Sports Deemed Culprit Of Cable Subscription Increases

Remember the days when sports telecasts were only on broadcast networks and the costs were paid entirely by advertising?  If so, you live in a different generation.  Today, most sports telecasts, except for the major telecasts, are on cable.  And with the launch of more and more "sports" networks, we have more regional sports networks like MSG, NESN, and others, more professional league networks, from MLB, NFL, and others, and of course basic sports networks like ESPN, Versus (now NBC Sports) and others.  For sports junkies, every professional, college, and yes even high school games can be found on cable television.

But each of these channels have license fees that the cable operator and ultimately the subscriber ends up paying.  "Sports costs are driving up bills, with cable and satellite-TV providers paying increasingly higher rates to carry national sports channels such as ESPN, as well as regional channels like the YES Network." And according to the NY Post, rates over two years are expected to increase over 16%.  That is far greater than the cost of inflation and worse, hitting households facing smaller after tax budgets.

Some cable operators are trying to move sports to separately priced tiers so only consumers interested in buying them would spend the extra cash.  But most of these networks prefer to be on the first level of service reaching the largest possible audience.  But their costs are driving away customers to basic cable.  The result, cord shaving (taking less services) or worse, cord cutting and dropping their cable subscription entirely.

But the fault is not only with sports networks.  Cable operators face annual increases in fees for non-sports networks as well.  And with broadcast networks like ABC, CBS, NBC, Fox, and even Univision getting cable operators to pay them a retransmission fee for carriage, free TV is a misnomer. With operators not likely to reduce their profit margin on their cable subscription business, monthly subscriber fees will only continue to rise and rise.  And consumers will respond by cutting the cord and using broadband to access content that they specifically wish to buy and watch.

So the article blames sports networks, but they are not the only cause.  Each network seeks higher and higher license fees and as consumers, we all pay the price.
 

Dish Network Goes Cellular

Dish Network has plans for wireless and the FCC has approved them.  What those plans are remain to be seen although it certainly makes Dish a bigger competitor in the cable and mobile space.  Whether they use the spectrum for broadband to their customers or to build a new cellular phone competitor remains to be seen.  "The rule would allow Dish to use the airwaves for a ground-based cellular network. It may partner with another cellular company to build a network from the spectrum." With Sprint looking to buy out Clearwire, this could add a wrinkle to the conversation.

Gaining full support from the FCC must be a great holiday present for Dish as it opens up brand new business opportunities.  It might also be a present to broadband and cellular consumers wishing that there was more competition in the wireless space.  With the door finally open for Dish to proceed in mobile, we must wait to see how fast their business plan can be executed.

Broadband Access To Cost More

As consumers see more value from their broadband access then their cable subscription, cable operators are grabbing revenue growth by pushing up broadband rates.  Both Cablevision and Time Warner Cable have announced plans to raise monthly fees, $5 and $3.95 respectively.  "Broadband is now the biggest cash driver for cable companies, in an era when a fast Internet connection is the gateway to online video applications that can be viewed on TVs and computers."

While consumers are more likely to shed cable networks, the price elasticity for a broadband connection is much more flexible.  These two cable behemoths are less likely to feel any drop in broadband subscribers as a result of such a move.  Yet analysts don't believe that other cable operators will also raise broadband rates.  "Marci Ryvicker, media and cable analyst at Wells Fargo Securities, told MarketWatch Friday that Cablevision and Time Warner are unlikely to start a trend."  I disagree.

When cable operators see that their was no backlash from the price increase, they will indeed follow.  Frankly, it's easy money.  Less likely, and subject to a far greater outcry would be if cable operators moved completely over to a usage model from the current "all you can eat" model.  As more an more consumers take their print, audio, and video content off the web, the desire to track household usage would create such an outcry.

Clearly broadband usage will continue to grow and grow. The rise in smartphone and tablet purchases this year all rely on the same access to broadband via WIFI.  And consumers are building more and more wireless into their homes while the cable operators enable WIFI in their communities.  The hunger for broadband access will only continue to grow at an exponentially faster rate and that is why cable operators can get some additional dollars today raising their monthly broadband subscriber fees.

Brand Integration Across Platforms To Grow Magazine

In a move to grab more brand awareness, gain audience, and build a multi-platform position, Esquire Magazine has joined forces with NBCUniversal to rebrand G4 Cable Network as its own.  "The move is the first time that the international men’s magazine will debut as a television brand and will see the channel rebranded as a more mature and sophisticated channel, albeit one still with a male skew."  The cache of a TV brand and magazine brand working together could mean a seamless integration of content across multiple fronts, TV, print, and web.  Tactically making it work is another factor.

With a shifting older format, "The new Esquire Channel is expected to focus on lifestyle programming as well as cooking formats, travel and fashion series and the rebrand is expected to take place during the first six months of the new year."  The new look is a shift from the current G4 and a 180 degree turn from where the cable network started as a computer geek channel called TechTV.  Perhaps its only consistency is that the network has always strived to reach a male skewed demo.

For Esquire, it seems an ideal opportunity to extend its branding further into the digital age.  With video content from the channel to augment print stories, the value of the content can be nicely enhanced.  Few other magazine brands seem to be doing this.  Bloomberg's media empire includes a cable network as well and its magazine, Bloomberg Business Week, has potential to build out a fuller media integration plan as well.   Food Network and HGTV went the other root, building magazine brands from scratch to extend its video platform into print.  For other magazine brands, the timing might be ripe to find a cable network to partner with to build out better use and value of the content.

iPhone Finds Another Carrier

T-Mobile customers have finally gotten their Christmas wish as Apple has authorized them to begin selling iPhones in their phone plan in 2013.   "The fourth-largest mobile carrier in America is partnering with Apple after going over half a decade without America's most popular smartphone, the company announced Thursday morning."  For those that have waited this long, it means good long; but for those that couldn't wait, they most certainly have switched from T-Mobile to other carriers.  It will be interesting to see what 2013 looks like for incremental phone sales thanks to this new carriage.  And while the article didn't confirm which Apple products, most are hoping that it includes both iPhone and iPad devices.

For Netflix, Content Is King

Nothing attracts consumers to a location like great content.  The right assortment, easy to find, at the right price, can promote strong interest and high usage.  Netflix believes that to be the leader of streaming services, one must have great content that the consumer believes is worth the price to subscribe.  And no one produces family friendly content like Disney.  So in a bold move, Netflix is paying a very large sum of money to gain an exclusive window for their content, ahead of the premium cable distributors like Starz.  In fact, Starz is most hurt by this deal as they had the previous contract.  While this agreement for new releases doesn't start for a few years, "Disney has also agreed to give Netflix nonexclusive streaming rights to more of its older titles — including "Dumbo," "Pocahontas" and "Alice in Wonderland" — starting immediately."

For families watching their budgets, Disney content could be the carrot that encourages them to switch from premium services through cable to streaming services through Netflix.  The cost of a monthly Netflix subscription is certainly less than the cost of premium channels.  Still, consumers may be hard pressed to disconnect.  HBO, Showtime, and Starz have known for quite some time that distributing movies was not the only way to attract consumers.  It has led to the rise of original programming on each of these networks like "Boardwalk Empire", "Homeland", and "Spartacus".

While this Disney - Netflix agreement provides for streaming exclusivity of titles, consumers can still access these same titles through download, pay per view, and of course DVD sales. Netflix though realizes the value of content, both acquired and original, and is following a similar programming strategy as their network rivals, including their own original series, House of Cards".  It has been written that  about 50% of Netflix's budget  goes to content.  Clearly, content is king in attracting new consumers to their subscription service.

Time Warner Cable Cure To Lower Costs, Drop Networks

With cable network programming fees rising, and subscribers leaving, some due to the high monthly fees, Time Warner Cable has a solution.  The public decree, to drop cable networks that are no longer performing.  "AMC Networks Inc. (AMCX)’s IFC and WE TV are among the networks at risk of being dropped by Time Warner Cable (TWC) Inc. now that Chief Executive Officer Glenn Britt is taking a harder line on renewing channels with low ratings." According to Britt, programming fees are rising almost twice faster than the fees that the cable operator is charging, and so the profit margin is declining.

Perhaps there are too many linear channels these days, but the fact is that most networks are not standalone; they are part of a family of networks owned by big media companies.  NBC/Comcast may own USA, but they also own Style.  Scripps may own HGTV, but they also own Fine Living, AMC Nets owns AMC, but they also own WE and IFC, and Viacom owns MTV, but they also own Spike.  And Britt knows that these companies love to use the leverage of their best networks to gain distribution of their others; it is in fact a common practice.

And while consumers complain whenever any channel is dropped, typically as they are out of contract and up for renewal, a much smaller number actually drop their cable service as a result.  Dish Network successfully kept all of the AMC Networks off the air until an agreement regarding Voom gave the family of channels distribution again.  Consumers have learned to do without channels, finding alternative ways to watch their shows.

Should Time Warner Cable follow through with their threat to drop networks, they should market the drop in subscriber fees that the consumer will benefit from.  That unfortunately is less likely to happen. The truth is, these lesser, lower rated networks are not what is causing fees to rise so high; rather, it is the higher rated entertainment and sports networks that command the highest rates.  The loss of a couple pennies per month here and there from the dropping of lower rated services will not improve the business model.  And Time Warner Cable is not about to drop higher rated channels like ESPN, USA, HGTV, TNT, Nickelodeon, and others.  They may command higher rates, but they also deliver higher viewer satisfaction.  And consumers may be quicker to depart.

Bing Asks "Have You Been Scroogled?"

The latest ad in today's Wall Street Journal and other publications asks the quest, "Have you been Scroogled?"  Microsoft's search engine, Bing, wants consumers to know that they believe search results have been tampered with to no longer provide us with a meaningful order of possible results.  "Microsoft’s claim is this: Because Google Shopping’s search results are determined by how much companies are willing to pay for them, they’re unavoidably inaccurate." Check out the Scroogled page here.

The question the author asks is whether a better alternative for search exists.  "The core Bing search product is still pretty bad. Bing has been my default browser for a few months now (for Science!) but I find myself almost always reverting to Google when Bing fails to give me useful results. That’s not the way a search engine should work."  As for me, Google has been by default search engine and has delivered on the task.  I did in fact also use Bing for a search on "fleece fabrics" for my daughters school project last night but didn't find additional meaningful results different from Google.

So Bing may have some truth in its ad against Google, but to get people to switch, build a better product.  Put these two search engines side by side and ask, is there anything really different or better to lead to a change in behavior.  If you want to knock the leader off the mountain, prove it

Can Discount Websites Survive?

Consumers love deals and that very nature would make one believe that a business offering discounts and deals would be well received.  We love knowing that something that should cost $20 only costs us $10.  It's a win for us as long as we are willing to pre-pay for it in order to use the coupon at a later date.  And yet, for businesses like Living Social and Groupon, the appeal doesn't translate yet into a winning business model.  "Online deals company LivingSocial is cutting 400 jobs worldwide, or about 9 percent of its work force, as the deals market continues to face challenges."  And Groupon faces similar challenges as discussions over replacing their CEO have been questioned as their results also suffer.

So is this a sustainable business or will Groupon, Living Social and others lose their investors and their profitability?  The problem is clearly not with the consumer; who wouldn't like to pay less for something.  The problem may lie in the retailers offering these discounts.  Not only must they reduce their profit margin to attract customers, they must offer additional monies to these sites to promote these discounted deals.  Their costs then only increase as their profitability falls.  In addition, these retailers must determine if these deals attract new customers to their business or simply give their current customers a deal.

As a consumer, I love a good deal; as a business model, it is hard to imagine retailers regularly using these discounters.  Thus the constant searching for more prospects to use the service must get more and more difficult.  At the same time, the business model could be replicated inside these retailers own websites.  Build out loyalty programs, offer discounts on your site, and not worry about a middleman like Groupon and Living Social.  Want to see an example of it, go to Lord & Taylor or Justice websites; must wife never goes to these stores without a coupon.