Microsoft Sees A Future With The B&N Nook

Microsoft just took a position with the Nook, Barnes and Noble's stock is rising and Liberty Media must be feeling good too.   The resulting investment by Microsoft to Nook adds a well needed boost to help it expand in the e-book and tablet space and fight off Amazon and Apple.  So will the Nook technology improve?  Will Windows 8 become its operating system?  And how will the added dollars help to win customers from its rivals?

Some see this investment as the push to separate Nook from its physical bookstore.  "Some on Wall Street see the Nook as a fast-growing technology asset trapped within a slower retail stock. They have theorized that Barnes & Noble would spin off the Nook business to give it a chance to trade at a higher valuation." I wonder if the Nook is a stand alone business would it only hasten the loss of the Barnes & Noble Bookstores.  And that would be a sad day.

For now, Nook and B&N must feel a sigh of relief with this new investment.  This added capital will certainly help to speed up innovation and bring better products to market.  It could be the kick in the pants that the Nook needs to be competitive.

Hulu Could Stop Being Free

It's time to teach the younger generation one of the great tenets of business, nothing of value is given for free.  Everything has a price and that price will continue to rise as more and more entities want their fair share of the revenue.  So for those that have enjoyed quality long form content from the cable pay model for free on Hulu, it may one day be time to announce that the "free lunch is over".

"In fact, the move by Hulu toward the new model — called authentication because viewers would have to log in with their cable or satellite TV account number — was behind the move last week by Providence Equity Partners to cash out of Hulu after five years, these sources said." As the NY Post has  reported, the cable companies are seeking to stop cord cutting, customers dropping their cable subscriptions, by turning Hulu from a digital competitor to its partner  in TV Everywhere.

But the move to authentication may take a while to coordinate.  "To be sure, Hulu’s slow move toward authentication comes amid a jumble of cable and network game plans for streaming — which remain a strategic nightmare thanks to the complicated nature of the TV Everywhere initiative, which is aimed at keeping top shelf digital video exclusive to pay-TV subscribers."

For customers tired of paying  high rates for cable subscriptions, quality programming is being created for other OTT distribution; for example, You Tube is building out live channels.  But as we have discovered, nothing stays free and as we look ahead a decade, all this free content will eventually find itself behind different types of pay models.  For now, enjoy the free lunch while it lasts.

Why Can't Television Be More Like A Tablet

A terrific article in today's NYT that shows the direction that TV usage is taking.  The rise of tablets and web viewing showcases just how clunky the cable box interface is and how the consumer ideally wants to interact with their TV set.  TV manufacturers are going around cable operators by building sets with web access and app interfaces.  "Already, apps for Hulu Plus, Netflix and Wal-Mart’s Vudu streaming service, among others, are built into Internet-enabled televisions. Devices like Microsoft’s Xbox 360 and the streaming video player Roku let viewers watch apps that mimic channels. New sets by Samsung and others come with built-in apps loaded with television shows, movies and sports."  And Apple is speculated to have its own TV set in the works, perhaps to be called the iPanel, that will could become the ideal way to navigate TV.  All this while cable still must rely on set top box.

The biggest complaint for cable is the high cost of its monthly subscription and consumers feeling like they are paying too much for channels they don't watch.  But "buffets" have always helped to provide an all you can eat model for one price and make the total price lower than buying less and paying about the same.  Most cable programmers don't want to give up this model; it provides great revenue whether the network is watched or not.  Authenticated viewing on mobile devices, like tablets, extends the value of the cable subscription and keeps the cable subscriber from cutting the cord. 

Still, cable operators must do more to make viewing on the TV set as easy as navigating a tablet.  New guides, better remotes, supporting web connections through a better set top box could go a long way to customer satisfaction.  Up, down, left, right just doesn't work anymore.  Revolutionize the set top box and the on screen experience or watch as more and more consumers switch to other sources.

Can Hulu Survive Its Owners?

For viewers seeking online sites to watch their favorite TV shows, Hulu has been a welcome addition.  Missed episodes or catching up on a series, Hulu can be a great site to visit.  But Hulu seems ripe for self implosion; why?, because it competes with itself.

Hulu is owned by broadcast and cable networks battling each other in the linear space.  To come together in the digital space seems only a recipe for disaster.  And one that looks to get even more dicey.  One of its four owners, the only one without a cable or broadcast network, Providence Equity, is looking to sell out its share to the remaining partners.  "The approximately $200 million payment would allow Providence Equity to double its investment. The firm contributed $100 million in 2007 to help founding companies NBCUniversal and News Corp. launch Hulu. Disney came aboard as a partner in 2009."

All the folks at the networks that started Hulu 5 years ago are gone.  Comcast's purchase of NBC required them to give up a management role and be a silent partner.  Can one really expect that those running Hulu today, Fox/News Corp. and ABC/Disney, really want to work together?  Last year, they tried to sell Hulu, but then changed their mind.  Hulu may be making money but at the expense of their deals with their cable distributors.  And while it may be better to take money in this new platform through Hulu, it is hard to imagine that they can mutually manage this partnership without a lot of arguing and disagreements as to strategy and execution of tactics.  Without a middleman like Providence Equity to referee those battles, one wonders post their withdrawal from the business whether the remaining partners can still work together.

Last point, if they can agree to come together, is it time to pursue CBS to join the Hulu team?  The big 4 broadcasters partnering to own the digital streaming landscape.  Not likely, but what if.

Web Upfronts Like The Early Days Of Cable

Cable Networks changed the video landscape for broadcast when they arrived on the scene.  Early on, broadcast networks pooh poohed cable.  Most offered short form content, lots of informercials, and little original content.  And what was delivered was everything from music videos to ping pong to old syndicated programming.  But cable networks kept chugging away, building content and creating their own award show to celebrate it - the heralded CableAce award.  Of course cable networks made it when they were accepted as Emmy nominations and soon after as multiple winners.  And broadcast responded by buying up cable networks.

Today, it is the web that is the upstart to cable and broadcast.  And like history repeating itself, they are pushing through with their own version of an advertising upfront and their own version of an award show.  But it is only time when the original web productions from folks like Netflix, Hulu, and others get accepted into the Emmy awards and Web TV is as viewed as much or more than a cable network.  They may be in the long tail now, but they are doing to cable networks what the cable networks did to broadcasters.

For Time Warner Cable, Data and Phone Matter Most

Time Warner Cable just released their quarterly financials and they confirm everything that has been speculated.  Operators may be losing cable subscribers, but they more than make up for it with broadband and telco customer growth.  The profit margin for cable distribution is eaten up by rising license fee costs, where the pipeline is a cash cow, already built and pushing profit like water through a faucet.

The broadband and telephone business have the best profit margins for Time Warner Cable and others; so that any gain more than offsets their cable sub drops.  It may also suggest that cord cutting as it relates to cable doesn't bother the  cable companies as long as the cord for broadband and phone remain attached.  TWC may have lost almost 100k cable customers in the quarter, but they added over 200k broadband and over 100k residential telephone customers.  As a result, their profit margin grew above expectations.  Frankly there is gold in that pipeline.

So shedding cable customers becomes less and less of a problem for cable operators.  There are other services that can better utilize the existing pipeline to the home.  It is why cable companies are adding security services to their business offerings.  The pipeline provides the conduit for communicating the security system back to base.  Cord cutting cable service; as costs for programming rises, it becomes a less profitable business.  The money is in the pipe to the home, not the content that runs through it.

For Consuming Content, Its All About The Pipe

Great article in Gigaom, entitled The Future of TV isn't TV, that should be must reading.  As far as consumers are concerned, its no longer about TV consumption, whether broadcast or cable, it is about their broadband and wireless access.  Ask any cable home that subscribes to the triple play of cable, data, and phone, and ask them which service is most valuable to them, the vast majority will point to their data or broadband connection.  The cable can go out and the TV can't get your favorite show; there will be grumbling till it is fixed.  But lose your broadband or wireless connection, and you can probably hear the yelling and screaming coming from the home.  Broadband is the most important product for the home.

The challenge as it faces government oversight is the same battle that has been around for years and years.  It is the intersection between content and distribution and whether these two businesses should have a common owner.  This discussion first came to head when movie studios had hard times getting their movies onto screens in local communities.  Studios that owned movie houses wouldn't let competing studios distribute their movies.  It became a legal antitrust battle that resulted in studios divesting themselves of theaters.

Today we have distribution companies also owning content.  Net neutrality laws tried to prevent distribution companies from showing favoritism to their content while slowing down the streaming of others.  It seems that antitrust permeates today new world of content and distribution.  "The two are now intertwined, so from a regulatory perspective the fight will now be about who holds the power in terms of relationships with consumers and in terms of their relationships with content companies." The author asks great questions to get to the heart of the battle and how to best serve consumer interests.  How much or little regulation we need is a political battle.  Some argue that a free economy and encouraging technological innovation will lead to solutions; others, that regulation is needed to protect its constituents.

The TV model has changed to a broadband one and content is being delivered to fill the demand.  How its distribution is enable, slowed down, or even denied, is what raises question for both sides of the problem.

Apple: Profit Taking Or Future Profit

The faster the ascent, the harder they fall; so seems to be the case recently with Apple and its stock price.  With its earnings call looming this evening, the stock price has dropped quickly.  Can Apple keep its momentum, how many more iPhones can they sell, and what is next in the pipeline? We should get some of those answers soon enough.   But unlike the internet bubble, Apple manufactures actual products, sells digital content and has a world to conquer.  One quarter may be slow...

But, the future for Apple remains bright.  I believe in the market predictors that see Apple's price rising to $800 or higher.  It is not just one product but the whole package they offer that causes customers to start with one Apple product and end up buying more.  Happy with your iPhone, buy an iPad.  Love your iPad, buy a Mac to replace your PC.  Love your Mac, buy an Apple TV.  And with multiple devices in the home, let the iCloud and purchases from your iTunes account bring content to each device.

So bring on the financials. At the end of the year when the next gen iPhone and other products are announced, Apple will once again be the technical and media darling of Wall Street.
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Post announcement - Another record quarter and Apple again delivers.  Looks like after close market has stock bouncing back.

Netflix Not Growing Fast Enough For Some

All companies seem to suffer from the same problem, the classic bell curve.  In its youth, the growth curve is steep; in its maturity, the growth slows and then declines.  For those companies that can spot the next new product or service, new growth emerges as company strategies shift.  Apple has found new growth with the introduction of new and improved product lines; Netflix has attempted to grow with its move from DVD to streaming business.  But for these and other companies, the question that shareholders and the stock market always ask is what will you do for me next?

In the world of media, Netflix's streaming business has grown to a size comparable to Comcast's cable subscription business.  At almost 25 million customers paying $9 or more a month, Netflix is not constrained by franchise or continent.  "The company is racing to add viewers to confront competition from Comcast Corp. (CMCSA)’s StreamPix and Verizon Communication Inc. (VZ)’s online venture with Coinstar Inc. (CSTR)’s Redbox. While Netflix may post a second-quarter profit, investors are focused on subscriber additions."  And there it is, that same question, what are you going to do next, where are you getting more customers.

While I don't own a position in Netflix, I do see that they have an advantage to others; they can operate internationally.  With content rights, they can go everywhere.  Streaming also enables a second stream of advertising revenue.  And a potential to push into e-commerce and other revenue programs.  Eventually subscriber growth has to stall, it is inevitable; the challenge is finding other revenue models and other businesses that start new growth trends.