Dish Network Announces A Price Increase

This post is not meant to single out Dish Network.  The truth is every cable operator will be raising their monthly subscriber fees.  The issue is that these price hikes tend to be larger than the inflation rate.  And for consumers facing less income due to job cuts, smaller bonuses, and what is expected to be higher taxes, the cost of cable is looking more and more like a luxury than a staple in the household.

For Dish, their claim is that they haven't raised rates in 2 years;regardless, "Dish Network will increase the price of its core TV bundles between 7% and 20% effective January 2013, with most packages rising $5 per month."  Yes, 20% increase.  The very size of the increase sounds incredulous.  But Dish Network, as I am sure other cable operators believe, will expect that the number of subscribers dropping their service will be smaller than the amount raked in by these higher prices.  And that is because the monthly increase isn't the only price increase that Dish customers will see.  Premium packages, including Spanish Tiers, will see price increases.  So too, the cost of some older cable box monthly rentals in the home.

What effect will these price increases have on their customers?  Will a higher number than expected cut the service?  Dish argues that the need for raising prices is because of higher programming costs.  Time Warner Cable, seeing the same issue, is dropping services.  Dish tried with AMC Networks till their lawsuit with Voom resulted in signing a new carriage agreement. But Dish might just look for other networks to drop to lower those programming expenses.

So this is what consumers will be facing with cable cost increases, and lesser channels on the line-up. And as more and more TV sets become internet enabled, subscribers may just look more closely at cutting their cable cord for broadband enabled viewing.  Household budgets can handle only so much and these announced increases could cause Dish and others even more subscriber losses. 

Digital Pennies Growing Nicely With Online Ads

Compared to television, online ad spending is still small, but one thing is clear, online ad spending is growing rapidly.  "According to the to Interactive Advertising Bureau, total online ad revenue reached $9.26 billion in the third quarter of 2012, which is up six percent from the previous quarter and 18 percent from Q3 figure of $7.8 billion a year ago."  And with the rise of tablets and smartphones, online advertising should continue at this healthy pace for quite some time.

Of course, online businesses are still trying to figure out better mousetraps to monetized their content.  Smaller screens, targeted advertising, paid search, and other means to attract an audience and advertising dollars.  The virtually infinite number of online sites and choices has created a very long tail from which to choose.  Online, unlike other media platforms has become so vast and fragmented that the top of the pile grows through acquisition and integrated marketing efforts while smaller sites hope to find traction to grow its audience and reach.  And unless these sites can find a business model to sustain themselves financially, they must eventually fade from site.

The online marketplace is a very young place, unlike the cable and print platforms.  But the  similarities are clear.  Eventually, the big fish will either absorb the little ones or the little ones will thrash around until they can grow themselves into bigger fish or simply fade away.

Time Warner Cable - Penny Wise, Pound Foolish

At first blush, Time Warner Cable (TWC) appears to be acting as a protector of the consumer, dropping cable networks to keep the costs of service down and thus the cost of monthly cable service for consumers. By dropping networks they believe lack enough interest, the back end of the long tail of programming content, only the most popular is viewed and so should be paid for.  And so, in TWC's mind those unfortunate networks include Ovation, and others,"including Current TV, Hallmark Movie Channel, IFC and WE tv—whose carriage agreements are 'due to expire soon' and which could be dropped 'in the near future.'"

But for the most part, these "low rated" channels are also the lowest cost channels.  Their fee structure is less than a number of the bigger channels including USA, ESPN, and Fox News.  Of course, each of these channels are part of a media empire also owned by broadcasters, NBC, ABC, and FOX, respectively.  Their fees, and their sister networks, are not only higher, but most likely their annual license fee increases are growing faster than our current annual inflation rate.  So any drop of penny services by Time Warner won't protect consumers from the price increases of other services.  Time Warner Cable consumer bills, like other cable operators, will still continue to climb.

At the same time, TWC has invested in a regional sports network, demanding huge license fees by cable operators for carriage of their new network.  It is more than a question about sports verse the arts, it is a question about how to best manage a cable operator business that is getting more and more expensive to operate.  Dropping smaller, less viewed channels like Ovation may appear to be a solution, but it is like plugging a whole in the dam with your finger; it will not fix the bigger problem.

For Sale: Cable Set Top Box Business

When Google purchased Motorola Mobility, assets included the line of phone products, a number of patents, and a cable set top box product line used by a number of cable operators.  And perhaps the thought was that Google saw an opportunity to align itself with cable operators through the box.  Instead came word that Google was testing fiber in Kansas City and perhaps that Google's new set top box could have a place in this new world.  But that didn't come to pass either.

Now we learn that Google has little interest in the converter box business and has plans to sell the unit.  "According to the report, Google received multiple offers on Dec. 7 for the Motorola Home unit, which it acquired as part of its $12.5 billion takeover of Motorola Mobility in May."  Also reported, that Arris Group and Pace PLC have submitted bids.  I am surprised that a certain company was not mentioned in the  bidding process. That company, TiVo.

Part of the value of the cable set top box is the DVR functionality inside it.  With access to so many cable operators using the Motorola box as their interface to the  home, a new owner of the business could have an immediate reach into many more homes.  How quickly boxes could be moved into the field or older boxes could be upgraded may be part of the decision why TiVo did not choose to participate in bidding for this business.  I just wonder if they even seriously considered making an offer?

Cable Prediction - All Sports Off Broadcast in 10 Years

Broadcasters are jealous of ESPN and ABC.  As the first national sports network, they pushed their way up the food chain, from ping pong and bowling to professional games including baseball and football.  And along the way, they were able to grow the number of sports channels adding ESPN 2 and Classic Sports along the way.  But most importantly, they were able to get from cable operators the largest license fees for transmitting these games to their subscribers.  And where did most of this content air before cable?  The best stuff came from broadcast TV.

As ESPN picked up national rights, other sports networks formed to distribute regional rights.  From that list came Sportschannel, NESN, YES, Pac-10 and other area networks, all getting license fees to present their games on cable TV.  More and more games were taken from broadcasters and "free TV" saw less and less "over the air" sports.  Today, media companies are trying to recreate the ESPN model; NBC has taken Versus and turned it into the NBC Sports Network.  CBS Sports Network came from the earlier CSTV (College Sports TV), and now Fox is planning their Fox Sports 1 channel.

So what will feed these national sports networks as well as the current regional ones.  First, their will be bidding wars for current assets on cable like MLB, NFL, and NHL (when they stop striking).  But games that are still shown free on broadcast networks, regional baseball games, Saturday college games, and yes, I believe Sunday afternoon football games will leave broadcast for cable. The demand for content and the dollars promised to air will eventually move all these games to cable.  No more games on NBC, CBS, Fox, or ABC; all will migrate to cable.  How long?  My prediction is within 10 years.

And as the license fees for these cable sports networks rise, the cost of cable subscriptions will as well.  The consumer will either have to pay much more for sports on TV or do without.  And as audiences decline, so will interest in the game.  Some viewers may migrate backwards to their radio feed for games, while others will simply learn to do without.  Younger audiences have already found it hard to enjoy the games; the costs for families to attend professional games make it a special event rather than a frequent outing.  And some younger fans have migrated to their gaming devices and are less interested in watching a game on TV.  Costs are out of hand and the rise of another sports network simply quickens the pace of change.

What Does Liberty Media Want To Be?

What is the ultimate strategy for Liberty Media?  It acquires companies, it spins them off.  As a share owner, they spin off assets like dividends, on a regular basis.  Companies come into their business while others become separate stock holdings.  Among the pickups are Discovery, QVC, and Sirius.  But Liberty and its chairman don't mind letting go either.  The latest to be spun off into a separate stock is Starz.  "Liberty has reached out to media companies ahead of the expected mid-January spinoff of its pay-TV division, which includes the Starz and Encore channels, sources said."  So step one, spin off; step two, sale.

Liberty Media keeps busy in both content and distribution across the globe.  From positions in Sirius, Barnes & Noble, and more, Liberty at times looks more like a media holding company, without a particular focus in any one area of the business. For stockholders, value continues to grow from all this bit of horsetrading.  But is there enough focus in each of the core businesses?  Will Starz be better off with an owner more committed to its growth?  And with the acquisition of assets like Sirius and the loss of leadership, like Karmazin, can Liberty add incremental value?  Or is the future to once again acquire and then spin off?

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.