Thursday, July 07, 2005

Google’s high-volt vault into VOD

Google and a few of its friends have decided to short-circuit the middlemen and plug directly into your electric company to sell a full range of broadband services, including potentiallly limitless video on demand.

While cable and telephone companies long have scrambled with varying degrees of success to become full-service, triple-play providers of video, Internet and voice services, the third line into every home, the power line, has been quietly buzzing along and largely overlooked. Not any more.

Google, Hearst Corp. and Goldman Sachs have put $100 million into a private company called Current Communications Group, which says it can send and receive high-speed Internet signals to homes and businesses via the existing electric grid. The tres unlikely amigos are teaming up at Current Comm with earlier investor John Malone, the man who built Tele-Communications Inc. into a cable TV behemoth before he sold it to AT&T at the peak of ripeness in 1999.

Several small broadband power line (BPL) start-ups have spent a long time trying, without much technical or commercial success, to safely coax satisfactory Internet-protocol signals through electric lines. The plan was to provide an electrifying alternative to the enviable businesses of the high-priced cable guys and the low-tech telephone companies. To date, various flavors of BPL have moved out of the lab and onto a few hundred utility poles in a small number of experiments.

But the evident success of a 50,000-home pilot in Cincinnati has turned Current Comm into Google’s preferred partner in what appears to be no less an effort than delivering unlimited video on demand (VOD) to any home, shop or office with access to electricity.

The Current Comm deal dovetails nicely with the recent "beta" launch of Google’s Video Upload Program, whose stated mission is to give the world “a growing archive of televised content -- everything from sports events to dinosaur documentaries to news programs.” In addition to televised content, Google will “host video from anyone who wants to upload content to us.” Participants can offer their video free, or sell it by splitting revenues with Google.

Combining its search acumen, a vast video library and ubiquitous delivery through BPL, Google has a shot at delivering the Holy Grail, virtually limitless VOD. The achievement would outflank the long-promised efforts of the legacy multi-channel TV and phone companies, which continue to battle technical restrictions, the limitations of their business models and, not least, each other.

The cable companies that invented the multi-channel TV market have done an excellent job in metro areas of upgrading 1970s-era technology to provide 21st Century broadband services. Consumers today prefer cable modems by 1.5 to 1 over the slower DSL services sold by telephone companies. Capitalizing on their success in multi-channel TV and broadband, cable companies now are starting to offer voice-over-IP (VOIP) technology to provide what is known in the industry as “triple play” services.

To deliver video on demand with the depth and variety envisioned by Google, however, cable companies would need the enormous inventory, search capability, agile delivery system and billing capabilities that Google appears to be aiming to create with Current Comm. Unfortunately, the existing VOD systems used by cable and satellite providers are limited to a handful of offerings by, among other things, constrained content libraries, finite server capacity, restricted satellite availability and rigid billing systems.

With Google doing its own thing with Current Comm, the video companies will have to scramble for partners (Yahoo? Microsoft?) to cobble together the capabilities they lack. As a successful first mover in providing wide-scale, unlimited VOD, Google may be able to lock up valuable contracts for vital content in Hollywood, Bollywood and beyond. That alone would give the competition an Excedrin headache.

Telephone companies are in even worse shape than cable for competing in the VOD space. Slow on the uptake when the Internet arrived, the telcos have gotten better over the years at providing DSL services to ever-growing audiences at favorable prices. But their legacy business, Plain Old Telephone Service, is being eroded by mobile phones and VOIP, which in recent quarters have taken bites of 4% to 6% out of the POTS subscriber base.

Hoping to become full-fledged, triple-play players, the Baby Bells have vowed to replace their ancient, twisted-pair copper plant with fiber-rich systems like those deployed by modern cable operators. In the meantime, they gamely are trying to head off cable’s hegemony by marketing satellite services like Dish, which are even less capable than cable of delivering unlimited VOD. Even if the phone companies built their “Field of Dreams” networks and the subscribers came on cue, they likely would have the same problems as the cable companies in provisioning true, unlimited VOD.

None of this is to say Google is guaranteed a smooth ride to success with Current Comm. GOOG still has to build the video library, as well as perfect the systems required to index and serve inestimable volumes of varied content. Further, major questions will remain about BPL until the technology reliably serves many thousands more subscribers than it does today.

If all the moving parts come together successfully, however, Google could be worth as much as its bubblicious stock says it is. Heck, maybe even more.


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