Thursday, October 30, 2014

Amazon Still Pursuing Hardware At Their Own Peril

Last Friday, I wrote about Amazon's identity problem with their hands in too many places and their financial results deemed disappointing.  They have clearly embarked on a strategy of forsaking short term results for long term opportunities.  And they continue to invest across the board, sometimes at the risk of losing money. 

Hardware products continue to attract the attention of CEO Jeff Bezos.  According to the NY Times, "Amazon now looks to be preparing a full-scale ground invasion of the rest of the gadget landscape. In addition to a new Kindle reader, this year the company entered two new device categories, and it expanded the rest of its hardware lineup."   Their latest release is the Fire TV Stick, a Chromecast-like device to distribute OTT content on your TV.  At the same time, they are updating their Kindle e-reader and tablets.  Unfortunately, their attempt to get market share in the competitive mobile phone arena has failed.  Again from the NY Times, "Amazon disclosed last week that it was sitting on $83 million in unsold Fire Phones, and would be taking a $170 million write-down on that program."  With Apple and Samsung releasing larger mobile phones, many see cannibalization of  the tablet market. In fact, while Apple iPad sales slow, their iMac sales have grown. 

Is hardware the right business for Amazon; The e-reader market helped them to drive e-book sales.  But in the world of tablets, smartphones, and OTT, Amazon may not be so lucky.  Their strength as an e-commerce retailer might be better suited working with the Apple's Samsung, and Google, not competing against them. 

Wednesday, October 29, 2014

Digital Driving NFL Offenses, but Penalties Are Key

A terrific read in today's Wall Street Journal on technology's effect on NFL offense playmaking.  Where the sidelines once relied on photographic print outs to make their way down to the field, they now have tablets, courtesy of a Microsoft sponsorship putting their Surface tablets on the sidelines.  Instantaneously, players can see not only images of the last play but actual footage as well.  For the offense, it seems to have had an effect on yardage and scores. 

And according to the article, it has been a boost mainly to the NFL offense.  While tablets have been on the field for four years, according to the report, somehow this year is different.  I'm not sure that I believe that having this access favors the offense.   The defensive side of the ball gets the same information and can make similar adjustments.  As a fan of the NFL, I believe that it is the rule changes that have had a bigger effect on playmaking then tablets on the sideline.  New rules on defensive holding and illegal contact give a big advantage to offenses.  Penalties can enable offenses to get a fresh set of downs.  The NFL recognizes that more points on the scoreboard tends to make games more exciting, resulting in more viewership and fan interest.  With more penalties being called on the defense, the offense has more success. 

Yes, the technological changes have helped the offense, but they are there to help the defense too. Is it giving the offense an unfair advantage.  I'm not so sure. 

Tuesday, October 28, 2014

Layoffs Abound Across Cable Networks

Mergers across cable operators, the fear of cord cutting, and disruptive changes in distribution and content are driving a rise in layoffs in the cable industry.  This summer, we heard of layoffs at Fox and Al Jazeera America, last month it was CNN, Cartoon, TNT and Scripps (HGTV, Food), last week it was AMC Networks ( home of AMC, IFC, WE and Sundance), and today it is HBO.  Not surprising in that both CNN and HBO are part of the Time Warner and Turner conglomerate.  With layoffs hitting 10% of total staff, it is clear that consolidation and disruption in the cable and media industry are affecting the size of the workforce. 

It doesn't take a fortune teller to recognize that more layoffs will come in this fourth quarter.  The announcement that AMC has bought a 49.9% stake in BBC America with plans to run that cable network will likely come with additional layoffs too.  NBC and Disney saw their share of layoffs last year but could see more in the future.  This is not a knock on any of these companies; the industry has followed the classic life cycle curve and as it matures, less growth means less labor.  This change is inevitable but the hope is that from disruption springs new job opportunities for all. 

Monday, October 27, 2014

DVR Fails For SNL, While Yahoo! Screen Delivers

Our cable dvr is set to automatically record certain programs, but doesn't always succeed.  In most cases, it cuts off programs before they end and every now and then fails to record at all.  Such was the case when I turned to the dvr on Sunday to catch up on last night's Saturday Night Live only to find that it didn't record.  I looked through the history but it failed as well to tell me what went wrong.  And going to our cable's on demand function was no better as the SNL episode was not immediately accessible.  But thanks to streaming, I had another option.

Opening up the iPad, I clicked on Yahoo! Screen and there was every skit and all the musical performances from the show.  And while You Tube carries certain clips from the show, it doesn't show it all.  The best part watching was that I did not have to endure one commercial to watch; the worst part was that buffering created certain delays that forced refreshing in order to watch.  Once each clip played, I was shown a short promo to watch SNL on NBC  and then the next clip would automatically start to play.  Yahoo! Screen proved to be a great solution to a cable dvr catastrophe. 

Saturday, October 25, 2014

iTunes Adapts To Meet Changing Demands

With Apple's quarterly financial news, most attention was paid to iPhones and iPads, but Apple also finds revenue from its iTunes business. According to the Wall Street Journal, "global iTunes sales—including movies, apps and books—increased to $4.6 billion in the third quarter, up from $4.3 billion in the same quarter a year ago."  Revenue is up despite the fact that music downloads are declining.  Consumers no longer feel as much a need to own when they can enjoy listening via streaming services.  Pandora and Spotify have become big winners as a result.

But Apple was not blind to this change in consumer purchase habits.  earlier this year, they purchased Beats and with the headphone business came a streaming business as well.  How they fe=it Beats into the Apple iTunes infrastructure remains to be seen, but they clearly recognized that a change was needed.  Still iTunes revenue has grown year over year and that is because the iTunes business is more than music.  It encompasses video, books, and apps too.  With the release of Apple Watch, more apps will be sold to run that product line.  And iTunes may also be the home for Apple Pay and the rise of other e-commerce type businesses. iTunes continues to face changing consumer interests while it continues to be the online store its products need for application and content consumption.  And iTunes revenue, already the size of some other Fortune 1000 companies, should only continue to rise. 

Friday, October 24, 2014

Is Amazon Trying To Do Too Much?

Amazon released its quarterly earnings yesterday and the results were poor.  Expectations have been high for the company, but revenue growth was low and losses are adding up.  On the financial front, troubling signs remain.  So what is the problem?

From an outsider prospective, Amazon may simply have an identity problem. Their success as an e-commerce and retail disruptor continues to propel them, but at low profit margins.  But they have ventured outside their e-commerce world as a technology/consumer electronics company (Kindle e-readers, Fire tablets and smartphones), a content creation company (Audible, Amazon Studios), and a content distribution company (streaming via Amazon Prime).  They have acquired numerous companies and have grown both domestically and internationally.  But in their race for both breadth and depth, Amazon may have been unable to focus on a few particular businesses as their attention is forced to take a more wide-angle view.  is it time to simplify?

Such a strategic move is not unique.  Microsoft is going through such a re-focus now with an eye centered on more cloud-based businesses.  Netflix pulled away from the dvd business to concentrate more fully on streaming.  Amazon remains an amazing online business that has helped consumers to find and receive almost any good they need from around the world.  But should phones and tablet be also a part of their DNA?  The content creation and distribution game is a lucrative one as any studio or network will tell you; one year you have the must-see show or movie, the next year, you have miscalculated and lose millions on bad picks. 

According to the NY Times, "Amazon’s story for several years has been that it is growing furiously, investing heavily and postponing profits until the halcyon days just around the corner when it will sell all things to all people all the time."  But always waiting for tomorrow is not necessarily a good thing.  It must be mixed with a live for today mentality; otherwise, one moment it is in front of us and the next it is behind us and we never had the chance to be in that moment. 

Unlike brick and mortar companies like Sears and Barnes and Noble, Amazon has more good days ahead of it.  Their quarterly results are a wake-up call, but they have the right assets to continue to prosper moving ahead.  My advice is to simplify and streamline to focus on doing what is most important.  As Jim Collins refers to in his book, Good To Great, have a hedgehog approach to doing a few key things well and get everyone on that bus to strive for greatness.

Thursday, October 23, 2014

FCC Puts Cable Mergers On Hold, But Should Approve Them

The FCC review of the Comcast - Time Warner Cable and AT&T - DirecTv mergers has been temporarily suspended.  According to Reuters, "The FCC, which will determine whether the deals are in the public interest, said it will pause its self-imposed, 180-day shot-clock deadline to decide how to handle highly confidential documents related to agreements with media companies." Content companies simply don't want to make public who gets charged what for their networks.  

Simply put, the cost that Disney or Discovery or Scripps or any other network charges for each of their networks will be less for an operator the size of Comcast then for an operator the size of Cablevision.  It is one of the dirty little secrets of contract negotiation.  Larger operators get charged less per subscriber because on the aggregate level, they pay a large total sum for all their subscribers.  The larger their reach, the better the deal they can negotiate.  And monthly costs for cable programming can get expensive as operators multiply it by all the channels they bundle to consumers.  It is why their is the latest contract fight between Turner and Dish.

At some point, the clock on these mergers will resume and the FCC will be asked to approve or disapprove each respective merger.  Ultimately, both efforts should be approved.  Size efficiencies are necessary to assure blanket coverage of cable and broadband across the country.  Disruptive technology assures that content companies can reach consumers outside the cable paradigm.  Netflix, Hulu, Amazon, and even CBS and HBO GO are great examples.  I believe these mergers actually improve the competitive front in the cable/broadband space with fewer, although more powerful competitors.  Will prices rise; they always do.  But the cable industry is simply following the industry life cycle curve that many other industries also face.  As they mature, the number of companies competing become fewer, yet bigger.  Look no further than industries like Airlines, Oil, and even Media.  It is the norm.  What is also true is that disruptive changes always occur that lead to new businesses and new competitors.  And that is what makes our free economy work. 

Wednesday, October 22, 2014

Dish And Turner Engage In Latest Channel Drops

Another expired contract, another drop of channels until negotiations are resolved.  Today, the battle is between Dish Network and the Turner Channels, including CNN, Cartoon, and TCM.  Excluded in this particular negotiation are TBS and TNT.  And the loser at the moment are Dish customers who love these channels.  As I have said before, this chess game strategy of dropping channels to incite pressure has become part of the playbook between operator and network. 

Will customers drop their Dish subscription?  They might, but the next cable operator they sign up with will eventually go through a similar battle.  Just ask Time Warner Cable when it dropped CBS last year.  CBS may have learned some lessons from that last negotiation.  With its announcement of a streaming linear and on demand service, CBS can offer customers an alternative viewing choice.  Turner may feel a bit of a sting from the loss of 14 million customers from Dish.  Whether it is a long or short term drop, Turner might do well following the CBS model to build out a streaming platform of its own.

At the end, these streaming a la carte channels may solve some of these drop issues.  Customers who try to buy multiple a la carte services will only begin to recognize that the bundled cost of services provides a better value for a large number of channels.    Only when we care about a select few number of streaming subscription channels is a la carte the cheaper choice. 

Tuesday, October 21, 2014

Cable Nevers And Cord Cutters Aren't The Same Thing

As cable subscriptions drop, many cite the rising niche of cord cutters as the cause.  They are households who once had a cable subscription that decide to drop their service, likely for a broadband only video world.  Cord cutters may be motivated to their action due to the rising costs of TV programming that gets passed on to the consumer by price hikes.  The rise of streaming services like the new CBS streaming app and HBO GO to offer non-cable streaming access to its content is seen as a way to recapture these cord cutters.  But perhaps they are not the only non cable groups.

Cable Nevers, or households that have never had a cable subscription, may also be on the rise.  They are the next generation of home or apartment owners, fresh out of school, or on limited budgets, that determine that a broadband connection is more valuable to them then a cable subscription.  Under a household controlled by their parents, they enjoyed the fruits of cable, but on their own, they beg, borrow and steal to get access.  Some stay connected to their parents Netflix account, or their authenticated HBO GO subscription or perhaps an Amazon Prime account and some may connect to a Slingbox from a friend or family.  At the same time they enjoy access to a ton of free content from You Tube, Hulu, Crackle, and more.  And when they must watch a linear show, a local bar might just offer a game or two.

The threat of high costs of cable subscriptions may not be that current subscribers will cut the cord; we may be too addicted to give up on all that content.  The real worry is that the next generation of households will start their homes without a cable connection.  On limited budgets, their video entertainment will come from OTT connections and Cable Nevers they will remain.