What’s the Future for Media Advertising?

Film4I’m glad I’m not in the advertising business. We think telecom is undergoing big changes, but the advertising firms that represent large clients must be struggling to know where to find the eyeballs to view their ads. The public’s traditional viewing habits are changing quickly and dramatically across all forms of media.

Not many years ago ad revenues were spread across TV, radio, and print and the big companies had a pretty good idea who was seeing their ads by demographic. But the way that people view all forms of media is changing so rapidly that it’s a lot harder to know who is seeing your ads.

Consider the following statistics comparing how people spend their time viewing different media versus how advertising dollars were spent. Both sets of numbers are from 2014 and come from Business Insider.

‘                            % of Time Spent         % of Advertising Dollars

Digital                         46.3%                                28.2%

Television                   36.6%                                38.1%

Radio                          11.8%                                  8.6%

Print                             3.5%                                 17.6%

Digital includes the web, cellphones, and all forms of digital advertising.

These percentages show a interesting picture of how people are spending their time and I think this is the first time I have ever seen this expressed in a side-by-side comparison across all forms of media. It’s obvious that people prefer digital media and spend nearly half of their media time there.

The problem that advertisers have is that there are still huge amounts of change happening within each category. For example, it looks on the surface that the amount of advertising spent on television is about right according to the eyeball time purchased. But consider the following facts:

  • The demographics for television are changing dramatically and rapidly. For example, the percentage of households of 18–24 year olds that buy a cable subscription dropped 7 total percentage points (or 12% overall) just last year.
  • The percentage of people who watch TV on a time-delayed basis is up dramatically and over 40% of TV watching is now done on a delayed basis (using a DVR or video on demand), and these viewers largely skip the commercials.

This means that the demographic for those who watch television is aging rapidly, and even many of those who watch are doing so on a time-delayed basis and skipping the ads. This has to be a huge concern for advertisers.

But there are equal issues with web advertising. One of the fastest growing categories of web apps is for ad blocking, meaning that a huge number of people are now blocking ads from showing up on the pages loaded by their browsers/devices. Studies have shown that people are capable of ignoring web advertising compared to advertising on television or the radio. They can and do read news articles or other content without looking at or clicking on any of the ads.

And so an advertiser has a very tough choice to make. They can place ads on television with its rapidly-aging demographic and quickly-decreasing percentage of people who see the ads, or they can advertise on the web where people either block the ads or become good at ignoring them.

This is all evidence that technology has given the average person the ability to skip ads if they so choose. I know I have largely wiped ads out of my life. I can’t recall having watched an ad on television this year and I very rarely click on web ads. I used to be a voracious reader of magazines and I have not looked at a magazine this year. I read a local paper every day but I cannot name even one company that advertises in that paper. The one place where ads still get to me is on the radio that I always have on when I’m driving.

The problem with my behavior (and everybody else that ignores ads) is that advertising is what pays for a lot of the content we enjoy. If advertisers eventually bow to reality and cut back on TV and web advertising then a lot of the content we like will not be produced. It’s a real dilemma not only for the advertisers, but also for the television networks and web sites that rely on advertising to fund their content.

The Future of TV – The Viewer

The Twilight Saga (film series)

The Twilight Saga (film series) (Photo credit: Wikipedia)

Probably the biggest change in the TV landscape is that viewers are changing, or at least their expectations for the viewing experience. For the first time in the history of the industry, the consumer is in the driver’s seat by their ability to collectively determine which content is popular. This must be driving the executives at cable companies and media production companies crazy.

For most of the history of the industry, the content providers were in charge. For most of the history of TV the studios or cable networks would choose the content and determine when it would be seen. And the process was a huge chess match trying to get the most eyes to product hits. New content that was scheduled opposite an existing hit show were dead on arrival.

Not all consumers fit well with the process of having to watch shows at pre-set times. I am an admitted space cadet and I have never been able to watch a TV show regularly at a pre-set time. And so, when TV shows started showing up on tape and then DVDs, I scrapped television and would just buy the series I was interested in to watch at my leisure. I saved money by not having cable TV, but buying DVDs for shows was expensive and so I would watch only a few old series per year. And I bought movies. Lots and lots of movies. But I was in the minority and I was an early cord cutter due to my personal spacey habits and my willingness to pay a premium price for alternate content.

But then along came new technologies that let people drop out of the treadmill of watching shows at pre-determined times. First came TIVO followed by video-on-demand that let people record and watch shows later. And more lately has come OTT programming on the web. So now, people have an immense amount of content that they can watch at any time. Both my wife and I are the kind of people who like to watch a whole TV series back-to-back and so OTT programming satisfies us for the most part.

And if that is all there was to the change in the industry the cable companies and content providers would not be worried. They would continue to monetize the ability for people to watch their content whenever they wanted to, and in the end their finances would not change too drastically.

But that is not the end game. If you want to see the end game, spend a few days watching how 14-year olds watch video. The way they watch content is the future:

  • They rarely watch just one thing at a time, at least for very long. They may watch something on a TV screen, but they will watch their tablet and smart phone at the same time.
  • They don’t have long attention spans, regardless of the content and getting them to watch a movie the whole way through is difficult.
  • They like to watch content made by themselves and their friends as much as they like professional content.
  • They don’t want to watch something end-to-end. They will not go back and watch a Twilight movie they have already seen. Instead they will watch compilations of their favorite scenes from the Twilight movies that they or somebody else has strung together on YouTube.
  • They love the 7-second clip content on Vine. No adult can handle Vine for more than a short time. Vine produces memes more than content, but kids find this entertaining.
  • They love watching together with other teenagers, be that live together or virtually together.
  • They don’t even need cable for the news. Take the example of the Boston marathon bombing. There were hundreds of people in the area going live on the web talking about what was going on there.
  • And they don’t want to pay for content. Not so much because they are 14, but because they believe that content ought to be free.

It is the 14-year old girls that are scaring the industry because they presage a new way of interacting with content. These kids are not going to grow up and buy traditional cable subscriptions. They are not even that likely to buy the alternates like Hulu or NetFlix. They are largely happy with free content or short clips of industry content. The cable companies are hoping to snag boys with ESPN and sports content, but they don’t know what in the hell to do with the girls.

The Future of TV – Content

Photo of cable tv headend rack. Louisiana. Now...

Photo of cable tv headend rack. Louisiana. Now closed out of business. (Photo credit: Wikipedia)

Since cable TV became a nationwide product the content has been delivered by the cable providers in large packages that differed little from coast to coast. Small rural systems have typically smaller line-ups, but the programming available in the big cities is about the same everywhere.

The first big crack in how programming is delivered came with Tivo which let people record TV to watch later, including the ability to skip commercials. And quickly following that was video-on-demand from the cable companies. Now we are seeing a large amount of programming available on the Internet and I think we have turned the corner and consumers now have more say than the cable companies in how and when they watch content. This trend will strengthen and greater numbers of people will step away from traditional packages. I looked around to see what others are expecting for the future of content and here are some of the predictions:

Content Participation. This started in a mild way when home viewers could vote each week for the winners of shows like American Idol. This got millions of viewers heavily invested in the outcomes of such shows. Expect a lot more of this in the future and to a much greater degree. There will be programs that are driven by the viewers. The viewers will get a say in the plot development, the introduction of new characters or getting rid of existing ones. The shows and characters will participate in social media and become part of fan’s lives.

Viral TV Production. Even better than participation, viewers will be able to help fund new shows they want to watch. To some extent this has happened to a few shows today that were discontinued by networks but then picked up for independent production for the Internet. Viewers will not only get to participate as backers of new shows but will have the ability to have some say in the creation of content. I can picture Star Trek fans funding episode after episode forever.

Produce Your Own Content. Anybody who has witnessed 14-year-old girls watching video will see that a lot of what they watch is clips made by their friends or by themselves. As it becomes easier and easier to make your own content, and as this content is easier and easier to play anywhere, a lot of people are going to produce content to share with their friends.

More Local Content. To a large degree local content has died on cable TV. Larger markets have local news, but there is a lot of demand to watch local content such as high school football and basketball, parades, government meetings and other local events. The Internet is already producing ways to channelize local content and I expect local ‘channels’ to pop up all over the country. There is no reason that every high school, every college, every church can’t have their own local channel of web content.

Fewer Network Channels. I think everybody expects that as more content is on the Internet and as some of the more popular content becomes available on a per-pay basis that many of the existing cable networks will die. It’s been reported that 80% to – 85% of cable channels don’t make enough money to stand alone in an a la carte cable world.

Different Perspectives. Expect programming that will offer different perspectives. This has been done a little in the past with shows being filmed with different endings for different viewers, but expect a lot more of this in the future. There will be shows that will allow the viewer to watch the show from the perspective of a specific character.

Personalized Ads. Of course, with all of the good changes that are coming, there is a lot of consensus that ads will become more personalized. Of course, advertisers think that this will make you like to watch their ads since most of what you see will be aimed at you, but I suspect that is going to make most people even more jaded about advertising.

Sensory TV. As a science fiction fan I have been to a number of movies that purported to invoke the sense of smell, taste or touch during movies. I must say that movies with Sniff-o-rama were a little less than successful! However, it is predicted that in the near future that it will be possible though personal electronics to make a viewer really invoke the different senses. This will begin with gamers and will involve wearing helmets or goggles that will trigger brain sensations. But this will move eventually to wider programming.

Time to End the Cable Card Rules?

no-cable-tv

no-cable-tv (Photo credit: hjl)

This week the National Cable Television Association (NCTA) published a document called The Integration Ban – A Rule Past its Prime. So what is the integration ban and why are they so upset about it?

When the cable industry uses the phrase integration ban, they are referring to the various rules that require cable companies to offer settop boxes that include a cable card. There is no actual FCC order called the integration ban and that is a ‘marketing’ phrase the industry came up with to talk about the cable card rules.

NCTA has a lot of really valid points and there probably is no other set of rules administered by the FCC that is as much of a mess as the cable card rules. These rules came into place in 1998 and were due to multiple requests from the public to be able to use their own settop boxes rather than use the ones supplied by the cable company (and for which the cable company charges). And so the FCC came up with some complicated rules that required cable companies to use boxes that included a cable card.

A cable card is a little device that is about the size of a credit card and that fits into a slot in settop boxes. Its function is to decrypt the television signal from the cable company in order to watch the programming. Different cable companies use different encryption techniques, and so a consumer must acquire a cable card from their own cable company, and then they can use the card in a settop box they buy on their own.

This sounds like a good idea. Cable companies have historically charged around $5 per month forever to ‘rent’ the settop box and the FCC clearly envisioned that a lot of people would buy their own settop boxes to avoid these fees. But they haven’t, and so from a practical aspect this order has been a dismal failure. According to the NCTA there are only 600,000 cable cards in use today compared to 40 million cable card-ready settop boxes. And there are a huge number of settop boxes that don’t include the cable card technology, so less than 1% of consumers have taken the opportunity to avoid the settop box charges. From a market perspective that is a failure.

But that is not the only reason that the cable card order is a mess today. The FCC has granted numerous waivers over the years and so some companies do not have to use cable cards. AT&T and the telcos who use DSL do not have to use cable cards because nobody has really figured out a way to make them work with the way that DSL is used to deliver TV signal. One of the functions of a cable card is to act as a tuner, meaning it changes channels, and these technologies change the channel back at the headend rather than at the customer location. Many of the smaller fiber providers cannot buy settop boxes that will allow cable cards, although Verizon must offer them. The satellite providers also do not have to use cable cards for similar reasons.

But the FCC has also granted conditional waivers to some traditional cable companies like Charter and Cablevision. These providers have been working with a new technology that would allow customers to download software that would allow external devices to act as settop boxes on their systems.

But there is even a bigger reason why the cable card rules are a mess. In January of this year the D.C Circuit Court of Appeals entirely vacated what is known as the ‘Plug and Play rules’ that were issued by the FCC in 2003. These rules made changes to the cable card rules along with other cable-related issues. Further, the FCC amended the cable card rules again in 2010, largely based upon the 2003 order, and yet those rules were not vacated by the Court. We now have a regulatory puzzle that I am not sure anybody can solve (but many lawyers will be glad to charge to try).

Finally, and probably most important of all, settop boxes are quickly going to lose relevance in the marketplace. The FCC needs to look into people’s living rooms to see how people are watching video today. (I don’t mean that literally since that seems to be the NSA’s job). People want to be able to watch video on a wide array of devices, not just their television sets. They are connecting a plethora of new devices to their TVs and wireless networks to let them do this on their own. And many cable companies are now helping them by offering some form of what they are calling ‘TV Everywhere”. There are also cable providers who are actively allowing boxes like Hulu, Playstation and Apple TV to act as their settop box.

So we have cable card rules that are a failure in the marketplace. Further, the cable card rules have been eviscerated by a Court order and almost nobody understands what is or is not required any more. And technology is getting ready to quickly bypass the traditional settop box. The FCC needs to admit that this is an order past its prime and should stop requiring new cable cards. It might make some sense for some period of time to allow existing cable cards to be used, but it’s time to face the reality of the market and the technology and get out of the way of innovation

The Future of TV – The Sets

English: Various remote controls fot TV-set, D...

English: Various remote controls fot TV-set, DVD and VHS. (Photo credit: Wikipedia)

I think everybody agrees that television viewing is changing rapidly, and everybody in the industry has been thinking about how these changes will impact the cable business. I am going to do a series of blogs for a few Mondays looking at where industry experts think the business is moving. I will start off today looking at the future of the television set and then move on to other aspects of the business such as advertising, content production and viewing habits.

For the first time in many decades the purchase of new television sets is down. This seems to be due to two primary factors. First, 11% of homes now say that they now watch all of their video from computers, laptops, tablets or smartphones. So some households have given up on the communal nature of having a centralized set that everybody can watch together. However, the communal nature of TV viewing probably means that most households are going to want to keep a TV set of some sort. Second, TVs are being upgraded less often and people are treating them as a screen more so than a standalone device. When somebody connects a Hulu or Goggle Chromecast device to their TV they have in effect upgraded without the necessity of buying a new monitor.

So I looked around to see what experts think will happen to the TV set over time? Here are some guesses for both short-term and long-term.

Short-Term.  In the short term TV sets are going to get glitzier and have even more functions than they do today. Of course, not all big TV innovations succeed such as the fizzle that came with 3D TVs in 2010. But before TV manufacturers agree that the future of TVs is dead they are going to try to sell new sets by pushing new features. Some of the features being seen on new TVs now include:

  • Split screens. This takes the idea of picture in the screen and creates up to four separate pictures on the screen at the same time. Thus, a sports fan could watch four football games simultaneously. This has to be giving nightmares to companies delivering IPTV over DSL if each set can be asking for up to four HD channels at the same time.
  • Ultra High Definition. There are not TVs being made with 4k resolution which provides 4 times as many pixels with a 3840 X 2160 pixel grid as compared to today’s 1920 X 1080 grid.
  • OLED (Organic Light Emitting Diodes) TVs. These are ultrathin TVs made of layers of sprayed on materials that create a new kind of diode. The diodes emit their own light and turn black when not being used. The Koreans have made an OLED screen that is flexible and only 4 mm thick.
  • IGZO (Indium Gallium Zinc Oxide). Sharp has introduced a new LCD screen that is much brighter and also that can change colors much faster than older LCD screens. This ideal for gaming but also makes a superior TV screen.
  • Smart TVs. It is being rumored that Apple TV is almost ready to release its iTV, or the next generation of smart TV. A smart TV is really a new kind of smarter settop box combined with a screen. Apple will probably include Siri and iSight and other computer and smart phone features into the box. The smart TV will no longer be just a tuner and recorder but will be a full-functioning application machine that can bring the web and cellphone apps fully integrated to the TV set.

Long Run. In the long run it is likely that the TV settop box functionality will be completely separated from the display. The OLED flexible and transparent displays will mean that a TV will be able to be installed anywhere by laying a film over an existing surface. And so there could easily be an inexpensive TV display on the side of the refrigerator, on every mirror in the house or on any wall. These TVs will be operated using the combination of a smart box along with very fast WiFi in the house that will let all of the TVs be integrated into one system. This will allow for interesting new features such as ‘follow-me’ TV where the TV signal would follow the person from device to device and from room to room as they move throughout the house.

TV is also likely to become far more personal to each person in the household, a topic which I will look at in a future blog.

One small detail I almost forgot. The lowly TV remote is likely to die soon. The remote we have today is largely still needed due to a rule at the FCC called the integration ban which requires cable settop box manufacturers to produce a removable tuner, called a cable card. And so the current remotes still work on ancient infrared technology.

Remotes are starting to be replaced by smartphones and there are apps which can take over many of the remote functions. But in the not-too-distant future the smart TVs are going to do away with the need for any device and you will be able to control the TV by voice commands or by gestures. I know this will save me the five minutes it takes me every time I go to watch TV and try to remember where I left the remote!

The Future of TV

Kicking Television

Kicking Television (Photo credit: dhammza)

Laura Martin and Dan Medina of Needham & Company, a branch of an investment banking and asset management firm have issued an analysis on  the Future of TV. There has been a lot of other reporting about this report, most of which zeroed in on the fact that ESPN would need to charge $30 in an a la carte environment. I’ve written several other blogs about the a la carte issue and instead want to highlight some of the interesting facts from the report.

They say that TV is a bargain and that the average family spends 30 cents per hour to watch TV. This is based upon an average cost of $75 for a cable subscription and a family watching TV eight hours per day. I think they miss two points with this. The price of cable has grown much faster than inflation and there are now more and more homes who feel they can’t afford the cost of the subscription. If cable rates keep climbing 6% per year, in only five years this same subscription is going to cost over $100 per month. Also, there are many households who do not watch TV eight hours per day. It is these two groups that are leaving the cable system, the first reluctantly and the second because it no longer feels like a bargain.

TV content is expensive to produce. The four main broadcast networks (ABC, CBS, FOX and NBC) spend an average of $2.5 million to create a prime time hour of programming. To contrast, all of the other 130 or so cable networks spend an average of about $100,000 per hour. But there are new rivals now producing programming. There are a number of companies now producing content for the web and this is expected to grow rapidly. For example, YouTube is spending about $100 million, NetFlix $200 million, Hulu $500 million. And both AOL and Yahoo have created web ‘channels’.

They say that about 80% of content never pays for itself. The TV world is driven by hits since they draw the bulk of the advertising revenue. But hits are ephemeral and unpredictable. The broadcast networks have been geared for decades to product hits and it’s obvious that even with the money that they spend that it’s very hard to do. But the top shows garner the lion’s share of ad revenues. To show the power of hits, the top 1% of movie hits account for 18% of movie rentals / views.

They recognize that TV viewing is shifting in a digital age. They cite the following statistics:

  • 72% of viewers watch content only on a TV set.
  • 11% watch content only on some digital medium such as computer, pad or smartphone.
  • 17% of viewers watch some content in both ways.
  • 61% of TV watchers now use the Internet while watching TV and 10 – 25% of those viewers go to the website of the show being watched (depends upon the network being watched).
  • 29% of the viewers who use the web while watching TV are on Facebook.

The report estimates that over 1 million jobs are dependent upon the TV sector. These are mostly middle class jobs and include cable TV installers, customer service reps, people who work in various roles at the networks. Comcast alone has 126,000 employees. By contrast the new companies trying to make money from web content have very few employees. Hulu has 420 employees, YouTube has 650 and NetFlix has 2,348. The report thinks that most of the traditional cable TV jobs are at risk if we move to an a la carte system.

The public companies in the TV sector have about $400 billion in market cap (investable securities). The report estimates that at least half of that market cap would disappear under a la carte programming. They warn that even having the government looking at a la carte programming puts these investments at risk.

These are just a few of the many facts cited in the report, which is why I have included link to the full report for anybody who wants to read more. Oh, and at the end of the report they recommend buying CBS and AOL stock. If you buy them and it doesn’t work out, you didn’t hear it here.

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.

Google and Whitespace Radios

Image representing Google as depicted in Crunc...

Image via CrunchBase

Last week Google received approval to operate a public TV whitespace database. They are the third company after Telcordia and Spectrum Bridge to get this designation. The database is available at http://www.google.org/spectrum/whitespace/channel/index.html and is available to the public. With this database you can see the whitespace channels that are available in any given market in the country.

The Google announcement stems from a FCC order in April, 2012 in FCC Docket 12-36A1 which is attached. This docket established the rules under which carriers can use whitespace spectrum. Having an authorized public spectrum database is the first step for a company to operate in the spectrum.

You may have seen recent press releases that talk about how Google proposes to use tethered blimps to operate in the whitespace spectrum. They are calling this system ‘SkyNet’, a name that sends a few shiver up the spine of movie buffs, but the blimps are an interesting concept in that they will be able to illuminate a large area with affordable wireless spectrum. By having their database approved, Google is now able to test and deploy the SkyNet blimps.

The whitespace spectrum operates in the traditional television bands and consists of a series of 6‑megahertz channels that correspond to TV channels 2 through 51, in four bands of frequencies in the VHF and UHF regions of 54-72 MHz, 76-88 MHz, 174-216 MHz, and 470-698 MHz. Whitespace radio devices that will work in the spectrum are referred to in the FCC order as TVBD devices.

For a fixed radio deployment, meaning a radio always sitting at a home or business, a TVBD radio must be able to check back to the whitespace database daily to makes sure what spectrum it is allowed to use at any given location. Mobile TVBD radios have to check back more or less constantly. It is important for a radio to be able to check with the database because there are licensed uses available in these spectrums and a whitespace operator needs to always give up space to a licensed use of the spectrum as it arises.

This means that TVBD radios must be intelligent in that they need to be able to change the spectrum they are using according to where they are deployed. Whitespace radios are also a challenge from the perspective of radio engineering in that they must be able to somehow bond multiple paths from various available, yet widely separated channels in order to create a coherent bandwidth path for a given customer.

There are whitespace radios on the market today, but my research shows that they are still not particularly affordable for commercial deployment. But this is a fairly new radio market and this is part of the normal evolution one sees after new spectrum rules hit the market. Various vendors generally develop first generation devices that work in the spectrum, but the long-term success of any given spectrum generally depends upon having at least one vendor that finds a way to mass produce radios so that they can reduce the unit costs. There are some spectacular failures in several spectrums that have been released in the last few decades, such as MMDS, that failed due to never having reached the acceptance level of producing affordable devices.

But one might hope that Google will find the way to produce enough radios to make them affordable for the mass market. And then maybe we will finally get an inkling of Google’s long-term plans. There has been a lot of speculation about Google’s long term plans as an ISP due to their foray into gigabit fiber networks in places like Kansas City and Austin. And now, with SkyNet we see them making another deployment as an ISP in rural markets. If Google produces proprietary TVBD radios that they only use for themselves then one has to start believing that Google has plans to deploy broadband in many markets as an ISP as it sees opportunities. But if they make TVBD radios available to anybody who wants to deploy them, then we will all go back to scratching our heads and wondering what they are really up to.

I have a lot of clients who will be interested in whitespace radios if they become affordable (and if they happen to operate in one of the markets where there is enough whitespace channels available). Like others I will keep watching this developing market to see if there is any opportunity to make a business plan out of the new spectrum opportunity.

Who is a Cable Company?

wikipedia:RG-6 Wikipedia:Coaxial cable

wikipedia:RG-6 Wikipedia:Coaxial cable (Photo credit: Wikipedia)

There are regulatory battles that tackle issues of great importance, but there are also battles, which if brought to the public’s attention would leave them shaking their heads. Currently there is one such battle going on at the FCC.

The battle is a simple one that defines who is a cable company. This kind of regulatory battle comes up all of the time because of the nature of the way that regulation is written. Traditional cable TV has been around since the 1950’s when it brought network channels to remote rural markets which had no over-the-air reception. But the industry as we all now know it exploded in the 70’s when the industry was deregulated and new programming was created in the form of the many networks we now all watch.

As often happens, the FCC regulations concerning cable TV were written to be very technology specific. For many decades there was only one way to be a cable television provider, and that was to string coaxial cable to deliver cable signal to homes. The original cable technology got a major upgrade when fiber was brought into the network and most cable companies upgraded to hybrid fiber/coax (HFC) systems. But the new HFC technology still delivered the cable signal to the home using the same coaxial cables.

But then, as invariably happens with technology, something new came along. First were the satellite providers. They don’t use any wires and instead put satellites into low orbits and send the signal down to everybody that is under the satellites. And more recently came IPTV (IP-based delivery of cable signal using either DSL over copper wire or fiber). IPTV differs from traditional cable TV in that it typically only sends the signal to the customer for the channel they are watching while traditional cable transmits all of the channels all of the time. And there have been other technologies used during the years, such as several cable systems that were developed that beamed the signal to customers using a spectrum referred to as MMDS.

One would think that as new technologies are developed that do the same things as older technologies that regulations would just be changed as needed. After all, the general public doesn’t much care about the technology used to deliver their cable programming. I think most people would agree that a cable TV company is one that brings MTV and ESPN to their television.

And the technology is about to get a lot more complicated. First, many cable companies are upgrading their networks to become more digital and there are already trials of cable companies that are upgrading to IPTV across their coaxial cables. They are doing this to save more bandwidth to use to provide faster cable modem service. Would this mean they are no longer cable companies? And then there is the whole issue of people getting programming over the Internet. If I watch The Daily Show on my cellphone, is that cable TV? My guess is that no matter what the FCC does to change the definition of cable TV that it will be out of date in just a few years.

Technology differences are at the heart of a lot of FCC issues. For example, there are different rules now that apply to traditional long distance telephone companies versus those who use IP and the Internet to deliver telephone calls. A lot of the reason for these issues is that the FCC doesn’t get to make up its own rules in a vacuum. Many of the underlying rules that the FCC enforces are derived from bills passed by Congress. The FCC has a certain amount of leeway to interpret such rules, but they are also restrained to a great degree by stepping too far outside of Congress’s original language and intentions in the various laws.

As is often the case, this current dispute boils down to money. The FCC charges a fee per cable customer to pay for the cost of operating its Media Bureau, which oversees cable TV providers. Currently this fee is only assessed to traditional cable TV operators that deliver their signal to customers using coaxial cable. But the fee is not charged to the satellite and the IPTV providers. And both of those groups are huge. For instance if AT&T U-verse, which uses IPTV was classified as a cable company they would be the seventh largest cable provider. And the satellite companies are huge with over 34 million subscribers in 2012.

As usual, the various companies argue that there are differences that should keep them from being regulated as cable companies. For example the satellite providers don’t get involved in issues concerning hanging cables on poles. But honestly those kinds of distinctions are silly. There are differences everywhere among companies in every regulated industry. For example, there are many FCC rules that apply to the very large telephone companies that don’t apply to tiny telephone companies, and vice versa. And yet they are all considered to be telephone companies.

The similarities among cable providers are obvious. They all deliver a nearly identical product to consumers and they all pay a lot of money to programmers to get the content they transmit. And they are all regulated by the Media Bureau. Common sense tells me that any company that delivers cable programming to homes is a cable company and ought to kick in for the cost of regulation. I am not sure that I have ever seen any regulatory issue that makes me think, “If it quacks like a duck it must be a duck”.

Local Programming

digital on-demand

digital on-demand (Photo credit: Will Lion)

One way to differentiate your cable system from your competition is to develop local programming. Local programming is just what you imagine it to be. It includes such things as high school sports, little league games, local church services, local government meetings, high school plays, and if you have a local college a wide array of things. And it can include more with content like local news, courts, cooking shows, tourist information, etc.

Why should you get involved with local programming? If local programming is done well, meaning that it has content that people want to watch, then it differentiates your cable programming from the competition and entices people to buy your service rather than the other guy. And of course, if customers buy your cable they are more likely to buy your higher margin products like data and telephone.

The ability to produce local programming has gotten much easier in recent years due to the cost of cameras dropping significantly. I remember in the not-too-distant past helping local service providers get grants to buy video cameras for local organizations that cost more than $15,000 each. Today, studio quality cameras are handheld and cost a fraction of that old cost.

One of the first hurdles you must cross with local programming is figuring out how to get the content listed in the channel guide with everything else. Many, but not all channel guides allow you to insert your own custom programs.

A number of cable systems carry local programming of some sort, so let me talk about how various companies have gotten local programming onto their cable systems.

Create a Local Network. There is always the expensive way to do things, which is to create a traditional local channel on your cable system. This means you would have some sort of studio and you would produce a lot of content to run 24/7. Some companies have done this and think it is successful. Some of the larger cable companies such as Cox have local channels, but there are also smaller companies doing this like Hiawatha Broadband in Winona, Minnesota and several large telephone cooperatives in the West. But the cost of producing content is expensive and very few companies feel they can afford this option. To be successful, it must be done well.

Let Others Create the Content. There is a less expensive option which is to let other create the content for you. There are a number of systems that have given a channel to local government, to local churches or to universities. Sometimes these organizations to a great job and sometimes they don’t. Most viewers don’t hold local programming to the same standards as network TV, but shows must have good sound and decent video if they are to attract viewers. One of the most successful local programs I have ever seen was a company that carried a local court and it seems the DUIs get good ratings. Many communities have done well broadcasting local high school sports.

Video-on-demand. Another way to carry local programming is not to create a channel, but instead to create a library of local content. If your system is capable of video on demand then you can create a library of local content. This way you can not only cover little league or high school sports, but a subscriber can pull up the game where their son hit a home run from last summer to show grandma when she visits.

There are other uses of having this kind of VOD library. For instance, you can create a rotating set of content from the library to show in hotels to tell visitors about area attractions. You could do something like the City of Seattle has done and create an index of past government meetings so that somebody can pull up a specific meeting where a specific topic was discussed. You can also pull the best of the VOD content and create a channel where the content plays continuously. But to do this well you need to always refresh the content.

Web TV channels. Finally there is the newest way to create a channel. There are now some vendors who have made it easy to let you put any web content directly onto your cable system. They let you take any web programming and create a virtual channel. They let you create as many local channels as you like and to put the content into a channel lineup.

This really opens up the world of local content for a service provider. It takes a lot of electronics and eats up system bandwidth to create multiple traditional local channels. But using a web-to-TV interface you can carry almost unlimited channels in one channel slot on your network. Each customer can then just watch what they want out of the lineup because they are getting the content from the web and not broadcast as a ‘channel’ from the hub.

This means that you can give a ‘channel’ to every organization in town that wants one, be that high schools, colleges, churches, governments, non-profits, local businesses, etc. Some of them will do a good job at creating local content and others will not, but the best of them ought to create a great local line-up that your competition won’t have.

This technology also lets you bring in any other content from the web. You can add OTT content like NetFlix and Amazon Prime. You can make channels out of YouTube. Or you can add one of the web services that have already tied this kind of web programming together nicely.

So you can create channels that bring together local content plus the best of the web. One idea that I have mentioned before is to create a package of local programming, OTT web programming and network channels. Such a package could sell for $20 and be more profitable than your larger cable packages. You can also insert local advertising into local programming or sign up with somebody like aioTV who will insert national advertising and share the revenue with you.