ONE OF THE FIRST EVENTS I attended in this industry was a Christmas-timed "convergence party" at a company called Digital Renaissance in the fall of 1997.
This company and other like-thinking enterprises were about to change television as we know it. The revolution was afoot. I remember a bunch of high-ranking Bell Canada people were there, so we mostly took it seriously. There were many breathless chats about how TV as we knew it was over.
Well, as we all now know, that talk wasn’t technically wrong. It was just waaay too soon.
However, Digital Renaissance weathered the explosion of the tech bubble, changed its name to ExtendMedia (an apt description), and stayed the course, with founder Keith Kocho convinced that consumers’ consumption of content would change – dramatically.
Now, that time has arrived. ExtendMedia, through its OpenCASE product, delivers digital media infrastructure solutions for content owners. OpenCASE is a flexible content service management platform that allows companies to provision, secure, package and monetize digital content offerings. With metadata and asset management features to go with DRM policy, syndication, billing, and consumer profiling, the company’s customers include Bell Canada, Corus Entertainment, ESPN, Sony, MTS Allstream, and WWE, for example. 
If anyone is going to be hooked into the future of television – and can come at it from a pretty independent place, since Extend’s customers are content owners and distributors, it’s Kocho (right). Last week he talked with cartt.ca editor and publisher Greg O’Brien about his company and how P2P just may have a bright future in TV distribution. What follows is an edited transcript.
Greg O’Brien: I’m sure you’ve answered this question before but given what’s happened in the space you’re in and the number of companies have come and gone, you’re still here. Why is that?
Keith Kocho: Luck. Planning. It’s a series of things. On the positive side I would say that we were aggressive at the beginning of the downturn trying to restructure the business. It was very painful. Up until that point you know I never missed a paycheck, never let anybody go.
And we were suddenly in a position where it was abundantly clear that the market was going south in a big hurry, so we took the approach of getting out in front of the cost cow very aggressively. Frankly we had a lot of bad press, but I’d attribute that to the fact we also had good press going up.
Actually there were a few things that happened that were in our favor, on the expense management side that just worked out. If they hadn’t we probably would’ve gone through more difficult times…
In our case what ended up happening was when we went through the downturn, we decided that instead of trying to reinvent the business or get aggressive about trying to rebuild it, the toughest decision that I had to make was to convince the board and investors we had that we were just going to sit tight and not try to grow. We did that for awhile and we were profitable and had good solid cash flow.
GOB: It seems that what was talked about back then was too early but it’s kind of coming to fruition now in a bit of a different form but it’s coming to fruition. Is that a fair assessment?
KK: Any of these things are cycles. We’re in an area right now where we’re principally focused on people’s consumption of content on IP. Fundamentally, that’s really what it’s about.
It’s about not just the Internet obviously. Slingboxes that are connected to IP, cell phones etcetera, etcetera. It’s still a really early market; distinctly early. There’s not a lot of money being made by people consuming content on IP, porn notwithstanding. There will be more of it and it’s going to grow and what’s different about it now than was the case five, six, seven or more years ago is the technology is actually mature enough to do it. If you look at the success that Apple’s having with iTunes both with sale of audio and video, it’s very clear, and they’re just one example but they’re a good one, of where this space is going to go, and that will have an impact on your (readers).
It’s not fear-mongering. I think most of them understand that there’s a requirement for them to augment the way they deliver content, the way they cut deals for content, to be able to give them flexibility to target different devices, have more flexible pricing models and recognize that they’re going to face new, largely unbridled forms of competition from companies like Apple and the portals (Google, Yahoo!) and so on, by the time we’re at critical mass stage with this kind of technology and demand in the market the regulatory department will be meaningless.
So they’re going to have to face the fact that an Apple or whatever will compete for on demand content business with Rogers for example. I mean it’s just going to happen.
GOB: How long do you think that will take?
KK: Well… if it’s three to five years, which is probably reasonable for critical mass, that’s a pretty short period of time in the window of these businesses.
So they’re arguing now, not domestically, but in the U.S.
GOB: Oh yeah, there’s lots going on in the States and too little going on here in terms of multiplatform.
KK: For the most part (Canadian media companies) generally tend to watch the organizations in the U.S. and let them bloody their foreheads on market development – and then develop what works, and that’s fine. It’s good for the businesses it’s good for their shareholders.
GOB: Is there time to wait, though?
KK: I don’t think I ever was one of these guys running around saying if you’re not on the Internet your business is going to die, but just look at the CRTC’s hands-off decision on mobile content. The Commission is facing consistent criticism from the industry itself – not that it hasn’t for years – but the downloaded pressures that they face in terms of not being able to regulate the Internet broadly stated, with WTO regulations etcetera, and the pressures they’re going to face just from the overall business climate, if it’s very clear that as IP-delivery keeps up it’s almost impossible for them to police anyway.
GOB: I’ve got a Slingbox at my house, for example, and that can let people bypass the system.
KK: Right. So the technical end of the equation is that the distributors need to become more sophisticated and try to figure out how to get ahead of the curve and adopt those kinds of technologies.
The usual response to these things is that people are afraid of them, Sling, P2P, that kind of stuff and then it happens the operator goes: “That screwed up our network, let’s throttle them.” Instead what they should be thinking is "what kinds of things can we do to make this a profitable venture for us? What sort of business relationships, what sort of things do we need to do for consumers to get ahead of this trend?"
I think the domestic environment will be very challenging. With the physical distributors, there is always ongoing dialogue about them being a ‘dumb pipe’, and I don’t really think that. If they’re smart and move aggressively and update things and are able to manage and deliver, it’s complicated to run businesses like that. Network businesses are hard. You can’t just get in to them and operate them easily.
So, if you’re a content owner and you think that you want to go direct to consumers, there’s a lot of things you need to figure out.
GOB: Which is what your OpenCase is about.
KK: It is. But we also support the distributor community in the same way we do the content owners. From our standpoint, they each bring different core competencies and or rights and assets to the table. One would argue that the content owners – the guys that owns the rights – are better at marketing their product.
GOB: I noticed on your client list there’s no traditional over the air Canadian broadcasters. Does that say anything about where you think future of TV is going?
KK: People most keenly interested in the short term are those who actually own the content rights and the problem with trying to do anything in IP is that if you don’t own the rights for that, you really can’t do anything. And the (over-the-air) broadcast community – they don’t have rights to do that (for its U.S. programming).
GOB: And that’s why you can’t get Lost or Desperate Housewives or whatever online up here.
KK: And you won’t unless they pay a fair amount of money for it, which is unlikely in the current market conditions. So, you probably will see all kinds of things happen, whether they be start ups that go spend the money to acquire those rights and try to chip away at the business or you’ll see the studios or the U.S. (content) aggregators get the rights to do it here in Canada.
The Canadian broadcasters face two issues. They have the one that we just talked about which is how do you possibly play in the IP game if you’re a aggregator in the broadcast space. The second one is their big businesses is advertising and that (market is) changing rather dramatically. It is going downhill fast – from their perspective, really fast. It’s a hard business in an on demand world.
GOB: Look at the upfront TV ad market that’s going on in the States right now. Johnson & Johnson has said it’s not going to buy any up front and has reserved its TV buying decisions for the fall, and you know that sent shivers through the U.S. industry – and through the Canadian one.
KK: Broadcasters have got to figure out ways to embrace the new technologies in the market and more aggressively target customers.
We’ve got a story for them. We’re not quite ready to go to market with it yet but what we want to talk to them about is how on demand technology – targeting and so on – can help their businesses. That’s the main thing for the broadcasters to begin to understand. All this stuff with Lost and Desperate Housewives is just time-shifted programming. It’s on demand stuff. You can sell advertising against that.
One might argue those are the exact steps the domestic networks need to take in order remain relevant – to provide that time shifted, on demand content. But you’ve got to pay for those rights. In order to pay for those rights you got to generate some form of ancillary advertising revenue.
GOB: I wish they were doing it more with their own content. CTV has a distributor agreement with Corner Gas and they do things with that show and Global does a few things with its national news but with the content that the Canadian broadcasters own, I don’t think they’re doing enough.
KK: The thing is there are so few… commercially viable Canadian programs. That’s the problem. It’s an economy issue. If the stock market is going to reward the aggregators like Global and CTV who are going to be paid on advertising sold against high profile U.S. programming… that’s why the market goes the way it has and I don’t think that’s likely to change. I don’t want to get on a soapbox about regulatory and supporting culture…
GOB: The industry will be getting in to that later this year with a TV policy review that has yet to be announced.
KK: It’s an on demand world now – so that whole notion about being able to structure and regulate is gone. You can’t stop people… because the technology and the tools are there. They’re used to the flexibility of “I want what I want” and any notion of trying to propagate that universe with content that people won’t find commercially compelling and expect it to succeed in some way is just nonsense.
You could still do it if you find that it’s a cultural, domestic imperative for us here in Canada, but don’t expect it to be of any commercial relevance.
GOB: Right. You mentioned search earlier and that’s one of the things I wanted to ask you about. If everything is going to be on demand and the interface on my PC and on my TV are two different things both equally with their points of frustration – how is the search aspect going to get better for consumers?
KK: I would say everything will be up to them. I mean that’s really the driving force behind what we’re doing. For certain kinds of content there will always be a live component, but increasingly I think we’ll see that become very, very isolated to things like, sports, news, live acts. Other than that I think you’re going to start to see programmers play around with the notion of what “live” means or "scheduled" means.
We’ve had discussions with studios that are thinking about pre-releasing popular programming on line, on demand, that hasn’t shown up on broadcast. It’s a weird notion that changes the whole release window model entirely.
We’re going to see a lot of experimentation with the notion of what “scheduled” means. So the differentiation, I guess, is that anything that can be scheduled will be played around with on demand and moved – maybe not exclusively to on demand – but the difference between scheduled and on demand for stuff that doesn’t absolutely have to be live will become pretty blurry because you won’t really have any idea where it’s coming.
Peer-to-peer (P2P) and its impact on live programming and search, and the question about making those tools available, we would characterize is helpful to a consumer. Peer-to-peer is a very interesting technology in that regard – but it’s typically looked at by network operators as bad for their network because people are consuming too much bandwidth. Content owners look at it as "piracy."
In fact, as a transport, peer-to-peer is very interesting. It’s democratic in a couple of very powerful ways. One, it’s very democratic about bandwidth, so it’s much more cost-effective to distribute large things using peer-to-peer. Mesh technology is much better than point to point distribution. It’s cheaper, more cost effective – and as a corollary, (P2P networks) are also very democratic in the sense that they, by virtue of what they’re delivering, helping to figure out that which is popular.
If you can see what’s popular as a programmer and if you can see what’s popular as a consumer it also is easier for you to get because it’s more popular. That will have a big impact what people watch, how they watch it, how they find it.
So, you hear a lot about the notion that search technologies don’t make sense in 10-foot interfaces when there’s a remote control and you sit back, but fundamentally the market we’re focused on is most of the consumption devices as they predominate the market over the next three to five years are all computers anyways.
GOB: That’s a very interesting idea because when it comes to peer-to-peer, cable operators generally don’t even want to talk about it on line let alone using it to distribute television.
KK: I think it will happen. They’ll have to do it, eventually. You can do P2P with QoS so you can, arguably – and there’s a lot going on in this area – stream live content using P2P… and do downloaded on demand content with P2P.
The more popular it becomes, the operators are going to have to wrap their heads around the idea of incenting customers and creating engagement with customers because there’s two dimensions to the P2P issue. One is the bandwidth, the other is the storage, so one of the things we’re going to see over the next couple of years is that the amount of home storage is going to exponentially outstrip that which the operator will have the network.
I’ve got a couple of terabytes in my house, for example. As you get more PVRs – and every PC that ships over the next 12 months will probably have close to a terabyte of storage in it – then if I’m an operator I can say: "okay you’ve got two terabytes of storage and this bandwidth into your house," what I want to be able to do is if I know that I’ve got a node with 500 people on it, and I now know that 10% of them want to order this movie or this service or whatever it is, and I’ve already got it in 5% of those homes, isn’t it better for me to distribute within that node using P2P?
GOB: It’s the BitTorrent notion, right?
KK: Right. We’ve incorporated BitTorrent in our products. But there’s that notion of swarming capabilities, so you have to use the protocol in a way that has advantages for either the content or the distributor. And in our case it’s both. It will offer the content owner the ability to do what we’d characterize a super-distribution, so (the producer) would print the movie and just put it out. People download it but they can’t use it unless they have the license from you.
KK: But it’s all over the place. So anyone can download Spiderman II for example, but will have to go to the content owner to get that license.
GOB: Then they just pay whatever the fee might be.
KK: The other angle for the distributors is the kind of thing I was talking about – about "share my library." What you want to do is embrace P2P and start finding ways to have more sophisticated management on your network that lets you embrace what consumers are doing with it. You give them commercial incentives and security to control it for them.
That’s what will be appealing to people. All this is a chess game so right now the operator’s saying: “Well there’s too much peer-to-peer traffic. You’re bad. throttle it.” What does the consumer do? “Okay screw you. We’ll go to VPN” And then you can’t see what they’re doing.
(P2P) is very popular. It’s also incredibly efficient from an operator perspective, to deliver services that way. If you can create some kind of commercial covenant with the consumer that would be advantageous to yourself and them at the same time, and you get to manage it…
GOB: Then the hubs are in people’s homes.
KK: Right.
