A third of the readers of this column are not in the USA and I can’t claim anymore that America is on the cutting-edge of all things Internet so I’ll just fall back on the argument that this is happening here and could just as easily be happening in your country, too. Which brings us to today’s story of Charlie Ergen’s plan to dominate the distribution of TV content to America in an all-IP, post-broadcast, post-satellite future. John Malone and Reed Hastings beware!

Echostar owns Dish Network, America’s second-largest satellite TV provider. Charlie Ergen is Echostar’s iconoclastic founder, CEO, and largest shareholder. Just as John Malone does with DirecTV, Charlie runs Dish any old way he wants to, which is why his grand plan has taken awhile to come together in my mind.

Charlie — like Steve Jobs — doesn’t do very much explaining.

Echostar has been putting together a digital strategy for the all-IP future where competitors like Netflix and Hulu may replace DirecTV and Comcast. This strategy can’t bet the bank because Charlie knows he can’t predict everything with total assurance (neither can I). But it is possible at this point for him to acquire or deploy enough assets at a low enough price to guarantee Echostar a solid place in that IP future almost any way the future plays out.

I believe Echostar has all but one component in place for this flexible strategy and no significant barriers to acquiring the last part (if it is even needed at all — more on this below). If there’s a question of critical mass it has already been answered. Charlie just has to pull the trigger. When he’ll do that is anybody’s guess.

Here are the tools at Charlie’s disposal — the Dish Network and its subscribers, Sling Media and its customers, Blockbuster Video and its customers, services and locations, Move Networks content distribution network (bought earlier this year by EchoStar), Echostar’s IP cross-licensing agreement with TiVO, and finally what’s behind Door Number Five.

The Dish Network has access to hundreds of video channels and the ability to place that content in tens of millions of homes in real time. Many of those satellite receivers have Digital Video Recorder capability with all of the DVR models having Ethernet ports and running the Linux operating system.

Sling Media developed the first mass market device specifically for streaming your own video content over the Internet. With a Slingbox you can watch your home video library, your nannycam, or even broadcast, cable, or satellite TV halfway around the world if you have a good Internet connection. I am unimpressed generally with Sling video quality but I don’t think that has to matter for this strategy to succeed. Just as there are millions of Dish DVRs installed, there are also more than a million Slingboxes, all of which also run Linux.

Under Echostar, Sling also markets a video streaming service offering movies and TV shows.

Blockbuster has a streaming video service, too, along with extensive license deals with the major film and TV studios — artifacts from when Blockbuster was the Big Kahuna of video rental and Netflix was a lot smaller than it is today. Blockbuster also has 4000+ rental locations, half of which the company is closing, but half are staying open, too.

Echostar’s TiVO license — the expensive outcome of a long legal battle — is something of a mystery here but I count it as an asset not just because it removed TiVO as an obstruction but also because it grants to Echostar a blanket license to TiVO IP, which no doubt includes some tech we haven’t seen before or have forgotten about. Remember all those video patents held by Burst.com? Well TiVO owns them now.

Charlie’s goal is clear. He wants to be a major distributor of professional video content for the rest of this century. He’s that right now, primarily with the Dish Network, but he wants to be at least as successful when IP video comes to dominate over the next 5-10 years.

In order to achieve this success Charlie needs a cheap supply of content, the right to distribute it, and a cheap, reliable, and pervasive method of video distribution. We’re not talking about 100, 1000, or 10,000 channels here. We’re talking about 50,000 movies and 150,000 TV shows — up to 200,000 channels in all and tens of millions of simultaneous connections.

I think Charlie is already there.

He has tens of millions of captive Dish, Sling, and Blockbuster customers, so Charlie’s marketing barrier is lower than it might be if he had to start from scratch. Netflix is in a similar position, which is why I feel this is a market segment where incumbents have a significant advantage over startups.

With only a licensing change Dish Network can be used to inject video content as-needed into millions of points on what will eventually become the Echostar (or Dish or Blockbuster) Virtual Video Network (VVN) — the successor to today’s satellite and cable systems. Every DVR becomes a repository or video cache on that network. All Charlie has to grab is a couple gigs per DVR to hold all the professional video ever watched.

The same will be true for Sling boxes, which can serve this distribution function whether or not there is a co-located satellite receiver.

And same for those 2000 Blockbuster locations that are not slated to close. That’s 2000 neighborhoods in up to 2000 cities that could each hold a copy of all 200,000 shows and films. That’s only 200 terabytes per library, by the way. I’m not sure why this is actually needed, but there has to be some reason for keeping open those Blockbuster locations.

Echostar and Sling already have streaming deals with the studios but my guess is that Blockbuster’s legacy deal is better. That’s the initial key to content, at least for awhile. And if you’ll look in your terms of service for Dish, Sling, or Blockbuster you’ll see nothing that keeps Charlie from leveraging behind your back that device you think you own.

The part behind Door Number Five, if I were Charlie, would be a peer-to-peer streaming client like Veetle. That’s a client for real-time streaming, not downloading — a client that caches only small bits of code on the network making it much more studio-friendly. More important, Veetle or a Veetle clone makes vastly more efficient use of network bandwidth to deliver an HD signal at little or no cost — a distinct advantage over Netflix, YouTube, etc.

A system like Veetle can aggregate smaller data streams from many sources into a full HD signal, making it immaterial that one-to-one Sling video isn’t really that great. Get enough peers together and many-to-one can run at any bandwidth your Internet connection can support while still costing Charlie nothing.

This distribution cost advantage is small but what’s important is it drops all the way to the bottom line, giving Charlie a decided profit advantage over the other guys, but it only works if you already have tens of millions of Linux machines connected to televisions all over America.

Only Charlie Ergen has that.



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YouTube made two fascinating announcements recently: 1) viewers are now downloading an average of two billion videos per day on the service, and; 2) YouTube is almost showing a profit for Google, its owner.  Think about the glorious inefficiency embodied in that latter statement:  two billion downloads per day just to break even.  And this is supposed to be the future of television?  Hardly.

I think the future of television is Veetle.

Veetle, if you haven’t heard of it, is a Palo Alto-based startup that isn’t nominated for this summer’s Startup Tour.  Veetle appears from my vantage point to be a peer-to-peer video distribution system that most closely parallels the current cable TV model except applied to the Internet.  Veetle video channels can be viewed in a browser (32-bit plug-in required) and present — just like CNN — a continuous stream of programming that can’t be interrupted, paused, or changed and can’t be very easily recorded, either.

In fact a Veetle channel very well could be CNN, because almost anyone can become a Veetle broadcaster by just grabbing a video feed from their DVD player or cable box and throwing it up on the web in glorious H.264.  Veetle is an adolescent cesspool of intellectual property confusion but that’s part of what makes it so much fun.

Now here is why I think Veetle is the future of television.  I have been writing about this particular topic (the future of television) since 1997 and while a lot has changed much has not.  Sure, bandwidth is a thousand times cheaper than it was.  Sure, codecs are better as are PCs.  But the two core issues of: 1) how to maintain intellectual property rights for web video, and; 2) how to make money with web video, are no more answered today than they were back in the days of broadcast.com when Mark Cuban suckered Yahoo into thinking he had all the answers when of course he did not.

But in my view Veetle actually does have many of the answers.

Here’s why.  YouTube has those two billion downloads per day yet just manages to break even.  Commercial TV has less than two billion viewers per day, yet manages to be a very profitable industry with at least $20 billion in annual sales.  The question to ask is not why YouTube is so popular by why it is so unprofitable?  It is unprofitable because most of the content is crap.  It is unprofitable because distribution costs are still too high.  It is unprofitable because the ad model isn’t clear.  It is unprofitable because the average video is still less than four minutes long so this is not a medium for story telling in any strict sense.  Oh, and did I mention that the content is crap?

Commercial or even non-commercial TV, in contrast, may be too dumb, too simple, and too obvious for the most part, but not all of it is crap.  Find a way to reach the non-crap while preserving the best of traditional TV and you’ll have something.  You’ll have Veetle.

Pre-Veetle, the video distribution models were buying or renting from iTunes, watching with commercials on Hulu or TV.com in a system subsidized by the writers and actors unions, watching with some ads on YouTube, or just plain watching (crap) on many different sites.  None of those models, however, have Veetle’s key feature of being easy to watch but hard to hack, easy to attend but hard to ignore.  You can’t pause it, you can’t record it, you just have to watch it, like broadcast or cable TV pre-TiVO.  And that makes it an ideal commercial medium and one very good for preserving intellectual property rights, unlike all those others.

The aha! moment with Veetle is when you realize it is just like having a cable TV system with a million channels.  Along with the bad porn (Veetle really needs parental controls, guys) and European football on Veetle is a loop from some user running every episode of The Big Bang Theory, which of course I love.  There are something like 66 episodes, but it could be just as easy with Veetle to have 66 channels each one episode deep.

And of course there is the p2p aspect of the service, which lowers Veetle’s bandwidth to around 700 kbps-per-continuous channel.  Compare that to YouTube with two billion 350 kbps downloads at 3:30 each for the calculated equivalent of 2.4 MILLION Veetle channels.  No wonder YouTube barely makes a profit even with zero content cost.

I could throw my 13 old episodes of NerdTV up on Veetle in full resolution, running  them in a loop with a couple of commercials in each episode, and not only would I entertain people, I’d put my three kids through private schools on the proceeds. There is no way — no way– I could do that on YouTube.

That’s where Veetle gets it and YouTube doesn’t, because this particular option isn’t really available on YouTube, which remains an expensive distribution system in search of a viable programming model.

I can see how Veetle would grow to be a $20 billion replacement for traditional TV, but I can’t see how YouTube could ever do it.