Cable Convergence Part 2

Just because this morning's blog was about consolidation on the operator side doesn't mean that programmers aren't in play too. In my last paragraph, I suggested that smaller independent should consider merging with larger programmers.  Well, Variety has just learned that Discovery Networks, home for Discovery, TLC, and Animal Planet, may be kicking the tires on Scripps Networks (SNI), parent of HGTV and Food Network.  According to the article, "Knoxville, Tenn.-based SNI has been seen as a prime acquisition target for some time."

True or not, the one thing that can be stated, cable consolidation will only continue.  "If anything, a Discovery-Scripps tie-up may just be the beginning of further dealmaking in the sector. AMC Networks, Starz, Viacom and even Discovery itself have been mentioned as possible acquisition targets."  So in the coming weeks we may see changes on both the cable operator and cable network sides of the business.  

Cable Content Convergence Not To Fear

Today's NY Post talks about smaller, independent cable programmers fearing distribution growth from cable operator consolidation.  "The biggest fear is that a takeover by an operator paying higher fees of an operator paying lower fees will result in smaller programmers being offered the lower fees across the combined, larger system, executives and industry insiders said."  But that is true for all cable programmers.  The other fear is that it gets harder for smaller cable programmers not already distributed to gain a larger footprint as their are less cable operators to negotiate with.  In some cases, a programmer on one operator might even get dropped as the system is merged with another cable operator. 

For cable operators, consolidation means opportunities to renegotiate license fees lower as a result of exceeding certain subscription benchmarks.  A programmer in both consolidated properties will directly feel the effect of lower revenues per subscriber without any increase in subscriber size; the cable operator gets more cost efficiencies.

Gaining space on a cable operator has never been harder and requires deep pockets to spend "marketing dollars" to the cable operator for a channel spot.  I can only assume that an independent channel like Al Jazeera America must have spent a fortune to get back on to Time Warner Cable.  But they may also worry that if Charter acquires TWC that their deal could backfire. 

But cable consolidation should not be viewed as "bleak" according to one independent programmer. The rise of OTT means that other platforms exist to reach consumers.  There may not be high license fees to start but such was the case with cable in the early days, as well.  But OTT platforms would love to make themselves more valuable and interesting to consumers.  Independent programmers should be strategizing where to best position themselves.  Whether it is on gaming platforms like XBox One or Sony's PS4, upstart Aereo, or even struggling platforms like Intel Media.  And don't forget Roku, You Tube, Hulu Plus, and others.  Sure cable operators have the dominant platform today, but not the only one.

Of course there is one other way to try to get on a cable operator platform.  Smaller independents might just want to consolidate themselves.  Perhaps Discovery, ABC/ESPN, or NBCUniversal would be interested in acquiring you.  It is a dog eat dog world and the challenge to grow is to look outside the box or risk being eaten.

Apple Invades China

Despite some concerns that Apple didn't build a cheap enough iPhone, come this Thursday, "China Mobile, the largest wireless carrier in the world, will start taking pre-orders for Apple's iPhone".  And yet the expectations are running high that the iPhone will quickly gain significant market share.  Perhaps staying as a premier brand with a high price point along with the recent release of its iPhone 5s, with a gold back, China might just fall in love with the iPhone just as the US and other markets do. 

Of course, once China Mobile has the iPhone then so do consumers gain access to the iTunes library and the opportunity to buy apps, music and movies.  And for me gaining more users into the Apple infrastructure means access to more of Apple's products including iPads, Apple TV and more.  The China Mobile launch is certainly a big deal.

Time Warner Cable, For Sale Or Not

The year is close to ending and the M&A guys would love to announce one more deal before the end of the calendar year, but Time Warner Cable, may be playing a game of will they or won't they.  According to future CEO, current COO, Rob Marcus, denied the Bloomberg report that he was willing to sell at the right price but was in fact in it "for the long haul".  Of course despite the will they or won't they thinking, Charter has expressed interest and Comcast may be talking to its bankers as well.  Given the push toward broadband and the need for more efficiency by the cable operator to expand, Time Warner Cable may be in fact negotiating how such an acquisition could take place and how might current management be affected.  I suspect that a deal will get done and I don't see how Comcast can be involved unless they are willing to trade some systems to Charter for others.

NBC's Sound Of Music Steps In The Right Direction

Ahh the challenges of live television, missed marks, fumbled lines, sound issues, but still what a joy to see.  While the acting on last night's show may not be golden, the singing certainly was.  And I must give NBC high marks for doing something that rarely gets done anymore beyond sports and awards shows.  Live Television.  "30 Rock" did it a couple times and now a 3 hour theatrical production.  I have yet to see the ratings but I suspect that many people tuned in to watch.  I also expect to hear that others recorded it to watch at their leisure.  It may have had its flaws, but it is a great plus for broadcast television. 

I must admit to reading with laughter the snarky remarks coming from Twitter.  It offered tremendous fodder for creative commentary.  But it also indicated that many people were watching it.  While I personally like when theatrical shows are shown from the Broadway stage and in front of a live audience, I have to commend the set direction and flow from one set to another as well done.  The acting showed how important it is to have experience on the theatrical stage, but the singing was terrific.  I understand that the music was prerecorded which misses the extra appeal of a live orchestra.  And without an audience to applaud, the timing of the show was unimpeded, letting the production end at the planned time.  But it lacked that extra energy and isn't that what "LIVE" is all about.

So my hope is that broadcasters look at this production as a ratings and financial winner and plan to do more live programming.  It has been long missing on television and is a refreshing change to what is currently being shown. 

Microsoft Adds More Debt...Why?

With Microsoft launching its latest gaming platform, Xbox One to solid revenues and planning a change to its executive ranks with the retirement of Steve Balmer, the latest news may make you wonder.  According to Bloomberg, "Microsoft Corp. (MSFT) sold $8 billion of bonds in dollars and euros, a record offering from the world’s largest software maker".  Perhaps one reason is to take advantage of lower interest rates as many speculate that they will be rising; Microsoft says that the funds will be used for "general corporate purposes". 

Certainly, Microsoft has watched as Google, Samsung,  and Apple have taken the lead in the hardware race.  Their tablet, the Surface 2 lacks the buzz that other tablets offer.  And both Google and Apple have invested in the infrastructure to provide content to their devices.  With PC sales waning, Microsoft's success with Office may diminish too.  Today their best new product is the Xbox. 

So perhaps, Microsoft may be wanting to enlarge its cash war chest for a possible purchase.  A cable operator like Time Warner Cable or content creator like AMC Networks,  or perhaps an OTT content distributor like Netflix.  Where does Microsoft want to be in 5 years and what do they want to be known as, a hardware company, software company or a content company. 

Should Native Advertising Be Regulated?

As consumers become less susceptible to clicking on display advertising, web publishers have relied on other technological moves to assure that ads get seen and hopefully clicked.  From launching web pages under and over existing pages to expanding content to fill the screen.  All done to assure that access to free content enables revenue monetization.  While pre-roll of ads on video is one way to force consumption, another has been to use advertising that looks like editorial to encourage viewership.  Dubbed native advertising or content sponsorship, it has quickly become a successful means to increase web clicks.  Some sites highlight the block to indicate that it is sponsored, others might actually put a footnote or header to indicate it.  And still others let the native ad content blend seamlessly with the other editorial content.  But should it be a case of buyer beware?

Such was the case of a conference held to discuss native advertising.  "Consumer advocates, publishers and advertisers who spoke at the event generally expressed agreement with the idea that Web sites should make clear when they are running native ads -- at least when the ads directly hawk a product."  An example that has been used is that of a drug company that promotes an article about management of a health problem and cites its drug as a possible remedy but not other alternative options.  When not labelled clearly as sponsored, consumers may be confused in thinking that the drug mentioned was an "independent analysis" and a "best remedy"  And it is that possible confusion that has the FTC wondering how native advertising needs to be distinguished from editorial for the consumer.  

Not all native advertising sells products or services.  Some are actually used for content recommendation to encourage viewers to visit another website.  " In some cases, the sponsored content is just an item that advertisers think readers will find interesting.  But some advocates say that even those types of native ads should carry a disclosure, so consumers will know that the article didn't originate with the publisher."  So should all native advertising or sponsored content be treated equally?  I maintain that some notification may seem helpful, users are apt to overlook.  The idea of "caveat emptor" or buyer beware still should hold true.  Should these ads become more deceptive the consumer will engage and fight back and the marketplace will feel the effect. 

Charter Does Need A Cable Merger

In discussion about a possible merger, Charter CEO Tom Rutledge said that they don't need Time Warner Cable.  Yet as we are well aware, what we say and what we do are not always the same thing.  In a classic dating analogy, showing a bit of disinterest can sometimes work to make the other more attractive or to encourage more interaction.  So regardless of what is being said, it is painfully clear that Charter needs a consolidation partner and Time Warner Cable, given its size, becomes the best way to achieve scalability and cost efficiencies.  They also give them access to more of the LA DMA as well as to the entire NY state, including the number one DMA, NYC.  Other smaller operators would be able to achieve such immediate return, although Cablevision, is a cache unlike other markets. "Analyst Amy Yong of Macquarie Capital wrote 'It’s hard to ignore that Cablevision has some of the best zip codes in the country including New York, NY, Fairfield County, CT, and Bergen County, NJ. It just wouldn't return much cost efficiencies at the start.'"  

So I am reluctant to believe comments by the Charter CEO as anything more than posturing.  Major stockholder John Malone has other plans.  As an innovative financial whiz who has been quite successful in managing a portfolio of media companies, Malone clearly has a strategic plan in mind and knows that the pipeline to the home is crucial.  Charter lacks major markets and needs to merge to gain better coverage of the US market.  And if that means swapping and sharing with Comcast to get a deal done, Malone will move in that direction.  We have two major telcos, two major satellite companies, and perhaps we are getting closer to two major cable operators. 

Netflix Pushing Family Fare Exclusive Content

Let's face it, sometimes it is hard to say no to your little boy or girl.  And with the rise of tablets, our kids are sharing with each other all the great content they are watching online.  Netflix seems to recognize the value of programming that speaks to the younger audience and pushes their parents to purchase on their behalf.  And Netflix is becoming the must have purchase for the home. 

So, add another reason why more and more families may be buying a Netflix subscription for the Holidays.  "A deal with DreamWorks Animation represents the streaming service's largest push yet into original programming. Turbo F.A.S.T., a 26-episode series based on Turbo, a feature film about racing snails, will be released Dec. 24".  And more kid friendly shows are in the works.  Most importantly, these deals represent exclusive windows in which other streaming platforms won't have access. 

The kid demographic strategy offers a compelling reason for Netflix to pursue.  "Subscribers who watch kids' shows on Netflix tend to use the service more often, (chief content officer Ted) Sarandos says, and presumably see a better return on the $7.99 monthly fee. And kids often watch the same episodes over and over".  And an added benefit for the parents and ultimate purchaser of a Netflix subscription, no advertising to their children.  So given the rush to buy the next iPad or Surface or other mobile device, comes the need to buy content to run it.  And Netflix is making the case for being the perfect stocking stuffer.