Microsoft Adds More Debt...Why?

With Microsoft launching its latest gaming platform, Xbox One to solid revenues and planning a change to its executive ranks with the retirement of Steve Balmer, the latest news may make you wonder.  According to Bloomberg, "Microsoft Corp. (MSFT) sold $8 billion of bonds in dollars and euros, a record offering from the world’s largest software maker".  Perhaps one reason is to take advantage of lower interest rates as many speculate that they will be rising; Microsoft says that the funds will be used for "general corporate purposes". 

Certainly, Microsoft has watched as Google, Samsung,  and Apple have taken the lead in the hardware race.  Their tablet, the Surface 2 lacks the buzz that other tablets offer.  And both Google and Apple have invested in the infrastructure to provide content to their devices.  With PC sales waning, Microsoft's success with Office may diminish too.  Today their best new product is the Xbox. 

So perhaps, Microsoft may be wanting to enlarge its cash war chest for a possible purchase.  A cable operator like Time Warner Cable or content creator like AMC Networks,  or perhaps an OTT content distributor like Netflix.  Where does Microsoft want to be in 5 years and what do they want to be known as, a hardware company, software company or a content company. 

Should Native Advertising Be Regulated?

As consumers become less susceptible to clicking on display advertising, web publishers have relied on other technological moves to assure that ads get seen and hopefully clicked.  From launching web pages under and over existing pages to expanding content to fill the screen.  All done to assure that access to free content enables revenue monetization.  While pre-roll of ads on video is one way to force consumption, another has been to use advertising that looks like editorial to encourage viewership.  Dubbed native advertising or content sponsorship, it has quickly become a successful means to increase web clicks.  Some sites highlight the block to indicate that it is sponsored, others might actually put a footnote or header to indicate it.  And still others let the native ad content blend seamlessly with the other editorial content.  But should it be a case of buyer beware?

Such was the case of a conference held to discuss native advertising.  "Consumer advocates, publishers and advertisers who spoke at the event generally expressed agreement with the idea that Web sites should make clear when they are running native ads -- at least when the ads directly hawk a product."  An example that has been used is that of a drug company that promotes an article about management of a health problem and cites its drug as a possible remedy but not other alternative options.  When not labelled clearly as sponsored, consumers may be confused in thinking that the drug mentioned was an "independent analysis" and a "best remedy"  And it is that possible confusion that has the FTC wondering how native advertising needs to be distinguished from editorial for the consumer.  

Not all native advertising sells products or services.  Some are actually used for content recommendation to encourage viewers to visit another website.  " In some cases, the sponsored content is just an item that advertisers think readers will find interesting.  But some advocates say that even those types of native ads should carry a disclosure, so consumers will know that the article didn't originate with the publisher."  So should all native advertising or sponsored content be treated equally?  I maintain that some notification may seem helpful, users are apt to overlook.  The idea of "caveat emptor" or buyer beware still should hold true.  Should these ads become more deceptive the consumer will engage and fight back and the marketplace will feel the effect. 

Charter Does Need A Cable Merger

In discussion about a possible merger, Charter CEO Tom Rutledge said that they don't need Time Warner Cable.  Yet as we are well aware, what we say and what we do are not always the same thing.  In a classic dating analogy, showing a bit of disinterest can sometimes work to make the other more attractive or to encourage more interaction.  So regardless of what is being said, it is painfully clear that Charter needs a consolidation partner and Time Warner Cable, given its size, becomes the best way to achieve scalability and cost efficiencies.  They also give them access to more of the LA DMA as well as to the entire NY state, including the number one DMA, NYC.  Other smaller operators would be able to achieve such immediate return, although Cablevision, is a cache unlike other markets. "Analyst Amy Yong of Macquarie Capital wrote 'It’s hard to ignore that Cablevision has some of the best zip codes in the country including New York, NY, Fairfield County, CT, and Bergen County, NJ. It just wouldn't return much cost efficiencies at the start.'"  

So I am reluctant to believe comments by the Charter CEO as anything more than posturing.  Major stockholder John Malone has other plans.  As an innovative financial whiz who has been quite successful in managing a portfolio of media companies, Malone clearly has a strategic plan in mind and knows that the pipeline to the home is crucial.  Charter lacks major markets and needs to merge to gain better coverage of the US market.  And if that means swapping and sharing with Comcast to get a deal done, Malone will move in that direction.  We have two major telcos, two major satellite companies, and perhaps we are getting closer to two major cable operators. 

Netflix Pushing Family Fare Exclusive Content

Let's face it, sometimes it is hard to say no to your little boy or girl.  And with the rise of tablets, our kids are sharing with each other all the great content they are watching online.  Netflix seems to recognize the value of programming that speaks to the younger audience and pushes their parents to purchase on their behalf.  And Netflix is becoming the must have purchase for the home. 

So, add another reason why more and more families may be buying a Netflix subscription for the Holidays.  "A deal with DreamWorks Animation represents the streaming service's largest push yet into original programming. Turbo F.A.S.T., a 26-episode series based on Turbo, a feature film about racing snails, will be released Dec. 24".  And more kid friendly shows are in the works.  Most importantly, these deals represent exclusive windows in which other streaming platforms won't have access. 

The kid demographic strategy offers a compelling reason for Netflix to pursue.  "Subscribers who watch kids' shows on Netflix tend to use the service more often, (chief content officer Ted) Sarandos says, and presumably see a better return on the $7.99 monthly fee. And kids often watch the same episodes over and over".  And an added benefit for the parents and ultimate purchaser of a Netflix subscription, no advertising to their children.  So given the rush to buy the next iPad or Surface or other mobile device, comes the need to buy content to run it.  And Netflix is making the case for being the perfect stocking stuffer. 

When Ads Are Really Content

Today's Wall Street Journal has a terrific article that looks at the rise of sponsored content.  Some websites clearly differentiate what is true editorial and what is a sponsored advertisement; others, have found the art of the "blurred line" between the two.  But given the success of branded content over traditional display advertising, the trend is moving more to content advertising.  In fact, "Spending on sponsored content is expected to grow 24% to $1.9 billion this year, a faster growth rate than for most other forms of digital marketing."  It is not necessarily a new way of advertising, but it is seen as potentially deceptive when the consumer cannot differentiate between ad and content. 

The success of sponsored or native ads means that it will not be going away anytime soon.  Whether it leads to some type of regulation remains to be seen.  The IAB (Interactive Advertising Bureau) has already formed a task force, according to the article, "to create their own standards."  Self regulation certainly beats federal regulation. 

Amazon Might Want Drones Over US Post Service

Just a month after announcing its partnership with the US Postal Service for Sunday delivery, Amazon now would like to deliver your packages by drone service. During this Sunday's 60 minutes, CEO Jeff Bezos announced, "Prime Air, a futuristic delivery system that the company says will get packages into customers' hands in half an hour or less, delivered via unmanned aerial vehicles."  Will Star Trek transporter service be coming soon after?

While initially appealing, one wonders just how practical such a delivery concept it can be.  Certainly package size and weight matters as does location and assurance of delivery.   And what are the insurance implications if a drone fails and falls from the sky, let alone if the package drops.  Such a delivery mechanism may be some day, but it is hard to imagine it being used within the next decade.  I have more faith in the US Postal Service to deliver the goods. 

Time Warner Cable Causing A Feeding Frenzy

It seems when you smell a wounded prey that the scroungers come to attack.  Once it became clear that Time Warner Cable could be picked apart, Comcast followed after Charter Cable and now here comes Cox Communications.  "The frenzy of deal interest comes as cable companies are trying to get bigger to deal with the industry's challenges, which include the rising costs of TV programming supplied by cable and broadcast networks." 

So who gets what pieces? Comcast would be happiest getting the New York demo and perhaps the Maine system, adding to its ownership of the Eastern corridor.  Charter would love to take California and some midwest systems.  And Cox might just love to own the Carolinas, Texas and Arizona.  Would Charter be open to taking a portion or perhaps they are ready to gobble up all of Time Warner Cable.  With Tom Rutledge , CEO of Charter at the helm, and a former Time Warner Cable executive, he has a pretty good idea what those systems offer and whether he is willing to share or not.  Either way, it continues to look like Time Warner Cable will be a footnote in cable history in a few short years. 

Apple Looking To Kinect

It seems that Apple likes the idea of motion sensor technology that they decided to buy it.  Watching the success of Microsoft's Xbox Kinect, Apple  "paid about $350 million to acquire PrimeSense, an Israeli start-up that developed the motion-sensing technology in Microsoft's Xbox video game console."  Not so much given they can use the money they won from Samsung's patent dispute to help pay for it.  And with so much cash on hand, they don't even need that.

So the question is when or where will Apple incorporate this newly acquired technology?  Will it go into the Apple TV, future iMacs, or all laptops, iPads and iPhones?  For that, we will just have to wait for the next Apple announcement.

Cable All About The Pipe To The Home

The future of cable is all about the infrastructure and the wires that connect homes to headends.  While first built to provide cable service, it now enables broadband, telephone and cable signals to function in two-way mode.  And it has become increasingly clear that the future of cable is the broadband pipeline.  "The cable companies — at least in the U.S. — have the fastest pipes into majority of homes. They are faster than phone companies and have a deeper footprint."  Despite the threat of cable cord cutting, consumers still rely on cable's wire to access their OTT subscriptions and videos.

So control of the US landscape is essential for efficiencies and economies of scale.  It also allows for WIFI expansion and new revenue streams.  Many talk about broadband moving from an all-you-can-eat model to a utility model based on usage; but, it opens up other revenue streams for security, cloud functionality, and more.  And it is why cable operators are circling Time Warner Cable with a possible feeding frenzy over their coverage area.  "So the cable industry, if it can consolidate, gets access to the most important pipe coming into people’s homes (after power and water) and the fewer cable companies there are, the more unified the rate structure might appear." Ultimately, a more monopolistic industry with fewer competitors to upend the egg cart. 

But will the FCC put any resistance to this level of consolidation.  It seems less with Charter, a smaller cable company swallowing up Time Warner Cable; but it raises red flags with the largest cable operator, Comcast, entering the picture.  It screams anti-competitive although it is part of the natural industry life cycle till other disruptive opportunities come along.  The FCC might just resist such merger talk but I think their best course of action is to encourage new companies to offer broadband access.  Open up new spectrum for broadband/cellular and encourage companies to enter the fray.  The electric companies already string this country with wires; can't they be encouraged to build out a broadband business.  LightSquared unsuccessfully tried to compete; offer them spectrum that works with their model.  It seems the best course of action is to encourage competition in a landscape that requires more and faster broadband access, at a reasonable cost.  Monopolies set and control pricing; competition lets the market choose.