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Can Akimbo Beat Bad Reviews?

By Burt Helm It sounds like an entrepreneur's dream: After years in development, your product launches -- and the same week it's reviewed in USA Today, The New York Times, the Associated Press, and hey, even BusinessWeek. But what if the reviews aren't all positive?

For startup Akimbo, which spent two years developing a new service to deliver thousands of hours of shows and movies via broadband to TV sets, many articles have been scathing. At best, the reviewers have said the product needs more time. Others, such as The New York Times, have called the launch a "what not to do case study." The chief complaint: little worthwhile programming for too much money. (For BusinessWeek's review, see 6/13/05, "From the Internet to Your TV.")

The reviews raise an interesting question for Akimbo and other startups targeting the consumer market where first impressions can make or break a new product: If Akimbo's service isn't quite robust, then why go ahead and launch it? And now that Akimbo has received such a prickly reception, can the company recover?

FIRST IMPRESSIONS. Akimbo faces a classic chicken-and-egg problem. Without subscribers, the content providers aren't interested. And without content, the subscribers won't come. Chief Executive Joshua Goldman concedes that the reviews have been less than ideal. By launching now, he says, Akimbo hopes to slowly begin building a subscriber base, generate revenues, and persuade programmers to put their shows on the service.

But while that approach seems prudent, a number of risks, ranging from finicky content providers to simply making a bad first impression, could do severe damage to the brand before it gets off the ground. Meanwhile, competing startups, ranging from Atlanta-based DaveTV to BrightCove Networks in Cambridge, Mass., are developing similar products. DaveTV is expected to have an Akimbo-like service out by August.

Akimbo already has run headlong into the greatest problem for startup video technologies today: getting movie studios, cable and broadcast networks, and other content providers to get on board. Its technology could potentially store and deliver a limitless supply and variety of programming. But mainstream media companies see little reason to share their content with a company that has next to no subscriber base and that uses the Internet as a distribution network -- something any competitor, or the media companies themselves, could easily do.

SCRATCHING THE NICHE. "We're going to see what the folks at Akimbo are made of," says Allen Weiner, an analyst at Gartner. Launching without big names, Weiner says, is a risky but necessary move. "Bad reviews alone won't hurt them. This is a market that evolves slowly," he says, "but a lot of content providers were waiting for the launch, to see if [Akimbo] works."

So far, Akimbo has rounded up over 2,000 different programs. But many of the shows appeal only to the smallest of niches. They range from Turkish sitcoms to helicopter flights over Britain, without much in between. The sports section, for instance, includes just billiards, golf, sailing, extreme sports, martial arts, and surfing.

The company, which has raised $16.2 million from venture-capital firms including Kleiner Perkins Caufield & Byers and Draper Fisher Jurvetson, already delayed its launch once. In October, it decided to forego publicity and quietly made its $230 set-top box up available to consumers on (AMZN) as well as on its own Web site.

EARLY ADOPTERS. Akimbo hoped to build a subscriber base to give it the leverage to negotiate more content deals. In the following months, it made progress. It increased its content offerings "tenfold" says Goldman, and added shows from A&E Networks, the BBC, Turner Networks, National Geographic, and Scripps Networks, which owns the Food Channel and the Home & Garden Network.

Providers that have signed up say that while the audience is small, it enables them to get in early on a new technology. "We saw a new form of distribution become available, and in a place where our subscribers could find us," says Elana Sofco, licensing sales director of A&E Networks. Goldman says more deals are coming in the next few months, though he wouldn't disclose details, nor will he disclose the number of subscribers Akimbo has so far.

Another problem facing Akimbo is the way its content is priced. In its eagerness to round up as much content as possible, the San Mateo (Calif.) company let the providers dictate terms of the deals. As a result, the service is a hodge-podge of pricing: roughly half of the content requires subscribers to pay extra fees on top of a flat $10 per month charge, which could discourage users from fully exploring the range of programming.

"C AND D QUALITY." Goldman says as the service grows he believes market forces will cause providers to lower their fees to download their programs. Maybe. But some providers may wish to keep Akimbo prices high and limit the content offering in order to protect other businesses, such as DVD sales. While revenues from video-on-demand services in the U.S. are expected to hit $536 million this year, DVD sales will exceed $18 billion, according to Kagan Research.

"It's sort of C and D quality product" that goes to on-demand, says Jean-Birac Perrette, chief financial officer of NBC Universal Cable. "There's not a lot of A and B quality product [because] we risk cannibalizing our ratings and then cannibalizing our DVD sales business. Those are real risks for us."

Several networks have expressed reluctance to jump on with the small startup at all, even while doing on-demand deals with established cable providers. "We don't think [Akimbo] has scalability" says Mark Greenberg, executive vice-president of Showtime Networks, "And we're not going to invest in a distribution technology that's not going to scale." A spokesperson for HBO says the cable giant won't put up on-demand programs with services that don't broadcast regular HBO programs because that might cannibalize its primary business.

BUNDLING BOXES. While NBC Universal is in talks with Akimbo about making movies and TV programming available, Perrette says it hasn't agreed to put Universal Studio's movies up on-demand -- something it has done with cable providers and the Web-based video-on-demand services Cinemanow and Movielink (Universal has part ownership of Movielink, along with several other studios). "We're comfortable with [Akimbo's] technology. We're now trying to come to a commercial arrangement," says Perrette.

The steep initial price of $230 for the set-top box (though it's on sale for $99 until June 30) is another hurdle to attracting a critical mass of users -- something several reviewers noted. Akimbo says it plans to bundle the technology with existing set-top boxes, and so far, it has announced plans to include the software on Microsoft (MSFT) Media Center Edition PCs in the fourth quarter.

Additionally, Akimbo expects to bundle its offering with a cable or satellite service. That way, a user could subscribe without having to purchase and install the extra box, much in the same way TiVo has partnered with DirecTV. "We think the vast majority of users will come from these kinds of sources" says Goldman.

BLOG TV? Akimbo's backers still believe the company can succeed. "Content is really coming quickly," says Frank Creer, managing director of Zone Ventures, which is one of Akimbo's top three shareholders. Creer says it can still become profitable even if it relies on niche programming and can't nail the mainstream deals. One possibility, Goldman says, is to enable video bloggers and other amateurs to post videos to the network as well.

That may be the case. But with such a painfully piece-by-piece approach, Akimbo risks damaging its brand while paving the way for other competitors. Helm is a reporter for BusinessWeek Online in New York

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