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.

Monday, October 20, 2014

CBS Streaming Service Already Available

While HBO announced its unbundled streaming service, it is not available; CBS not only announced but it is already available for purchase at this website.  At $5.99, consumers can access both the live stream from their affiliate and a large library of on demand TV shows, from I Love Lucy and Twilight Zone to NCIS and The Good Wife.  And while the NFL won't be available, some live sporting events and other live events will be made accessible on the streaming app. 

For cord cutters wishing to still get TV programming, it might be a good deal.  But take the CBS model and watch it get copied by other broadcasters and cable nets, and the costs to subscribe to multiple channels quickly rise.  Buy 10 streaming channels at $60 or 60+ cable channels from your cable operator for $60.  Still, happy with access to a few channels will certainly make a subscription to CBS a cheaper deal.

There is one other advantage that the CBS streaming model offers.  When broadcaster and cable operator get into a license fee battle and their channel is removed from a cable line-up once the contract expires, CBS can now promote their CBS app to access their channel and not promote switching to another cable provider.  It may not be a perfect short term solution, but it is certainly an elegant one. 

Friday, October 17, 2014

Online A La Carte Could Make Cable Subscriptions A Better Deal

Bundling, in the cable vernacular, has been seen by consumers as a bit of a dirty word.  Forced to take a number of channels that they would never watch, consumers heard the pitch that they would get better value for all its accessible networks.  Bundling applied to the services received as well; the Triple Play enabled consumers to purchase cable, broadband, and phone for one low price, getting discounts for being a multi-platform customer.  But as the costs for cable keeping inching up, customers have felt that a la carte would get them a lower price for only the services they truly wanted.

With threats of cord cutting and cable nevers, broadcast and cable channels are finally opening the door to a la carte subscription models.  HBO announced plans to offer their HBO GO digital subscription to non-cable customers and now CBS has announced their plans to offer a stand-alone digital content platform outside the cable spectrum.  Their hope, and that of others, like Univision, is that incremental revenue growth can be found in the digital subscription model.  Plus, it protects and competes on the same web platform with current online rivals like Netflix, Hulu, You Tube, and Amazon Prime.  Will CBS or Univision offer these digital services as added extras to authenticated cable customers like HBO offers with HBO GO?  The allure of an added revenue stream might just prevent them. 

Current cable subscribers might be encouraged by such content availability online and consider finally cutting their cable cord.  Those tired of paying exorbitant fees for their cable subscription could now get just what they want for less.  Or can they?  Online content usage shows that consumers have an insatiable appetite for video.  We keep searching for more and more to watch.  And as we sign up for more of these online services, the costs add up to the tipping point where a cable bundle just might start to become a better content deal.  And consumers that opt out of their cable subscription may start to see their Triple Play discounts evaporate.  They will pay more for broadband only service from cable, and even more to up the speed for download, as cable operators keep raising their prices. 

Cable operators are certainly hoping that cord cutting will be minimal.  Because consumers' demand for online content is growing, operators hope that subscribers will buy cable AND buy these monthly online digital services. And that might encourage networks to shift programming off on demand and onto their paid subscription models.  A la carte might just win the day but consumers will find that they are not only paying more but receiving less content as a result of cutting the cord. 

Thursday, October 16, 2014

Could Cellphone Beacons Ruin Our Lives

As humans, we follow Pavlovian tendencies.  And with our mobile phones, it seems that every buzz or ring causes us to quickly stop what we do to look at our phones.  In some cases we even look at our phones when it is someone else's phone that is ringing.  But the worse problem is when we look down at our phone and end up tripping or running into something.  Embarrassing when we are walking, deadly when we are driving.

So the NY Times article on beacons may at first seem promising, it poses problems too.  "Beacons, tiny low-powered radio transmitters that send signals to phones just feet away, have quickly become a new front in the advertising industry’s chase to find you whenever, and exactly wherever, you are."  In a store, they can alert you to coupons and specials, notify you to new information, offer rewards, and other one-on-one engagements.  But they also cause us to look down at our phones and not around us in the space we are occupying.  We may think we can be good multi-taskers, but we end up not seeing what may be right in front of us. 

In some cases, beacons can create some unique opportunities; but, overused can become a big problem.  Used properly, "They could enrich museum experiences, deliver the right recipe in the grocery store aisle, take us on interactive tours of cities and towns, let us quickly and easily check in to hotels or even pay at the gas pump."  Misused and we will walk into other people, crash into a  cart, trip and fall, or simply be so busy looking down that we fail to see the world we are living in.  Unfortunately, I doubt that restraint will be used and we will need to become even more careful as we navigate around so many people looking down at their cell phones.

Wednesday, October 15, 2014

HBO GOes Without Cable

HBO just announced that in 2015 it will start to offer the HBO GO digital content, without a cable subscription.  While there are limited details, HBO has clearly been feeling the heat from Netflix, Hulu, Amazon and others.  And while HBO cable subscriptions continues to deliver valuable revenue, the threat of cord cutting can damage their leadership position.

I wouldn't be surprised to learn that HBO offered some deals with their current cable providers to move in this direction.  Such alternatives might have included revenue guarantees against current customers that might drop HBO cable for HBO GO.  I believe that HBO's research would indicate that they won't experience this shift in viewing.  I suspect that current cable/HBO subscribers will maintain their subscriptions and HBO GO being offered directly to consumers will actually result in more additive growth than shifting of platforms. 

There is certainly a risk that this move by HBO to offer HBO GO and the likely repercussions of other premium services like Showtime and Starz developing a similar move, will ultimately lead to greater cord cutting.  It may also lead to cable companies pursuing more a la carte offerings to deliver a lower priced set of networks for consumers still seeking a cable platform.  At the same time, cable companies must also push for a complete TV Everywhere experience that lets every linear and on demand channel to be accessible via authenticated viewership to its customers.  Till then, this move by HBO is a necessary one to stay competitive against its digital rivals.

The Proliferation Of Sports Networks

The Fall always seems to be the busiest time for sports on television.  You have the end of baseball, the start of football, hockey, and basketball, plus soccer and tons of college football games.  And for each of these games, a network, or two, or four, or eight, etc. to meet the need.  We have in fact over the course of a couple decades seen many of our games move off of network TV onto newly branded cable nets.  And for each new network that is created, the demand for live sports programming helps to raise content fees which ultimately get passed through to the viewer in higher subscription or license fees. 

Where once the broadcast networks were the face for professional and college sports, each has a cable network or more to off load its sports programming.  ABC has the well known ESPN brand including ESPN, ESPN2, ESPN News and more, NBC now has the NBC Sports Network as well as Golf Channel, CBS has its CBS Sports Network and Fox with Fox Soccer, Fox Sports 1 and Fox Sports 2.  Each pro league has its own network, too.  We have NFL and NFL Redzone, MLB Network, NHL Net and NBA Net.  Even non sports cable networks like TBS has deals to carry pro baseball and pro basketball.  And for regional college and professional interests, networks like YES, MSG, NESN, Sportsnet and more make sure your local team is covered.  Plus the Big Ten, SEC, and more.  Tennis Channel makes sure its fans get access to matches while outdoor sport fans have Outdoor Channel, Sportsman Channel, World Fishing Net, ONE World Sports, and more.  And each network wants a license fee for cable carriage.

Wonder why our cable bills continue to rise.  The proliferation of sports networks, especially the ones showing live games, is a primary cause for such high rates.  The demand for live sports are also rating winners too.  But too much of a good thing has the potential to kill the golden goose.  Consumers can only pay so much and need to shave the cable cord on channels or cut the cord on their cable subscription all together.  Its great to have access to such a diverse array of sports and dozens and dozens of channels to view them all, but too much may be too much.