Even OTT Providers Need The Cable Operator

With the price of a cable subscription rising year over year, consumers might just be cheering that new companies are offering content that allows them to bypass their cable subscription.  From the recent news that Sony has forged a programming deal with Viacom for its linear networks, to Netflix and Amazon offering video content to consumers through their Apple TV, Roku, XBox or other OTT device, streaming content is growing.  But to access this content requires a broadband subscription, BYOB or Bring Your Own Broadband, and that service comes from the same company that you were getting your cable content from.

Certainly cable operators worry that consumers will cut their cable cord, but they aren't cutting their broadband cord, literally the same wire that runs into the house.  And cable operators are likely going to penalize customers that drop their cable service.  In the past, they created the Triple Play marketing campaign of cable, broadband, and phone to discount services, but take one service away and the discount goes away and the total price for service will rise.  Cable operators are also testing usage based broadband fees, charging more for heavy users of broadband.  And since we know that video streaming uses more data then say e-mail, streaming broadband access costs will only rise at a faster and faster level.  Ultimately, customers that think taking an OTT service instead of cable service may actually find themselves paying a higher fee for a lesser number of channels and shows. 

The best opportunity for BYOB customers that are dropping cable subscriptions for OTT video is that new broadband providers can enter the industry.  Whether that is LightSquared or Clearwire or Google, the industry needs competition to keep broadband streaming prices in check.  Otherwise the broadband industry will look just like the airline industry, an oligopoly with limited choice and rising prices, not only for seats, but any extra legroom.  And that is not in OTT video's best interest and so for now, OTT providers need the cable operator.  

CBS Off Time Warner Cable 2 Weeks and Counting

In major markets like New York, Los Angeles, and Dallas, CBS network as well as its sister network Showtime and others have been off the Time Warner Cable line-up for two weeks.  And it appears the blackout will continue.  Since August 2 when extensions ended, the networks have been dropped while the advertising hasn't let up.  Each blames the other for a list that seems to include digital rights and higher than normal increases in license fees.  Regardless of which side you might take, the result has left consumers without their shows. 

Interesting, CBS has contended that their ratings have not suffered greatly despite the drop.  I'm not sure if that is good news or bad. Does that mean that Time Warner Cable customers weren't watching much CBS programming or that the rating mechanisms aren't completely factual.  Argued one way, customers aren't missing much or have found work around methods to get their programming, from the purchase of digital antennas to illegal websites to get content streaming.  I doubt too that consumers have dropped their Time Warner Cable service or switched quickly to other cable providers.  Most consumers are likely taking a wait and see attitude to this fiasco.  Certainly it is summer and new programming as well as regular season football is not scheduled till next month.  Consumers might also be on vacation or spending more time outdoors than in front of their TV set.  But the end result remains that this drop is part of a much larger issue that plagues all of the cable industry, programmer and operator alike. 

The pressure to raise rates for content and for subscription each are hurtful to the economic model.  The industry has gotten use to a two tier model of subscription and ad revenue to build its business.  Yet we seem to be reaching a tipping point where consumers would rather do without and pay less or worse cut the cord completely and seek content through other channels.  What the cable industry desperately needs is a third revenue arm to help absorb other costs.  Operators have found revenue from cable, telephony and broadband subscriptions.  Some operators are looking at security services as an additional stream of revenue. 

But networks reliance on advertising and license fees for revenue now requires a third inflow.  Selling to OTT operators has helped although it also competes with their current cable customer base.  And that has had a negative impact on these ongoing partnerships.  Those digital rights are just one of the points involved in the CBS TWC negotiations.    And while networks try to raise their fees, the well is starting to go dry.  Cable operators are balking and the result, they are being taken off the air.  Networks must find new sources of revenue to continue to grow; reliance on raising rates won't be enough.  Whether digital platforms are an answer or commerce opportunities arise remains to be seen.  It is apparent that cable operators might finally be putting the brakes on excessive license fee increases. 

What Does Apple Have In Store For Matcha.tv?

Companies grow through internal innovation as well as by acquiring new companies and their technology.  For Apple, known to have a large cash base and a desire to compete more in the television space, the acquisition of Matcha.tv might be a nice step in supporting the next phase of their television platform initiative.  At its core, Matcha provides a complete source of online and on TV programming for search and recommendation.  "Matcha.tv was an iOS app that provided a comprehensive overview of everything that’s available to watch via cable TV providers (Comcast), streaming video services (Netflix, Hulu, Amazon Prime), and digital video stores (iTunes, Amazon). Additionally, you could manage what you watched from a universal queue, get video recommendations, and connect with social networks to see what your friends were watching/liking." Given the multitude of options now out there, such a service could prove quite user friendly.

How Apple plans to integrate this application into Apple TV or other future products remains to be seen.  Apple has a terrific product in its Apple TV box although talk continues that Apple would like to compete in the television manufacturing space with its own TV set.  Certainly Samsung is ahead of Apple with its own Smart TV platform on its manufactured sets.  The question, do consumers want to upgrade to an integrated internet connected set or do they like the ability to add boxes, from Apple TV to Roku to XBox to their TVs to enable a connection.

Walt Mossberg's article in today's Wall Street Journal provides a terrific overview of today's available internet options for their TV.  Bottom line though, they all require a broadband connection and that means a subscription from your cable or telco provider.  Video streaming requires bandwidth and to make sure your viewing experience is enjoyable and without buffering issues means paying more for more bandwidth.  I see that problem today when multiple users are streaming videos while others are trying to download content. 

Twitter Is The Water Cooler

The more we talk about something, the more people pay attention and watch.  Stand outside at a corner and stare up at a building and others will soon look up too.  It seems that Twitter has that same effect.  The more people that stare up and talk about a TV show, the more likely people will stop and tune in, too.  "A new independent study by Nielsen provides, for the first time, statistical evidence of a two-way causal influence between broadcast TV tune-in for a program and the Twitter conversation around that program."  The correlation certainly seems to make sense as Twitter enables a whisper down the lane approach through retweeting and favoriting interesting tweets.  Extended circles begin to receive this messages and the results lead to viewer actions.  As shows gain more widespread comments, they encourage others to want to also be in the know and have a "shared experience." 

What is also interesting is that there is a two-way causal relationship occurring.  An increase in tweets enhances ratings and ratings growth encourages more tweeting.  A chicken and egg scenario, indeed. A water cooler approach occurring not the day after a show airs but concurrently with the show's time period. 

Twitter, Facebook, and other social media outlets are fast becoming an ideal low cost means to influence TV ratings as well as media including the movies.  We want to know what others think, not just professional critics, but "folks like us" exchanging insights on what they watch, liked or hated. 

BlackBerry, The Company, For Sale

Despite the fact that there are still many that like the BlackBerry keyboard and are loyal to their BlackBerry smartphone, more consumers still prefer Android and iPhone devices.  While they have successfully update their phones, BlackBerry continues to lose market share.  "BlackBerry had 4.4% of the U.S. market in June, down from 10.7% in the same month last year, according to comScore MobiLens data."  And so it seems management is exploring other strategic alternatives, namely selling the company.  A shame for a great company that once owned the business marketplace. 

Is there a company that sees a future for BlackBerry and willing to inject more capital to find new innovation?  Truth is the future of BlackBerry is very much dependent on innovation.  Samsung has successfully gained share through its technological and marketing efforts.  Apple, like BlackBerry, is reeling the heat of competition and the need to refresh and update its phones to remain a preferred choice.  And both Samsung and Apple have the benefit of a broad app library because of Android and iOS respectively.  BlackBerry's library is still catching up.  In fact, my friend did recently get a new BlackBerry only to discover that it did not yet have a Starbucks app.  Frankly, it did not make him happy.  And enough missteps could have him and others switching back to another phone. 

3D Without Glasses

If you are like me, you are not a fan of the 3 D experience in movie theaters.  Besides the fact that it costs more to watch, it does not deliver a valued experience.  I partly blame the glasses, uncomfortable for me, especially because they need to be worn over my regular glasses.  But the filmmakers' use tends to be extraneous adding little to the film plot or experience and meant more as an a ha moment.  Most times it seems over used and sometimes, one wonders why it is even presented in such a format. 

Other seem to agree as 3D movies and revenue are down this year.  But there may be hope if the 3D experience can be improved.  First, get rid of the 3D glasses and that is where technology is headed.  According to this recent article, "Researchers have developed a way to create a 3D image through a single lens, without moving the camera. ...  It could also provide a cheaper method to create 3D films for the big screen."

I also believe that the value of 3D can be enhanced when combined with large IMAX screens to create a truly immersive viewing experience.  Consumer like me would be more apt to pay a premium price for a truly premium experience.  Of course, this new technology could one day lend itself to the television as well as to tablets and other devices.  And that would be quite impressive. 

T-Mobile Finding New Growth Enjoyable

It may have taken getting the iPhone approved for carriage on its service for T-Mobile to start to find new growth opportunities.  That and the introduction of new flexible pricing policies to enable earlier upgrades of phone models have been gold to a company that has been seen as an also ran to the two biggest players, Verizon Wireless and AT&T.  The result, "Total branded customer net additions of 678,000, the strongest growth in four years (and) Record low branded postpaid churn of 1.58%, a decrease of approximately 50 basis points year-over-year".  Two KPIs that challenge every subscription service, higher year over year growth and low churn of existing customers.  A win for T-Mobile on both fronts. 

Certainly the other carriers are paying attention to T-Mobile's differentiated approach to upgrades and contracts.  They are already changing their plans while charging customers more upfront to upgrade earlier.  How consumers embrace this new pricing plans will determine the ongoing growth of these companies.  Clearly T-Mobile is out to take away market share and prove that they can compete with product and service. 

AOL On The Right Track

AOL may have just turned the corner from being a distribution platform to an advertising one.  For a company once known by the slogan, "You've Got Mail", it has been a struggle to adapt from a dial up world to broadband.  Still, AOL kept out it, and seems to be emerging victorious. 

Financially, all appears better than anticipated.  " AOL’s quarterly results, were announced early Wednesday morning, showed earnings per share of 35 cents, which was two cents higher than analysts had predicted. Its overall revenue was up 2 percent from a year ago." Revenue is now more dependent on advertising than monthly subscriber fees.  And AOL seems to have read the trends and put more energy and effort into video advertising over display.  That is indicative of their planned acquisition of Adap.tv, a company focused on video advertising. While display advertising rates see downward price pressures, video advertising gets more noticed and higher values.  And done well, it can be valued by consumers, too.  Plus video streaming continues to grow as more video content finds its way to the web. 

While AOL's Patch has had difficulty finding profitability, its other sites, like The Huffington Post, have built a successful formula of content aggregation, both words and video, frequently updated, and consistently visited by consumers.  Its foray into live streaming programming as well may just prove to be a very profitable experiment.  The "new" AOL has indeed turned the corner and embarked on a forward path that seems destined to be very successful. 

Cord Cutting A Growing Problem

Cable operators are fighting to save their economic model.  The challenge is that the costs of business, from programming increases (including the current Time Warner Cable and CBS negotiation) and other expenses, require a continual increase the monthly subscription fees paid by consumers.  In the midst of saving consumers from a CBS fee increase, Time Warner Cable has already raised the monthly fee of renting a modem box.  Consumers have grown tired of these high cable subscription fees while embracing the wired broadband stream that these same cable operators also offer.  The result, cord cutting, or more specifically cable subscription cord cutting.  While broadband subscriptions rise, cable subscriptions drop.

"(Moffett Research founder Craig) Moffett estimates that 911,000 U.S. homes have cut the cord over the past 12 months, versus 258,000 in the 12 months ending a year ago." And the rate of drops are only increasing.  Some cable operators hope to remain competitive through a strategy of merging operations.  And so we hear of a possible Dish-DirecTv combination as well as Charter with Cox or Time Warner or Cablevision.  Bigger operations, more synergies, more cost efficiencies including possible lower programming fees.

But it may not be enough.  The cable business model, while providing a valuable aggregation of content, has become too limiting and too expensive.  Consumers have sought other options; some have found cheaper packages from overbuilders like the telcos, FIOS and U-verse.  Others have dropped cable altogether for broadband services including Netflix and Amazon.  With new players including Aereo, some consumers have been able to get broadcast and cable channels at a much lower price.  And some are even going back to over the air, digital antennas. 

The model is a convoluted one.  As networks have found new revenue streams from OTT platforms, they risk losing substantial revenue from the traditional models.  The short term solution of raising license fees to maintain revenue of a shrinking base will ultimately cause the cable business to crash.  Unfortunately, it appears to be headed down a path of no return.  Ala carte cable pricing won't help consumers; the difficult but necessary path for cable operators might just be to offer a smaller selection of channels at a much lower price point.  That seems to be a path Time Warner Cable has started with the dropping of Ovation.  But it must require a more serious dropping of a large number of networks.  And for Time Warner Cable that might just extend even to a broadcast network like CBS.  If it leads to a healthy lowering of the cable fee, consumers might just be willing to retain their cable service.