ESPN Driving Digital Content To Thwart Cord Cutting

Today's Wall Street Journal offers an in-depth piece on ESPN's strategic approach to the digital landscape.  Cutting to the chase, they recognized that cable revenue was at stake with the rise of streaming video on the web.  And no matter how much you raise your license fees to cover drops in cable subscription, eventually, cord cutting would impact its business.  The result, a digital network/app for cable authenticated customers, called WatchESPN.  "ESPN collects money for the app from pay-TV providers such as cable companies, which pay for the right to offer it to their customers. For ESPN, a second revenue stream comes from advertising on the app. "

Talk about a great extension of its linear channels.  An online app that cable operators pay a monthly license fee to ESPN and then market to its cable subscribers as an extension of their cable service.  And ESPN gets both some subscription revenue and advertising revenue from their digital business. 

Sports fans, especially ESPN fans, are most likely not the households dropping their cable subscriptions.  Consumers that are cord cutting tend to find non-sports content through other platforms.  So ESPN may be seeing loss of subscriber revenue because consumers are cutting off their cable subscriptions, but their ratings remain unchanged as their viewers are not the ones cutting the cord.  Ratings though could eventually drop as the cost of cable service eventually drives even the ardent sports fan away from cable.

For now, ESPN has created a smart digital business that retains cable subscribers and keeps cable operators happy while building out an ESPN digital business that could one day become a standalone subscription OTT network.  "ESPN is talking to broadband providers about other Internet products, such as an ultra-high-definition version of its TV channels that would be offered only to people who upgrade to faster tiers of broadband. "  ESPN seems to have found a way to straddle the cable and digital business; hopefully, they can keep their balance as consumers continue to adapt to a digital world.   

Apple Keeps Getting Away From One Size Fits All

When Steve Jobs was alive, he seemed intent on a one size fit all approach, for the iPad and iPhone.  But since his passing, Apple has listened more to the consumer.  A mini iPad was introduced and a slightly larger iPhone screen.  And now there are rumors that Apple will release more extensions of these products in more sizes.  That includes even larger screens for both of these products.  Would Steve Jobs approve?

Believe it or not, I think he would.  What set Apple products apart were its ease of use, speed, and seamless integration of design and function.  Seeing consumer demand for multiple size products to fit their needs, Jobs most likely would have followed the same course that Tim Cook has taken.  Ultimately, the size of the product can vary for it is what these Apple products can do that sets them apart.  So while Apple hasn't verified that new screen size products are coming in 2014, I would expect that we will hear about them come Spring and Fall.

My Television Is Already A Dumb Terminal

No matter how much television manufacturers try to smarten up their TV sets, I believe a vast majority only use it as a dumb screen connected to a smart box.  If essentially your remote is used to turn the TV on or off, raise or lower volume, or perhaps switch input devices, your screen is a dumb screen.  All the content that streams through it comes from another device, your cable box most likely, or perhaps a game box, blu-ray or DVD player, Apple TV, or some other separate box connected to your set. 

So why are we paying for smart TVs with WIFI and other content applications?  Because companies are hoping you will prefer an integrated experience, but history has proved otherwise.  In the old world of stereo entertainment platforms, some manufacturers offered us one box that combined turntable, amplifier, radio, and speakers in one; the more sophisticated devices were separate pieces that plugged together.  The best receiver, the best turntable, the best speakers, the best CD player for the price you wanted to spend.  So while some customers may like a smart TV, I believe most prefer the separate devices that fit their budget and their lifestyle.

Mark Arana, executive director for strategy and innovation at Walt Disney Studios, at an OTT panel at Streaming Media West, seems to believe that "television will become a second screen, essentially a dumb terminal for content streamed from mobile devices."  I'm quite surprised at this remark as a future occurance as it has been happening for more than a decade.  Just look at the penetration of cable boxes in the home, mostly happening years ago when cable operators switched from analog to digital and required a converter box to unscramble signals.  At that point, the TV became a dumb device.  Since then, more and more boxes have emerged, thanks to the rise of streaming, to offer more content choice into this same dumb box, as well as into tablets, smartphones, and laptops. 

Consumers can pick their platform and pick their device to view, no longer tethered to the TV set.  Its allure continues to be the bigger screen, but for consumers that demand mobility and more personal viewing, the TV set is simply one monitor choice.  But second screen, I don't think so; it still represents for many homes the central focal point for family viewing.  Its simply a dumb screen with many more content platforms to connect to it. 

Will Comcast Godfather A Charter And Time Warner Cable Deal?

Charter has some business interests in acquiring Time Warner Cable and it seems it makes sense to get some help from "The Godfather" or in this case, Comcast Cable.  As the largest cable operator, Comcast still has interests to improve its footprint and a possible result might be that Charter would spin off some markets for Comcast's financial support.  "Charter approached Comcast last week to discuss carving up Time Warner Cable's systems and subscribers, after the second-largest U.S. cable company rejected its offer, Reuters reported."

Consolidation in the wired space has become an important need, especially to compete against telco companies like AT&T and Verizon.  With Verizon's acquisition of Intel Media, it is becoming more and more clear that their plans are to expand its footprint beyond its FIOS footprint.  With an expanded wired footprint and wireless connections for authenticated users, Comcast and Charter could both win. 

Verizon On Internet Buying Spree

It seems that Verizon is on a strategic mission with aggressive plans to compete in the wired and wireless space.  The growing demand for access to content and the platform to support it has led Verizon on a buying spree.  Last month, Verizon announced its plan to acquire EdgeCast Networks, a leader in the CDN or content delivery space; Now Verizon has formalized a plan to acquire the Intel Media unit and its OnCue TV business from Intel.  The OnCue platform, set top box and applications, was Intel's attempt to compete in the OTT space.  "OnCue is designed to provide pay-TV programming over any high-speed Internet connection, making it a threat to cable-TV services that deliver shows over dedicated lines restricted by territory. Intel’s system includes servers, set-top boxes and applications that can stream content to televisions, phones and tablets."

Now under the Verizon FIOS umbrella, content may finally be available for the service.  Coupled with a CDN to support stream demand, Verizon seems to be acquiring the pieces to augment its FIOS business beyond the confines of a wired franchise.  Certainly Verizon FIOS, along with its cellular business Verizon Wireless, aims to be a more competitive business to the cable and satellite providers.

The biggest impediment remains content companies, especially broadcast and cable networks, that work hard to protect all their revenue streams by limiting licensing agreements to specific platforms and uses.  It is why OnCue was unable to create an OTT line-up of channels to market to consumers.  Verizon is fortunate enough to have FIOS agreements in place as well as content from Redbox Instant.  But I'm sure given the acquisitions that have already occurred, Verizon has a strategic plan in place for content too.  And perhaps that includes buying a content company like a Scripps or Discovery to fill the bucket.  That would be my guess. 

"How Do You Solve A Problem Like Maria" (or DVRs)

It seems that NBC recognizes the key to survival of linear television is live programming.  Credit sports, award shows, and now for NBC, Broadway musicals on television.  With the success of The Sound Of Music last December, NBC has announced its second live production, Peter Pan. 

Certainly casting will drive the buzz worthiness.  For Sound it was Carrie Underwood vs Julie Andrews; and for Peter Pan, the question will be who will play the role made notable by Mary Martin.  Viewers still willing to make appointment television, will enjoy these programming choices.  Peter Pan may not have the same fan base as Sound of Music, but it certainly has the name recognition.  Should this strategy prove another ratings hit, other Broadcast and Cable networks may soon try to overload us with this same approach.  And sometimes too much of a good thing is too much. 

There Is Nothing Like TV (Set)

Let's face it, despite the rise of tablets, smartphones, and laptops, we still like to watch out TVs.  There is nothing like a big screen HDTV to watch a movie, sporting event, or any number of TV shows.  But we must also separate where that content is coming from.  No longer is it being driven by antenna or cable operators directly into our TV set; instead, options have multiplied as more and more devices sync with our big screen monitor.  We have Roku, Apple TV, and gaming devices like XBox One and PS4, connecting video content to the set; We have Chromecast, Blu-ray players, and more all with streaming media capabilities.  And the choice of viewing is almost unlimited. 

More amazing, we also have choice when deciding whether to watch our shows on the big screen or our personal handheld devices.  TV Everywhere continues to make progress so that our linear networks are viewable where we are and not just on the TV.  Still, my original premise holds.  When we plan to be sedentary for a while, there is nothing like the size, sound, and detail coming from a big screen HDTV monitor and surround sound speakers that makes all the difference in the world.

Should Apple make an HDTV to compete in the space with Samsung and others?  Many expect a smart, internet enabled, HDTV, to be announced this year. But my recommendation.  If Apple must build a screen, make it a dumb monitor and put all the connectivity into its Apple TV box.  Its already built and besides, Apple is building so many different size screens for its iPad and iPhone, why not build a 55" screen for the living room. 

Broadband Could Bundle Like Cable

The loss of net neutrality has many folks fearing that equal access to content will no longer be equal.  Where the FCC tried to ensure that all content was treated equally regardless of its size, the recent US Court order has opened Pandora's Box to new concerns including higher costs to access higher speeds and bundling of content online.  And ultimately, that consumers will pay more to access content.

Critics of the new ruling believe that now ISP companies, the ones providing broadband service to your home, will charge content companies more to get HOV access and faster speeds.  More established and richer content platforms, can afford to pay up, but they might also need to raise their subscription fees to recoup those added costs.

ISPs, like Comcast and Time Warner, could also start charging consumers more usage fees and bundle content to customers that want to receive faster streams.  "The cheapest, fastest bundles will probably include the sites that pay ISPs the most -- most likely the big boys, including Amazon and Netflix. Another possibility is that ISPs could bundle popular sites with less-popular ones that are willing to pay. If you pay for a Netflix bundle, for example, you may be forced to use the Bing search engine."  Good for the more established brands, but bad for new platforms and its content trying to get discovered and viewed.  It starts to look eerily reminiscent of today's cable packaging plans.

And while the internet is not a utility, it certainly has become useful for utilitarian purposes from communication to information.  "Access to unrestricted news will become a luxury reserved only for those who can pay more to their providers."  Schools and libraries could become the best meeting places for the less fortunate to access high speed internet. 

Of course, all this pontificating doesn't take into account how consumers and the government react to any detrimental shifts.  We can be sure that new disruptive technologies will also emerge to quickly change the landscape, from new ideas to reduce file loads to new entrants in the ISP space and new technologies that make the current internet look like a dinosaur.  The media landscape continues to evolve at a faster and faster pace and no doubt, the end of net neutrality may simply be the opportunity for new doors to open. 

The Court Enables ISPs To Run HOV Lanes

In what has been described as a blow to net neutrality, the US Court has pushed aside FCC efforts to keep the internet stream open and equal to all.  Instead, they are allowed to operate HOV lanes and charge premium pricing for access.  That means that broadband providers like Comcast, Time Warner Cable, Verizon, and others can pursue deals with high usage content distributors like Netflix, Amazon and others for faster streams at higher prices.  In addition, "The U.S. Court of Appeals for the District of Columbia Circuit ruled Tuesday that the FCC did not have the authority to prohibit broadband and mobile service providers from selectively blocking or slowing Web traffic and applications."

For companies willing to pay it means more costs to distribute and for broadband providers, it means a new revenue stream.  And for the consumer, it ultimately means higher costs for content and some difficulty in getting content from outlier platforms.  If Netflix needs to pay more for distribution, they need to charge consumers a higher subscription fee to recoup those losses.  Consumers will find content that didn't pay for HOV access slowed down in getting their streams to our respective devices. 

Why did the courts rule this way?  It is because they do not see the web as a utility like gas, electric, or water.  It is not a basic right regardless of how pervasive it has become for communication purposes.  And the laws of our free economy best operate under supply and demand.  As long as it does not operate under monopolistic conditions, government shouldn't interfere.  And like a free economy, the rules of disruptive technology should also apply.  Technological innovation to improve streaming, deliver alternative solutions, and improve our lives.  By not setting net neutrality rules, the US Court may just be inviting new broadband opportunities to emerge.