Comcast Profits Grow, Subscribers Fall

Comcast reported its earnings and the news seems to make one wonder. Profits grew, less than the previous period, but higher than analysts expected. And in this economy, any profit is a good sign. Still, when you dig deeper into the numbers, how they got there indicates a growing problem. "That was the underlying question about Comcast’s third-quarter earnings, in which an overall strong performance was clouded by the loss of 275,000 basic cable television subscribers." So less customers are paying more for cable service.

More cable customers are buying additional services including phone and internet access. And profits reflect that growth as well as higher cable charges. At the same time, a quarter of a million customers chose to disconnect. It is now assumed that those customers are cord cutters, leaving cable but accessing content through other online means. But Comcast executives don't think this loss reflects either cord cutting or competition. "Instead, they blamed the weak economy for the losses and said that many who cut service did not flee to a competitor — like Verizon or DirecTV — but instead opted for free, over-the-air television." Wow! So cable service is now the great indicator of the loss of the middle class. It is the dividing line between the haves and the havenots. As the cost of service goes higher and higher, customers must revert back to over the air access and use their disposable dollars on the necessities of life. Has television gotten that expensive?

The sad fact is that price is driving customers away from traditional cable companies and to alternatives. Current FIOS and U-verse deals are cheaper and in a weak economy, customers are going to pay less to save money. Others, mainly the younger generation, are more comfortable getting content online. They are saving money by cord cutting. They embrace new technology and alternative content platforms. And they are being driven at a faster rate because the price of cable has gotten out of control.

Comcast will continue to draw more revenue from a diminishing base. And at some point, the growth of dollars per customer will not offset the total loss of customers. You can't squeeze blood from a rock and more and more customers have reached the limit on how much they are willing to pay to their cable provider. Pay attention to this quarterly trend of lost basic subscribers. It is a bigger problem and trying to minimize the issue will not make it go away.

Barnes and Noble Update The Nook

Just in time for the holidays the Nook e-book reader has been updated with new features. "The new touchscreen Nook Color, priced at $249, costs about half as much as an entry-level Apple Inc. iPad—but almost twice as much as an entry-level Kindle from Amazon.com Inc. and Barnes & Noble's existing monochrome Nook device."

The issue for Barnes and Noble is to identify who its competitors are and what positioning strategy they are impacting. Kindle is seen as the leader in the e-book category and the Apple iPad may compete but may not fit how readers wish to access their books. For them the iPad is too much and too expensive. For the Nook, the question becomes, do these new features and price point drive market share. Should more attention be made on price or should the push be on the exclusivity that B&N can add to the Nook that aren't available from Amazon. Clearly having brick and mortar stores must offer some advantages that they can capitalize on.

Currently the numbers don't look good for the Nook. "Barnes & Noble, which first unveiled the Nook last fall, has had difficulty catching up with market leader Amazon. Forrester Research estimates that by the end of this year there will be 6.1 million Amazon Kindles on the market in the U.S., but just 2.1 million Nooks and 2.2 million Sony Corp." The question to B&N remains, does this new version do enough to capture a bigger piece of the market. To me it is more than offering color. Take a page from the Apple playbook and figure out how to drive more usefulness into your product mix. A device does not run without software and content that is of value to the customer.

It is exciting to watch how far the e-book category is growing. Clearly it is the next physical media being transformed into our digital landscape. Watching the changes in TV, movies, and music, may give some hints to these players in acquiring and retaining customers.

How Should Apple Spend Its Money

Stockpickers and shareholders continue to speculate with how Apple should spend its earnings. Its top executives are cashing out their restrictive stock options and shareholders seek even more ROI. So what should Apple do? Release a dividend like Microsoft started a couple years ago. Split the shares 2:1 or more to encourage more investors to the stock and push higher the stock price. Or grow through acquisition.

Well the speculation has started. "Shares of Sony Corp rose nearly 3 percent at one point on Tuesday, but later retreated as analysts dismissed speculation that the electronics maker could be an acquisition target of Apple Inc." But if not Sony, who? Should they consider a web company like Yahoo, a CE firm like Panasonic, or perhaps Tivo. How about a content creator like NBC or CBS. Should Apple expand beyond its core strength of developing products that others can build software that Apple can resell. The App Store and iTunes are working quite well.

Apple has stated it has over 51 billion dollars in cash ready to use. But according to Steve Jobs, he is not under any urgency to spend it quickly. So far he has made all the right moves while its nearest competitor, Microsoft, has had a number of disappointments. For those that trust what Apple is doing, surely more good things will come.

Cablevision and Fox: Still No Deal

It is more than a week, the NLCS series is over and done and the World Series on Fox begins tomorrow night. And still no agreement. I have already heard from friends in the area; some were able to switch to FIOS and others only wish their area had FIOS. With no end in sight, a dish or antenna seems the next best solution.

In addition, the NFL Network has voiced an opinion. Not about Fox, but about their own need for binding arbitration to conclude a deal. Does any network get a break with Cablevision? The proof is in the pudding. And now the government is involve. "A senior Federal Communications Commission official wants to know whether Fox and Cablevision are negotiating in good faith or are spending all their time running attack ads against each other." To what extent the FCC can impact remains to be seen.

It may also reveal an even bigger issue between programmer and distributor. Part of the hang up is online content. Fox is a partner of Hulu and Cablevision may see Hulu as more a threat than complement. It also illustrates the challenges a Comcast-NBC deal may bring to the industry should the merger be allowed to continue.

Many want this Cablevision and Fox business to go away; unfortunately, its public airing of dirty laundry only goes to further exemplify the issues of content and distribution owned by one entity. On the surface it is about license fees; but dig a little more and it is clear the issues are far more complex.

Goodbye Walkman, CD Player Close Behind

Sony has finally decided to stop producing their once revolutionary cassette player. What, you thought it was already dead; me too. But the official word has just come down. "Sony has sold 220 million cassette Walkman players globally since the product's July 1979 debut that changed lifestyles by popularising music on the go." Except, I was expecting to hear that the portable CD player had also been retired. It seems cassettes have been dead for a good three years.

Sure, stores keep selling CDs but with the number of digital devices in the market place, is anyone using a portable CD player? CDs first appeared only a few years after cassette players; In the late 80's they appeared as options for cars. You would suspect that within the decade, CDs will stop being produced and all music will be sold as digital downloads. We are watching a migration from physical media to digital to eventually cloud. We will no longer physically hold onto something but access everything from the network. It is the direction we are headed or all media as we demand what we want, where we want, when we want, how we want.

It's Hard To Keep The Verizon iPhone Secret

Verizon Wireless had a very good financial quarter, beating the analyst estimates and enjoying high earnings. At the same time, the fourth quarter looks uncertain. The reason, the Apple iPhone. While AT&T grows customers at a high rate, Verizon growth is seen as below average.

Consumers are expecting the iPhone to launch on Verizon in first quarter 2011. And many are waiting to update their phone or switch providers. I am part of that former group. My contract with Verizon has been up for a while and I have no intention of changing my phone till the iPhone is released. I have seen what is out there and know what I want. I believe the same holds true for others. "Verizon Wireless, a joint venture of Verizon and Vodaphone Group, could sell 9 million iPhones a year, Charlie Wolf, an analyst at Needham & Co., has said." And both Apple and Verizon will enjoy a very healthy and profitable 2011.

Networks Say No To Google TV

Cablevision is fighting to not pay for Fox broadcast networks. The networks are excited to be getting license fees from other MSOs to improve their bottom line. So why would the networks want to hurt their new revenue model with a product meant to increase consumer cord cutting. "The move marks an escalation in ongoing disputes between Google and some media companies, which are skeptical that Google can provide a business model that would compensate them for potentially cannibalizing existing broadcast businesses." And by that, the networks mean this new second revenue stream.

Still isn't that what access on a website of full length programming entails. Those not willing to pay for HBO and Showtime simply wait a year for True Blood and Dexter to be released on DVD and out on Netflix. Some buy it later on iTunes. Like the movie industry with windows on release dates to different platforms, a similar model may need to be built for broadcast shows and the web. Watch Modern Family now on cable or 6 months later on Web TV.

Still it is hard for the networks to put the genie back in the bottle. Ad revenue through commercials is not enough and the networks are finally enjoying a second source of revenue through license fees. The challenge is that the consumer is tired of paying more and is ready for ala carte to pay less. They would rather just buy the show they want to watch and no longer the whole network. With free content on the web, the consumer is moving away from the cable box to a cheaper alternative. As the adage goes, "Why buy the cow when the milk is free".

Can Sirius Survive Without Howard Stern

The simple answer appears to be yes; in fact, the savings that Sirius gets by unloading Howard could offset debt and pay for alternative talent. "The company might return cash to shareholders through buybacks or dividends, Karmazin said. Such a move will become increasingly likely as Sirius XM continues to lower its debt and build cash flow, though there’s no target date for such action, he said."

Still, Howard remains a great fit for Sirius and while some audience might defect without him, investments in other alternative programming could bring in a new audience. And "Sirius XM stations, such as Raw Dog Comedy and Playboy Radio, would help retain many of Stern’s listeners if he left, he said."

Howard's contract doesn't expire till December, so there is still time for Howard Stern and Sirius to renew their vows.

No Sports For You

Cablevision and Fox are still fighting. And Cablevision customers have lost three NLCS games and Giants Football game. Unhappiness reigns.

Interesting to note that a Calevision offshoot, MSG is facing the same problem with Dish. MSG is off the air as contracts remain unsigned. And in both cases, Cablevision and MSG are requesting arbitration as the solution. PR ploy or sign of a real attempt to settle, who knows.

What I do know is that the distributor - content relationship has soured in the last few years. It has become increasingly acrimonious and what I would describe as a win - lose relationship. Each wants to win by getting the other party to lose. This strategy has a negative long term result and makes each subsequent negotiation that much worse. And frankly, it is becoming destructive to the health of the cable industry.