Could Microsoft Spin Off XBox?

With Steve Ballmer's announcement that he will retire within the next 12 months as Microsoft's CEO, investors may be clamoring for more value from the stock.  According to the report, a possible scenario could have Microsoft spinning off XBox into a separate business.  Certainly, XBox has been one of the true winners in recent years for Microsoft.  And while their operating system has been their main source of revenue, the decline in computer sales has put pressure on the business.  Microsoft needs XBox as well as other new innovations.  Whether their Surface Tablet can achieve that status remains to be seen, but till then, a spin off of XBox seems quite short sighted. 

Amazon Seeks New Wireless Connections to Its Content

The biggest challenge facing OTT content companies like Amazon and Netflix, OTT boxes like Roku, Apple TV, and Aereo, and even smart TV manufacturers like Samsung, is that they all rely on existing broadband providers.   That means that even cable cord cutters still must get their broadband service from their cable or telco provider.  We've seen that when a customer drops cable service, the price of their broadband service rises because they no longer get the discount advantage.  I continue to say that new competition in broadband service is needed to keep price points low.  Well Amazon might just be on the same page. 

"The wireless network, which was tested in Cupertino, California, used spectrum controlled by satellite communications company Globalstar Inc. (GSAT), said the people who asked not to be identified because the test was private."  How far Amazon wants to get into this space remains to be seen although it might make sense, give the capital costs, to partner with other OTT companies to create a wireless/broadband competitor to cable and the telcos.  And while Google is building a fiber based business in Kansas City, a wireless competitor that can effectively handle video streaming would be ideal.  Certainly Dish had been trying this route in trying to acquire Clearwire.  Should GSAT have the spectrum to handle such capacity, Amazon may have found a new business model and a seamless connection from consumer directly to their content. 

Microsoft Post Steve Balmer

While not earth shattering, Microsoft revealed that its CEO, Steve Ballmer, will retire in the next 12 month.  No successor has been named to succeed him in the role.  Many have believed that Microsoft has needed new leadership to compete in a more mobile marketplace.  While its Office software and operating system dominate the business world, consumers have moved to more free-based software from Google and others.  PC sales have also been declining and Microsoft has not been able to break through the tablet or smartphone world with a winning product.  Its biggest success continues to be XBox and it is looking forward to higher revenues from the release of its newest platform. 

So how will the stock market react later today to this news?  Hopefully NASDAQ opens today without a hitch and I suspect analysts will see more positives out of this long term transition.  There is plenty of time to announce a successor.  And time will tell if the next CEO can best steer Microsoft to new highs. 

Political Debates Encourage Temporary Reprieve

While the Time Warner Cable and CBS saga goes on past 2 weeks, both sides have agreed to an exception to their blackout in New York City.  Political elections outweigh US Open Tennis and NFL Football it seems as three different debates will be allowed to air from CBS onto the TWC system.    "The comptroller debate will air Thursday, August 22, from 7 to 8 p.m. The GOP mayoral debate will air at 7 p.m. on August 28 and the Democratic runoff debate at 7 p.m. on Sept. 23." 

Whether the two sides have gotten closer to resolving the renewal has yet to be seen.  To appease viewers, TWC is airing Tennis Channel coverage of the US Open and opening up premium access to some Starz programming.  Of course, consumers would also love to see a decrease in their bills as a sign of passing the savings to the customer.  How long this blackout remains in effect could depend ultimately on the start of the Fall TV season.  Still, CBS must be losing significant revenue from political advertising being pulled off their schedule as a result of not being watchable.  With the first regular season NFL football game and premieres, the amount of losses can only increasing.  What that breakeven is to those losses to the increase in license fee revenue is one the accountants at CBS are likely analyzing on a near constant basis.

TiVo Adds Slingbox Capabilities, Are More Cable Partnerships Coming

TiVo has announced its latest DVR box that seems to do everything from show live and on demand programming to watching streaming video from the web and pushing it out to the TV screen or to any mobile device.  While expensive, with the top of the line box costing $600, it also seems to deliver the kind of rich media experience that heavy video users want, high capacity recorder, TV Everywhere capabilities, and cable and streaming connections.  And of course TiVo is known for a recommendation engine that records shows that might also interest you. 

"The Roamio enhancements could also help the cable industry slow the wave of consumer defections, known as cord-cutters."  The challenge of the cost and the ease of interface with cable operators still matters.  Most cable customers expect their cable operator to deliver them a box ready to plug in and use, with easy installation and service from the company.  Those cable operators already partnering with TiVo deserve praise for seeing the value this option gives to their customers.  Other cable operators need to also start partnering with TiVo.  It becomes too much trouble to make the consumer go through too many steps to get a TiVo and ensure that it works correctly on their cable system.  From getting a CableCard to correct installation and handshake with the cable technology creates trouble.  We should be beyond that for authentication purposes.  It is time for cable operators to get on the TiVo bandwagon and embrace what is an anti-cord cutting machine. 

Netflix Proving Content Is King

In the growing challenges facing cable operators, the rise of OTT content continues to help drive cord cutting.  And when consumers are determining which online content provider to follow, Netflix has been driving the differentiation strategy with a focus on content.  In the latest deal, "Netflix says it's reached a multi-year agreement with The Weinstein Co. that will give it the exclusive streaming rights to the company's first-run films starting in 2016."  Given the Weinstein Brothers' track record of distributing quality, Oscar worthy films like The King's Speech and The Artist, the odds seem good that Netflix is gaining a high quality partnership that will certainly differentiate it from Amazon, Redbox, and even cable networks like HBO, Showtime, and Starz. 

Cord Cutting No Myth

Second quarter cable subscription numbers dropped for both cable operators and satellite operators.  And while Verizon FIOS and AT&T U-Verse did add cable customers in the second quarter, more consumers left cable then switched providers.  "Over the past year, multi-channel video providers lost about 100,000 subscribers, versus a gain of about 380,000 over the prior year, according to LRG."  While the number that cut the cord completely is miniscule, a tenth of one percent, it seems indicative of bigger problems.  It seems that no one will be surprised if third quarter shows a growing trend of customers completely cutting the cable cord. 

Streaming TV Competing with Cable Networks

While video certainly didn't kill the radio star, the growth of new technologies definitely disrupt old technologies.  Broadcast television changed consumers use of radio in the home and cable changed how people watched TV.  This disruption doesn't always kill the old method, but it certainly changes  consumers' behavior.  Today in the the world of cable TV, it is the growth of broadband that has disrupted viewing patterns and usage.  Now we find that consumers can watch shows on other devices and on demand.  But what still has been missing has been an online video channel that mimics cable and broadcast with a linear schedule of programming.  And now, one is breaking through.

"As HuffPost Live enters its second year—its first birthday was earlier this week—the fledgling video news network may look to establish a Web version of appointment TV with more regularly scheduled programming, said Roy Sekoff, president of HuffPost Live and The Huffington Post's founding editor."  For viewers that don't want to pick a show to watch but simply turn on their device to watch regularly scheduled programming, HuffPost may be that go to online video network.  And for consumers that have officially cut the cord on paying cable subscription fees, this channel is free without additional subscription charges. 

It is a model that cable networks don't want to offer because it would cost them important license fees from cable operators.  That cable operators want networks to give them the digital rights to their networks to stream to "authenticated" customers is a retention tactic to provide additional value to the current customer base.  HBO GO and other channels have had positive results in keeping and growing their cable subscription base with this online feature.  Some may wonder that customers user names and passwords are shared with non customers but it is not deemed problematic at the moment to HBO. 

Still as costs for cable rise and viewers increasingly drop their cable service, more companies will start experimenting with streaming linear schedules of programming, most likely augmenting the on demand nature of services like Hulu and Netflix.  Consumers still like scheduled programming and HuffPost Live may be on to a winning opportunity with its linear programming line-up. 

Even OTT Providers Need The Cable Operator

With the price of a cable subscription rising year over year, consumers might just be cheering that new companies are offering content that allows them to bypass their cable subscription.  From the recent news that Sony has forged a programming deal with Viacom for its linear networks, to Netflix and Amazon offering video content to consumers through their Apple TV, Roku, XBox or other OTT device, streaming content is growing.  But to access this content requires a broadband subscription, BYOB or Bring Your Own Broadband, and that service comes from the same company that you were getting your cable content from.

Certainly cable operators worry that consumers will cut their cable cord, but they aren't cutting their broadband cord, literally the same wire that runs into the house.  And cable operators are likely going to penalize customers that drop their cable service.  In the past, they created the Triple Play marketing campaign of cable, broadband, and phone to discount services, but take one service away and the discount goes away and the total price for service will rise.  Cable operators are also testing usage based broadband fees, charging more for heavy users of broadband.  And since we know that video streaming uses more data then say e-mail, streaming broadband access costs will only rise at a faster and faster level.  Ultimately, customers that think taking an OTT service instead of cable service may actually find themselves paying a higher fee for a lesser number of channels and shows. 

The best opportunity for BYOB customers that are dropping cable subscriptions for OTT video is that new broadband providers can enter the industry.  Whether that is LightSquared or Clearwire or Google, the industry needs competition to keep broadband streaming prices in check.  Otherwise the broadband industry will look just like the airline industry, an oligopoly with limited choice and rising prices, not only for seats, but any extra legroom.  And that is not in OTT video's best interest and so for now, OTT providers need the cable operator.