Less Commercials To Save Linear Television

We gravitate to streaming services like Netflix and Amazon Prime so that we can watch our video content when we want and how we want, without commercials.  It has been the rise in commercial minutes per hour that has hastened the departure of viewers from linear TV. But perhaps slowly, networks are recognizing that too many commercials may be a wrong play.

Starting next year, Saturday Night Live, an NBC late night staple for 40 plus years, is reducing the number of commercials by 30%.  According to Ad Age, "It will do this by removing two commercial breaks per episode, giving viewers more content, said Linda Yaccarino, chairman-advertising sales and client partnerships, NBC Universal."  In addition, it will also use branded original content to drive ad revenue.  It may not be as blatant as Jack Benny selling Lucky Strike cigarettes or Jello, but it will certainly attach a particular brand to real content.  Certainly more appealing than most of the commercials that currently air.

The article also adds that other cable networks are also considering reducing ad load.  "Viacom and Turner are also working to reduce the number of commercial minutes in prime time."  Let's hope that more follow.  And while the cost of an ad may rise, so too may be the number of viewers that stick with a linear show and continue to watch. 

Viacom Couldn't Risk Losing Dish Carriage

For all the craziness surrounding Viacom these days, including the health of founder Sumner Redstone, dealing with a potential Dish drop might just have been the death of Viacom.  Luckily, MTV, Comedy Central, and the other Viacom channels will continue to be enjoyed by the 14 mm Dish subscribers.  According to Deadline, the programmer agreed to multiple demands, including channels that "will run on the satellite company’s Sling TV streamed service."  An important need to build value as a TV Everywhere provider.

And while other terms weren't announced, one must wonder if a price increase was also passed through.  Given the threat of cord cutting, it gets harder and harder to keep passing those costs on to the subscriber.  There is now a greater need to find revenue growth through more advertising and other assets.  Sling TV counts as one more way to drive growth and customer satisfaction to the Dish customer. 

Netflix Slower Growth A Challenge

Like a good multi-level marketing ploy, its hard to grow endlessly before reaching a max.  And while Netflix has exceeded 81 mm worldwide streaming subscribers, each paying a healthy monthly fee, the growth curve is flattening.  That means the challenge to keep growing at double digit rates seems no longer possible.  And it may be harder and harder to find the next new sub especially as prices rise and future customers need more incentive to join.

The future is international, but there are risks too.  Can Netflix find new revenue streams to drive business growth?  Will they need to start cutting some costs to improve profit yields?  Has the market hit some maturity that could lead to upstarts taking some of the Netflix business away? Will Netflix need to keep spending more for original content and better libraries of content to compete against Amazon and others, thus hurting profit margins?  And while current subscribers are very happy with Netflix and thus not dropping the service, can Netflix add incremental value and revenue without hurting the bottom line?

These are the challenges facing the streaming industry and Netflix in particular.  It is hard to keep growing at these previous amazing rates when the market hits saturation.  Add changing interests and other internal and external forces, and the business model is continually challenged.

Amazon Prime Has Unbundled

For those cord cutters who don't want to pay $99 a year for Amazon Prime and its entertainment video package, Amazon is offering a monthly rate instead.  For only $8.99 a month you can subscribe to the service with the ability to cancel anytime.  And according to Techcrunch, "You can also choose to subscribe to Prime for $10.99 per month. You get access to expedited shipping, Prime Video, Prime Music, the Kindle Lending Library and probably a bunch of other stuff that I’m forgetting."  If cash flow is your issue, the new Amazon offering provides a smaller monthly fee. 

But if a $99 yearly cash outflow doesn't hurt your pocket, the simple math proves that buying the annual membership is the better value of about $10 for the video only package, $32 more for the full package of Prime services.  Heck if Netflix offered an annual discounted payment, they likely would find a strong conversion by existing subscribers although a lower revenue stream. 

Will the new payment structure encourage new subscribers to try the Amazon Prime service?  There is certaily no savings if all you wanted was the video offerings.  Given the pricing, it seems like you might as well pay the higher fee and add books and music to the mix. 

I am not an Amazon Prime customer.  I don't buy that much from Amazon to see value from the expedited shipping and have yet to find a must-have show that would drive me to purchase.  I do believe the ultimate driver for Amazon Prime is geared to those that utilize them frequently for purchases.  The entertainment library is the added value to the package.  I would love to see a comparison of Amazon Prime to Netflix and Hulu for number of monthly streams and hours per household utilized to see how each service is treated among its subscriber base.  Given the proprietary nature of the business, I doubt that info will ever be shared willingly. 

Cloud Business Follows Office Space Strategy

The NY Times article on cloud computing shares a little secret on how they make money, with micro charges that add up.  "That is one way to think about what is going on at the world’s biggest cloud-computing companies. Instead of grains of sand, think about computing cycles, the activity that goes on in a computer server that is running software. For a price, think about one line of software code for two one-millionths of a penny."  And these micro charges add up to a billion dollar business.  As the article describes, fortunes add up when you keep adding these pennies. 

Perhaps they got the idea from the movie Office Space. In the movie, Peter has a plan to steal half a penny from each transaction.  It quickly pays off as he sees his bounty grow by hundreds of thousands of dollars.  For folks like Amazon, Microsoft and others, those micro payments from cloud computing provide legal riches as well.  It seems that counting pennies does work!

Customers Are Staying With Their Netflix

When it comes to churn, or subscribers that end their financial relationship with a company, keeping customers engaged and valued assures a company a strong revenue stream.  Because once you have lost the trust of your customer, it is much harder and much more expensive to try and win them back. 

In the digital media space, churn could kill a business. And folks like Netflix, Amazon, Hulu, Sirius, and HBO Now among the many others count on customers to continue to pay a subscriber fee and use their services.  Well according to a Multichannel article, "Netflix is by far the largest subscription OTT video service provider, with 52% of all U.S. broadband homes taking it by the end of last year, but it also enjoys the lowest churn rate as a percentage of its total sub base, Parks Research found in a new study focused on the over-the-top video sector."   Certainly, Netflix hopes that trend continues as they raise their monthly fee about a dollar a month. 

Many may not notice or even care.  Given the aggressive push for content aggregation and a continuous stream of original content on the service.  Tomorrow, Netflix presents a new season of Unbreakable Kimmy Schmidt as one such example.  And this summer comes another season of Orange Is The New Black.  For those fans and others eager to binge on their favorite series or to watch a movie, Netflix keeps its customers from departing.  On the other hand, one out of 5 broadband homes did drop a subscription service.  How much price elasticity can a Netflix home handle?  Netflix hopes to keep their churn low while eking out more revenue.

Goodbye To Some Jobs, Hello A.I. And Bots

Technology is shifting labor usage once again.  The rise of tools, the Industrial Revolution, and robotics have caused labor to shift from hands-on to programmer. We see commercials for IBM's Watson, Apple's Siri, and the Amazon Echo.  They all are shown answering our questions and providing solutions to our queries.  And frankly, for simple questions like, what is the weather or what time is it or play a piece of music, they let our voices takeover for our fingers in seeking the answers from the world wide web.

And we are seeing an increasing usage of automation as we call out to customer service, whether it is for banking, cable, appointments, and other service related calls.  The need for a human being on the other end of the line means less need for actual customer service reps to handle your calls.  Unfortunately, they can't handle every unique problem, but most likely solve some leaving a smaller pool for actual CSRs to answer.  It may be why Verizon is letting their unions go on strike and not resolving their pay dispute.  One of the unions striking are the CSRs and Verizon probably feels they can get by without that many employees they need. Union demands may just run counter to what Verizon's new world requirements. 

Facebook's Mark Zuckerberg recently announced plans to put A.I. bots into their Messenger app.  Per USA Today, "Facebook announced that businesses would be able to start using their messenger platform to buy and sell products and offer customers support."  Instead of going to a mobile app to make a purchase, you can use Messenger and start "chatting" to tell what you want to do, like buy flowers or order a pizza.  No more search as Messenger aggregates all those conversations.  And soon we can replace our typing with our voices to drive our purchase behavior. Amazon aims to do the same thing using its Echo device to search and handle commerce via the Amazon infrastructure. 

And the more we automate these communications and chats and orders, the less need we have for humans to do those jobs.  CSR centers will soon become like the dinosaur as the numbers of actual bodies in these businesses decline.  The rise of artificial intelligence in our commerce activities will continue to drive labor to seek alternative opportunities.  Jobs will go away as companies will find the economic advantages to bots over people, including no healthcare costs, no vacation pay, and a 24/7 work day.  It is the next great technological shift to occur in our labor market.