A Fresh Look at Cord-Cutting

Roku undertook a survey that took a deep dive into cord-cutting and interviewed over 7,000 homes in March. The overall conclusion of the survey is that cord-cutting is accelerating in 2020. The survey was done at the beginning of the pandemic, and overall industry statistics for the second quarter make it sound like cord-cutting exploded in the second quarter of this year.

The Roku survey segregates the television market as follows: 43% of homes still have traditional cable TV. Another 25% are cord-shavers and still have traditional cable TV but have downsized to a lower-cost video package. 25% of the market are now cord-cutters, and 7% of the market never had traditional cable TV.

Probably the most interesting statistic is that one-fourth of the market consists of cord-shavers who have reduced their traditional programming packages. It’s been clear that cord-shaving has been happening, but I’ve never seen it quantified before. The big cable companies never mention cord-shaving when reporting cable TV subscribers. The magnitude of the number of households that have trimmed back to lower-cost programming packages explains why the paid subscriptions to cable networks is dropping far faster than the drop in cable customers.

80% of cord-cutters say that they are satisfied with their decision to end their subscription to traditional TV. Two-thirds of cord-cutters say they wish they had cut the cord sooner.

Lack of sports is driving some cord-cutting during the pandemic, and 28% of cord-cutters say that lack of sports is their number one reason for cutting the cord. 17% of cord-cutters (or 4% of the whole video market) say they will consider returning to traditional TV when sports return to the air full time. 31% of cord-cutters say they will pursue a sports streaming service when sports returns.

The number one reason cited for cutting the cord is cost savings, and many of those surveyed say they were driven to this decision due to a change in household income due to the pandemic. The average Roku user said that they are saving $75 per month with cord-cutting. As a household that has cut the cord, I find that number a little hard to believe – but it’s what they reported in the survey. My consulting firm does surveys and we’ve learned to always be leery when households cite numbers of any kind; in this case, it would be natural for many homes to exaggerate their savings as a way to justify cutting the cord. I’m sure some homes have saved $75, but that seems like a high average and it doesn’t take more than a few subscriptions to online video services to eat into that savings.

Cord-cutters are watching more free ad-supported content as a way to control costs. 42% of cord-cutting households said that free content or extended free subscriptions to streaming services helped to convince them to cut the cord.

45% of the households in the cord-shaver category say they are likely to cancel traditional TV in the next six months. Every survey about cable TV I’ve seen for the last five years has included substantial numbers of homes that say they are about to drop cable TV – but then don’t. But this statistic is a lot higher than I’ve ever seen and indicates a lot of households are thinking about cutting the cord. It’s often a complicated decision for a home with multiple family members to finally cut the cord.

The pandemic makes it harder to discern long-term trends. This survey supports the industry belief that a lot of homes continue to drop traditional TV packages. But the pandemic provides several good reasons to drop a cable subscription that won’t be permanent. Sports will eventually come back to TV and sports fans are going to subscribe. As the economy rebounds, people will get back to work – it’s an easier decision to cut a $100 per month cable subscription when one or more people in a home are unemployed. The pandemic has also killed the creation of new programming content, and many cable subscribers only pay in order to watch the latest versions of their favorite shows. I’ve read that it might take more than a year after the pandemic ends to see a fresh supply of new content.

It will take time to see if an improved economy reverses any of the cord-cutting trends. For now, any company offering cable TV is in for a rough ride. It’s hard to see any positive news from the results of this survey for programmers or cable companies.

Why Isn’t Everybody Cutting the Cord?

Last year at least two million households cut the cord. I’ve seen headlines predicting that as many as 5 million more this year, although that seems too high to me. But both of these numbers are a lot lower than the number of people who say they are going to cut the cord in the coming year. For several years running various national surveys show that 15 million or more households say they want to cut the cord. But year after year they don’t and today’s blog looks at some of the reasons why.

I think one of the primary reasons people keep traditional cable is that they figure out that they won’t save as money with cord cutting as they had hoped. The majority of cord cutters say that saving money is their primary motivation for cutting the cord, and once they look hard at the actual savings they decide it’s not worth the change.

One issue that surprises a lot of potential cord cutters is the impact of losing their bundling discount if they are buying programming from a cable company. Big cable companies penalize customers who break the bundle. As an example, consider a customer who has a $50 broadband product and a $50 cable product, but for which the cable company charges $80. When a customer drops one of the two products the cable company will charge them $50 for the remaining one. That means there is a $20 penalty for cutting the cord and thus not much savings from cutting the cord.

Households also quickly realize that they need to subscribe to a number of OTT services if they want a wide array of programming choices. If you want to watch the most popular OTT shows that means a $10 subscription to Netflix, an $8.25 per month subscription to Amazon and a Hulu package that starts at $8. If you want to watch Game of Thrones you’ll spend $15 for HBO. And while these packages carry a lot of movies, if you really love movies you’ll find yourself buying them on an a la carte basis.

And OTT options are quickly proliferating. If you want to see the new Star Trek series that means another $5.99 per month for CBS All Access. If your household likes Disney programming that new service is rumored to cost at least another $5 per month.

And none of these options bring you all of the shows you might be used to watching on cable TV. One option to get many of these same networks is by subscribing to Sling TV or PlayStation Vue, with packages that start at $20 per month, but which can cost a lot more. If you don’t want to subscribe to these services, then buying whole season of one specific show can easily cost $100.

And then there is sports. PlayStation Vue looks to have the best basic sports package, but that means buying the service plus add-on packages. A serious sports fan is also going to consider buying Fubo. And fans of specific sports can buy subscriptions to Major League baseball, NBA basketball or NHL hockey.

Then there are the other 100 OTT options. There is a whole range of specialty programmers that carry programming like foreign films, horror movies, British comedies and a wide range of other programming. Most of these range from $3 to $7 per month.

There are also hardware costs to consider. Most people who watch a range of OTT programming get a media streaming device like Roku, Amazon Fire, or Apple TV. Customers that want to record shows shell out a few hundred dollars for an OTT VCR. A good antenna to get local programming costs between $30 and $100.

The other reason that I think people don’t cut the cord is that it’s not easy to navigate between the many OTT options. They all have different menus and log-ins and it can be a pain to navigate between platforms. And it’s not easy to find what you want to watch, particularly if you don’t have a specific show in mind. It’s hard to think that it’s going to get any easier to use the many OTT services since they are in competition with each other. It’s hard to ever see them agreeing on a common interface or easy navigation since each platform wants viewers to stay on their platform once logged in.

Finally, none of these combinations gets you everything that’s on cable TV today. For many people cutting the cord means giving up a favorite show or favorite network.

If anything, OTT watching is getting more complicated over time. And if a household isn’t careful they might spend more than their old cable subscription. I’m a cord cutter and I’m happy with the OTT services I buy. But I can see how this option is not for everybody.

 

Stats on OTT Viewing

A recent study by comScore examined OTT usage in detail across the country. They studied the OTT viewing habits in 12,500 homes over time across all devices. They looked at 52 OTT services, which collectively account for virtually all of the OTT content available. Their study is the most comprehensive study of OTT that I’ve seen to date.

Not surprisingly Netflix is the largest OTT provider and accounted for 40% of all viewing hours of OTT content. I must admit with all of the hype about Netflix that I thought they would be larger. They were followed by YouTube at 18%, Hulu at 14%, Amazon at 7% and all of the other OTT sources sharing 21%.

When it came to consumer engagement, measured by the amount of time that people watch a given service, the leader is Hulu with the average Hulu household watching over 2.9 hours of their content per day. This was followed by Netflix at 2.2 hours, YouTube at 2.1 hours and Amazon at 2.0 hours per day.

Here are some other interesting statistics generated by the survey:

  • 51 million homes in the US watched OTT content this past April. That is 41% of all homes.
  • The growth of OTT watching is exploding and only 44 million homes watched OTT in October 2016.
  • As you would expect, there is a substantial number of cord-cutters that watch OTT. The types of OTT viewers include 44% that also have a landline cable subscription, 22% that also have a satellite TV subscription, 18% that are pure cord-cutters, and 16% that mix OTT content with free content received through rabbit ears.
  • The average home watched OTT content 49 hours in a month. That viewing was spread on average across 15 viewing days – meaning that most homes don’t watch OTT content every day.
  • As you would expect, cord-cutters households watch OTT for more hours monthly than other households. For example, cord cutters watched Hulu 37 hours per month while other households watched 29. Cord cutters watched Netflix for 36 hours per month compared to 27 hours for other households.
  • OTT viewing largely matches regular TV viewing in that there is a big spike of viewing in the evening prime time hours.
  • However, OTT viewing differs from traditional cable with big spikes on weekends, largely due to binge-watching.
  • The survey shows that 10.1 million households use network TV apps (apps from a programmer such as HBO or ESPN).
  • There is an interesting correlation between the size of a household, the amount of OTT viewing, and whether a family has cut the cord. For cord cutting families, the smaller the size of the household the greater the amount of OTT viewing. But for families that still have a paid-cable subscription it’s reverse.
  • Single-member households are almost 50% more likely than average to be a cord cutter and 24% more likely than average to be a cord-never.
  • Cost of cable subscriptions have always been shown in other surveys as a factor in cord cutting. This survey shows a strong correlation between income and cord-cutting. The survey shows that hourseholds making less than $40,000 per year are cutting the cord at 19% more than average while households making between $75,000 and $100,000 are at 87% of average.
  • Their survey also was able to detail the devices used to watch OTT content on television screens. Of the 51 million homes that watched OTT in April, 38 million homes used a streaming stick / box like Roku, and 28 million homes used a smart TV.
  • The study also detailed penetration rates of streaming boxes / sticks for homes using WiFI: 16% own a Roku, 14% have Amazon Fire; 8% own Google hrome and 6% have AppleTV.
  • Samsung and Vizio are the big players in the smart TV market with shares in WiFi-connected homes of 33% and 30%. LG and Sony were next with 10% and 7% penetration with all other manufactures sharing the remaining 20% of the market.

The survey also analyzed Skinny bundles. They show that 3.1 million homes now have a skinny bundle. 2 million of those homes have SlingTV, with DirecTV Now and PlayStation Vue having most of the other customers. The survey shows that homes with one of these services watch the skinny bundle an average of 5.3 hours per day.

The main takeaway from this survey is a demonstration that OTT viewing has become mainstream behavior.  OTT viewing is now part of the viewing habits of a little over half the of homes in the nation that have an in-home WiFi connection.

 

Cable Industry Shorts – February 2017

television-sony-en-casa-de-mis-padresHere are a few industry shorts, each not quite long enough to justify a full blog:

New York Takes on Charter. On February 1 the Attorney General of New York sued Time Warner Cable (which is now Charter Spectrum) for delivering inferior products that don’t match what was being advertised to customers.

The specific issue is that the majority of the cable modems provided to customers in the state are not capable of delivering the speeds being sold to customers. For example, in 2013 it was demonstrated that ¾ of the modems sold to supply 20 Mbps service were unable to process that much speed. And it appears that most of those modems still have not been upgraded. The lawsuit accuses the company of never notifying customers that they had inferior modems, and also of recycling inferior modems back to new data customers.

Charter says that the law suit isn’t needed because they have been making improvements since purchasing Time Warner. But the lawsuit alleges that the old practices are still widespread. The lawsuit is asking for significant refunds to affected customers.

Comcast Charging for Roku Boxes. In perhaps the best demonstration of why Comcast is rated so poorly by customers, Comcast says they will still charge customers if they use a Roku box to watch TV rather than a Comcast settop box.

Comcast currently has one of the highest settop box charges around at $9.95 per month, per box.  They also then charge $7.45 for each additional TV in the home using an ‘additional outlet charge.” Comcast hasn’t announced the rate for using a Roku box, but speculation is it will be at the $7.45 rate. This is clearly a case of a cable company charging for something for which they are providing zero value. Perhaps the company has already been emboldened by an FCC and Congress that say they will be reducing regulations.

For a customer to use the XFINITY TV app on a Roku box they must currently subscribe to Comcast cable TV and broadband service. They must have and pay for at least one settop box and also have a cablecard and a compatible IP gateway in the home.

Esquire Channel Disappearing. There is a lot of pressure by the big cable companies to cut back on the number of channels, and the expectations are that less popular networks are going to start disappearing.

The latest network that will vanish from cable line-ups is the Esquire channel. It’s a low-rated channel with content aimed at upscale men that is rated at 82 out of the 105 major cable networks. It was just launched in 2013 and had grown to 60 million subscribers. But last month AT&T and its DirecTV subsidiary decided to drop the channel, cutting 15 million subscribers. Charter is also considering dropping the channel, so NBC, the owner of Esquire, decided to kill the channel for cable systems. Some remnants of it will remain on-line.

Esquire joins the millennial channel Pivot and NBC’s Universal Sports as channels that disappeared in the last year. There are likely more to come and there are 23 networks with lower ratings than Esquire including Fox Business, Great American Country, Chiller and the Golf Channel.

Cable Companies Stop Sending Piracy Warnings. Just about every large cable company and telco has stopped forwarding messages to customers about piracy that were sent through the Copyright Alert System (CAS). These alerts were sent to customers who made illegal downloads of movies or music. The main purpose of these alerts was to warn customers that they were violating copyright laws. The content industry has always pressured ISPs to somehow punish habitual content pirates, but that has never happened to any significant degree.

Groups like the RIAA which were pushing ISPs for compliance have said they will look for an alternative. They said for now that they will probably back off from suing end user customers – a tactic that never seemed to make much difference. This is another case where technology outstripped the law. The CAS launched at the heyday of peer-to-peer file sharing, and while that still exists, it’s not the way that most copyrighted material is shared these days. We now live in a more nuanced world where there is copyrighted material on sites like YouTube sitting right next to mountains of non-copyrighted material, and it’s a lot harder to pinpoint copyright violations.

The FCC Tackles Settop Boxes Again

Settop boxFCC Chairman Tom Wheeler just announced a proposal that would take another shot at standardizing settop boxes. The FCC is proposing that standard protocols be developed, enabling people to then buy a box from a third-party vendor rather than pay a monthly rental to the cable companies for each box.

Chairman Wheeler says that this is different than the AllVid proposal that has been around for years and that companies Best Buy, Google, Sony and TiVo recently resurrected. AllVid would create an updated version of a cable card – a device that could be added to an off-the shelf settop box to make it work. The FCC rejected AllVid a few years ago and many engineers think it’s not practical.

This time the FCC wants the industry to develop open standards for settop boxes. Chairman Wheeler was quoted saying, “We need to have standards the same way we have standards developed for cell phones, standards developed for Bluetooth, standards developed for Wi-Fi”. If such standards were developed, then third party manufacturers could make settop boxes directly for consumers, meaning they could avoid having to lease boxes from the cable companies.

This is obviously intended to quell the complaints from consumers about having to lease settop boxes. Many of the large cable companies have crept the monthly lease prices up to $8 per month, per box. My small clients can buy settop boxes that cost between $100 and $180, and surely the giant cable companies can buy these boxes for less than that. The math is pretty straightforward and a cable company can recover the cost of a $150 box in 18 months – and the average box probably stays at a home for three of four years, often longer.

Even with open standards there would be a number of technical challenges with the idea, due to the fact that all cable providers don’t use the same technologies. The settop boxes in a standard cable system operate differently and perform different functions than a box in a fiber network or DSL network. And even traditional cable systems aren’t going to keep the same technology forever and there is already some experimentation of converting cable systems to IPTV.

The idea of some standard solution gets even murkier when you consider that cable companies have been experimenting with delivering cable on other boxes such as Roku and the Xbox. This is not something that they have been able to do casually and it apparently took years of research to make this work. And not everybody is doing this the same way and there is a lot of custom programming and unique apps written to get cable to work on a different receiver.

There are also changes underway in the industry that have to be considered. There was a time when most of the brains of the cable delivery was in the settop box. All of the functions a customer used were controlled by software loaded onto the box and which controlled hardware within the box. But the industry has been experimenting with moving a lot of these functions to the ‘cloud,’ or at least to the headend. For example, some cable companies are now offering remote DVR storage, letting customers record shows at the headend to watch later.

One just has to wonder if a standard can be created that will allows companies to offer widely different features and options for customers? It probably can be done, but the time to do this was a decade ago when settop boxes were similar everywhere and the functions that cable providers offered were similar. We are finally starting to see experimentation among providers which has to complicate any attempt to create standards.

If the main goal is to give consumers a way to escape paying too much for cable boxes there is a much simpler solution. Why not just force every cable company to sell whatever box they use to customers at cost? This would give customers a way out of the monthly rentals and would shrink the claimed excess billions of dollars of cable profits. This would also create a secondary market for settop boxes since customers would be free to sell one that they owned to others. This would allow every cable provider to continue to pursue a different technological path with their boxes while still offering a break to consumers. This could be done immediately without having to wait for a protracted period of developing standards, and then manufacturing the boxes to meet those new standards.

Programmers Hate Skinny Bundles

cable headendI read several reports from the current International Broadcasting Convention in Amsterdam that there is a lot of talk among programmers about a dislike of the skinny bundles that are being offered by companies like Sling TV. This is a convention of mostly programmers and companies that produce content. FierceCable reported on the convention and wrote an article titled Execs from Discovery, Roku and others warn the skinny bundle will hamper content creation.

I can understand the perspective of the programmers. Consider Discovery. They are one of the more egregious programmers when it comes to making cable companies take all of their content. Discovery benefits tremendously from the bundle because given a choice, many cable providers would elect to not carry at least some of the many Discovery networks.

There is no doubt that the move to skinny bundles is going to be bad for programmers like Discovery as they lose revenues on many of their networks. Discovery currently has 13 different networks in the US and a few more internationally. And obviously skinny bundles like Sling TV won’t elect to carry many, or even any, of them.

But Discovery and the other networks are trying to swim against the tide if they think there is any way to stop the move towards smaller line-ups. It’s what people want. Numerous studies have shown that most households only watch a very small fraction of the 200 or 300 channels that are delivered to them in the big bundles. And people in general are getting fed up with paying for all of them.

Netflix and Hulu got this all started by letting people watch individual shows rather than networks. And that is what people really want. They create a loyalty to a given show much more than to a network. Interestingly, Discovery takes advantage of this trend already and some of their series like MythBusters, How It’s Made, and River Monsters are available on Netflix.

The real question being raised in Amsterdam is if the trend towards skinny bundles is going to stifle the creation of unique content. It’s a good question and only time will tell. My gut says that it is not going to cut down on the making of good new content because there are profits to be made from coming up with a popular show.

What might change is who is making the content. There is no doubt that over time the move to skinny bundles will hurt traditional programmers like Discovery. They may have to shut down some of their networks if not enough people are willing to pay for them. But these networks were only created in the first place in the artificial environment where millions of homes were guaranteed to pay for a new network. One of the primary reason that the big bundles are breaking apart today is the greed of the programming conglomerates that created and forced numerous new networks on the cable companies. What we are now seeing is that with the Internet people have the ability to push back against the crazy big bundles they have been forced to buy.

So it is quite possible that a company like Discovery will lose a lot of money compared to what they make today, and perhaps as part of that transition they won’t produce as much unique content. But I think that somebody else will. We already see companies like Netflix producing new content. There are even rumors about Apple producing content.

As long as content can make a lot of money, people are going to take a chance for the big bucks. One has to remember that most unique content doesn’t make money today. Many movies don’t recover the cost of producing them if the public doesn’t like them. When these companies talk about creating new content, what they really are talking about is producing hits. One very successful series or movie can produce a huge profit for the producer of the content. As long as that big carrot is dangled there are going to be many who are going to chase the big dollars.

I really didn’t mean to pick specifically on Discovery and they are just an example. You could substitute any of the other large network conglomerates above and it’s the same conversation. The fact is, content delivery is changing and there is going to be fallout from that change. It’s likely over time that some of the existing large conglomerates might go under or disappear. That is the consequence of this kind of fundamental change. But it’s happened to many other industries over the last decades and there won’t be anybody lamenting the fall of a Discovery any more than people are nostalgic about Kodak. All people are really going to care about is that they can watch content they like and they aren’t really going to care much about who created it or who profits from it.

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.

Too Many Boxes

slingbox-SOLO-angleProgrammers who want to put web video on wireless devices have a fairly easy task because they can capture almost all of the app market by working with either Android or iOS. But developing things for home TV is a lot more complicated due to the proliferation of different devices used in the home today to watch web video.

Viewers of web TV have a huge array of potential devices that act as the interface between the web and their televisions. First there are the streaming devices like Roku, Apple TV, Amazon Fire, Google Chromecast, and Google Nexus. Then there are the game consoles that support TV such as the Microsoft Xbox, the Sony Playstation, and even older consoles like the Wii. Finally, there is a huge array of smart TVs from every major TV manufacturer like Samsung, Vizio, VG, Sharp, and Sony.

The problem with this plethora of boxes is that there is no standard for the interface, so each one of them has come up with a different interface between the Internet and the big TV screen. There doesn’t seem to be any push in the industry for standardization, probably due to most of the manufacturers figuring they won’t be the big winner if all of the interfaces are made the same.

This is just as confusing for customers because there are nuances to each of these devices that are hard to understand before you buy and use them. Even comparative reviews aren’t helpful because they usually tell you very little about the day-to-day differences between each platform.

One might think that this is a simple issue and that there shouldn’t be much difference. After all, each ofttimes devices is just emulating the same role as the settop box in a traditional cable system. Each system contains what the industry calls ‘middleware’, which is the software that defines the viewer experience. In some of the devices the box plays the role of the tuner (channel changer), the channel guide that lets you decide what to watch, and the general navigation guide that lets you change settings and choose preferences.

There is a wide array of different software platforms for the various boxes, game consoles, and smart TVs. As you might expect, the Google boxes use Android and the Apple boxes use iOS. Samsung uses a Tizen platform that is based on Linux. Sony has developed a proprietary platform used for both their TVs and the Playstation. Panasonic uses Firefox OS. Amazon Fire uses a custom OS called Fire OS.

There has been some shakeout in the industry as boxes that were popular just a few years ago have fallen out of favor with the public. For instance, Boxee and Slingbox were the primary devices used just a few years ago (and many techies still love the Slingbox). But the proliferation of boxes and platforms is inviting a still larger shakeout.

The problem is that every one of these boxes sells enough units to make them profitable and to ensure that nobody controls a big enough slice of the industry to drive other companies to a common platform. The demand for watching web TV is exploding and all of these devices are selling a lot of units every year. Perhaps we are going to have to wait for the market to mature before we see any consolidation or shakeout.

While all these options can be confusing for consumers, the biggest issue with the plethora of boxes is with programmers. Developers of web-based TV packages have the issue of trying to make sure that they work with each of these different devices and operating systems. Once would think that web TV is standard, but it is not. The whole process is software driven and so a web programmer must customize the interface to each of these platforms. That sounds like a lot of lab time and a lot of integration, and worse, it’s never done because each programmer needs to then keep up with software changes on each of the various platforms.

Further, many of these boxes see major upgrades frequently and those upgrades are often not backwards compatible. For example, several CCG staff have Roku boxes, and these have undergone a major upgrade at least every six months, so programmers don’t just have to work on Roku, but they have to work on multiple generations of Roku.

This issue is not part of the investigation at the FCC on how to promote web television, and it probably shouldn’t be. But the issue is a real one and until the day comes when we have standards or until there are only a handful of market winners this is likely to stay a jumbled mess.

Are Customers Taking Charge of Telecom?

MD crowdThere has always been some uncertainty in the telecom industry and over my career I have seen some giant companies come and go from the scene. But as I watch the big companies today I am seeing more unease about the future than I can ever remember.

This unease is justified. And I think that perhaps this is due largely to the cumulative effect of the choices customers are making. In the past the large telcos and cable companies had a limited portfolio of products that they offered, with assurances that a significant portion of their potential customer base would buy them.

But in today’s world, customer choice is expanding rapidly. People have a huge number of options compared to the past, and as customers pick what they like we see winners and losers in the industry. This has to scare the big companies to death.

This happens at both the macro and the micro level. Let me start with the micro and look at programming choices. Recent Nielsen surveys show that the time spent watching traditional television programming, particularly on a real-time basis, is starting to decrease significantly. But the time spent by people watching some kind of content is increasing.

I’m not sure that older people understand how fundamentally differently our kids watch content than the way that we do. As an example, my daughter watches a lot of YouTube, in particular videos on how to make crafts. She has an artistic bent and she now finds content that pleases her rather than watching what some media company thinks that kids ought to watch. Basically, every kid is creating their own channel of content, and most of it is free.

As kids make these choices, and as that generation ages, traditional content is going to be in a world of hurt. For example, somebody you never heard of who goes by the name of Stampy Longnose started making Minecraft tutorials and walk-throughs and putting them on YouTube. He’s been a huge hit with kids under 10 and is now a millionaire due to his work on YouTube. We are now at a time when even 4 year olds are able to up-vote their favorite content. Certainly there will always be some content like Game of Thrones or House of Cards that grabs national attention and that gets millions of viewers. But over time a lot of the content that the various networks are putting together is going to go largely unwatched.

In this new world of micro-content, viewers find content by word-of-mouth. For instance, I have been watching a hilarious comedy on YouTube called The Katering Show that was recommended by a friend. This is a small budget ‘cooking show’ by two Australians that I have found to suit my own sense of humor (caution, it’s a bit bawdy). This is my first foray onto YouTube other than to watch music videos, but I know I will now be looking for other content there.

The same thing happens with cellphone apps. While there are a handful of apps that a whole lot of people use, over time we each go find things that please us. My favorite app is Flipboard; I get most of my news from it these days. Flipboard allows you to choose from a wide array of news sources and end up with a customized newsfeed. Every cellphone user has their own set of favorite apps. If enough people use a given app it succeeds, and if they don’t it fails.

On the macro level, there is a huge tug-of-war going on between platforms and devices. Anybody who is in those businesses has to be worried. For example, smartphones are becoming a serious competitor to PCs and tablets and even to televisions. My wife and daughter watch a surprising (to me) amount of content on their phones.

The industry still has some sway, of course, in the device market. They can make a huge marketing splash and get people interested in something new like wearables or smartwatches. But in the end, the public is going to pick the winners and losers in any new area. Countless companies have already come out with devices that they were sure would be a hit but that flopped badly.

Almost every segment of the industry is being tugged at by significant (or soon to be significant) competition. We are going to see WiFi battling it out with cellular, WebRTC battling for a big chunk of the voice business, OTT programming battling the cable companies, gigabit fiber networks challenging the incumbent ISPs.

In the hardware world we see cloud services going head to head with company routers and IT departments. Manufacturers of headends and cell sites are worried about software-defined networks that will eliminate the need for their equipment. Settop boxes are being replaced by smart TVs, Roku boxes, and game platforms.

It’s hard to find many parts of the industry that are not in turmoil in some fashion, though there are a few. Makers of fiber optic cables are working at a feverish pitch to keep up with demand. ESPN is making tons of money due to exclusive sports content. But more and more it seems that for the first time that I can remember in our industry, customers are picking the winners. That is something very new.

The Battle of the Boxes

Image representing Roku as depicted in CrunchBase

Image via CrunchBase

For years we’ve been told that the day was coming when we would be able to get rid of the settop boxes supplied by the cable company and instead use our own smart devices to receive cable TV. A number of years ago the FCC tried to promote this with its cable card order that said that customers must be allowed to bring their own devices and that the cable companies then had to give them a discount for doing so. But cable cards were a massive failure and only a very small percentage of customers went through the hassle of trying to use their own settop boxes.

And then we heard a lot of talk about how TVs were going to get smarter and that we would be able to plug our cable into the back of the TV and eliminate the settop box. And that actually worked for a few years. But then cable companies started converting their systems to all-digital to make more room for faster cable modems, and analog transmissions are quickly becoming a thing of the past.

So we are no closer today to being able to bring our own smart box to the game and almost every home still has a settop box or a DTA (Digital Television Adapter) for which the cable company charges them a fee of around $5 or more per month.

Meanwhile there are a host of new boxes in the world that are designed to help customers bring the Internet and its many programming options to the TV. Among these are Roku, Apple TV and Sony Playstation. There are a number of households that are using these boxes to replace the cable company altogether and are settling for the programming that can be found on the web. These boxes let people subscribe to things like NetFlix, Hulu or Amazon Prime, which are much cheaper than the typical cable subscription.

Time Warner is taking an interesting approach to the battle of the boxes. In March they announced a deal to allow people to use a Roku box in place of a Time Warner settop box. In June they announced a deal that allows customers to use high-end Samsung TVs without a settop box. And it was reported last week that they are making a deal for people to use Apple TV in place of their settop box.

Image representing Netflix as depicted in Crun...

Image via CrunchBase

Time Warner is doing this by developing a specific App that works on each device. A customer can download an app that will let the Roku box mimic the Time Warner settop box and save the monthly fee. It’s reported that the app is not as good as the real thing and the line-up and some reception is not as good as using a TV. But Time Warner sees some advantages to this arrangement. While they lose the typical $5 per month charge for the settop boxes, they also get out of all of the obligations that go with providing settop boxes. No cable provider likes being in the settop box business. They require truck rolls to install and sometimes to retrieve. They break and must be replaced. And a surprising number of people move, pack and take their boxes with them. Cable companies are probably a net winner by getting out of the settop box business.

But I see a few problems with Time Warner’s approach. First, Time Warner is headed down a path that is going to make their software life complicated over time. Soon they will have deals that require them to supply apps for three different boxes. But over time that number is going to mushroom. There will eventually be many generations of Roku and Apple TV and every other current box as they get updated and outdated. And over time there will be dozens, if not hundreds of devices that will be able to get TV signal onto a TV. Looking into the future five or ten years I see Time Warner’s strategy getting very complicated.

But the biggest danger I see is that Time Warner’s strategy is inviting the fox into the henhouse. Do they really want to promote customers to use boxes that bring Netflix and Hulu into the house and make it easier for customers to cancel or downgrade their Time Warner cable TV service? Obvious some people are going to be buying these boxes anyway, but should the cable company be promoting people to buy a box that makes it easier to bypass them? It seems like a risky bet to me.

Even if Time Warner is onto something, this solution is not for everybody. Certainly the handful of other large cable companies could follow suit, but it’s hard to see this working for smaller cable companies. And this solution won’t work at all for companies that deliver IPTV over DSL or fiber like Verizon, AT&T, municipalities and hundreds of independent telephone companies and small CLECs. The IPTV stream requires a proprietary device to descramble the signal (and  scrambling for IPTV is required in the contracts with the content owners), and so these providers cannot move customers to alternate boxes.

Time Warner’s approach is unique and we will have to see if any other cable companies follow them. This is a home run for the box makers, but I’m not so sure that Time Warner wins too.