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Analyst Insights Faultline: Vudu, RawFlow and Joost all target web video services
May 2, 2007 – Rethink Research

Every news source that covers digital media this week followed the Wall Street Journal in heaping praise on a start up Vudu that has managed to get most of Hollywood, not counting Sony, to give it access to major motion pictures for downloading over the web, using a peer to peer architecture.

But apart from the non-technical press release, there is no data on just how this system works and it seems to have an inherent contradiction in that it doesn't require a PC, you can just link the set top directly to a broadband line, and this will cost the princely sum of $300.

Well al least that might be a contradiction. The set top, in order to be a P2P client, is almost certainly a stripped down PC of sorts, and it must use some operating software, and it must need some considerable storage, not only so that the customer can store their movies DVR-like, but also so that collectively all of the devices out there can store the entire 5,000 film video library multiple times over, hopefully encrypted, scattered among the various client devices, so that there are some benefits from using P2P. It isn't essential that a P2P architecture sits on a PC, but that's what most of them are written for and we suspect that at $300 this device is conceptually at least rather PC like.

Vudu said that it has closed deals with seven major motion picture studios: Disney, Lionsgate, New Line, Paramount, Twentieth Century Fox, Universal Studios, and Warner Brothers plus 15 independents.

"We've created the product everyone wants, the product many have tried to build, and, until now, the product no one has succeeded in delivering," said Tony Miranz, founder of Vudu. "We've brought together the best team in Silicon Valley to give movie lovers the ability to watch thousands of movies instantly, without leaving their homes."

Miranz and Chairman Alain Rossmann say that the team is made up of technology veterans from TiVo, WebTV, Openwave, 2Wire, Slim Devices, OpenTV, and Danger and that the company has funding from Greylock Partners and Benchmark Capital.

Well while we are waiting for the beta program to unfold and for some smart techie to rumble what's under the bonnet of this start up, our expectation is that it's all Windows Media file types, using Windows Media DRM and that means that this device can and will be hacked, unraveling the entire libraries in a single place, virtually overnight. After all Windows Media DRM has already been compromised on PCs. Still let's not judge it until we know the answer.

What it will need is a hardware encryption key that is tamper proof to avoid that, and Vudu may have done that. We don't see the studios happy to give away that many movies unless they are safe, but on the other hand, that depends on the release window, are these films past their DVD sell by date and well into their long tail cable re-run period? In which case there is no risk.

How come Apple has only managed to license a few hundred Hollywood films and a start up gets the lot? The company is rumored to have raised around $21 million in VC funding.

But in the same week, a UK launch is right on the money, in the form of RawFlow, a P2P PC client that has a track record, offers streaming, and can do it in the ever so popular Flash Video format.

We have been waiting for this to come along. Flash video powers systems like Brightcove and much of the YouTube video, simply because it is so easy to load onto a web site, compared to other video formats, and it comes with its own On2 Technologies codec and there is starting to be a substantial tools market with offerings from both Adobe, which owns Macromedia Flash, and from On2.

But what was missing from the equation was a P2P system that can reduce or eliminate the content delivery costs of bandwidth, which in most systems we have seen takes up about 30% of the total system costs.

RawFlow is the first to offer streaming Flash in its Intelligent Content Distribution (ICD) latest version, but our guess is that it won't be the last. RawFlow of course isn't a service like Vudu, it's enabling technology, but we are happy to bet that if they can work out how to drop this into P2P, then so can an number of other P2P systems out there and this is the start of a flood of applications that allow this. And one or more of these will open up the capability of set tops that house the P2P client and cost a lot less than $300, taking the signal direct to the TV.

Which is one of the reasons we would expect Vudu to not take off. This type of offering is going to become more and more common, and paying $300 for a new device (from a company which is not guaranteed to be around in 3 years) is unlikely to set the world on fire, especially if it turns out that we are right and the Vudu player turns out to be an Intel based stripped down PC after all.

Vudu is what Moviebeam SHOULD have been, when Disney had it, and under the Disney brand, it might have worked, but that was launched at a time when the studios did not believe that anything which had P2P inside it, or ran over the internet in general, could be used for anything other than piracy.

In the meantime this week Joost, which perhaps has the lead mindshare in P2P video distribution, took several steps closer to its own vision of bringing P2P TV and films to every PC on the planet, when it announced the companies that have pledged advertising support for its service.

This is led by The Coca-Cola Company, HP, Intel, Nike in the US, with a whole raft of majors in Europe including Kraft, Lionsgate, Microsoft, Motorola, a Nestlé sub-brand, Procter & Gamble and Sony. In all it says it has 32 blue-chip advertisers on board and reveals that there are 150,000 beta users and 500,000 individuals registered and waiting for the service. Various sources suggest that the initial 3 month ad campaigns will cost between $50,000 and $100,000 and bring in well over $3 million globally during ramp up.

If it ramps to even a fraction of the popularity of Skype, then this will quickly rise to $100s millions.

Joost has said as a guideline that 1 minute of advertising will be offered per hour of viewing time, and that both conventional video slots and channel sponsorships will be used, and the aim will be to minimize the disruption in the viewing experience.

Joost also added content deals this week with Adult Swim, CNN, Hasbro, the National Hockey League, Sports Illustrated and Sony Pictures Television for comedy, cartoons, animation, film, news, documentaries, lifestyle and of course sport.

Courtesy Rethink Research, publisher of Faultline, a weekly feature on technology and innovation.



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