Next Cable Operator To Merge

Is Charter Cable the next major cable operator to merge with another?  For years, many have speculated that Cablevision, landlocked in the NY DMA, was a likely acquisition target.  As Time Warner Cable (TWC) is the owned the majority of NYC, they seemed the most likely partner.  But that deal has yet to materialize.  A Charter deal with Time Warner has promise, with synergies in the LA DMA, but other markets are less likely to benefit from having TWC systems nearby.  So if TWC is mentioned repeatedly, who would they prefer to merge with first?

In today's NY Post, speculation comes the Tom Rutledge, a former TWC and Cablevision executive now at Charter, would like to merge and run a bigger operation.  "Although Charter is half the size of Time Warner, the fourth-largest pay TV provider, Wall Street would like to see the two combined under the leadership of Rutledge."  And while that may be what Wall Street wants, TWC executives may have their own ideas as to who should be in charge, despite Rutledge having had a very successful career in cable.  And Charter may not sway the vote if it is true that Cablevision is interested in merging.  "All the deal talk has even put Cablevision patriarch Chuck Dolan in 'listening mode' after years of resisting a tie-up with Time Warner Cable, according to a source."  I think if TWC had its say, a Cablevision deal would be its first move.

One thing is clear, regardless of who merges, their is more need to consolidate to improve profit margins through lower license fees and cost efficiencies.  With an increased push toward streaming and a loss of basic cable subscribers through cord cutting, consolidation will enable cable companies to provide a better connection experience, both in the home and out, by expanding its infrastructure.  And who knows, maybe new businesses that can grow as a result of this larger footprint. 

Clearwire Big Winner As Sprint Raises Offer

Regardless of whether Dish or Sprint buy Clearwire, it is clear to me that Clearwire and its shareholders are the big winner.  Dish may have wanted the company but they also forced Sprint to raise their offer.  "Clearwire’s board of directors said it has endorsed the new Sprint bid, which values Clearwire at about $14 billion."  So what is Dish to do next, up their bid for Clearwire, go back and bid again for Sprint?  Should Sprint acquire the remaining shares of Clearwire, they will hopefully be able to utilize that spectrum to better compete against Verizon and AT&T in the wireless space.  And a bigger Sprint may be a better acquisition target.

Some rumors that Dish may follow up and partner with Google to raise its bid.  Certainly Google would also like to enjoy the uses of that spectrum for its broadband needs as well.  And Dish and Google might just find some other useful synergies as well.

Video On Instagram and Vine - Not A Fan

15 seconds or 6 seconds, fad or fancy, that's what strikes me as Instagram has added a slightly longer video feature to its photo sharing site.  I did not embrace Vine and I struggle to think that Instagram will be better served with its video feature.  I love sharing photos but find short form videos more kitschy then substantial.  But I am clearly the wrong demo.

My daughter is a big Instagram fan and I asked her opinion on video.  She seemed less than enthralled by it, but others may like sharing quick bite videos of them and their pets.  It may in the beginning create an overwhelming sense of clutter on the site, but  I see that fad interest quickly fading.   User generated content has great value and You Tube has certainly benefited from it; their appeal is that it is not limited by length so that messages can be fully shared, whether 6 seconds or 6 minutes.

At the end of the day, success must also be measured by the revenue that these videos produce.  Photos can be surrounded by a display ad but videos are ideally suited for pre-roll.  Are you really going to put a 15 or 30 second ad in front of a 6 or 15 second video?  Consumers will quickly revolt.  "On Thursday, (Instagram co-founder Kevin) Systrom dodged questions about how video on Instagram could represent new advertising opportunities, though said that Instagram  – which still does not sell any ads — will 'become a business over time.'” Let's hope they have something creative that consumers will accept.

The Money Is In Apps And Music

According to stats from iTunes, consumers spend most of their money on Apps and Music.  "Based on these latest numbers, (Horace) Dediu calculated how much iTunes users spend per year on different types of media. He says it’s 'about $9/yr on Software, $2/yr on books, $16/yr on apps $12/yr on music and $4/yr on video.'” This analysis is culled from his Asymco blog.  With videos and books offering the least amount of revenue, it speculates that their is missed opportunity in these buckets.

Clearly iTunes provides a huge revenue and growth opportunity for Apple.  Consumer need to upgrade and add more content to their devices drives purchases and the more devices connected to iTunes the better.  According to the site, iTunes currently has "575 million active iTunes accounts".  But if each account is like mine, a family with multiple users on the same account, that means that there is possibly 4x the number of users per account, each actively purchasing and downloading.  Add to that the number of devices and the need for content continues to increase.

Can AOL Make Patch Profitable?

Local was once the battle cry of cable operators.  To compete against the national, not in your backyard, satellite companies, cable operators touted local offices, local management, and local participation and pr in neighborhoods in which they operated.  And while some of that pr still remains, cable operators recognized that to be more profitable required economies of scale, regional offices over local, and national campaigns over regional ones.  Costs through consolidation were reduced and profits increased.

AOL's entry in local neighborhood news faces similar stumbling blocks.   Costs to manage sites on a local basis are both expensive and time consuming and the real ad dollars come from bigger buys.  You can try to aggregate all the sites into one number but it hardly beats one site with the same results.  "Patch, with more than 900 sites supplying news to communities or neighborhoods, has become a test case for both the online-news industry and AOL’s ability to transform itself from a dated dial-up service to an ad-driven Web publisher."  I am a fan of Patch; I check it out a couple times a day for local info on the community.  But I have found that the quantity of local news has decreased in favor of more regional news, making the site less relevant at times.  Can Patch be both local and profitable?

Consumers and users care about the former, stockholders about the latter.  And that is the conflict.  Can Patch be both relevant for the communities each site serves AND a revenue producer for the company?  One hopes that the better the quality of the content, the more clicks the site will get, and the more ad revenue it will return.  But the costs to drive content creation in each individual community must be high and so the ROI to pursue better content appears unlikely.   Companies like AOL, seeking to get to profitability, have to do what cable operators and others have done, cut costs through consolidation and raised prices on ads on the sites.  "The push for profitability has forced Patch to put single editors in charge of multiple sites, increasing burnout."   But I fear that less relevant local stories on these sites will only go to reduce its value and lower clicks.  A lose-lose scenario if ever there was one. 

I am a believe in Patch and only hope that they invest in more local content, partnerships with local and regional newspapers, and town governments.  Add more revenue opportunities through e-commerce and continue to pursue the local connections.  For me, Patch has become a resource to the neighborhood and one that I would hate to see go away.

Original Programming Will Drive Online Success

It took cable networks a number of years to realize that they needed solid original programming to compete with broadcast.  Billiards on ESPN and repeats of old sitcoms was just not going to be enough to drive ratings.  That formula has led to such great shows as Mad Men on AMC and others too numerous to mention.  Well borrowing from that same playbook, online streaming platforms has been even quicker to invest in original programming.

Netflix has announced its partnership with Dreamworks Animation to provide hours of fresh content.  Their strategy, going after the younger audience and ultimately the mom and dad to subscribe, is a smart one.  You Tube has been commissioning original programming as well.  And Amazon continues to invest.  "Amazon Studios is moving quickly to expand its original slate. After focusing on comedies and kids programming in its first batch of 14 pilots, five of which — two comedies and 3 kids shows — were picked up to series three weeks ago, the company is already setting its sights on the next target — launching a drama series."

For content creators, this newer distribution platform becomes another opportunity to license and sell its content beyond the current players of broadcast and cable.  New paths for distribution, both domestically and internationally, are opening up.  And with the growth of smart TVs, laptops, tablets, and iPods, an easy way to search and watch these shows.  A threat to traditional pay models and a better chance for success for streaming subscription services.

Is Microsoft Preferring Best Buy Over B&N?

In a move to expand its distribution of product and software, Microsoft is working closely with Best Buy to sell the value of its brand.  "The store-within-store format inside Best Buy will help Microsoft get its brand seen by electronics shoppers without having to make a big investment and sign a 10-year lease for a proper storefront."  And Best Buy becomes the aggregator of products for consumers to test and buy.  Best Buy is already offering space for Samsung and Apple to sell its products.  Now all Best Buy has to do is compete on price points, especially with online sellers of these same products.

Of course Best Buy makes great sense, although Microsoft is utilizing a follower strategy, being later to the market in this retail strategy.  Microsoft had an early opportunity to use its partnership with Barnes and Noble to do the exact same thing.  And with a number of B&N stores on college campuses, a chance to talk directly to a strong customer base.  A missed opportunity indeed.  But that partnership, built more closely around Nook, has gone nowhere.  Instead, B&N seems to be lowering prices on Nook and some have speculated that they will soon exit the tablet and e-reader space.  So is Microsoft backing out of B&N, too?

The Microsoft retail strategy to partner with Best Buy seems a necessary step as they may have bitten off more than they could chew by trying to open their own stores.  It may not differentiate Microsoft from others, but it enables better comparison shopping.  And hopefully on product and value, Microsoft will achieve its strategic goals. 

Dish Wants Wireless Distribution, DirecTV Wants Content

In the game of Who'd You Rather, the question to Dish Network would be who do you want more, Sprint or Clearwire.  While Dish's intention is clear, it seems to me the answer is both. Having the Sprint infrastructure along with additional wireless capacity from Clearwire would certainly help Dish to compete for wireless/streaming customers.  And SoftBank, the other pursuer of Sprint, sees it that way too.  And while Sprint is backing Softbank, Clearwire is backing Dish.  According to Bloomberg, "Ergen, the chairman and co-founder of the satellite-TV company, is angling for both Clearwire and Sprint as part of a plan to expand into wireless services."  And perhaps by controlling the wireless spectrum piece, Dish makes a Sprint deal less attractive for Softbank.

While Dish is angling for the wireless platform, DirecTv wants more content.  And they can achieve that by acquiring Hulu.  "Several sources with knowledge of the ongoing Hulu acquisition talks tell PandoDaily that a deal is imminent and that DirecTV is the likely victor."  Certainly, that acquisition has the potential of providing DirecTV with revenue streams from both subscription and advertising.  But it has pitfalls too as the current owners who are the content makers could limit the content that Hulu has been receiving.  Cable operators are writing agreements that potentially limit how networks can distribute their content outside the cable platform.  That can severely hurt companies like Hulu that rely on gaining access to these series. 

And so we have two different satellite companies taking different strategies to improve their overall business model.  And in the long run, that might be most beneficial should these two companies ever partner together to compete more effectively against cable and telco operators.  Because as far as the industry is concerned, size matters and consolidation is key. 

Is 3D TV A Thing Of The Past?

I have frankly never been a fan of 3D, whether in the movies or TV.  Perhaps it is because I have never liked the glasses or found the effects to improve the story.  And why wear glasses if you don't need them.  (I hold that same judgment for Google Glass).  So it appears that I am not alone and for 3D TV, the end is near.  ESPN has announced that their channel, ESPN 3D will disappear by the end of this year.  "Viewer demand aside, adoption among cable providers was also mixed; Comcast, DirecTV, Verizon FiOS have all carried ESPN 3D at various points. AT&T, however, pulled the plug in 2011, claiming the high costs of carrying the channel were outweighed by low demand."  And so lets expect that other 3D channels, if there are any, are soon to end as well.  Not surprising since TV manufacturers have been also moving away from producing 3D TV sets.

Where 3D interest has declined, web streaming interest has skyrocketed.  Recent reports have cable operators putting requirements into their programming carriage agreements to limit the rise of streaming network services like Aereo, Intel Media, and a possibler Apple TV service.   Concerning too for TV manufacturers building connected TV sets to easily play web based programming.  3D may be dead, but the battle for streaming media is alive and well.