Building A Broadband Channel Line-up To Compete With Your Cable Company

YouTube is building out its broadband lineup of channels and the question to cable operators is this, will a broadband channel aggregator divert enough subscribers and their viewership away from your cable line-up or will the TV Everywhere approach ultimately keep your cable subscribers engaged and paying?

Certainly a very serious threat by Google and YouTube is designed to attract and pull away viewership. Some of the channels being discussed seem very niche. But isn't that how cable first began before morphing into broader programming. Bravo was once high art, now it is pop culture. MTV is not music but young and hip lifestyle programming. In almost every cable networks' case, what started as a niche has grown into broader programming to increase ratings.

For YouTube, the initial channels may be limited in scope but are surely designed to expand and attract greater share as well. One such channel backed by IGN, a game publisher owned by News Corp, is to be called Start. Another is coming from Electus and IAC and will be a Food Channel. It will likely try to attract viewers that like Food Network on their cable line-up. YouTube is planning more than 100 channels to compete and perhaps cause cable subscribers to cut the cord.

Will these niche channels pose a threat to cable? Early on broadcast networks didn't pay attention to upstart cable either. But gradually, the broadcast viewership share was reduced as cable viewership rose. Is the same likely with the rise of these online channels? It is if cable operators and their respective networks don't embrace a TV Everywhere approach that offers authenticated viewers unlimited access to linear and on demand programming on any platform. And while some of this is enabled already for WIFI viewing "inside" the home, full accessibility must be granted to enable viewership anywhere and everywhere.

I believe full availability is necessary for cable to retain and maintain its base. Otherwise, consumers may perceive a choice and start preferring these online rising networks to limited cable only availability. While the quality of the programming online and on cable may get compared, the choice of access will be a non issue. Then it will be up to smart programmers and marketers to continue to innovate to keep customers watching and engaging with their respective networks across all platforms.

Rising Data Usage On Our Smartphones And Tablets May Cost Us More

We are being encouraged to use more data on our mobile devices. We can stream videos, listen to music, download and upload photos, and of course read emails. We are enticed with more cloud access to hold and share our data. And with the iPhone 4S, every time we chat with Siri, we are consuming more and more data. It is no longer a little taste of the data stream, it is complete hunger. But how and where we consume is key.

Wireless phone companies are encouraging us to use WIFI to remain connected. A 3G or 4G experience has limits and too much usage on their dime will result in higher monthly bills. Unlimited data plans may become a thing of the past as the infrastructure to support these streams are not large enough to handle the ever increasing sizes of data consumption. Can't handle it on the network, find a WIFI hot spot. Except the owners of these WIFI streams have limits too. Too many people on the stream will significantly affect the speed.

This problem will only continue to get worse. More content is being put into the web and these files are getting larger and larger. More people are getting smartphones and tablets, and utilizing data and WIFI to enhance their functionality. And the rise of connected TVs will only put more stress on an over-burdened network.

Both 3G/4G and WIFI will be stretched. The phone company will put limits on usage and charge more to those that exceed their monthly plan; cable companies want to convert their broadband plans from unlimited to usage to capitalize on this same growing appetite for web data. And the consumer will ultimately find themselves paying more to be connected.

Much needs to happen. More efficient bundling to reduce the size of streams and more capital expenditure infrastructure. We like our mobile experience and we want more. More content to consume, faster speeds, complete connectivity; but also at a manageable cost. And like it or not, we have tasted this "drug" and we like it; costs will unfortunately rise to remain "connected".

Netflix Rebounds

Excuse that third quarter bump in the road; despite some bad timing moves, Netflix seems to have recovered and grown. Strategically, it makes sense for Netflix to move off the DVD mailing business and embrace the world of streaming media, but how they tried to do it, will be noted as bad management decisions. Separating the businesses was not wise and some may argue that the massive price increase didn't help either. Netflix reversed its splitting decision but kept its higher pricing. Initially, customers dropped the service to express their anger; but now it seems they are returning. From a third quarter loss of 800,000 subs comes word of a fourth quarter gain of 610,000 customers. "U.S. online subscribers increased to 21.7 million, while mail-order DVD customers shrank to 11.2 million. The figures for each include people who get both services." Netflix will continue to move away from the mailing DVD business, but not with the same abruptness that they tried last year.

And as content remains king, Netflix is adding more streaming and exclusive content to its mix to keep its customers watching. But customers can be a fickle bunch and the increase in competition may also move customers to try and compare. Amazon, Hulu, and even Redbox are putting on more pressure. Additional viewing options are coming from Facebook and YouTube. And cable companies continue to build out their TV Everywhere model, giving customers on demand and live access on other platforms.

The costs for acquiring content will only increase. Movie studios will seek more to offset the loss of their DVD business. TV producers will also seek more to offset possible loss in the syndication market. But streaming subscription services might find new revenue opportunities as well. Increases in advertising may offset those costs.

Netflix may have recovered from its strategic blunder but it faces strong competition, rising costs, and a customer base that can just as easily turn away for a better deal. How Netflix competes and markets to a streaming savvy world will demonstrate that they ultimately made the right choice in pushing away from the mail order business.

Media M&A Activity May Grow This Year

The economy may slowly be improving, Apple reported phenomenal earnings, and the financial community is eager to see some merger and acquisitions in 2012. Will Apple buy a media company with almost $100 billion dollars in cash on hand; is Yahoo considered an acquisition with the loss of Jerry Yang? According to this article, "merger and acquisitions activity in the entertainment and media sector is expected to rise this year, according to PwC, spurred by OTT and social-networking companies, as well as online gaming firms." While last year saw the merger of NBC and Comcast, AT&T was not allowed to buy T-Mobile. So who is a likely buyer and who may likely get bought or merged? It is the start of a new year and we just might see a rise in M&A activity.

How Does Cable Stop Basic Sub Drops?

When you finally recognize that the economic model for delivery of cable programming is broke, how do you fix it to stop drops and start to again realize basic sub growth? For Cox Communication, the solution is a lower priced entry point into a basic cable subscription, "a low-cost video tier, rolling out a 20-channel package dubbed 'TV Economy' in several markets for $34.99 per month." Most notably absent is ESPN. Time Warner Cable and Comcast have already built a more basic package as well.

Given that most license fee agreements with programmers are based on penetration levels of its network to the total available base, Cox, like TWC and Comcast, must not be worrying that this package might be so popular that it will result in some networks monthly fees going higher due to missing a threshold benchmark. That is to say, that ESPN as an example, as a result of the popularity of this TV Economy package, reaches as a result less than 90% of the Cox total universe.

What is clear is that more must be done to reverse cables' trend of losing basic subscribers. As a cable VP of Marketing once shared with me many years ago, you can't sell someone more services until they are actually a basic customer. Once they are a basic customer, it is possible to sell in additional tiers of channels, premium networks like HBO and Showtime, and of course additional services like telephone and broadband. These basic subscribers also mean more potential eyeballs and more potential advertising revenue as well. The work starts at the basic sub level and this new "basic package" may be the means to reverse the declining sub trend. And while Cox is duplicating the efforts being tried by TWC and Comcast, so far basic sub decline has continued, although some may argue at lesser levels then before. Still a loss is a loss.

Verizon FIOS 6th Largest Cable MSO

Verizon FiOS is growing basic subscribers as the other cable MSOs report basic sub drops. "Verizon Communications is now a bigger pay-TV provider than Charter Communications, after the telco pulled in a solid net gain of 194,000 FiOS TV customers in the last three months of 2011 to stand at 4.17 million total." That increase moves FIOS to sixth place in number of basic subscribers. The top ten list is as follows:

1. Comcast Cable
2. Direct TV
3. Dish (Echostar)
4. Time Warner Cable
5. Cox Communication
6. Verizon FiOS
7. Charter Cable
8. AT&T U-Verse
9. Cablevision
10. Bright House

How far the cable industry has matured? The 10 largest cable operator, Bright House, is about one-tenth as large as the number 1 cable operator, Comcast. And the top 5 cable operators, currently both satellite providers and 3 cable operators, cover about 75% of all cable subscribers. Shortly, Insight, 13th largest MSO, will be sold to Time Warner Cable and others will likely merge as well. Consolidation in the cable universe coupled with shifting viewership from cable to satellite and telco providers.

Younger Audiences Prefer Their Online Content

While championship sporting events will continue to get huge audiences on the TV, everyday TV viewership has some serious competition. The next generation of key demographics are spending less time with network and cable programming and shifting a chunk of their viewing time to online. YouTube is drawing the largest audience with its assortment of channels and shows. "With 125 million viewers watching more than 1 billion of its videos a month, Machinima may be the most-watched channel that's not on TV." They are eyeballs diverted from traditional television.

It is this fundamental shift in viewing that will ultimately affect what exists in a cable line-up and what is best discovered online. Like the music industry that saw consumers prefer to consume songs over albums, viewers may be preferring to view shows over networks, in an on demand way. No more waiting for a show to start, these viewers want it when they want, where they want, and on the devices they want.

"Machinima is part of what's been called the "third wave" in video entertainment, each part of which revolutionized the entertainment industry, (Machinima Inc. Chief Executive Allen) DeBevoise said. ABC, CBS and NBC dominated the broadcast-television era. Cable and satellite technology opened the doors to new, more specialized entertainment channels, including HBO, ESPN, MTV and CNN. Now the Internet is poised to overturn the reigning paradigm yet again, he said." The platform before it does not die; but it must find away to adapt to compete in a changing landscape.

To me, that means that cable networks and shows must be made fully accessible across all devices, whether viewed in the home or not. Live programming must be accessible everywhere immediately and all other programming available to watch as demanded. Will consumers pay? Ultimately, consumers don't want to pay; some however may pay depending on the value that programming presents to them. But at today's cost for cable, the younger generation is turning away from that model to view online.

Machinima may just prove that an online network can not only exist outside the cable subscription world, but also succeed without a license fee revenue model piggybacked on its ad sales success.

Is Internet Shopping Unfair To The Retail Economy?

Smartphones and the web have been a consumer's friend when it comes to comparison shopping. It no longer requires a shopper to schlep from one store to another before settling on where to buy an item. Now that same shopper can read the tag on the item off their smartphone and find out if there is a better price. Others can do their shopping online from the comfort of their home before deciding whether to purchase right there or venture out to the store to pick up the item. But is some of it unfair and will it ultimately kill the retailer?

In regard to the unfair charge, retailers continue to argue that online immediately benefits by a discount know as the sales tax. Stores are required to charge this amount, but depending on the state, online does not. And depending on where you are from, that discount could be 7% or higher. With online stores offering free shipping, the only drawback may be the immediacy to receive an item.

For those consumers that are happy to buy in a store, they use online tactics to compare pricing on items. Is it cheaper to buy that item at Target or Walmart, Best Buy or PC Richards? Mass produced items available in many stores are most affected. And with information at a consumer's fingertips, there is no need to be over-charged again.

So how do retailers fight back? Certainly the push is on by them to convince both States and Congress to legislate sales tax for online purchases. Amazon has been fighting back for years. In the retail comparison fight, stores seek exclusivity of brands to differentiate. Mattress companies love to "create" lines that are exclusive to their store; you never see the same Serta model in Sleepy's vs. Mattress Discounters. Some do it with the creation of store brands. Costco loves to push their own Kirkland brand. And Target is pushing their own vendors too. "Target asked the suppliers to help it match rivals' prices. It also said it might create a subscription service that would give shoppers a discount on regularly purchased merchandise."

Change is forcing businesses to innovate and compete. While the sales tax example can be argued as an unfair playing field, comparison shopping has always existed. That it has become less burdensome for consmers to compare and contrast before purchase shouldn't be an issue. Consumers shop at certain stores for a number of reasons and price is not the only factor. Service, availability, specials, ease of returns, convenience and other factors all play into a successful retail business. Price is always one factor in sales, it just isn't always the only factor.

MSG Drop Continues, Time Warner Cable Still Isn't Carrying It

Three weeks and counting, and Time Warner Cable customers still aren't getting their Knicks or Rangers on MSG Network. Both teams are competitive this year, but what happens on the court or in the rink has no bearing on what is playing out between these two companies. Certainly the ads continue to populate the sports pages, but the longer it goes, does the loss become less and less relevant?

Are customers actually switching providers because TWC no longer carries these games? Some viewers simply drop by their local sports bar or visit a friend, some might find a website that carries the game, and others may decide that they can do without. Most likely, not many people have dropped their cable service. And certainly the ones that did leave didn't do much to hurt the bottom line. Eventually either MSG or TWC will blink, but both are also stubborn, so the battle may rage on for a while longer.

But this battle also symbolizes the issue facing cable operators, programmers and viewers. The rising costs of license fees quickly cause subscriber bills to rise. And the higher they go, the quicker consumers get fed up with the cost of cable and seek alternative distribution choices. It is the cable operators' ultimate worry that the rising costs of programming will cost them subscribers who cut their cable cord.