Changes Afoot At ESPN

Is something up internally at ESPN?  Last week, we learned that Sean Bratches, EVP of Sales and Marketing was to leave the company by the end of the year. On Monday ESPN announced that another on Sean's team, David Preschlack, EVP of Affiliate Sales and Marketing, was also resigning.  Could this be fallout from the distribution contract issues between ESPN and Verizon?  The timing seems peculiar. And so one can only wonder what other shoe will drop.

Well, today, we have learned that Bill Simmons, long time veteran writer, will not see his contract renewed when it expires.  While certainly not connected to distribution issues, one can only start to wonder if ESPN is getting ready to clean house both on the distribution and content sides of the company. Should we start to see layoffs or resignations, it will be a more clearer indication that change and trouble is rising inside the sports company.

One thing is for sure, sports content has made sports networks like ESPN and others to charge the highest license fees of any of the basic networks.  Those costs can only be passed on for so long before distributors start to feel the effects of lost subscribers due to cord cutting.  Offering cheaper, more limited packages, that exclude sports content, is how Verizon FIOS is hoping to win back some of those cost conscious consumers.  How iron cloud the ESPN contracts are might be the issue that has resulted in the pending loss of two of their senior employees. 

Yelp Needs Help

Yelp, the local business review company, is not growing as fast as investors and analysts think it should.  As a user generated site of reviews on everything from restaurants to hotels to business services (even services like Photo Booth rentals for events), Yelp offers great search and recommendation for finding what you want near where you are.  But the challenge they face is how to better monetize such a service of loyal users and contributors. 

The Wall Street Journal is reporting that Yelp "is working with investment bankers and has been in touch with potential buyers in recent weeks, some of the people said."  And although traffic to the site is positive, growth may have plateaued.  Still, the company has aggregated a large database of businesses and reviews and has been a useful resource to many, including myself.  As a search engine, it is localized and relevant, and as a recommendation engine, it provides a wide array of reviews, from positive to downright snarky.  Content is king in this regard and they continue to nurture more reviews. 

Perhaps, Yelp needs a partner that can provide them with a larger array of complementary services.  I could see Yahoo and AOL as possible fits, although Google might like to get a hold of them as well. TripAdvisor might also see a strategic fit as well.  With a more strategic partner, Yelp could potentially expand into video content that augments the value of each of the businesses being reviewed.  Currently, Yelp uses photos that are uploaded.  But videos, could open up windows with additional advertising opportunities.  Videos might also encourage more time spent on the site.  In addition, a strategic partner would help drive more efficiencies to both lower costs as well as keep users engaged on more pages across the site. 

Whether Yelp decides to keep going independently or seek a merger to expand remains to be seen.  For now, Yelp has created a must have resource for finding places to eat, shop, and buy. I hope they only continue to grow. 

Will AT&T And DirecTv Merge?

Now that the Comcast and Time Warner Cable deal is kaput, attention turns to the next media merger.  While a merger would create a cable subscription behemoth larger than Comcast is currently, it would not impact the size of their broadband subscriber base.  That factor was the key stumbling block to Comcast getting its deal done.  DirecTv, as a satellite company, does not offer broadband service.  AT&T does.  Is that enough for the FCC to okay this merger?  Netflix doesn't think so.

In today's New York Times, Netflix "argued that a combined AT&T and DirecTV would have the ability and incentive to use its heft to harm online video distributors like Netflix to protect its core TV business." Actually, creating a video entity larger than Comcast might actually enhance competition.  Fundamentally, DirecTv and AT&T bring two different platforms together, satellite and fiber while the Comcast Time Warner Cable deal would have expanded their fiber distribution platform to control more than 50% of the broadband market.   Two very different outcomes.

Still, when looking at the merger of AT&T and DirecTv, the synergies that come into play seem more about negotiating cable content and getting more economies of scale on their contracts.  As to the broadband side of their business, AT&T still must rely completely on their own cellular and U-verse platforms to compete.  Of course should DirecTv satellites someday be able to provide two way broadband access to the internet, then new concerns might arise.  At the same time, Lightsquared and Dish have been currently unsuccessful in this approach.  Once spectrum opens to enable such opportunity, it would open new competition into the marketplace to challenge a merged AT&T - DirecTv entity.  And isn't that what the FCC really hopes happens in the broadband marketplace. 

GE Lights Up With Apple

According to re/code, GE is working with both Qualcomm and Apple to enable their next generation LED lights to work with Apple's HomeKit app.  Intelligent, efficient, and controllable seem to be the new elements of a smart home and GE is reshaping itself to fit this new world.  Beth Comstock, head of GE Business Innovation, says “LEDs plus software, it helps GE continue its Industrial Internet expansion, and I think the lighting business has a big role in GE’s future because of that."   Certainly the space is much larger than lighting and the hope is that GE sees fit to partnering with other manufacturers to assure an integrated experience across all devices in the home.   

Tesla's Battery Revolution Is Starting

Despite all the focus on Apple Watches and missed mergers, Tesla and Elon Musk continues to focus on energy.  Environmentally friendly, useful, and efficient, Tesla Energy looks to be making quantum leaps in energy storage and use.  Their latest announcement yesterday was to the point, "a suite of batteries for homes, businesses, and utilities fostering a clean energy ecosystem and helping wean the world off fossil fuels." Not just for the automobile, but clean energy to power your home and office.  

As a start, it may be viewed as a replacement to a gas-powered generator, useful for blackouts and other emergencies, but with great implications for future use.  Most excitedly, it is designed to use with solar to create a renewable, zero-emission, and ultimately inexpensive power source.  And like any first generation product, it will no doubt see improvements in the coming years.  

Of course adoption and ease of installation remain to be seen but given the risk of brown outs during the hot summer months and full blackouts could make this product a must have for some consumers.  And reducing the demand on our power grid makes this a worthwhile investment. 

Time Warner Cable Still Focused On Results

When a company is up for sale and employees fear losing their jobs, it is easy to expect that work becomes secondary while bitching becoming the top priority.  The same could be true for Time Warner Cable (TWC) who has been dealing with a sale for quite some time.  Yet despite that all blowing up, Time Warner Cable has kept their eye on their business targets and the results seem impressive.

For the first quarter of this year, TWC  has been successful in fighting back against cord cutting, according to Multichannel, "adding 30,000 basic video customers in the first quarter, its first positive basic video quarter since 2009."  In addition, broadband customers grew 315,000 and telephone customers grew 320,000.  These best ever increases demonstrate that the company stayed focus despite the uncertainty of future ownership.  And while that uncertainty continues with Charter Cable interested in a new bid, Time Warner Cable may just start thinking that they can survive and prosper without being acquired. 

Of course, in the long run, the question is can Time Warner Cable as well as the other cable operators figure out how to reverse the trend of cord cutting over the long haul.  It would be interesting to hear from TWC where these new basic subs came from; did they come from formers that were trying to live without cable, new build or new home owners, or from competitor platforms like U-Verse, FIOS, DirecTv or Dish.  A deeper dive of how TWC captured this growth might tell the industry a lot about what lies ahead.  

Can Apple Keep Rising

After reporting yesterday another quarter of results that beat expectations, the news today is whether Apple can continue to grow at such a pace or will it see less growth.  If that question sounds old, it is because it seems to be asked each time Apple releases its financial results.  The truth is that growth depends on innovation and adoption and in both cases, Apple seems to excel.

The focus is on the iPhone, and this past quarter Apple sold more phones than ever before.  Thanks to the international market and the appeal of the iPhone 6, consumers are both upgrading and switching from competing brands.  At the same time, Apple has created a closed universe that achieves simplicity by tying together each of Apple's other products, from the mac to the iPad, from the iPod to the just released Apple Watch.  They all are meant to work seamlessly together.  And they do.

And all these products are tied together by the infrastructure known as iTunes and their App Store.  From software to music, from books to video, users can easily rent or buy.  And it is the content that makes all these devices essential to our daily lives.  The more devices that Apple sells, the more content that needs to be purchased and downloaded. 

As to the future success of Apple, the market worries that iPhone sales will dip.  But history has shown that the longer trend is that sales continue to rise over time.  For as technology improves, so does the next iteration of the iPhone model.  Yesterday it was the 5, today the 6 and next year the 7.  And as the Apple Watch enjoys a greater percentage of adoption, improved models and lower price points, it will grow as well.  And as to the next likely new product, much speculation is that Apple will announce a subscription TV service that will be tied to an improved Apple TV box.  That might just be the next game changer and revenue driver for Apple. 

Television Is Not Dead

Technological change has created disruption across a vast array of industries.  And while some companies are born and others die on the vine as they refuse to adapt to change has been a hallmark of business over the years.  But the real truth is that as industries change, room still exists for the past to stay relevant, although not at dominant levels.

In the world of the media platform, we are watching as digital has surpassed both analog and physical media.  Print publications still can bring value even as digital subscriptions grow.  CDs and DVDs are still being sold, vinyl albums too, as streaming music and video continue to advance. Radio did not die when television came along and television and cable will continue to exist even as OTT platforms drive adoption.  This weeks's Adweek does a nice job telling us that linear networks will continue to survive and that Content is King!    Even through this constant change, according to the article, "Consumers want access to great content. Brands want to deeply engage with their consumers. And television will no doubt evolve to survive." 

Linear television will survive because of live events.  Consumers will turn on the TV because they want to simply watch in a lean back environment, letting one program follow the other.  Sometimes, we want our TV to be our background noise.  How linear is transmitted though will continue to change as cable companies shift to IP enabled technologies.  At the same time, we will become more proactive when we want to watch a show, as well as when, where, and how.  Mobile and social will become more important tentpoles of our viewing experience. 

And content creators now have more choices to sell their shows and movies, from traditional broadcast and cable networks to premium services like HBO and Showtime, and OTT platforms like Netflix or Amazon or Hulu.  The rise in original content being shown at this years NewFronts make the traditional upfronts vulnerable.  But that is nothing new.  A decade or so ago, cable networks were the ones challenging broadcast.  Traditional media didn't die then and it still has much life ahead of it.  The industry continues to change and the successful companies are the ones that can adapt and change with it. 

The Future Of Cable

With the death bell struck on the Comcast - Time Warner Cable merger, the future of cable will no longer be dominated by a Comcast Cable/Broadband platform.  And as a result of the non-merger, Charter Cable will no longer purchase Bright House Network, and a separate, smaller cable MPVD, to have been run by cable vet Michael Willner, will not be created.  So what will the future of cable look like?

Many wonder immediately what today's news means for the AT&T and DirecTv merger.  I suspect that it actually continues to move forward and gets completed.  It can be argued that they make the combined unit a better competitor to Comcast in markets.  For Time Warner Cable, their choice is to continue as they have or to allow themselves to be purchased by another cable operator, namely Charter.  Prior to the Comcast deal, Charter was mulling a deal for TWC and without Bright House to acquire, TWC is a better fit.  I also suspect that rising valuations for these platforms might finally make Cablevision interested in selling.  Certainly, Tom Rutledge would love a chance to take over his former systems and merge them into his current Charter universe.

As for Comcast, the loss of Time Warner Cable may force them to look at smaller deals in the next few years.  TWC might be too big, but acquiring Cablevision might be the next best thing for Comcast.  With systems in New Jersey, Comcast and Cablevision would make a nice fit; Long Island remains a stand alone market, powerful and wealthy, and can work nicely with any cable operator's portfolio.

But the cable platform should not be limited to the wired competitors.  Given Google's growth in specific markets and the possibility that they acquire a smaller cellular company, Google could expand its wired and wireless reach as a broadband player, delivering OTT programming and expanding the competitive field. 

And then of course we have Verizon and their FIOS platform.  They too bring a strong wired and wireless play to the consumer and are aggressively marketing smaller bundles to stop cord cutting.  It may lead to cord shaving of existing subscribers but the hope by them is that it encourages non-cable consumers to come back to FIOS.  It is an aggressive ploy that content companies like Disney, Fox, and NBC are not happy with.  In addition to claiming contract violations, they are also refusing to carry the new FIOS commercials on their channels, something you would think the FCC would be very interested in reviewing as well. 

So what does the Cable/Broadband platform look like in 2025, 10 years from now.  Expect more consolidation with Comcast and a much larger Charter owning 70% or more of the wired US.  Expect Google to become a much bigger entrant, most likely from an acquisition of a cellular company like Sprint or T-Mobile. AT&T/DirecTv will create a strong chemistry to excel in the space while Dish continues to find an opportunity to bring two-way broadband via satellite to the marketplace. And as to Verizon/FIOS, I expect that more investment will be made into its cellular operations rather than fiber to the home to bring a best of wireless experience to the home and its subscribers.

As the the content side of the business, and more to discuss on another day, I expect that the next 10 years will finally lead to drops of lesser performing cable networks and a consolidation of channels.  Given the rise of OTT subscription services like Netflix and Amazon, consumers are more interested in watching shows, not channels.  As to which networks we say goodbye to, let's discuss.