Prospective apartment dwellers in Seoul, South Korea, may not balk at buildings without elevators, but if you tell them they won't have broadband Internet access they may just walk away from the deal. Nearly 75 percent of all apartment residents in Korea have broadband connections, and they're using it in droves for online gaming, chat, and file downloads. In fact, South Korea leads every other country in the world in terms of broadband penetration, according to analysts. Nearly 14 out of every 100 people subscribe to a broadband service.
Here in the States, the picture is very different. At the end of 2001, only 18 million households had signed on for broadband access out of a combined 102 million online home users, according to a projection by Nielsen/NetRatings, an industry-tracking company. While 18 million subscribers sounds like a lot, in reality it's only a fraction of what cable and telco providers want. And while the slow adoption is often blamed on equipment shortages, high pricing, and poor customer service, the real reason may be even more elementary: a lack of compelling broadband content.
"There is no great, amazing thing that you can only do over broadband," says Joe Laszlo, a broadband analyst with New York–based research firm Jupiter Media Metrix. "There's no one piece of killer content." This is especially clear now that Napster, the popular free music-sharing service, is gone, and one of the largest broadband providers, Excite@Home, is succumbing to its financial difficulties.
Until last year, it seemed as if music—or more precisely, sharing music—would be broadband's compelling content. Even though the record labels would like to forget, there's no denying that millions of songs and albums were exchanged in the past few years using the popular music-downloading service Napster as the conduit. Many people who wanted to download 3MB songs signed up for broadband service.
"Napster certainly helped drive the adoption of broadband," says a Napster spokesperson. "We know from our user base that many people signed up with broadband service providers because of Napster." Jupiter's Laszlo agrees: "If you like to trade music back and forth, that's a killer app."
Lawsuits have blocked freewheeling music trading on Napster; as many industry analysts say, however, the genie is already out of the bottle. New free sites and services such as BearShare and Morpheus have popped up to take its place. But the watchword there is free. Questions have been raised about whether fee-based record-label–sponsored sites such as MusicNet or Pressplay will draw people online.
In the Beginning
The picture wasn't always so dismal. In 1995, when cable operator TCI and venture capital firm Kleiner Perkins Caufield & Byers launched the @Home Network (which later merged with portal site Excite), company officials talked about a day when broadband users would have their own portals, complete with high-speed audio and video as well as specialized shopping and personalized content. But something happened along the way. Streaming-video sites like the Digital Entertainment Network (DEN) and Pop.com died quickly, and other sites such as Icebox.com and Pseudo.com—popular animation and movie sites—ran out of funding when many dot-coms fizzled in 2000. The assets of both have since been acquired by outside companies, so you find a mix of old and new content up on their sites. Broadband content is out there, but the few broadband pure-plays have either failed or had to expand their scope to include narrowband users, obviating faster connections.
Part of the reason we're seeing less broadband-specific content is the hefty price tag for providers. Broadband content costs more to produce and stream but—at least today—there's no direct return on investment, because few people are willing to pay for video and audio over the Web, adult content aside.
Since the September 11 attacks, some content providers have had to lay off staff to make up for an increase in bandwidth costs as more people logged on and watched streaming video—costs that were not offset by commensurate increases in advertising revenue. For instance, MSNBC, which, like other online news services, saw a more than 100 percent jump in visitors (23 million for September 2001 versus 10 million the year before), laid off 9 percent of its staff in November.
There Must Be Something More
If you look back at the sites that failed, you'll notice most have one thing in common: They presented high-speed content to show off—to fill a pipe—instead of concentrating on consumers' needs and wants. That's not the case with New York City–based FeedRoom, a Web service that aggregates television news videos from around the world—content that can't be found elsewhere on the Web. FeedRoom boasts 1.2 million unique visitors every month, and more than 60 percent of them are coming in on broadband connections. "Broadband users stay longer—about a minute longer—and click on more video clips while they are there," says Jon Klein, the company's CEO.
Still, according to Colette Rhoney, programming director for AOL Time Warner's High Speed Broadband service, consumers are looking for more than just a bunch of high-quality video clips thrown up on the Web. "Is video content a destination, or do [consumers] want it integrated into the delivery?" In Rhoney's opinion, "They want it as part of the overall experience."
Content providers are going to have more success if they give consumers a broadband component as part of a larger package, something many providers seem to forget, contends Rhoney. This means not only video embedded within content but also a method of home networking that lets consumers use the broadband pipe for devices other than a home PC. In fact, this past November, the company inked a deal with Sony Corp. to work on a new browser for use with consumer electronic devices such as the Sony PlayStation 2 and a networking initiative to bring connectivity throughout the home.
According to Greg Mycio, director of broadband analysis for Chicago-based research firm Paradigm Resources Group, "When it comes down to it, it's not really one thing but a collection of many things that starts to mature and make broadband look more important." Online gaming is one of the more important pieces of that collection, says Mycio. In Korea, online gaming is one of the killer apps that helped broadband providers achieve their current measure of success.
Online gaming has a real chance to give the American broadband industry a shot in the arm, because the benefits are so clear for games with plenty of action and graphics. Sure, users can buy a CD-ROM that has all of a game's graphics and audio tracks, but in true multiplayer, interactive games, latency is an issue that will only get worse as gaming companies add more features to their products. For example, today, many games out there allow users to type short text messages to each other as they are playing in network mode. In the immediate future, text-based messages will make way for voice-based messages.
"Broadband makes gaming better," says John Riccitiello, president and COO of game developer Electronic Arts. "You'll be playing a game and be able to yell at your friend, 'I'm going to get you,' just like you would if you were playing sitting right next to them."
For a Fee? Maybe
Some companies are looking at the subscription model as a way to make money on broadband content. And although many analysts have declared the end of the Internet subscription model, at least in some cases the model is working. Case in point: RealNetworks, which has found success to the tune of more than 415,000 subscribers willing to fork over $19.95 per month to download audio and video. RealNetworks is hoping to strike gold twice with its new music subscription, RealOne Music, a $9.95-per-month service that lets users download songs to their PCs. Unlike Napster and other free music download services, however, RealOne's service prevents users from burning songs to CDs, downloading them to a portable player, or redistributing the music: This limitation could deter RealOne from achieving the incredible growth Napster enjoyed.
