Tag Archives: Amazon Prime

Is Cord Cutting Accelerating?

The research firm eMarketer is predicting that cord cutting is accelerating this year at a pace faster than predicted by the industry. They’ve done surveys and studies and conclude that 187 million people will watch Pay TV this year (satellite or cable TV), a drop of 3.8% in viewership.

The drop in 2017 was 3.4%, but the big cable companies like Comcast and Charter hoped they could slow cord cutting this year by offering Netflix and other alternative programmers on their platforms. Perhaps that is working to a degree since cable companies are losing customers at a slower pace than satellite cable or the big telcos delivering cable on DSL, like AT&T.

eMarketer looks at the statistics in a different way than most others and predicts the people who will watch the various services – which is different than counting households. I suppose that some members of a household could stop watching traditional Pay TV while the home continues to pay for a subscription. They are predicting that the total number of people who will stop watching Pay TV will rise to 33 million by the end of 2018, up from 25 million just a year ago.

As you would expect, if Pay TV viewers are dropping, then viewers of online services ought to be increasing. They are predicting the number of viewers of the major OTT services as follows for 2018:  YouTube – 192 M; Netflix – 147.5 M; Amazon – 88.7 M; Hulu – 55 M; HBO Now – 17.1 M and Sling TV – 6.8 M. eMarketer says that in 2018 that 52% of homes now watch both Pay TV and an online service.

We know that Netflix’s growth has slowed and they added only 670,000 net customers in the US in the second quarter of this year and only 4.5 million worldwide. It appears, however, that the other online services are all growing at a faster pace as people are diversifying to watch more than just Netflix.

eMarketer credits a lot of the exodus of Pay TV subscribers to the proliferation of original content available. In 2010 there were 216 original TV series produced. That was 113 from the broadcast networks, 74 from cable-only networks, 25 from premium movie channels and 4 from online providers like Netflix. In 2017 that number has grown to an astonishing 487 original series. That’s 153 from the broadcast networks, 175 from cable-only networks, 42 from premium movie channels and 117 from online providers. A large percentage of the 487 series are now available online to somebody willing to track them down. These figures also ignore the proliferation of other content available online such as movies, documentaries, comedy specials, etc.

The proliferation of content from multiple sources is making it harder to rely on just one source of content these days. Somebody with a basic cable subscription is missing out on the 159 series produced by the premium movie channels and the online providers. Somebody cutting the cord and only using Netflix would be missing out on even more content. Some of the content generated by the broadcast and cable networks is available for free online, with commercials from places like Hulu. If a cord cutter wants to have access to a lot of the available content they’ll have to subscribe to multiple services – perhaps Netflix plus something like Hulu or Sling TV.

The eMarketer survey didn’t ask about the affordability of traditional cable – a factor that is at the top of the list in other surveys that have studied cord cutting. This particular survey concentrated on what people are watching without delving into the issues that drive somebody to cut the cord.

I don’t know about my readers, but I’m a cord cutter and I’ve already reached the point of content saturation. I probably have fifty items on my Netflix watchlist, and it would take more than a year to watch it all, even if I never add anything new. I have a similar list on Amazon Prime and a smaller list on Hulu. I never sit down to watch content without more options than I know what to do with. I have the luxury these days of watching content that fits my mood and available time – a real luxury compared to even a decade ago.

The OTT Super-bundler

Without making much noise about it, Amazon has become a super-bundler of OTT content. In addition to their own unique programming Amazon now carries programming from over 90 different channel partners. This creates some really interesting dynamics in the industry.

What makes Amazon a wildcard in the OTT business is that nobody knows how many Prime video customers they have. The growth of the Prime service has been explosive, but that service provides free shipping on Amazon with an annual $99 fee and Amazon doesn’t report how many of those members watch Amazon video. Industry analysts have estimated that there were 45 million Prime customers in 2015, 65 million in 2017 and probably 80 million by the end of this year. That huge overall customer base has the potential to turn Amazon into a bigger video provider than even Netflix, but unless the company begins disclosing video customers we may never know.

We do get some idea of Amazon’s market strength through its impact on channel partners. Recently BTIG analyst Rich Greenfield reported that Amazon is responsible for over half of the online sales of HBO, and almost all of the online content sold by Showtime and Starz.

That creates an interesting dilemma for HBO. The company directly markets its online product at $15 – the same price that is being marketed on Amazon. HBO has enough strength as a programmer that they also charge about the same cost to service providers on cable or fiber systems. But there is no doubt that Amazon extracts a fee for selling the service, and so HBO will make a smaller margin on an Amazon sale than through its other sales channels. This means that every time a customer cuts the cord on cable and instead comes to HBO through Amazon that the company loses margin. This is not likely to hurt HBO much and they are better off retaining customers – but Amazon profits significantly on selling HBO and other services due to its sheer market power and number of subscribers.

But HBO and the other programmers lose something more important than just a little margin – they lose a direct relationship with a customer. Amazon knows the customer, bills the customer, and also knows the customer’s preferences for watching video of various types. This knowledge has to be invaluable to Amazon.

The list of OTT providers on Amazon is impressive and it represents almost every OTT provider that is not owned by a big ISP. In addition to the premium movie services, Amazon carries just about every OTT provider you ever heard of – and many that you have not. Just to throw out a few names, Amazon carriers Fullscreen, Fandor, Curiosity Stream, Gaia, PBS Kids, Shudder, Motorvision.TV, Mubi, the Daily Burn, Heera, Acorn TV and many others.

A number of these OTT providers only sell through Amazon, so you won’t find them anywhere else on the web. Pretty much anybody that can gather together a pile of content can gain significant subscribers through the Amazon platform.

The way that Amazon markets these providers is interesting. If you are an Amazon Prime customer you can see the full list of its channel partners by searching for ‘Amazon Channels’. But Amazon doesn’t directly market any of the channels as a service, but instead only offers you the channel content based upon your search for content. If you want to watch a horror movie then your search results will include Amazon’s own content as well as content from the many channel partners. You may be offered content from Shudder, Screambox, Full Moon or XLTV without even realizing it. Somewhere in that search you will also be offered a subscription to these various horror channels.

It’s easy to think that we are seeing the growth of a vibrant OTT industry. But when you look a little deeper we are not. The industry really consists of Netflix and its huge pile of unique content, Hulu which is owned by the cable companies, a handful of resellers of standard cable channels like SlingTV, and Amazon Prime. Many of the channels on Amazon Prime offer direct subscriptions, but it turns out that almost all of their sales come through the Amazon platform and not directly through web subscribers. I find it interesting that a lot of the channels carried by Amazon offer a free 30-day trial to anybody directly on the web, but when purchased through Amazon customers always pay up front and are not offered the free trial. For many of the smaller providers 30 days is long enough to watch all of their content you care to see – but Amazon has instead monetized the interest in the content.

This makes a lot of sense for a content owner. They need virtually no advertising budget because the huge number of Amazon Prime customers can find their content by genre. And they don’t need to work through the issues of developing the physical network infrastructure necessary to provide web programming – that all gets handled by Amazon. But these channel owners also lose a lot. They don’t know their customers. In many cases people watch their content without even realizing that they are the content owners. But I guess the lure of selling to 80 million potential customers outweighs these concerns. It’s certainly a great deal for Amazon because they are gathering enough content to satisfy almost any potential video customer – without having to develop the content.

The Myth of OTT Savings

One of the reasons touted in the press for the recent popularity of cord cutting is the desire of people to save money over a traditional cable TV subscription. But as I look at what’s popular on the web I wonder if the savings are really going to be there for people who like to watch a variety of the best content.

There has been an explosion of companies that are pursuing unique video content, and this means that great content can now be found at many different places on the web. Interestingly, most of this great content is not available on traditional TV, other than the content provided by the premium movie channels. But considering the following web platforms that are creating unique content:

  • Netflix. They are the obvious king of unique content and release new shows, specials, movies and documentaries seemingly weekly. And they seem to have a wide variety of content aimed at all demographics.
  • Hulu. They are a bit late to the game. But the newly released The Handmaid’s Tale is getting critical acclaim and will be part of a quickly growing portfolio of unique content.
  • HBO. HBO has always had a few highly popular series with Game of Thrones still drawing huge audiences.
  • CBS All-Access. CBS has made a bold move by offering the new series Star Trek: Discovery only online. It’s bound to draw a lot of customers to the online service.
  • Amazon Prime. The company says they are going to invest billions in unique programming and are aiming at overtaking Netflix. Their recent hit The Man in the High Castle is evidence of the quality programming they are pursuing.
  • Showtime. They have historically created limited amounts of unique content but are now also looking to create a lot more. Their new show Twin Peaks has come out with high reviews.
  • Starz. This network is also now chasing new content and has a hit series with American Gods.
  • Seeso. Even services that most people have never heard of, such as Seeso are creating popular content such as the comedy series My Brother, My Brother and Me.
  • YouTube Red. The industry leader of unique content is YouTube which has allowed anybody to create content. While most of this is still free, the platform is now putting a lot of great content such as the comedy Rhett and Link’s Buddy System behind a paywall.

Subscribing to the above online services with the minimum subscriptions costs $79 per month (and that’s without figuring in the annual cost of Amazon Prime, which most people buy because of the free shipping from Amazon). The above line-up doesn’t include any sports and you’d have to buy a $30 subscription from Sling TV to watch ESPN and a few other popular sports networks. ESPN recently announced that they still don’t have any plans to launch a standalone web product but are instead pursuing being included in the various skinny bundles.

Not considered, though, in the above list are numerous other less-known paid OTT subscriptions available on line. As listed in this recent blog there are dozens of other platforms for people who like specialized content like Japanese anime or British comedies.

Of course, one thing the above list shows is that there is a world of content these days that is not being created by the major networks or the traditional cable networks. There is likely more money pouring into the creation of content outside of the traditional networks.

So OTT doesn’t seem to save as much as hoped for people that wish to enjoy a variety of popular content across different providers.  But there are other benefits driving people to OTT programming.  One of the great benefits of OTT programming is the ability to subscribe and cancel services at will. I have been trying various OTT networks and it’s really tempting to subscribe to each for a month or two until you’ve seen what you want and then move on to something else. I’m starting to think that’s the way I will use these services as long as they continue to allow easy egress and exit.

And OTT programming allows for non-linear TV watching.  As long as somebody lives near to a metropolitan area a cord cutter can still view the traditional network channels using rabbit ears. But what a lot of cord cutters are finding is that they quickly lose their tolerance of linear programming. I know that when I travel and have TV available in the room that I only watch it if I want to catch a football or basketball game. I can no longer tolerate the commercial breaks or the inability to pause linear TV while I want to do something else. And that, perhaps more than anything, is what will bring down traditional cable TV. As much as cable companies tout TV Everywhere, their basic product is still showing content linearly at fixed times. There is such a huge volume of great OTT content available any time on any device that it’s not hard for somebody to walk away from the traditional networks and still always have something you want to watch.

Some OTT Statistics

sling-tvAs usual the quarterly Digitalsmiths and TiVo recent Video Trends Report contains a ton of interesting statistics about the industry. The following table shows the number of households that subscribed to the various OTT services during the third quarter of each of the last four years.

 

‘                                              Q3 2013          Q3 2014          Q3 2015          Q3 2016

Netflix                                     41.7%              46.4%              49.9%              51.8%

Amazon Prime                        12.9%              17.9%              19.9%              24.8%

Hulu                                          9.4%                9.6%              12.1%                9.9%

HBO Now                                                                                  4.3%                5.2%

YouTube Red                                                                                                      3.1%

Shomi                                                                                                                2.7%

CBS All Access                                                                           2.1%                2.1%

Sling TV                                                                                      1.0%                1.7%

Play Station Vue                                                                         1.3%                1.6%

Blockbuster                               1.8%                1.2%                 1.0%                1.0%

Other                                         1.5%                1.4%                 1.7%                1.8%

Nothing                                    51.8%              47.3%               43.7%              38.1%

Netflix has continued to dominate the industry and has grown to cover an additional 10% of all homes nationwide since 2013. Hulu increased market share in 2015 but is back down again. But expect Hulu to grow again since they are picking up a lot of new content from its owner programmers. In four years Amazon Prime has doubled, although there is a lot of debate about how many people actually watch the video service since it comes free with the Prime shipping program.

What springs out most from the chart is how the industry is diversifying. In just the last year YouTube Red and Shomi sprang to fifth and sixth place in the industry. And 2014 saw the introduction of Play Station Vue, SlingTV, CBS All Access, and HBO Now. It’s also striking to see the number of homes that don’t watch OTT content drop from 52% in 2013 to only 38% today.

You may be surprised to see Blockbuster still active on the list. While all their stores have closed, the Blockbuster brand is still being used to market OTT movies and is now integrated into SlingTV.

The ‘Other’ category is interesting. On last count there were over 100 different video pay services on the web, yet outside the major OTT players these services together are only seen in 1.8% of households.

This next chart shows what people pay for OTT content, comparing 2014 and today

Monthly Expense                  Q3 2014                      Q3 2016

$1 – $2                                     2.0%                            3.6%

$3 – $5                                     2.3%                            3.2%

$6 – $8                                    33.4%                          16.5%

$9 – $11                                  21.7%                          30.1%

$12 – $14                                  8.1%                           10.0%

$15 – $20                                 14.0%                          15.8%

$21+                                           6.8%                          10.7%

Use But Don’t Pay                    11.1%                          10.1%

In just two years the average bills have crept significantly upward. Currently over 2/3 of homes report paying more than $9 per month for OTT service, while in 2014 that was only 51%. Probably more interesting is that 26% of homes pay more than $15 per month for OTT content. My household is in this category and we have subscriptions to Netflix, Hulu, Amazon Prime (including Starz), and SlingTV.

The percentage of households who told an interviewer that they watch but don’t pay for OTT content dropped slightly, but represents about the same number of people from 2014 to 2016.

 

Amazon as an ISP?

amazon_logo_rgbThere is an article on The Information that says that Amazon is considering becoming an ISP. They cite an unattributed insider at Amazon who says that the company has been discussing this. Officially the company denies the rumor, which is consistent with the way that Amazon has always operated.

It’s an interesting concept, but I honestly have a hard time seeing it. Amazon has been growing in Europe and it could make a little sense there. There are a number of cities on the continent as well as a few national ISP networks that allow open access to any ISP. On those networks Amazon could easily develop an ISP product. They already have massive data centers and it wouldn’t cost all that much to add the ISP functions.

But I just don’t see any big benefits to Amazon for doing this in the open access model. Due to price competition there are not a lot of profit for ISPs on the open access networks. But maybe Amazon can have some edge from somehow bundling ISP access with its Amazon Prime video and music. But every ISP already carries Amazon’s content today and unless bundling somehow sells a lot more Prime subscriptions it’s hard to see this as a big win.

I also can’t see any sense of Amazon being an ISP in the US. There are no open access networks to speak of outside a tiny handful of small municipal networks. One only has to look at Google’s foray into broadband in the US to see that it’s really hard to make money by building broadband infrastructure – at least the kind of money that excites stockholders. There are decent long-term infrastructure returns from building and operating a fiber network well, but those returns are miniscule compared to the returns on tech ventures.

I still don’t fully understand why Google got into the broadband business. In the fiber business they are investing a lot of money that is going to make relatively small returns compared to the rest of their core business. Google’s stock value comes from the company making high technology returns and infrastructure returns can’t do anything better than pull down their overall return. I can’t imagine how it will be any less so for Amazon.

Perhaps Amazon is intrigued by the idea of gigabit wireless connections.  But I think everybody looking at this new technology is going to figure out that millimeter wave spectrum technology is still going to require a lot of fiber in the urban network.

And even if Amazon is comfortable with the lower returns, they still have to deal with network neutrality. It would seem that the best advantage to Amazon from being an ISP would be to somehow bundle their content and broadband connections together – something that is not allowed in the US, and only barely allowed in Europe.

The biggest problem we have with getting real broadband in the country is that big money is chasing big returns. There was a time in our past where there were a lot of conservative investors who were very happy having part of their portfolio invested in safe and steady telephone, electric and water companies because they knew that they would receive secure dividends forever in these safe investments.

But it seems today that investors look at all of the instant tech billionaires and they don’t want to pour money into the basics any more. To compound the problem the big telcos and cable companies invest no more than absolutely necessary in capital to meet basic customer expectations. But big company networks are not nearly as good as they should be. You can’t watch a quarterly presentation of one of these big companies without hearing them talk about how they have plans to curtail capital spending.

So is Amazon really going to become an ISP? They certainly have access to the cash if they really want to. But it’s just hard to believe that they want to shift the company to be more brick and mortar company since they have fought hard to not be that. I just can’t see enough benefits to a publicly traded tech company to be an ISP.

The Growth of 4K Video

4K CameraIt looks like 4K video is making it into the mainstream and is going to put a big strain on broadband networks serving residential customers. 4K video resolution is 3840 x 2160 pixels, or about 8 million pixels on a screen, which is about four times more resolution than an HD display. It takes a lot of bandwidth to stream that many pixels and with current compression technologies 4K video requires 15 – 20 Mbps download speeds. Google and others are working on better compression techniques that might cut that in half, but even so that would mean videos streams at 7 – 10 Mbps. That’s a whole new level of broadband demand that will increase the household need for faster data speeds.

Just a year ago it wasn’t easy to find 4K video on the web, but this year there is a lot of content being shot in the format. This includes:

  • Netflix is currently shooting most of its original content like House of Cards, Breaking Bad, Jessica Jones, Daredevil in 4K. It also has a big array of documentaries in the format as well as a number of classic movies being reformatted to 4K.
  • Amazon Prime is also filming new content like Alpha House, Transparent, Mozart in the Jungle and Man in the High Castle in 4K. They have a small library of movies in the format.
  • Sony probably has more mainstream movies in the 4K format than anybody. Rather than streaming you download Sony movies and a typical movie can take 40 GB of storage space. It doesn’t take too many movie downloads to blow the data caps of AT&T or Comcast.
  • M-Go has developed a small but growing 4K library in conjunction with Samsung. They also will be adding title from Fox.
  • Comcast offers a few movies in 4K online for customers in partnership with NBC Universal.
  • YouTube has a huge amount of user-generated 4K video of all different types. YouTube is also now producing original content sold under YouTube Red and which contains 4K content.
  • Ultraflix has a big library of 4K nature documentaries including some originally produced for IMAX. They are also carrying lot of Hollywood movies.
  • Vudu, which is owned by Walmart has a small, but high quality 4K set of content. They are the first to marry 4K video to Dolby surround sound.

If 4K follows the same migration path of standard definition video to HD video, then within a few years 4K content is going to be everywhere. Where just a few years ago there was little video on the web, video now seems to be everywhere. There are video ads on all sorts of websites and social media services like Facebook and Twitter spit out piles of video at a user these days.

One of the biggest problems with broadband regulation in this country is that it fails to recognize the ever-growing nature of broadband demand. Once households start using 4K video then the FCC’s newly minted definition of broadband at 25 Mbps download will already be getting stressed. The fact is that the household needs for broadband are just going to keep growing year after year and any regulatory definition of demand will be obsolete almost as soon as it is established.

Broadband demand has been growing steadily and doubling about every three years and there is no reason to think that we are anywhere close to the time when that growth curve is going to slow. 4K video is not the last new technology that will stretch our needs for broadband. When I read about where virtual and augmented reality are headed over the next five years it’s not to hard to see where the next big push for more broadband will come from.

How’s Cable Doing?

Cord cuttingWith all of the talk of cord cutting, cord-shaving and the general demise of the cable industry I thought it would be useful to take a snapshot of the cable industry at the end of the third quarter of 2014 to see how the industry is doing. Here are some key facts for a numbers of major cable providers:

Comcast. For the quarter they lost 81,000 TV subscribers compared to losing 127,000 in the 3rd quarter of 2013. Meanwhile they gained 315,000 data customers compared to 297,000 customer a year before. Overall profits were up 4% over the year before. Comcast now has 22.4 million video customers and 21.6 million data customers.

Time Warner Cable. The company lost 184,000 cable subscribers in the third quarter compared to 122,000 in the previous year. But the company did add 92,000 residential data customers for the quarter. Earnings were up 3.6%, driven by cable rate increases and growth in the business services group. The company saw a 9.6% increase in programming costs, driven by a bad deal they made for the programming rights to the LA Dodgers.

Charter Communications. Charter lost 22,000 video customers for the quarter compared to 27,000 a year earlier. They saw data customers increase by 68,000 compared to 46,000 a year ago. Overall profits were up 8% driven by rate increases and data customer gains. Charter finished the quarter with 4.15 million cable customers.

CableVision. The company saw significant loss of 56,000 cable customers, Profits for the company dropped to $71.5 million for the quarter down from $294.6 million a year earlier.

Cable One. The company lost 14,000 video subs and ended with 476,000 at the end of the quarter. The company has not renewed programming from Viacom starting in April of this year

Suddenlink. The company added 2,200 video customers for the quarter compared to a loss the previous year of 3.200 subs even though they have dropped Viacom programming. Revenues increased by 6.6% compared to a year ago.

AT&T. U-verse added 216,000 cable customers for the quarter and added 601,000 data customers. The company now has more than 6 million video customers and 12 million data customers. U-verse profits were up 23.8% compared to a year earlier.

Verizon. The company added 114,000 new video customers and 162,000 new data customers for the quarter. The company now has 5.5 million video customers and 6.5 million data customers.

DirectTV. The company saw a decrease of 28,000 customers for the quarter while revenues grew by 6% due to rate increases. The average satellite bill is up to $107.27 per customer per month.

Netflix. Netflix added 1 milllion US subscribers and 2 million international subscribers for the quarter. They now have 37 million US customers and almost 16 million international ones. But these growth rates were less than their predictions and their stock tumbled 25% on the news.

Amazon Prime. The company does not report number of customers. But their earnings release says they gained significant customers even while increasing their annual fee from $79 to $99.

What does all of this mean? As can be seen by looking at all of the major players who make quarterly releases (companies like Cox do not), one can see that total video subs are down by maybe a net of 100,000 for the quarter. But cord cutting is growing when you consider that the industry used to routinely grow by 250,000 customers per quarter for now households being built. So it looks like cord cutting is growing by perhaps 1.5 million per year.

Within these numbers one can’t see the effects of cord shaving. It’s been widely reported that customers are downsizing their cable package as a way to save money. None of these companies report on their mix of types of customers.

Netflix and Amazon Prime continue to grow significantly along with other on-line content providers. It’s been reported that over half of the households in the country pay for at least one of the on-line services and many others watch free content available at Hulu and other sites.

One thing that is obvious is that broadband is still growing for all of the service providers. In fact, Comcast and other traditional cable providers are starting to refer to themselves more as ISPs than as cable companies.