VUDU Economics: Boxes are Barriers
Andy Tarczon, Founding Partner, General Manager
June 15, 2009
One of the most common questions TDG’s clients are asking – what is the right price for a broadband video box? Is it a $99 Roku? A $149 VUDU? A $249 AppleTV?
The simple, direct, and somewhat flippant answer is FREE. It is also the most correct.
But the question itself indicates several assumptions:
- Consumers want the video on the television. True. Consumers couldn’t agree more. For the past few years, our surveys have indicated that the number one device consumers would like to connect to the home network is the television set. Further, when asking about where they would most like to view a broadband video service, more than 70% indicate the TV.
- Consumers need a stand-alone box. False. Broadband video is another “service,” so obviously it needs another input on the TV, right? Wrong. Look at the LG BD370. This Blu-ray player includes both Netflix and now CinemaNow all included on one device using one input.
- Consumers will pay for this privilege. Again, false. Look at the history of standalone boxes: Akimbo, MovieBeam, Roku, AppleTV, VUDU, ZeeVee, Blockbuster’s 2Wire box… need I go on? Find one example of these products being adopted by the mass-market. Wait, combine the shipments of all of these devices and compare against the sales of any one of the new game consoles. If we are generous, we are looking at a couple million boxes versus tens of millions of game consoles. Let’s look at what happened when Netflix launched their service on the XBOX360. Within the first twelve weeks, one million users activated their consoles with the movie service. In that same time, 1.5 billion minutes of video were consumed – an average of over 2 hours per week per game console.
So what does this all mean? Consumers simply will not pay for a standalone box. Broadband video should be viewed as a secondary function of device with a different primary function. With so many paths to the television – Game consoles, BD players, Widget TVs, Hybrid Set Top Boxes, etc. - those looking to provide video services should consider leveraging a variety of platforms. A dedicated device should be the last alternative – offered with little or no fee to remove the barrier between service and viewer.
Finally, my title is picking on VUDU to make the obvious pun. However, look at the recent announcement with Entone to see how service providers can leverage these types of video services. VUDU services are now available on boxes provided by the operator instead of a separate purchase. This means small operators can build a VOD offering and remove the barrier of the cost of the box.