Today’s New York Times ran an article titled “Studios Try to Save the DVD” which mirrors an earlier post we filed titled “Why Warner Bros. did Toshiba a massive favor by going with Blu-ray (Rock Lobster)” after Toshiba bowed out of the HD format race in early Jan ’08. The Times article reads:

But the victory of Sony’s new Blu-ray high-definition disc over a rival format, Toshiba’s HD DVD, masks a problem facing the studios: the overall decline of the DVD market. [US] Domestic DVD sales fell 3.2 percent last year to $15.9 billion, according to Adams Media Research, the first annual drop in the medium’s history. Adams projects another decline in 2008, to $15.4 billion, and a similar dip for 2009.

We suspect the decline in DVD sales will accelerate in 2008 falling more than 11% to about US$14.3 billion in the US (need we even talk about China?) on the back of the proliferation and growing acceptance of the Internet based ad supported digital content model (free stuff), lower bandwidth costs and fatter pipes. Indeed, five years from now DVD sales will be 50% lower (conservatively) then where they are now.

Why the doom and gloom?! I mean, won’t the Studios come up with cool new interactive features that will pull consumers into their DVD web?! Not going to happen.

Okay, so what about all those ad supported models, you know those ones that give streams away for free yet charge for digital download or physical DVDs? This must be the answer the industry is looking for…right?! Hey, we’ve got all those social networks to monetize. Those dudes totally want our stuff. Hoorah! Hoorah! Hoorah! We’re saved…

Well, boys…you might want to sit down with Google and ask them about their ability to make money off social networking. Better yet…let’s chat with Google’s CFO George Reyes about 4Q 07 revenues. Hey Reyes, what’s up with Google’s US$900 million deal to supply ads to Myspace? According to a recent BusinessWeek article Reyes states:

“…[in 2007] social networking inventory is not monetizing as well as expected…”

Anyway you look at it…this whole selling content (both online and offline) is a genuine mess. Mark our words: 99% of all ad supported content models are doomed for failure. Why? For so many reasons, such as: (1) Because once a content provider does a deal with Google why would you go anywhere else to consume the same content? and (2) Ad revenues are going to polarize around “non-trendy, Web1.0 sites”, such as CNN.com where consumers are accustom to seeing advertising; and as a result of this polarization we’re going to get a lot of very unhappy dissatisfied studios, labels and artists hoodwinked by flashy sites promising sacks of cash. Whatever!

Moving forward, we think on-line ad supported content models will be the main catalyst (second only to online piracy) behind the continuing eyeball popping deflationary pressure on content for the foreseeable future. And no one will make any money (sans one or two sites) to boot. Talk about a pissed off world looking for CHANGE!

There is light at the end of the tunnel (cue soapbox) but a lot still needs to be done: The answer is blanket licensing at the ISP level…full stop. This is the only way to to properly compensate content providers and ensure some amount of recurring income those companies aggregating and distributing content on-line.

Lots of good stuff coming out of this week’s Midem Conference in Cannes, France – in particular, Kate Holton’s Reuters article titled “Music industry tries carrot after years of stick” where U2 manager Paul McGuinness comments that music could be provided as part of a subscription service for an Internet service provider. Holton writes:

“…the time had come for new thinking on how the music and technology sectors worked together, saying their ‘snouts have been at our trough feeding free for too long’. He touted the idea that music could be provided as part of a subscription service for an Internet service provider in the same way that some mobile phone companies have worked, with the revenue being shared…”

Below is the video from McGuinness’s speech that is posted on the MIDEM blog.Also coming out in support of this bundled sub model is International Music Managers’ Forum secretary general Peter Jenner in his blog titled “Thoughts on the Challenge of the New Digital Reality for the Recorded Music Industry“. Jenner notes:

“…this fee could be low…and be introduced as part of the bundle of features offered by the networks. The price should be negotiated by the music industry with the broadband and telecommunications companies and subject to renegotiation from time to time. A ‘feels free’ solution such as this makes sense for all parties and has the added benefits of making piracy economically unattractive as well as making the consumption of music free to consumers at the margin…”

For those keeping notes, this model was first suggested and implemented by Beijing’s very own Feilio.

We’ve been mouthing off for a long time (okay, a couple years) that eventually the stars will align and content providers (music labels, studios, publishers) with wake up to the benefits (and inevitability) of blanket licensing (BL) for digital content over the Web – we believe 2008 is the year that you’ll see BL jet in from obscurity and become “mainstream” in the digital content (music, video, and text) space.

Below are three articles/industry guys calling for the same thing:

Subscription Question Goes 2.0, Theoretical Possibilities Abound is from Digital Music News (thanks to Eric for emailing this to me) where leading music attorney Kenneth Hertz notes that…

“…this is the year that labels will embrace blanket licensing.”

Music Lessons is Seth Godin’s post where he lists 14 rules to live by in the music business – note that it takes him about 12 rules before he finally concludes that blanket licensing is the now but he gets there, and thus makes our list. Seth writes,

“The music business has thousands of labels and tens of thousands of copyright holders. It’s a mess. The biggest opportunity for the music business is to combine permission with subscription. The possibilities are endless.”

Last Major Label Gives Up DRM Related Issues, posted on Electronic Frontier Foundation by Fred von Lohmann knocks the covers off the bed with his posting and states:

“Next step (and I hear that at least one major label is considering it) will be a blanket license for music fans — pay a small monthly fee, and download whatever you like, from wherever you like, in whatever format you like. This is the inevitable end-game in a world where file sharing remains hugely popular and the labels want to prevent new retailers (like iTunes) from controlling distribution.”

Look, there are hundreds of content sites in China offering very similar experiences and content, all driving for that same advertising dollars – and yes, one or two of the free sites will remain, but by and large the odd US$200 million that has been invested in China’s user-generated/file sharing start-ups over the past couple of years will be earn a very low return (if anything at all).

Indeed, the business that learns (and is capable) to fully integrate blanket licensing, and thus can roll-out a legal digital content subscription model (on the back of fighting for those advert dollars, as an added revenue stream) is going to dominate this industry as they will have a sustainable business model.

And what’s more, think of the blue sky business opportunities (i.e. think lightweight applications running on top of this infrastructure) that present themselves once a developer/user has unrestricted access to 100% legal digital content – we’re talking virtual goods meets physical goods meets a online/off-line experience. To wit, this is the sort of excitement blanket licensing brings to the mix – to a digital content platform.

2008 is going to be a significant year in the content space – we’re expecting this year will kick-off several years of significant consolidation and flame-outs across the start-up board – putting premiums on ventures, such as Feilio, that have fully integrated blanket licensing at the core of their business models, and thus are positioned to weather the coming storm.

What’s missing from this excerpt of an article by Diane Garrett in Sunday’s Variety?

“…Warner Bros. will throw all its weight behind Blu-ray later this year, a decision that could serve as a death blow to the rival HD DVD format…”

I think something along the lines of “…Warner is doing Toshiba a favor by killing off their dinosaur…Sony should only be so lucky.” Indeed, Warner, in selecting Sony, just saved Toshiba over US$150 million in inceptive and junket fees – i.e. pay-offs to studios to adopt the HD DVD format – money that can now be used to invest in any number of content/community related start-ups/enterprises seeking to monetize digital content in such innovative ways that would never be possible in a clunky electronics behemoth.

Honestly, in a couple years, drawing hints from the performance of CD music sales (2007 Christmas shopping season saw CD music sales dropped 21% over last year) and the growing industry wide movement towards DRM free music tracks, where can the DVD industry go but down…down…down. (Rock Lobster, anyone?)

Hey, I get it, DVD sales still generate billions of dollars (about US$16 billion) in annual sales for studios…so, yeah, they’ve got to figure out a way to mellow the inevitable revenue erosion but is the solution Blu-ray and DRM?

No way…you can just smell the mindset of studio honchos…it just reeks of 2001 all over again (and yet, maybe we never left 2001). Isn’t it evident by now (after all the carnage from the music industry) that the solution is not new packaging or delivery format/technology but rather the solution is a complete 180 degree shift in the existing business model – or am I missing something?

Over the next couple of days, I’m sure the wires will be burning with chit chat from pundits, portals and web jockeys about a regulation that has been re-approved by State Administration of Radio, Film and Television (SARFT) and the Ministry of Information Industry (MII) that will ban (effective 31 January 2008) Internet Service Providers and portals from broadcasting video that, according to a Canadian Press article, involves:

“…national secrets, hurts the reputation of China, disrupts social stability or promotes pornography…providers will be required to delete and report such content…those who provide Internet video services should insist on serving the people, serve socialism…and abide by the moral code of socialism…”

And by re-approved, we mean that some form of this regulation has been on the books for several months but it was only this week that SARFT and MII decided it was now time to set about enforcing it.

The market is a bit unsure how this will play out and/or how this will impact existing user-generated video hosting services, such as Tudou.com (which claims to hold 22% of China’s vlogging market share) and 56.com (flush with US$20 million in fresh capital from Adobe Systems, CID Group, Steamboat Ventures, and Sequoia Capital).

Indeed, much of the uncertainty (as is the case with most, if not all, policy initiatives spun out of SARFT and MII) rests not in how closely these sites comply to the new regulations (as they won’t necessarily have a choice whether or not they want to work with a state-owned license holder – they just have to or close-up shop) but rather in the government’s interpretation of what “…hurts the reputation of China, disrupts social stability…”.

I’m guessing SARFT will move relatively quickly to provide the market with a “test case” so that they can frame their interpretation, sending a shot across the bow of some of the more adventurous entrepreneurs, especially in light of this summer’s Olympics.

We’ll get more viability on this over the next couple of weeks as more information is made available on the back of several meetings organized between the major portals and SARFT/MII.

Regardless, I’m pretty sure this puts the kibosh on any short to medium-term plans user-generated video hosting services had for raising additional (or seed) capital as investors’ will surely start dragging their feet – not so much because of the blue sky regulatory risk but rather because momentum seems to have been sucked out of the market (at least for the time being).

But…what about those sites legally distributing and hosting content directly from copyright owners (e.g. StarTV, Disney, and Tianyu)…how will this impact the one or two ventures operating in the legal content space? And by the “one or two” I think its obvious I’m talking about one specifically, Feilio, the Beijing based digital content services supplying Chinese ISPs with legal content (MP3, video, educational material).

If anything, SARFT and MII’s new policy places a premium on services which not only guarantee the authenticity of content but also complies with China’s existing content import regs. To wit, if I’m an ISP or a network in China (between now and summer) I’m not walking but running to legal digital content services – why leave anything to chance?

As a parting thought, it is important to note that we’re not advocating tighter regulatory controls as, way more often than not, aggressive regulatory regimes strangle innovation (boo) but you’ve got to adapt to the business environment your operating in…or risk becoming irrelevant…

On Tuesday, Sherman So from the South China Morning Post wrote “while the world’s big four music companies have failed to stamp out piracy in the mainland, Feilio, a Harvard university venture, may just have the solution…” read entire article

Today, the way digital media (e.g. video, text, and audio) is consumed in China online via search and social distribution (e.g. emailing links, blogging, etc) requires that content be virtually free to distribute and consume.

To wit, users want unprotected, legal content in quantity and at a low price.

So, one of the main barriers preventing such a content service from succeeding in China is the reluctance of major content providers to distribute their content without the protection of a Digital Rights Management (DRM) standard. Contrary to widespread belief, the fact that existing models fail in China has very little to do with the fact that illegal content accounts for more than 99% of all digital content on China’s web or the misguided belief that locals won’t pay for content, but rather because, until very recently, no one has come up with a scalable, profitable and legitimate solution that properly compensates content owners for their property.

And this is why we are so excited about our recent investment in Feilio as we believe they have the answer content providers, worldwide, have been pining for.

Feilio’s solution is a service that aggregates and distributes legal content to Chinese consumers while fairly compensating content providers for the use of their digital content.

The service works is as follows:

Content aggregation: Feilio registers content from publishers and producers of audio, video, and text media. Digital fingerprints are created to identify each media file, linked to its ownership and metadata. File usage is tracked on end-user devices using client software that also provides user interfaces, search, recommendation, and social networking functions to help people discover new media.

Content Distribution: Feilio provides content licenses to networks converting previously illegal file sharing and copying into legal activities, inoculating universities & networks against copyright infringement litigation. Users (e.g. students) need not change their current file sharing behaviors associated with free content sites.

The capital we are investing will go to scale Feilio’s platform, expand its nationwide network to +300 universities, and aggregate content.

We are thrilled to be part of Feilio, a groundbreaking company that seeks to not only remedy China’s digital content piracy problem but also ensure content owners are able to monetize file sharing.

Yesterday, around 3:15 pm, I jumped into the elevator and waited patiently as it dropped the 40 floors that separates my office from the Bloomsbury bookshop in the lobby – the sole intention of my trip was to pre-order the final Harry Potter book, Harry Potter and the Deathly Hallows.

When I rolled up to the checkout counter and asked for the sale form the sales assistant, Lucy, she asked me, “…do you want the adult version or the children’s version?” I asked, “What’s the difference?” Lucy responded, “Nothing really, just the cover…”

I didn’t hesitate one nanosecond and yelped, “Of course, I want the children’s version…it has the way cool cover art!”

Scratching my head, I’m thinking, “What’s going on here?!” Are adults embarrassed to be reading a Potter book? It’s not like you’re a Rabbi sneaking a shot of whiskey hidden in the scrolls of a Torah or something. It is just a book.

When I got back into the office, I did a little research and discovered that Bloomsbury first introduced the alternative adult cover when they launched the fifth Potter book. The reason, according to my source at London’s Bloomsbury HQ, was that “…bankers and lawyers on the high street – older people – were rather embarrassed at being seen reading a book with a childish cover…”

An hour later, I went back downstairs to the Bloomsbury bookshop and asked Lucy what percentage of people pre-ordered the adult version over the children’s version – indeed, the adult version accounts for about 45% of the total sales – up dramatically from around 15% of total sales for the fifth book.

This shift, if you will, started me thinking about what could happen to Facebook – now with over 30 million active users – as its popularity with the older crowd grows. Will the net natives – Facebook’s core user base – revolt and jump ship?

Check it out – the latest monthly figures (June 2007) reveal that the number of visitors between the ages of 25 – 34 increased 181% while the number of visitors 35 years old an older increased by 98% – definite signs of traction from the moms and pops of the world.

Will it peak? Eventually, sure, but not for while. And, if anything, the madness has only begun to build. Wait to see what happens when word gets out that US-based venture capital fund, Bay Partners, has launched a fund targeting all those odd lot developers (most haven’t bothered to register as proper corporations) responsible for the 1,500 odd Facebook applications. Tsunami anyone?!

Let’s be frank – this attention – going mainstream – is exactly what investors and creators of the site want to see – it means higher advertising revenues, more functionality, and increased credibility (eventually, leading to a fat pay cheque – cha-ching). Nothing wrong with this, of course. The issue is – what happens when the kids lose control and the adults takeover? Is Facebook in for a face lift – are we going to see brand extensions – different covers?

I don’t know for sure what is going to happen however my gut feel is that Facebook is nearing its peak. One of the key drivers or attractions of Facebook was that fact that everyone’s identity is real – that is why I use it – I actually “know” the person I’m talking to – or sending crap to – in many ways, the friends on my page are the same people I’d call up for drinks or share a joke with – it is purely social (i.e. I’m not looking to network – business cards…be gone!). However, the more random openness of the site the more opportunity there is to dilute this “real identity” flavor.

It just seems to me that when the kids discover something fun, unique and, well, pedestrian, the adults come in and institutionalize the damn thing – effectively, sanitizing the juices and mojo that shaped the community in the first place. How many kids/students want to hang out with random adults? None. How many kids/students want their parents looking at their drunk partying photos? None.

Unlike a Potter book, you can’t appeal to a wider user demographic by changing Facebook’s cover – the heart and soul of the site rests in the content provided by the members not a single author. So, no, I don’t think the answer is to have an adult version and a children’s version – the answer is, “mom, dad, you can look…I let you…but don’t touch!”

Those of you who are familiar with HBO’s Entourage TV series – the day-to-day life of Vincent (Vince) Chase, a hot young actor in modern-day Hollywood, and his group of miscreant friends (the Entourage) – may remember the episode title “The Sundance Kid” where movie studio big wig Harvey Weinstein casts Vince as the lead in a surfing film he’s producing. After initially accepting the role in Weinstein’s film, Vince drops out to pursue James Cameron’s “Aquaman” throwing Weinstein in one of his legendary spitting temper tantrums.

Try, if you will, to envision Weinstein’s “condition” after discovering the new Michael Moore docu-drama, Sicko, Weinstein Co produced was bootlegged (ahead of its June 29th release date) on YouTube over the weekend. Well, hell have no fury like a pissed-off Weinstein.

And how did writer-director Michael Moore, known for his disdain for copyright laws, react to the news? According to a June 18, 2007 interview with Brandweek’s Steve Miller, Moore said that despite the Internet ripping his new film…

“[…he disapproves of copyright laws. It’s a stance] I’m sure is different than that of Harvey and Bob…I think the music industry’s response to Napster was misguided … and for me, it’s about getting people to see the movie and that’s what I want, so they will talk about it…I would never want to prosecute anybody who would download it…”

For the record, Ymer does not condone illegal file sharing however we are adamant that the existing pay-for-content model is dead. Weinstein and his fellow movie titians can either learn from the mistakes of the music industry and work with independent distribution channels, such as YouTube, to create a payment platform that leverages the viral natural of “good quality content” or not – the equivalent of the latter is losing just about everything.

Our views echo our desire to work with and support co-founder Eric Priest and his team at Beijing based Feiliu. While not revolutionary in design or concept, their business model of blanket content licensing, monthly subscription, unlimited sharing/usage and usage-based payments to content providers is, in our opinion, the most balanced and practical model we’ve seen in the market.

Some have argued that “digital music is a very difficult space to monetize” and a start-up in this space without a “massive user-base” will get crushed under the weight of industry leaders however what the public and investors are overlooking is the fact that content owners are less than excited about doing deals with established players given their less than stellar record on IP protection.

Indeed, this includes China’s leading Internet venture, Tencent, as it now faces several lawsuits from leading Taiwanese music label Rock Records. And therefore content providers will, by default, turn to independent enterprising companies, such at Feiliu, and their spotless IP track records.

Okay, this has nothing to do with China (directly) but I can’t stop myself – it just too good – you’ve got to go to itune’s TV Show channel and download the pilot episode of the SciFi Channel’s new reality show “Who wants to be a superhero“.

Each contestant begins with an original idea for a superhero, a self-made costume, and their best superhero mojo. Over the course of the series, they will test their mettle, try to overcome their limitations, and do what it takes to prove that they truly are super. The finalists will leave their former lives behind and become their brainchild heroes, all under Stan Lee’s watchful eye.

I’m still trying to work out which superhero is my favorite but Fat Momma is definitely a leading contender – check out FM’s profile:

Superpowers: Can grow to five times her normal size when she gets angry.

Vulnerbility: Needs doughnuts to fuel her super-powers. Diet foods weaken her and shrink her to five inches in height.

Catch Phrase: “Saving the world, one doughnut at a time!”

I was playing around on YouTube a couple days ago and came across this real life adaptation of the cartoon The Simpsons.

Actually, it is only a real life adaptation of the show’s introduction but it is still quite fun to watch. Anyhow, this Simpsons sketch got me thinking about how innovation allows real life to imitate art, in this case a cartoon.

It would be very cool to see a real life version of the Simpsons introduction acted out by people from various non-Western countries; for example, I wonder how someone in Iran or DPRK (North Korea) would not only interpret the introduction but also get access to Nuclear power plant footage?

I guess they might rip footage/photo from the web, perhaps from Flickr or Amazon?! The point I’m getting at has nothing to do with greater cultural understanding, but rather how Web2.0 innovations (or innovations leading up to Web2.0) have slashed open regional boarders, truly making the sharing of information a global reality.

The question is, do we really need localized content sites? Or maybe it is, can a venture like YouTube service the entire world? These are important questions especially in light of the increasing popularity of community centric sites, such as Craigslist; important because, at least in China, we are seeing countless numbers of “me-YouTube-too” type of sites (i.e. US/EU hatched, China transplanted). Perhaps the answer is localization is good for something, like personal advertisement, and bad for other things, such as video hosting (where the volume, quality and scale rule the roost).

I’ve heard the arguments that some people want to have servers based locally (why?), or foreign companies just don’t get local culture (hello, I thought we were in age of user generated content? ever heard of tagging?) but I’m not convinced, I’m fading this line of reasoning big time.

Not to be overly harsh but at this point in China’s investment/development cycle I just don’t see any upside gained from investing in a country specific (e.g. China) video/blog hosting venture(s) – so hold onto your business plans for a more sympathetic ear…

Doh!

It is a little late to enter but I just learned of a cool short film competition that is currently underway in Shanghai called “Contest 2.0” — the group organizing the contest is MeiWenTi Productions.

According to the contest’s guidelines there are a number of specific elements or situations that must be included in the film:

a bobble head
a flight of birds
an animal
a hidden secret that is revealed in the last 45 seconds of the film
the heart of Shanghai
the line “that’s so cool, can you do that again”
a pair of shoes
some eggs
an accusation and a violent reaction

We have an Indian friend who has entered this competition, his group’s film is titled, “Life as a Shanghai expat” and it promises to be very entertaining. When we get our hands on it we’ll convert it into an mpeg and post on this site.

Man-o-man have we received a ton of b-plans pitching video sharing sites over the past couple of weeks. By last count there are no fewer than 50 such sites in the US alone; and since barriers to entry are so low making a move in this space is challenging. However, here are four criteria we want to see even before we will consider your venture:

(1) Destination – #1 spot, #1 spot, #2 spot (if you also own the #1 spot)

(2) Captive audience – size does matter (“super size me”), but so does their length of time on the site

(3) Rich content – audience contributes content as much as they consume

(4) Control – clear, functioning copyright and mature content control/policy

First, the creator of the MillionDollarHomepage went to ebay to auction off the last 1,000 pixels which sold for US$40,000

And, now it is RocketBoom’s turn…

A couple days ago, HBO (Home Box Office) petitioned the FCC (Federal Communications Commission) in the United States to prevent consumers from recording their content (Subscription Video On Demand) – either with a VCR, DVD, or TiVo device. Sure this doesn’t have a direct impact on those of us living in Hong Kong and China – where HBO doesn’t have the traction it has in the US – yet HBO is representative of the losing battle the incumbents (broadcast networks) fighting – and losing dearly.

My general thesis is that all content will be free in the very near future and that DRM (Digital Rights Management) is not a sustainable technology. I’m not supporting piracy; I just believe it will be very difficult to generate any revenue from content alone. Where the money will be made is on product placements and side promotions, for example. Listed companies, such as Tom.com are spending a lot of money in rights to content that they won’t be able to control – in other words, their business strategy is dead wrong.

The companies that will be the winners, the next Google, will be the companies that develop technologies to harness, distribute and monetize this free content. Yahoo, for example, if a big buyer of networks and page views (note its purchase of Flickr’s 8 million users); yet they are not a buyer of technology…

The reason I believe this sector (e.g. BitTorrent) is a massive opportunity for start-ups is simply because there is: (1) demand, (2) users, (3) exits. The “demand” and “users” are clearly defined, but the “exits” – how will they come? I believe “exits” will come from the major portals, such as Baidu, Sina, and Tencent. The reason is simple: these listed companies can’t develop this technology in-house, but it isn’t because they don’t have the capability, it just that they can’t be seen publicly supporting file sharing, for example.

This is why technology start-ups (in this space), especially in China and Hong Kong, are so attractive (at least to us) and why we believe the next MONSTER company will come from this space.

Some amazing developments in video blogging (vblog) over past year. We’ve mentioned vblogs a couple times in the past months, including China based Toodou.com — the following two sites are worth mentioning:

FireAnt (it’s a portal that syncs to almost any device)

ApolloPony (suggest watching Game: On Mashima)

In fact, one vblog out of New York City, RocketBoom, has moved from the web to the TV, or rather, to TiVo

And then again, this shouldn’t be all that much of a surpirse given Yahoo’s partnership with TiVo back in November 2005…

To all the China-based entrepreneurs — we are putting you on notice: The learning curve is moving quickly, as are expectations — this time around there will be no room for excuses, such as “we are a developing country…”

This weekend, I was listening to last week’s Microsoft Live Windows press conference and somehow ended up playing around with Google Video… then it occurred to me that there must be a website that maps Flickr’s functionality to videos

…and so I started digging and came up with a lot of these sites, here are some of them:

Clickshack.com
gabbr.com
blip.tv
Castpost.com

I also read on Flickr’s blog that they will be adding video capabilities in the near future…

I am wondering how these sites will differentiate themselves from one another? Features? Community? Branding? Content? All these answers are so generic and yet spot on…

You know what? This started out as a platform play but it is quickly shaping up to be a drag race…

filmloop, originally uploaded by japaninsider.

This morning, I was greeted with a pleasant surprise in my mailbox…after 3 months of waiting I finally received my FilmLoop.com invitation. I downloaded the app with great anticipation…started playing around with it…and now I’m thinking…is it a glorified screen saver, more gear on my desktop, or are there real business applications for this syndication tool…

So what is Filmloop? Good question…here’s how the company describes it:

FilmLoop is free software that gives you the power to create new loops or join existing ones. Loops are strings of images that move across your desktop. A loop can contain photos of your family’s latest vacation, images of the latest happenings around the world, or pictures that link to the latest properties in your local real estate market. And, changes to a loop automatically update on the desktops of everyone in your loop, whether it’s two, ten, or a million people.

Here is an example of what a loop looks like — the loop can either sit on top of your bottom navigation bar or can be resized/repositioned anywhere else on the desktop:

First, this is thing to note FilmLoop is in beta (aka, “hey we are finished, but in case of SNAFUs…not our fault!”); Seond, the app is really slow and crashed on me seven times; Third, there are some nice photos, and I’m definitely looking forward to seeing what combination members come up with; Fourth, I’m too busy to watch photos shuffle along my monitor so I don’t think I’ll be using it for pleasure; and Finally, I do think there are business applications for this, specifically building off real-time updates (via RSS, etc infrastructure) that can be pushed to both mobile and pc platforms. Some ideas are:

a) e-commerce applications that are time sensitive, such as coupons, flier, shopping offers, ebay; these can change based on the day, time, or prior activity of consumer (e.g. you just bought dog food, her is a coupon for a pooper scooper);

b) collaboration between businesses, such as documents, presentation, product samples (e.g. manufacturing), or bios

c) event planning, such as, venue changes, driving instructions, etc

d) news and weather reports

e) computer and software vendors pushing drivers and updated product information

and the list goes on…so the question is…is this application simply enough to make all these changes on the fly and/or are there alternative channels to the above…I’m sure there are…

and so…maybe FilmLoop is just entertainment after all…

I was working for a hedge fund in New York City in 1998 when the theGlobe.com (TGLO) listed on NASDAQ and posted a record-setting 600 per cent first-day-gain…

…I also remember watching CNBC interview the two teenage co-founders and laughing my ass off with the reset of the world…as everyone tried to figure out what the hell the company’s business model was…

…later that week, after theGlobe’s listing, I understood that theGlobe’s value proposition was not a 360 degree business but rather it was a feature, a single service, a revenue stream…at the period in history it was apparent the Street was willing to pay a premium for a feature…not business…and so, in a word, the trend was to invest in “SMALL”

We all know what happened next…by 2001/2002 SMALL was out and BIG was back…so why talk about it now? Is SMALL back?

Funny enough…I think it is…and this time around, at least in the US, I think we are starting to see that SMALL has a bit of bite to it…that SMALL has substance beyond the first day bounce…for example, Flickr and Weblogs Inc have shown that a rich community, relevant technology (no bells and whistles), and a clean UI = BANK!

Jeff Jarvis coined the phrase, “Small is the new big” back on June 6, 2005. Jeff writes:

I wondered whether small was just a trend or a new organizing principle for the business world. I now think it could be the latter. Small won’t replace big, of course, but small will add up to considerable new competition. And that is because small can now succeed. The economies of scale must compete with the economies of small.

Based on the number of business plans I receive each week…the trend is definitely favoring SMALL…the problem is China-based entrepreneurs are not getting it…they are making the same mistakes as their pals in the late 1990s and early 2000s did in the United States and Europe. I’m seeing feature after feature after feature but what I want to see are features backstopped not only by a sustainable business model, but a vision and a technology/business road map.

For example, there is a company that has developed “the next generation” mobile browser targeted at local handset manufacturers. The game plan is to preload the browser at the manufacturer level (i.e. sell software license to OEMs) and then…

…but very few can give you an answer for the “and then…”

The theme “SMALL is the new big” is definitely the predominant trend in Web2.0 companies…in China, I’m seeing a lot of “one hit wonders” looking to cash in on “community” and “digital sharing”…but what these guys are overlooking is a defensible business model…

…for example, it might be nice to have the ability to resize your photo online and perhaps print it out…but I could do this five-years ago…what I really want answers to are questions like:

1. Why are people going to make your site their home, their one destination? Howare you going to maintain your competitive edge?
2. How are you going to make money beyond printing photos?
3. What does your technology platform look like? How does it improve upon what is out there already? What do your customers think of the UI? How are you going to evolve the UI over time as you add new features? What does your roadmap look like? How do you plan on getting creative with RSS feeds, tagging, etc?
4. What demographics are you targetting and how does your customer acquistion strategy play into this? Does anyone on your team have interactive marketing experience?
5. How do you plan on spending my money? Why are you spending money on these things?

There is at least one China based company attempting to live up to its SMALL pedigree and it is called Toodou.com (which means “potato” in Chinese). Tooduo is China’s leading podcasting site founded by Gary Wang. Today, the New York Times ran an Op-Ed piece by columnist Thomas Friedman about Tooduo…we can’t show the whole article but here is a peek:

“We already have 13,000 channels on our site and about 5,000 of them are updated regularly,” said Gary Wang, 32, the Fuzhou-born and U.S.- and French-educated Chinese engineer who founded Toodou. Any Chinese can create his or her own channel of video or audio content on Toodou (which means “potato”), and other individuals sign up to get that channel’s new uploads. Eventually Toodou will charge a monthly subscription fee. “I want to create hundreds of thousands of different channels, maintained by just average people, where other people can access them and download the material,” Mr. Wang added. There are almost no barriers to entry.

Toodou’s goal, Mr. Wang said, “will be to connect [Chinese] people to their tastes and to their potential collaborators. We will have a huge content database, and we will share the revenue with content providers.” Mr. Wang first heard of podcasting only 13 months ago. Today he has the most popular podcasting site in China, with 100,000 registered users, 8 employees, 40 volunteers and a U.S. venture-capital backer.

As one reader noted, there are a host of regulatory issues that Toodou will face if it decides to experiment beyond entertainment…it will certainly be interesting to not only watch Wang navigate those implied landmines but also watch Toodou’s investors position the company for an exit.

Throughout it all, one thing we must keep in mind is that Web 2.0 is simply the collaboration and synchronization of open source platforms offering various services and functionalities; the very nature of these platforms allow users to hack, mash, customize and expand their utility in directions that might not have been the intentions of the developers of these applications. In a sense we are talking about a paradigm shift…this is an opportunity to reboot the way companies, users and developers interact and communicate…maybe this is the fourth dimension?

I’m late to the party, but I just started messing around with digital photo sharing site, Flickr.com, a month ago. Shame on me, I know! For those of us isolated in China who missed Flickr here is an overview of the company:

Launched in 2002, Flickr has grown along with digital camera sales and has helped popularize tagging. Named “Breakout of the Year” at the 2005 Webby Awards, the community now numbers 37 million photos and 1.2 million members, many of whom are considered to be among the web’s most creative image makers.

In March 2005, Yahoo purchased Flickr for US$25 – 30 million. Obviously, this is old news, so why dredge it up from the depths of Internet past? Good question!

The answer can be summed up in one word: DEMAND

Until very recently, there was no demand for Flickr in China, however, Bokee’s US$10 million funding changed all of that; and now, blogging, Web2.0, RSS, tagging, Wiki, etc are terms even Central Party officials recognize. Soon to follow will be hundreds of ventures claiming to be Flickr with Chinese characteristics – I already have a dedicated Flickr Thunderbird folder.

In anticipation for this event I thought it worthwhile to chat with some of Silicon Valley’s top venture capital funds and bloggers and ask them to share with us the reason Yahoo purchased Flickr. Thanks to everyone who replied.

Brad Feld from Mobius Ventures:

Why did Yahoo purchase Flickr?

1. The technology – while not hugely complex – was implemented really well and had a lot of very happy users.
2. The user adoption was incredible and growing very quickly.
3. The price was relatively inexpensive (around $25m – $30m) for something Yahoo felt it needed.

Basically, it is all about the community, technology player a very minor role, yes?

Yup – there are loads of [companies developing similar photo sharing technology] out there. The thing Flickr did was create a huge and rapidly growing community

Rob Scobles, Technical Evangelist, Microsoft

Why did Yahoo purchase Flickr?

For me, Flickr’s interface (tagging) and RSS integration were way ahead of anyone else, but really it was the community that made it impressive. Community is important. It’s why eBay is a huge business today

Takeaway: Scale that community, or bail!