Tag Archives: Time Warner Cable

Cable Companies Try Skinny Bundles

Comcast truckWhile all of the cable companies and their trade organizations publicly deny that cord cutting is a real phenomenon, in this most recent quarter most of the large cable companies have announced a skinny bundle package delivered over the web. It’s hard to think that these packages are aimed at anybody but cord cutters and in fact, one has to wonder if they might lure more people away from the big packages.

CEO Rob Marcus of Time Warner Cable says that their skinny bundle is an attempt to get rid of settop boxes. TWC just announced in New York and New Jersey that all cable customers can now use Roku instead of settop boxes. He said that TWC has a long-term strategy to get out of the settop box business, which is a big expense for the company and something that customers really don’t like paying for. I know that for most of my clients the monthly settop box rentals are one of the most profitable parts about selling cable TV and so his statement puzzles me a bit. But my clients are not working in major metropolitan markets and perhaps the total cost of tracking and swapping boxes is different for a large company.

But since TWC offers Roku for everybody I’m not sure that settop boxes are a very good explanation for their skinny bundle. TWC is now trialing a skinny bundle in New York City, available only to its data customers. It starts at $10 per month for 20 channels with options to add movie channels and other networks running up to $50 per month. That sure looks to be aimed at cord cutters.

And most of the other cable companies are also limiting their offerings to their own data customers. For instance, Comcast has launched a trial in the Boston area of a skinny bundle they are branding as Stream for their own data customers at $15 per month, including all taxes and fees. The package includes local networks, HBO, and some streaming movies. They plan to take this nationwide in 2016. The unique feature of the Comcast product is that it is not truly an OTT product since it doesn’t use the shared data stream but is delivered with separate bandwidth on the cable network.

Charter has launched what they are calling Spectrum TV. It starts at $12.99 per month and comes with a free Roku 3 player. This bundle contains 19 channels including the four major off-air networks. For an additional $7 per month customers can add more channels including ESPN, and for even more money customers can add HBO or Showtime. .

CableVision launched packages back in April of this year that includes a digital antenna for receiving local channels. They are offering a 50 Mbps data product plus the antenna plus HBO for $44.90 per month.

This isn’t limited to just the cable companies. CenturyLink is supposedly getting ready to trial a skinny bundle for its data customers. There are no details yet of pricing or line-up.

This all got started with Dish networks and their Sling TV product. Unlike these other products that, for now, are only available to the data customers of each ISP, Sling is available to anybody with a fast enough connection. I previously reviewed Sling TV and it had a lot of problems. I tried it during the first football game of the season and it was so bad that I abandoned it. I just watched Maryland beat Georgetown in basketball last night and the video was still out of sync with the audio. It’s getting better, but is still not as good as cable TV.

It’s interesting that most of the companies like CenturyLink say their skinny bundles are aimed at cord cutters, but even more specifically are aimed at millennials. I look at the channels offered and my bet is that baby boomers like me are going to more interested in this than millennials. I guess we’ll have to wait and see who subscribes to the skinny bundles.

Can Cable Networks Deliver a Gigabit?

coax cablesTime Warner Cable recently promised the Los Angeles City Council that they could bring gigabit service to the city by 2016. This raises the question – can today’s cable networks deliver a gigabit?

The short answer is yes, they are soon going to be able to do that, but with a whole list of caveats. So let me look at the various issues involved:

  • DOCSIS 3.1: First, a cable company has to upgrade to DOCSIS 3.1. This is the latest technology from CableLabs that lets cable companies bond multiple channels together in a cable system to be able to deliver faster data speeds. This technology is just now hitting the market and so by next year cable companies are going to be able to have this implemented and tested.
  • Spare Channels: To get gigabit speeds, a cable system is going to need at least 20 empty channels on their network. Cable companies for years have been making digital upgrades in order to cram more channels into the existing channel slots. But they also have continued demands to carry more channels which then eats up channel slots. Further, they are looking at possibly having to carry some channels of 4K programming, which is a huge bandwidth eater. For networks without many spare channels it can be quite costly to free up this much empty space on the network. But many networks will have this many channels available now or in the near future.
  • New Cable Modems: DOCSIS 3.1 requires a new, and relatively expensive cable modem. Because of this a cable company is going to want to keep existing data customers where they are on the system and use the new swath of bandwidth selectively for the new gigabit customers.
  • Guaranteed versus Best Effort: If a cable company wants to guarantee gigabit speeds then they are not going to be able to have too many gigabit customers at a given node. This means that as the number of gigabit customers grows they will have to ‘split’ nodes, which often means building more fiber to feed the nodes plus an electronics upgrade. In systems with large nodes this might be the most expensive part of the upgrade to gigabit. The alternative to this is to have a best-effort product that only is capable of a gigabit at 3:00 in the morning when the network has no other traffic.
  • Bandwidth to the Nodes: Not all cable companies are going to have enough existing bandwidth between the headend and the nodes to incorporate an additional gigabit of data. That will mean an upgrade of the node transport electronics.

So the answer is that Time Warner will be capable of delivering a gigabit next year as long as they upgrade to DOCSIS 3.1, have enough spare channels, and as long as they don’t sell too many gigabit customers and end up needing massive node upgrades.

And that is probably the key point about cable networks and gigabit. Cable networks were designed to provide shared data among many homes at the same time. This is why cable networks have been infamous for slowing down at peak demand times when the number of homes using data is high. And that’s why they have always sold their speeds as ‘up to’ a listed number. It’s incredibly hard for them to guarantee a speed.

When you contrast this to fiber, it’s relatively easy for somebody like Google to guarantee a gigabit (or any other speed). Their fiber networks share data among a relatively small number of households and they are able to engineer to be able to meet the peak speeds.

Cable companies will certainly be able to deliver a gigabit speed. But I find it unlikely for a while that they are going to price it at $70 like Google or that they are going to try to push it to very many homes. There are very few, if any, cable networks that are ready to upgrade all or even most of their customers to gigabit speeds. There are too many chokepoints in their networks that can not handle that much bandwidth.

But as long as a cable network meets the base criteria I discussed they can sell some gigabit without too much strain. Expect them to price gigabit bandwidth high enough that they don’t get more than 5%, or some similar penetration of customers on the high bandwidth product. There are other network changes coming that will make this easier. I just talked last week about a new technology that will move the CMTS to the nodes, something that will make it easier to offer large bandwidth. This also gets easier as cable systems move closer to offering IPTV, or at least to finding ways to be more efficient with television bandwidth.

Finally, there is always the Comcast solution. Comcast today is selling a 2 gigabit connection that is delivered over fiber. It’s priced at $300 per month and is only available to customers who live very close to an existing Comcast fiber. Having this product allows Comcast to advertise as a gigabit company, even though this falls into the category of ‘press release’ product rather than something that very many homes will ever decide to buy. We’ll have to wait and see if Time Warner is going to make gigabit affordable and widely available. I’m sure that is what the Los Angeles City Council thinks they heard, but I seriously doubt that is what Time Warner meant.

The Last Bell Company

Bell_logo_1969Cincinnati Bell is the only company in the US still using the Bell name. Founded in 1873 as a telegraph company, even before the invention of the telephone, the company has been serving a small 3-state area around Cincinnati since the founding of telephony. The company operated independently from the old Bell system because AT&T only owned a 32.6% share of the company.

The company abandoned the Bell name for a while in the 90s, changing its corporate name to the Broadwing Corporation, but changed its name back to Cincinnati Bell after a few years. The company has ventured outside its small footprint over the years. It bought IXC communications, a nationwide fiber network, and also spread out at one point as a CLEC to many parts of Ohio. The company’s biggest non-traditional offering was its wireless business which it sold to Verizon last year for $194 million. Like all independent wireless operators it was feeling the pinch of competition from the price wars going on in the wireless industry.

The company has seen the same drop-off of its traditional line of business as all telcos. The company’s traditional voice business of selling telephone lines fell from $520 million per year in 2004 to $203 million in 2014 and now represents only 16% of the company’s revenues. As homes and businesses ditched voice, the successful telcos have had to look elsewhere to replace those revenues.

Cincinnati Bell has undertaken a number of new business lines, and its most successful is its Fioptics business of building fiber to homes and businesses. The company reported at the end of 2014 that it had FTTP service in 91,000 homes and businesses, up from 11,000 in 2009. The company has also put a big emphasis on building fiber to businesses districts and has connected 5,800 commercial buildings in the region, compared to roughly 500 by main rival Time Warner.

In 2014 the company’s fiber business generated $310 million and expects those revenues to grow significantly as they expand the fiber network. The company plans on using the cash from the sale of its wireless business to further expand the fiber business, planning to spend $210 million on fiber expansion in 2015. At the end of 2014 the company had covered about 40% of the region with fiber and expects that to nearly double by the end of 2016.

The company has also done well serving the large corporations in their footprint like Proctor&Gamble and General Electric. The company has a full suite of large company products, such as cloud services, which it has now pushed down to smaller businesses. This business line generated $168 million in 2014 and is growing by double digits.

This effort makes Cncinnati Bell one of the largest fiber builders after Verizon FiOS. And like many fiber companies, they now offers a residential gigabit product priced at $89.99 per month for the first year and then going to $99.99. This is in a market where today Time Warner’s fastest product is 50 mbps download priced at a promotional price of $64.99 and reverting to $107.99 at the end of the promotion. Of course, we’ve seen Time Warner get much faster and become price competitive in other fiber markets like Austin.

For a company to reinvent itself is not easy or without risk. Like many companies that ventured into the CLEC business in the late 90s, Cincinnati Bell’s CLEC business came up a big bust. The company racked up $3 billion in debts and the business badly underperformed, threatening bankruptcy in 2003.

But the company made the right calls and changed directions again towards fiber and now seems to be on a solid path. The company has clearly reinvented itself again to be a fiber ISP. Companies who have been able to make that transition seem to be thriving. Offering the fastest data speeds of fiber in a given market seems to be a winning strategy and is letting companies like Cincinnati Bell benefit from the continuing growth of broadband services.

The company’s history is a good object lesson for others in the industry. The company foresaw the eventual death of voice as a viable business and took chances on launching into other areas. It fared poorly as a CLEC, a little better but not spectacularly as a wireless carrier, and seems to have hit a home run with fiber.

No company in this space can ever stop reinventing itself. The fiber business has thrived in part due to the continually growing demand for broadband, which has now achieved around 75% nationwide penetration of all households. But when that growth tops out, and as cable companies offer faster speeds, even fiber companies will need to stay nimble and creative to protect their revenues. Cincinnati Bell seems like a company that is always willing to take a fresh look at itself, and that’s a good lesson for all carriers.

Why Not Faster Data Speeds?

Speed_Street_SignI was recently at my mother-in-law’s house and saw an example of what competition can do for the country. She lives in Kyle, Texas, which is an outer suburb of Austin. When I say outer, it’s an hour’s drive to downtown Austin.

As I was working on my laptop using her WiFi, it felt like it was faster than in previous times that I had visited here, so I ran a speed test. And sure enough, her bandwidth measured in at a little over 70 Mbps download and 10 Mbps upload.

She buys only the basic Internet product from Time Warner. I am pretty sure that in the past this was a much slower product, closer to 15 Mbps, and possibly less. But for certain her speed has been increased significantly due to competition. By now everybody knows that Austin is in the midst of significant competition with Google, Grande and AT&T each selling a gigabit data product, while Time Warner which now has speeds up to 300 Mpbs. What this competition has done is to up the game for everybody in the market.

The sad thing is that it takes competition to get the cable companies to up their game. I doubt that many other Time Warner markets around the country have base speeds of 70 Mbps, and probably none of their other markets has speeds of 300 Mbps.

I really don’t understand why the cable companies don’t just increase speeds everywhere as a way to fend off competition. One would think Google might be a lot less likely to build fiber into a market if every customer there already had 300 Mbps data speeds. The cable companies in most markets clearly have the majority of customers, and certainly have all of the customers who are interested in fast speeds. They have it within their power to be market leaders and to bring fast speeds today, so that any future competitor will have a hard time denting their lucrative markets.

Instead many of them sit and wait until the inevitable announcement of competition before they do the upgrades needed to get faster speeds. For example, Cox has announced that in Omaha and Las Vegas they will have speeds as high as a gigabit in response to fiber deployment by CenturyLink in those markets. But not all of them are waiting. For example, Charter recently doubled the speeds on most of their products. That is not the same as offering blazingly fast speeds, but it really makes a difference to boost their base residential product to 60 mbps.

I know that there is a cost to upgrading data speeds. But recently Time Warner Cable said in their annual report that they have a 97% margin on their data products, a number that opened a lot of eyes nationally. One would think that the cable companies would do anything to protect a product with margins that high and that they might spend some of that margin to fend off competition.

I have no idea how well Google does when they come into a new market. I know that when a municipal provider comes to a market they generally get 40% to 60% market penetration with their data products. But the Google product, at a premium price of $70 per month is probably not going to attract quite as many customers. Still, one has to think that they probably get at least 30% of households.

Cable companies have a lot to lose if they lose 30% or more of their customers in the large urban markets. It’s clear that the cable TV product today has very poor margins (if not negative margins) and so the future of the cable companies comes from data sales. They are in the enviable position of already having gotten most of the customers in most market and one would think they would want to jump in front of potential competition and head it off before it even starts.

But they are not acting like companies with a lot to lose. To me it feels like they are making a strategic error by not being more proactive with data speed upgrades. The cable companies are largely disliked by their customers, and they could go a long way to change that perception by unilaterally raising data speeds to be as fast as they can make them.

I am glad to see competition forcing data speed increases, but the majority of markets are not competitive. But in my mind, if the cable companies wait to increase speeds only after there has been an announcement of a coming competitor in each market, they will have lost the game. People are going to perceive that as too little, too late. And it’s a shame, because we know in Austin what a cable company can do if they are motivated by competition. I just scratch my head and wonder why maintaining markets with a 97% margin data product is not enough motivation to fight to keep the customers they already have.

 

How’s Cable Doing?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A Comeback for Landlines?

Black phoneTime Warner Cable this past week announced an app it calls Phone 2 Go that will work on any smartphone or tablet and that will let a Time Warner customer use their home phone plan on these devices instead of cellular voice. At CCG we have predicting for several years that somebody would do this and hopefully Time Warner is the first among many to try this.

This gives landline telcos the ability to fight back against the continued loss of voice customers to the cellular carriers. We all know that cellphones are more convenient than landlines, but cellphone voice is much more expensive. Take the typical household. They probably can buy an unlimited long distance plan for their home phone for $25 – $30 per month. But if each member of their household buys unlimited voice on a cellphone then each one is paying $20 – $30 per month for voice. Even with a family plan it’s far cheaper for a family to share one landline than it is for each of them to buy a cellular voice plan.

With this app calls are completed over the data connection on the smartphone or tablet, be that on WiFi or cellular data. The press release I saw was short on details and I have many questions about the specifics of the product. But it’s a great idea for telcos to fight back against the continuing loss of voice lines to cellular companies. For example, how does this plan handle having more than one call at the same time? How does it allow for incoming calls to be segregated by family member so that each person only gets the calls intended for them? These are all solvable issues and I’m just curious to see the specific Time Warner solutions.

Since there are also numerous free text messaging apps available for smartphones today, it would be possible for a smartphone customer with a Time Warner landline to buy only data from the cellular company and avoid paying for both voice and text plans. It’s not a big secret that the cellphone companies are making a fortune today on voice and text plans – cellular voice has a very high margin and text is nearly 100% margin. It will be interesting to see how the cellular providers react to Time Warner’s move assuming that the product gets traction.

This app is going to create a demand for data-only plans for cellphones and tablets. There are a number of data-only plans available for tablets today, but I have never seen a data-only plan for smartphones. However, one has to imagine that Sprint of T-Mobile will offer a data-only plan if there is public demand for it. Such a plan would still be quite profitable for the cell carrier. One might picture AT&T and Verizon trying to squelch this idea, but if additional telcos pick up on the idea it’s going to be hard to stop.

This could potentially stop the flood of landlines that are being dropped in favor of cellular numbers. This plan gives people the flexibility to build a voice plan in a way that best fits their needs. Many people who have dropped landlines may well want them back again if the landline connection also covers their cell phones.

One of the articles I read on this suggested that this would only work for companies that already offer VoiP. But I can’t think of any reason why this wouldn’t work for any company that uses a modern softswitch. Such switches can handle calls in multiple formats from multiple sources and should easily be able to handle a mix of TDM and VoIP calls. I can’t think of hardly any of my clients who could not make this work, assuming they could get the app.

This app raises regulatory issues. For example, does a call made over a cellphone’s data connection have the calling scope of the cellphone or of the associated landline? This kind of application completely blurs the regulatory distinctions we have maintained between cellphone and landline voice and might force the FCC to examine those differences.

I find it funny when people say that voice has become irrelevant, because just the opposite is true. There are more people paying for voice plans today than ever before in this country. What we have seen is an increase in the number of people unwilling to pay for both a landline and cellular line. This app is the first step towards making voice agnostic of the platform and it gives anybody with landline customers the ability to serve voice to any device. This actually gives a big advantage to landline companies because they can serve every line a customer has while the cellular companies can only serve cellular lines. In some ways this gives the advantage back to the landline providers. Let’s see if they are able to take advantage of the opportunity.

 

Do the Big Companies Even Want to Get it Right?

020916-F-4728F-001The latest Consumer Reports rankings are out for telecom providers, and the results are much the same as in past years. There are many different groups that rate companies and we often hear of reports that put the cable companies at the bottom of all companies in terms of customer service.

But the Consumer Reports ranking is more comprehensive. It looks at a lot of factors such as the perceived value that customers see with the provide, reliability, speeds, and support both in the home and over the phone. And they compare all of the major telecom companies and don’t compare to other industries.

Not surprisingly, HughesNet and their satellite broadband ranks the lowest. I’ve never heard anybody talk nicely about their product since it’s slow, costly and also has a lot of latency and delays. Many people say it is barely better than dial-up. It will be interesting to see how satellite ranks now that Exede is in the market with a faster product. As I reported a few weeks ago, the issue with Exede is the low total data caps, but at least the 12 mbps download is a huge improvement.

Ranked next to satellite is MediaCom which always comes in dead last among cable and telcos. Ranked next at the bottom are the various DSL providers, with Frontier, Fairpoint, Windstream and AT&T DSL. For the most part the customers on these services have older DSL technology that is only delivering a few Mbps download speeds. There is faster DSL technology available today and better ways to deploy it by bringing the DSLAMs closer to customers, but the companies listed are for the most part not pumping much money into DSL. The exception is Frontier who has gotten a pile of federal subsidy money from the new USF fund to upgrade and expand its DSL footprint.

But right next to this old DSL technology is Comcast, followed closely by Verizon DSL and then Time Warner. Verizon barely even advertises that it has DSL anymore and it is a surprise to see it more favorable with customers than Comcast.

At the top of the list and doing the best job are the smaller cable companies and fiber providers. At the top of the list are WOW and Wave (Astound) followed by Verizon FiOS.

It just amazes me to see these large companies like Comcast and Time Warner do so poorly with their customer service. They have been at the bottom of these kinds of rankings for well over a decade now and it’s obvious that they are willing to live with giving poor service. When you look at the rankings and see that Comcast is viewed by customers to be doing a worse job than Verizon and CenturyLink DSL you just have to shake your head.

It’s very obvious that they don’t care to become better because by spending some money they could do much better. Doing customer service well is not some unreachable mountain of a task. Thousands of companies do it well. If WOW and Astound can do it well, so can Comcast and Time Warner. It’s a matter of investing in the right systems, the right training and the right management of the process. Being big is not an excuse for being crappy, and if it is a valid excuse, then this alone ought to stop the Comcast / Time Warner merger.

I would think that the management of these companies would hate seeing themselves at the bottom of these lists. But they obviously like profits more than they hate doing a poor job. And that is what I don’t get. These companies have lost millions of customers due to dissatisfaction with their service and their best growth strategy is to lure back customers in their existing markets by doing a better job.

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.

A la Carte Programming and Sports

ESPN, Fox Sports, Comcast SportsNet, and regional sports networks like the Big Ten Network must all be lobbying hard against a la carte cable programming ever becoming a reality. Their business model relies on the practice where all cable subscribers must pay for sports even if they never watch it. Sports programming has become a significant chunk of what customers pay each month for cable TV and the rates charged for sports networks are growing at the fastest pace.

It’s not hard to see why sports programming is so expensive because the sports networks pay a lot of money to obtain exclusive sports content. Let’s look at ESPN as an example. It was reported in financial news that ESPN will pay over $3.5 billion in 2013 for sports programming.  That includes $1.1 billion to the NFL, $600 million to the NBA, $610 million for football bowl games, $360 million to major league baseball, $240 million for ACC sports, and many other smaller deals.

And the amounts that are being paid keep rising. It’s been reported that in 2014 the fee for the NFL will jump to $1.9 billion and for baseball to $700 million. The network just announced an eleven year deal for $770 million to broadcast the U.S. Open Tennis Tournament. And ESPN will be launching a new network for Southwest Conference Football in 2014 and the details of the amounts to be paid have not been announced, but one has to imagine they are huge.

How much does this all cost consumers? Not all cable companies pay the same amounts for ESPN since there are individual contracts with each cable company that span different periods of times. I’ve seen recent articles that say that the average monthly cost charged today for cable companies for ESPN is $5.13 per household, with additional monthly fees of $0.68 for ESPN2, $0.18 for ESPNNEWS and $0.18 for ESPNU. For 2013 those fees total to over $7.3 billion. A household getting all four of these channels would be paying $74 per year just to ESPN. And if they have a cable provider that carries all four of those channels there is a good chance they are also paying for other sports networks like FoxSports, Comcast SportsNet, the NFL channel, the golf channel, the Tennis channel and a bunch of others. And the fees paid for sports aren’t even always obvious since there is a substantial fee for the Olympics buried in the fees for carrying the NBC channels. It’s probably not a bad guess to think that the average cable household is already paying over $100 per year today for sports coverage.

And the fees are continuing to climb at a rate far faster than inflation. It’s been reported that a recent deal signed by Time Warner Cable has them paying almost $7.50 for ESPN by 2018 with a built-in annual 6.5% rate increase after that. This would put the cost of ESPN over $8 per household per month by the end of the decade, or almost $100 per year.

As I have written in the past, the whole cable industry is starting to see subscribership fray around the edges. It was just reported by Variety last week that all cable companies combined lost about 80,000 customers for the 12 months ending March 31, 2013. That doesn’t sound like a lot, but just a few years ago cable subscribers were growing by several million per year. Industry experts predict the number of cable subscribers will begin dropping more each year, much like what happened with landline telephones over the last decade. There are a lot of reasons for this including cord cutters who are dropping cable for programming on the web, and young households who just aren’t signing up for cable. But one contributing reason is rate fatigue, meaning that households are finding the rates for cable to be more than they are willing to pay.

So why would the sports programmers be sweating a change to a la carte programming? It sounds like a really good idea for customers to be able to buy just the programming they want. What sports lover would not love to ditch Lifetime Movies, and what sports hating household would not want to stop paying for ESPN?

The answer is simple math. If a la carte programming is introduced then buying what you want will be too expensive. Let’s just look at ESPN as an example. Let’s say ESPN went to a la carte programming so that only households who wanted it would buy it. The amount that ESPN would charge on a standalone basis would depend upon how many households they think would be willing to write a check for ESPN. Let’s look at the math. This assumes that the cable company would mark-up the channel by 30%. These are the resulting monthly subscription rates:

Willing To Buy              Rate Today            Rate in 2020

50%                                    $15                           $20

30%                                    $26                           $33

15%                                    $51                           $67

This table must scare the hell out of ESPN. We already know what a la carte looks like. HBO is sold a la carte and is in 30 million homes, or 30% of the US market for around $15. I look at this table and find it hard to think that 30% of homes would pay $26 monthly for just the four ESPN channels. There is probably no price point on this table that looks realistic in the market, and so the reality is that if ESPN was to be sold on an a la carte basis that they would have to cut their rates, meaning that they would have to cut the payments they are making to the various sports. And that would have a profound impact on the sports industry. For example, universities in the major conferences now rely on cable revenues to support their teams and one can imagine massive cutbacks in college sports if the TV revenues decline. Television fees are the main factor behind the huge salaries paid by professional sports.

And this same math is going to be the same for every other sports network – and as far as that goes, for every cable network. If a la carte programming comes to pass and people buy only what they want, they are going to end up paying as much as they do today for a smaller number of channels. Today’s regime of averaging the cost of hundreds of networks across 100 million cable subscribers has resulted in the wide variety of programming available to a cable household. It is my prediction that under a la carte programming that many of the networks we watch today would fold because they could not find enough buyers individually to support them. And maybe that is what should happen. Certainly, if the cable industry starts seeing total subscribers dropping by millions per year this will happen eventually anyway. There just won’t be enough money to support all of the networks. I can’t see any future where the amount of monies paid by ESPN and other sports networks to obtain programming rights doesn’t go down. It’s just a matter of math and time.