30 September 2011

Sayonara, Sezmi

Sezmi announced earlier this week that they are suspending consumer service. This adds another company to the carnage of trying to compete with cable (and DBS) head-on with an incomplete service (see USDTV, Voom and MMDS more generally).

Sezmi started with grand ambitions, but realized few of them. The initial vision was the create a super set-top box that would unite cable networks and Internet video content. The cable networks would be transmitted via unused digital broadcast spectrum (similar to USDTV) and VOD content would be delivered via the Internet. The box itself would have a large-capacity, sophisticated DVR.

The Internet portion of the service is the strategy that TiVo has embraced without huge success and they started with the best DVR in the world.

Sezmi had basically two tiers. After you bought their proprietary hardware (for $149-299 depending on when you bought it), the basic service was $5 per month and got you over-the-air broadcast stations and access to Internet-delivered VOD (some free, most paid). In other words, buy our hardware and then get something that usually costs nothing (free broadcast and the right to buy transactional VOD). That's not a great start on value.

The cable networks that Sezmi offered (via the Select Plus service for $20 additional above the basic package) included Animal Planet, Bravo, Cartoon, CNN, Comedy Central, Discovery, MSNBC, MTV, Nickelodeon, Oxygen, TBS, TCM, TLC, TNT, USA and VH1. The smattering of channels did not suggest targeting of any particular audience. As HD became increasingly popular, having only the SD feeds of cable channels became increasingly less attractive. As USDTV found, relying on the broadcast spectrum meant capacity for linear channels was inherently very limited, making the selection of channels even more important.

To a large extent, Sezmi's hand may have been forced by the top programmers who typically bundle their channels together. Few customers think about what they like as "Viacom's channels", "Turner's channels" or "NBC Universal's channels". Lack of focus is a problem for multichannel competitors -- if you are not going to be all things to all people, you better be able to superserve a niche.

The "who is the target" issue was not confined to its cable network selection: the limitation of SD cable networks suggests a low-end TV target, but Sezmi's high-capacity (1TB) DVR was a notably high-end item.

I started to think the Sezmi was going about things the wrong way when they hired Perry Simon as head of content. He was a former NBC programming executive. In other words, he's someone who knows about acquiring individual programs. Sezmi, however, was in the multichannel distribution business. It seemed like an odd fit.

With multichannel distribution at about 90%, there is probably not a lot of the market that is interested in multichannel service that does not already subscribe. A service that is supposed to save money will have a tough time competing with low-cost "introductory" offers from triple-play providers.

For someone looking for an alternative to cable TV, to pick one, the "old Netflix" with a $60 Roku box and a $9.99 per month 1-DVD-plus-streaming subscription and an over-the-air antenna was a less expensive, more flexible and easier-to-understand solution.

Sezmi made other missteps, well documented by Ryan Lawler at GigaOm.  The Los Angeles Times noted in its article on the company's retreat from the consumer business: "What made Sezmi promising was that, like the satellite operators, it had found a way to eliminate the investment in wires. But it's hard to compete with cable if you can't offer a complete alternative, and Sezmi's channel lineup had a lot of missing pieces."

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