So I'm one of the few broadband customers for whom upstream speed is a serious limitation--vbloggers and podcasters are others. Given the nature of my business, I'm often in the position of having to upload multi-hundred megabyte files to our servers--installers for large games. This can take me hours--and god forbid Time Warner Cable should have a hiccup, or one of the kids should kick the powerstrip that leads to the cable modem in the process, because hours can be lost. I often stack several files up and let it run all night.

(In case you aren't aware, on both cable and DSL, upstream speeds are generally far lower than downstream--by an order of magnitude or more--because they expect you to be downloading pirated music a great deal, but don't assume you're actually serving files to people or somesuch.)

So naturally, I've been salivating over Verizon's FiOS (fiber online service); they draw fiber optic cable to you, and you have vastly more bandwidth available than either over cable or DSL.

I used to be a DSL subscriber, until terrorists blew up my local telephone switch (no joke--it was located in World Trade Center 7, and while my local phone company, which is called Verizon, restored POTS [jargon alert: plain old telephone service] quite quickly after 9/11, DSL wasn't a priority, and the cable company was willing to supply broadband service instantly). But I've never regretted the switch, as both up and downstream speeds are considerably higher over cable.

But I need more, and while I suppose I could subscribe to a T1 line or something, well, the budget is tight, and it ain't gonna happen. But FiOS--that would be nice.

However, while FiOS is available in the region (and indeed, at a local festival on the Battery Park City esplanade recently, Verizon had a tent promoting it), it's available so far only in exurban New Jersey and remote New York suburbs. So far, Verizon has offered FiOS only in the burbs, presumably to high-income customers. And they've claimed that servicing "multi-unit dwellings" is technically more difficult.

This is obvious and complete utter bullshit. Here's why.

Offering FiOS involves pulling a fiber optic cable directly to the user--that is, solving the "last mile" problem (whereby everything in the telecoms network is already fiber, except for twisted-pair copper to the home) by tackling it full-on, and bringing fiber to the home. But actually, doing this in a densely populated area is easier and obviously more profitable than doing it in remote exurban areas, because short lengths of fiber bring you access to large numbers of users. Yes, you need to have intermediate switches to multiplex out to large numbers of users in a concentrated area--and yes, you typically have to bury the fiber rather than stack it along a series of telephone poles. But density has its own rewards; your per-square mile costs are higher, but you reach a vastly greater number of potential users per square mile.

So why are they wiring Hicksville instead of Broadway? Not because "multi-dwelling units" are hard (as claimed); that's an obvious crock of shit. Not because urban environments are harder to wire; Verizon is already the local phone service provider throughout the Northeast, and already has the rights of way and authorization to pull wires, and while there's a cost in digging up the street, the potential market per mile of cable here is hugely greater than in Podunk.

Nope. For one reason, and one reason only.

Verizon wants to offer cable television service in the city, and they're holding up deploying FiOS here until they get the city's approval to do so. In other words, unless they can offer the "triple play"--telephony, Internet, and cable TV--they'll take their marbles home.

Now, I'm not against this; competition for cable TV sounds fine to me. But the stated problems are obviously nonsense, and it's clearly a competitive problem for the City if car-culture, environmentally profligate schmucks have superior Internet access and we don't.

So?

So are our regulators and politicos awake? Or have they bought into Verizon's lullaby?

And does Verizon realize it really can't afford to wait, that it loses by pouting until they get the pretty candy of cable TV approval before they provide better broadband? For my part, I'm no longer a Verizon customer--I get my telephony from Vonage via my ISP, and my Internet service from Time Warner, and I am not now, nor am I likely ever, to be a cable TV customer. (TV--what a waste. You could be playing games, or reading a book, for that matter.)

If they delay too long, they will have eroded their existing customer base, and find it that much harder to sell people on an alternative source of cable. Contrariwise, if they build FiOS customers now, how hard will it be to upsell those customers on cable once Verizon has regulatory approval?

Twits.
posted by Greg at 10:47 PM

Oooh!

SECOND LIFE MARKETING CONFERENCE!!!!
Over 6 Million Virtual Customers Could Be Buying Your Real-Life Products

The Second-Life Revolution is here! The popularity of second life is growing at record pace and presents a world of branding and sales opportunities for companies wishing to reach its 6+ million residents.

blah blah, leverage and branding, speakers include... huh?

Coldwell Banker
Cisco
Sundance Channel
American Cancer Society
American Apparel
AOL
H&R Block
Sprint
ING
Harvard Business Review
DELL
The Coca-Cola Company

Maroons.

Oh, and we'll learn how to grow new customer segments (eww), build and improve customer interactivity (?), and think through " a second life [sic] marketing plan for achieving sustained consumer engagement with a brand". Just what I've always dreamed of--sutained consumer engagement! Mmm. I'd like some sustained consumer engagement right now. Oh baby. Careful with the teeth, sugar.

Oh, and if I book now, I get up to $900 off!

Iesu fucking god.

My guess is SL has maybe 50,000 concurrent users at peak times, and well under 500k committed users. Have fun, marketdroids!
posted by Greg at 12:53 AM

Mutter, mutter.

GameDaily Biz quotes Lazard analyst Colin Sebastian as saying publishers will flock to the Wii because of "favorable economics":

Why is Wii so attractive? According to Sebastian, the answer's simply in the economics: "Based on the typical front-line retail price for Wii titles, we estimate that publishers need to sell approximately 300,000 units per title to break even. Specifically, using $49 front-line software pricing, the wholesale price is about 80% off retail, or $39. Third-party software publishers pay royalties and disk and packaging costs of approximately $9, with license and distribution fees costing another $7 to $9, leaving a contribution profit of $22 to $23. Assuming development and marketing expenses of about $7.5 million, we reach the estimated break-even unit total.

That's by contrast to a predicted break-even point of 600,000 for PS3/XBox 360 titles.

You know, when I do a back-of-the-envelope for a Wii title, I get to a roughly 300,000 break-even, too. But the specifics of Sebastian's analysis are so wrong that it needs to be looked at in detail.

"$49 front-line software pricing"--but with a $7.5m development AND marketing budget? That's a high premium price to pay for what is not a AAA title. But okay, let's assume a $49 price point.

"The wholesale price is 80% of retail.." leaving $39 to the publisher. Yes, except: this neglects MDFs (market development funds), what Dan Scherlis calls "channel bribery"--the upfront money publishers pay for store placement. It's not unusual for retailers to make more off MDFs than they do off the retail discount. So a better assumption is that another 20% goes away in MDFs, leaving $29 to the publisher.

"Third-party software publishers pay royalties and disk and packaging costs of approximately $9..." In what universe? Look, actual cost of goods--that is, the disc, the plastic case, a small manual--is probably $3 or less. Zero royalties are paid to the developer until development funding is recouped, so we can absolutely neglect royalties to developers; they only start earning some money after we've already reached breakeven (actually, usually until long after we're in profit, but never mind). In other words, for a pure breakeven calculation, developer royalties are neglectable.

Now there may be some royalties due other folks for use of an engine or other software, but no way in God's creation this adds up to $6 a disk. And of course there's assembling and shipping, so adding all this to cost of goods, maybe we get $4 total per unit, bringing the publisher's gross to $25 per unit.

"Assuming development and marketing expenses of about $7.5 million..." I don't know where this comes from. $7.5m is a modest development budget these days; marketing would be on top of that. I think you need to budget $10m total.

Under my assumptions, then, you have to sell a tad over 400k units--not that far from the 300k from Lazard. But the point, really, is that the whole business model is much friendlier to retailers than his analysis suggests--and must less friendly to developers.

The question (not clear from the article) is why Sebastian thinks this favors Wii over other platforms; my impression is that he's saying development costs are lower for the Wii. That's probably true, if only because it's comparatively under-powered, and therefore you don't need as complex and detailed graphic assets as you do for Xbox 360 and PS3. But if you're making that argument, the retail dynamics are irrelevant, because the retail dynamics are basically the same for all three platforms--same retail discount structure, same basic cost of goods, comparable platform royalties. The only advantage Wii could have in this scenario is development cost.

Of course, it's easier to do a cross-platform game if you're developing for Xbox 360/PS 3, because their controls and processing power are similar, so a Wii project probably has to be Wii-specific, meaning you can't easily amortize your risk over multiple SKUs--something that works against the Wii.

In reality, when you come down to it, the real thing publishers look at when deciding what to develop for is simply user base plus tie ratio--that is, how many boxes each manufacturer ships, and how many titles the average user buys for that box. This, and not a putative cost advantage for Wii over other platforms, is what's working in Wii's favor at the moment--it's selling better than its competitors. And while historically the tie ratio for GameCube was lower than for PS 2 and the original Xbox, this was largely due to the paucity of third-party games for GameCube--and the fact that many GameCube buyers were buying it as their second platform specifically to play Nintendo titles, and tended to play crossplatform games on their primary device. I expect there will be a flood of third-party games for Wii, that the advantage PS 2 and Xbox had over GameCube in this regard will not be true for the current generation: the tie ratios will look much more similar.
posted by Greg at 12:49 PM