Battle Lines Drawn in FCC Net Neutrality Fight

"The gloves are off. Julius Genachowski, Chairman of the FCC, announced new guidelines to formalize the concept of net neutrality. " And so all content needs to be treated equally, emails and videos, small files and large ones get equal attention to the consumers' home. "The FCC is charged with responsibility for managing the airwaves, bandwidth, and communication in this country. Genachowski is simply working to address emerging technologies and the changing landscape of communications to adapt and evolve in a manner that is fair to both providers and customers." So why is everyone up in arms. Clearly it is not as simple as it appears.

What sounds fair at first blush is really quite complicated. Imagine two people trying to sit in an airplane row. Both should have equal rights to their seat, but what if one is grotesquely heavier than the other. The seats may fit both, but one is clearly affected by the other. It creates congestion, slows down movement, and may even create more problems. So is the case with the pipeline for the web and the "clogging of the pipes". Smaller files may be harmed simply because they are sharing the pipe with fatter files.

Perhaps it is more indicative that the size of the pipeline needs to grow or that a more efficient manner of delivery needs to be created so that file size is much less an image. That may be the better approach to making the web equal and open to all. Net neutrality sounds like a short term fix to a longer term problem.

Who Might Buy NBC

Like sharks circling their prey, media companies are smelling blood in the water and itching to bite. Vivendi is looking to unload their 20% ownership in NBC and GE may be faced with a decision, buy, sell or spin. "GE has already said it is unlikely to pay the $5 billion to $7 billion to buy back the stake, which Vivendi acquired in 2004 as part of the merger between Universal and NBC." Spinning it off into a new company may show its valuation to be less than it is and open itself to an acquisition. Seeking a buyer outright may allow GE to get more money for their piece.

So the question is, if NBC is for sale, who could the prospective buyers be: Time Warner, Comcast, Liberty. Funny how the names mentioned all are cable companies. I guess, despite competition, cable operators are doing ok. Distribution and content seem to go together. GE doesn't have that distribution business to support holding on to NBC; the others do. The synergy between content and distribution is only getting stronger. Perhaps too there should be another name added to this list: Verizon. It seems the best way to compete in this new media world. So spin the wheel and pick your horse cause this race could potentially go down to the wire.

Tweeter Makes Money For Others, Not Itself

First individuals, then companies got into the habit of Twittering to share the latest and greatest news about themselves and their opinions. It has enabled a customer dialogue, although personally I have found little use or interest in it. But it has become a great marketing tool, pushing revenues and profits north, except for one, Twitter itself. "Lack of earnings isn't stopping Twitter's founders from shooting for the stars. Earlier this year, it was widely reported that Facebook offered to acquire Twitter for $500 million of in stock and cash, but the co-founders said they turned down the offer, holding out for more."

So the thinking must be that there is more dollars out there than in the buyout offer. And getting Facebook to make an offer means that Facebook would rather join them than beat them. So how will Twitter turn itself into a moneymaking machine. The obvious is to use either an advertising or subscription route or both. But will Twitter's "fans" accept ads with their tweets or will they turn away. Twittering on the computer leaves room on the screen for ads that can easily be overlooked; but Twittering on a mobile device may be more problematic.

And can a free service be turned into a subscription service (Variety thinks they can do that) and grow that way. Twitter faces some huge challenges to right itself while others have successfully deployed it to serve their other profitable businesses. Perhaps too, the Facebook offer was simply not high enough. "Numerous rumors of acquisitions by giants such as Apple and Amazon rise and disappear like the tides." We will have to wait and see but my vote is that Twitter needs to take the money and run.

Could NBC Be For Sale

NBC, owned by both GE and Vivendi, may potentially be put for sale. According to this report, "Jean-Bernard Levy, chief executive of Vivendi SA (VIV.FR), left open the possibility Wednesday that the company will exercise its option to unload its 20% stake in NBC Universal, the media conglomerate that is majority-owned by General Electric Corp." Will GE buy the Vivendi shares, will it lead to upheaval and possible takeover bid? Clearly, the challenge of working in a partnership hurts when the parties no longer work well together. Let the fireworks begin.

Irony Alert: Companies That Depend on Ad Spending, Spending Less Themselves

The LA Times reported, through TNS Research, that media companies, despite needing advertising to drive revenue in their balance sheets, are spending less to promote themselves. How ironic. "Walt Disney Co., News Corp. and Time Warner Inc. all reined in ad spending in the first half of the year. Spending by Time Warner was down 11.1% to $574.3 million; Disney expenditures were down 11.7% to $517.6 million; and News Corp. cut its ad spending by 6.9% to $672.3 million." These same companies might need to brace for a similar downsize in their own financial statements.

It is obvious why it is done, but it also can create a downward spiral. As revenues drop, companies reduce spending, including ad spending) to make the net profit higher. But lower spending reduces awareness, key to higher purchasing. Without this marketing, revenues continue to inch lower and costs get cut again. A vicious circle. Smart companies take the risk that future spending will turnaround the trend and are willing to take a short term hit in profits for long term profitability. How long ad spending drops will depend on the confidence these companies have that they can affect and return higher growth. I hope it is soon.

Hulu Will Kill Network TV

Remember the first song played on MTV, "Video Killed the Radio Star". Well the same is being said for online video and the biggest culprit may be Hulu. According to this Mediaweek article, "Hulu is the demon seed that will wipe out the network television business as we know it. In a new report, the Soleil Securities analyst estimates that the online video hub will cost TV networks $920 per viewer in advertising if their audiences are cannibalized by Hulu. And she believes the bulk of viewing on Hulu is indeed taking eyeballs from TV."

And while I can't speak to the revenue that could be lost, I am in total agreement that the Hulu model subverts the current cable subscription model. Some speculate that Hulu needs to change into a subscription model, but the challenge is if the revenue could offset the loss from cable. Others will simply use broadband to bring video for free; others may simply ask for a la carte pricing. IPTV means programming brought to the screen through a broadband wire. No cable subscription necessary.

Hulu executives disagree. They see Hulu as a companion to TV not a predator. "The report assumes the bulk of Hulu viewers use it as time-shifting device to catch up on shows they missed on TV and to avoid commercial interruptions. Hulu CEO Jason Kilar in April told Bloomberg that the site wasn't stealing customers from cable television." Unfortunately, as you change viewer habits, you change viewing. Younger audiences, with an eye on their wallet, are cutting the landline phone for a wireless phone only. They are doing the same with cable, letting their broadband service be their access to video programming.

At the very least, Hulu is playing on a slippery slope. Once you go down the mountain, it is much harder to climb back up.

CBS: Best House in a Bad Neighborhood

With the start of the new Fall season, I came across this article and found it especially telling. With tonight's airing of The Jay Leno Show, NBC has taken to low cost programming to compete in a profit conscious world. And while all the networks have utilized reality programming to keep its costs low, CBS has also produced the most comedies and dramas, the staple of most television networks. Will CBS's strategy prove the right one or not. "CBS is especially exposed. It's the only network without a vast corporate sugar daddy to keep it afloat regardless of what it puts on the air. It also lacks a stable of basic cable networks and the dual revenue streams (advertising revenue and subscriber fees) that such outlets offer. "

To me that is its bigger problem. NBC has a slew of cable nets including MSNBC, Bravo, and others. ABC has Disney and of course ESPN, Fox has fx, Fox News Channel, and others. CBS spun off its Viacom properties and that was probably not a smart move. When their US Open coverage had two women semifinal matches airing at the same time, they could not spin off one channel to a basic cable outlet. They could simply bring cut ins. Those that may have cared for the other match could not watch it. Now perhaps that is not their bigger problem but it is one example of the synergy they are missing.

Still, CBS's reliance on a traditional programming strategy should remain a right one. More programming to repurpose, better ratings, and higher advertising revenue. As we revisit them, it will be fascinating to see if NBC made the best move or CBS wins the race.

Will The Jay Leno Show Change TV

On Monday at 10 pm, NBC will premiere The Jay Leno Show, a talk/variety show, and air it Monday through Friday. 5 hours of low cost programming, live to tape, to compete with DVR and VOD technology. Revenue for the show through advertising may not be huge, but the profit margin may change how TV gets programmed.

The last format that changed TV was reality programming. A decade ago, broadcast shows like Survivor, Amazing Race, and yes American Idol made average people into stars. And these shows beget even more reality shows on cable. Cooking shows, wedding shows, home buying shows and yes even parenting shows. We idolized Rob and Amber, Kelly Clarkson, and now Jon & Kate. Low cost programming that generated ratings.

On Monday, new format may change TV again or prove a bust. The Jay Leno Show will fill multiple hours of prime time real estate and will either become the "must watch show for the 2009-10 season, or the worst idea since "Captain Nice" and "Manimal". Don't judge the success of this format on the returns from Monday night. It will take a good month or two to gauge its stickiness. Curiosity will cause us to watch in the beginning to see what all the fuss is about. But whether we stay is another story.

My personal opinion is that 5 nights a week is too many. And the first night's guest list doesn't seem to match who Jay's core audience is designed to reach. There will be a lot of sleepless nights for NBC executives as they watch and interpret the ratings from this experience. At the end, they will be deemed either geniuses or fools. I doubt there will be a middle ground. And should it indeed fail, NBC can at least say they kept Jay from jumping to another network to compete with their Tonight Sow brand. Perhaps that is something they can take away from this programming chess game.

PS. And should The Jay Leno Show succeed, we will have seen TV change again from the golden days!

Time Inc. Looking AT An E-Reader

Time Inc., owner of print titles like Sports Illustrated, Time, People, and others, may be adding E-Book distributor too! "It's a big shift in strategy by Time, which earlier this year said it would not introduce its own e-reader. But things have changed, and Time's plans for the e-reader market are on a fast track. According to the in-house presentation, Time Inc. is seeking to unveil its plans within the next three months." It seems smart to own both the content and the distribution; why give away some of the profit to middleman. That is what cable is facing today with its programming. Sell networks through a cable operator who packages it and sells it as a cable subscription or sell the network or just individual programs directly to the consumer through a broadband connection.

Time may not be alone in this strategy. "Publishers are interested in the market as well. News Corp. is exploring an electronic reader for its large newspaper business. Hearst, a large magazine publisher, also unveiled its own plans for an e-reader in March."

Will 2010 be the year that E-books really take off and get wider acceptance by the consumer. Will the price point drop and the flexibility improve to make it the must have device of the year. Content producers are certainly getting on board that train.