Have Cable Operators Painted Themselves Into A Corner?

The cable business model may just be broke.  As the very public spat between CBS and Time Warner Cable has shown, regardless of the outcome, the consumer has lost.  They have lost today as the CBS broadcast network and its sister cable networks like Showtime are dropped off the air and consumers will lose when they are put back on with higher license fees that will translate into higher subscriber fees.  It is a no win situation for all.

When cable television started, it was to provide broadcast signals to places that could not easily receive them over the air.  In addition, this wired service enabled a better signal and an opportunity to distribute more and more channels.  And so new cable networks emerged, some with little more than old shows and old movies.  ESPN's best show just might have been ping pong back then.  Consumers embraced this new distribution platform and happy to pay for a service that aggregated channels and sent them to the TV set.  New content programming was launched and our 13 channel universe doubled and doubled and doubled and doubled again.  And as audiences found these networks, so did advertisers.  Better programming was produced, higher fees were asked, and more channels kept coming.  And we as consumers couldn't be satiated.  We got on demand and DVRs to access and watch more and more content. We hit the 1000 channel mark and surpassed it.  Unfortunately, the price grew too at a better than inflationary rate.  This aggregated model has now become bloated and costly.

And then came broadband and a new streaming model that allowed content to be viewed away from the TV set.  This disruptive technology lowered the barriers to entry and new content was created, mainly UGC, user generated content, but now it has become the home for professionally produced content as well.  And consumers have found other aggregated content distribution models from You Tube to Netflix to Amazon.  And they have found a la carte from Apple and others.  This streaming model is an unlimited one as consumers no longer are limited to which distributor they want to buy their content from.

With so much streaming content competing for eyeballs with cable and broadcast, consumers can seek other options.  Exclusivity of programming will certainly prevent some content to be seen without a subscription but that seems to be the price that we must pay.  It is why Netflix charges a monthly subscription fee and why CBS is demanding higher fees as well.  As consumers, we can decide whether we want to pay it or not.  The current cable distribution platform model is broken and the future is beginning to look more and more like streaming and a la carte. 

CBS Off The Air On Time Warner Cable

Once again a network is negotiating with a cable operator and once again they have been taken off the air.  Regardless of which side of the fight you choose, Time Warner Cable subscribers in multiple CBS DMAs are no longer getting their TV shows.  "CBS cable properties Showtime, TMC, Flix and the Smithsonian Channel also went dark across Time Warner Cable’s 12-million subscriber footprint. The cable networks are also off the systems owned by Bright House Networks, which participates in Time Warner Cable's programming deals."  So what is household to do?

Certainly it is the summer and folks may be taking vacations or at least spending more time outdoors then in front of the TV; still, it is an inconvenience to those that pay their cable bills and expect to see their shows appear.  I suspect that a vast majority of Time Warner Cable households will do nothing; they will not switch to Aereo, they will not call or write TWC, they will not switch to FIOS or U-Verse or DirecTv or Dish Network.  They will suffer silently and wait patiently for the two sides to finally agree and for the signal to turn back on.  TWC hopes for this too.  CBS hopes that enough of the minority does raise their voices and switch to another service although they should be careful what they wish for.  If customer decide to take Aereo or buy a digital satellite, CBS will not see any additional license fees or will they get any strong set top research data to support their ad revenue model.  In fact, this drop will certainly hurt them even though it is the summer.  A projected drop could potentially go into September and the new Fall TV Season although I highly expect that an agreement will be hammered out within a couple weeks. 

Could a drop go longer, you bet.  TWC knows that any increase in fees will result in a higher subscriber fee and consumers are already mad.  Their wish is to drop underperforming networks and reduce these license costs.  TWC has already dropped Ovation Network and certainly has more in their sights.  How far apart CBS and TWC are in finding common ground remains to be seen.  Certainly the dropping of the networks were delayed past the actual expiration date but it appears that they got no closer an so a service drop was initiated.  For now, CBS seems to be inundating the media with ads pushing consumers to react.  As I am not a TWC subscriber, I have not seen any ads in newspaper or other media presenting their side.  Perhaps their strategy that silence is golden may be the best approach.  Because once these two sides do reach agreement, all will be forgiven (until the next renegotiation).

Connected TVs Enable New Ad Platforms

As the cable set top box ever so slowly fades into the distance, viewers have discovered that their television sets don't need these boxes anymore.  The rise of internet connected television sets to the web enable a new set of viewing experiences.  For some, TVs rely on another connected box to access web based programming, from devices like a Roku box, Apple TV, XBox and Google’s Chromecast.  Even CE devices like DVD players and TiVo boxes offer content directly from the web.  And then there are Smart TVs themselves, like Samsung and its Smart Hub system.  Each of these different devices acting as platforms to aggregate and display all types of content. 

Our connected television sets can connect online to a host of applications, games, websites, as well as content providers like Netflix, You Tube, Hulu, Redbox, and others for video content. It also opens up accessibility to new advertising and monetization possibilities.  These connected sets expose us to new types of display advertisements, overlays, interactive ads, ad viewing in exchange for digital content access, and new commerce options.  But with so many devices, it is easy to see that this new marketplace is still quite disjointed with no common standards yet like the IAB has put into place for the web.  It is a young business, but one that is growing quite rapidly. 

We have become quite accustomed to shopping on our laptop and mobile devices and we accept commercials on our TV shows.  So why not combine the two?  Samsung and other providers are working with entertainment e-commerce company Delivery Agent on a shopping app called ShopTV that lets you buy merchandise from your TV set.  While the idea has been around since the days of Friends (buy Monica’s couch or Rachel’s dress), the timing might now be right.  To tie merchandise sales into the shows and ads that you are watching could become an effortless and enjoyable buying experience for viewers/consumers. 

The connected TV opens up a whole new platform of advertising and commerce options.  While cable operators have been attempting to create an ideal advanced advertising model, they have had limited success.  As more and more consumers gravitate to their connected devices to watch content on their TV sets, the potential for new revenue growth from this interactive advertising model is enormous and bound to skyrocket.  

Cable Television Subscribers Unsubscribing

Both Time Warner Cable and DirecTv reported their quarterly earnings and each share similar news.  For Time Warner Cable, a loss of 191,000 cable subscribers in the second quarter and for DirecTv, a loss of 84,000 cable subscribers.  Where once cable customers were seen switching among cable TV providers,  from cable to dish to telco, now it may be that there is the serious threat of cord cutting.  It seems that broadband access is more important to consumers then cable; broadband connects to TV like services including Netflix, Hulu, Amazon Prime, Aereo, and You Tube.  And the recent introduction of Google's Chromecast has led to an unprecedented demand for this inexpensive little device. 

The notion of the cord cutter has a small drip from the dam may just be turning into a minor stream.  But it is that fear that has cable operators shaping the conversation to investors to say that they are focusing on the better customer with the higher average revenue returned.  Maybe for now the cheaper customer is leaving now, enabling the average revenue to rise for the remaining customer base; still, that customer loss will ultimately hurt the total revenue model. 

Subscription prices are rising as networks keep demanding increases to their license fees. And customers, upset by these high costs are preferring an a la carte model to buy only the service they wish to watch.  The iTunes model of selling singles over albums has been embraced for music and perhaps it will be embraced for TV as well. 

Netflix Launches Profiles, So Should Others

Netflix has finally realized what many other subscription companies have not, that we share our accounts.  Families share their Netflix account just as we share our cable service and DVR usage, our iTunes account, our Amazon account, and other subscriptions.  And because we share, our viewing habits look like one big aggregated experience, hard to decipher. 

Well Netflix has uncovered an easy solution.  "In an attempt to fix this, Netflix today begins rolling out profiles, a free feature that allows any of the company's 37 million subscribers to create up to five different profiles on one account. Each profile will be treated like its own account, so recommendations will be more aligned with a single person's interests." Now a parents more mature interests won't be linked to their children.  That means a better, more accurate understanding of each family members' viewing interests. 

Amazon should steal this idea ASAP.  Not just for their Amazon prime feature but for their other business as well.  My wife and I each keep a different Amazon account just so our children who each receive gift cards can know who has what balance.  An account for each kid under each of our names.  How nice it would be if I could keep separate balances for each child under one master account.  And how much better Amazon could be for using this same profile engine to make better recommendations. 

So congratulations to Netflix for putting real world application to their subscription model.  I'm confident it will be quickly copied. 

Facebook says Time For This Commercial Break

How many times do you check your Facebook page?  How many devices do you use, your phone your tablet, your computer, or perhaps all three?  And how would you like your social network experience to be interrupted by a commercial message.  Facebook will try and find out by offering short form commercials as you access their site.  Although the commercial length is scheduled to be 15 seconds, acceptance of this interruption could lead to longer spots, or perhaps more than one ad. 

While it is not clear how the spot is pitched, it could come over in the top of their News Feed or worse be shown as an overlay that can't be removed till after the ad fully runs.  Facebook plans to only run ads a maximum of three times per user per day.  Whether that is dependent on the device used may also make a difference.  Three ads per three different devices could mean that a user is subjected to an ad nine times per day, each time they check in.  How consumers react to such intrusion will have to be monitored by Facebook. 

Will consumers get so upset by this influx of advertising that they drop Facebook for other social networks or do they put up and shut up?  I suspect we are so deeply rooted in our Facebook connection that users will prefer the latter.  And that is partly what Facebook hopes, too. Video advertising revenue could be the secret sauce that propels the earnings and ultimately the stock price of Facebook to higher levels.  That is, unless users actually rebel and disconnect from the service.

What Box Do You Want Managing Your TV Set?

The mighty cable set top box, the dinosaur these days of connectivity to the TV set, has been getting a lot of competition of late.  There has been TiVo offering enhanced DVR and online streaming, there has been X-Box and Roku and Apple TV.  And we continue to wait for the introduction of Intel Media's new box.  Now comes a box so small that it fits like a flash drive into the back of the set.  Google's Chromecast may be the smallest and cheapest of the devices so far.  But according to articles, it also may lack a ton of notable content and limited to the Chrome browser, another Google product.  Still, the Chromecast is generating a lot of interest.

So competition is heavy for the box that consumers want to power and control their content on and off their TV screen.  And yet the mighty cable set top box continues to power almost every home that seeks to have cable television service.  Every channel is scrambled and access requires subscription.  While some channels are offering authenticated viewing without the cable box, access to on demand still mandates that a box be used.  Only recently have some cable operators enabled CableCards on TiVo premiere boxes to receive on demand programming.  Most other cable operators do not. 

So what is the consumer doing?  Are they bypassing one box for the other or are they most likely attaching multiple boxes to their TV set.  If the TiVo research study is valid, consumers are using streaming media content to augment their viewing experience from cable and not replace it.  So multiple boxes may for now be the future in the home.

No CBS Blackout Yet On Time Warner Cable

The ads are frequent.  No NFL, no Homeland, no US Open Tennis, no this, no that when CBS and its related networks like Showtime are dropped from Time Warner Cable markets.  The drop date was last night but as last minute negotiations continue, the networks have remained on the air as a sign of good faith negotiation.  This will not be the first time that a major broadcaster has been dropped from a cable operator.  "The blackout threatened to be the first of a top broadcaster by a major pay-TV carrier in New York, the nation’s largest TV market, since Cablevision Systems Corp. (CVC) shut down Fox for two weeks in 2010."

Will a deal be consummated and a drop averted or will TWC customers face a period of time without CBS?  What I can assure you is that a deal will be reached.  It is a symbiotic relationship between these two parties.  Each needs the other to maintain a customer base.  CBS needs TWC for ratings and ad revenue; losing the NY market, not to mention Los Angeles and Dallas, would be a major blow.  And TWC needs CBS especially with football and tennis scheduled to start and a market that might just embrace its satellite competitors, DirecTv and Dish,  as well as upstart Aereo.  And once the dust has settled and rate increases have been increased, the consumer will find their bills have gone up too.  And that is the circle of life.

Reports Say Netflix Doesn't Hurt Cable

In a surprising research study done by TiVo, it shows that Netflix does not hurt TV viewing.  In other words, Netflix is seen more as another "channel" choice and not as a replacement to cable networks.  According to TiVo Research and Analyst chief Mark Lieberman, “'The future of television may tell a different story, but as of today we’ve found that the Netflix subscribers in our study are not watching less traditional TV.'”In fact Netflix users watch more premium shows on HBO and Showtime than non-Netflix users.  In other words, Netflix appeals to the heavy TV usage who wants more choice and sees Netflix as a complement to cable TV and not a replacement.

This research study just might let cable operators breathe a little easier knowing that Netflix isn't a cause for cord cutting.  At the same time, consumers are cutting the cord to cable in an ever increasing stream.  If Netflix isn't replacing cable subscriptions then what is?  Perhaps this younger demo is bypassing TV altogether for gaming on their Xbox and tablets.