The End of Satellite TV?

Randall Stephenson, the CEO of AT&T, recently announced that the company will be working to replace their satellite TV (DirecTV) with an OTT offering over the web. The company plans to launch the first beta trials by the end of this year. The ultimate goal will be for the online offering to eventually replace the satellite offering.

He didn’t provide any specific details of the planned offering other than comparing it to the current DirecTV Now offering that carries about 100 channels and is a direct competitor to landline cable TV.

Obviously the company has a lot of details to work out. DirecTV currently has over 20 million customers and along with Comcast is the only other cable provider that added customers over the last year ending in the second quarter. The biggest online live broadcast offering today is Dish Network’s Sling TV with around 2 million customers. AT&T faces numerous technical challenges if they want to transfer their huge customer base onto the web.

People always speculate why AT&T bought DirecTV and perhaps now we finally have the answer. The product will be marketed nationwide, not just in the AT&T footprint. The big advantage for AT&T is that they are not saddled with FCC rules that create the large cable bundles of 200 channels, and so perhaps they have found a way to make online bundles of cable channels profitable again. It seems that there are probably more profits in a 100-channel line-up than in traditional cable offerings. The same may not be true for skinny bundles and there is a lot of speculation that low-price OTT offerings like Sling TV at $20 don’t make any money.

This move would enable AT&T to leap forward and to easily keep up with the latest video technology. Almost all legacy video is using dated technology like the satellite DBS, the QAM on cable networks and even AT&T’s own first-generation IPTV headends. With an online product the company can get completely out of the settop box and the installation business for TV. They can also easily keep up with new formats and standards, such as the ability to immediately be able to offer 4K video everywhere. Going online makes it a lot easier to meet future customer demands as the industry continues to change rapidly.

But this has to be scary news for rural America. AT&T and Verizon have both made it clear they would like to tear down legacy copper networks, which will make it hard or impossible for some parts of rural America to make voice calls. If copper wires disappear then Cable TV over satellite is the only other modern telecom product available in a lot of rural America. If it’s phased out then much of rural America falls off the telecom map entirely.

While we have no idea if Dish Networks has similar plans, but the fact that they are migrating customers to Sling TV indicates that they might. This could turn ugly for rural America.

Obviously a quality OTT video product requires a quality broadband connection – something that is not available in millions of rural homes. It’s not hard to envision a future in which a home without good broadband might be isolated from the outside world.

It’s clear that the big companies like AT&T are focused only on bottom-line, and perhaps they should be. But one of the primary benefits of having incumbent regulated providers was that everybody in the country was offered the same choice of products. But unfortunately, the never-ending growth of broadband demand has broken the old legacy system. It was one thing to make sure that everybody was connected to the low-bandwidth voice network, but it’s something altogether different to make sure that rural America gets the same broadband as everybody else.

I can remember a time when I was a kid that a lot of rural homes didn’t have cable TV. Some rural homes were lucky enough to get a few TV stations over the air if they had a tall antenna. But many homes had no TV options due to the happenstance of their location. Satellite TV came along and fixed this issue and one expects when visiting a farm today to see a satellite dish in the yard or on the roof. This might become soon another of those quaint memories that are a thing of the past. But in doing so it will add to the political pressure to find a workable rural broadband solution.

Cable TV Number 2Q 2017

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You can’t read an article about the cable industry without hearing about the erosion of customers due to cord cutting. So I thought I would take a look at the cable customers claimed by the largest cable companies at the end of the second quarters of 2016 and 2017.

2Q 2016 2Q 2017 Change
Comcast 22,396,000 22,516,000 120,000 0.5%
DirecTV 20,454,000 20,856,000 402,000 2.0%
Charter 17,312,000 17,071,000 (241,000) -1.4%
Dish 13,593,000 11,892,000 (1,701,000) -12.5%
AT&T 4,869,000 4,666,000 (203,000) -4.2%
Verizon 4,637,000 3,853,000 (784,000) -16.9%
Cox 4,330,000 4,245,000 (85,000) -2.0%
Altice 3,639,000 3,463,000 (176,000) -4.8%
Frontier 1,340,000 1,007,000 (333,000) -24.9%
Mediacom 842,000 829,000 (13,000) -1.5%
WOW 524,300 458,200 (66,100) -12.6%
Cable ONE 338,974 297,990 (40,984) -12.1%
94,275,274 91,154,190 (3,121,084) -3.3%

These companies represent more than 95% of the whole TV market. According to Leichtman Research these companies together lost around 655,000 cable customers in the second quarter of this year.

What’s most striking about the above table is that the companies in aggregate lost 3.3% or over 3.1 million customers in the last year. One has to only go back two years to see the first instance of the industry losing customers, so these losses are recent. This is reminiscent to me to what happened to telephone landlines. The losses started very slowly, but then the rate of the decline picked up year after year. There is no way to know if cable will take the same path or if the drop in customers will be slower. But I think everybody in the industry from programmers to Wall Street is concerned about losses of this magnitude.

Interestingly, for now the big cable companies are largely maintaining earnings due to rate increases for the remaining cable customers plus continued growth in broadband customers. I’ll have a blog next week looking at the state of broadband.

There are a few interesting things to note in these numbers:

  • The losses in the second quarter of 2017 are actually smaller than the losses from that same quarter of 2016. But the year-over-year losses are significantly more now than they were in the year ending with 2Q 2016.
  • Satellite TV is getting clobbered. While DirecTV is higher, it’s offset to some extent by the loss of customers at parent AT&T which is shifting customers to the satellite platform. Dish networks is the big loser. Much of their customer losses have been offset by Sling TV adding over a million customers during the last year. But it’s rumored in the industry that Sling TV is operating at almost no margin.
  • Comcast continues to buck the rest of the industry and saw a tiny gain of customers over the last year.
  • When looking at these numbers you always must remember that the industry lost customers while there were around 1.5 million new residential living units build last year (homes and apartments). The gains that these companies got from those new homes, probably at least 1 million new customers is masked by the other losses, meaning that the industry lost over 4 million customers during the last year.
  • We know that the cable companies are continuing to take broadband customers from the telcos and there has to be some of that going on in these numbers.

 

Cable TV Rates

eyeballTrying to get your arms around industry trends for cable TV isn’t easy. There are a number of different entities that track various cable statistics and they are often not in synch. This week I saw a new press release from Leichtman Research that said that the average rate increase in cable rates this year has been around 4%.

I keep an eye on these kinds of statistics because most of my clients compete against the bigger cable companies. Leichtman says that the average monthly spending on pay-cable TV is now $103.10, which is 4% higher than 2015. This is an eye opener because household spending on cable increased from $73.63 in 2011, or an average increase since then of 7.7% per year. For the increases to finally drop to 4% is big news.

But like anything in the cable industry, there are a lot of moving parts in trying to see the future trend of cable rates. Consider all of the following, which have some bearing on current average nationwide cable spending:

  • There was a press release in January where Comcast said that their average cable bills would go up by 3.9% this year, right in line with this latest report. But in addition to raising cable rates the company also had a $2 increase in its ‘broadcast TV fee’ of $2 which affected every cable customer. All of the big cable companies now have these fees, which are just another piece of the cable rate, but which are not often counted as such. These fees let companies like Comcast hold down their advertised rates which increases overall cable rates.
  • Charter and Time Warner seem to have had a much lower annual increase than average due to the merger that was pending during the normal January rate-increase period. But one would have to think that now that the merger is over that these companies will make up lost ground. I’ve seen predictions that Time Warner customers could see a jump in their 2017 bills as large as $10.
  • Both satellite companies had one of the largest rate increases we’ve seen from them in years. DirecTV raised package rates from $1 – $9 and DISH Networks raised rates from $2 – $8.
  • Cablevision didn’t raise their rates at all at the beginning of the year due to their expected merger with Altice.
  • We know that there is a lot of cord-shaving going on, which would have a downward pressure on average cable bills. The large cable companies don’t report customers by size of package, but we have a lot of evidence of cord shaving due to networks like ESPN losing millions of customers since 2015. If the industry is not losing as many customers as ESPN then only cord shaving – people moving to a smaller package – can explain their customer losses. If lots of people buy smaller cable packages the average bill will drop.
  • Finally, with the big cable companies it’s getting really hard to distinguish cable increases from other price increases. I’ve seen estimates that most of the large cable companies have around 70% of customers in some kind of a bundle. Most people with bundles don’t know what they pay for any specific component of the bundle. But this also means that the cable companies can be arbitrary when separating the bundles into the component cable, data and telephone revenues. This means the reported ‘cable’ revenues from the big cable companies can be fudged to meet reporting goals or any other purpose.
  • In this last year we are starting to see increases in broadband rates from many of the cable companies. For example, Cox just recently increased various data rates from $2 to $7 per month. But for customers in a bundle these revenues fall into the same muddy bundled price along with the cable rates. Do customer in a bundle really care which piece of their bundle increased?

One thing I see external to these big industry statistics is that my smaller clients are not seeing any drop-off in increasing programming and other cable expenses. If anything, because of the continuing big increases in retransmission costs they are seeing as large or larger increases in underlying cable costs as ever. Smaller cable providers will really feel the squeeze if they compete with somebody like Time Warner that barely raised rates in 2015.

While it’s not really good news, it appears that it’s likely that the ‘smaller’ rate increases from the bigger cables for 2015 are probably an anomaly and that these companies will be back to larger increases in 2016. But it’s anybody’s guess going forward if the annual increases are going to be in cable rates, broadband rates or something else. Like everything in our industry it’s getting a little muddier to predict.

OTT Update – April 2016

television-sony-en-casa-de-mis-padresIt continues to be a very busy year in terms of companies launching or modifying online packages of programming.

DirecTV. Probably the biggest new announcement is that AT&T and DirecTV have announced a suite of online packages. This is not surprising after they have seen the success of Sling TV launched by Dish Networks. The two satellite companies have an edge over everybody else trying to launch OTT packages due to the apparent ability to use the content they buy for satellites onto the internet.

Pricing hasn’t been announced yet, but there are three packages being mentioned:

  • DirecTV Now is promising to replace online what you buy today from the satellite. So expect this to be packages with prices similar to the satellite packages. The biggest question will be how much local programming they are going to able to include in the package. This package is interesting in that there has always been a lot of homes that could not buy satellite due to the inability to see a satellite well or due to restrictions of some kind on using a dish.
  • DirecTV Mobile is a smaller set of programming to be aimed at smartphones, although anybody can watch it. DirecTV is promising this will be affordable.
  • DirecTV Preview will be a free service that is ad-sponsored. It will contain content from AT&T’s Audience Network and Otter Media. This seems similar to Verizon’s Go90 app.

Sling TV. Sling TV has continued to add packages of options to its base offering. But their big news is that they have made a deal with ABC to add ABC local content to the web. This is the first case I know of where a local network will be made available to anybody on line. This is being included by Sling TV as part of a Broadcast Extra package that adds additional channels for $5 per month.

One of the main draws for people on network TV is local programming – news, weather and sports. It will be interesting to see how Sling handles this. I know when I lived in the Virgin Islands that the only network TV available on the island carried news from New York City and I don’t think anybody there watched it.

Sony Vue TV. Sony has reconfigured their Vue TV from a $50 per month package down to a skinny bundle for $30. Sony didn’t have much luck with the $50 price tag and recently lowered it to $40.

The Sony offering is interesting in that it uses the Playstation 4 game console and the service comes with a built-in DVR. Rather than carry live network programming the new Vue offering provides next day access to a number of network TV series.

The biggest drawback of the offering is that there are not nearly as many homes with a Playstation 4 compared to other OTT packages that can be viewed on any device. Furthermore, the offering only supports one TV with one box.

Facebook. It was announced a month ago that both Facebook and Twitter were trying to obtain the rights to show Thursday night NFL football. But Facebook withdrew and the football is going to Twitter.

But this doesn’t mean that Facebook doesn’t have big aspirations as a video platform. They are putting a lot of effort into Facebook Live which they think can be a viable competitor to YouTube. It’s easy for my generation to forget that sites like YouTube has become a video powerhouse and Facebook wants to do something similar. Surveys have suggested that the platform that people adopt when young will influence how they watch video for life.

Facebook is also considering creating a skinny bundle that combines Facebook Live with some of their own content. With over a billion members on the platform they certainly have a good starting point.

Two Tales of DSL

DSL modemI had to chuckle the other day when I saw two articles about DSL that were going in opposite directions. In the first announcement AT&T announced that they are phasing the TV product out of their U-verse product. The same day I saw an announcement from Frontier that they are entering the video-over-DSL business in a big way.

The technology that is being used in both cases is paired DSL. This means putting DSL onto two copper phone lines and then using them together to create one data path. Under ideal conditions, meaning perfect copper, the technology can deliver about 40 Mbps through about 7,000 feet of copper. But of course, there is very little perfect copper in the real world and so actual speeds are typically somewhat slower than that.

In AT&T’s case this change makes sense. They purchased DirecTV and they are going to use the satellite platform to deliver the cable TV signal. This will free up the DSL pipe to be used strictly for data and VoIP, and this will extend the competitive ability of the DSL technology. In most cases the company can deliver 20 Mbps – 40 Mbps to homes that are close enough to a DSLAM. I’m sure that AT&T has been finding it increasingly difficult to deliver data and cable together on one DSL pipe.

The downside for AT&T is that not everybody can get DirecTV. Some people live where they can’t see the satellite and many people in apartments aren’t allowed to stick up a dish. So this isn’t a perfect solution for AT&T, but the increased data speeds probably mean a bigger potential customer base for the U-verse product.

Frontier is coming at this from a different direction. The company has seen declines in revenue as voice customers continue to drop off the network and as they continue to lose DSL customers to cable companies. The company saw a 1% decline in revenue just in the fourth quarter of 2015.

To try to generate new sales the company just announced this week that they are entering the business that AT&T is abandoning. The company launched IPTV in the 4th quarter of last year and announced that they are going to extend this to 40 other markets and pass 3 million customers with the product. They are going to use the same paired DSL as AT&T U-verse and will offer video on the DSL.

Frontier is hoping that this move, which will give them the triple play bundle will bring in more broadband customers and bolster both revenues and the bottom line. The company also expects to get a nice bump from finally closing on their purchase of Verizon properties in Texas, Florida and California. It is going to be a busy year for the company as they also hope to add 100,000 new broadband customers this year for the first of six years of an expansion funded by the CAF II funds from the FCC.

I have a lot of sympathy for a company like Frontier. They have purchased a lot of rural markets that have been neglected for years by Verizon and which don’t have very good copper. Where many smaller telcos are converting all of their rural areas to fiber, Frontier does not have access to the capital needed to do that, nor would they want to suffer through the earnings hit that comes from spending huge amounts on capital.

But the problem for all DSL providers is that within a few years the demand for broadband speed is going to exceed their capabilities. The statistic that I always like to quote is that household demand for broadband speeds doubles about every three years. This has happened since the earliest days of dial-up. One doesn’t have to chart out too many years in the future when the speeds that can be delivered on DSL are not going to satisfy anybody. The CAF II money is only requiring DSL that will be at least 10 Mbps download, which is already inadequate today for most families. But even the 20 – 40 Mbps paired-DSL is going to feel very slow when cable companies have upgraded to minimum speeds of 100 Mbps or faster. And if that DSL is also carrying video along with the data it’s going to feel really slow. I would not want to be one of the companies still trying to make copper work for broadband a decade from now.

Raising Cable Rates

comcast-truck-cmcsa-cmcsk_largeIt’s that time of the year when the large cable companies all raise their rates. In a time with increasing programming costs every cable provider needs to raise rates annually. I know that a lot of small cable providers are loath to raise rates, but if you have to do it then it’s worthwhile to look first at what the big companies are doing. Following is a summary of the rate increases that have been announced so far this year:

Comcast as usual looks to have one of the largest rate increases. They announced an overall increase of 4%, but the details seem to show something larger. The company is raising the rate on double-play packages by $3 to $4 per month. They are also raising the ‘broadcast TV fee’ from $3 to $5. This is a fee that really ought to be included in cable rates which they have broken out as a separate charge to supposedly cover the cost of paying for local network retransmission fees. That makes their overall increases to be between $5 and $6, which is hard to reconcile with the 4% increase statement. But perhaps some of the increase is being counted as broadband increases. It’s really hard to know how these big companies think about the components of their bundles, and all that really matters to customers is how much their bill goes up.

Comcast did cut the cost of HBO from $21.95 to $15 to match the price for HBO’s direct online product. This is an interesting cut that some other large companies are matching. Perhaps this was one of HBO’s reasons for putting their network directly online. You would think that lower prices at the cable companies ought to increase HBO customers.

Time Warner Cable looks to also have a sizable rate increase. They raised the prices of cable packages between $2 and $4 per month. They also increased their broadcast TV fee by $1. Time Warner has broken out a sports programming fee as a separate billing item – something that also ought to be included in the cable prices – and raised this rate by $2.25 per month, up to $5. There are also small increases on settop boxes.

Cablevision says their average increase will be $3 per customer. That includes a $0.85 increase in the settop box rental fee. Their sports surcharge is going up $1 to $5.98.

AT&T is increasing the cost of all bundles by $2 per month. Several Spanish packages are going up between $3 and $4. The company increased its ‘broadcast surcharge’ by $1. While not TV, the company is increasing its voice product that includes 250 long-distance minutes by $2 to $27. I haven’t seen an increase in voice prices for a while. I also find it interesting that the company with the largest voice network is charging more for a package with 250 long distance minutes than most companies charge for unlimited LD.

DirecTV increased rates across the board. Their lowest tiers are increasing by $2 per month. Their ‘Choice’ and ‘Xtra’ bundles will go up by $4 and their largest package will increase by $8. They are also increasing the broadcast TV fee by $0.50, up to $6.50.

Dish Networks is increasing rates significantly. Most packages including ‘America’s Top 120’, ‘America’s Top 120 Plus’, ‘America’s top 200’ and ‘America’s Top 250’ are going up by $5 per month. This will be a relief to rural systems that compete against them. Their smallest package is going up $2 per month while their ‘Everything’ package is going up $8 to $140 per month.

Charter hasn’t announced any rate increases and may not do so until the expected merger with Time Warner Cable.

Verizon also hasn’t announced increases yet for its FiOS TV products, although increases are expected.

Who is Dropping Cable?

RCA_CT100-hdFierce Cable reports that the average revenues per customer are rising at many cable companies as they lose customers. This seems to indicate that a lot of people that are dropping cable were buying the lower-priced packages.

Here are some of the numbers they reported from the second quarter of 2015:

  • DirecTV lost 133,000 customers but saw the average revenue per customer rise 6.4% to $109.93.
  • Dish lost 81,000 customers but average revenue per customer rose 4.4% to $87.91.
  • Charter dropped 33,000 customers and saw average revenue jump 4.5% to $92.88.
  • Overall the largest cable providers combined saw average revenue per customer in the quarter rise by 6.7%.

Now to be fair about those numbers, a lot of these companies raise rates in the first quarter each year, making the second quarter the first period that sees the full impact of rate increases.

But the numbers do hint at the underlying cause of cord-cutting. I will admit that I’ve always figured cord cutters were coming from the tech savvy and from those who have decided that that they can live with the many alternatives for entertainment available on the web. My perspective has probably been influenced by the cord cutters I know, and it’s always a dangerous thing to take personal experience and extrapolate it to a national trend.

But if it’s true that cord-cutting is more driven by economics then we have a different phenomenon. People are being driven off cable because they are getting priced out of the market. I’ve been predicting for years that this day would come because cable rates have been rising far faster than inflation for a long time. And that eventually has to have an effect.

Just look at the above numbers. I am a bit astounded by the DirecTV numbers. If $109.93 is the average revenue per customer then there are a lot of people spending a lot more than that to offset the low special prices the company offers to new customers.

It’s easy to forget how fast rates can get out of control. But an $80 cable package will cost $105 in five years with a 5.5% annual rate increase or $112 with 7% rate increases. Looking at all of the big companies, one has to wonder how they are going to sell the value of their product 5 and 10 years from now.

I can see how cable rates are becoming unaffordable for lower-income families, but it’s not going to be that long until this starts being out of the range of a whole lot more families. Even without the pressure from OTT programming, the industry is headed down a path of real trouble.

And you have to feel sorry for cable companies. The cost of programming has been skyrocketing. I have a few clients who have seen 15% rate increases over the past two years. They grimace every time they have to raise rates and they are all seeing customers falling off their systems.

Big companies like Comcast are probably going to find a competitive option for the big cable packages. They are already looking at their own version of OTT programming. But unless the FCC can break the monopoly of the programmers the smaller cable companies are going to have very few options other than to watch their customers disappear. Almost all of my clients are losing cable customers at a faster rate than the large ones and I have a number of them already seeing 5% to 7% annual customer dropoff.

But the FCC can fix the problem if they choose. One of the biggest problems today is that the major programmers make cable providers take all of their huge suite of channels if they only want one of them. We all know there are a ton of channels on cable systems that hardly anybody watches but that everybody is being forced to pay for. If cable systems could choose the channels they want, like is possible with products in almost every other industry, then they could control their cost and could get the rate increases back under control.

The Latest Boxes and Gear

roku-3-2I’ve been seeing a lot of interesting product announcements recently.

4K Settop Boxes. Both DirecTV and Comcast have announced new 4K settop boxes. AT&T subsequently said that DirectTV and U-Verse would be using the same settop box going forward. DirecTV was the first major company to release a 4K box, but their first version required a customer to have a Samsung smart TV. The new box is being called the 4K Genie Mini and is the size of a paperback book. DirectTV does not yet have any channels dedicated to 4K although they probably will later this year.

Comcast also launched 4K TV last year and their first box also only worked with Samsung TVs, but the new box should work with any 4K capable television. Both of these announcements continue the trend of large ISPs developing their own proprietary boxes rather than buying off the shelf from the normal industry vendors.

Around 15% of new televisions sold now have 4K capabilities and smaller cable providers are going to have to decide if they want to support 4K programming. The new settop boxes represent a new capital outlay, but the real issue with 4K is that the channels eat up a lot bandwidth in a network and will require upgrades at the headend.

Over-the-air Tuner. Microsoft recently launched an Xbox One Digital TV tuner that will work with its game console. This means that an Xbox owner can use their game console along with an HDTV antenna to receive local programming directly through their game platform. The platform allows for multiple options such as watching TV and gaming at the same time. There is also a built-in channel guide, giving this the feeling of being a basic cable offering. I look at this as just one more tool making it easier for people to cut the cord.

Google’s Wireless Router. Google has released its WiFi router they call the OnHub to the general public for $199. This is a high quality WiFi router as well as a platform for integrating IoT devices within the home. The box supports WiFi as well as Bluetooth, Smart Ready, Weave, and 802.15.4, making it ready to talk to most Internet of Things devices.

Early reviews say it’s a great WiFi router that gives a user easier accessibility than many other routers, particular those from cable companies that are black boxes to the consumer. But the real promise is that the device also will provide a base for talking to a wide variety of off-the-shelf IoT devices that you might want to integrate into your house. This is obviously a play for Google to become the standard for home networking of devices.

Very Thin TV. LG this year released a TV screen that is only four hundredths of an inch thick. A 55 inch TV at this thickness only weighs about 4 pounds. It’s so thin and light that it can be hung on the wall with magnetic fasteners and peeled off like a sticker. The TV uses organic light-emitting diodes (OLEDs) which can produce sufficient bright light only one layer thick. This is the first use for OLEDs I’ve seen outside of cellphone screens.

This is the first look at a whole new generation of TVs that can go anywhere and be of almost any size. Want a TV in the bathroom? No problem. Put one in the garage? Not an issue.

And, finally, some statistics for you.

OTT Streaming Devices. At the end of 2014 Roku was still the most popular OTT streaming box with 37% of the market. Chromecast came in second with 19% of the market. Amazon Fire had climbed to 17% of the market while Apple TV fell to fourth at about 14% of the market. These four products represented 86% of the total market.

A little over 20% of US homes now have a streaming device. Another large chunk of the market is relying on smart TVs.

AT&T to Add Rural Broadband?

Satellite_dish_(Television)There is one part of the AT&T and DirecTV proposed merger that really has me scratching my head. Buried within the announcement was a statement that AT&T would use this merger to add 15 million broadband subscribers over the next four years, mostly in rural areas. That goes in the opposite direction of what AT&T has been saying for the last several years. For instance, AT&T told the FCC last year that it was going to be asking for permission to cut down the copper lines from millions of rural customers.

And it goes against the trend of AT&T’s broadband sales. Let’s look at the numbers. In 2011 AT&T reported 16,427,000 data customers. At the end of 2013 it was virtually the same number at 16,425,000. So overall, AT&T has been totally flat in the total number of data customers. But looking beneath those numbers we see something else. During that same two years AT&T added almost 1.5 million customers to its U-Verse product, a bundled data and cable product using two bonded copper wires. Assuming that most of these new U-Verse customers are buying data, then AT&T lost a lot of traditional DSL customers at the same time it was growing the U-Verse product.

So AT&T has been losing traditional DSL customers and it has plans to cut down millions of copper wires. And yet the DirecTV merger is going to somehow help it almost double its data customers, particularly in rural areas? How might they do that? I can think of a couple of scenarios.

One possibility is that this part of the announcement is all fluff intended to help get the merger through the FCC. Nothing gets a better ear these days at the FCC than the promise to bring broadband to rural customers. So AT&T might be blowing smoke and hoping that this helps to get the merger approved. But let’s suppose they are serious about this and that they really are going to vigorously chase data customers again. How might they do that? I can think of two scenarios.

First, they could use the DirecTV merger as a reason to reinvigorate their investment in copper. The fact is that AT&T has always had it within its power to do better in rural broadband. Most of its rural DSL electronics are first or second generation equipment, and for a relatively moderate investment they could beef up rural DSL to become competitive. Perhaps bundling it with a TV product that brings a profit stream from numerous rural homes changes the business plan and makes DSL look attractive again as a long-term investment. But I have a hard time believing this. Their rural copper plant is old and I believe them when they say they want to tear it down and get out of the landline business.

The only other option that makes sense to me is that they use a DirecTV bundle to entice people off their copper and onto wireless data. In doing so they would also be furthering their goal of getting out of the copper business. I have written a number of blogs talking about how rural cellular systems cannot take the place of landlines for the delivery of data. Cellular systems are great at delivering bursts of data, especially after being upgraded to 4G, but they are not designed, nor can they be designed to support multiple people watching streaming video. It doesn’t take many video customers to lock up the typical cell site. And this is a matter of physics as much as anything, so there is no easy way to fix this other than to move to really small cell sites with a few customers on each cell. And that would require a big investment in rural fiber.

So I am skeptical of the AT&T announcement. This announcement might have made sense if AT&T wanted to buy Dish Networks, which owns a significant amount of spectrum that could be used to deliver point-to-multipoint data in rural areas. But DirecTV has no broadband assets or plans. My best guess is that they will use this merger as an excuse to move people off copper, something they are already working hard at. But there is also the chance that this is all smoke and mirrors to help get the FCC to approve the merger.

Google and the NFL

The new NFL logo went into use at the 2008 draft.

The new NFL logo went into use at the 2008 draft. (Photo credit: Wikipedia)

Google has announced that it is interested in buying the Sunday package from the NFL to stream over the web. For those of you who are not sports fans, this means every regular Sunday football game (just not the Sunday or Monday night games or the mid-week game).

The Sunday package today is available today only on DirectTV. A sports fan must buy a DirectTV regular programming package in order to buy what DirectTV markets as the Sunday ticket. DirectTV simulcasts all Sunday games, so there are a number of games playing at one time.  DirectTV owns the rights through the end of the 2014 season and the package comes up for bid again.

The football programming currently costs DirectTV $1 billion per year, and one has to imagine the price is going to go up in a bidding war. But obviously Google can afford this.

I would think that losing football would be devastating to DirectTV. As a serious sports fan, I know of a lot of sports fans who subscribe to DirectTV just for the right to buy the football package. If that goes away, DirectTV is going to see a number of subscribers melt away over the first year.

The whole idea of Google buying the NFL package raises all sorts of different issues:

  • This would give major legitimacy to OTT programming and could form the core of a Google on-line TV offering with some teeth. One has to think that Google is going to bundle this with other programming to get enough revenue to pay for the package. This could turn Google into a serious player in the content provider war.
  • One has to wonder if Google understands the lack of bandwidth in much of the country. DirectTV delivers football in high definition, and most fans routinely watch multiple games at the same time or want to quickly flip between games. This country is divided into a lot of broadband haves and have-nots. Certainly customers on fiber like Verizon FiOS will love football on the web. But there are still a significant number of rural households who can’t get real broadband. And even more importantly, there are a whole lot of towns that don’t get enough broadband to watch multiple football games in HD.
  • Interestingly, the FCC has been tracking the availability of broadband by letting the service providers tell the FCC what they offer where. And everybody knows this process is highly flawed and that a lot of the reporting is very far from reality. Moving football to the web is going to more effective than any broadband map at showing who has and does not have adequate broadband. All we need to do to track where broadband is inadequate is to follow the complaints about Google football.
  • On the other hand, Google would be opening up the Sunday football package to a lot of new households. There are a lot of people today that can’t get DirectTV, either due to a clear look at the right part of the sky or else from living in a place, like a high-rise that doesn’t allow satellite TV.
  • And Google football is really perfect for somebody like me who is not always in the same place every Sunday. I would assume that if I am a subscriber that I am going to be able to watch as long as I can find a good broadband connection. I think there will quickly be web boards that track which hotels have good or poor internet and business travelers will be going to the good ones and avoiding the poor ones.

Sports programming is the one wild card in the programming world for which there is no substitute. To any sports fan there is the NFL and then there is everything else.

It has also been reported that ESPN is considering a web-package that they would only sell to web-providers who bundle it with a larger programming line-up. And one has to think that if ESPN works out this kind of deal that the college football networks will follow suit. If NFL football, college football and ESPN become available on the web, then landline cable TV is going to have lost its grip on a lot of households. This has to be a concern for the big cable companies.