The deal is another chapter in the Yahoo-Microsoft-Google marketplace drama. Various permutations of deals between Yahoo! and Google and Yahoo! and Microsoft have been discussed since Microsoft made a public offer to acquire Yahoo! in 2008. This deal does not include any upfront cash to Yahoo! although, according to Yahoo!, this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million.

For Microsoft, the deal is a positive indication that it’s investment in search and launch of Bing in June will pay off. While no solid marketshare numbers have surfaced, Microsoft has created positive momentum and it’s that traction that gave Yahoo! the indication it would need to invest heavily in search to remain competitive with Google and Microsoft. By making the pragmatic decision to cede its search technology to Microsoft, the company effects a potential $700 million swing and shows management is able to make tough decisions.

The fine print on the deal continues to be brought into greater relief, but some key questions have been raised:

Yahoo! has put a significant amount of time and energy into its open search strategy, namely BOSS and Search monkey. According to Microsoft, that platform will fall under its umbrella which leaves developers and publishers to question the future of both efforts as well as their desire to work with Microsoft.

While some contend regulatory issues may not be a major hurdle here, Microsoft is a lightning rod for attention from governing bodies in both the U.S. and Europe. Yahoo! and Microsoft represent the two largest consumer web portals in the world, and portals (as well as their toolbars) are starting points for consumer search queries.

How will Yahoo! sell its search deal to affiliates currently powered by Yahoo’s search engine once the deal in done?

How much time, effort and expense will Google put into throwing roadblocks that stall the deal? Google, the jilted groom in a proposed Yahoo! deal in 2008 has, according to reports, shown some anxiety of Microsoft’s newly found search momentum.

Publicly stating it will be going through a brand refresh in 2009, how will Yahoo! position itself with advertisers, consumers and Wall Street having relinquished one of its key product and services pillars.

What about the future of search-display convergence, which was cited as a key principle in Yahoo!’s rejection of earlier overtures from Microsoft? Search-display convergence, which implies the use of search data to better target display ads, is a key battleground for Google as it seeks to extend its advertising business into rich media and beyond.

One question that’s been raised that may be less important is whether the Microsoft-Yahoo! combination will significantly move needle on search share. Microsoft and Yahoo! together handle about 28% of the world’s searches, as compared with Google’s 65%. However, this question overlooks the strategic challenge that this deal represents. By dividing the search advertising market between premium buyers and self-service “long-tail” advertisers, Microsoft achieves a kind of pincer move around Google, challenging it directly on its home turf of self-service AdWords (it’s primary source of revenue) while empowering Yahoo! to block its expansion into the higher end of the market, the premium advertisers, where search and display convergence (along with mobile and social and online video and next-generation television) are important. In other words, this sharpens the distinction between Microsoft’s “technology company” role and Yahoo!’s “media company” role, making it harder for Google to play both against their alliance.

For advertisers, such escalating competition spells opportunity. AdWords users may now find AdCenter to be a more competitive option, especially in categories where Microsoft has focused Bing’s development like travel and retail, while premium brands and agencies may now find Yahoo! to be more capable of supporting brand campaigns with integrated search and search-related targeting capabilities. The fly in that ointment remains the privacy issues that will impede the flow of search data between the two companies. Watch for this issue to escalate in the inevitable challenge from Google.

Let’s review the two important points here: one, you must be a Cablevision subscriber, the net of which is an effort for Cablevision to ward off Hulu, YouTube and others from encouraging consumers to unhook, de-cable or cut the cord. Second: Cablevision will be providing the “authentication” service which ensures this service is available only to Cablevision subscribers (for now). Get familiar with the term “conditional access” (as in you get access under the condition that you subscribe to a local cable service); it’s soon to be the TV 2.0 flavor of the month.

Ever the used car salesman, MLB commissioner Bud Selig says “”It is important that fans in local markets have portable flexibility to stay connected to their favorite team if they can’t be at the ballpark, and I believe this represents a significant step in that direction.” MLB is operating on the theory that movie rentals have not killed off the movie industry, in essence saying fans who want to (and can afford to) go to the ballpark will continue to go while those who want the convenience of watching their team while on the road can also be served.

Yes, you logically ask what does this do to local broadcast rights. And what about premium packages such as Extra Innings. Perhaps the fine distinction here focuses on the portability of the service, almost creating a new market that lays between home TV broadcasts MLB.TV online (which does not include in-market games) and Extra Innings (which also does not include home games).

If I have a complaint, it’s that as a fan celebrating his golden anniversary as a baseball devotee/nut, I question what happens to the fan who cannot afford cable. Already TV game rights have been sold to local cable nets (i.e. Fox Sports Net) and national Nets (Fox, TBS) , so by moving games to yet another premium channel, America’s Pastime gets further away from segments of America’s fan base.

I call a balk.

]]> http://blogs.gartner.com/allen_weiner/2009/07/08/and-so-the-conditional-access-tv-trend-begins/feed/ 0 http://blogs.gartner.com/allen_weiner/2009/04/30/take-that-youtube-disney-goes-with-hulu/ http://blogs.gartner.com/allen_weiner/2009/04/30/take-that-youtube-disney-goes-with-hulu/#comments Thu, 30 Apr 2009 16:59:25 +0000 Allen Weiner http://blogs.gartner.com/allen_weiner/?p=327 The long-anticipated deal in which Hulu adds ABC’s prime time shows to its lineup, as well as its daytime soaps and programming from ABC Family, Disney Channel and SOAPnet is official. Besides licensing content, Disney is taking an equity stake in Hulu, with Disney getting three seats on the Hulu board that will be filled by Bob Iger; Anne Sweeney, co-chair, Disney Media Networks and president, Disney/ABC Television Group; and Kevin Mayer, executive vice president, Corporate Strategy, Business Development & Technology. In addition, both NBC and News Corp (Fox) have agreed to extend their licensing deals with Hulu for an additional two years (the term of the Disney deal), putting an end to rumors that Hulu’s lock on key content was slipping away. It must be pointed out that ESPN, one of Disney’s top brands, is not mentioned anywhere in the agreement. Can one assume ESPN is left to go its own way in the TV 2.0 arena?

The move turns Hulu’s lineup into something that closely resembles your average low-end cable system, with only CBS absent, putting TV.com (CBS’s version of Hulu) in a precarious position as it contemplates future moves. YouTube, thought to be the prime competitor to Hulu, has recently added premium content in the form of Sony/Crackle comedies (hold on, is that really premium) and some rather weathered films (“the Mod Squad,” “Carrie”) so the Disney-Hulu deal sets the stage for Hulu passing YouTube in online viewership, perhaps not in total views, but in views of premium content that appeals to major advertisers.

A few more points to consider: still left in play are a few crown jewels whose addition could be essential in this TV 2.0 online programming race. Showtime, a CBS company, is likely to go to TV.com; Viacom, a company not especially happy with YouTube for alleged copyright violations, which has a roster that includes MTV, BET, Comedy Central, Nickelodeon, etc. Will Viacom go with Hulu, TV.com or create its own online network? And then there’s HBO, in the process of varied experiments for online distribution. HBO’s move may be closely aligned to the cable industry’s proposed moves into the online space and that brings forth the question whether the current online TV 2.0 space is just a prelude to the emergence of a MSO-powered online presence ala Comcast’s planned evolution of its Fancast site from video portal to cable service add on. Such an offering would be tied-to/bundled with cable service. If that’s the case, Hulu may be just building a content rich, user-friendly service with a powerful backend infrastructure that will be too good for most MSOs or aspiring TV-hungry telcos to pass up. If that’s the case, Google will truly regret it bought YouTube.

Because the official date for the digital transition has been pushed to June, not all the local broadcasters in Phoenix are fully digital. The affiliates are all set, two even have side channels (not sure of the official terminology) that have 24-hour weather. The local PBS station (part of Arizona State University) has four channels at 8.1, 8.2, 8.3 and 8.4. Some of the local religious and Spanish-language broadcasters have two or three side channels.

Part of the goal of the digital transition is to free up analog space for new communications services as well as allow broadcasters to do innovate things over these digital “side channels.” To be competitive in the new TV 2.0 world, one has to hope that innovation means more than just 24-hour weather channels.

The next step for my TV 2.0 project is to get an IP-based box to watch web-based programs on my TV. The Xbox has some content, but it’s a walled garden in that I have to watch what Microsoft has selected as opposed to giving me free reign to scan the web for video content. The same goes for Apple TV and now that I totally messed up my Boxee interface, I am back to square one. I saw a new box from Neulion at CES that could do this, and I am in the process of installing my ZeeVee box (although not on this TV) for get some web goodies. Stay tuned.

I will be filling this blog with observations and videos from the event, so stay tuned for that. In the meantime, I am trying to book as many appointments in advance as possible. You can send me an email: allen.weiner@gartner.com or follow me on Twitter www.twitter.com/allenweiner

See you there, ya’all

I already have a host of boxes and gadgets to attach to the TV including an Apple TV, an old Xbox (which is on the install bubble as it’s a little too first generation), a Neulion OTT box (powered by wireless internet), a DVD player, an OTA HD antenna; our XM radio (note to self: make it easy to unplug); an old VCR recorder and one of my PCs (the TV has an easy to locate “monitor-in” port). I do have a ZeeVee box, but have not been able to install it as of yet. As I find new gadgets and boxes, I will report on whether they take me one step closer to calling my cable provider to proclaim, “take this box and…”

Stay tuned.

Item one: Google adds book reading capability to the iPhone as well as phones running Android. It’s not an app per se, but if you go to http://books.google.com/googlebooks/mobile/ you see a site that has a number of books whose copyright expired that can be read on the phone’s 3.5-inch vertical display. A few scenarios could result, one in which Google (who recently resolved its feud with book publishers) sells books on behalf of publishers or one in which Google builds a book reading application and Apple sells books in the iTunes store. Everyone gets a piece of pie.

Item two: Amazon launches Kindle 2 which retails for $359. The new device includes text to speech conversion so books can be read aloud. The product will no doubt be met with initial demand (some pent up, some folks wanting to upgrade) but does it have legs in a tough economy? On the heels of the Kindle 2, Plastic Logic whose work in plastic electronics has yielded a new device that has been embraced by USA Today, the FT and book publishers via distribution via Libre Digital. Cost and business model (as in wisely partnering with publishers to offer unwritten, branded models) will roll out during 2009.

The e-reader scrum boils down to the iPhone Swiss Army Knife approach or the apparent Amazon standalone approach. It’s not a dead-on match in terms of features and functionality; from what I hear the Kindle offers up a pretty sweet book reading experience while the iPhone’s is passable as part of its multifunctional capabilities. On a cost basis, though, yet another device that has one purpose needs to offer a fairly exceptional value or experience versus one that texts, IMs, reads emails, allows you to find your lost car, read newspaper feeds and … As Alton Brown, the Good Eats guy says, there’s no room in my kitchen for a unitasker.

But maybe it’s not that simple. Amazon has a large and growing music library. Amazon also has a TV and movie service available through a growing number of partners. And, to enable smaller publishers to find their way onto the Kindle, Amazon offers free transcoding to make content Kindle ready. Add that to a bigger screen, built in WiFi (making it a de facto Web TV device, albeit in black and white for now) and content across varied media categories and things begin to take shape.. Let’s also not forget that Amazon is the music download supplier for T-Mobile’s G1 phone. So, perhaps Google is ready to partner with Amazon by building the rumored Kindle reader for Android (and other) mobile phones.

So, have we reached any new conclusions? No. Have we pointed out the e-reader space may finally be on a path to fulfill its potential? Sure hope so.

What makes me doubly perplexed is that 2009 will be a crucial year for Hulu as it faces the YouTube juggernaut in a race for online TV audiences and ad dollars. In the past several months, YouTube has made efforts to rid itself of inappropriate and unauthorized copyrighted content and improved its viewing experience by offering HD content. Hulu should have taken the time and money simply telling the world it is better than YouTube. Curiously, this raises the interesting juxtapositions of mantras as Google (YouTube’s parent) proclaims “don’t do evil” while Hulu sneeringly says it’s an evil plot.

I admit I often am in the dark as to the intent or goal of both networking programming as well as TV ads. My sense here is that the brains behind this spot was the same person (or persons) who believed a weekly eponymous sitcom starring Emeril Lagasse would be a winner.

Note: Sorry: The Hulu ad is not viewable outside the U.S.

Bartz has two parts in Act One of her Yahoo performance. She started off the call with a general overview that included a touch of humor, some honest observations and a slight dash of cheerleading calling Yahoo a “can do” company. Following Blake Jorgensen, Yahoo’s CFO, providing drill down into the numbers, Bartz returned to the call with some generalities about the future, then firmly noted she did not join the company to sell it, but was far more evasive in speaking about Yahoo’s intent to sell its search business. She did say that search has value beyond revenue and market prestige in that it yields valuable data about consumer behavior which the company uses to sharpen its product focus. That point does not preclude Yahoo having access to that data if the search business was sold.

While Bartz played her intentions close to the vest, admitting she is still learning about Yahoo!, she emphasized her focus would be in fixing the organization to become one geared to deliver speedy answers, communicate better internally and facilitate the deployment of innovation. “These are things I am pretty good at,” Bartz noted, having accomplished those very tasks as former CEO of Autodesk.

A few other takeaways: It was interesting there was no mention of Yahoo’s connected TV business which was one of the highlights of CES 2009. Yahoo stands poised to become a major player in the interactive TV platform business and was certainly noteworthy. In addition, for those who worry about Yahoo paying the light bill, the company has $3.6 billion in cash and marketable securities on its balance sheet. With that sort of coin in her pocket, we’re going to see if Bartz has some riverboat gambler in her makeup and begins a buying spree of undervalued companies whose add could generate new products and services as well as some much better excitement and buzz. Eight days does not give us much to go on, but Bartz seems suited for the role of Yahoo CEO as we anxiously await acts two and three.

Welcome to one of those “only in America” scenarios where it is darned near impossible to serve the best interest of all concerned. By delaying the digital switchover the CEO of the Public Broadcasting Service states will cost public TV stations $22 million as they are forced to broadcast both digitally as well as in analog. It also puts on hold the full deployment of new digital broadcast and wireless services that will occupy the spectrum currently occupied by analog broadcast.

Perhaps there is deeper meaning to the delay. Is President Obama using this event to make a clear statement of a more populist broadcast/communications policy and the direction he intends to follow in his selection of a FCC chairman? It remains to be seen just how many of the 6.5 million analog viewers need to be upgraded by June to satisfy the administration and declare the U.S. a digital broadcast nation. As for the poor and elderly who can not afford boxes, even giving them one for free does not solve the problem. Installing it (as this skit shows) requires some technical knowledge and a steady hand.

Co-authored by Mike McGuire