XBox One TV : Hero or Goat?

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Another Microsoft product unveiling came and went, with the boos, cat calls and derision (sometimes warranted) that accompany many things Microsoft. Somewhat without precedent, Microsoft messaged this as the Future of TV (i.e. gaming bringing known success in interactivity to TV), trying to triage two camps (TV and Gaming) that aren’t known to be mutually affectionate. Promptly, the TV crowd accused XBox One of being an erstwhile Google TV doppelganger with a somewhat awkward HDMI pass thru overlay on traditional TV. And the gaming crowd, used to being somewhat aloof from TV, didn’t appreciate playing second fiddle to TV. Not to mention, in a business where hardware horsepower is digital testosterone, Xbox One seemed like a strict subset of the PS4 (thus, Xbox One is also a PS4 doppelganger, a day late and a dollar short). Yes and yes notwithstanding, here are a few reasons to take XBox One seriously as both a TV play and a second screen play.

 

Xbox and TV.

  • It may seem like with the HDMI pass thru XBox is trying to ‘play nice’ with traditional TV the way Google TV did, but it isn’t. If XBox’es strategy is to circumscribe TV and (over time) devalue vanilla linear, HDMI pass-thru is an offensive move, not a compromise. Furthermore, it’s a clever business move from the point of view of channel partners such as National Geographic, ESPN or NFL – they can still get their traditional revenue from the traditional subset of TV, while pursuing higher risk/rewards streams (and richer analytics) around Fantasy and interactivity with a device that has the horsepower to do this really well.
  • You can take a half full or half empty view on the One announcement around harmonizing gaming and TV. The half empty school would point to a past high profile attempt involving Peter Jackson that fizzled. The half full school would point to the hire of media executive Nancy Tellem who is no stranger to unconventional+success (e.g. Survivor), and the fact that the Halo TV series is backed by Steven Spielberg. Additionally, the sale of their perfectly functional IPTV business to Ericsson would suggest that this is a high conviction bet for Microsoft.
  • Further while, gamers are a different kettle of fish than TV watchers – they influence TV watchers (as your son might influence you). If new forms of storytelling emerge, a conversion of any significant fraction of the 77 million member community would immediately move Microsoft to Tier-1. And this assumes the Xbox One community to be zero sum, which it won’t be if the content is any good.

Xbox and the Second Screen.  While XBox One wasn’t a second screen announcement, it has some pretty strong ramifications on the second screen market:

  • Firstly, it will raise the bar on what second screen competes against. It’s not tablet vs underpowered browser – it’s tablet against a kick-ass piece of hardware running rich graphics on a 70 inch screen,  3 operating systems that switch on a dime, and 3 forms of content with existing ecosystems.
  • Second – XBox One’s Snap feature blur’s the line between screens and windows. You can have two Apps on one screen (Snap mode), two windows on two screens (second screen), 3 windows on 2 screens (second screen a la Microsoft Glass + Snap), ….
  • Third – given that game developers have a culture of creating high quality derivative content (content ownership battles notwithstanding), XBox One could jumpstart a broader culture of creating second screen content (something I’ve pointed out in a different context as a barrier to second screen uptake)
  • And last but not least – just as the advent of smartphones is leading to mass-market smartphones, there could be a longer term demand equation around set-tops that incorporate some of these capabilities (e.g. casual gaming) in a lighter but more mass market fashion.

In the meanwhile, we have E3 and other upcoming shows to unveil if Halo TV is good, bad or indifferent — and of course the tea leaf reading around the XBox One ship dates.

Second-Screen Advertising : A Tale of Two Assumptions

Fresh off completing a second screen ad study on a notable TV show .. (you know, the kind where you go in with a ‘lets-confirm-or-deny-what-we-think-we-know’ and come out with some of .. ‘hmm-now-we-know-what-we-didn’t-know-we-didn’t-know’). Wanted to use this moment to reflect on a topic of much procrastination — the emerging economics of Second Screen Ads. So here goes — with the caveat and adapted Yogi-ism – 90% of all prognostication is 50% mental.

As with any emerging market, Second Screen Ad prognostications are heavily dependent on your assumptions, which might include:

  • Pace of growth of TV Apps Ecosystem in both volume and ‘share of TV eyeballs’
  • Emergence of new Ad Units. Surely there’s more to second screen ads than banners & videos. Something that matches the increasing computing power of tablets, and the increasing short spans of focus on any single screen at a time. But what this is is anyone’s guess – and until then, there’s banners and click-thrus.
  • The relative valuation of new Ad Units to the incumbent ones. What should the base case of the Ad Unit revenue breadown projection? Banner Ad or more? CPM,CPA,CPC,CP(TBD?)?
  • The Trajectory of ‘input costs’ – What assumptions should be made about the costs of creating large varieties of ad units for the same campaign.
  • Analytics & Reporting. How about the potential ‘apples and oranges’ issues of adding up the engagement across devices, exposures and interaction styles into something simple and tractable.

Given a position on the above, we have sunny side uppers, the whoops, is that a Chasm I see? crowd (harkening back to the Gorilla Game), and the umbrella-carrying sun worshippers.

  • Sunny Side Uppers The assumptions made by sunny side uppers such as this, focus on the *potential* total addressable market. If you take the best case – a) 80% of all (4 billion!?) TV watchers have TV Apps running on their tablets while they watch TV, b) their TV App dwell time is a significant fraction of the program length, and c) their dwell time is handsomely rewarded by some unspecified but superior-to-banner ad style, with a lucrative ‘action-per-thousand-eyeballs’ metric.
  •  Whoops, is that a Chasm I see?  This school of thought is that a large pivot needs to happen in the second screen space before early adoption turns into revenue. Some studies point out that actual second screen use is close to 10% than 80%. This is in line with VC Fred Wilson’s 30/10/10 rule of thumb for any App (TV or non-TV). If you go with Fred’s rule, less than 10% of your app downloaders are active users, and about 1% of your downloaders might be on concurrently (for Social TV or Social Ads). Combine this with my earlier blog (pie chart included below for convenience) showing that most apps have 100K downloads or less – and you have an ad targeting over 10K users and social experiences across 1K users. Not that 10K is a small number, but nowhere near enough for banner style ad economics to add up to more than a month’s rent on a studio apartment.

TV App Graphs

  • Umbrella-carrying Sun Worshippers There is a ‘third way’ – one that acknowledges but triages the best of both the above. It acknowledges the ‘chasm’ view that getting the cross product of app eyeballs and dwell time in the millions isn’t exactly around the corner. However, the sunny side school does have a point that new ad categories may change the economics away from the obsession around eyeball counts in the millions and trying to conjure up large $ numbers from minuscule web by CPM’s. A number of companies are working in this space without yet showing their hand, and a maybe plus a perhaps don’t add up to two is’es. However, between YuMe’s award winning multi-screen ad units, and Adobe’s multi-screen ad inventory management, there are in-market examples of tangible current products trying to create a superior ad experience, nuanced analytics .. and therefore a more viable economic base.

And in the process of building a viable economic edifice for multi-screen TV, second screen ads could blur the lines between ads and content, click thru’s and audience participation- and in an oh-by-the-way manner, commoditize user panels. After all – why ask a user what they would do, when you can know what they do..do.

The State of TV (2nd Screen) Apps : The iOS View

In an earlier post, I talked about the State of Second Screen Apps on Android. No discussion can be complete without an iOS equivalent (after all, they were first off the starting block, and still the first target of many app developers). Not surprisingly, measuring TV App activity on iOS is a different set of challenges than Android.

  • On the ‘iTunes wins here’ category – unlike the Android marketplace API tediousness, iTunes provides a simple market query interface and a no-muss, no-fuss JSON structure in return. 
  • Conversely in the ‘ah, typical Apple’ category – getting iTunes download counts is like pulling teeth, where Google Play was happy enough to give one qualitative Android download numbers without much ado. ..

Given that the download numbers are kinda important (in fact, kinda the point) – one is left with two choices on inferring the download numbers.

The first alternative is to use this marketing heuristic of estimating the number of downloads as 30 times the number of user ratings. In addition to my skepticism of any such one-size-fits-all formulas (Occam’s Razor notwithstanding), this has been verified only for Paid Apps. And the number of TV Apps that are paid is not large enough for this inference to be useful for that population.

The second alternative is to combine iTunes metadata about Apps with a bit of web scraping from app search engines such as Xyologic. This idea has legs, but the effort is significant, especially as Xyologic is only one of several App search engines and likely not the gospel truth.

Here, I settle on the third alternative – a hybrid of the previous two. As with the first approach, I apply a static multiplier from # user ratings to #downloads for any TV App. But as with the second approach, I sample Xyologic data to calculate this multiplier for each of the following quantized range of downloads : <50, 50-10K, 10K-50K, 50K-250K and >250K downloads. The quantization is just as well – as it turns out that this multipler is a) signficantly dependent on the download range and b) different for each download range.

The table below shows what multiplier needs to be used on the number of user ratings returned by iTunes for a particular download category, to arrive at a download number resembling what Xyologic provides.

iOS TV App Downloads

Eyeballing the multipliers :

  • It’s intuitive that the multiplier should decrease with more popular apps (as it does here). A lower multiplier means more comments per 1000 downloads, and popular Apps are likely to have more engaged users and therefore a greater proportion of user reviews. 
  • The multiplier of 180 for the [10 to 50K] download range is roughly equivalent to 5 reviews per 100 downloads, which is also the average reviews:download ratio on the Android TV App Marketplace (as I described here).

Combining this model of calculating downloads with the iTunes ‘TV App’ data, yields an App population (with clean records) of about 633 Apps. The App distribution  looks something like the below.

iOS TV App

Somewhat surprisingly (or not depending on your p.o.v), this looks almost identical to the distribution I published earlier on Android TV Apps (and re-included below for visual convenience).

android TV App

The similarity of the two datasets might arguably increase the credibility of both datasets (unless they are erroneous in remarkably similar ways). A intuition around for the similarity across platforms is that:

  • most serious App developers have both Android and iOS offerings
  • they take the platforms equally seriously and do about as good an execution job on both platforms.
  • but it could also be – that App popularity is a function of marketing budget, and not platform – as the predominant way of finding TV Apps (as opposed to regular apps) is still via the program, not via search engines such as Xyologic, Hunch or Play.
  • it could also be that the quality of a TV App experience is driven heavily by access to supplementary TV content (all of which is a walled garden). And the range of app developer access to TV content is somewhat agnostic to the App development platform

These and other related conundrums will be the topic of a future set of musings.