Networks Starting to Say Who Needs Cable

License fee negotiations between network and cable operator tends to be acrimonious these days.  Where once this relationship was more friend than enemy, today, that frenemy relationship has become a more business relationship.  As a result, each time a network is up for license fee renewal, the likely outcome includes a period of being dropped before returning to the line-up.

But networks are also watching the success of subscription services like Netflix, Hulu, and Amazon, and are pushing forward with more OTT deals outside the cable-network boundaries.  Last year, CBS and HBO unveiled each of their OTT subscription services.  And Showtime soon followed the HBO announcement.  WWE offered a subscription service and just this week announced that they have reached one million subscribers.  Today, we have Viacom announcing that their children's network, Nickelodeon, is also planning to sell an OTT, direct to consumer, subscription service too.  Its success could lead to other networks in its stable, MTV, VH1, and Comedy Central doing the same thing.  And not having to work with a middleman like the cable operator may become more appealing as consumers get tired of paying high cable rates.

Consumers wanted a la carte and now they are likely to get it.  Unfortunately, buy too many of these OTT subscription services and your entertainment costs will soon exceed the cost of your cable subscription. The bundling of cable networks may have driven the total costs too high, but it did offer something for everyone.  A la carte may seem cheaper but only if a small portion is all you desire.  Cable operators had fair warning to fix their programming strategy but it got out of control.  Its time to revisit and fix their offerings and pricing. Enable TV Everywhere to authenticated customers to create a better must have subscription.  Cable can fix this mess but the time is now. 

Networks Quickening Their Demise

With viewership erosion due to streaming video, network ratings and consequently ad revenue are suffering.  But rather than seek ways to grow eyeballs, networks would rather add more ad minutes to stabilize and try and grow revenues.  But according to two different research studies, as mentioned by Deadline Hollywood, "Major TV network owners led by Viacom, A+E, and Discovery significantly increased the amount of prime time commercial minutes in their shows in Q4, helping to compensate for a decline in viewing."  It seems adding ad minutes is both short-sighted as well as likely to drive viewers to flee networks faster. 

Advertising is necessary to support content creation and cable networks in particular have enjoyed a two stream revenue model of subscription and advertising dollars.  But adding more ad minutes that interrupts content is what has driven users of TiVo and DVRs to embrace their trick features and fast forward through ads. And millennials have discovered the joy of subscription services like Netflix to enjoy content without any ad interruptions.  It is that next generation that is leaving traditional viewing patterns.

For now, networks are seeking short term results but it is leading to long term losses.  According to the research, "the most aggressive network owners were those with the worst ratings trends".  That is to say, more ads lead to lower ratings.  Perhaps it is time for TV networks to become more innovative with their advertising issues.  It is time to break away from the notion of ad breaks and think more outside the box; otherwise, sticking with the current approach is hurting your long term outlook. 

Is it time to consider again network sponsorship of shows, ad integration inside programs, and other ad efforts.  Less ad breaks insure viewers stay on the channel and deliver a higher attention span.  The longer the break, the easier it is to switch channels.  Less clutter, more impact.  It is time for networks to reassess their ad strategy.  What has worked in the past is now not working at all.  The model is broken and needs to be fixed. 

Cablevision To Sell WIFI Phone

In a move to try and displease cell phone companies, Cablevision has announced its plan to sell a WIFI only mobile phone service.  Dubbed Freewheel, not to be confused with the Comcast-owned enterprise service, FreeWheel (a capital W changes everything), Cablevision sees a market for low cost mobile phone customers. Cablevision customers can add on this new service for only $9.95/month while non-Cablevision customers can subscribe for less than $30 a month.  The service has one phone choice at the moment, the Motorola Moto G.

Certainly, the $10 a month price point undercuts all other cell phone carriers so the ideal market is Cablevision's own footprint where it has been expanding its WIFI capabilities.  But will the new service attract a sizable customer base to call it a successful business idea?  The low price point may sway some but as a society we have becoming increasingly mobile and the service will certainly have more dead spots than any cellular service.  And with cell companies already in a price war to attract new customers, coupled with more choices of smartphones, the Cablevision price difference without great connectivity, may not matter. 

My other question is how is Cablevision planning to sell its service. Has it gotten Best Buy or Target to offer it in any of its stores?  Cablevision once tried to enter the electronic business itself when it bought and ran Nobody Beats The Wiz for a number of years.  That chain is now a memory.  Cablevision could try to sell its phone in its own service centers but they don't tend to be too retail friendly either.  Online might be a consideration but consumers like to touch and try before buying; isn't that why the Apple stores are so successful. 

Cablevision's push into a WIFI phone seems one more attempt to compete with Verizon who overbuilds it across almost all of its franchise markets.  And while WIFI certainly augments the capabilities of a smartphone, the ability to be always available to accept a call or text may limit the appeal of a WIFI only phone.  Can Cablevision make it a successful business... I wonder. 

FIOS Not Seeing Cord Cutting

Verizon released its fourth quarter earnings, and unlike some cable operators, FIOS grew basic subscribers, an increase in additions over the same period last year.  They also cited an increase in internet subscribers, also larger an increase than a year ago.  On the wireless side of the business, the subscriber base grew as well with an increasing number of customers accessing smartphone capabilities for their cell phones.  

According to Multichannel, "Verizon said it added 116,000 FiOS video customers in the fourth quarter, up from 92,000 in the year-ago period, and tacked on 145,000 FiOS Internet subs, up from 126,000.  Verizon ended 2014 with 5.64 million FiOS video subs, good for a penetration rate of 35.8%, and 6.61 million FiOS Internet subs, for penetration of 41%."

Verizon said it added 116,000 FiOS video customers in the fourth quarter, up from 92,000 in the year-ago period, and tacked on 145,000 FiOS Internet subs, up from 126,000.

 

Verizon ended 2014 with 5.64 million FiOS video subs, good for a penetration rate of 35.8%, and 6.61 million FiOS Internet subs, for penetration of 41%.

- See more at: http://www.multichannel.com/news/technology/verizon-fios-drives-sub-growth-q4/387132#sthash.3SUAx27g.dpuf

Of course the demand on both wired and wireless is for faster speeds and more connectivity across devices.  Verizon clearly needs to invest in additional bandwidth as rivals try to undercut them on pricing.  As to the question of cord cutting, Verizon continues to defy the odds, taking new customers as opposed to seeing overall declines in their yearly base.  Pricing and margins may have to decline in order to maintain that subscriber growth.  Still, given how connectivity has become almost a utilitarian demand by households and individuals, Verizon seems poised to remain the leader in the marketplace. 

Netflix Delivers, What's Next

For those eager to watch a new programmer, disrupting the current channel line-up, and delivering new and syndicated content to the masses, look no further than Netflix.  It continues to drive viewership, both domestically and internationally, with an eye on further expansion and growth.  In its latest financials, it grew more than 4 million subscribers in the fourth quarter of 2014 and has a global subscription base of more than 57 million.  With additional countries to launch and content to create, consumers are actively engaging with their Netflix subscription. 

In fact, according to Variety, Netflix "accounted for 34.2% of all downstream usage during primetime hours, up from 31.6% in the second half of 2013, according to network-equipment vendor Sandvine. .... YouTube dropped to 13.2% of total peak downstream usage in March from 18.6% in the second half of 2013, according to the report.  Amazon Instant Video continues to gain, but still accounts for only 1.9% of downstream traffic vs. 1.6% last fall, while Hulu usage increased slightly from 1.4% to 1.7% share."  Further down that list is HBO GO at 1.24%.  Whether selling HBO GO outside a cable subscription will drive subscription and usage remains to be seen.

So how big can Netflix get? With about 30 million US subscribers and a cable universe that exceeds 100 million households, Netflix still has room for domestic growth along with its international push.  It drives its revenue as an ad free, subscription model, but one has to wonder when Netflix decides to enter the advertising game.  It may learn from networks like Bravo, AMC, and others that successfully transitioned from ad free to sponsorship to advertising.  Don't be surprised to see sponsorship or perhaps display or video advertising to appear on Netflix's home page. 

Given the market interest in continual revenue growth, a subscription only model might need to be revisited.  They could perhaps look at sites like Hulu and Spotify and others that offer a free, ad-supported version and a subscription version to drive faster growth.  And increasing subscriber fees will once again have to happen.  Increasing fees by 10 cents a month would improve current revenue an additional $68 million annually.  No wonder the stock market is humming over Netflix. 

Google Glass Reboot

The future of wearable technology is not glasses... at least not yet.  Google has decided to stop selling this ahead of the curve product as it figures out how to make it more useful for the consumer.  And while the team plans to improve upon it before its re-release, they recognize that changes need to be made. 

According to the Wall Street Journal, "The updated gadget will be cheaper and have longer battery life, improved sound quality and a better display."  They will also look at combining it with existing eye wear for those of us who already need glasses simply to see.  Of course functionality and ergonomics are at the heart of Google Glass.  Do consumers really want to wear glasses, especially if they don't have to.  Perhaps Google should partner with Lenscrafters or Pearl Vision Center to get better research on how consumers choose their frames.

And just for fun, may I suggest to Google that they drop the idea of glasses altogether.  Just watch Star Trek and the only character to wear glasses was Geordi La Forge and that was because he was blind.  Instead, Google should consider a fashionable pin accessory,
one used in the Next Generation episodes, with a camera and bluetooth ear piece for communication.  We've borrowed everything else from Star Trek, why not this too. 

Fox News Returns To Dish

While this deal left Fox News off Dish for a month, both sides eventually negotiated a deal to return both Fox News and Fox Business News to the line-up.  And like other negotiations before it, the cycle is once again complete.  Of course, it is only a matter of time for the next cable operator and cable network to go through the same song and dance revolving around contract renewal, network drop, and eventual network re-launch. 

Given that Fox News is the number one rated cable news network, the only surprise may be just how long Dish held out before finally accepting a deal.  We may never know who blinked first, but it seems eventually one side always blinks. 

Live Event Programming Proves Successful

While it has been a few days since the big game, no not the Super Bowl, but the first ever National Championship Game between Ohio State and Oregon, the results have been nothing short of amazing.  Creating a big televised live event, drives users to actually schedule their lives around the viewing as opposed to watching on a time, or even a day delayed basis.  Viewers tuned in, on ESPN, giving them one of their highest ratings ever.  But what also was impressive was how much social media grew as well.  Facebook and Twitter saw huge momentum regarding comments and photos about the game. 

For ESPN, the investment likely paid off with substantial advertising during the game.  Whether social media players drew more revenue remains to be seen.  But live events, and those that deliver competition, draw viewership unlike anything else on television.  It certainly keeps viewers tied to their cable subscriptions to assure access to this programming. 

Just Sunday, we had the Golden Globes, another live event for those who love TV and movies and fashion.  And today's Oscar nomination announcements will lead to another live awards event show.  NFL playoffs are this weekend and the Super Bowl is just a few short weeks away.  NBC has used live Broadway type shows to drive viewership as other networks look deeper into their programming mix to devise other live event programming to pursue viewership and advertising dollars. 

With so many choices of content to watch today across so many platforms, live event based television continues to drive people back to their television sets, even if just for a night.  And once viewers are hooked, it is a rare chance to remind them through promotional ads, what other content is available on that channel.  Live programming is the successful hook to keep them tethered to their television set. 

Apple's Next Big Product?

With all the focus on the release of the Apple Watch, it is clear that Apple wants to continue to innovate and attract consumers.  And while they are not always first in a field, they always seem to put their spin on a product category and build a sizable market base.  The iPod is a great example of a product released after other electronic companies came out with their own mp3 players.  The iPod took market share and eventually the lead because of a design that intuitively worked easier than anything else on the market. 

And so with all the focus on the Apple Watch release, Apple received a patent on a Go Pro-like, "remote digital camera system that can be controlled from a smartwatch", according to Techcrunch.  How soon this product is released remains to be seen.  Still it shows that Apple continues to look forward to new opportunities and in the case of the Apple Watch, seeks to make that product as unique as possible. 

What could Apple name this new wireless remote camera?  While Apple never put the i officially into its Apple Watch, it could make a comeback with the iCam.  Or they will simply call it the Apple Camera.  Suggestions are welcome.  How about iShutter, ActionCam, AppCam, or MovieCam.  And as for GoPro, it seems more competition may be coming. 

Amazon On A Content Roll

Whether it makes money or not, Amazon continues to play in the content sandbox.  That investment led to two Golden Globe awards for its original series, Transparent, just a couple days ago.  Well success must breed success as Amazon has gotten the notable writer and director Woody Allen to agree to come back to the small screen after many years of movie making.  Per Gigaom, " the company announced it’s signed Woody Allen to write and direct a half-hour comedy series. It’s the first TV show Allen has done and will be available exclusively through Prime Instant Video in 2016."  And given the fan base, that could drive more Amazon Prime subscriptions as well. 

Apple Watch, Boom Or Bust

Today's Wall Street Journal reminds us that software ultimately drives the best hardware and as it relates to the future release of the Apple Watch, those apps could be amazing.  With wearable technology a hot topic from this year's CES, watches and other bands are already on the market, capturing heartbeats and steps and more.  But to hear tell it, beyond early adopters, nothing has truly broken the mold. 

So a lot of consumers as well as investors have their eyes on the Apple Watch ready to see if it delivers a home run just as the iPod, iPhone, and iPad certainly have done.  If the Apple Watch finds little appeal, the Apple cache may take a beating; but if it proves to be a winner, some "project the watch will sell 30 million units in its first year, increasing Apple’s value by more than 10% and adding more than $50 billion to its market cap." 

The Apple Watch will certainly look cool, but how it functions is all in the apps and coming up with functions that add real value to our lives.  As the iPhone has created some terrific uses, from holding electronically all my loyalty cards to easier payment with Apple Pay, the Apple Watch could extend some of that functionality to the wrist.  It might also let us chat with Siri to more quickly call up certain functions.  For the next couple months, we will eagerly wait to hear what uniquely the Apple Watch brings to our lifestyle.  Boom or bust, we will have to wait and see.

Apple's App Store Is The Secret Sauce

Apple recently announced its iPhone 6 sales and the increase in share in the smartphone market.  But whether it is the iPhone or iPad or soon to be released Apple Watch, what makes these products run are applications and content.  And with iTunes and the App Store, this software marketplace offer s the fuel to make Apple's technology that much more valuable. 

Apple certainly knew the value of the App Store and we know too.  According to Mashable, "Apple says billings for its App Store jumped 50% year-over-year in 2014, suggesting App Store sales totaled at least $15 billion for the year, based on the more than $10 billion in sales it did in 2013." How many companies would love to have a $15 billion dollar business that is growing at a rapid rate.  And with new iPhones and other new products on the way in 2015, the App Store should only continue to excel.  What is also amazing is that this little side business must have a huge margin with minimal operating costs. 

And despite not being a huge percentage of Apple's total business, it is becoming a substantial one on its own.  As more consumers embrace the Apple ecosystem, more consumers will rely on the online Apple store for software applications and content to keep running their technology.  And that is what the secret sauce is all about.

How High Def Should A Television Be

When Hi Definition TV screens came on the market, it was a quantum leap in television viewing for consumer.  No longer were we confined by a 4:3 panel, now with a wider screen and more pixels, pictures were sharper then ever.  We faced a choice between a plasma screen and LCD and as competition increased, prices dropped.  HD TV was a revolution in the TV experience.

But since then, improvements in the TV screen have been less than enchanting.  With the push toward 3D, we pushed back, not willing to invest in 3D goggles to put over our faces.  And at this year's CES, the push is on for the next evolution of high def, ultra hi def or 4K.  But can a picture get any sharper? 

It took a number of years for content creators to upgrade their programs to HD and most decided to not even bother with 3D.  So will content companies invest again to upgrade to an ultra HD output in order for these new TV sets to be worth their price?  Certainly the early adopters will pay more for a big screen ultra HD TV set, but the average consumer will not.  Even as Ultra HD prices drop, current HD sets will likely drop even more.  And today's millennials are consuming more content through smaller mobile tablets and smartphones anyway.  For me, I don't have the same desire to own an Ultra HD or 4K set like I did when HD TV were first introduced.  Eventually content will be created for 4K, but I suspect that adoption and sales of 4K sets will take a much longer time to occur. 

Digital Continues To Hurt DVD Sales, VOD Down Too

While digital media sales continue to grow, DVDs are not.  It seems that consumers are fully adopting digital sales and subscription media over ownership of DVDs and other physical media.  Not surprising as more televisions are internet ready, more computers have dropped the DVD slot, and consumers are enjoying easy access of content through subscription services like Netflix.  In fact, DVDs and blu-ray discs were down over 10% from last year.  That trend seems likely to continue.

It should be noted that when all the figures of digital and physical media are totaled up, "Total home-video spending was $17.8 billion, dropping 1.8 percent from 2013, according to the report in LA Biz.  This total decline may be partly due to a weak box office, according to the report, but other factors may also be a result.  Consumer spending in general and less dollars focused on entertainment verse other needs may also be to blame.  Like cord cutting and cord shaving, consumers may be using subscription services and digital to pay less but get more content. 

Another interesting note from the report, while consumers have pushed back on physical formats, they also pushed back on VOD.  Total sales fell 6.7% from last year.  Again cord cutting and cord shaving may be to blame with consumers preferring to watch on mobile devices and getting access to programming via You Tube, Netflix, Hulu, Amazon, and other OTT outlets.  Given the push of these subscription services, I would not be surprised to see VOD numbers to continue to drop in 2015.  Until cable operators create an alternative online platform that is added value to its wired approach and touts a true TV Everywhere mentality, VOD will only continue to find a backseat to digital. 

Will Cord Cutters Buy Sling TV?

At the CES, Dish announced the release of Sling TV, a $20 a month bundle of cable networks that include ESPN, Disney, Discovery, HGTV, and Food.  Dish isn't worried that their customer base will switch to this lower priced service and I doubt that cable operators will worry either.  Despite being at a very attractive price point, the new service will not include any broadcast networks, but does include an odd assortment of cable nets, with a little bit for every interest.  I'm not sure how appealing the service will be.

Sling TV will include ESPN, but that might not be enough for the real sports fan who would want all the regional and national sports channels.  The sitcom and drama fan might like TBS and TNT, but they would also want more from other channels like AMC and USA.  The news junky gets CNN but nothing else.  And homes with children might like that Disney is being offered but they most likely would want Nick and Sprout and others.  For me, Sling TV is a little bit for everybody, not enough for anybody.  It looks more like a starter package to upgrade later with a cable operator. 

As to the cord cutters and nevers, Sling TV may be the appetizer to return them to full cord status.  But for the younger demo raised on You Tube, Netflix, and other OTT programming, Sling TV won't offer much incentive to purchase the subscription based service.  And while an OTT service of linear cable nets sounds nice, these same consumers have become more accustomed to on demand of programming they choose to watch at the time they determine.  Will Sling TV become an instant success; I doubt it and will have to wait and see how it is received.

TV Viewing On Your Terms

According to the Leichtman Research Group, " 76% of U.S. homes have a DVR, subscribe to Netflix or use video-on-demand from a cable or telco provider …26% of homes use two of those services, and 11% use all three ".  As for my household, we are in the 11%.  We are getting more comfortable with technology in the home and more apt to use it more frequently.  Income levels certainly play a part in this research study, as indicated.  But I would also like to know if geography also is an issue.  is DVR, VOD, and Netflix usage higher in major cities than in rural markets.  And is Netflix access taken more through broadband access or by cellular.  Clearly, the study demonstrates a trend toward ubiquitous behavior. 

(76%) of U.S. homes have a DVR, subscribe to Netflix or use video-on-demand from a cable or telco provider - See more at: http://www.multichannel.com/news/technology/76-homes-have-dvr-netflix-or-use-vod-study/386584#sthash.zFv2q2Xu.dpuf

(76%) of U.S. homes have a DVR, subscribe to Netflix or use video-on-demand from a cable or telco provider - See more at: http://www.multichannel.com/news/technology/76-homes-have-dvr-netflix-or-use-vod-study/386584#sthash.zFv2q2Xu.dpuf