M subscribers. Of that number, the top three MSOs combined, Comcast, Time Warner and Cox, made up 70% of those subscribers. Seventeen of the top 25 MSOs have less than 1M subscribers each. Looking at those numbers, it's clear that very few MSOs are going to be in a position to offer TV Everywhere services. There is no incentive for a MSO with 300,000 subscribers to bring to the market any type of TV Everywhere offering.

While I can understand that people want to get excited about new technology, there is nothing new about the technology used for TV Everywhere type services. It's the same online video technology we've had for years, re-packaged into a business model that does not and will not work. When I hear people say things like "TV Everywhere is disrupting the traditional business model," that's simply their way of trying to sound hip, kind of like how everyone used to drop the word "convergence" into as many sentences as possible. The reality is that TV Everywhere isn't disrupting anything. When most people write about the topic they seem to always focus on the technology used or the authentication process and not about the business model, because one does not exist.

The true value of any service is whether or not people are willing to pay for it. I'm sure Comcast would argue how popular Fancast Xfinity is by providing all kinds of data on how many number of streams have been served or how many hours of videos people have watched, but that means absolutely nothing. If the service was so popular and considered valuable, then consumers would pay for it and it would be a profitable business, but that's not going to happen with TV Everywhere.

Related Posts:

– Some Industry Vendors Betting Big On TV Everywhere, Most Will Lose

– The Promise Of TV Everywhere Is Doomed For Failure, Here's Why

– TV Everywhere Offerings Will Struggle To Be Successful

– Internet Video Distribution Will Not Displace Cable TV: "Cord Cutting" Is Hype

– Cable Companies Hyping Over-The-Top Video, But Where's The Business Model?

– TV Everywhere: The Future of Television, or Another Over-Hyped Promise?

If your AV company is local to the Los Angeles area, I am currently accepting bids for video capture of the Streaming Media West show, taking place November 2-3rd at the Hyatt Regency Century Plaza in Los
Angeles, CA. I'm not in need of any webcasting services for the event, only video capture from multiple rooms across multiple days. Please contact me if you'd like more details and want to bid on the project.

Each week I spend a lot of time trading emails with CEOs in the industry and simply due to time restraints, many of the conversations never go up on my blog. While probably half of what they tell me I'm not able to disclose anyway, there is a lot of information they share that I can make public, especially when it comes to the trends they are seeing in the market. With that in mind, this post with KIT Digital's CEO Kaleil Isaza Tuzman kicks off a new CEO Q&A format that I am going to try and do each week on my blog. If you want your company interviewed, send me an email and let me know as I already have a bunch of these Q&A posts in the hopper and will always be looking for more executives to interview.

Over the past two years, KIT Digital has made quite a name for themselves with all of the acquisitions they have done in the market. As a result of these acquisitions, KIT Digital is now selling a very rich product set across all three screens and into multiple verticals in the U.S, Europe and Asia. From a product standpoint, I hear KIT Digital get mentioned a lot in the context of Brightcove, yet the two companies are quite different. While there are some similarities between Brightcove and KIT Digital's online video platform offerings, KIT Digital is also focusing on IPTV services, signal acquisition and ingestion, live events and a whole host of broadcast and professional services that Brightcove is not in the business of.

With all of the platforms and technologies that KIT Digital has acquired, it hard to think of just one company to compare them to. They have a lot of competitors for various aspects of their business, but their product set tends to be a lot more diverse. While that can be a good thing, it could also cause problems for the company. Trying to integrate so many companies into the fold can be difficult, time consuming and end up costing more money than originally expected. In addition, with so much going on under one roof, trying to explain to the market what your focus is and who you are can be very challenging. These are some of the points that I've been discussing with KIT Digital's CEO Kaleil Isaza Tuzman who answered some of these questions in a Q&A interview I conducted via email.

Question: As a result of the company making so many acquisitions over the past two years, it's very hard to tell what the real organic growth is within the company. How would you break out the rate that KIT digital's core business is growing without all of the acquisitions?

Kaleil: It's a question we get pretty often, so we've run the numbers in detail: Using previously acquired company revenue run-rates and top-line growth prior to acquisition, we estimate that over the last three years our overall growth has been about 55% organic and 45% from complementary accretive acquisition. We expect our growth in 2010 to follow a similar pattern. We are not a “roll-up”. We believe in consolidation of our industry-and the scale in G&A and R&D that comes with it-but our strategy is one of a vanguard of organic growth with complementary, accretive acquisitions at the margin.

Our acquisitions have also been quite small. Over the last several years, there have been several statistically insignificant transactions (the buy-in of our minority interest in a subsidiary, for example, or the purchase of a two-person consultancy firm) and five “real” acquisitions that have comprised between 5-15% of our consolidated revenues in each case at the time of the transaction in question.

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