Disney & Macrovision Could Help Get the Guide on the Map
Colin Dixon, Broadband Media Practice Manager
December 11, 2007
As those of you who have read my writings or heard me speak will attest, I have long maligned the PayTV industry for their failure to provide useful EPGs on their set-top boxes. Setting aside the issue of customer satisfaction for a moment, this continued reluctance to improve their EPGs is having a negative impact on the bottom line of every PayTV operator. As viewers struggle through the layers and layers of menus in VOD systems and the 500 channels of TV content using the ancient grid guide, they become less and less likely to purchase PPV or on-demand movies and events. Frankly, it's more convenient to order a movie from NetFlix and wait a day than it is to use today's EPGs to navigate TV content!
While PayTV operators continue to neglect the EPG, two recent events have spurred a cautious optimism, at least in me: Disney's public scolding of cable operators and Macrovision's purchase of Gemstar-TV Guide. We'll take them one at a time.
Iger Scolds Cable Operators
A couple weeks ago, Disney's CEO Robert Iger openly chastised cable operators for the pitiful quality of their VOD interfaces.¹ As Iger noted, in order to find and select a program he had to "go to page 3, a-b-c, yellow-green-purple, back space three times, then I had to do a cartwheel and wash my face." I wish he was exaggerating! Seems he's realized that having a poor EPG actually inhibits the sale of Disney content on the VOD systems. He's one of the few that gets it: if people can't find content they can't purchase it!
According to Iger, a simple Google search was able to pinpoint the new Ratatouille movie in just seconds, a feat far beyond today's VOD guides. Interestingly, Iger also spent a great deal of time talking about the Internet as a viable entertainment medium (something you'll never hear from a PayTV executive). Yet while his comments were right on the money, Iger failed to connect the dots: if the web is a great entertainment platform, it's equally as good a guide platform. That leads us to the second event of note....
Macrovision Buys Gemstar-TV Guide
Just last Friday, Macrovision announced its intention to purchase Gemstar-TV Guide. On the face of it, a small company focused sharply on content protection is attempting to swallow a giant company with many unfocused business parts. This has never been a recipe for success on Wall Street. Then again, it's not the swallowing of the giant that's difficult to stomach as much as it is the digesting.
Much ink has been expended on the fate of the paper TV Guide. The poor performance of the magazine is widely held as an example of how print media has failed to keep pace with the Internet. This criticism is a little harsh since the core of the paper guide - the grid - dominates the Electronic Program Guide (EPG) space along with the "TV Guide" name. The TV Guide channel has also been cited as a poor fit. Macrovision's CEO Fred Amoroso admitted that neither the channel nor the magazine were the core reason for purchasing Gemstar. I suspect both these properties will be sold off quickly to help offset some of the $800 million in debt that will be used to finance the deal.
So why is Macrovision buying Gemstar? According to Amoroso, it's about leveraging Gemstar's electronic guide property to make it easier for consumers to find and consume TV and video content. In other words, Macrovision seeks to enable true content discovery in an easy-to-use format. Indeed, linking the search and discovery process with contents rights management has great potential to benefit everyone involved, from content providers to consumers. Apple's iTunes/iPod pairing is a great example of how well this approach can work.
But Amoroso would do well to remember that Apple owns all the pieces of their puzzle, while Macrovision, even with the acquisition of Gemstar, doesn't have the power to exert the same level of channel control. Specifically, this new entity will have to deal with cable operators, many with which Gemstar has had very contentious relationships. As well, connecting consumers with content across multiple physical distribution channels will prove extremely challenging.
The deal can still fail, of course, and the biggest threat to its success may be Gemstar's existing business culture: Macrovision, which is traditionally run as a very tight ship, could get waylaid by Gemstar's unfocused practices. A second threat could be the untidy EPG development process within Gemstar. The Gemstar EPG that today runs on North American cable systems, while branded as TV Guide, is actually the product of a joint venture with Comcast called GuideWorks (in which Comcast owns a controlling 51% interest). As well, Gemstar recently purchased Aptiv Digital, another EPG. Sorting out the development picture within the new company will be difficult to say the least.
I'm cautiously optimistic about Macrovision's direction and the early signs have been positive. For example, Amoroso has publicly stated that the company headquarters will be in Santa Clara and that the top managerial positions within Gemstar will be eliminated. Moving away from the litigious, contentious practices of Gemstar and substituting great solutions to real problems will be the next difficult step. All in all, this is a great move for Macrovision. I just hope that in the process of integrating the various pieces of Gemstar, Macrovision doesn't end up with a bad case of indigestion.
Will PayTV Operators Wake Up?
The importance of the EPG to the future of the PayTV industry cannot be understated. The EPG is, in effect, the store front for the PayTV operator. Should they lose control of the guide, they lose control of its power to generate new incremental revenue. Yes, it is that critical - just ask the over-the-top guide players honing in on this space.
Case in point, TiVo. You can buy a TiVo series 3 HD DVR, put a couple of cable cards in it, and never see the cable EPG again. To use Iger's example, now when a customer is looking for Ratatouille from their TiVo box, they find it on Amazon Unbox first. TiVo and Amazon make a little money on the sale as does Disney, but the cable company is left out completely.
PayTV operators would be wise to work closely with Macrovision to create an easy-to-use content discovery guide that consumers would find compelling. If they can do this, they may be able to stave off over-the-top guide operators and thus save billions of dollars in incremental revenue.
At the same time, I'm not sure the U.S. PayTV industry understands the tectonic changes that it will soon face. If you haven't heard, the Internet is coming to TV and bringing with it hundreds of new content sources, interactivity, and (yes) easy-to-use EPGs. By 2011, nearly 100 million households will be watching Internet-based video on their TVs.² When that happens, the relatively calm world of PayTV will be subjected to the rules of the Internet. And the humble TV Guide will be replaced by flashy new web-based EPGs, each capable of significantly diminishing incremental revenue opportunities for PayTV operators.
Tough times ahead for the U.S. PayTV industry, for sure, but they can come out on top of this - it requires pulling their heads out of the sand and realizing the important economic role that the EPG plays in the consumer video experience. To continue denying the truth of this statement is foolish and dangerous. No doubt TiVo, Yahoo!, and now Macrovision see the validity of this vision, and they'd be happy to take the revenue.
1 "Disney CEO Touts Net," Adweek.com, Paul Bond, November 30, 2007.
2 Broadband Video: Redefining the Television Experience (The Diffusion Group, January 2007)
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