It’s tempting to blame the downturn for all the bad news hitting tech in 2009, but downturns have a healthy impact too. They burn away the brush of businesses that looked good enough on paper to keep raising money, but never quite worked in reality. Consider two stories in the news today: The possible bankruptcy of Sirius XM Radio in the next 24 hours and the looming ouster of its chief executive Mel Karmazin, and the slumping DVD sales that the so-called “winning” BluRay format is doing little to boost.
Stick with me here: I realize satellite radio and DVDs are very different businesses. But if you look at how Sirius XM, Howard Stern, Sony, Hollywood studios and all their various fans and stakeholders got into this mess, you’ll see two things in common that are causing more problems for their continued viability than waning consumer spending and locked-up credit markets.
1. Both businesses were too confident that trends of the past would repeat in the Web age. Go back to 2004 and read the press both Howard Stern and Karmazin did when they bet their futures on and bolstered their bank accounts with fat Sirius deals. Nearly every time either was asked whether people wanted to pay for a device and pay a radio subscription fee on top of that, they countered that the same doubts were there at the beginning of cable TV and that the same thing that premium cable did to broadcast was happening with radio. Similarly, during the Blu-ray/HD-DVD wars, there was a blanket assumption that this battle was clearly VHS/Beta, Part Two and hence the winner would inherit a big multi-year-growth market. Beware new technologies whose arguments are rooted in something that happened decades ago.
Clearly, in both cases, the creative-destructive power of the Web was vastly underestimated. In a Web world, there are not only far fewer people willing to pay for content, but they’re willing to pay far less than in the past. Put another way, free distribution of popular podcasts like Diggnation or on-demand episodes of “The Office” for $1 were never forces with which cable TV and VHS had to reckon.
Similarly, the satellite radio and Blu-ray/HD-DVD wars also missed a substantial shift in how people want to consume media: They’d rather rent than own. The reason my husband and I have a bookshelf filled with (dusty, still shrink-wrapped) DVDs was the early lure of having our favorite movies at our fingertips. Now, we essentially have that via a combination of TiVo with a DVD burner, Vudu, Netflix, iTunes, and Comcast OnDemand without cluttering up our living room.
2. Both spent way too much money on the assumption that past-was-prologue. Even given the above point, it’s possible there were still good businesses to be built out of satellite radio and a next generation DVD standard. There are plenty of rabid audio/video geeks and early adopters, and at just .43 cents a day satellite radio is hardly an unaffordable luxury. And, as Karmazin points out, satellite radio customers and revenues are growing in double digits. The problem was the stakeholders in both visions believed so much in the assumptions described above that they spent billions blindly driving towards this El Dorado market, utterly ignoring their balance sheets along the way.
Sirius and XM acted like 1999-era companies filing for IPOs, and racking up a combined $3.25 billion in debt, before ever turning a profit or proving exactly what the spoils of this shift from terrestrial radio to satellite would be. It’s a rookie mistake when it comes to new tech markets: Getting more wrapped up with beating a rival before your market really exists, or a classic case of putting the cart before the horse. See: Stern’s $500 Million deal with Sirius and Toshiba paying studios like Paramount and DreamWorks a reported $150 million to offer movies in HD-DVD exclusively. These were only a few of the high-priced deals struck on all sides of the two wars. Contrast that to a rivalry like MySpace and Facebook. Sure there’s some good-natured sparring. But there’s also a realization that social networking is in its early days, and the bigger problem is figuring out the business model, not killing one another. Market before market-share.
The result? Sirius and Sony find themselves in 2009 with combined billions of dollars in debt and shareholder cash wasted, scorched earth all around them and two victors of a still uncertain market standing and wobbly. And, for both Karmazin and Sony’s Sir Howard Stringer, uncertainty about their future employment.
For those who believe that tech always leads the U.S. out of recessions, there’s a lesson from the meltdown and billions lost in the war for satellite radio and next-generation DVDs: Beware of the old adage that history repeats itself. Because if markets are truly innovating, patterns of the past only hold up so much.
Great post! There’s a prof at Harvard Business School that writes about why companies fail – Clayton Christensen. I think that every aspiring entrepreneur should check out The Innovator’s Dilemma. Also – I liked Guy Kawasaki’s lectures from Art of the Start where he shows that the icebox leaders failed to innovate into the refrigerator, etc. It’s like Eugene Kliener said: When the wind blows hard enough, even turkeys can fly.
I agree with Aniq…the Innovator’s Dilemma presents an argument similar to point #1 above. Rather than say that “trends of the past would repeat in the Web age”, the book would argue that these technologies over-serve their customer and open themselves up disruption by a low-cost competitor. Bill Gurley wrote a post about this topic earlier this week when talking about SlideRocket (http://abovethe...ma-sliderocket/). In the case of satellite radio, it was disrupted by a platform-oriented approach to music distribution (broadband internet, the mp3, the ipod); in the case of blue ray/hd-dvd, it was disrupted by Flash video and high-speed internet.
I disagree with point #2, though. You could argue that both satellite radio and next gen DVD are winner-take-all markets. You either need to go big or go home. Each player either wins or loses the market. Whether or not there is a market is another question, but not going after the space in a big way would be the kiss of death for both companies.
http://www.goog...q=NASDAQ%3ASIRI
Up +0.031 (41.76%) today. After Hours: 0.129 +0.024 (22.97%) – Feb 13, 7:59PM EST. The “joys” of being a penny stock.
I watched this movie “August” and its weird, its all happening all over again!
BestJobsOnline
http://tinyurl.com/7uj5ay
Two other things they have in common. They both get people to read your website whenever you even mention their names. Im sure your advertisers to your site will appreciate your article even if it is like comparing toilet paper to aluminum foil.
What they have in common: Both won out over overwhelming odds against it.
Maybe you need to keep up-to-date with news before you go trying to write it. Or trying to manufacture it. Hacks like yourself are the reason news sucks nowadays. You are a news parrot. All you do is echo whatever you hear in mainstream media. If you were any good, you would have ran with the Friday article from the New York Post about Sirius XM being close to a deal with Liberty Media.
You see, Sirius XM is going to make it and thrive. Hacks like you will eventually go the way of HD-DVD.
Don’t comment then.
don’t be retarded luke
WTF????????
Apples. Oranges. Last time I checked, Blu Ray was doing fine. Check Netflix numbers. Sales of blockbuster titles etc.
Streaming media is not going to replace BD anytime soon. Heard about ISP caps? Or how Netflix streaming quality is actually sub-SD. SD.
Will you also be writing another piece on how the downturn has caused Circuit City to shut down. Car makers are in trouble (not just the American ones) and so on.
The point you’re making here is so important, I think. Of course businesses should examine the past – both failure and success – to learn. But it is a potentially fatal error to not remember that what you’re studying is past. And that while much may have stayed the same, a great deal will undoubtedly have changed.
Nice first TechCrunh article, by the way. Welcome!!
This is just starting. There are so many horrible business ideas out there and millions of idiots who fund them. If you read e-biz boards like http://www.f2bbs.com you’ll see just how widespread this problem is.
Welcome to TechCrunch, Sarah! Hope you’ll continue to post here even after your guest blogging gig ends later this month.
Good insights.
Great post Sarah… Especially good point about how XM and Sirius spent millions beating each other up before they let the market develop. Once we can get Pandora in-dash, it’s over for XM.
You realize that services like pandora and last.fm are losing loads of money? Highly unlikely that they’ll survive for much longer without a major business model change.
I have to agree – even throw in HD Radio while your at!
These companies need to put their resources all into the web; allow consumers to enjoy their content through the web device of their choice!
Sony doesn’t own Blu-ray… Blu-ray has sold more players in its first 3 years, than DVD did in its first 3 years.
Ding Ding Ding. Give this man a prize. You are 100% correct.
Like I said earlier. Whenever you mention Blu Ray people listen. Im sure the articles advertisers will enjoy all the attention. Great way to get your daily hit count up.
BTW. Blu Ray is here to stay. If you doubt that then there will be egg on your face (and mud on your shoes).
Nothing you’ve said changes the fact that upconverted DVDs satisfy’s all but the most stuck up videophiles and that the resolution quality can’t be easily picked up unless you have an absurdly expensive 50” inch screen.
Upconverted DVD’s look like crap. You are right about having a large TV being beneficial for spotting the difference, but not in the way that you think. If you bought an HDTV and cannot tell the difference between Blu Rays and upconverted DVD’s then you wasted your money on a tiny HDTV.
this article is way too long and reads like something Katie Couric would write: no true substance… Someone commented that Lacy is “a news parrot.” to which I would have to agree.
First Robin Wauters, whose writings are weak and, at best. unpredictable, now Sarah Lacy. Sigh!
I will not waste my time reading articles from these two….
Also Who is Sarah Lacy? What makes this person an expert (oh yes writes for a blog)
@Charlie keep wasting your time commenting on our stories though
Dude, what’s with all the hate all of a sudden? Is it me, or do tech ladies get less respect than the guys?
As far as the article goes, it was fairly well written (it was not the best one on TechCrunch, but it neither was the worst).
Either way this “long” analysis is worth it–especially when compared to Michael’s “Twitter” post (note: I loved the twitter post, but I love deep analysis more).
@Robin Wauters. Robin, I believe that Charlie’s comment “Robin Wauters, whose writings are weak and, at best. unpredictable” is about “your” articles, not “Techcrunch” articles.
You don’t seem to understand the difference, and, precisely, this is what would make you clueless.
I believe that what Charlie is saying is that he reads “Techcrunch articles” and not *your* articles. Hope this is clear enough for you…
Well whiz kid, I think it’s pretty clear that “our” in Wauters’s post referred to Wauters and Lacey, not TechCrunch.
Robin Wauters seems to be defending Sarah Lacy,,, this is sucking lame! Their articles are not worth of TC. Sorry.
Hey Robin! My man! Only 23 days to the conference!
We are five volunteers already who promised to try to wet your face à la Arrington… really!
The winner will get €350 and if there are two winners, they will split the prize….
We’ll keep you posted!
So basically you’re threatening to show me you’re all losers?
One thing: if you do decide to spit in my face, don’t run away afterwards.
@Robin
C’mon Robin! It is all for fun! and of course, to show you that you are not all that… meaning that you are full of yourself.
BTW, two buddies are coming from London – They just got the coolest videophones [Japanese] and they will use them to upload to the Net’ whatever happens to you at the conference.
Come to think of it, maybe you’d prefer a pie – Please let us know!
Believe it or not, threats from anonymous cowards on the internet don’t actually mean anything to me. Step up, or shut up.
I like the articles by Robin and Sarah,
Oh what? Go read the same recycled press release hash elsewhere?
Both attempted to win the post-war battlefield while the battle moved elsewhere
Yes the battlefield you are referring to is the Digital Download or streaming of movies that make up less than one half of one percent of all tv viewing. This is not a trend or a business success. No one is making money off DD.
How many people are streaming movies to their tvs. Very Few. Not the average movie watcher thats for sure.
How many people use Tivo or DVRs? How many people rent movies via PPV or watch something like Comcast On-Demand? (which is streaming behind the scenes)
Remember, CDs and DVDs initially launched to equally small numbers.
BTW, Apple and iTunes may currently have a small percentage of the total market penetration, but they are definitely making money selling TV shows and movies.
With Sarah Lacy as a writer, Techcrunch has become part of the “mainstream media” — Yikes!!!
lady, you haven’t got the first f*cking idea what you’re talking about.
hack
I think Sirius XM will survive, in some form or another. Once it emerges out of debt, the company is going to be very strong.
As for Blu-Ray, I find it interesting that regular DVDs are still popular. I think what’s happening here is obvious: Internet video is killing Blu-Ray. That’s the real story. And I don’t mean YouTube, I mean Internet delivery, like NetFlix, Vudu, or Hulu.
Jose, how exactly is Internet delivery killing Blu-ray? Blu-ray consumption is tracking well ahead of DVD at the same point in time. Sales of Vudu, AppleTV, and other boxes have been laughably small. Have you looked at the movies available for streaming from Netflix? All catalog titles, no recent releases, plus you get much lower audio and video quality and none of the bonus content. Oh, and if the ISP’s get just a tad bit more aggressive with monthly bandwidth caps (it’s coming), you’ll see streaming quickly become an unaffordable luxury for most.
Horrible post in every way. All of the examples given are ridiculous– diggnation, with maybe 25k viewers per year is a competitor with satellite radio, which has the world’s second largest subscription business?
You then go on to mention Comcast as a reason why Blu-Ray can’t succeed. Comcast is the world’s largest subscription business. So Comcast (and Netflix, I should add), a subscription service, can compete, but satellite radio can’t?
The reason satellite radio is in such a hole is that they had to build the entire business from scratch. Imagine if (to use another of your silly analogies) Facebook and MySpace had to invent the web in order to get their service to work. It’s a huge undertaking, but ultimately they have created a business which throws off gobs of cash. The restructuring (bankruptcy) was probably always coming, sure they would’ve preferred to do it outside of Chapter 11 and in a good economy, but that’s where we are.
Stick to the tech articles where a lack of actual business knowledge is less obvious. When you write about real businesses, you look a bit silly.
You might have some valid points but I’m not really sure since I never made it past the first few poorly written paragraphs.
Is this your first article? Don’t quit your day job – or at least consider night school in journalism.
If this sort of crap is going to become accepted at TechCrunch I’m going to have to find other sources of tech news.
There’s a major fallacy in this article that makes the entire conclusion moot. It wasn’t possible to launch satellite radio or blu-ray as a stand-alone product. Business reality and/or FEC and FCC regulations made it necessary to have competition. The author needs to study their history to write about… history!
Really, how can you not like sirius/xm radio?? Well worth the coin.
This is a horrible article. Stern brought in at least two to three million subscribers and kept them there, so let’s conservatively assume the average sub was for $10 (because new subs were 12.95 but each addtl. sub per household was $8) then using the low end of the scale, 2 million people at $10 a month is $20 million a month, and $240 million a year, while his salary is merely $100 million.
240 > 100 (for those keeping score at home).
People who point out that Stern makes a ton of money, without ever even contemplating whether or not the subs he brings in are paying for his salary (and then some), are being deliberately obtuse.
Aaron is correct, with regard to “the Stern effect.” Not only did he bring millions of (low churn rate) subscribers to Sirius, his signing resulted in millions of dollars worth of free advertising for Sirius, and brought legitimacy to the medium.
As for his salary, of that I’m not certain, but I do know the $500 million figure takes into account the costs of producing the show (staff salaries, studio costs, production costs, etc.), so his salary is much less than $100 million per year.
Haha-
I love the people who claim Sarah is not an expert. She is a well known writer guys, and she has a SHITLOAD OF PAST ARTICLES that she has written. What, do you think she snuck one by TechCrunch?
Sarah — Good article. Well written. Don’t listen to the haters.
Haha- Boris, any idiot can write thousands of words in an “article” –It is the substance, quality of content that counts. Wise up, dude,
@Matt Don’t be a jerk. Sarah is right on here.
I think that Sirius will be around a lot longer (thank you Liberty Media) and I’ve put $ on that. But that doesn’t take away from the fact that Mel spent a grip load of money fighting w/ XM for market share before establishing a proven market. And then to make matters worse borrowed another grip load of cash to buy out XM right before the credit noose tightened up (ok this is an oversimplistic view – FCC has part of the blame for timing).
But still the 2 points Sarah makes here are sound: establish a market before killing your own company and the competition, and don’t assume that b/c it happened one way before, it’s going to happen that way again.
Unbelievable. Where do I start?
First, the author attempts to tell us that she knows the business decision thought process that the backers of Sirius and Blu-ray followed. Clearly, she doesn’t. I’m fairly certain that the finance decisions made by the backers of these formats didn’t include “past trends will repeat themselves”. Instead, format developers are focused on the size of the market opportunity, the level of investment required to realize the opportunity, and the risk of the investment. Do we want tech companies to avoid these risks, or do we want them to pursue potential opportunities by developing new and better products and services? It’s easy to sit back years later and bash them for their cluelessness.
Next, the “guilt by association” fallacy. Because B has XXXX in common with A, and because A is failing, B will fail. No facts… just conjecture.
“Billions in debt and shareholder cash wasted”. Is this a fact? Please tell us how much cash Sony invested in Blu-ray disc. Please let us know the revenues Sony has made from Blu-ray products and license fees. Then tell us your forecast for revenues and profits over the life of the format, along with your forecast and business plans for alternative investments Sony should have made. Even with the benefit of hindsight, you can’t. Do you think the decision to include a Blu-ray ROM drive in the PlayStation 3 means that we should count every dollar of Sony’s PS3 investment as a Blu-ray investment? Do you still believe that Blu-ray = Sony? Or are you aware that Sony is only one of the many top consumer electronics giants that developed and back the Blu-ray format?
Lastly, like most articles on the subject, it ignores the interests of the content developers / owners, who have some say in how their content will be distributed. I’m glad Sara is enjoying her SD quality content through the fabulous movie download services that are available today. Nothing even comes close to the quality of watching a movie on Blu-ray disc. Not even HDTV broadcasts, or Comcast On-Demand. For the substantial market segment that has invested in a decent HDTV, Blu-ray is an excellent option. Blu-ray and rental are not mutually exclusive, BTW.
Some very major percentage of Sony’s PS3 investment was a Blu-Ray investment, because the decision to include Blu-Ray was so huge and damaging towards the platform.
The PS3 was delayed, had supply problems and was too expensive… all just because of the Blu-Ray drive in it. It has additional problems because of the CELL architecture and what a pain in the ass it is for developers. But overall, they screwed the pooch by coming out with a $600 console — much of which was due to the ~$200 Blu-Ray part in it!
Sony damaged their brand and their cash cow (the Playstation line), just to win a format war. That is a fact.
In any case, Sarah is right.
DVD transitioned to Blu-Ray quickly because it happened to be introduced during the time when HDTV was being rolled out. Blu-Ray was introduced at a time where higher bandwidth is being rolled out. By the time could ever be as popular as DVD, people will have 50-100 mbit to the home. They might even have that on their cell phone.
I don’t really think the problem is rental vs. ownership, like Sarah believes. The problem that blu-ray faces is the ease of content delivery over the net.
Good response Soon, Only Not Yet.
My point about the PS3 was that the decision to include a Blu-ray drive was separate from the decision to invest in the development of Blu-ray disc (which was decided much earlier). While everyone assumes that these decisions were joined at birth, these were clearly separate finance decisions. Adding BD to PS3 wasn’t done to push the BD format… it is a feature that helped to drive sales of millions of PS3s. Since the gaming console already had the necessary processing power and graphics output capability, the incremental cost of the BD drive could be justified by the benefit that BD playback added. While the cost was $200 or more when the PS3 was launched, it is probably less than $60 today (you can buy a BD drive for $99). In any case, the decision to add BD playback capability to the PS3 was NOT an investment in Blu-ray disc. This is not how Sony or any other company works. The group responsible for the PS3 is not in the business of helping some other group at Sony… it is responsible for turning a profit on its own.
Blu-ray “happened to be introduced during the time when HDTV was being rolled out”? What a coincidence!!! You mean, all those customers who bought a HDTV might be interested in buying or renting movies in high definition? Sounds like a good opportunity for a product that could fill that obvious demand. I wonder what the percentage breakdown is for the formats that consumers are buying or renting in high definition? My guess is that Blu-ray has 95% + market share, and that this will grow over the coming years. I don’t see other formats that will offer 50 Gigabytes of HD movie goodness… especially through a streaming service.
Now, on to the fallacy of Internet downloading. While it’s clearly the long-term winner, the question is when. Do you think we will have an Internet infrastructure that provides 50 – 100 mbit to the home nationwide in the next 5 years? 10 years? Will it handle a significant percentage of customers streaming movies at Blu-ray quality simultaneously? There is a big difference between broadcasting and multi-casting. Providing video to cell phones with 320×240 displays is not the same bandwidth problem as providing AVC or VC-1 at 40 Mbits/sec.
Is NetFlix inconvenient? No. We don’t necessarily need instant streaming of full-length movies and TV shows when we can set up a queue and have discs delivered next-day, waiting for us when we are ready to sit down to enjoy them. Streaming is essential for “real time” content like news, and it is great for short form content like YouTube clips…. but it isn’t an absolute necessity for movies. Very few people have anything connected to their primary TV that can connect to and display content from Internet services. Clearly this is in our future… but it will take a while before it threatens Blu-ray disc as a serious option for watching HD movies.
I have the sense that Sara and the other hacks who think it’s smart to bash Blu-ray have simply not bothered to try it. Once you go Blu-ray, you’ll never go back. If you can’t see the difference, you need a new TV or a new prescription.
“The group responsible for the PS3 is not in the business of helping some other group at Sony… it is responsible for turning a profit on its own.”
and
“Adding BD to PS3 wasn’t done to push the BD format…”
My understanding is that neither of these is correct. But, don’t take my word for it. You should ask some people at Sony as to how that decision went down. As an outsider looking in, I’m not the expert to ask, but from the stories I’ve heard, there are probably going to be books written about this decision and the politics therein.
“Blu-ray “happened to be introduced during the time when HDTV was being rolled out”? What a coincidence!!! ”
Sorry if what I wrote wasn’t clear… _DVD_ was introduced as HDTV was being rolled out in the late 90s. By the time DVD was in every home, HDTV antennae were already lit. The lifespan of VHS was much, much longer than DVD as a result of this transition pushing DVD out prematurely.
The parallel I was drawing to this is that DVD had a short lifespan because HDTV changed the expectation people have for entertainment. I believe on demand also changes the expectation just as much, and once the bitrate into people’s homes can match that of Blu-Ray. Comcast is supposedly already rolling out 50 megabit in some markets. That’s already higher than the bitrate of Blu-Ray.
I also think a lot of people aren’t thrilled about buying more spinning media. Netflix might be a buyer for Blu-Ray, but if they’re the only buyer, what incentive is there to support it?
Either way, neither of us can predict the future (at least… I can’t). Just a difference in opinion. I think Blu-Ray is very high quality, but I don’t see any reason that picture couldn’t be delivered over a wire (or, in the case of LTE, your cell phone).
It should be 43 cents/day, not 0.43 cents/day. I think you wanted to say $0.43 (i.e. 0.43 dollars/day), but then went back to “cents” to match the NY Times quote.
I practice bankruptcy law, but not on this scale. I see many small business owners that would be profitable if their debt load wasn’t so high. In a Chapter 11 bankruptcy, you would probably see both companies come out lean and mean on the other side. They might even be ripe for a pre-packaged Chapter 11 where they’ve already worked out the details with their creditors to stay in business. I don’t have satellite radio or a blu-ray DVD player, but everybody I know who does seems pretty loyal to the brand or format. I would say they are down, but now out.
String! Where Wallace at?
Whoa, are you really blaming Blu Ray for Sony’s financial troubles? Really? Just going to ignore the economic downturn and the strong yen and blame the whole thing on Blu Ray?
Is there any evidence that Blu Ray is causing (even a moderate proportion of) Sony’s losses?
Do you have any sales figures? I just looked on Amazon.com and the Blu Ray version of Amadeus was #3. The recent release of the Dark Knight sold close to 2 million copies on Blu Ray in the first week. That seems like a lot to me. Hardly a dead format.
People would now rather rent media than buy it? I don’t know if that is true, but let’s assume that it is. Why can’t people rent Blu Rays?
You assume Blu Ray is failing, but I don’t see any figures to back that up. My local blockbuster’s blu ray section is getting bigger all the time.
Also, another thing you didn’t address is that for someone who wants to watch HD video on a large TV, Blu Ray doesn’t really have any viable competitors. You list all the competitors, but none of them really provide HD video. You can’t really call Netflix a competitor because they rent Blu Rays. I am sure you ignored this fact because it hurts your brilliant insight(again backed up by nothing) that people would rather rent than buy.
Didn’t most of these things exist when DVD’s were at the peak of their sales? Netflix has been around since 1997. Ondemand has been around for a while. The only really new thing you mentioned is streaming videos over the internet which is great if you want to watch something on your computer by yourself, but doesn’t work so well for watching a film on a big screen with other humans.
You also list high-priced deals by HD-DVD, which ultimately failed. Do you have any proof that Sony made similar deals? If so, why don’t you talk about them? Doesn’t the fact that the losing format was willing to spend millions of dollars to get a leg up in the format war tend to imply that even at that late date, they believed that there was some value in winning it?
Maybe the real reason that Blu Ray isn’t doing as well as it should is that people are taking the word of ill-informed bloggers and avoiding the medium.
Here is a reporting tip. Instead of looking around your living room, seeing that you do not have any Blu Ray discs, and then assuming that the format has failed, use the google. I did a news search for Blu Ray sales. Here is what I got:
http://seattlep...1_bluray17.html
Here is an exerpt:
The evidence is in the format’s remarkable growth. After beating a competing format — the now-defunct HD DVD — in early 2008, Blu-ray sales tripled from the previous year, thanks in part to such titles as “The Dark Knight” and “Iron Man.” And that was in a Christmas season that was otherwise down across the board.
And while Blu-ray sales still are a fraction of those for standard DVDs, they’re growing even faster than DVD did in its early years. On Amazon.com, top Blu-ray discs routinely land in the top 10 home video sales charts. You can rent them at local video stores, and Netflix advertises more than 1,300 titles (but charges a $1 premium a month for the upgrade).
Blue-Ray is a winner, Sirius XM is a looser. This is what they do not have in common. I live in CA and listen to my favorite Russian radio stations every day in my car. The network – mostly EDGE (not even 3G), stabilty is 100%, quality is on par with Sirius while on EDGE and far better when on 3G. And it is free if you have unlimited data plan. We will be witnessing Satellite vs. 3G/4G Wireless battle very soon and guess who is going to win.
I guess if you are betting your business on an idiot like Howard Stern for content, then you deserve to go out of business. Seriously, does anyone actually not only listen to this crap, but pay good money for it?
It may not be your cup of tea, but he and Rush Limbaugh are the two most successful radio broadcasters of all time, any way you measure it. They’ve both brought in hundreds of millions of dollars in ad money, and Stern has brought in hundreds of millions in subscription dollars as well. Don’t confuse your taste with reality.
“Seriously, does anyone actually not only listen to this crap, but pay good money for it?”
20 million people pay for this product. Surprised?
without discussing the notion of substitute goods (even if only in jargon-free abstractions) and post-scarcity economics, this is really only a surface analysis: if you don’t know how to be profitable from day 1, you might never be.
Sirius may be in trouble, but they still have a valuable product that has a market. Maybe they (or someone else) can Internet enable Sirius units, or they could develop a serious Internet radio player with their original content and label deals.
The credit crunch has as much to do with Sirius’ woes as anything else. Economic tidal waves affect the weakest companies first. But weakness does not mean a lack of value.
Don’t confuse Sirius/XM’s financial troubles with the product offering. 20 million people are currently paying for Sirius/XM’s service and most of those people are passionate about the product. That’s hardly a failed product offering. If the rumored $250m loan from Liberty Media comes through, Sirius/XM will weather this storm.
I think Blu-ray will be fine. It’s taking a little longer for the prices to really plummet (due to Sony being idiotic and not acting quickly enough in contrast to rising ISP speeds).
While it won’t be what CDs or DVDs were relatively, I do think Blu-ray/BD will be generally successful. There are a whole lot of HD TV owners out there who do/will want to actually utilize what they own. And that can only be done with BD or downloads.
The web is littered with the bodies of pundits who tried to write artifacts about Blu-Ray’s demise and failed.
For years, it was BD had more expensive optics, had slower replication times, disks more prone to scratch, HD-DVD was going to eat its lunch on economics, cheap Chinese players, WalMart kiosks, hybrid-disks. BD was going to lose on content. H.264 wasn’t ready for prime time. Yadda yadda yadda.
Go read the last few threads on AVSForum, filled with industry insiders a lot more knowledgeable than Sarah. Even people in the CE industry and in Hollywood were arguing HD-DVD was going to win, and yet somehow, they were all wrong.
And now, the same clueless people are arguing that all along, DVDs were ‘good enough’ and no one can tell the difference between upconverted SD and HD, and basically, that all of their pro-HD but anti-BD positions were wrong.
The true nirvana is crappy digital downloads, without bonus features, alternative audio tracks, or multi-language subtitles which take long times to download, consume ample amounts of hard drive space, and vaporize the minute the DRM authorizing servers go down. Crappy digital downloads from incompatible vendors, with custom non-interoperable protocols, DRM systems, etc
You see, you should trust what you read on this website, because as everyone knows, TC knows how to pick winners. That’s right, because everytime a new Web fad appears: push tech, portals, AJAX, blogging, microblogging, social networks, cloud services — about 1,000 poorly funded flyby night companies will hop on board the bandwagon, and TechCrunch will be there to proclaim them the next amazing world changing thing, Google killer, etc.
And sooner or later, like a psychic predicting earthquakes in California, they’ll be right.
Unfortunately, the error rate of “insightful” editorials on this site is probably worse than a coin toss.
Why not compare Blu-Ray and Sirius XM with the money burning Twitter?
Twitter gets praised for burning money?
But worst of all, when Sirius and XM merged they got rid of my favorite punk channel. Alas…
Congrat’s on your first post as the guest of honor at TechCrunch, Sarah!
I don’t know anything about Sarah, but what she wrote was interesting to me because it made me think, and it certainly led to a great discussion in all the comments, and that is a good thing. Sirius, Blue-ray, and Howard Stern are all very hot topics right now and I see nothing wrong with her writing about them. She is just giving her opinion. Isn’t that what blogs are for?
I hope that Sat radio survives even though I can be blamed for part of the downfall as I was once a subscriber that cancelled my subscription. When I was communting three hours a day Sirius radio was a blessing, but when I changed jobs and cut my commute to 10 minutes a day it wasn’t worth the cost any longer- especially when there were plenty of free stations of quality available to me (Atlanta market).
I do hope Sirius Xm survives because it is still a great service for those with long daily drives or folks in areas that don’t have great radio offerings – think Homer, Alaska or Detroit.
SIRIUS XM Radio and Liberty Media Reach Agreement for Investment http://bit.ly/viFP0
Greg Maffei, president and CEO of Liberty: “SIRIUS XM’s ability to grow subscribers and revenue in a difficult financial and auto market is indicative of how listeners view this as a “must have” service.”
I love that beautiful blu ray images when i pop one into my ps3
Sirius XM should figure out a way to offer the service free with ads then recycle and repackage radio. There is big business in hotels, telephone, transportation, gprs, widgets for satellite radio. They need a new rev model. One idea, they should offer in various languages a music widget with ads like Batanga radio. If you have hypothetically 40 million widgets being downloaded and added to blogs and websites, that is big business. With a adsense, Yahoo , Msn it could be intense. Also blue ray has to offer more affordable prices as well. To change format to the masses they have to cut prices to increase dvd sales or offer more DVD downloads via the net.
I remember being at a BBQ a couple of summers ago and there was a discussion about HD vs BluRay. Most of the people were firmly on the BR side, and quite excited about having High-Def movies on disc.
Now the reason why they liked BluRay over HD was… pure marketing. I heard things like “the quality on BR is better. BR has more capacity.”
Forgot if any of the above is true (yes BR discs hold more data, but they use the same codecs, so I didn’t understand the image quality thing). The REAL news here is that NON-GEEK PEOPLE WERE TALKING ABOUT BLU-RAY AT A BBQ! People are genuinely interested in owning movies and in HD quality. And they will even re-buy movies they own in SD DVD to HD DVD just like they did with VHS to DVD.
I don’t fully understand this article’s intention of comparing Sony with Sirius. DVDs are a proven money making winner; Satellite Radio is a new concept where the previous model was FREE to the listener. Both spend an exorbitant amount to promote their brands but Blu-Ray is here to stay. They get a fee every time another company releases a Blu-Ray DVD. In the end, did Sony pay too much to win the battle vs HD?
The main competition is new media — streaming video via IP, full downloads, bittorrent (piracy), etc. There are a good number of big companies trying their hand at supplying movies. It is a good thing people like to own a physical copy of the movie they just paid for, but with each new generation they get used to doing things a new way. Kids are born using computers and the internet. They don’t even use CDs anymore. It’s all about mp3 and digital. Sony needs BR players to come down in price a lot, and NOW so they can reap some rewards before these emerging services take off.
Another point of about Sirius/XM- it’s available over the web as well. Since true web-powered audio in your car is at least 10 years away (and even then probably not in rural areas or in large swaths where it doesn’t make sense), I’d say they have a pretty good opportunity to make it either way.
Are there examples of companies or technologies that require incredible up front investment, and then succeed?
I’m having trouble thinking of any companies that start that way. My first thought was General Motors, but it cobbled together several small car companies who were already successful. Most companies that start with too much money end up like Taligent – they develop a fatal internal politics, more focused on satisfying their initial investors than focused on satisfying customers.
I think Sarah makes a good point about Sirius – this is not the way to start a company.
Technologies are a little different than companies.
While it is easy to think of a lot of technologies that got obscene amounts of funding and then failed, I can also think of a few counter-examples.
The OS/360 project at IBM, circa 1965, involves one of the most famous budget overruns in the history of computers, yet IBM pushed on, stubbornly, and eventually the project helped secure IBM’s total dominance in mainframe sales.
It is interesting to remember some of the technologies of the 90s. There were “push” technologies, which many companies tried to promote, though Marimba was more associated with it than any other company. There were also new “document-centric” technologies. I recall reading long articles in MacWorld, circa 1995, about how all current operating systems were application-centric, but in the future all operating systems would be document-centric. These were technologies that received a lot of investment, and they received a lot of attention from the press. Very little ever came of them.
Blu-Ray doesn’t seem to belong to this class of vaporware. It has actual sales, actual fans. But how long would it take to earn back the money spent on it so far? I think Sarah Lacy makes a good point in #2, this could be a great business, but the initial roll out has been poorly handled.
I think Point #2 applies with special force to Sirius. Surely this could have been a viable business, but the company has been sunk under the weight of the heavy up front deals that it committed to. Poor cash management, which is an inevitable side effect of starting with too much money.
“The reason satellite radio is in such a hole is that they had to build the entire business from scratch. ”
That is, of course, a perfectly valid reason to criticize a company. You describe the reason why first movers often end with permanent cost disadvantages relative to those companies that start second, third, fourth, etc. Companies like Amazon.com, that seem to get a areal advantage from going first, are the exception, not the rule, in business.
Sarah, while I applaud you on getting a guest blogger/writer position here – you’re going to have to do a lot better than that with this audience.
You’re trying to compare two entirely different markets with two entirely different approaches to market segmentation and draw some type of parallel.
SiriusXM has a problem because they forgot that they needed to charge enough money on their service to cover their operations. They are a subscription business – the model is clear. Time to get that SG&A down to where it should be for the revenues the company actually generates.
BluRay is actually doing fine in the market. It has been selling ABOVE the curve of DVD.
Both technologies are suffering from a simple microeconomics problem of left-shift demand caused by dropping incomes. Unfortunately for both, that shift is coming during their growth phases when they really need to expend more capital to get their critical mass for the next set of consumers.
That said, SiriusXM has a business problem of never really being necessary or demonstrable unless you had the service in the car. I just purchased a vehicle this year that allowed be to even experience it. Before then I wasn’t worried about it. Even now, I don’t see the point of spending money just to not have commercials and if I want better music my new vehicle has an iPod interface so I can listen to what I want without a monthly subscription fee. Since there is a near-peer substitute, why would I pay for SiriusXM.
The BluRay player is probably the last optical medium the market will see and its a good one with support from all of the manufacturers in the market. You can’t go into an electronics store without seeing them and they are getting cheaper and they are going to keep growing in number. Marketing and consumer behavior trends have already shown us this market shift. BRD may never reach the height of DVD, but it certainly won’t be a business failure except to those who don’t understand business. There will continue to be a market for optical media for at least another decade. Hell we JUST got rid of VHS.
So while your comments are interesting, you’re going to have to really step your game up around here. Random rants with nothing but conjecture to back it is not the best way to stick around.
@Sarah nice to see you on TC! One could argue that Sirius and XM had to spend the money to get the market started. Mel launching satellites can’t be done as easily or cheaply as Mark getting his Harvard buddies to log onto his new website: facebook.
But I agree w/ you for sure on market before market share and not ignoring your balance sheet. – Thanks for the article, look forward to more of your unique perspective.
“Both technologies are suffering from a simple microeconomics problem of left-shift demand caused by dropping incomes. ”
You meant to write “There is a recession.” For some reason you preferred to use 17 words instead of 4.
What do a lightweight ‘journalist’ and a lightweight ‘analysis’ have in common? (Hint: Nothing good.)
Sarah, great first article.
I’ve been following your columns/articles for about 3 years.
There is one difference between Blu-Ray and Sirius that was overlooked.
Sirius XM does have some programming that is not available to customers in any other way plus, it was to be commercial free.
However Blu-Ray is just a “shinier new penny” in the DVD world. Since most people don’t have a TV that can take advantage of the higher resolution, soem that have purchased Blu-Ray players are sheeople who’ve been duped into believing Moore’s law exists for anything technological.
I remember in the beginning, they said satellite radio “would” have NO commercials (a plus for me). Have you heard the volume of commercials lately? I’m just waiting for the Sham-wow guy to show up. Satellite also hosts cutting edge shows and exclusive content. Remember the David Lawrence Show? It is hard for me to catch in Texas without satelite. Stern. (lets not discuss if he was overpaid or not, some think it was an advertising gimmick, etc) ESPN Radio
Both are going to suffer in this economy as people re-define important and necessary expenses.
Unfortunately, Obamanomics and the economic bailout won’t help these two that much. Perhaps Sirius XM a bit more, as bank liquidity might allow investment to flow in.
-James
If only every post on tech crunch was this great…