Monday, April 27, 2015

Television Is Not Dead

Technological change has created disruption across a vast array of industries.  And while some companies are born and others die on the vine as they refuse to adapt to change has been a hallmark of business over the years.  But the real truth is that as industries change, room still exists for the past to stay relevant, although not at dominant levels.

In the world of the media platform, we are watching as digital has surpassed both analog and physical media.  Print publications still can bring value even as digital subscriptions grow.  CDs and DVDs are still being sold, vinyl albums too, as streaming music and video continue to advance. Radio did not die when television came along and television and cable will continue to exist even as OTT platforms drive adoption.  This weeks's Adweek does a nice job telling us that linear networks will continue to survive and that Content is King!    Even through this constant change, according to the article, "Consumers want access to great content. Brands want to deeply engage with their consumers. And television will no doubt evolve to survive." 

Linear television will survive because of live events.  Consumers will turn on the TV because they want to simply watch in a lean back environment, letting one program follow the other.  Sometimes, we want our TV to be our background noise.  How linear is transmitted though will continue to change as cable companies shift to IP enabled technologies.  At the same time, we will become more proactive when we want to watch a show, as well as when, where, and how.  Mobile and social will become more important tentpoles of our viewing experience. 

And content creators now have more choices to sell their shows and movies, from traditional broadcast and cable networks to premium services like HBO and Showtime, and OTT platforms like Netflix or Amazon or Hulu.  The rise in original content being shown at this years NewFronts make the traditional upfronts vulnerable.  But that is nothing new.  A decade or so ago, cable networks were the ones challenging broadcast.  Traditional media didn't die then and it still has much life ahead of it.  The industry continues to change and the successful companies are the ones that can adapt and change with it. 

Friday, April 24, 2015

The Future Of Cable

With the death bell struck on the Comcast - Time Warner Cable merger, the future of cable will no longer be dominated by a Comcast Cable/Broadband platform.  And as a result of the non-merger, Charter Cable will no longer purchase Bright House Network, and a separate, smaller cable MPVD, to have been run by cable vet Michael Willner, will not be created.  So what will the future of cable look like?

Many wonder immediately what today's news means for the AT&T and DirecTv merger.  I suspect that it actually continues to move forward and gets completed.  It can be argued that they make the combined unit a better competitor to Comcast in markets.  For Time Warner Cable, their choice is to continue as they have or to allow themselves to be purchased by another cable operator, namely Charter.  Prior to the Comcast deal, Charter was mulling a deal for TWC and without Bright House to acquire, TWC is a better fit.  I also suspect that rising valuations for these platforms might finally make Cablevision interested in selling.  Certainly, Tom Rutledge would love a chance to take over his former systems and merge them into his current Charter universe.

As for Comcast, the loss of Time Warner Cable may force them to look at smaller deals in the next few years.  TWC might be too big, but acquiring Cablevision might be the next best thing for Comcast.  With systems in New Jersey, Comcast and Cablevision would make a nice fit; Long Island remains a stand alone market, powerful and wealthy, and can work nicely with any cable operator's portfolio.

But the cable platform should not be limited to the wired competitors.  Given Google's growth in specific markets and the possibility that they acquire a smaller cellular company, Google could expand its wired and wireless reach as a broadband player, delivering OTT programming and expanding the competitive field. 

And then of course we have Verizon and their FIOS platform.  They too bring a strong wired and wireless play to the consumer and are aggressively marketing smaller bundles to stop cord cutting.  It may lead to cord shaving of existing subscribers but the hope by them is that it encourages non-cable consumers to come back to FIOS.  It is an aggressive ploy that content companies like Disney, Fox, and NBC are not happy with.  In addition to claiming contract violations, they are also refusing to carry the new FIOS commercials on their channels, something you would think the FCC would be very interested in reviewing as well. 

So what does the Cable/Broadband platform look like in 2025, 10 years from now.  Expect more consolidation with Comcast and a much larger Charter owning 70% or more of the wired US.  Expect Google to become a much bigger entrant, most likely from an acquisition of a cellular company like Sprint or T-Mobile. AT&T/DirecTv will create a strong chemistry to excel in the space while Dish continues to find an opportunity to bring two-way broadband via satellite to the marketplace. And as to Verizon/FIOS, I expect that more investment will be made into its cellular operations rather than fiber to the home to bring a best of wireless experience to the home and its subscribers.

As the the content side of the business, and more to discuss on another day, I expect that the next 10 years will finally lead to drops of lesser performing cable networks and a consolidation of channels.  Given the rise of OTT subscription services like Netflix and Amazon, consumers are more interested in watching shows, not channels.  As to which networks we say goodbye to, let's discuss.

Thursday, April 23, 2015

Will Comcast Drop Time Warner Cable Acquisition Plans?

Bloomberg is reporting that Comcast will give up on their efforts to acquire Time Warner Cable.  According to their report, Comcast is deciding today and could make their decision public by Friday.  Given all the time and money put into this huge deal, it is somewhat hard to believe that Comcast wouldn't continue to fight for its approval to the very end. 

Whether it is because they either see it as throwing more money at a losing fight or that they expect the conciliation that they would have to make to be too great.  Spinning off too many more systems to bring the penetration levels down to more acceptable levels for the FCC and DOJ or selling off assets like NBCUniversal may simply be unacceptable solutions.  It may simply be that Comcast is taking a page out of Sun Tzu and the Art of War, "If fighting is sure to result in victory, than you must fight, even though the ruler forbid it; if fighting will not result in victory, then you must not fight even at the ruler's bidding."  We will find out if this story is true pretty soon.  Stay tuned.

Future Of Advertising - Mobile And Social

As we engage more and more with our mobile devices, our smartphones and tablets, they become a much larger focal point for reach and frequency. More Facebook users access their accounts via through mobile rather than a computer. In fact, in Q1 of this year, Facebook's "mobile advertising revenue represented roughly 73% of advertising revenue", as mentioned in Business Insider. And given Facebook innovations, videos now automatically run as you begin to scroll down the timeline, hoping to snare you to watch and turn up the volume.  I know that I am like the majority, accessing these and other social media sites like Twitter, Pinterest, Instagram, and others on my iPad or iPhone.  And whether it is a display ad, or sponsored content, or other banner or video, this is where the future lies.  We are easily reached, personalized, and presented with relevant and hopefully engaging messages.  

And so other ad platforms may need to worry as usage patterns shift and so to the flow of ad dollars from one bucket to another.  Cord cutting on cable TV is not just an issue for subscription dollars but advertising dollars as well.  As higher percentages of our time are spent on our mobile devices and interacting with others via social platforms, so to will ad spend. 

It is why TV Everywhere is so important  for content providers.  And why many today have apps for authenticated viewing on mobile devices.  It is why the DOJ and the FCC are looking so hard at the Comcast - Time Warner Cable merger and that together they would control a majority of the broadband pipeline in the US.  Monopolistic pricing, controlled or limited access to content, and lack of a competitive threat are key concerns.  

And as I look at the growth of mobile, I am struck with an interesting idea.  For companies like Netflix, Amazon, Hulu, and others delivering content to mobile devices, the thought of complementing these services with social networks for its members to discuss content that they have consumed on their respective apps. Consider a Netflix social app that is easily accessed and used to reach other "fans" of House Of Cards, Orange Is The New Black, Unbreakable Kimmy Schmidt or other series and where they can discuss in detail.  Such a companion site would also enable these content providers to add an advertising revenue stream into their mix.  It may be a niche social platform at first but may just drive future growth.

For it is the increasing usage of mobile platforms in our daily lives and our desire to interact with others online that is driving new opportunities for advertising.  At the same time, traditional ad platforms, threatened by this new growth, must continue to play in the new space and become ubiquitous across all platforms, print, TV, radio, digital. By being accessible via the mobile platform, advertisers too will gain with better data based on individual preferences, not household ones.  And it is that one-on-one relationship that we have on our mobile devices that is the future of advertising. 

Wednesday, April 22, 2015

Can Yahoo Beat Google At Search?

There are a few truths, death and taxes are the big two, but another is that no one ever stays at the top of the mountain for ever.  In business, companies that are market leaders only need to make one wrong turn and their dominance is lost.  And those shifts can be self made or caused by external forces like environment, technology, or even societal changes.  So to say that Google, the leader in search can never be beaten, is simply not true.  The question to ask is Yahoo the company that can knock them off the top of the "search" mountain.

Today's Business Insider reports that Yahoo is working on a secret new product, code named Index, that will be used as a smartphone app and deliver a better mobile search experience.    Whether it will work or not remains to be seen.  At the same time, Google continues to dominate in the search world although mobile has opened up other search competitors.  Just recently, I did searches using Yelp to search for nearby businesses as well as restaurants.  It provided me both with choices based on my zip code or area on the map that I chose and it ranked them based on recommendations.  I found this search a more preferred experience than Google to help narrow down my choices and ultimately decide where to purchase and where to eat.  To me, companies like Yelp are already threatening Google's search dominance.

Whether Marissa Meyer, CEO of Yahoo, has the right idea and can translate it into an app that makes a better search experience remains to be seen.  I applaud the fact that Yahoo is trying to build a better mousetrap to overtake Google in the search game.  Given the rate of change in the mobile space, I am sure that there is an opportunity to succeed. 

Tuesday, April 21, 2015

Cable Mergers Derailed?

Will Comcast be allowed to acquire Time Warner Cable?  Will AT&T pick up DirecTv?  And does Charter get to buy Bright House Networks?  While the process seems to have been going on for an interminably lengthy amount of time, recent news has emerged that the DOJ might not be in favor of consolidation.  Comcast is scheduled to meet tomorrow with the Department of Justice to demonstrate why the merger should proceed.And should it not, it seems the above deals would fall apart as well.

The biggest concern seems not about carrying cable channels but having a powerful grip on the wired broadband marketplace in the US.  While competition has already been limited for broadband access, and Comcast and Time Warner Cable never competing with each other in any market, their combined entity would hold a powerful monopoly across the country.  And while DSL is a competitive option, the potential of cellular and wireless competitors could one day become a stronger force.

A bigger stumbling block may be the Comcast ownership of content including NBCUniversal and its broadcast and cable networks.  Already we have heard that issues with NBC carriage on OTT services like Sling TV and Apple TV.  In LA, Time Warner Cable airs Dodger games on its own cable line-up but has been unable to come to fair terms with the other cable providers in the market to air its sports network.  Would the DOJ or FCC require Comcast to relinquish majority control of their content networks as a compromise to their acquisition efforts?

With meetings this week, we will wait and see what happens next.  I suspect that ultimately approvals will occur. 

Monday, April 20, 2015

ESPN Objects To FIOS New Packaging Options

According to reports, Verizon's new packaging plan for their FIOS cable business violates the ESPN contract.  These contracts between cable network and cable operator are filled with a number of business and legal obligations including, how the network(s) are transmitted, packaged, ad inserted, data collected, on demand accessibility, confidentiality, and so much more.  In the case of ESPN, it is quite likely that the contract would stipulate that ESPN be carried on the most widely subscribed level of service and that the penetration of that level exceed 85-90% of all cable subscribers.  The FIOS plan specifically excludes ESPN in its planned new basic package and offers it separately in a sports tier.  For ESPN, that means the contract would not be in compliance.

Of course, it is not known the full extent of the contract, when it expires, and if FIOS expected to pay a penalty should early results of the new packaging program become too successful.  It will be interesting to see how FIOS responds and whether it continues to move ahead with its new packaging plans.  They certainly received positive reviews for upending the status quo model and responding to the competitive threats of OTT offerings like Sling TV and Playstation Vue.  But ESPN and parent company Disney may pose a big enough hurdle to force a delay.  With control of other nets like ABC, ABC Family, Disney, and more, it may turn into a very big and stretched out battle.

Friday, April 17, 2015

FIOS Favors Smaller Custom Packages

Following the trend of OTT rivals like Sling TV and Playstation Vue, Verizon's FIOS team is offering subscribers smaller, cheaper cable net packages to buy.  It is a clear attempt to win back cord cutters who have felt that their cable service has gotten too expensive.  And it seems the best way to deliver a cheaper package is to not include sports networks in their base line-up.

According to Multichannel, " Customers who sign up for Custom TV will get a “Base” (and ESPN-free) package with more than 35 channels – including the broadcast channels, CNN, HGTV, AMC, Food Network – plus two of seven available thematic 'Channel Packs' that each offer ten or more additional channels."  While not a true a la carte approach, it seems to be the next best thing.  And unlike some other OTT services, it does include broadcast networks.

The challenge for Verizon FIOS might be that today's millenial audience doesn't care for linear programming anymore and have already been weened off of traditional cable viewing.  Current FIOS customers might see this as an opportunity to cord shave or to cut back their service to a lower priced level.  This could be a big hit to the revenue line in the budget.  And costs of networks could rise, especially with sports nets that contractually may demand to reach 90% or more of the available basic subscriber base.  Failing to reach that penetration level could lead to license fee per sub increases.

Still, given today's digital climate, moving to a more flexible packaging scenario may be the only way to compete on a new playing field.  Further differentiation is necessary for FIOS and its cable brothers to maintain, or even grow, its subscriber numbers.  

Thursday, April 16, 2015

Netflix Growth, Now And Future

Netflix is currently on a roll, growing faster than estimated, and delivering a streaming video experience worldwide.  With a library of older TV content, a rotation of popular movies, and a commitment to original series, Netflix has created a strong value proposition, given a subscription fee of less than ten dollars a month.  Whether traditional TV sees Netflix as direct competition or a complement to their own line-up remains to be seen; still, new consumers are continuing to subscribe. 

As of the close of the second quarter, their total international base is almost 60 million subscribers with the U.S. alone counting for two thirds of that total. If cable households in the US are over 100 million, than Netflix still has a huge opportunity base to continue to grow.    The launch of HBO Now may be seen as a competitor, as is Amazon and Hulu Plus, but it is likely that consumers who desire the shows and movies from each of these choices don't view subscription as a zero sum game.  That is to say, these services can all grow together. 

The possible challenge to subscription only services is that at some point growth levels out and could possible shrink a bit.  At today's U.S. sub base of 40 plus million, raising rates just a dime adds $4 million dollars more in revenue every month and a dollar a month increase means $40 million more each month, or $480 million plus a year.  But rates can rise only so much so quickly before subscribers balked.  Cable TV is learning that painful lesson.  So how else does Netflix try to grow revenue?

With original programming, the possibility of syndicating series like House of Cards or Orange Is The New Black back to cable is a possibility although the value may be low given the ubiquitous nature of streaming.  Netflix certainly has gained lots of data on its users that could be sold as well.  Perhaps Netflix might consider adding a small amount of advertising into its welcome screen.  Banner ads while searching for content to watch could make sense without being too much of an intrusion to the subscription value.  And if it keeps subscriber fees down, even better.  Yes, their current one revenue stream model is working quite well, but I suspect that there must be some discussion on how to derive additional revenue opportunities for its existing base.