Technology Futures

An interesting fight is brewing between the movie studios and the movie rental outfits. And as usual, it is upstarts like Netflix and other Internet movies on demand outfits that are causing the problem.

For the movie studios, selling DVDs is extremely profitable. Renting, not so much, because they sell a few copies to a Blockbuster or a Netflix, and the rental company gets all the rental revenue. Until Netflix got a toehold, the studios were not too worried about the rental business because video stores also sold a lot of DVDs. Who has bought a DVD from Netflix? Answer: nobody. And the whole movies on demand via the Internet is making things worse.

Why spend $20 to buy a DVD you might only watch two or three times over the next year? If you can pay Netflix one monthly flat fee and watch the movie on demand as many times as you want at no extra charge, why buy? And that's the rub. The Internet is killing the DVD business. Movies are not much like music. The iTunes store sells millions of songs every day, because a) you can listen to music while doing something else, and b) most of us will listen to a song many times. Movies require a dedicated block of time, and there are few movies anybody wants to watch more than once.

The traditional movie and TV business is collapsing under the weight of an obsolete business model. The studios and content owners, instead of adjusting their business models to fit the new dynamic, are engaged in an ultimately futile attempt to hold back the tide. Their answer to sagging DVD sales? "We won't let you rent movies--we're going to force you to buy them." The plan is to not allow movie rentals for at least a month or two after the DVD is released for sale, on the theory that people just can't wait, and will buy it. There may be a few movie fans that will go for that, but the rest of us will just wait.

The Bill and Melinda Gates Foundation has proposed to the FCC that $5 to $10 billion be spent getting fiber to anchor institutions like schools, libraries, and health care facilities in communities. It's a worthy idea, but as policy, the unintended negative impact will be to make it more difficult to get fiber to homes and businesses in those communities.

The Gates plan is dis-aggregation of demand, and what we want is aggregation of demand. The Gates Foundation will take the biggest spenders for broadband in a community and remove them from the buying pool. When this happens, costs for everyone else go up, or don't go down.

What very few people and policymakers understand is that true community broadband networks are very different from the command and control institutional networks that have been the mainstay of telecom for the past forty years. Policymakers in Washington and groups like the Gates Foundation are talking to senior telecom folks with no experience designing and managing community broadband networks that have a goal of getting everyone connected. When you talk to someone who has been building centralized, top down, single provider networks for thirty years, guess what you get? You get another centralized, top down, single provider network.

It really isn't a technology issue, it is a business model issue. Command and control, centralized networks (think the phone company, the cable company, any wide area institutional network) have a business model that does not work--if those models worked, we'd all have fast fiber connections today. So the Gates Foundation, with the best of intentions, certainly, is proposing something that will be an economic catastrophe for communities, businesses, and economic development.

Ski season is right around the corner in New England, and I just spent three days working with a group of communities in a very rural part of New England on broadband issues. Like many rural communities, large portions of this region are both unserved (still on dial up) and underserved (poor quality DSL or cable modem). Complicating the problem is a telephone infrastructure that is in poor condition, meaning erratic DSL service and extremely slow dial up.

I kept meeting people that were trying to work part time or full time from home, but were extremely frustrated because they either had only dial up at home or very slow DSL. Cable service was available in only a few small areas because of the rural nature of the region. What it means, practically, is that the incumbent telecom companies are controlling growth and land use in the region, not the local governments. I heard story after story about business location decisions made entirely on the basis of where there was broadband availability. While many of the stories were from professional people, including a software developer, a real estate property manager, and a financial consultant, the most interesting story came from a custom cabinet maker, who had located his business in a downtown retail area because it was the only place where there was broadband service.

You might wonder why a woodworker needs broadband, but this craftsman designs all his work on the computer and sends the finished drawings to a firm with computerized cutting machines that cuts all the various parts and pieces of the cabinets out and ships them back to the cabinetmaker for assembly and installation. You can't exchange CAD drawings over dial up. And even cable and DSL are barely adequate; for this kind of engineering design work, you need symmetric bandwidth so that you can upload the drawings.

Local leaders need help understanding that zoning, land use, energy conservation, and business growth are increasingly out of their control because the telecom companies (and where they offer broadband) are driving all these decisions.

IBM has announced a new online service based on the popular Lotus Notes. The new service is called LotusLive iNotes, and the new service is aimed squarely at both Microsoft Exchange and Google's Apps Premier Edition. Regular readers know that I don't have much tolerance for the whole cloud computing buzz--it's a glorified mainframe, with less fault tolerance and much less data security. If I had to bet IBM's offering against Google, I'd go with IBM every time. Nobody knows how to do big, distributed computing better than IBM. Google is starting to get squeezed a bit, which is a good thing. I've been using Microsoft's Bing search engine for several weeks, and really like it--better results all around with far less dreck. And now IBM enters battle with Google. Good. Competition is great for everyone, especially buyers of services.