Not Trending: #CordCutting

There is a recent report that has come out by tvpredictions.com that says the AT&T U-Verse and Verizon Fios have added 232,000 and 169,000 subscribers, respectively, in the first quarter of this year.  DirecTV and Dish have not released their official first quarter numbers yet, but if you take the two companies 2012 4th quarter numbers, the 4 companies have added 518,000 net subscribers.

A couple glaring things about these statistics stands out to me. The first is that cord cutting is not a hot trend that the market is going to be taking by storm. It actually seems more like people are finding alternative ways to use technology. AT&T and Verizon have this enormous fiber backbone across the nation that they've been able to utilize. Consumers seem to have become more savvy to the idea of no delay channel changing, room-to-room watching, and other services that make these subscription TV services very desirable. The value that comes with these services is tremendous, and consumers seem to be reacting very favorably to this. A streaming service like Aereo or Hulu or Netflix is still seen by the vast majority of the market as a supplement to their regular service. It is more an ability to watch a wide variety of different content channels while knowing that the stream won't lag or pause unexpectedly. They're able to have more control over their viewing experience. Streaming is nice in concept, but at this point, that market is trying to validate their proof of concept right now.

The next thing that jumps out at me is the bundling of these products and services. With Fios and U-Verse, you're able to get high speed internet and TV over a reliable fiber backbone. I attended a talk in 2010 with AT&T's COO, John Stankey and he spoke about the necessity to make AT&T products and services "sticky". Essentially, he was talking about making the switching costs for customers too high. AT&T and Verizon are unique players in the pay-TV industry because they both have immense amounts of capital as well as the infrastructure to maintain their growth. Customers can bundle their wireless and wireline services together into one provider. Tiered spending discounts and promotions are given to customers who have all of these services combined together. One of the drawbacks to this is that AT&T and Verizon are relatively new players in this market and in order to build their business, they need to build out their fiber optic backbone. Currently, AT&T and Verizon are segmented into which territories they control and can bring their service to. It is very much a predetermined split share of market. Without the infrastructure, customers can't enjoy these services. Satellite TV services like DirecTV and Dish Network can bring their service to any household because their services are portable.

Either way, the internet and TV have been fused together in many cases as AT&T and Verizon are proving right now. So much so that Intel and Sony are rumored to be starting their own TV service. Early rumors were that it would be an a-la carte menu where you paid for only the channels that you chose, but that is not the direction they are moving. Very early rumors about these two company's plans have been reported, but it is sure to integrate the internet capable TVs with a real TV service. They would be confined to regular content, but with some other features. This news clip outlines the rumors.

Cutting the cord on pay-TV services is more of a hope than an actual trend at this point. We would have started to see major market movement on streaming TV services and a decline in net subscriber growth in pay-TV services by now. Since it isn't happening yet, we can only assume that consumers have yet to prefer the streaming services. Streaming, at this point, is simply a content access medium while pay-TV services have a wide variety of services and features that appeal to consumers. Unless that gap is closed substantially, we're going to be tied to our cable boxes and satellites from our rooftops.

Shawn

Sources:

http://www.tvpredictions.com/numbers042513.htm

http://www.forbes.com/profile/john-stankey/

Guggenheim Digital Media Bidding for Hulu

Business Insider is reporting that Ross Levinsohn, a former executive at Yahoo!, is trying to buy Hulu. Interestingly enough, Yahoo! tried to buy Hulu while Levinsohn was an executive at Yahoo for $2 billion. Hulu, is controlled by Disney's ABC and News Corp. They claim that there are 3 million subscribers who pay $7.99/month for the service.

Guggenheim Digital Media brands

A sale of Hulu would be a bizarre tactical move for Disney and News Corp because they have control continues to make more advances towards putting content online. What would be their motivation to give up a content streaming site? My only guess is that they don't feel like it is a worth while project for the company to continue to pursue at this time. If they come up with their own app for streaming content, then Hulu might be obsolete. That makes sense from Disney's perspective, but News Corp has been put in an interesting situation. I've written about how News Corp has threatened to make their own Fox News channel a subscription based channel if Aereo is not stopped, but now they have an opportunity to grab Disney's share of Hulu and control TV streaming that way. Why wouldn't they play the game on their own terms? It would give them an easy way to control the Fox News content. If both Disney and News Corp have equal controlling shares of Hulu, and one company wants to jump out more than the other, it seems like either company would benefit from taking over the shares as opposed to flipping it to Mr. Levinsohn's Guggenheim Digital Media. Business Insider reported that Hulu made $700 million in revenue last year, but has about $330 million in debt, and a quarter loss of $30 million. It could be at the point for both Disney and News Corp where it is just not profitable anymore.
over the streaming content of their choice. They are in a unique position to control content over the internet and have an ability monetize it. Giving that up would essentially be like taking a step back for Disney and News Corp. As I wrote in an earlier post, Disney

For Guggenheim Digital Media, they are looking to make a big splash in the online streaming market. According to the Wall Street Journal, Guggenheim Digital Media is engaging in discussions to buy Vevo, the online music video streaming company, and have already bought a wide variety of different online media outlets. They're making a strong play to control all of the digital consumer streaming market. At this point, it seems like Guggenheim is positioning themselves to rule the internet for now, but further down the line, they could be the major player in the online streaming market. Coupled with all of the acquisitions and other music industry related company takeovers, Guggenheim is playing to control the music industry online as well as the TV and movie streaming industry. It makes a lot of sense for the company to aggressively pursue Hulu, especially since Disney and News Corp seems to be lukewarm to the idea of keeping the service. If Guggenheim can come up with a way to get Hulu debt-free and profit-positive, it's an easy buck for the media conglomerate. This area is their expertise.

Hulu, and the business that they are in, may not be Disney or News Corp's area of expertise, but if the companies are going to continues to fight off the consumers who are shifting to the internet, they had better learn the business quickly. Giving up Hulu doesn't seem like the best way for News Corp to go, but Disney doesn't have much to lose because they are already making moves to positions themselves with their own app.

Shawn

Sources: http://www.businessinsider.com/ross-levinsohn-might-be-buying-hulu-2013-4

http://www.fastcompany.com/3008018/tech-forecast/news-corp-coo-says-channel-will-be-subscription-only-if-aereo-prevails

http://online.wsj.com/article/SB10001424127887324763404578429180740205410.html

Big Content, Marketing, and the Internet

The biggest way that the emergence of the Internet has impacted media is the way that brands interact in real time with their consumers. This has given marketers a powerful tool to reach their consumers with the content that they want in the medium that they prefer. Never before have marketers had the power to gain feedback instantaneously from their target demographic. Twitter, Facebook, Foursquare, and other social media sites have empowered both the marketer and the consumer. TV ads used to be the most effective medium to reach consumers because demographics could be measured. The price of a Super Bowl ad reflected this value to advertisers very well. However, Oreo found a new way to take advantage of a trending topic amongst a large demographic.

During the Superbowl game this year between the Ravens and 49ers, there was a blackout on the field. Instantly, Twitter filled up with people's reactions and clever comments about the blackout. Oreo, with quick wit and precision, tweeted this:

This has to represent one of the best examples in the Digital Age of viral marketing. Fast Company recently wrote about this clever Oreo play by examining the marketing theory that has been uncovered by a move such as this. Fast Company states, 

"As we think about the critical role data plays in real-time marketing, it’s important to ignore the non-essential “noise” and focus our attention on the key signals (i.e., social momentum, engagement, and velocity) that let us know our content is genuinely resonating with audiences--then act quickly to scale that experience as broadly as possible. Remember, nothing is formulaic (or predictable) in this space and the most effective real-time content strategy embraces a philosophy that imparts both data science and creativity to best drive brand impact."

They've figured out marketing gold. This quote is important for the internet, marketing, and media because it highlights the role of the consumer and his/her experiences. During the Super Bowl, hundreds of millions of people were tuned in and experiencing the same thing at the same time. If a brand can relate to their consumers on a personal level, they've done their job. Oreo aligned their product and message at the exact right moment with something that virtually the entire country had their attention focused on. Oreo got their message out swiftly, efficiently, and effectively. 

In a separate article by Fast Company, they talked about the relationship with big data and big content. Essentially, Fast Company defined big content as any content that users or consumers can interact with. When the interaction becomes "big" is when it can be transformed or manipulated by consumers and the brand loses sole custody of the content. They stated that the number of Google indexed pages rose from one trillion in 2008, and is expected to reach 30 trillion in 2013. It's a great example of demand for digital content growing at an incredible rate. The article from Fast Company argued,

"Consumers are hungry for more relevant content experiences, and some want a deeper experience with their favorite brands, which would drive consumption of brand-related content within social channels. That consumers can now participate in those conversations has also fueled growth. To feed this demand, marketers have increased their supply of content and continue to fill out the increasing number of channels with which their consumers engage."

We're seeing brands interacting with consumers are a lot of different mediums. Brands have strategy for TV, online, and social media platforms. The article from Fast Company also states that the cost for creating online content is low, and is decreasing over time. We could be on the verge of seeing the best creative advertisements being disseminated across multiple platforms simultaneously, with the consumer being told a story through the different channels. The case study from Fast Company gave the example of Lowe's. Lowe's showed how a home office could be doubled as a dining room. They put a slideshow online and showed the transformation of the room, and at the end, they put a "how-to" guide for a user to reference. Lowe's also put this in their e-newsletter so people could interact with that content digitally. It would be really easy to imagine that Lowe's could put all of that information on TV or in many different formats. 

People are using the internet in a lot of new ways, and marketers are taking advantage of this information and new advertising platforms in new ways. The demand for new and creative content is rising, and it's up to the marketers, the supply side, to keep up with the rising demand. I could easily see a world where marketers tell interactive stories across multiple platforms as the normal way a brand's message is communicated. Consumer preferences and habits are changing. Marketers are using big data, big content, and the internet to keep up with the dynamics. 

Shawn

Sources: http://www.fastcompany.com/3008486/oreos-dunk-dark-strategy-and-future-real-time-marketing

http://www.fastcompany.com/3008494/big-data-comes-big-content

http://www.forbes.com/sites/alexkantrowitz/2013/02/06/that-oreo-tweet-was-cool-but-is-real-time-marketing-worth-the-hype/

The Bid to Buy Sprint

Yesterday, CNN Money reported here that Dish Network launched an unsolicited bid to buy Sprint Nextel for $25.5 billion. It's a counter offer by Dish Network that is attempting to outbid an offer accepted by Sprint in October from a Japanese tech company called Softbank. Softbank offered about $20 billion in exchange for 70% equity in Sprint Nextel.  The move makes a lot of sense for Sprint because the company is strapped for cash. They're using the cash from a potential buyer to help sustain their ship. Sprint has been struggling mightily with debt and launching their LTE network for the past few years, and AT&T's recent attempt to buy T-Mobile has signaled that the telecomm industry has turned into a duopoly. Interestingly enough, I started my young career out at one of the largest telecomm providers in the US, and found the move by Dish fascinating.

Three key things stick out to me in this attempt to buy Sprint. 

1) Bandwidth (aka Spectrum): Many industries need raw materials such as steel, wood, textile, etc. to run the businesses within that industry. The telecomm industry is no different. In telecomm, the "raw material" is bandwidth, or spectrum as it is known in the industry. It's a very finite resource, and one of the major reasons why AT&T tried to buy T-Mobile in the first place. It would have opened up the airwaves for AT&T customers and been a phenomenal way for AT&T to acquire market share as well. Now, why would a Pay-TV company like Dish Network want to buy Sprint and be willing to pay the $600 million severance fee owed to Softbank? Simple, Dish Network understands the changing landscape of consumers slowly adopting or fusing together Pay-TV and internet together. The Atlantic Wire argued that Dish would use Sprint's broadband network to stream content to their users. The article states:

Dish Network satellite TV hardware

Dish more than other pay-television companies has its eye on the future. Ergen before has said he already thinks people are cutting the cord. So, it's being proactive. Ideally Dish would like to hook people to pay TV early, he said in that same interview. That's where innovations like the Dish Hopper—which allows consumers to skip over commercials completely—come in. But, he ultimately knows that television watching is heading to the Internet, a la carte style, he said during an AllThingsD interview. "The Internet is really a la carte today," he said. "That's ultimately where we have to compete." What better way to compete than getting people to pay his company to serve them the very Internet that runs that online video.

The company is already looking ahead to the future, and being a first-mover in a changing industry could pay big dividends for Dish in the future. The Chairman of Dish, Charles Ergen, imagines a "TV Everywhere" model where consumers can receive content on their televisions as well as on their mobile devices. In order to sustain heavy streaming, there has to be plenty of bandwidth. A Dish Network and Sprint Nextel combination would provide a substantial amount of streaming capacity for their customers. 

A Sprint Nextel cell tower

2) Killing Two Birds with One Bid: CNN Money stated that Dish would be able to capture the bandwidth they were after when they bid on Clearwire. Another indication that Dish Network did not want to wait around and was attempting to react to this shift in consumer preferences as early as the end of 2012. In CNN Money's article, they reported that Sprint and Dish were in a bidding war for Clearwire, and Clearwire ultimately chose Sprint. The recurring theme here is, bandwidth. Now, a potential Dish acquisition of Sprint would give Dish their initial target of Clearwire along with Sprint. Essentially, three players with a lot of the finite resource of bandwidth would be able to deliver a strong streaming network. Of course, acquisition is a phenomenal way to grab market share and set up potential market growth. Dish is well on it's way to getting that done in the ultra competitive Pay-TV industry. 

3) Revenue Capture: In my recent post, I wrote about how pirating could really hurt the streaming companies because people could exchange passwords and usernames without any repercussions from the company. Furthermore, without a true way to monitor that, streaming companies may have a tough time growing. Well, it looks like a Dish and Sprint combination may have figured out how to remedy that. The Atlantic Wire argued: 

In an ideal world, Dish's customers can access its content from any device, anywhere. In order to do that, people need a wireless or data connection. It tried to buy up ClearWire to get just that. But, it ran into a lot of contractual problems. Sprint, on the other hand, can offer that without the issues. Again, if Dish owns those waves, it can get you to pay into its system twice. It not only owns the cable you're watching, but the wireless network, too.

Dish is able to grab two revenue streams with this model. They can own your cell service as well as your TV service. Immediately, consumers switching costs go up drastically because they are intertwined with mobile and TV service. Clever pricing and a TV Everywhere proposition would make it difficult for customers to make a move away from the company. 

This move by Dish has signaled that maybe Pay-TV and streaming services don't need to compete, but they are actually better in a joint-venture or an acquisition. I think this move by Dish, although unsolicited, has sent a strong message to the other players in the industry. It's going to be interesting to see how this plays out. 

Shawn

Sources: http://www.theatlanticwire.com/technology/2013/04/dish-sprint-bid/64222/

http://money.cnn.com/2013/04/15/technology/dish-sprint-bid/index.html?hpt=hp_t3

http://dealbook.nytimes.com/2011/12/19/att-withdraws-39-bid-for-t-mobile/

http://online.wsj.com/article/SB10000872396390444097904577539313305919578.html

Stealing The Stream

The move away from Pay-TV seems threatening to major networks. The one thing we have not looked into in depth is the streaming side revenue. Sure, a lot of consumers may consider moving away from their traditional Pay-TV service, but they'll have to gain a viable stream. Companies like Netflix and Hulu survive the same way Pay-TV service survives, subscriptions. A recent article from business2community.com showed  that some people are looking to steal streaming services instead of paying for them.

This could be the single biggest reason as to why streaming services won't be able to overtake Pay-TV. Around 2000 and 2001, DirecTV had to crack down on pirating because the card inserts they used in their satellite box units were able to be pirated. Unlocking this signal allowed users to unlock every single channel on DirecTV. A similar situation is facing streaming services right now. From my own personal experience, I can't even count how many different people are using my Netflix account right now. The cost to me is about $8/month so I'm not incredibly concerned with how many other people are using my account. Most of the other users on my account are family, and sometimes I've signed into a friends' device or Xbox 360 and forgot to sign off. To this point, these services haven't been able to restrict multiple users and devices from accessing. Technology is making this type of theft more difficult to police. DirecTV knew that there was one box that corresponded with one code. My understanding of this is that every now and again, DirecTV would refresh the codes and a pirated card could not keep up. Eventually, this technology was replaced by more sophisticated DirecTV boxes and they cracked down.

With streaming services, it's difficult to know the number of different devices that users are using. For example, it becomes unreasonable to try and have a user register her PlayStation 3, Xbox 360, iPhone, iPad, MacBook, Apple TV, and iMac to her Netflix account. That becomes very cumbersome for a consumer and a very discouraging provision for a user looking to switch from Pay-TV to a streaming service. They may be able to stop two devices from streaming the same Netflix account at the same time, but people are able to access this type of service in a multitude of ways, and I think it will be an uphill battle to combat this type of consumption.

So far, it has not hurt Netflix specifically, but other companies like Hulu and Aereo may not have felt the full impact because they are in the growth phase of their user base. Either way, a lack of enforcement is hurting the maximization of profit for these companies. It will be up to them to not only take market share away from Pay-TV, but properly monetize the new business. For now, Pay-TV is still going strong. Here is an informative clip summarizing the current state of Pay-TV versus streaming services.

Shawn

Sources: http://www.business2community.com/social-media/cord-cutting-nyt-on-how-it-could-create-new-social-opportunities-0461168

http://news.slashdot.org/story/01/01/25/1343218/directvs-secret-war-on-hackers

Threat by News Corp

According to an article by CNN Money, News Corp, the parent company of Fox, is threatening to make their channels exclusive pay-TV models unless Aereo shuts down. Of course, this is probably empty rhetoric. A move as drastic as that would be awful for a network as big as Fox. With hugely successful programs like American Idol and their sports programming, a loss of viewership would be too much to handle. They're mostly upset because Aereo has found a way around the model that they've created. Aereo does not pay a subscription or royalty to News Corporation. They have used their streaming service to bring News Corporation and other networks' content to their subscribers. Aereo has deflected all attacks by the major news networks, and continues to operate. They seem to be determined in their model, and not phased by the frustrated remarks, threats, and actions of the major networks. News Corp seems to be mainly upset with their main flagship network, Fox, that is nationally broadcasted.

CNN Money reports that Aereo is stealing revenue from the network by offering their content for free over a stream. What is particularly interesting that is mentioned in the article is that Aereo gets around any accusations of pirating because their customers technically "own" one of the many little antennas at their facility. They argue that if their customers own the antennas they use to stream, then their customers can't be pirating anything because they are paying for the content. Problem is, News Corp isn't getting any of that revenue.

News Corp Family of Companies

Aereo is a disruptive and potentially problematic business, as mentioned on this site before. Any stream service that the networks don't get a piece out of, will be viewed harshly by them. A statement by News Corp stated that they want to "remain in the driver's seat of our own destiny." Essentially, a concession that technologies such as Aereo has thrown them off kilter and made it problematic for their business.  CNN Money reports that copyright infringement lawsuits have been filed by Disney, News Corp, NBC Universal, and CBS. Interestingly enough, nothing has come out of these lawsuits.

Aereo has been very strategic about where they have placed their business. They've avoided California according to the article because of the strict regulations in the state. Ultimately, it is very reasonable to think that companies like Aereo will eventually settle and pay the networks for streaming their content. That battle will be solved through the courts. Both of these industries can continue to survive with cooperations from each other. They will need to see eye-to-eye on a revenue split and redefine the business model of Aereo. In the end, I still think that the networks have the ultimate power over Aereo. Although Aereo has some deep venture capital pockets, the networks have the ability to pivot quickly and maybe come out with a competing service. The courts will need to help the networks out if they are to find a common ground in this battle.

It's clear that News Corp won't leave the national airwaves, and Aereo is being careful about how they proceed here. A good quote from the CNN Money article made by Aereo is, "It's disappointing to hear that Fox believes that consumers should not be permitted to use an antenna to access free-to-air broadcast television...Having a television antenna is every American's right." The stance that Aereo has taken is very clever. Many people own boats that are parked at a boat dock, and they are allowed to operate them and do what they wish with them with the exception of anything illegal. The key is that the boats, like the TV antennas, are not on the property of the owner. They can't do anything illegal either, but the question is, is streaming content from a national TV network illegal? It's a free broadcast, and presumably, Fox is still getting advertising revenue from the eyeballs on their content. The only thing that seems to be missing is the subscription revenue that Aereo is keeping for themselves.

Shawn

Source: http://money.cnn.com/2013/04/08/technology/fox-cable-aereo/index.html

Internet Cut the Radio Cord

Cord cutting is more of a prediction for TV subscribers right now than the actual future. In the music industry, this happened a while ago. There was a time where many people were tied to their radios and boom boxes. Now, the music industry is dominated by MP3 players that have digital content downloaded from the internet. It's not secret that the most public industry impacted by the internet has been the music industry. In 1999, Napster was a disruptive service that seriously threatened exactly how music was exchanged. It gave users a free way to download and share music. The band Metallica famously filed suit against the music share service in 2000. The biggest threat here was obvious. People found a way to pirate music instead of paying for the album traditionally. The way artists make music now is through concerts and merchandise sales. The music online has become a way to promote the artists and the song. This video has a good rundown on how the internet changed the music industry.

It has been tough for artists to combat the advent of the internet, but it has had some positive impact. The internet has paved the way for internet radio services like Pandora, iHeartRadio, Slacker, and Spotify. Most importantly, these services have provided the music industry and users big benefits. The radio services have paved the way for advertisements. In fact, Pandora won't let you skip more than a certain amount of songs because of their contracting agreements with the music services. They play advertisements on the screen and in between a certain amount of songs. It helps to generate revenue for Pandora and helps to pay for the music it streams to the user. A lot of people have abandoned their music collections in favor of the ease and accessibility of the online music.

Another huge advantage of the music industry has been the distribution channels and marketing vehicle that it has given artists. Record companies used to dictate who became famous and got the big contract (Think Simon Cowell, Randy Jackson, and Lou Adler). Now, the internet has given artists a platform and access to music fans to level the playing field. The most famous example of the internet propelling someone to stardom is Justin Bieber when his manager, Scooter Braun, discovered this YouTube video:

One person who had an indelible impact on the music industry is someone many people may not commonly associate with the music industry, Steve Jobs. iTunes created a new way for users to access music. Users now had access to tons of music and could control what music they listened to on their own terms. They could listen and buy music a la carte or the whole album. Apple also provided a way for independent artists to produce music at a low cost. Now, your aspiring college garage band had access to a recording studio.

iTunes has also become the most profitable online retailer of music sales according to an article by Mashable.com. It's a stable model for sales and a legitimate business model for music sales. Although Apple takes a hefty portion of the revenue of the sale, artists and other major record labels rely on iTunes because of the user base. It revolutionized the industry because competing music share sites like songbee.com, mediafire.com, fileshare.com, and other torrent websites gained a lot of popularity. Legislation and the judicial system have made illegal music sharing sites ineffective, and thus, the iTunes store the premier place to get the latest music with the widest selection. In an industry where the future is unclear, iTunes has provided some stability.

If this happened in the music industry so rapidly, is it so far fetched to think that TV service is the next victim of the internet? TV is a bigger beast, but it is certainly not out of the question.

Shawn

Sources: http://www.squidoo.com/deirdreassignment

http://mashable.com/2011/10/11/apple-changed-music/