Cable Distribution Becoming A Chess Game

The result of the potential Comcast and Time Warner Cable merger has led to the cable industry becoming a chess board for strategic moves to level the playing field.  AT&T has decided to extend its reach through acquisition and has targeted DirecTv as the means to expand its footprint domestically as well as internationally.  This combined entity would nearly match the size of a larger Comcast.  And for DirecTv, provide them with an important component, namely an integrated broadband and communication arm to support its video business.  How will the FCC react and will it make a decision to enable Comcast to move forward with Time Warner Cable an easier one to approve.  I think so.  But I also wonder what the next piece will be that moves on the chess board.  Is it time for Charter to also make a play for Cablevision or Cox to expand its footprint beyond what Comcast would sell to them.  The board is in play and I suspect more moves are coming.

Apple Beats The Wearables But Needs More Acquisitions

Of all the talk about Apple releasing a wearable product like an iWatch, perhaps the planned acquisition of Beats and their headphones could count, too.  The more I think about a "connected" watch, the less excited I seem to get.  For those of us who are watch wearers, I am not sure I would want to replace it on my wrist.  So I would have to think it would occupy my opposite wrist should I ever consider buying one.  And for those who use their smartphones as their timepiece, I wonder if they would finally succumb to a smart wrist watch.  And lastly, I think I would get aggravated plugging in my watch every evening, next to my iPad and iPhone.  So now I would need a third outlet and cord.  Yes, the more I think about an iWatch, the less enamored I become.

At the same time, the news that Apple wants to acquire Beats, their hardwear and streaming subscription service, seems like a logical fit to the Apple music model and a natural extension to its own line of iPod, iPhone, and iPad products.  For those seeking a better set of speakers and headphones, Beats is a good fit.  Plus the talent of its owners could play well in the Apple sandbox. 

Perhaps Apple should also consider more synergistic business opportunities to extend its brand across more platforms.  And with that in mind, why not look to acquire Sirius Radio as a means to truly be mobile, as in the automobile space.  Use its satellite technology to drive Apple usage for radio and subscription product.  Need another acquisition target, Apple should look at TiVo.  It is the ultimate cable and OTT set top box and could be a great big step into the cable infrastructure.  In the payment space, Apple could look at PayPal or even Square, a product that already fits well with Apple's devices.   They may not be wearables, but each of these companies offer subscription or usage based revenue to grow. 

Unless Apple can make an iWatch a must have product, something others have yet to figure out, its efforts may best be served in acquiring more companies in the streaming and digital space.  For me, a Beats acquisition makes great sense for Apple.  But we all want to know, what's next. 

Time Inc To Spin Off Time Warner In June

Come next month, Time Warner, home of HBO, TNT, TBS, CNN, Warner Bros, and more, is formally separating itself from Time, Inc., its magazine publishing company.  And while this is no longer fresh news, it does make me revisit the question of why separate.  Is it a purely financial decision designed to unlock shareholder value or could management not find synergy between these content and distribution segments? 

Does Time Warner believe that the magazine business is so mature that it drives little growth to the bottom line?  And could they not reach across the business segments to build a stronger fit of content and a multi-platform distribution world.  One could argue they tried.  Many years ago CNN and Sports Illustrated attempted to build a cable network, CNNSI, to compete against ESPN.  It never found its footing.  But the idea behind it was sound. 

As print magazines make the crossover to tablet, they require even more video content to sustain themselves.  Couldn't Time Magazine create that with a CNN relationships; couldn't Entertainment Weekly expand its value with the WB?  I can only surmise that the silos between each business segment was so strong and so independent to not enable these possible internal partnerships to grow.  Perhaps as independent companies, the opportunity to partner with brands regardless of whether they competed internally with other brands will no longer be a factor.  If this split of Time Inc. and Time Warner creates more growth for both, then it will be deemed a good thing.  But if it is meant to cast off Time Inc. so it can whither away without impacting the Time Warner bottom line, than that is a shame. 

Cable Consolidation Affect On Programmers

The planned acquisition of Time Warner Cable by Comcast enables the combined entity to prosper more efficiently.  Overlapping jobs can be eliminated and programming savings can be achieved with networks who provide better licensing fees based on subscriber size based MSOs.  So if Time Warner is paying 10 cents per sub for network X, Comcast might be paying only 8 cents.  Comcast would see a 2 cent improvement on their rates on those acquired subs.  The discussions between AT&T and DirecTv would yield the same outcome.  Good news for the cable operators who likely will enjoy the better profit margins without reducing its own fees to subscribers.

Bad news however for the cable programmers.  Companies like AMC Networks, Discovery Networks, Disney, Scripps and others who count a portion of their revenues from cable subscription.  Not so bad for NBC's networks who as a company can leverage that loss against its parent's (Comcast) gain.  How significant is that loss depends on who you ask.  Most of these networks are fully penetrated so they will see little sub growth though consolidation; other networks might lose per sub revenue but gain more subscribers as systems merge.  And unfortunately, the possibility exists that some networks could simply be dropped off all the cable line-ups. 

So while it is not a zero sum game, it seems likely that the networks are watching these merger efforts very carefully and predicting financially how they will be affected by such outcomes.  Ad revenue growth may help some but that also depends on hit shows after hit shows, something that is never easy to predict.  For now, we can only watch the cable landscape consolidate and examine the fallout from these changes. 

Another Cable Operator Says Yes To Netflix

It seems that cable operators are slowly learning that OTT platforms can co-exist with cable TV and not hurt subscription revenue.  The latest cable operator is Suddenlink, a 1.2 mm cable operator, who has agreed to offering Netflix access through its leased TiVo cable boxes.  This marks the fourth cable operator to open their doors to the OTT content platform.  It also is the largest of the four which include RCN, Atlantic Broadband, and Grande Communications and more than doubles the number of cable subscribers that can access the Netflix service on a cable TiVo device.  How soon before others follow?  And will Comcast offer the same access on their proprietary X1 box?  It seems the winds are moving in a favorable direction.

Was Cord Cutting Overblown

DirecTv dealt another blow against cord cutting in the US with another quarter of subscriber growth.  At 12,000 net additions, the number may not be large but it certainly indicates that households still want their cable television.  Consumers not happy with their cable service may be just as willing to shift from cord to satellite as long as they can continue to get their TV programming. 

Also part of the discussion continues to be whether AT&T will make a serious bid for DirecTv or perhaps Dish Network to enhance and grow its cable platform.   A combined AT&T DirecTv venture would reach 26 mm households, almost as large as a post Comcast Time Warner Cable merger.  With John Malone's interests in DirecTv and Charter, this becomes a very interesting scenario to watch. 

The Value Of Online Advertising

The online advertising marketplace continues to be a growing business, with metrics and analytics galore to assure that the right advertisements are being targeted to the right audience.  Yet with all this data, are ads even being seen at all.  "By many estimates, more than half of online video ads are not seen, either because they are buried low on web pages or run in tiny, easily ignored video players on those pages, or run simultaneously with other ads."  Sure CPMs for some of these ads may only be pennies, it is likely that the total dollars of these media buys are significantly wasted.  This weekend's NY Times article should have ad agencies and media buyers in an uproar. 

The truth is that there is a ton of online content out there, literally, and the number of pages and videos are growing exponentially.  On each page and with each video, space exists for ad insertion.  The supply seems endless, perhaps even approaching infinity.  And while some tier one content has great value, most occupy the endlessly long tail of niche viewership.  It is a field day as buyers and sellers use automated exchanges to target and place ads across all these sites.  "When there is unoccupied ad space, a computer starts a sort of Dutch auction with a number of ad networks."  But the space that is being filled could be "below the fold" on the page, or automatically run a pre-roll even if it is barely visible.  And in some cases, quality "family" products may find themselves placed on less than desirable web pages, as noted in the article. 

So is anyone angry?  Does there seem to be a noticeable uproar or is this digital world deemed acceptable as is? Perhaps in exchange for such high quantity of online ads at low CPM prices, the percentage that is waste is manageable.  I hope not given that the percentage calculated called 57% of online ads unwatchable.  The online world has become so fragmented that many of these ads have lost their value entirely.  And it is why sponsored and native content may have the best opportunity to deliver ROI for advertisers seeking results from their online ad budgets. 

As far as this article is concerned, I hope it is a wake-up call to the digital community to tighten up their act.  Otherwise, budgets may soon be leaving this piece of the business. 

Is DirecTv and AT&T The Next Cable Merger?

With all the talk centered around Comcast's proposed acquisition of Time Warner Cable, the news that AT&T might be interested in DirecTv may have come as no surprise.  Given that a larger Comcast would cover more than 30 mm subscribers, another competitive presence would be needed to keep them in check.  Some wondered if a DirecTv and Dish Network merger would be the possible solution.  The problem is that they lack a broadband business to match the size of Comcast.  With AT&T and DirecTV, more synergy occurs, enabling this possible new entity to better sell a triple play of services.  And perhaps it may get Verizon itching to do something similar.  Could a FIOS and Dish Network business model be the next possibility?

Whether any of this happens remains to be seen.  How real an AT&T and DirecTv deal is remains to be seen.  Some even think that AT&T would prefer to hook up with Dish.  The idea for either is valid.  To compete with Comcast and a post Time Warner Cable acquisition, the need to get bigger quickly seems of utmost importance.

Broadband Usage Looking Like A Los Angeles Freeway

The FCC is hard pressed to maintain net neutrality, equal access for all content, large and small, across the broadband pipeline.  But companies like Netflix are hedging their bets by paying for faster routes with providers like Comcast and Verizon FIOS.  As a result, broadband pipelines are looking like LA freeways in that they have regular lanes and HOV lanes.  These high occupancy lanes give special treatment to multi-passenger vehicles and; in fact, LA is selling express passes for solo drivers that also want to use these lanes.  Unfortunately, the remainder of the lanes become more congested with other drivers either unwilling to pay extra for HOV or carpooling. 

The loss of net neutrality simply turns highways from equal access to all into freeways like the 110 or the 10 in Los Angeles.  While good for bigger companies like Netflix, it hurts the rest of the content field seeking to avoid traffic jams but unable to pay the "convenience fee"  And like always, consumers will eventually pay more to cover these content streaming costs. 

Until technological innovation comes along to reduce the size of content streams or improve the speeds of transport, the fast rise of digital content consumption by consumers will only continue to clog the broadband pipes.  Net neutrality sounds like a good idea but it doesn't solve the underlying problems of broadband congestion.  I believe the FCC should do more to encourage additional broadband competition; open more airwaves, encourage new players to enter, and allow competition for platforms to be best for consumers.