Is Redbox Not Growing Fast Enough

While the world of streaming media is moving faster than light, shareholders of Redbox are worried that they are not capturing any of the momentum.  Their mainstay product, DVD rentals from vending machines is still ongoing but its Redbox Instant business has not found its footing.  Analysts fear that the rollout of Redbox Instant, a joint venture with Verizon, is not being pushed out quick enough.  Certainly there has been little marketing to indicate that they are ready to compete head on with Netflix and Amazon. 

Expectations are high that the DVD business has room to grow.  "In Q3, studios will release DVDs for eight films that generated at least $100M at domestic box offices, up from three in the period last year, when studios didn’t want to compete with the London Olympics."  They also cite more closings of Blockbuster stores.  But the future for rentals lies in streaming content and Redbox Instant has yet to deliver its own exclusive video content to gain traction against its biggest rivals.  Netflix not only has original content but has also nabbed a number of Emmy nominations.  When awards are announced in September, Netflix will continue to get great media exposure for its service and exclusive content.  I'm sure Amazon is already pressing to build some possible nominees for next years awards.  Redbox Instant must deliver its own original content to remain a competitive threat. 

Streaming video networks are still a nascent industry; consumers are quick to sour on a platform as Netflix showed when it misplayed its DVD business.  But they were also able to bounce back.  For Redbox Instant and others hoping to compete in this space, the challenge is in building a great platform with compelling original and syndicated content that consumers are willing to shell out a monthly subscription to remain a member.  I see tremendous opportunities ahead for Redbox and others to compete in this space and to ultimately take more subscribers away from cable.  My one advice, history repeats itself; follow what cable did to take broadcast share and do the same to take share from cable. 

More Sports Networks, More Fees, More Problems

While Time Warner Cable is balking at the fee increase proposed by CBS, the real worry may be the rise of new sports networks and the associated fees that eventually get passed on to the consumer.  In today's Wall Street Journal, they describe the race to license sporting events and compete head to head with the leader ESPN.  Now we have Fox Sports 1, NBC Sports Network (formerly Versus), and the CBS Sports Network, along we each sports' own network including MLB and NFL. 

For original programming, Fox Sports is developing series that compete head to head with ESPN's Sportscenter.  "The 38-year-old (Jay) Mr. Onrait said his show, "Fox Sports Live" is striving for a more lighthearted approach than SportsCenter, while still tackling hard news."  NBC Sports, on the other hand, is busy licensing live events.  "NBC recently acquired the rights to English Premier League soccer in a three-year $250 million deal, and this week it announced its cable and broadcast networks will televise Nascar races alongside Fox beginning in 2015, taking over those rights from ESPN."  With Fox, NBC, and CBS competing for content, the increased demand will only lead to higher pricing to outbid the competition.  And those higher fees will be paid for through higher subscription fees.

According to the WSJ, ESPN license fees are more than $5 per subscriber per month.  The next highest is NBC at $0.33.  Once NBC, Fox, and CBS bring more programming and viewers to their channels, their license rate will no doubt get pushed higher too.  They can only salivate at the possibility of achieving a $5 per sub fee from cable operators.  Of course, those fees are direct costs to the cable operators.  They no doubt make sure to add their own reseller income margin to the consumer.  So yes, without sports in a cable line-up, fees to consumers can drop significantly. 

Now I am a big sports fan and would hate to see sport networks dropped from cable.  But the high costs of sports extend far beyond TV to the tickets to the game.  Why are seats in ballparks empty; families can't afford to go as often if at all.  Kids have found alternative interests including online gaming.  And it is the loss of the next generation of sports fans that will ultimately kick sports to the curb.  Maybe not now, but it may just be a generation away.

Hulu Not Selling To Time Warner Cable

Time Warner Cable (TWC) is certainly busy these days.  First, they are locked in a license fee battle with CBS for renewal with the current agreement set to expire August 1.  Already, the two are locked in a rancorous negotiation that has spilled over to the public.  And second, they couldn't come up with the price that Hulu wanted to gain a piece of the streaming action. 

To the Hulu purchase, I frankly wonder what the strategic plan would have been should they have acquired an ownership stake in the company.  "The Walt Disney Co., 21^st Century Fox and Comcast each own a one-third interest in Hulu."  That means being partners with folks that you also have license fee relationships with.  Would being teamed up with Hulu help future retransmission renewals with ABC and Fox?  As Comcast is a silent partner because they are both a cable operator and programmer, who could guess how negotiations would affect them.  Does Time Warner Cable need Hulu to support its TV Everywhere initiative or is owning them only seen as an investment for future revenue?  To the former, a TV Everywhere play does not seem to be the direction that Hulu wants to take.  More options are available as either a complementary service to cable or as a low cost content distributor for cable cordcutters.

Now that Hulu is off the trading block and TWC is out of the picture, Hulu can once again concentrate on competing in the streaming space against Netflix, Amazon, Redbox, and others.  Step one will be to pursue the subscriber business for Hulu Plus and step two, increasing its content library, with a bigger push toward original and exclusive programming.    And step three, if I can be so bold, the introduction of linear streaming programming; perhaps a subscription based 24/7 news channel.  Maybe Ted Turner might like to advise them on how to start a channel like he did in the early days of cable with CNN. 

Dish Might Finally Get To Buy More Wireless

Dish Network has been wanting a bigger stake in wireless and has failed in its last two attempts.  No Sprint and no Clearwire acquisition to show for all its effort.  But they might not strike out and could find themselves picking up LightSquared.  "According to documents filed with the U.S. Bankruptcy Court for the Southern District of New York, a group of LightSquared’s lenders have called for an immediate auction of the company, naming Dish as the 'stalking horse' bidder for the spectrum."  Whether Dish ultimately wins the final bid remains to be seen. 

At the same time, I expect that Dish will still be pursuing another cellular player with T-Mobile seen as the next target.  Such an acquisition would reshape Dish into a player with the resources to compete against other telcos and cable providers.  Of course, there are some that hope that Dish and DirecTv combine to take on the cable players.

Netflix Growing, Just Not Fast Enough For Investors

While Netflix continues to grow, it missed analyst expectation on subscriber growth.  "The company finished the quarter with 28.6 million paid domestic customers, a shade behind Time Warner Inc.'s HBO, which had 28.8 million as of March 31, according to SNL Kagan."  Still, Netflix is growing revenue Having "reported profit of $29 million, or 49 cents a share, a nearly five-fold increase from the same period a year ago."  The stock market is not what you have done but what you can do and investors are worried that subscriber growth will slow and profits will decline as Netflix finances more original content for its pipeline.  Yet Netflix should shortly pass HBO in total subscribers.

Like HBO, Netflix relies on subscription revenue to grow.  Both must handle churn and marketing support to retain current customers.  But Netflix might be able to add an advertising revenue stream if done in a non-intrusive way.  While I am not suggesting pre-rolls on streaming content to subscribers, perhaps the Netflix website could expand to showcase native and display advertising as well as previews with pre-roll.  Extra featurettes to shows and other added content could potentially come with sponsorship advertising.  And certainly future licensing of original series to other platforms could return some of the investment from the production.  These may be outlier advertising efforts but it augments the revenue growth without interfering with subscriber enjoyment of their content views. 

Time Warner Cable Pushes Aereo

With a retransmission fight looming and the threat of CBS being dropped from certain Time Warner Cable systems on August 1, TWC is offering a solution, augment your cable carriage with the Aereo service.  "While Time Warner Cable does not seem ready or willing to deploy Aereo-like technology, a spokeswoman, Maureen Huff, said Sunday that it would recommend Aereo to its New York subscribers if CBS was blacked out." 

It may be a veiled threat, though it has repercussions.  But be careful what you ask for TWC.  If consumers get so tired of these same negotiations year in and year out with networks, they might just drop cable service all together for Aereo.  Plus with the rise of original series on Netflix and Amazon, consumers may be finding that they can do without their cable subscription. 

Aereo continues to expand with plans to launch in Utah in August even before their Chicago launch in September.   Before we know it, Aereo will be across the country and neither CBS or Time Warner Cable will be happy with the way this disruptive technology is taking over. 

CBS, Inc and Time Warner Cable Clash Over Retransmission Fees

Time Warner Cable's current license fee agreement with CBS, Inc. expires June 30 and cable customers might find themselves without CBS and its owned cable networks two weeks from now.  "At issue is TWC’s right to carry the CBS television network and affiliated local stations including those in New York, Los Angeles, and Dallas-Ft. Worth (where TWC is the dominant local cable system operator), as well as the Showtime suite of networks, the Smithsonian Channel, CBS Sports Network and the former TV Guide Network, now called TVGN. CBS acquired a 50 percent stake in TVGN earlier this year (the other half is owned by Lionsgate) and acts as its operator.  The big hammer in these negotiations is CBS Sports, where NFL games are set to air starting in September."
Essentially, CBS wants more for their content and TWC wants to pay less. 

TWC hasn't been the first to have acrimonious negotiations with a broadcaster and they won't be the last.  Each time these agreements begin to expire, posturing begin and we as consumers are faced with ads criticizing the other for lack of good faith.  Here is the latest example:



One thing is clear, at some point, now or months later, these two sides will settle.  But what if Time Warner Cable decides to follow the model that Aereo has designed, building farms of mini antennas to capture the CBS broadcast signal and deliver to the consumer. It doesn't answer the problem of the the other cable networks at risk of being dropped but it does lower the cost of operations.  Perhaps a financial model is due to determine what savings might come by converting to the Aereo type model.  If significant, it could lead to a different balance of power.   Of course building farms if antennas would take a good deal of time and resources and consumers would still be without the content for a period of time.  That could lead to more drops of service before such a plan could be put in place. 

Of course these negotiations are more complicated then just right of access to programming.  "These deals also include other multi-platform aspects such as video-on-demand rights and TV Everywhere distribution rights."  Especially with VOD, Aereo can't offer this content.  But the amount of increase, whether a few pennies or dollars, add up quickly and are ultimately passed through to the consumer.  And it is the increased costs of cable service that continues to push consumers to services like Aereo and other OTT options like Netflix and Amazon. 

Apple TV - Partner vs. Competitor To Cable

It has been said that if you can't beat them, join them.  In the world of OTT, companies like Google, Intel, and others are trying to create competitive platforms to compete against cable with lower subscriber costs and better functionality.  But cable operators have a tight grip on programmers with license fee deals and growing revenue, despite drops in cable subscription. 

And while it is possible to get lower rated and off the chart programmers to make deals with the OTT overbuilders, the top networks may be reluctant to lose sure cable dollars for digital pennies.  Apple may have seen their own attempts to acquire programming fruitless and now seems to be aiming toward partnership with cable operators, not competition.

"Instead of trying to create an Internet-based pay-TV service, Apple is going to attempt to turn pay-TV into another application.... (New York Times writer Brian) Stelter says Apple is talking to big distributors like Time Warner Cable about doing applications for the current Apple TV, which is a little box that gets plugged into the television."  For me ideally, that would mean that I could replace the current cable TV set top box with an Apple TV box and get all the functionality of DVR, on demand, and more in a much more improved interface.  No more tree and branch interface, rather the ability to search, scroll, select, record and using my iPad, iPhone, and iPod and watch on these devices or on my big screen TV set.  How easy and how cool!  Add to that the ability to watch authenticated programming outside the home in a TV Everywhere world. 

Consumers could rent Apple TV devices from their cable operators or easily buy and install on their own.  As an added product extension, equip these devices with a hard drive to offer DVR recording along with N-DVR option.  Along with all the other apps that an Apple TV can offer and you have built a very strong reason for consumers to stick with their cable operator too.  So I am eager to see how Apple proceeds and which cable operators embrace this technology partner. 

Aereo Still Disrupting Cable Industry

The broadcasters are unhappy with Aereo. Aereo is taking their signal and not paying them a retransmission fee or providing any data on consumer usage.  So broadcasters can't sell a higher advertising reach or receive additional revenues.  And broadcasters believe that Aereo is reselling their service to the consumer without their consent.  And in a majority ruling the federal courts have sided with Aereo. "A New York federal appeals court has denied a bid by the major TV broadcasters to shut down New York-based tech startup Aereo, which picks up free, over-the-air TV signals and streams them onto the Internet." Aereo is disrupting normal business practices and if they are allowed to continue, broadcasters may be at risk of losing all their license fee revenue from cable operators. 

So is it stealing to take something that is offered for free over the air and repackage it, bundle it into a bigger package, put an interface around to enable programs to be recorded and viewed, enable it to be watched across multiple mobile devices, and sell it to consumers at a low price?  Aereo certainly adds unique incremental value to the broadcaster's antenna service and serves an audience seeking a low cost alternative to cable. 

Unfortunately, the Aereo win is the broadcaster loss.  Broadcasters in market are unlikely to offer broadband access when they are getting a fee from the cable operators in the DMA they serve.  And cable operators may have clauses in their agreements with broadcasters that actually prevent them from offering any kind of competitive Over The Top (OTT) offering of their signal.  If they don't cable operators might likely drop broadcasters that attempt to offer their own OTT access. 

So the likely next round for broadcasters and Aereo will be the Supreme Court.  "As of now, Aereo’s service is legal, according to the U.S. Second Circuit Court of Appeals."  Should the Supreme Court here the case, the case might just revolve around the FCC and the requirements of broadcasters to offer their signal without charge to consumers that seek access.  For those not willing to place their own digital antenna in their home, Aereo offers additional functionality for a fee, and that added value is what the consumer ultimately pays for.  As long as Aereo uses individual antennas for each account, they may ultimately be the winner.  And it may be up to broadcasters to negotiate an agreement to access usage data for a direct connection, no antenna farm required.