The Decline Of Physical Media

We used to pride ourselves on our collection of media.  Whether it was books on the shelf, our music collection, whether tape cassette, album or cd, even our video collection of VHS movies or DVDs.  Friends that would enter our homes could marvel at the books we read, music we listened to, or movies we watched.  And these collections became our hobbies and our passions.  

We still pride ourselves on these collections but now use social media to share our latest media connections.  We simply no longer need the physical clutter; all of this content is accessible through cloud streaming or digital storage.  And so the devices we use, especially for music and movies have changed.  For example, "Streaming media players, for the first time ever, outnumber Blu-ray players in U.S. households, and have become the new tip of the spear connecting consumers to the Internet and online video."  Devices like Apple TV, Roku, and Google Chromecast, as well XBox and Playstation, become the more preferred devices for our digital collections.  

We have seen for a while this decline in physical media occurring.  Fewer sales of cds and dvds, fewer books too as our tablets and e-readers become a more acceptable substitute for carrying around heavy books.  But because our collections are no longer easier to be seen, we can't peek at the cover of the book being read on the subway and we can't look through the latest album covers of newly purchased music.  We must proactively share our playlists and reading lists and comment on our latest interests.  The landscape continues to change and we are changing with it. 

Streaming media players, for the first time ever, outnumber Blu-ray players in U.S. households, and have become the new tip of the spear connecting consumers to the Internet and online video. - See more at: http://videomind.ooyala.com/blog/researcher-streaming-stbs-leading-drive-connect-consumers-content#sthash.SZNRYJva.dpuf

Unbundling Cable Not A Cost Savings

If you ever thought that your cable bill would drop if your provider let you just buy the networks you watched should read today's New York Times' article on Unbundling Cable.  In it, the writer Josh Barro provides a clear understanding of the cause and effect of a la carte pricing for cable programming.  The conclusion, overall costs would not go down and consumers would eventually pay more for less programming.  Cable bundling overall has helped to keep prices lower.

The only problem is that the article doesn't address the fact that cable subscription costs are still increasing and that lately the cost of bundled cable has led to decisions by some households to cut the cable cord entirely.  So if the solution to lower cable bills isn't unbundling and a la carte pricing, then how else can a household lower their bills? 

For many, a strategy has been to switch providers.  In some markets, like NY and LA, a telco overbuilder like AT&T U-Verse or Verizon FIOS, competes head to head with the incumbent cable provider, Comcast or Time Warner.  Deals are offered to switch and savings mount until the promotional pricing ends and consumers seek new deals to switch back.  Other households look at satellite providers like DirecTv and Dish for cheaper cable programming. But as you can see, the cable industry is monopolistic with few alternatives.  It is the same problem facing broadband access as well.

The challenge of cutting the cord completely to cable and relying on broadband for streaming access to platforms like Netflix, Amazon Prime and You Tube, is that broadband providers want to switch from an all you can eat model to usage based pricing.  Given the heavy load of video streaming, and discussions regarding the demise of net neutrality, costs to stream will rise and so will subscriptions to broadband services.  And frankly, most users want all the content they can get, cable and streaming, and cord cutting doesn't serve that purpose.

So great explanation Mr. Barro on why unbundling cable doesn't work.  But you left out the most important question, how can cable customers save money and still enjoy their programming. 

Early Adopters Beware, Google Glass May Not Be Worth It

According to reports, Google might finally be moving ahead to sell their Google Glass product to consumers.  The retail price tag appears to be $1,500 which would make it a very expensive toy.  Cost wise, reports indicate that it may be way overpriced.  But if you have the money burning in your pocket, you may not care.

I just wonder if it really will deliver the value that you expect from the product.  You may in fact see signs popping up in places telling you that Google Glasses are prohibited.  These places could include movie houses, Broadway theaters, and every bathroom. And hopefully no one will be driving while wearing a pair of Google Glasses either.  "There are a lot of reasons not to buy Google Glass. It's super weird looking. It might get stolen off your face. People might think you're a creep." 

So will a Google Glass release become a hit.  Over time, prices will come down and hopefully it will demonstrate more capabilities that uniquely make it a must have product.  For now, it looks questionable. 

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.