Posts Tagged ‘Broadband’

It’s All About The Pipes

It has become increasingly clear that consumers are moving to streaming and cloud downloads to watch TV shows and movies at home. This trend, which has been documented by numerous research firms and news organizations, reached a “tipping point” in 2011 when more video was acquired via streaming and downloads than by the traditional method of renting or purchasing optical discs.

I’ve been staying on top of this phenomenon ever since 2005, when optical disc purchases began a slow, steady decline. A few years later, DVD rentals also turned south and have stayed there ever since. The blue laser format wars of 2005 – 2006 did nothing to reverse this trend: Blu-ray disc sales have not nearly made up for the fall-off in packaged media sales and rentals.

Netflix, of course, carries the blame (or credit) for this reversal of fortune. The company now has over 50 million subscribers worldwide, with over 30 million of them stateside. Their clout has increased to the point where agreements have been negotiated with Comcast, Time Warner, Verizon, and other MSOs to ensure Netflix can stream its movies and TV shows with minimum guaranteed bit rates.

At the receiving end, we’ve seen increasing competition by Internet service providers to boost their download speeds. Although Verizon’s FiOS service lies buried in my front yard, ready for tapping, I still rely on Comcast for video, VoIP, and broadband. (For now, Verizon is a “useful idiot” when I complain to Comcast about ever-escalating costs.)

A quick check with the CNET Broadband Speed Test shows my download speeds at 10 AM average 17 – 20 Mb/s, which is certainly faster than they were a year ago. But they’re not nearly as fast as those encountered in South Korea, Zurich, Brussels, Hong Kong, or even Chattanooga, Tennessee.

An article in Friday’s New York Times explores why the U.S. has fallen behind in providing faster Internet service and offers up some intriguing data from a group called the New America Foundation’s Open Technology Institute. In many countries, governments regulate or control telecommunications services and have made the necessary investments to upgrade their broadband networks.

In contrast, broadband delivery in the U.S. is largely dominated by Comcast, Time Warner, AT&T, and Verizon, who appear to be motivated solely by the bottom line. There are exceptions, such as the aforementioned Chattanooga, where the city offers service through a publicly-owned and operated fiber optic backbone, and Kansas City, where Google took over an existing ISP and has been upgrading to fiber with haste.

What about the rest of Americans, particularly those in areas limited to DSL or even satellite broadband (always unpredictable?) Some hope may lie in the new High Efficiency Video Codec (HEVC), a.k.a. MPEG-H H.265. This codec promises to reduce bit rates by 50% over H.264, allowing delivery of 1080p/60 content to homes with adaptive bit rates in the vicinity of 1 – 2 Mb/s. Not coincidentally, that is the average download speed found in a majority of U.S. homes between 9 and 11 PM at night, when video streaming is heaviest.

Hand-in-hand with improved broadband service comes cord-cutting, or dropping pay TV channel packages in favor of streaming. A recent report by The Diffusion Group shows that 14% of all broadband homes don’t subscribe to pay TV, up from 9% in 2011. The report states that about 75% of U.S. households now have broadband service, so 13 million homes are doing just fine without the likes of DirecTV and Comcast.

I’ve written previously about the growing outflow of pay TV customers and how the pay TV industry saw its first net loss in subscribers in 2013. This trend hasn’t gone unnoticed by media companies: HBO announced last month that it would launch a streaming service for $15 per month that would reach a large, younger population of viewers who have no interest in cable subscriptions.

CBS followed suit the next day, announcing an “all access” subscription for $6/month to all its owned stations, current programming (viewed a day later), and an enormous archive of older yet still popular TV shows such as Star Trek and Cheers (two shows that, ironically, originally ran on NBC!). And yes, there are mobile apps for all of this.

The convergence of cord-cutting and improved broadband connections has economists wondering if we are finally reaching the era of “a la carte TV.” In an intriguing paper posted on the Knowledge@Wharton Web site, the author ponders if consumers would be better off with a la carte (pick your own channels) services, or if costs would skyrocket and diminish the value of choice.

One thing is for certain: Speed drives need. Just as improvements to the highway system in this country led to bigger, faster, and more comfortable cars, faster broadband access (no matter where it comes from), coupled with more efficient video codecs, will lead to more cord-cutting and a shift in video content delivery and consumption online at the expense of conventional TV channel viewing.

It’s all about the pipes…

Trends: Ignore Them At Your Peril

On August 15, Leichtman Research Group of Durham, NH released its quarterly revenue and subscription numbers for U.S. cable TV providers. And there was a surprise to be found in the calculations.

For the first time ever, the number of broadband service subscribers for major cable TV service providers exceeded (barely) the number of cable TV channel subscribers. This happened during the 2nd quarter of 2014 and represents a milestone for pay TV services. (And yours truly predicted it would happen a year earlier, in a DD posted a few years back. Oh well, close enough for government work…)

The actual differential favoring broadband subscriptions was small, amounting to about 5,000 more broadband customers. The actual totals for cable TV systems (not including Wide Open West, an overbuilder) were 49,915,000 for broadband, and 49,910,000 for cable channel service. What’s more interesting is that thirteen largest pay TV providers in the US (about 95% of the market) lost about 300,000 net video subscribers in 2Q 2014, compared to a loss of about 350,000 video subscribers in 2Q 2013.

To offset that decline, the 17 largest pay TV providers added about 385,000 broadband customers during the same time period. Cable TV companies control the lion’s share of broadband service revenue and have a 59% market share vs. AT&T’s U-Verse and Verizon’s FiOS services. The latter companies stayed essentially flat in new subscribers as an almost equal number of customers dropped DSL service (627,000) compared to those who signed up for faster broadband (636,000).

For all cable and telcos that Leichtman surveyed, the total number of broadband subscribers was about 85 million. Of that total, industry giant Comcast claimed 21.27 million and #2 service provider Time Warner Cable accounted for 11.97 million. Among cable TV companies, those numbers represent 42% and 23% market shares, respectively. (Keep that in mind as you ponder the consequences of a potential Comcast – Time Warner merger.)

Now for some additional perspective: Netflix recently broke the 50 million worldwide subscriber mark, with 36 million of those subscribers located in the United States. That’s larger than any cable TV or telco subscriber base. In fact, it’s more than Comcast and Time Warner combined, and is indicative of the meteoric growth Netflix has experienced since it commenced a streaming service in 2007.

Combined with the shift toward consumption of digital media online vs. renting or buying optical discs (as outlined in my last Display Daily), it’s clear that broadband is becoming the more desirable service for many households. I’d also venture an educated guess that customers who subscribe only to broadband services tend to skew much younger (Millennials) while traditional cable TV channel subscribers skew older (Baby Boomers).

While AT&T and Verizon have a smaller share of the pie, it’s still a large enough slice to motivate Comcast, Time warner et al to keep increasing their broadband speeds and not lose any competitive edge. I am a Comcast subscriber and while writing this article, checked my download speeds using CNET’s Internet Speed Test. The result? 20 Mb/s downstream at 5 PM, which is a considerable boost from what I had three years ago. Could the fact that Verizon ran optical fiber through my front yard a few years ago have anything to do with it?

What does all of this mean, long term? First off, the preference for faster broadband vs. a pile of pay TV channels that most people never watch will continue to re-shape the business model for cable TV companies. (The median number of channels watched in pay TV households currently stands at 17.) Continued price increases and increasing reliance on wireless (and not wired) phone service will prompt more customers to drop so-called “triple play” offerings and just go with broadband (and probably use services like Ooma for VoIP calling).

Secondly, the sheer size of Netflix and its expanding category of both rental movies and original series provide even more impetus for disgruntled pay TV subscribers to dump costly channel packages and stream everything from the Big Red Father. Both House of Cards and Orange Is The New Black are wildly popular – there’s no reason to assume Netflix won’t hit a few more home runs. (And their success is prompting HBO to finally discuss publicly a subscription streaming service independent of cable TV delivery.)

Finally; it may take more time than I prognosticated several years ago, but cable TV companies and telcos will slowly and inevitably morph into something that looks more like your local electric company, providing metered high-speed broadband connections and letting customers decide what they want to watch, and when. The DVR may even pay the ultimate price and fall by the wayside in favor of streaming from cloud servers as this comes to pass.

Even the biggest fires start with a tiny spark, and most people don’t even notice trends until they are well under way. Ignore them at your peril…

TV, Over The Air and Everywhere!

In a Bloomberg story from May 3, Aereo chairman Chet Kanojia is calling the TV networks’ bluff. Aereo’s “streaming terrestrial broadcasts over the Internet, one antenna at a time” service, which is expanding to Boston, has stirred the ire of News Corporation (parent of Fox) and CBS.

Executives at both networks, having suffered two setbacks in court, have threatened to shut down their broadcasts completely and move to cable/satellite distribution exclusively if Aereo doesn’t relent and pay a retransmission fee to carry their New York City signals.

Kanojia was quoted in the article as saying, “The reality is, they want to get paid twice, and Aereo is just an excuse to articulate that business strategy. Good luck to them.” Practically speaking, CBS and Fox would face several logistical hurdles to pull this off, not the least of which would be answering to Congress if they did shut down their terrestrial transmitters, viewed by at least 15% of the American public.

Strangely enough, both network’s sugar daddy – the National Football League – has yet to be heard from in this kerfuffle. The NFL has repeatedly stated it does not want to sign rights deals that would restrict broadcasts of its games to pay TV channels, giving only Monday Night Football to ESPN. If CBS and Fox decided to pull their 8VSB power plugs, what would Roger Goodell say?

More importantly, how does Goodell feel about Aereo carrying NFL games for which they haven’t paid any rights? The NFL is scrupulous about enforcing so-called “public” performances of NFL games outside of bars, restaurants, and other places of public accommodation. They’ve even come after churches for hosting free Super Bowl parties in the past. So, where’s the indignation at Aereo?

I suppose if CBS and Fox went ahead with their threat, we could always fire up that ol’ Blu-ray player or smart TV function many of us don’t use. In a Home Media story also published on May 3, the Nielsen Company announced that Blu-ray Disc and transactional video-on-demand (VOD) “made significant gains as the primary means for consumers to acquire home entertainment movies and TV shows in 2012.”

According to Nielsen, 83.6% of consumers used a DVD or Blu-ray player to watch video at home, while 45.1% of the sample audience used video game console and 44.1% favored digital video recorders. The number of respondents who preferred streaming rental movies increased by 32% in the past six months of 2012 compared with the same time period in2011.

During the same interval, 29% more opted for transactional VOD to watch TV shows, 12% more preferred using Netflix to watch movies, and 24% more jumped on board subscription video-on-demand services to watch TV programs.

Intriguingly, 14% more survey respondents said they bought a Blu-ray movie over 2011, while 25% said they preferred Blu-ray for TV shows. (I assume that meant mostly boxed sets?)  And you may be surprised to learn that adult female respondents who use the Internet are more likely to buy movies or TV shows on optical disc than adult male respondents.

The rise in popularity of streaming and transactional VOD may be due to the fact that of 56% of all households with broadband Internet access now have at least one TV set connected to the Internet. So says The Diffusion Group in a recent report. Streaming media players lead in the connected category for accessing streaming services, followed by video game consoles like the Xbox and PlayStation platforms. Connected Blu-ray players came in third, followed by smart TVs.

The NPD Group sees that pecking order changing soon, stating that by next year, connections through dedicated streaming boxes (Apple TV, Roku) and smart TVs will eclipse connections via Blu-ray players — another sign of people moving away from movies on discs. They also found that 40% of households with Internet-connected TVs watch videos from Netflix, 17% watch YouTube videos, and 11% watch movies and TV shows via Hulu.

So, is streaming the hot ticket? Not necessarily, unless you have the patience of a saint, says a story on the Streaming Media Blog Web site. Conviva, a company heavily involved in research and development of more effective and reliable streaming solutions, analyzed over 22 billion (yes, BILLION) video streams in 2012 with an eye toward reliability. These streams included Netflix, ESPN, HBO, Viacom, VEVO, MLB, USA, NBC, and others, said the story.

The result? 60% of all streams experienced quality degradation. Re-buffering affected 20.6% of streams interrupting programs, while 19.5% of the streams were impacted by slow video startup and 40% were plagued by grainy or low-resolution picture quality caused by low bit rates. (Check your home broadband speed sometime between 9 and 10 PM, using CNET’s Broadband Speed test. You may be shocked by the results!)

Drilling down, 60% of views were impacted by stalls, low resolution or buffering. 39.3% of streams were impacted by buffering and 4% (900 million streams) never started at all. And while many consumers are watching on a screen capable of displaying high-quality (HQ) video, 63% are viewing below HQ resolution anyway. Hate waiting in line? Conviva said that in 2012, a staggering 124.8 billion minutes were spent in buffering.

You know what? I think I’ll just go read a book. (No, make that an e-book. Wait, I have to download it first! Bufferingbufferingbuffering…)