Cord Shaving Hurting Expensive Networks

On March 11 2011 I wrote my first blog about cord shaving entitled It's Not Cord Cutting, It's Cord Shaving.   In it I wrote that "the rising costs of the cable subscription is resulting in purchase behavior changes."  Cable television continues to get more expensive and OTT services like Netflix continue to siphon funds that once went to cable TV. 

Fast forward three and half years and the topic of cord shaving may finally be taken more seriously.  In today's Wall Street Journal, the article titled Pay TV’s New Worry: ‘Shaving’ the Cord, discusses how "the top 40 most widely distributed channels in 2010—household names like CNN, ESPN and USA—have lost an average of 3.2 million subscribers, or more than 3% of their distribution, according to a Wall Street Journal analysis of data from measurement firm Nielsen."  Not really so new.  Customers have been cord shaving dropping their level of service to lower the price of their cable subscription.  The cost of packaging with too many of these cable nets have simply made the price of customer subscriptions cost prohibitive.  Step one, customers are cutting back or shaving nets off their subscription; but as costs continue to rise, step two will be to cut the cable cord entirely. 

Network license fee models generally require that not only are they placed on a channel line-up with the largest number of subscribers, but that their penetration of service against all customers is greater than 85 or 90%.  As subscribers continue to shave off nets with smaller packages of service, network penetration rates for that cable operator decreases. Consequently, the cable operator will have to either introduce these nets into the lower priced tiers or raise their cable rates to cover the penalty costs of not meeting the network subscriber penetration benchmarks.  The cycle is complete and customer cable costs will rise. 

Consumers can only shave off so much before the only recourse will be to cut the cable cord entirely.  Aereo tried to be that service that could inexpensively offer broadcast streaming programming.  The Supreme Court ruled against them.  Other customers are once again putting up antennas in their home to capture broadcast signals. 

The other great truth is that cable is no longer the number one priority for homeowners; broadband is.  Given all the content accessible via an internet connection, consumers would rather pay for their broadband subscription before paying for a cable subscription. Cord shaving today, cord cutting tomorrow. 

Content vs. Distribution vs. Data

If you have the chance, a terrific article by Will Richmond entitled Data Is The Real King, as Netflix Keeps Proving, adds another wrinkle to the debate as to who is king, distribution, content, or data.  As we move further and further into a digital world, data, uncovered at the individual level, has become more and more important, especially for driving revenue. 

As a result, the debate of which comes first the chicken or the egg, content or distribution, may be no more.  Instead, we may have to start looking at content and distribution and data as a three-legged stool, each needing the other two to stand upright and remain functional. 

Netflix, in the article's example, works in this new model.  It has thrived because of original content, accessibility across an agnostic array of devices, and data to enable Netflix to make risk averse decisions.  All three work in tandem to propel Netflix to new highs, continuing to reach more and more subscribers.

No one attribute is king.  Content, distribution, and data simply must share the crown.  At the same time, they must each communicate with one another effectively to continue to rule. If data, or the information they hold, is not shared with content and distribution, then the other legs become weak.  And if content or distribution falters, then data is limited and unable to deliver good information.  Perhaps the new mantra should borrow from the Three Musketeers, "All For One And One For All".

Apple's Next Announcement

It has been barely a month since Apple held a press conference to announce the iPhone 6 and future launch of the Apple Watch.  Another month and another announcement. This time word comes that Apple will introduce new iPad models, new iMacs, and a new computer operating system.  The date for this news conference will be just a week away on October 16. 

Come next week, I would also love to hear about improvements to the Apple TV and perhaps some upgraded laptop info.  With new products being released, I expect big growth on revenues in Q4 of this year for Apple.  Is it time to upgrade the iPhone or iPad, Apple sure hopes so. 

Turner Broadcasting Fires 10% of Its Staff

The mantra of do more with less seems to be part of many companies.  It applies mainly to labor.  Call it what you want, downsizing, layoffs, buyouts, job cuts, it ultimately means that workers are fired from their job without cause.  Rather than retrain its workers for new positions, the senior management believes that the costs of these workers outweigh the benefits they may have brought to the organization.  It is not unique to Turner; rather, it is typical.

Still in Turner's case, dollars that may be possibly saved by cuts in work force are going to other pockets.  Its not like the CEO or Presidents of the various divisions are being asked to slim down as well.  Will they be feeling economic hardship like a reduction in salary perhaps.  Could a 10% reduction in their salaries save a couple hundred of those job cuts?  Possibly.  Will Time Warner parent CEO Jeffrey Bewkes or CNN President Jeff Zucker reduce their paycheck?  Doubtful.  And while employee lives are being changed, Turner has negotiated, along with ESPN, to pay a good deal more for an extension of their NBA deal through 2025 and the right to continue to carry its content. Its hard for consumers to pay to watch that content if they are being fired from their jobs.

Ultimately, Turner will start hiring again at some point to replace the positions they lost.  Likely, those new hires will be younger and cheaper; good for them as they start their careers, but not for the older employees who lost theirs.   Turner, like other employers, will lose out on the experience and effectiveness that the senior employees had provided.  And that is a shame.  Unfortunately it is what corporations do. 

Redbox Instant To Stream No More

You would have thought that Redbox would have learned from the stumble by Netflix to move from a DVD delivered service to a streaming one.  Redbox, the red DVD vending machine that you find at shopping centers and supermarkets, partnered with Verizon to create Redbox Instant.  And working with Verizon's FIOS programming team, Redbox Instant would avoid the mistakes of a startup and deliver a powerful competitor to Netflix, Hulu and others.  Not!

Over the weekend, the partnership announced that they will be shutting down the streaming service.  So what went wrong?  Certainly not being inside the organization, it is hard to say; but as an outsider, the service never seemed to generate awareness, buzz, uniqueness, and ultimately demand.  As programmers, it failed to do what its competitors did, create original or deliver exclusive content that other streaming services could not offer.  While Netflix has its House of Cards and Amazon has its Alpha House, Redbox Instant created no such unique content.  As marketers, Redbox Instant did little to promote itself.  Yes you may have heard of or seen their kiosks, but how many consumers had heard of its streaming capabilities.  Awareness of Redbox Instant seemed low if existent at all. 

I'm disappointed in Redbox Instant.  I felt that they had an opportunity to grow from their physical form into a streaming powerhouse but that they never truly delivered on a strategic plan.  Given the size of Verizon, it is hard to believe that budget was an issue.  But if there were limited dollars, it certainly would have been a major factor.  Without the monies to invest in content and marketing, customers were not going to enter the door. 

Over their two years of existence, they barely sputtered out of the starting gate.  No major content announcements, n o major advertising, no free samples to try the service, no unique programming, marketing, or promotion at all.  And the shame of it all is that I believe that Redbox Instant had the potential to compete in a major way with its rivals.  And that is the greatest waste of it all.

Sprint With Legendary Entertainment

Sprint's parent, SoftBank, may have kicked the tires on Dreamworks Animation but has decided instead to invest in Legendary Entertainment.  Legendary's movie studio has produced notable films like The Hangover and The Dark Night while SoftBank owns wireless carriers in the US and Japan.  How SoftBank can leverage this content partnership deal with their businesses will determine how successful this strategy can work.  It may not be an easy path.

Exclusivity of content is what enables distribution platforms to compete.  In the wired and satellite space, you have the cable companies with telco and DirecTv and Dish.   And in the OTT subscription content space, the big guns are Netflix, Amazon Prime, and Hulu Plus.  What drives subscription of these services are the breadth and depth of content accessibility and availability.  Size matters!

The scope of the deal that SoftBank is doing with Legendary needs to expand greatly to a larger library of content.  One or two content output deals will not do it.  A bigger strategy is needed, one that SoftBank has yet to reveal.

Netflix Adds To Its Feature Film Distribution

Netflix is taking on more than just cable television distribution.  With their latest movie deal, Netflix wants to compete with movie chains as well.  The New York Times tells us that following their move to premiere its first feature film through The Weinstein Company, Netflix has signed a deal to distribute the next four of Adam Sandler's films through his Happy Madison production company.  "Netflix declined to comment on specific terms of the deal, but said the films would have the characteristics of theatrical releases, with similar-size budgets."

While recent films from Sandler have not been hugely profitable, he has a large following.  And his older films continue to delight audiences.  His reach seems to fit the market demo that Netflix wants to serve and Sandler's films tend to have a family enjoyment factor, like "Grown Ups" and "50 First Dates".  This arrangement between Netflix and Sandler looks to be a strong strategic fit.

HBO and other premium cable nets have been producing original features for a while.  Movie chains cannot afford to sit back as Netflix further disrupts their business model.  Today it may be one or two deals, but more will certainly be on their way.  Chains can compete by making the experience of going out to the movies that much more enjoyable.  Larger screens, better seating, improved refreshment offerings, etc.  And yet, at home viewing continues to improve as well.  And when cost is a factor, the home experience is a winner.  Movie chains must continue to adapt or face some extinction from alternative distribution offerings. 

Movie Chains Fight Back Netflix Plans

Congratulations to Netflix on the great PR they are getting.  For a move not expected to occur for 10 months, Netflix has caused an uproar in the movie industry with their latest move.  Their plan to offer a theatrical release of a film at the same time it plays on IMAX movie screens.  And movie theater owners are fighting mad. 

According to The New York Times, "Two major theater chains, Regal Cinemas and Cinemark, said Tuesday that they would not screen next year’s sequel to “Crouching Tiger, Hidden Dragon,” the first major motion picture that will make its debut simultaneously on Netflix and on a select number of Imax screens."  So their IMAX screens will not show the film.  Netflix probably doesn't care in the least.  Exclusivity only makes their distribution platform stronger. 

Still the question remains how this move affects the other partner, The Weinstein Company, who is producing this sequel.  How will this collaboration with Netflix play out in future releases for the film company?  Will Regal, Cinemark, and others decide to not screen another Weinstein film to show their displeasure toward the company?  Or will other film companies follow Weinstein and offer a similar distribution deal with Netflix?  We may just see this move as the start of a new distribution strategy.  Regardless, disruption is at work and Netflix awareness is growing.

Netflix Will Premiere Feature Films Too

Netflix has proven itself to be a disruptor.  Its announcement of a distribution agreement with The Weinstein Company changes the framework of the movie distribution business.  Walls are collapsing as we speak.  A film would normally go to the movie houses first then to premium cable, then basic.  Some bypass premium and some bypass basic cable and go to broadcast.  Netflix has decided to go to the top and bypass the movie screen for the home. 

Next August, Netflix will premiere the sequel to the Ang Lee film, "Crouching Tiger Hidden Dragon".  The film will play simultaneously on Netflix and on IMAX screens.  It is an interesting strategy and one that depends on consumers continuing to subscribe to Netflix and staying loyal to the service.  I wonder how else Netflix can monetize such a push into original theatrical content to continue to invest in more productions.  At the very least, it is another disruptive move that will put cable television on the defensive.