Redbox Not Meeting Expectations

Redbox has not been doing well.  The stock is dropping and earnings are down.  The CEO J. Scott Di Valerio "vows to cut the number of consumer promotions, reduce content and operating costs, and repurchase an additional $100M of (Parent Company) Outerwall shares in Q4."  But maybe the problem lies elsewhere. 

While Redbox is better known for its DVD rental business, it has a partnership with Verizon to build out its streaming business model, Redbox Instant.  The challenge is in such a fast paced industry, Netflix, Hulu, and Amazon have all been more aggressive in the streaming video business space, both with cutting distribution deals with strong content partners and more importantly, building a library of exclusive content.  That strategy, most notably seen with Netflix and their show, House of Cards, has earned them Emmy nominations.  It also has led to a huge demand to watch these shows, leading to a rise in subscription revenue.  Redbox Instant has yet to aggressively enter this space.

Certainly Netflix showed that it is possible to stumble through a transition from DVD to streaming media, but that it can also be achieved.  Redbox certainly has the ability to pull off a similar feat, keeping the DVD business afloat while building a valuable streaming subscription business.  Redbox's challenge is that their DVD rentals don't require a subscription to rent, just a credit card for single use viewing.  Getting those customers to convert to streaming will require a creative and innovative marketing effort.  I believe that it can be done.  Competition will only get more fierce and Redbox needs to make a real splash to attract attention.  I suggest an investment in a major content deal and the launch of a signature Redbox exclusive series.  Sure, Netflix, Amazon, and Hulu are all doing that too but the barriers of entry are low enough for Redbox to breakthrough if they are willing to commit. 

Does Netflix Hurt Or Help TV Ratings?

When networks first considered putting their TV shows on cable's on-demand platform, the biggest worry was that it would result in a loss of rating points when the show aired on its linear channel.  But the tactic seemed to gain value as consumers discovered shows and used both on-demand and linear to watch their favorite shows.  In fact, some argued that on-demand helped consumers to rediscover shows or catch up on old plots in order to get current with the new season.

The use of Netflix seems to echo those same finding as on-demand.  New viewers have come to AMC to watch shows like Breaking Bad or Mad Men because they have been able to catch up on previous seasons on Netflix.   "AMC Networks, for example, saw ratings of “Breaking Bad” grow 50% in season four, with viewership for the fifth and final season airing now still climbing."  Cartoon Network, on the other hand, seems to have a different outcome.  They claim to have found a small drop in ratings that they attribute to their new deal with Netflix.  They do claim other factors.  "The drop in ratings is largely attributable to the loss of returning hits such as “Ninjago” in the first part of 2013, the network said."  Perhaps it demonstrates that the best use of Netflix for some content companies is in how it enables viewers to rediscover older seasons in order to encourage viewership in the current season. 

Dramas, especially those where each episode is dependent on the story line from previous episodes, has more to gain from on demand and Netflix.  The challenge for viewers that don't watch a show from day one is that they can't join the action halfway in.  On-demand and Netflix finally allow viewers to "catch up" in order to start watching the shows as they appear on linear channels.  That phenomenon has been called binge viewing.  While cartoons and comedies might not need this type of viewing behavior to enjoy the latest show, dramas seem to especially require it.  That means it is more important to know what happened last week on Homeland then what happened last season on The Big Bang Theory.  Netflix may indeed help some shows and hurt others in the ratings.  No one should have ever thought that it was a one size fit all strategy.

What if...Fuse And Maxim Team Up

Two separate news reports that makes one wonder if a connection should be made.  According to the New York Post, MSG may be interested in selling its Fuse music service.  And according to a separate Variety news story, Maxim magazine has been sold to a media company with the intention of starting a Maxim TV Network.  And while the Post thinks that a likely buyer of Fuse could be Mark Cuban's AXS- TV Network, formerly HDNet, I wonder if Maxim might be a more interesting fit.  With a subscriber base of around 65 million homes, Fuse would bring immediate subscribers to a start-up network like Maxim.  Of course there are a number of stand alone cable networks dying to get near 50 million homes who might be willing to pay up to dramatically improve their subscriber base. 

This of course is pure speculation that Fuse is even for sale.  The network has always been a personal passion for its CEO, James Dolan, and he may be hard pressed to want to give up control.  Selling networks has never been easy for the Dolans so we will have to watch and see how it unfolds.  But if they are indeed a seller, I see a Maxim offer as a likely next step. 

"Young People Can't Afford $100 Cable Bills"

According to Epix CEO Mark Greenberg, cord cutting is nothing new.  Whenever prices get out of whack and competition comes in with cheaper alternatives, consumers tend to choose to change.  He notes that when satellite TV came in to compete with fiber connected cable operators and he sees that today with streaming services.  Others call it cord cutting, Mark calls it competition, and he is right. 

Apple certainly faces the same issue with cheaper smartphones from competitors.  With their latest announcement that their less expensive 5C iPhone was indeed not as cheap as expected, their share price dropped considerably. 

Cable operators with rising license fees and the desire to maintain large profit margins are forced to keep raising the cost of basic cable, driving more and more consumers to seek alternatives.  And Netflix, Redbox Instant, Amazon, and others are there to offer their content at lower monthly costs.  But Mark has some ideas to compete more effectively with these OTT companies and perhaps even winback cord cutters.  "The answer could potentially lie in smaller and smarter bundles, combined with new user interfaces, integration of social networks and better content curation."  He also argues for smaller bundles of networks at lower price points as well as fully embracing the TV Everywhere concept and authenticating content viewing outside the TV box and home. 

For now, it is an acknowledgement that cord cutting is real and that its root cause is price gouging and increased competition.  It is a concept truly not unique to cable but learned across all industries, their products and services.  In cable's case, it just sounds cooler to call it cord cutting. 

Second Screen Apps Not One Size Fits All

Speaking at the NextTV Summit, ABC's Digital EVP noted that second screen apps aren't effective for all kinds of TV viewing behavior.  "He acknowledged that second-screen apps can work for some kinds of content, including sports, news, reality programming and awards shows."  But according to Chang, they are less effective for the typical shows on television and notes that it is more distracting than complementary.  I also agree with that opinion, especially when being used simultaneously with the on-screen action.

Dramas, especially, that require high involvement viewing require constant attention to the screen.  And while commercials offer a downtime, TV executives prefer to think they are still watching the TV, not leaving the room.  Having another device open only lessens the feeling of being in the action.  Less so, perhaps with comedies, but still viewers want to listen and watch for the laughs.  It is certainly in the live events where anything can happen, sports and award shows for instance, where there is room to add a second screen during the show.    Twitter and Facebook have proven that.  Less though for most other network programming to monetize and more likely the live water cooler for snarky comments.

And so ABC will back off from the use of second screen apps tied to their shows.  According to Chang, there was not enough opportunity to grow revenue and efforts will now be placed on other opportunities.  I expect that other networks will agree with Chang's assessment.

Does Cable Need More Regulation?

According to a Gigaom report, a member of the US House of Representatives wants to propose a bill to limit how larger multi channel programmers can leverage their larger networks to assure carriage of their smaller ones.  It would also eliminate blackouts of broadcast networks despite being out of contract.  And while this bill may appear consumer friendly on the surface, unbundling networks and limiting the negotiation process only stifles growth and opportunity.  It is a short sighted attempt at changing an industry that is already experiencing massive change.

Both networks and operators have more choices for carriage than ever before.  The rise of Over The Top (OTT) platforms and the growth of broadband and wireless has encouraged competition and in fact caused cable operators to see that price hikes have led to a loss of cable subscribers.  Programmers have also found themselves being dropped from cable line-ups.  Rather than create laws to limit the current business model, Congress should be doing more to encourage lower barriers of entry to broadband.  Encourage companies to offer alternative platforms to cable.  Enable new companies to build broadband infrastructures.  Enable competition rather than limit it. 

This proposed bill is not the correct means to the end.  While this bill is unlikely to gain much traction, it still demonstrates that Congress is wrongly focused on where the industry is headed.  Competition is the key to better service and lower prices for the consumer.  The rise of mobile devices is indicative that efforts should instead be on improving and growing our broadband highway. 

Apple Announcement Only About The iPhone

If you are wondering why the stock price today on Apple is dropping, you can blame it on expectations not meeting the announcement.  It was all about the iPhone with no discussion about new products like an Apple television or an iWatch.  Not even a word on a software upgrade to the Apple TV.  And that likely means no new products for Q4.  For competitors like Samsung, it means they have the Holiday Season to sell their new wearable device without Apple breathing down their neck.  Sure its nice to have a new iPhone, but it was a lot of talk for very little new information.  Certainly it gets harder than ever to surprise fans with so much news that leaks out beforehand; but still, it would have been nice to hear about their next device. 

Netflix A Complement To Cable Programming

In a first move for a cable operator, Virgin Media has agreed to add the Netflix app in their menu choices on their cable box.  That means that those Virgin customers that have a Netflix subscription will have access to programming from traditional cable as well as from their streaming OTT service. 

"The agreement marks a breakthrough for Netflix, blurring the line between traditional pay-TV and so-called over-the-top services delivered through the Web, such as Netflix and Amazon.com Inc.’s U.K.-based LoveFilm. Virgin Media customers will be able to search for Netflix shows on the same on-screen guide they use to hunt for pay-TV programs."  No U.S. cable operator has embraced such a move.  For Liberty Global owned Virgin Media, it indicates that they see these OTT services as becoming more added value to their cable service and less competitive.  It provides consumers with an easier ability to watch these streaming videos on the same TV that they watch networks and VOD.  Consumers that simply seek more video choices, this complement creates added value for the cable operator.

Most likely, cable operators like Comcast and Time Warner Cable will closely watch Virgin for signs that this partnership does indeed work or that it only leads to consumers further cutting the cord on their cable service.  Some research has indicated that a majority of consumers actually are both cable and Netflix consumers, speculating that these OTT services aren't what drives consumers to cut the cord.  Other factors like cable costs, disposable income, etc. may be the true drivers.  For now, this partnership between Virgin Media and Netflix challenges the notion that cable and OTT can't work together. 

The Future Of Net Neutrality

Are all video streams created equal or do some have more power over others?  And should money dictate who gets the right -of-way on the information highway?  That certainly may be part of what comes from the District Court case between Verizon and the FCC.

What is true is that yesterday's laws regarding telephone access and telecommunication have changed dramatically with the rise and growth of the internet.  The influx of more devices, broadband and, video streaming have created a more complex superhighway that no longer abides by the old rules. And the result has been a concern about access, speed, and preference.

According to "Susan Crawford, a tech policy expert and professor at the Benjamin N. Cardozo School of Law who served as Special Assistant to President Obama for Science, Technology, and Innovation Policy. 'The question presented by the case is: Does the U.S. government have any role in ensuring ubiquitous, open, world-class, interconnected, reasonably priced Internet access?'” If not, then should the businesses that have built these highways and access points, companies like Verizon, AT&T, Comcast, Time Warner Cable, and others, have the final say in issuing access, speed limits, and right of way?  Ultimately, is the web a regulated, open highway or a private turnpike?

Net neutrality laws were designed to assure that all web traffic was treated equally by the provider of broadband and wireless services.  No favoritism or HOV lanes to the ones that pay an extra fee.  For the companies that have spent huge amounts of capital building these online highways, they believe that "they should have more latitude in deciding what content travels over those networks."  It is a classic case between private business and public policy.  Which way the District Court decides matters little; it is the kind of case that ultimately must find itself in front of the Supreme Court.  Concerns on both sides of the issue are plenty and the final decision will have huge repercussions.