Raising Cable Rates And Cord Cutting

Over the last few years, cable operators have watched their basic subscriber numbers drop as customers fled to alternative cable choices like satellite and telco. Operators would argue that while they lost "some" customers, others chose to buy into the full suite of cable, broadband, and telephone and the average revenue per customer had actually risen. But some are concerned that eventually the continued increase in cable subscription rates will cause these triple play customers to downgrade and eventually switch as well.

The recipients of these initial customer defections have been satellite and telco. Their base has risen at the expense of the cable operator. Their cost conscious customers may be in for a rude awakening. "DirecTV started notifying its nearly 20 million subscribers during this billing cycle that it will be charging more for its programming services starting Feb. 9." As programming fees increase annually, the need to keep profits in line causes this pricing change. But customers may object and how much it hurts their pocketbook may determine the future direction of basic sub growth or decline.

For customers, it means a big decision. Put up with the rising costs of TV programming or "cut the cord" and rely on alternative methods to watch your TV. For some it could be the installation of a digital antenna to retrieve over the air signals; for others a reliance on just a broadband connection to stream your shows and movies. And a number will try to negotiate with their provider citing competition and plan to switch unless a discounted deal can be offered. I admit to using this tactic a number of times.

And with the investment by streaming providers like Hulu and Netflix into original programming as well as a broader quantity and quality of TV programs, the choice to switch to a streaming model could get easier and easier. As customers buy only the streaming packages they want, they can get the shows they desire at a lower cost than a cable subscription. And that is what could ultimately upset the cable/satellite/telco operator cable subscription apple cart.

The Future of Programming Distribution Is On The Web

CES is winding down and the talk from the show is not 3D TVs as much as it is about connectivity to the web. Televisions, tablets, laptops, and smartphones all accessing online content, from social networking sites to YouTube and gaming. And even more pronounced, none of these discussions included partnerships with cable operators.

"YouTube announced in December that it logged 1 trillion hits in 2011 and is anticipating an even bigger year ahead as more politicians and newsmakers turn to the site to distribute Web ads, speeches and weekly video casts." Their push into niched channels seems a clear shot across the bow of the cable operator. And they are putting their money where their mouth is by investing tons of cash into acquiring content. Disruptive technology at its best. So you have consumers watching more and more hours online and web companies like YouTube delivering even more content to consume; where does that leave the cable operator?

The challenge facing operators is that the rising cost of network licensing fees are causing the subscription model to start to break. The easiest culprit to blame are the sports networks whose share of the costs is far greater than the bulk of other channels. It is why Time Warner Cable is fighting back so hard against MSG on a renewal fee that will only lead to a higher pass through cost to consumers. And the consumer isn't taking it anymore. They are striking back at their cable providers by cutting back on services or cutting the cord completely.

YouTube can expect to gain more viewership as TV manufacturers enable connectivity on their TV sets. With Apple expected to offer something as well, the roof could be blown off the industry. And as content quality improves, the best new series could be from folks like Google or Facebook. In addition, it will become far easier to surf and search the web for relevant content and viewers will begin to consume more web based content over cable networks. Networks that survive may have to learn a new business model, one that excludes a subscription fee but may instead discover a wider variety of new revenue streams such banner ads, mobile ads, and perhaps even product purchases, to enhance its :30 ad model.

Hulu Plus Growing - Does That Indicate Cord Cutting?

Lots of news coming from CES this week and one that caught my eye was that the subscription service arm from Hulu, Hulu Plus, has exceeded 1.2 million paying customers. What is interesting is the kind of deals Hulu Plus has created. Some programming license deals require a Hulu Plus customer to also be "authenticated" by a cable operator. "Those deals with give subscribers to those operators-none of which have been announced-access the next day to broadcast content streamed to their Xbox Live." Certainly some deals with programmers don't require an operator "authentication" to stream online TV content.

So is this good news for Hulu Plus customers? I'd love to find out what percentage of Hulu Plus customers have retained their cable subscription and what percentage has cut the cable cord. It seems by this announcment that the Hulu Plus strategy is migrating to a model that is trying not to hurt the cable subscription business. But can you have your cake and eat it too.

The consumers of Hulu Plus may find that the majority of content they thought they would get would give them the shows they want to watch with the burden of a high priced cable subscription. It now looks like Hulu Plus is moving toward another on demand platform for the cable operator. And if that same cable operator is already authenticating its customers on devices for web access, why should that same customer have any need to take a Hulu Plus subscription. It seems unnecessary.

It is obvious that TV content creators are experimenting as a means to determine the most ideal digital distribution model. We are becoming an on demand world where consumers want access to what they want to watch, where they want and when they want. And cost for this convenience is also a factor. Ultimately the consumer may pay more for their a la carte choices but feel more satisfied paying less overall for only the content they want to watch.

What Does The UltraViolet - Amazon Deal Offer?

There are multiple reports that Amazon is growing its cloud offerings with a deal to sell UltraViolet movies. Some sources believe the deal is tied to one of the UV partners, Warner Brothers, and no details of the agreement have been released. "Analyst Jan Dawson of Ovum said the biggest challenge to UltraViolet comes from the top competitors in online retail for entertainment: Apple and Amazon. Each of them maintains its own online 'lockers' for purchases. If Amazon really commits to UltraViolet, that would be a 'total game changer,' Dawson said."

So is Amazon considering converting its cloud to the UltraViolet solution or simply offering its customers more choices? While Amazon is know to sell both physical DVDs and downloads, will the new UV deal require a disc still be purchased or will UV adapt to enable a download only model? Clearly the studios got behind UltraViolet in an attempt to extend the product life of the physical DVD. It is hard to imagine that they will get off that requirement too quickly. If a digital only solution is part of the Amazon UltraViolet deal, then that represents a major strategic shift.

Would Apple ever agree to such a deal? Most likely not. Apple likes to work in its own closed platform. Studios would have to agree to an Apple iTune cloud model, one without the requirement of a physical DVD purchase. And Apple is not one to follow along.

So is the Amazon Ultraviolet deal a game changer? Amazon definitely gives the movement credibility. It likely enables an Amazon cloud consumer to have access to these films from their Amazon account. At the same time there are only a handful of titles available and consumers could just as easily buy them from the Amazon website or pick up from Target or Walmart and access through a Flixter account and through connected devices. We will definitely wait for more news to learn more what this new partnership means for Amazon and the UltraViolet movement.

Do DVR Users Still Watch The Ads?

According to Disney/ABC, "people watching television shows on video recorders sit through a similar number of commercials as those watching live." And their President of ABC Entertainment, Paul Lee, noted that the numbers watching are equivalent to those that watch the same shows live. Interesting perspective although I wonder if this is being said out of hope or reality. The article doesn't include statistics to back up his statement.

In my family, depending on who is watching DVR programming determines whether the fast forward button is pressed or not. For my wife and I, we are quick to retrieve the remote to skip ahead to the content. It seems with less time available to relax and watch TV, those precious minutes shouldn't be wasted on commercials. But with my kids, it is a different story. Once the show is selected to be watched through the DVR, the remote goes untouched. Commercials don't bother them; in fact, it is how they gain new wants. "As seen on TV" equates to I want that.

Perhaps too, it is laziest that most determines whether the DVR commercials get skipped or not. While they might not reach over to the coffee table to press the button, they will scream for a parent to do the "chore" for them. And so it goes untouched and the commercials play on.

And so I will surmise that for advertisers on kid oriented programming, your commercials are more likely viewed than for adult viewership. But as TVs become more web connected and voice control will bypass the remote, we may see more of us raising our voices to the TV to say "Siri, skip ahead past commercials."

Nook Competing With A Pricing Strategy

The marketing strategy of business works predominantly on two different scenarios, product differentiation or price differentiation. In the tablet and e-reader space, Barnes and Noble is employing the low price strategy to compete with Amazon and others. Their latest announcement, following on the heels of the idea to split the businesses, is to discount the price of the Nook; "the bookstore chain is offering discounted or free Nooks to those who purchase one-year subscriptions to the Nook editions of People or the New York Times. It’s the first time a major retailer has offered an e-reader free with a content subscription." Their Nook Tablet promotion offers a cash discount.

For those who are price sensitive, such a marketing move will draw consumer interest. And partnering with content is not such a bad idea. This particular promotion runs about two months so it will be noteworthy to measure the effect on sales for both partners. At the same time, pricing discounts are easily matched by competition until they become lose-lose for both.

I also wonder what happens to these new customers, especially the ones receiving free e-readers with their NYT subscription. Does B&N have a strategy in place to push additional product purchase by these consumers? Or is it naturally assumed that they will become enlightened consumers once they pick up their first Nook.

It also seems to me that with the push toward more tablets, the e-reader as a product may quickly become obsolete. The tablet offers more versatility and gives the digital reader more choices, including access to video stories connected to the written materials. Perhaps B&N recognizes that as well and sees this promotion as a means to unload inventory as it readies for its next generation of Nook Tablet.

What The F@#%&*$ Is Happening At the Supreme Court Regarding Obscenity on TV

The line between obscene and acceptable behavior on television continues to get fuzzier with different rules applying to broadcast and cable programming. Yet technology has made both best available via a cable or satellite signal as opposed to an antenna, so why should the rules be different? Whether it is swear words, body parts, or even blatant euphemisms, some activities go unnoticed while others get fined. Some even mouth the words even though there is no sound to hear. It seems silly to fine such behavior when the rules are not consistent.

Unfortunately the days pictured in "The Dick Van Dyke Show" when couple slept in two twin beds is over. "South Park" and Comedy Central Roasts may bleep some words, but they are not fooling anyone who watches, including my 11 and 9 year olds. Would it make it funnier if these words were not bleeped; definitely not. It might make it funnier if these words weren't even used, but that is a subject for later. Regarding language, sometime curse words are necessary and sometimes they are a crutch to try to make an unfunny line funnier.

Language aside, nudity is another issue that causes great grief among families. Are cartoon butts any different from real ones, does a breast shown on a Super Bowl halftime show such a big deal. Like language, is the nudity with purpose or a crutch to draw ratings at the expense of quality? And does Freedom of Speech cover both language and nudity on broadcast TV.

No doubt, I am not in favor of fines or punishment. Cable has already done its part to relax those rules and to enable language and nudity to enter the TV screen. An end of these rules may push broadcasters to be more open in what they allow. At the same time, shouldn't the public have the freedom to decide whether it is what they want to view or not. The right to boycott a show or its advertisers should be just as present as the right to allow so-called obscene behavior on TV. With free will, one can only hope that it is used prudently with the most important piece being the quality of what is being put on the TV for viewers to watch.

Is John Malone Responsible for B&N Desire To Split?

John Malone has been a master at building shareholder value for his companies. He acquires, he invests, and he splits his companies into separate stocks each producing value for its shareholders. It is what he has successfully done with Liberty Media, but his role as a shareholder of Barnes and Noble, may not do well by this strategy.

Like Netflix, B&N watched its share price drop significantly on the news of a possible split of digital and store. Certainly the remainder of the financial report did not help but as they say in the market, much of that was already priced in; it is the future that pushes a price's direction. B&N might have learned from the Netflix fiasco what not to do; unfortunately, it looks like history repeating itself.

I simply wonder if these two businesses, Nook and bookstore, have two separate P&L businesses, each competing with the other. As the Steve Job's book brilliantly articulated, Steve made everyone accountable for the whole business. The rise of the iPhone would hurt the iPod business, but rather than take a conventional business strategy to work independently, Apple worked together to move the iPhone forward despite a negative hit on the other business. If you also consider the DVD/streaming business, film distributors have been pressed to keep the DVD alive. These distributors had different teams with different P&Ls so the concern for lost DVD business actually slowed then down in releasing films on a new streaming platform. It is when the streaming and DVD businesses were combined that they could embrace the new world despite the fear in the old one.

Barnes & Noble faces the same challenge and separating the business will only quicken the death of the bookstore and not propel the Nook forward any faster. Working together as one unit is the key. One example would be to embrace the B&N reward card with the Nook. Currently the membership does not support Nook book purchases, only physical books. Why? It's affect for this family was to simply not renew our membership fee. And I am confident there are more marketing moves that B&N can undertake to improve and build a successful relationship between Nook and store.

Breaking up the B&N business is not the cure. It is in better operational and marketing strategies that embrace the synergies of the products and services they offer and the consumers that use them. I can only hope that wiser heads prevail.

Occupy Broadband

How's this for a headline, "Top 1% of Mobile Users Consume Half of World’s Bandwidth, and Gap Is Growing". So where are the protesters, the sit ins, the marches? The top 1% are taking more than their fair share and it will only get worse. Yet it is a story that doesn't seem to bother anyone.

Broadband seems to be like a natural resource, although one that will surely slow down get slower to use unless more capacity is found. And the demand will surely grow fast as more smartphones, tablets, and laptops hit the market, not to mention a greater reliance on cloud computing. Is it more capacity or perhaps a more efficient way to download so as to lessen the burden on the stream? Perhaps a combination of both.

"The world’s congested mobile airwaves are being divided in a lopsided manner, with 1 percent of consumers generating half of all traffic. The top 10 percent of users, meanwhile, are consuming 90 percent of wireless bandwidth." And it is not simply a USA issue, technology is worldwide and consumption across all continents continue to grow. Isn't Apple beginning to sell its iPhone into China.

Another recent article spoke about web access as almost a natural right, like food, shelter, and clothing. It recognized that the greater issue was the right to free speech and communication and limitations to that right in countries that regulate the web is like a barrier to freedom. Access to all is driving businesses today and the pipeline will only get more congested. As the other 99% adapt toward a broadband world, perhaps the gap will shrink, but the congestion will surely grow.