Could A Broadband MSO Replace A Cable MSO?

A terrific read in Light Cable Reading of the rise of Virtual MSOs. If the definition of an MSO is one that aggregates and bundles licensed content and then resells to subscribers, then we may not find one that will offer the same abundance of content as cable. Most of the best networks license their content based on volume and the costs to get these providers to deliver the same content at rates being offered for MSOs the size of Time Warner or Comcast is quite unlikely. The rate per sub for reaching 10 million customers is far less than the rate per sub to a smaller MSO with say 1 million customers.

But the world of the virtual MSO aggregating content via the broadband platform may not need to duplicate cables' lineup. Rather, it simply needs to enable the connection. Xbox, Boxee, Tivo, and other OTT devices already use broadband to watch content from YouTube, Netflix, Hulu, and other streams. In essence, a "virtual MSO". TV manufacturers are doing the same to create a "connected" TV. And Boxee is enabling their box to bring digital broadcast signals to the TV set. Between these channels and streaming web programming, an alternative aggregator has been enabled already.

Still, if it is about duplicating the cable programming line-up, the costs must be absorbed until the "virtual MSO" gets up to a significant number of active subscribers. Perhaps the NCTC (National Cable TV Cooperative) would be willing to take one of these new entrants into their group. "There's seemingly no shortage of candidates that have the scratch, and perhaps the will, to give it a go. Not Microsoft (see above), but maybe Apple Inc. (Nasdaq: AAPL), Google (Nasdaq: GOOG) or Amazon." The one concern for a customer switching to a "Virtual MSO", they still have to pay their current broadband/cable provider for their broadband service. And no doubt that broadband cost would rise should they drop their cable service.

Cellular Verse WIFI, The Heart Of The Issue

What a great editorial in today's Wall Street Journal called The Wireless Equivalent of Fracking. In a wonderful analogy to the fracking process to release more natural gas, he offers a wireless comparison. "The mobile equivalent of fracking is Wi-Fi. Wi-Fi is free, unregulated spectrum, separate from the regulated spectrum that mobile operators buy from the government." And the most serious question he asked, why did the government need to block a cellular merger when access to WIFI is cheaper and becoming more abundant.

Web streaming is growing more steadily. Larger data files are being downloaded. Cellular monthly bills attempt to charge more for exceeding caps on usage. And these same companies remind us to use our WIFI often so as to not exceed their own caps. But be careful what you push; as WIFI becomes more prevalent and easier to stay constantly connected, consumers might just drop their cellular companies and communicate solely via WIFI. Hello Skype, goodbye AT&T cellular service.

Need a connection, sit down at your Starbucks. Waiting at the train station, chat through a Comcast or Time Warner Cable WIFI connection. In fact, a great added value for broadband cable customers to access the web away from their home. As more free wireless hot spots pop up, the need to be on 3G or 4G diminishes. Such a relief to listen to Pandora or watch a movie on Netflix without running up a cellular usage bill.

"Cellular operators offer the highest-cost path to the Internet; customers have both motive and opportunity to shift demand to other paths. The operators themselves have not been slow to figure this out. AT&T, the nation's second-biggest cell carrier, is also its biggest operator of Wi-Fi hot spots because it's a cheaper way to meet the data demand of its iPhone customers." So why worry that AT&T wants to buy T-Mobile? The cellular industry, like the cable industry, an oligopoly with fewer and fewer companies. But technological changes have meant that the cellular industry now has new competition from cable, and perhaps soon, Lightsquared. Rather than stopping the merger, the government should be working with other industries to encourage more investment in wireless alternatives. Cellular vs. WIFI, as costs for cellular usage rises, consumers continue to embrace their cheaper WIFI hot spots.

Content Companies Will Remain Successful As Viewership Patterns Shift

Consider this article from Deadline Hollywood a no brainer. The analyst cited is "encouraged by the prospects for TV Everywhere — where pay TV companies make it possible for subscribers to watch their shows on mobile devices." That content accessibility across different platforms will encourage viewership and new revenue models. But this assessment of the media marketplace does not apply to all big companies. While she has high hopes for Time Warner Communications, News Corp/Fox, and CBS, she has doubts about ABC/Disney/ESPN and Viacom. Noticably absent in the article is the other major broadcaster/content company. Is NBC/Comcast a different animal because they are the only one that is both a distribution and programming company? Does that help them or hurt them more than the others?

Ultimately, one has to believe that content is king should remain the mantra. Creating content that is compelling and can be monetized across multiple distribution platforms seems to be key. Being smart enough to recognize the shifts in viewing habits of the viewer is essential. The syndication market may change, the DVD market may drop, the mobile space may grow, second screens may gel, and new undiscovered platforms are pushing to be formed. Staying forward in those trends to ride the changes without getting stuck in the past will drive future revenue and profitability.

Is Improvement in Cable Basic Sub Losses An Oxymoron?

Financial reports are coming out for fourth quarter and Time Warner Cable has announced smaller losses of Q4 basic subs with broadband and wireline reporting increases. Other cable company announcements will follow but most likely they too will report losses in their basic sub numbers as well. Where are these cable cord cutters going? Both FIOS and U-Verse have reported increases in this same period.

But what I like most in reading these articles has been how these basic cable losses have been described, "improvement in basic losses" which means that we are still leaking water from the dam, but at a slower stream. Is this a trend that will lead to an eventual rebound in growth or just a slowness until another crack in the dam occurs and more subs flee?

My point is this, a loss is a loss, and saying that your are improving in the area of basic sub loss is like the classic George Carlin oxymorons, "Jumbo Shrimp", "Hot Water Heater", and my favorite "Military Intelligence". You may have seen a small slowdown, but the problem is not going away. Consumers are shopping for better deals, switching providers, or just dropping their cable service.

Will lower priced entry into basic packages work? Better access to networks and on demand programming on mobile screens, better service? Staying ahead of the curve and preparing for increased online competition are essential for cable operators to remain more than just a broadband pipeline to the home.

Building A Broadband Channel Line-up To Compete With Your Cable Company

YouTube is building out its broadband lineup of channels and the question to cable operators is this, will a broadband channel aggregator divert enough subscribers and their viewership away from your cable line-up or will the TV Everywhere approach ultimately keep your cable subscribers engaged and paying?

Certainly a very serious threat by Google and YouTube is designed to attract and pull away viewership. Some of the channels being discussed seem very niche. But isn't that how cable first began before morphing into broader programming. Bravo was once high art, now it is pop culture. MTV is not music but young and hip lifestyle programming. In almost every cable networks' case, what started as a niche has grown into broader programming to increase ratings.

For YouTube, the initial channels may be limited in scope but are surely designed to expand and attract greater share as well. One such channel backed by IGN, a game publisher owned by News Corp, is to be called Start. Another is coming from Electus and IAC and will be a Food Channel. It will likely try to attract viewers that like Food Network on their cable line-up. YouTube is planning more than 100 channels to compete and perhaps cause cable subscribers to cut the cord.

Will these niche channels pose a threat to cable? Early on broadcast networks didn't pay attention to upstart cable either. But gradually, the broadcast viewership share was reduced as cable viewership rose. Is the same likely with the rise of these online channels? It is if cable operators and their respective networks don't embrace a TV Everywhere approach that offers authenticated viewers unlimited access to linear and on demand programming on any platform. And while some of this is enabled already for WIFI viewing "inside" the home, full accessibility must be granted to enable viewership anywhere and everywhere.

I believe full availability is necessary for cable to retain and maintain its base. Otherwise, consumers may perceive a choice and start preferring these online rising networks to limited cable only availability. While the quality of the programming online and on cable may get compared, the choice of access will be a non issue. Then it will be up to smart programmers and marketers to continue to innovate to keep customers watching and engaging with their respective networks across all platforms.

Rising Data Usage On Our Smartphones And Tablets May Cost Us More

We are being encouraged to use more data on our mobile devices. We can stream videos, listen to music, download and upload photos, and of course read emails. We are enticed with more cloud access to hold and share our data. And with the iPhone 4S, every time we chat with Siri, we are consuming more and more data. It is no longer a little taste of the data stream, it is complete hunger. But how and where we consume is key.

Wireless phone companies are encouraging us to use WIFI to remain connected. A 3G or 4G experience has limits and too much usage on their dime will result in higher monthly bills. Unlimited data plans may become a thing of the past as the infrastructure to support these streams are not large enough to handle the ever increasing sizes of data consumption. Can't handle it on the network, find a WIFI hot spot. Except the owners of these WIFI streams have limits too. Too many people on the stream will significantly affect the speed.

This problem will only continue to get worse. More content is being put into the web and these files are getting larger and larger. More people are getting smartphones and tablets, and utilizing data and WIFI to enhance their functionality. And the rise of connected TVs will only put more stress on an over-burdened network.

Both 3G/4G and WIFI will be stretched. The phone company will put limits on usage and charge more to those that exceed their monthly plan; cable companies want to convert their broadband plans from unlimited to usage to capitalize on this same growing appetite for web data. And the consumer will ultimately find themselves paying more to be connected.

Much needs to happen. More efficient bundling to reduce the size of streams and more capital expenditure infrastructure. We like our mobile experience and we want more. More content to consume, faster speeds, complete connectivity; but also at a manageable cost. And like it or not, we have tasted this "drug" and we like it; costs will unfortunately rise to remain "connected".

Netflix Rebounds

Excuse that third quarter bump in the road; despite some bad timing moves, Netflix seems to have recovered and grown. Strategically, it makes sense for Netflix to move off the DVD mailing business and embrace the world of streaming media, but how they tried to do it, will be noted as bad management decisions. Separating the businesses was not wise and some may argue that the massive price increase didn't help either. Netflix reversed its splitting decision but kept its higher pricing. Initially, customers dropped the service to express their anger; but now it seems they are returning. From a third quarter loss of 800,000 subs comes word of a fourth quarter gain of 610,000 customers. "U.S. online subscribers increased to 21.7 million, while mail-order DVD customers shrank to 11.2 million. The figures for each include people who get both services." Netflix will continue to move away from the mailing DVD business, but not with the same abruptness that they tried last year.

And as content remains king, Netflix is adding more streaming and exclusive content to its mix to keep its customers watching. But customers can be a fickle bunch and the increase in competition may also move customers to try and compare. Amazon, Hulu, and even Redbox are putting on more pressure. Additional viewing options are coming from Facebook and YouTube. And cable companies continue to build out their TV Everywhere model, giving customers on demand and live access on other platforms.

The costs for acquiring content will only increase. Movie studios will seek more to offset the loss of their DVD business. TV producers will also seek more to offset possible loss in the syndication market. But streaming subscription services might find new revenue opportunities as well. Increases in advertising may offset those costs.

Netflix may have recovered from its strategic blunder but it faces strong competition, rising costs, and a customer base that can just as easily turn away for a better deal. How Netflix competes and markets to a streaming savvy world will demonstrate that they ultimately made the right choice in pushing away from the mail order business.

Media M&A Activity May Grow This Year

The economy may slowly be improving, Apple reported phenomenal earnings, and the financial community is eager to see some merger and acquisitions in 2012. Will Apple buy a media company with almost $100 billion dollars in cash on hand; is Yahoo considered an acquisition with the loss of Jerry Yang? According to this article, "merger and acquisitions activity in the entertainment and media sector is expected to rise this year, according to PwC, spurred by OTT and social-networking companies, as well as online gaming firms." While last year saw the merger of NBC and Comcast, AT&T was not allowed to buy T-Mobile. So who is a likely buyer and who may likely get bought or merged? It is the start of a new year and we just might see a rise in M&A activity.

How Does Cable Stop Basic Sub Drops?

When you finally recognize that the economic model for delivery of cable programming is broke, how do you fix it to stop drops and start to again realize basic sub growth? For Cox Communication, the solution is a lower priced entry point into a basic cable subscription, "a low-cost video tier, rolling out a 20-channel package dubbed 'TV Economy' in several markets for $34.99 per month." Most notably absent is ESPN. Time Warner Cable and Comcast have already built a more basic package as well.

Given that most license fee agreements with programmers are based on penetration levels of its network to the total available base, Cox, like TWC and Comcast, must not be worrying that this package might be so popular that it will result in some networks monthly fees going higher due to missing a threshold benchmark. That is to say, that ESPN as an example, as a result of the popularity of this TV Economy package, reaches as a result less than 90% of the Cox total universe.

What is clear is that more must be done to reverse cables' trend of losing basic subscribers. As a cable VP of Marketing once shared with me many years ago, you can't sell someone more services until they are actually a basic customer. Once they are a basic customer, it is possible to sell in additional tiers of channels, premium networks like HBO and Showtime, and of course additional services like telephone and broadband. These basic subscribers also mean more potential eyeballs and more potential advertising revenue as well. The work starts at the basic sub level and this new "basic package" may be the means to reverse the declining sub trend. And while Cox is duplicating the efforts being tried by TWC and Comcast, so far basic sub decline has continued, although some may argue at lesser levels then before. Still a loss is a loss.