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Monthly Archives: August 2007

NBC Universal versus Apple: No winners in war

iPod Nano, from Apple Inc. Today Apple announced NBC would not be renewing its contract to sell television shows on iTunes. The announcement comes a few weeks after sister company Universal Music Group (both companies are owned by General Electric) also refused to renew its contract with iTunes.

NBC, according to today’s New York Times, wanted higher prices for its shows as well as more piracy control and bundling options. Apple has responded saying NBC wanted to raise wholesale prices causing retail prices to increase to $4.99 per episode from the current $1.99. NBC provided iTunes with approximately 30 percent of its TV show sales.

Universal Music Group, the world’s largest music company, will continue to sell its music on iTunes without a contract. Universal also wanted more control over pricing and rumors speculate they even wanted a cut of each iPod sold, a deal Universal has with Microsoft’s less successful Zune.

With these two market leaders posturing against iTunes, Apple has big PR fires to deal with (which is likely why Apple released NBC’s price demands to the press this afternoon). Apple also risks some lost revenue as NBC pulls all its content. And worst case scenario, other media companies might start envisioning a world apart from iTunes.

Of course, as Techdirt points out, music and media companies only have themselves to blame for iTunes’ power position in the digital media realm. By pushing DRM specific to iTunes, only iPods can play music sold on iTunes. And DRM run by another company, like Microsoft, will not play on iPods. So the 80 percent market share iPods control force music buyers to buy from iTunes. The only solution media companies have would be to sell DRM-free MP3s, which can be played on all digital music players.

Universal Music Group will be trying this strategy on Amazon’s new download service, but the impact is questionable. Unlike television shows, most music listeners don’t know which company publishes their favorite artists. Unless Amazon can provide the same or better selection than iTunes with 100 percent DRM-free songs, iTunes will reign supreme, even with its lost revenue.

And, of course, as the case with any DRM/price/service/selection war, the consumer looses. Now fans of U2, Heroes, and Battlestar Galactica are likely going to have to surf various sites for downloadable music and movies, most of which might not be compatible with hardware and software they’re used to. Or they can just pirate it, just giving media companies more justification for DRM and taking away from iTunes’ revenue. That sounds a little extreme (though I would argue it’s impossible to give media companies more reason for DRM since they already make up most of their justification already

So Apple looses face and sales; NBC Universal looses sales and fans; and consumers loose convenience and well, they’ve already been loosing in this DRM-crazed archaic media business world. I would love to see peace be made, DRM removed, and new business models explored, but that’s unlikely. I would expect more announcements of non-exclusive iTunes contracts in the coming months. iPods will still sell amazingly this holiday season, so I guess Apple’s the winningest looser of them all.

UPDATE – September 1st – NBC has responded to Apple’s claim that NBC wanted higher prices on TV shows. NBC says they only wanted to offer bundles at bargain prices or free episodes with movie purchases.

Manhunt’s marketing genius’ at work

Manhunt 2, from IGN.com and Rockstar Murder and mayhem can work wonders for an advertising campaign. The ultra-violent sequel to the 2003 action game has a planned release date of Halloween 2007, certain to be a major release thanks to some free publicity. Manhunt 2 originally received an adults only rating form the ESRB (Entertainment Software Rating Board). This rating meant most major retailers would not carry the game as well as Nintendo and Sony not allowing the game on their consoles. The BBFC (British Board of Film Classification) refused to certify the game meaning it would have been illegal to sell in Britain.

GamePolitics posted some conspiracy theories around Manhunt 2’s new release date and how the adults only rating was a publicity stunt, never intended to be the true retail release (similar theories were posed for the South Park movie).

Manhunt follows a prisoner on death row, James Earl Cash, who is trapped in an abandoned town where he has to survive a horror director’s kill-or-be-killed movie. To defend himself, Cash uses a variety of weapons to produce gruesomely detailed deaths of enemies like decapitation or stabbing a crowbar through their head. The game received mostly good reviews, praised for his immersive and detailed experience…if you like the violence. Manhunt 2 is expected to follow a similar plot.

GamePolitics offers several theories, from Manhunt 2 publisher Rockstar (the makers of the Grand Theft Auto series) purposefully putting over the top material in the game to paying off the ESRB to it all being an innocent mistake. I think the first idea is the most plausible. Manhunt won’t sell that well to warrant paying off ratings officials in every country (GTA, on the other hand…). A marketing stunt, however, let’s everybody win. The ratings bodies get to show they stand up to the big bad video game companies and Rockstar gets tons of free publicity.

So after some failed appeals on first amendment grounds, Rockstar has announced a perfectly timed Halloween release (after seeing Saw IV, play the game) for the more retail friendly mature rating.. And as no publicity is bad publicity, Manhunt 2 is almost certain to sell enough for Manhunt 3 to trigger it’s way to consoles.

Losing the War on Modders

Following in the footsteps of Wars on Drugs, Poverty, and apparently Terrorism, video game companies desperately fight modders. Online communities of modders search for backdoors through video game consoles to enable user made software called homebrew and pirated video games. Each console generation has dealt with hacks but this generation has had the benefit of online updates. Sony, Microsoft, and Nintendo provide online updates to their respective consoles’ operating systems, sometimes for the sole purpose of closing loopholes found by hackers.

Yesterday, two wins for the hackers reveal just how ineffective the War on Hackers can be. First, a group of hackers released the Pandora’s battery, a hack that resets the Sony PSP to service mode allowing users to reset the OS firmware which has seen several updates made simply for the purpose of preventing hacked firmware. The Pandora battery claims, and could be, a permanent solution enabling homebrew on the PSP, since the hack completely resets the handheld. It is unlikely firmware updates by Sony can prevent this (though I’m certain they will waste tons of resources to try).

Second, another modder group finally found a hack to enable homebrew for Microsoft’s Xbox 360. The hack doesn’t allow users to use the 360’s online features or Xbox Live, but is not less a success for a challenging system.

More so for the PSP than the 360, modders have found a way around the fail safe’s Sony included on the PSP, namely updating firmware online to block hacks and mods. The Pandora battery gives Sony a new challenge, and something Microsoft and Nintendo need to fear. Online updates won’t work. Closed systems don’t work.

It’s the question of you can either fight them or join them. Continuing a losing war, whether on something dangerous like drugs, something tragic like poverty, or something trivial like modders and piracy is silly. It wastes resources in money and manpower that can be better used to develop games, software, and hardware that make products worth buying. Sony, Microsoft, and Nintendo fear these hacks allow for pirated video games and thus lower sales. While no studies have revealed piracy’s effect on video games (a study in the Journal of Political Economy revealed music piracy’s effect on music sales is “not statistically distinguishable from zero”).

Because there is no study on video game piracy or homebrew and video game companies do not reveal how much they spend combating the practice, it’s hard to assess the cost benefit analysis. But I would argue, based on the die-hard modder fan base, video game companies are alienating a huge audience from specialized equipment, information, and software. Homebrew and modding is unlikely to become mainstream, but the loyal few who can make flash games for the PSP or release free XNA games for the Xbox 360 will consider their consoles more valuable as will others who play them. This costs the companies less money but creates more value that can be monetized simply with more console purchases.

It’s of course doubtful video game companies or any media companies will wise up. Sony has said they are interested in allowing homebrew for the PSP but won’t until they can block pirated games as well. Sony also promised to tracking down modders and hackers, encouraging one of the best PSP modders, Dark_Alex, to quit the homebrew scene.

But should these companies not allow modding of their own consoles, the modding community is showing no signs of stopping. And frankly, they’re still winning.

HD format war continues on many fronts

HD format war, Gizmodo Like Leonardo DiCaprio running to the doomed Titanic, Paramount has gone HD DVD exclusive. They cite HD DVD’s lower cost and market ready technology, both reasonable criticisms of the Blu-Ray format, if it weren’t for the fact that Blu-Ray players out sell HD DVD players 2 to 1 and Blu-Rays sells as many discs. Blockbuster and BJ’s Wholesale are Blu-Ray exclusive while Target only stocks Blu-Ray standalone players (Target continues to sell HD DVD discs).

The worst part of this, as many commentators have recognized, is now the format war will continue longer (Paramount is committed to HD DVD for 18 months).

Personally I only own a Blu-Ray player (in my PS3) though I have yet to buy any Blu-Ray discs and refuse to spend extra money on the 360 HD DVD attachment. Even with a Blu-Ray player I am hesitant to buy discs at the premium prices. It’s more cost effective to pay for premium movie channels and on demand.

Movie companies are forgetting they aren’t just competing with two HD formats for consumer money and attention. I can continue buying regular DVDs or rent from Netflix. On Demand offers a growing list with a developing HD niche. And, of course, there’s always piracy.

Now that’s the question in front of movie companies. This HD format war can continue because DVDs still sell enough to make everyone tons of money. But eventually HDTVs will spread and consumers will demand a format winner. If the movie companies haven’t settled down with one format or the other, consumers will find alternatives. And not all of those choices will make movie companies happy.

Marketing Stardust

Between the magic and mystery, witches and cross-dressers, stars and starlets, Paramount’s Stardust had a pretty fun story. Unfortunately, only $9 million worth of movie-goers saw it. The consensus among pundits appears Paramount didn’t know how to market this fantasy-epic-romance-extravaganza. Critic Gary Thompson of the Philadelphia Daily News explains: “Stardust may sit in a commercial no man’s land – a fantasy adventure with too much icky romance for young boys, a movie driven by grown-up stars with too much fantasy content for adults.”

How do you market a movie with conflicting demographics? Well, my first guess, let’s look at who liked it in the first place. Stardust is based on the illustrated novella by Neil Gaiman, a commander of quite a cult following, best know for his comic series Sandman, and art by Charles Vess. Let’s tap into this cult following. Treat Stardust as the pseudo-comic book film it is. Show off footage at Comic-Con (last year preferably) and an anime convention or two. Put Neil Gaiman out for some book signings for the duel benefit of promoting the movie and Gaiman (which could help the grossing of other movies based on his work like Coraline).

Stardust presented a small advertising campaign already. There were random TV spots with an exclusive clip showed during Daily Show commercials. But this was too little of nothing. Buzz gets generated for clips when there is buzz generated for the clips. Again, comic/Neil Gaiman fans could have helped with this.

One thing comic book movies have started learning is play to the fans. They are your evangelicals, either in praise or in insult. But if they don’t know either way, then you have to trust Hollywood markets. And see the results they get you.

Check out my day job

Forgive my infrequent posts. I have been busy helping launch Blue Egg, a fledgling e-media company helping inform the masses about green and sustainable living. Please check us out cause right now, they’re the reason I can pay the bills. And it’s for a good cause. Posts will get back on schedule soon…

Thanks for reading.