Disney And ESPN Rocked By Cord Cutting

High subscriber fees, a decline in sports interest, more entertainment choices, and other challenges have rocked the world of cable television.  The Disney company, a bellwether of the media industry, is feeling those changes firsthand.  In the last 2 years, we learn that the ESPN Network lost 7 million subscribers, ABC Family (to be rebranded to Freeform, a mistake I believe) has lost 5 million subs, and Disney Channel 4 million.  Hard to make up those revenue losses without raising advertising fees, but a smaller base doesn't help drive big increases.  It is unlikely to expect a rebound as consumers continue to cut the cord and seek more OTT programming alternatives.  And Netflix, Amazon Prime and others are driving them to switch with huge libraries of content ad the rise of original programming too.

For a must have network like ESPN, the rise in sports license costs, higher ticket prices to attend live sporting events, and other challenges have driven away the middle class family from attending games and building fan interest.  Instead, the draw has become fantasy gambling, a short term boon but ultimately long term killer of sports, in my opinion.  Television sports interest continues to draw healthy ratings, but the future generation fan may be less interested in watching.  As fantasy sites get barred from advertising and used in certain states, we may in fact be watching the tipping point in sports value.

As for networks like Disney and ESPN, their challenges are also being faced by other cable networks like Fox, Viacom, Scripps, AMC, and others.  Declining subscriber revenue cannot be made up easily.  Increased advertising minutes have led to viewers seeking OTT choices that are commercial free. It is no longer fun to watch a show or movie that has what appears to be more ads than content.   And that influx of ads, along with high cable bills, may be the two primary reasons customers are fleeing the cable universe. 

Amazon Prime Seeks To Master The Bundle

I have been known to say that history repeats itself; for good and for bad.  And in the world of marketing, a good idea is a good idea, often repeated under various creative strategies.  One such notion is the strategy of bundling, the art of combining items into a single, larger package.  Cable television did it quite successfully, first in bundling cable channels together and offering a large selection of differentiated networks at one low price, and again in creating the triple play of cable, phone, and data at one competitive price. 

Amazon has repeated that strategy with the creation of Amazon Prime, a bundle of services including same day delivery, cloud storage of photos, special offers as well as Prime Music and Prime Instant Video, all at a low annual fee.  And while the centerpiece is free delivery, the additional pieces help to create strong added value.  And the strategy seems to be working.

But delivery alone might not be enough and the value of content cannot be minimized.  Amazon seeks to strengthen its Instant Video subscription with original shows as well, including the Emmy winning Transparent. Now,Amazon Prime seeks to expand its Prime bundle with other subscription services.  According to Variety, "The retail giant has been pitching the idea to add third-party video subscription services to its Prime subscription service to TV networks and online video services, offering them Amazon’s huge Prime customer base with its existing billing relationships as an incentive."  That might suggest that services like HBO Now, Showtime, or perhaps even Hulu could be added to their bundle.  As cable has learned, the bigger the bundle, the more value perceived, the better to attract new subscribers to the service.

But cable has also learned what can happen when too big causes the bundled price to rise and for consumers to start cutting the cord.  For cable, it has led to the new term of the skinny bundle, with a lesser number of aggregated services.  As Amazon plots its growth strategy, let it also recognize that it can sometimes get too big.  Controlled growth, meaningful value, at a competitive price.  So far, Amazon Prime continues to make itself a valuable commodity, but if it leads to price increases then it can also hurt your efforts. 

TiVo Keeps Adding Subscribers

TiVo seems to be doing what other cable boxes cannot.  With a single box to manage all cable and OTT content to the television screen and mobile devices, customers seem to like their approach.  Their latest third quarter results have them gaining over 400,000 customers in the quarter through their cable partnerships and now have almost 6.5 million total customers.  According to Multichannel, its one of their strongest quarters to date.  With the release of their latest set top box Bolt and the start of the holiday season, the fourth quarter could continue to be strong for them.

Of course this is all happening as cord cutters continue to strike at the cable operator.  It seems that offering TiVo to their customers might be a good defensive strategy to keep customers from dropping cable.  Internal pressures might also worry TiVo with current CEO Tom Rogers leaving his post in February 2016.  How that might affect the future strategy of TiVo remains to be seen.  For now, TiVo is on track to exceed 7 million homes by early next year.

Adele Has A Distribution Strategy

Whether you care for her music or not, you still must admire Adele's business strategy with the release of her latest album, 25.  If the big money is in sales, then it makes sense not to rent out the music.  And that seems to be what a streaming strategy must feel like.  Like Taylor Swift, Adele has decided to limit her initial audience to a sale only strategy, from downloading tracks or the album to selling the physical CD.  For now, streaming subscription music services like Pandora, Spotify, or Apple Music are not allowed to play her latest music.  That means that fans must purchase and so far, the strategy has worked. 

In the first week, Adele has sold 2.5 million copies of her album.  With the holiday season just starting, the album is likely to continue to sell quite well.  It seems like a smart way to maximize revenues, using a windowing type strategy to create a high demand through a particular output platform.  And certainly, as sales begin to slow, the timing might become appropriate to add new platforms of distribution. 

NY Times Virtual Reality Delivered To The Home

I admit it, I still like getting the paper editions of newspapers.  And while I also like reading breaking news on my iPad and iPhone, I most enjoy drinking that morning cup of coffee and reading the paper.  Of course, the more times the paper delivery is delayed, the more I find myself ready to pull the trigger on receiving the paper editions.

Still, the arrival of an extra gift has kept me a subscriber for a bit longer.  A couple of weeks ago, the NY Times was accompanied by a cardboard box, that when folded together, became a virtual reality machine.  Download the app and a few videos and place your smartphone into the cardboard constructed device.  Instantly you are transported into your own VR world, 360 degrees of video. Look up, look down, look left, look right and watch as the action unfurls.  When others come to the house, the device becomes one of much discussion.  It is a new toy.  We may not use it much, be we have continued to keep it on our coffee table.  At least for now it has not made it to the trash can.

What next steps does the NY Times have in store for us with this VR machine?  Will they send another with home delivery?  If anything, it did cause some buzz and for the print industry that is hard to come by. 

Comcast Says No To YES

It's that time of year again and by that I mean the time of year when cable contracts expire and the game of drops and accusations start to air.  To start the holidays, the regional sports network YES, owned by Fox and the Yankees, have been dropped by Comcast Cable as no renewal deal could be reached.  For customers in the NY, NJ, and CT region, almost 1 million customers, that means the loss of the Brooklyn Nets on television. 

According to reports, the contract has expired for some time but it has reached the tipping point today with the network dropping off the line-up.  For how long, who knows.  Like every other negotiation, it eventually will come back, whether in a day, a week, a month, or even after the start of the Yankees, it will come back on the air.  But in the meantime both sides lose.

Is it possible that the drop could be permanent?  Despite a small, but loud percentage of sports fans, sports networks are hard to drop forever.  They may have some of the highest, most expensive license fees of any basic network, but the passion for the programming is always there.  So watch as we get radio, newspaper, and TV ads telling us how bad the other side is in the negotiation.  Programming contracts are all about the money and nothing else.

As Streaming Music Grows, It Starts To Consolidate

The streaming music industry is transforming quickly.  Apple buys Beats and creates Apple Music, then closes Beats.  Jay Z buys Tidal to bring the art of the music to those with a passion for high fidelity.  And today we learn that Pandora plans to buy out Rdio.  Per reports, Rdio must first declare bankruptcy before Pandora can buy out all their assets and hopefully retain most of their subscribers.  I'm surprised that Apple was not mentioned as a possible suitor for Rdio, but such is the fast changing nature of this industry.

With Pandora and Spotify still the market leaders, one wonders if Apple sees an opportunity as a niche player in this market or a desire to buy out one of the top dogs.  And given the employee turnover at Tidal, one can wonder how much longer they will be in the mix.  As I wrote last week in my blog on free music, streaming subscription music services still have to compete with commercial radio, many that have created their own apps to provide an alternative choice.  If you don't mind the commercials, its not a bad alternative.  Heck, even Sirius, the paid car and streaming audio service has channels that include commercials too. 

As for Rdio, the ride was a short one.  You will be a footnote in the history of streaming music but not the only one as consolidation is likely to continue.  The pace of change may be quicker but it is the nature of a very quickly changing media landscape. 

The iPad Pro Goes Big

While Millennials seems to enjoy their smaller smartphone screens over a tablet, they like the larger size smartphones over the smaller screens.  So the introduction of the iPad Pro, a much larger size screen seems counter intuitive to the mass appeal audience.  Walt Mossberg, in his re/code review, doesn't see the iPad Pro as a replacement for the laptop.  I agree.  I believe the laptop is uniquely qualified to handle certain applications, and especially useful for student and business applications.

Still, I believe the iPad Pro can find a strong niche use in commercial and industrial applications.  The added value of the stylus may be appealing to some, although the shear size of the screen may be the most important feature.  Will the average consumer want to go big with the Pro?  We will have to watch the Christmas Holiday sales to see who might be purchasing the device. 

Time Warner Wants A Piece Of Hulu

Time Warner wants another streaming business and that might include a piece of Hulu.  Per Deadline Hollywood, they are in early discussions to take a piece of the pie and join the Disney, Fox, NBC partnership.  But does it make sense?

I ask that question for a number of reasons.  First, they already own HBO Now and HBO Go and have a successful platform and subscription business that they control 100%.  Second, the idea of being a partial owner in Hulu will only add to the dysfunction of running the Hulu brand.  The old adage that "too many cooks spoil the broth" means that one more owner will further handcuff the strategic growth and tactical abilities of the Hulu brand to grow.  And third, that Time Warner's other cable content brands lack enough quality content to be anything more than long tail entertainment. 

Can an investment by Time Warner in the Hulu business draw a positive ROI?  I am sure the financial analysts are asking all the same questions in determining how to best improve revenue.  There is no guarantee of success.  Time Warner only needs to look internally at some of their failed networks like CNN SI, the Sports Illustrated Network.  I am sure there are other misses as well.  That is not to say an investment in digital doesn't make sense; but, wouldn't you rather have total control in your next business opportunity then a 25% position.

What's Wrong With Free Music

The rise in premium music services shouldn't surprise me, but it does.  I grew up on AM and FM radio and enjoyed listening to everything from talk to news, pop to Dr. Demento.  In exchange for free music, I also heard ads that ultimately paid for all those stations to air.  Today, a number of these same stations offer commercial-free blocks to entice us to stay connected, but we find ourselves with more and more choices, many requiring a monthly subscription fee.

Sirius and XM Satellite, who later merged, seem to have started this game of offering a premium experience while sitting in your car.  Sirius brought Howard Stern over from free radio and many joined him in his move.  Today, fans of music can pay monthly fees to listen to streaming radio from choices ranging from Spotify and Pandora to Apple Music.  And today's NY Times reminds us that your Amazon Prime subscription includes both a video platform as well as a music platform.  And consumers seem willing to pay for the milk when it is also available free. 

Is it the greater choice, the lack of ads, the portability, the freedom to choose what to play next, the convenience?  They all come to play.  We have switched from carrying a portable transistor radio to carrying our smartphone and technology has played a large role in opening up new competition.  But I still come back to the point of free verse pay.  Commercial radio stations also present themselves online as well, as easily acceptable as any paid app.  The music industry certainly presents itself as a terrific case study in the world of content vs. distribution, free vs. pay.  How it continues to evolve remains to be seen. 

ESPN Not In Trouble, Despite Firing 300 Employees

ESPN parent company, Walt Disney, released its quarterly financials last night and let us know that the Magic Kingdom is as healthy as ever.  Profits and revenues have both grown and the media division that includes ESPN rose 27% from the period last year.  According to the NY Times, "Disney said the increase was primarily due to higher ESPN affiliate and ad revenues, partly offset by higher programming costs".  Yet, as a Christmas present to 300 employees, they received their layoff packages.

ESPN and Disney are not suffering.  In fact, their bottom line was never stronger.  No the decision to fire 300 employees was to appease investors and not the business.  I don't mean to suggest that Disney or other public companies need to be charity centers to their employees; but, couldn't ESPN do something else with these 300.  Given the diversification of the empire, why couldn't these 300 be given internal opportunities to apply to other divisions within the company.  They have already demonstrated a fit to the organization, many have provided multiple years of impressive service and their experience might be truly welcome as other lines of businesses seek sales, marketing, production and other types of support.  I doubt that ESPN or Disney even considered that option.

So ESPN laid off 300 employees only to tell us that the company and brands are "stronger than ever".  I just don't believe the two stories jibe.  Thoughts?

Digital Killed The Television Star?

If you remember back when MTV first emerged, the first music video was "Video Killed The Radio Star".  It spoke to the demise of the old media with the rise of music video.  It was certainly not true, radio did not die, although it too was changed as the result of technology.

Today, it is television that is being affected by the rise of new media, digital and streaming media.  Consumers no longer are tethered to a box; rather, the screen moves with us and we control when and where we want to watch.  It has led to cord cutting, not just because of the freedom of movement, but because the cost to access on a tethered box has gotten too high. 

We want smaller bundles at lower price points.  Netflix provides its bundle of TV shows and movies for a low monthly fee and Amazon, Hulu, HBO, and others each do the same.  And as consumers we can pick which of these services we wish to carry.  With cable television, the appeal of their large bundle of shows and movies, linear and on demand, diminished as the price of carriage kept rising faster and faster.  The biggest culprit of that rise has been sports programming and the demand to license its content has enabled more channels to carry a piece of sports.  Where a decade or more ago, sports was the exclusive home to a few nets; today, games are seen on dozens of regional and national sports networks.  And consumers paid for access to each and everyone of these nets to be accessible on basic cable.  Ultimately, consumers pay too high fees for too many networks they may not want. 

Has digital killed the Television star, of course not.  Neither did video kill the radio star.  But digital has changed the playing field so that consumers have more control to cut the cord when their primary source for video has gotten too expensive.  Lesser expensive options with a diverse supply of streaming video now makes the choice to cut the cord easier to make.  Digital has changed the playing field and it is time to rethink the cable bundle. 

Stock Market Worried About Cable Networks

When Time Warner Inc. announced lower earnings expectations in the future, the stock market responded by selling off a list of cable network stocks.  From Time Warner to Discovery, from Disney and Viacom to AMC, a consistent sell off was evident.  But what drastically changed?  Just a week or so ago, ESPN cut 300 jobs to lower costs and hopefully improve earnings.  Cord cutting has been much discussed over the last number of years; in fact, many cable operators have been posting much smaller sub losses in their latest quarter.  And content companies have been pursuing new streaming deals and other revenue lines to boost earnings.  So what really changed?

Sure, the announcement that Time Warner Inc. now expected lower earnings in the near future. But just yesterday, its premium network HBO announced it was the new home for future Jon Stewart content.  And that news was positively received.  As to the daily price fluctuations of media stocks like Time Warner, Inc., the likely means to restore earnings will be to cut costs.  Expect some layoffs from a number of these companies to boost earnings for its stockholders. 

Star Trek Boldly Goes Back To CBS

For Trekkers, or Trekkies, the news that another Star Trek series would be coming back to television was met with very loud cheers.  That it won't be seen for 15 months, not until January 2017, tempered that applause.  Star Trek, first created by Gene Roddenberry in the 1960's, has seen itself grow from TV show to movies back to TV show and back to movies with different casts embracing the sci fi drama.

CBS seems to be using this popular series in a two-fold strategy with first-run episodes appearing on the flagship CBS network and subsequent runs of the show seen exclusively on its streaming subscription app, CBS All Access.  Currently, the $5.99 monthly app offers other CBS programs including the original Star Trek episodes. Is the Star Trek universe large enough to entice more subscribers to CBS All Access?  Probably not but I would be on the look out for more deals to be announced like this.  As CBS is not an owner in Hulu, this streaming property is their own strategy to retain the CBS brand in a digital world.

As to the new Star Trek series, little is known about the series.  Its place, characters, story lines are all a mystery for now.  But for those waiting for the follow up to Star Trek Enterprise, we will boldy go where CBS takes us. 

Note:  Some are suggesting that CBS will air only the first episode on CBS with the remainder of the season exclusively on CBS All Access.  Will that encourage consumers to subscribe to the service or fail miserably?  I think it would be a mistake to all of its constituents from the TV viewer to the local affiliate, from the cable operator to the cable subscriber to not air the series first on broadcast. The greatest revenue opportunity for CBS still lies with traditional television. 

Serial Adds Another Platform

The popular podcast Serial, known for its analysis of the Adnan Syed murder trial, has expanded its distribution platform.  Previously, Serial was only available as a free downloadable podcast, but the next season's episodes will also be available on Pandora.  Good news for those that don't know how to download a Podcast.  It should continue to be available for Pandora.

As a fan of Serial, part of me would hope that they would deliver a new update focusing on what has transpired and changed since their report was first made.  It seems that may not yet be in the cards.  Some expect that season 2 of Serial will instead focus on U.S. Army soldier Bowe Bergdhal who deserted his post.

According to Polygon, Pandora will put season one on their site later this month.  The date for season two has not yet been released.