Apple's Subscription Platform A Disruptive Force

Given the Apple infrastructure of retail, a full line of products from Apple TV to Apple Watch, plus its iTune interface and AirDrop capability, it is no wonder that the news of it's entry into an online cable subscription service has created quite a stir.  From traditional cable operators, like Comcast, to other technological rivals, like Google, Amazon, and Microsoft, Apple has challenged their current business models.  How?  Let us see.

Comcast may be concerned on a number of fronts.  While NBC is currently not in the mix for services on the new Apple subscription platform, they may be forced to launch based on their agreements with the FCC.  According to the NY Post, "As part of Comcast’s deal to acquire NBCUniversal in 2011, the cable giant agreed it would make its content available to online video distributors on a “comparable” basis to its rivals."  For Comcast, the debut of Apple TV could cause a rash of cord cutting as consumers decide they prefer the TV Everywhere advantage of Apple, the simplicity of use across all their devices, and the mobility.  They also undercut Comcast with lower subscription fees for a scaled down but desirable list of networks.  Add HBO Now and Netflix and consumers mayjust prefer the Apple TV box or iPad or iPhone over a cable TV box tethered to a single television set.  How does Comcast compete?  With an Apple launch scheduled for the Fall, they have about 6 months to build a new business and marketing plan.

As to the other streaming networks, Apple will compete with Sling TV and Playstation Network.  Amazon may feel they have lost a step.  They have the smart phone and tablet devices, but don't have the broadcast nets and most of their streaming is tied to their Prime subscription model.  Microsoft has XBox, but they have already disbanded the content side of that business to concentrate on cloud computing.  Building an infrastructure of content partners and a streaming subscription service may not be part of their current focus.  And Google has concentrated on building out fiber in limited markets.  They have Google Play and can reach outside the Apple closed infrastructure through the open Android platform.  But by being open, it may lose some control.

Still, the speed of change has increased greatly and mass adoption continues to occur at a quicker and quicker rate.  All of these technology companies have the ability to commit to change and focus on driving digital consumption.  And moving off of cable boxes and onto personalized devices delivers richer data about who is watching, when, where, and how, coupled with the same users using these same devices to make purchasing decisions.  Apple's infrastructure and usage base could potentially give them a huge edge in capturing a sizable subscription audience and rich data to drive advertising revenue. 

Apple To Become Online Cable Operator

For years it has been speculated that Apple wanted to get into the television viewing business.  But in the last few years, the word television has changed its definition.  Watching content, whether on cable TV or through Netflix, whether on a big screen set or on a mobile device, all seems to fall under the umbrella of television viewing.  Rumors that Apple wanted to build big screen sets or a cable friendly set top box have all been bandied about.  The latest news might just be the direction Apple has decided to take.

The Wall Street Journal says that "The technology giant is in talks with programmers to offer a slimmed-down bundle of TV networks this fall, according to people familiar with the matter. The service would have about 25 channels, anchored by broadcasters such as ABC, CBS and Fox and would be available on Apple devices such as the Apple TV, they said."  Like Sling TV and Playstation Network, announced at the CES, and other aggregators, Apple hopes that its Apple TV device, recently reduced in price from $99 to $69 is the means to drive adoption.  Under the Apple ecosystem, subscribers of the service would be able to view content on any of its devices, from iPod to iPhone, from iPad to Apple TV.  Truly a TV Everywhere approach!

Interestingly, the one content provider not included at the moment is NBCUniversal, home of the NBC broadcast channel, Bravo, Syfy, USA, CNBC, and others.  Also NBCU is owned by Comcast, the largest cable operator, soon to be larger with the acquisition of Time Warner Cable.  While the new service is not planned to launch till later in the year, so too is the approval of the cable operator merger with the FCC.  Could this issue add an extra wrinkle to the approval process?  We must wait and see.

For consumers seeking a cheaper alternative with a smaller set of channels but access to content anywhere and everywhere, and additive premium content from Netflix and HBO Now, this new subscription service could be highly welcomed by the millennial audience.  Ideally this online audience would prefer to pick and choose the nets it wants within the package.  The concern over time will be as more nets do deals to be on the subscription service causing Apple to need to raise its monthly fees.  That is one of the issues that led to cable cord cutting.  That, and the inability to watch content away from home.  With this new online subscription service, TV Everywhere becomes a true reality. 

What Do Millennials And Generation Edge Want

I saw an interesting stat posted on Twitter from an article in the Wall Street Journal:

While it took 75 years for the telephone to reach more than 50 million users, Facebook took only 3.5 years, and Angry Birds only 35 days.  With each generation becoming more and more tech savvy, early adoption can grow quite steadily into mainstream usage.  A successful product, like the iPhone, becomes a global must-have product, Google Glass still seeks to prove its value in order to achieve mainstream adoption.



By understanding the Millennial and Generation Edge audiences, their current consumption habits and future desires, companies can better deliver products and services that they desire.  In today's Wall Street Journal, researchers focused specifically on Millennial online activities and habits.  "The three most popular digital activities among the survey respondents were checking and sending email (72%), keeping up with what friends are doing (71%), and streaming music, TV, or movies (68%)."  Connectivity has become more and more crucial to our lives.  Authorized sharing has become very important while privacy becomes an issue for controlling who we let in to our circles. 

For the younger generation, being part of what is cool and trending has weight, especially, when our circle approves.  Shows on Netflix, new apps, products and services all get discussed and reviewed and approved or disapproved.  Gaining that buzz and affirmation, especially from this younger generation will drive future growth. 

Happy Pi Day

March 14, 2015 or 3-14-15, for math geeks a once in a blue moon chance to honor Pi, 3.1415

So how about a video or two to celebrate...

More Cable Consolidation In 2015

With Comcast buying Time Warner Cable and AT&T buying DirecTv, the cable oligopoly continues to grow smaller.  The latest acquisition plan comes from Charter Communications.  There is speculation that they will bid to acquire Bright House Networks, a mid-size cable operator with about 2.5 million subscribers.  That could potentially bring Charter to over 6 million subscribers as well as increase the size of its footprint. 

Putting another cable operator in play also brings up the notion that other cable operators could be buyers or sellers.  Of those, the biggest question mark is Cablevision Systems, with over 2.5 mm subscribers, mainly in the New York DMA and a highly desirable market.  Cox Communication, with over 4 million customers and systems spread across the US, from New England to California, could also be of interest.  There are still a number of smaller cable operators with more regional footprints that might finally decide to seek a buyout partner.

While the FCC still mulls the fate of the two big acquisitions above, as well as work with new net neutrality rules, their plate could only get fuller.  Cable and broadband infrastructure across the US requires size to gain efficiency.  These deals only seek to build larger footprints to capitalize on cost efficiencies and revenue gains.

 

Commercial-Free Streaming Services Hurting Cable

We have watched as cable television has, almost purposely, tried to kill itself.  Money seems a powerful aphrodisiac and the desire to squeeze as much of it as possible has turned consumers away.  Where broadcast TV offered viewers free content in exchange for watching ads, cable TV existed on a diet of both subscription fees and ad dollars.  Broadcasters became jealous and moved from must carry status to retransmission consent in exchange for license fees too.  Cable then found more ways to add revenue from adding more ad spots per hour to squeezing content together to open more ad time.  Everything from running end credits and opening credits simultaneously to now speeding up actual content of shows.   Unfortunately, greed is not good.

What started as a slow erosion of cable subscribers off television has led to alternatives that deliver content, complete, unfiltered, and without interruption.  Technology has helped to disrupt the TV game and homes are increasingly changing their routines.  Per the Nielsen results in the NY Post,

• "The amount of time US viewers spend watching live TV has plummeted by 20 minutes a day since 2013;
• Homes with subscription streaming services are watching 50 minutes of TV a day more than those without;
• Subscription video services are now in 40.3 percent of households"

According to the research, since 2012 cable operators have seen almost 5 million households drop their cable subscription packages.  Broadband connections are now more essential to the home than cable.  And as more content finds its way to streaming services, viewers will find more reasons to devote more time to streaming choices. 

Could Cable Network Drops Become Permanent?

The cycle of cable network drops with license fee negotiations leading to eventual relaunch could soon be over.  The threat of cord cutting, the high license fees imposed by cable nets, and the desire to keep subscription prices in check could lead to cable operators dropping cable nets from their line-up, permanently. 

Viacom's networks, MTV, VH1, Comedy Central and others were dropped from Suddenlink in October, almost 6 months ago, without the cable operator losing a significant number of subscribers.  Given the savings and limited loss of revenue, Suddenlink may be in no hurry to relaunch Viacom networks.  The latest news is that Verizon's FIOS systems have decided to not renew The Weather Channel, replacing it with a more inexpensive weather service.  Should FIOS find this move to be financially successful, it too could appear to become permanent.

Given the rise of streaming services, the accessibility of network programming outside its TV line-up, and the need by cable operators to create lower priced, smaller packages of cable networks to limit cord cutting, some cable networks may be at risk of also being dropped from cable systems.  If Suddenlink and FIOS can demonstrate that they can drop nets, maintain their subscription penetration, while improving their net profits, the cycle of launch, negotiate, drop, re-launch may have finally be broke.  Should cable network drops become permanent, don't be surprised to see these same networks follow the HBO Now strategy of offering streaming subscription packages outside the cable line-up universe. 

HBO Not Worrying About Cannibalization

Yesterday, Apple formally announced an exclusive partnership (albeit only 3 months) when HBO Now will be offered strictly on Apple devices.  HBO's new streaming service will be offered to all consumers regardless of whether they are authenticated cable customers or not.  And like Netflix, Amazon Prime, and Hulu Plus, HBO Now hopes to capture the consumer desiring content on their digital devices.  But unlike these other streaming services, HBO is risking their current subscriber revenue stream.  Or are they?

The threat of cord cutting, the rise of the millennial audience, and perhaps a lucrative revenue model might just make this new approach by HBO a win-win scenario.  Its corporate owner, Time Warner, no longer owns a cable operator so there is no loss of synergy.  Cable operators are unlikely to drop HBO on their own cable platform as it is the most popular, highest purchased of the premium tier networks.  And the pricing model may just protect HBO regardless whether a customer purchases through a cable operator or through iTunes.  At $14.95 a month for HBO Now, and only a 30% share with Apple (per reports), HBO Now's net could potentially be higher than the net revenue per cable sub per month.  If that is true, cable customers that cut the cord but buy HBO No could give them a net revenue gain.

I don't expect cable customers with HBO to be motivated to cut the cord because of this new streaming service.  They already enjoy HBO on their mobile devices because of HBO GO, its authenticated streaming service.  This added value product has been accessible to cable customers for some time.  Rather, HBO Now is more focused on the 10 million or so non cable, internet customers seeking more online content, specifically exclusive content that HBO offers.  The new season of Game of Thrones is one such example.

How will HBO Now do?  Millennials, whose parents have cable with HBO, are likely using mom and dad's access to get HBO remotely.  But for those that aren't and see incremental value with HBO content may be eager to purchase.  For HBO, the launch of HBO Now seems to be all positive with limited downside risk.  

Will Apple Convince Us We Need An Apple Watch?

In just a few hours, Apple will unveil its latest product to the public.  Other than product refreshes, Apple hasn't released a new product since the iPad.  With today's press conference, we will finally learn about all the new features, functions, and benefits of the Apple Watch; and most importantly, the Apple Watch will reach its retail stores and the general public will be able to more closely see and feel them.

A number of questions come to mind as the Apple watch is released.  Will it deliver a uniquely different experience than other smart watches out already?  Will it do more than current health trackers like the Fitbit, Microsoft Band, Vivofit and others?  Will watch wearers replace their current watch with an Apple Watch and will non-watch wearers want to start wearing a watch?    Is the price point a stumbling block or a non-issue?  Can Apple convince consumers that the Apple Watch is a must have product?

Stumbling blocks for me are first and foremost the price.  Second is the utility and value that would drive me to need it.  And third is the battery issue.  If the Apple Watch can't last a full day without a recharge, then a dead device on one's wrist has no vale whatsoever.  If Apple can convince the public that they can't live without it and that it lasts the whole day, then they likely have another win on their hands; if not, it may be a major miss for Tim Cook and his team.