Netflix Pushes Streaming and Price Increase

Netflix based its business on DVD mailers. They saw an opportunity to better their competitor, Blockbuster, with no penalty fees, low costs, and quick response and built a leader position. As a result, they toppled their competition and gained a loyal customer base. But like any business story, the lead can quickly be lost if you don't adapt to a changing environment. In Netflix's case, they did.

The biggest change for them was embracing a different distribution platform. While the DVD was their business model, their willingness to move from it to streaming could also be viewed as hurting the core of what they built their business on. But change, while difficult can also lead to greater successes. And Netflix is succeeding.

"The company based in Los Gatos, Calif. previously announced that more of its members are watching more content streamed over the Internet than on DVDs. To deal with this shift, Netflix says it will spend more this quarter to license streaming content than to buy DVDs" And with this shift in expenditures comes a need to increase customer pricing, too. "Existing members will incur the price increases in January, while people who are new sign-ups will face the higher prices immediately. Netflix has more than 16 million members in the U.S. and Canada and predicted in October that it would gain another 2.1 million to 2.9 million customers by year's end. That means Netflix could enter 2011 with more than 19 million subscribers, doubling the service's size in two years."

As consumers become more streaming savvy, Netflix has maintained and expanded their leadership base. And they are raising prices at the same time. Certainly any price increase hurts the consumer, but when the choice for content is cable or Netflix, Netflix continues to look like good value. Netflix is positioning themselves as a real alternative in the entertainment industry. While Blockbuster was once their adversary, it seems now that Netflix is after bigger game, the cable industry. And cable, concerned about cord cutting, is watching just where their audience is heading.

Comcast NBC Deal Done?

Maybe it is because I am close to the cable industry, maybe it is typical for other mergers, but I have to say, I don't recall previous mergers announcing their management structure changes BEFORE the ink has dried. So, I find it quite unusual to read about management changes for NBC and Comcast prior to its approval by the FCC and DOJ. Is this typical?

What is the current management team supposed to do today? Is it like a lame duck Congress, filing papers and cleaning their desk? And what happens IF the merger is not approved. Is this deal rubber stamped for approval so no use waiting for the formalities. It just seems odd to me.

And what IF the merger is actually disallowed. Does everybody simply go back to square one and have a do-over? Is that possible or will bad blood exist as a result of the memo. As I said, it just seems odd that these announcements have been made prior to approval by the government. Unusual or not, let me know.

Cord Cutting? Cable Subscriptions Drop Again

Let's see the scorecard. For Q3, Comcast lost 275,000 cable TV subscribers, Time Warner Cable lost 155,000 subs, Charter lost 63,800, and Cablevision 24,500 subscribers. For both Time Warner and Comcast, each has seen basic sub losses for the last 6 quarters. back in Q1 2009, Time Warner added 36,000 customers while Comcast lost 78,000 subs. In fact,as far back as I have tracked, Q4 2008, Comcast has been losing basic customers, a total since then of almost one and a half million basic subscribers.

To be fair, not all these cable cord cutters are dropping cable TV service altogether; rather, most are switching to Satellite or Telco. Since Q4 2009, the "cable" companies have lost more than 2.7 mm subs, while Dish and Direct TV together have added more than 2mm and AT&T and Verizon have added over 3.75 mm TV customers. So while TV subscription is growing, the trend is moving from cable to alternative providers.

The other factor to consider is the level of service being purchased. As cable TV rates rise, customers are moving to satellite and telco for better deals. Customers are also dropping additional services like premium TV. HBO for instance has seen a significant drop in subscription. With VOD as well as over the top service like Netflix and Redbox, customers are choosing to buy individual films over a premium subscription. It is partly why these providers are pushing more original series to their audience. Exclusivity of content to maintain their audience share.

Lastly is over the top content providers. With Hulu pricing lower their premium level of service, price elasticity is at play to generate more customer buys. As Hulu becomes more robust at a manageable price point, pressure to drop cable service for broadband content will also impact cord cutting. Series through Hulu and other content sites and movies through Netflix and others, all at a at a reasonable price point, may cause consumers to reallocate their entertainment budget from cable subscription to elsewhere. And TV manufacturers and gaming console providers are making it far easier for consumers to connect broadband content to their TV set.

So the challenge of a bad economy, poor price-value proposition by the cable companies, cheaper alternatives, and over the top choices for content are negatively affecting the subscriber numbers for cable companies. The trends over the last 2 years should be enough for cable companies to realize that their dominance is at risk. Maybe not today, maybe not next year, but market forces continue to take bigger bites to eat away their market share.

iTunes To Add Beatle Songs

No Apple surprises like a Verizon iPhone with 4G. No next generation iPod,No new operating system announcement. No today's Apple news will be that iTunes will add The Beatle songbook to its library enabling digital music downloads. Those who are Beatle fans already have the albums and cds. Those that want have most likely found a means to download. So while it is nice to hear that this deal will occur, it doesn't do much to shake the music world. Still, it is nice to see the deal finalized before I get older and start losing my hair, many years from now..."

TIVO Slashes DVR Price

Black Friday is arriving early for consumers interested in owning a Tivo. "TiVo will hack $200 off the retail prices of its DVRs through the end of the year, hoping the hardware discounts of up to 66% will help it stanch the flow of subscriber losses." Good news for fans looking for a deal, but I don't believe it will move the needle much.

To me, the missing ingredient is the integration with the set top box. Currently, few MSOs offer this feature. "The Alviso, Calif.-based company has struck agreements with Comcast, Cox Communications, DirecTV, RCN, Suddenlink Communications, Virgin Media in the U.K. and other service providers to variously provide TiVo-based services, resell its DVRs or provide better integration with TiVos." And while Comcast is mentioned, I have yet to receive a promotion offering me to trade my DVR box for a Tivo. Comcast would rather sell their own DVR service. I wonder if other cable customers from the above list are even aware that they can get Tivo service from their cable company. Is Cox marketing the service actively? Is Suddenlink?

There may be a deal in place, but are there customers. Adding a Tivo box under the TV with a cable box, a gaming box, a DVD player, only creates a mess of too many boxes, too many remotes, too many wires, and no simplicity. Less is more and the cable companies should consider putting their technology into the next generation of Wii boxes, Playstations, and yes, Tivos. A stand alone set top box has lost its way in the war of boxes that control the TV. It is time for more partnerships.

My Space Not A Social Network

According to its CEO, Mike Jones, My Space is changing its strategy to focus itself as an entertainment portal and not as a social networking site. "Talking The Telegraph at the Monaco Media Forum, Jones said the bold statement: 'MySpace is a not a social network anymore. It is now a social entertainment destination.'” And so Facebook has killed another competitor. So long Bebo and now so long My Space.

And while the focus of this discussion is on England, the same holds true for the US. "Jones said new users would be of a younger demographic who want to 'meet new and old friends around great content'. The focus of the ‘new MySpace’ in the UK during the launch period of the redesign will be solely on music discovery, with other content focus areas, such as TV and film, to come later. However, the US MySpace revamp launched with movie, TV and celebrity content ‘hubs’ already in place. Jones is hoping higher quality content, will yield good advertising returns." Can My Space change in time or are they so locked into a perception that the perception of the brand is locked?

The one thing My Space has going for it is a powerful owner. With Fox behind them, My Space has the financial muscle to change directions. Competition in this entertainment arena is equally tough, but Fox has the content to help their brother in this on line race.

Tivo Patent Update

When will the Tivo lawsuit ever end. Will Tivo prove once and for all that Dish owes Tivo for its technology. And should it prove true, will other companies finally get on board and strike deals with Tivo to put their capabilities into their boxes. "TiVo is trying to convince a panel of judges that Dish remains in contempt of a lower court ruling that the satellite TV provider’s DVRs are infringing TiVo’s patents."

To me, Tivo remains the leader in DVR and the cable box dvrs pale in comparison. I only wish my cable company would offer me the Tivo service through their set top box.

iPad Users More Likely To Cut Cable Cord

Here are the learnings:

"According to the study, a third of iPad owners are 'likely' to cancel their pay TV service sometime in the next six months, and 12.9% are 'highly likely' to cancel their service. In comparison, 13.5% of iPad intenders and 9.6% of average adult broadband users are likely to cancel their service. It gets even worse when the possibility of downgrading comes into play: A whopping 35.5% of iPad owners and 29.5% of intenders are to varying degrees likely to downgrade their pay TV service, compared to 20.7% of regular broadband users. For some perspective, Apple sold 4.19 million iPads last quarter."

Certainly the question can be asked what percentage will actually cut the cord. Hard to believe that folks would replace their beautiful 40" HD Flat Screen Color TV for a 10" tablet. Still, the younger generation is more mobile, buys less big screen toys, and likes that content can follow them and not the other way around.

I see my cable bill every month and it drives me crazy. I constantly wrestle with downgrading my service based on our viewing behavior. To me, the cost to buy premium services may outweigh its benefits. I love watching films on demand, but rarely am home to watch. I would say we watch about 6-8 premium movies a month. I could buy transaction titles only and perhaps save some money. Add a low cost Netflix subscription and stream these same premium movies and perhaps I would overall find myself saving even more money.

The iPad represents another platform for viewing streamed content. Cable must pursue a strategy of extending its cable subscription across multiple devices to compete effectively against Netflix and others. It will be this added value that may stop folks from being likely to actually cutting their cable cord.

Sirius Earnings Up

The car industry is improving, Sirius is included in most models, and more subs are keeping them turned on. It seems that Sirius is making all the right moves. "With Sirius XM being projected to end the year with over 20.1M subscribers, and the current direction of Comcast’s subscriber growth, it won’t be long before the Satellite Radio provider will be claiming the number one spot for subscriber based business models." That is quite an accomplishment for a company that was struggling to stay afloat.

Does Howard Stern make a difference? Probably some, but the sub losses would be offset by other niches and the overall margins could possibly improve. Still Howard and Sirius seem like the perfect pairing and Howard is benefiting more by subscriber additions. He has shares in the company and with the stock price rising, he should be pleased.