Posts Tagged ‘Netflix’

Cord-cutting: Funny Thing About That… (Updated 10/28/10)

(Editor’s note: This story has been updated from the 10/27/10 post.)

Yesterday, Comcast Corporation announced its 3rd quarter financial results, and they reveal a disturbing trend: 275,000 basic cable subscribers said goodbye to Big C, helping to put a pinch on the company’s net income, which dropped 8.2% to $867M on sales of $9.4B.

According to a story on the Fierce Cable Web site, remaining Comcast subscribers paid an average of $129.75 per month for various services.

The story suggests four factors that are driving people to drop cable TV subscriptions – the economy, the flagging housing market, constant rate increases, and the digital TV transition.  Comcast Cable Communications President Neil Smit was quoted in the story as saying there are no signs that the customers are giving up cable for over-the-top (Internet TV) services. “All our active surveys have seen almost no impact from OTT… (a) small number of customers appear to be going over-the-air (DTTB) more than any over-the-top impact.”

Through September of this year, Comcast lost 622,000 cable TV subscribers, according to a story in the 10/28/10 edition of the Philadelphia Inquirer. That represents about 3 percent of its subscriber base and about $300M in revenue. Smits said that 40% of those cancellations were basic cable tier subscribers.

By this time last year, Comcast had lost 424,000 cable TV subscribers. The drop rate has gone up by nearly 50% in just one year, although some of that was offset by new subscriptions for almost 250,000 broadband customers, 228,000 VoIP customers, and 219,000 digital video customers. (It’s reasonable to assume there is lots of overlap in those last three numbers, as the three services are often taken as a ‘triple play’ bundle.)

The term “cord-cutting” first appeared in early 2008 as the current recession took hold, forcing many households to re-assess the amount of money they spent each month on communications and entertainment services.  It’s not unusual for a typical ‘triple play’ service (VoIP, broadband and cable TV) to cost $130 a month or more.

Add in monthly charges for a standard family wireless phone plan, and we’re starting to talk some real money here!  So it’s no wonder that consumers are looking for more economical ways to watch TV – and free, over-the-air digital TV (with lots of HD) is definitely one of them.

DTTB also solves the current Fox – Cablevision dispute quite nicely for several million subscribers in the New York City metropolitan area – that is, if they figure out how to connect an antenna to their digital TV. In many cases, that means nothing more than a $12 radio Shack UHF loop and rabbit ears.

Comcast COO Steve Burke called attention to the problem of cord-cutting a year ago at the CTAM convention in Denver, CO, pointing out that “…An entire generation is growing up, if we don’t figure out how to change that behavior so it respects copyright and subscription revenue on the part of distributors, we’re going to wake up and see cord cutting.”

How prescient. As I’ve written in the past, families are starting to value their broadband service more than tiers of dozens of cable channels, most of which are never viewed anyway. Add in video streaming from Netflix (something Redbox is also about to offer) for a flat monthly rate, plus selected network offerings on Hulu, and the cable industry has a legitimate concern.

No one should ever think they can’t price themselves out of a market. It’s happened before, and it will happen again. It’s very clear from recent trends that many consumers are placing a greater value on high-speed Internet access over cable TV channel packages, a trend that may result in Comcast (and other service providers) delivering metered broadband service in the not-too-distant future – especially if TV subscriptions continue to decline.

The challenge for Comcast and other cable MSOs is how to re-structure their standard TV channel offerings into a more affordable a la carte model, served up on demand.

That’s obviously what consumers want, and they’re voting with their wallets. Is Big Cable listening?

Redbox: A “Blu-race” to the bottom?

Don’t look now, but Blu-ray is coming to your local Acme. Or Walgreens.

Redbox, the “buck-a-night” DVD rental company, will soon be stocking Blu-ray movies at the end of the checkout counter. And you can rent ’em for $1.50 a night.

Redbox stated in a recent press release that it would initially offer Blu-ray discs in 13,300 of its kiosks, expanding across its entire network of 23,000 kiosks by the fall. Each Redbox kiosk holds 630 discs , or about 200 movie titles.

Redbox is on a roll financially, according to a story in Media and Entertainment Daily. The company’s revenue stream grew by almost 44% Y-Y for the second quarter. And they’re getting most of that revenue at the expense of traditional brick-and-mortar video rental stores (read: Blockbuster).

NCR, another player in the DVD kiosk business with the Blockbuster Express brand, hasn’t announced yet when they will be adding Blu-ray discs to their lineup.

At $1.50 per night, it really doesn’t make sense to buy a Blu-ray disc of any movie. The typical BD release is priced around $25 retail, or 16 times the Redbox rental cost. Not that there will be a huge demand for BD movies out of the gate – while the best estimates from The Digital Entertainment Group (DEG) have market penetration of Blu-ray players, Blu-ray drives in PCs, and Blu-ray equipped consoles (like PlayStation 3) at 19.4 million homes so far, there’s simply no reliable way to know how many of those PS3 consoles are being used to watch Blu-ray movies.

To put things in perspective, Netflix has over 14 million customers now. Comcast has slightly more, as does DirecTV. And any subscribers to those services can access video on demand (VOD) or streaming, if their TV and/or set-top box is so equipped. (PlayStation 3 is, and can even stream from Netflix!)

Given that some BD players are now available for less than $100, this could be an incentive for families to finally try out the BD format. Or maybe they will put that PS3 console to work to watch recent releases like The Bounty Hunter or The Book of Eli in full1080p HD…that is, if they have a HDTV screen large enough, and of the correct resolution.

Of course, if the BD movie title they want isn’t available, they’ll probably just rent the red laser version for a buck and be done with it. Redbox is a convenience service, based on a low-cost impulse purchase decision. If the movie is for a kid’s party or to keep the children otherwise entertained, it makes no difference whether it is a conventional DVD or a blue laser disc.

The question is how many videophiles will make use of the Redbox service. My theater at home is set up for HD, with a 92-inch Da-Lite projection screen and Mitsubishi HC6000 projector. So I’m definitely interested in $1.50 BD rentals!

The only problem is, I’ve been watching so many time-shifted TV shows on my 42-inch 1080p plasma in my family room (plus the occasional red laser DVD-by-mail) that the theater hasn’t been used much lately. Picture quality from an OPPO DV983 upscaling DVD player is so good that it isn’t worth bothering with Blu-ray playback on that plasma screen. I should know better, you might say…but I do, and you can’t see much of a difference between the two formats. At least, nothing to nit-pick about. That’s how good the OPPO scaler is.

In a nutshell, this move by Redbox promises to deliver additional revenue to studios, but probably not as much as they would have liked. No one in Hollywood is happy about the bottom falling out of the DVD rental market, but what other choice do they have?

The question is whether enough customers will prefer the improved quality of a BD movie over red laser DVDs and Netflix streaming to justify Redbox’ additional costs in stocking Blu-ray movies. If this doesn’t help the format take off, then nothing will.

Saturday mail delivery and DVDs: Six – no, make that two degrees of separation

Two announcements in recent weeks spell big trouble in the future for DVD rentals.

Sales of movies and TV shows on DVDs have been declining steadily for the past five years, which is not good news for Hollywood. However, DVD rentals have held fast, slipping only a tad a couple of years ago, and then recovering as Redbox “buck-a-night” rental kiosks have spread all over the country’s grocery and drug stores.

The dominant player in DVD rentals is, of course, Netflix, who is implementing a multi-year strategy to wean customers away from polycarbonate discs and get them to stream movies instead over broadband connections.  By Netflix’ own reckoning, DVD rentals will peak by 2013, and then start a slow decline towards extinction by the end of the decade.

They may want to move that timetable up a bit. The U.S. Postal Service just announced a hike of 2 cents in the cost of first-class postage, to take effect early next year. According to today’s M&E Daily, “…Janney Capital media and entertainment analyst Tony Wible …estimated that a (Postal Service) rate hike could add between $18 million and $30 million to Netflix’s physical distribution expenses in 2011.” That’s a real game-changer!

In a New York Times article from July 2, Netflix’ DVD operations head Andrew Redich was quoted as saying, “Big rate increases will absolutely squash business and will absolutely slow growth for a company like Netflix.” No kidding! No wonder the company is lobbying for a five-day mail delivery schedule instead, a move which would save the Postal Service about $2B per year.

Make no mistake about it – Netflix wants to move away from physical disc distribution to streaming, which would eliminate a ton of back-office expenses and staffing problems. The Postal Service announcement will likely hasten that move, which is not good news for DVD or Blu-ray manufacturers and distributors.

The other bad news is, of course, Blockbuster’s continuing financial troubles. Here are the vital statistics: In 2009, Blockbuster recorded a net loss of $569.3 million based on annual revenue of $4.06 billion. For Q1 of 2010, it had a net loss of $65.4 million. And BB is carrying $895 million in debt on its books. Last week, the company was informed by the New York Stock Exchange that it would be delisted as its average share price had been under $1 for a 30-day period (Blockbuster was hovering around 18 – 20 cents per share at the end of last week).

As for long-term trends, Adams Media Research stated earlier this year that 2009 in-store spending on DVD movies declined to $3.3 billion, down $1 billion from 2008 and $5.2 billion from the brick-and-mortar movie store’s high water mark in 2001.  Not a pretty picture!

So – are we seeing the last days of the DVD? Probably not for a few more years. But it’s clear that consumers like the idea of streaming content instead of buying and renting physical discs. It’s a convenience thing! (We’ve had a Blockbuster By Mail copy of Julie and Julia sitting here for almost two months, still waiting to get a ’round toit’ so we can watch it. Maybe it’s a laziness thing, too.)

The Postal Service is in almost as bad a jam as Hollywood and Blockbuster. Look at all the documents and forms that can be sent via email now, instead of through snail mail. Electronic payments, e-funds deposits, PDFs, JPEGs, virtual catalogs, you name it – if it can be digitized or scanned, it can be sent over the Internet, stamps be damned. How much longer before retail stores move entirely to electronic coupons? The ‘green’ movement is pushing more retailers to adopt online catalog and brochure formats, so more and more snail mail is just junk nowadays.

Maybe Hollywood can work with the Post Office on a movie about all this (to be streamed by Netflix, of course). They could call it, The Postman Never Rings At All. Or maybe, First Class 2: This Time, It’s 46 Cents.

And maybe we should just save that copy of Julie and Julia, instead of sending it back. It could be a collector’s item before long…

Memo to 3D TV manufacturers: First, you build the highway. Then, you build the cars!

The latest PR blurb from CEA headquarters shows that, in a survey taken of 250 sales associates in retail stores, consumer enthusiasm for 3D is strong, with 50% of customers reporting a positive response to 3D technologies, and only 2% reporting a negative response.

That’s not necessarily good news. Do the math, and you’ll see that 47% of customers had no feelings about 3D TV one way or the other, or didn’t respond. (Or were distracted by their teenagers repeatedly begging Mom and Dad for an iPhone or iPod Touch.)

The CEA report does go on to say that “…While nearly 70 percent of sales associates feel well trained to answer questions about 3D, there is still consumer confusion. According to the retail associates interviewed, roughly half of consumers had some confusion about the technology.” That pretty much covers the 47% who didn’t respond positively or negatively.

And now for the devil in the details! “…For most retail associates, 3D content is pivotal. Nearly 80 percent of the associates interviewed believe sales of 3D technologies will not be strong until more 3D content is available.  Moreover, some of the most frequently asked questions by consumers revolved around the availability of 3D content. “

World Cup in 3D…Been there, done that. What else ya got?

There’s the rub. 3D may look great in the store, but how much 3D World Cup coverage can you watch before nodding off? (Hey, did you catch Paraguay and Japan fighting to a 0-0 tie?) And there are only a couple of 3D Blu-ray discs out there that haven’t been exclusively linked up to a 3D TV bundle promotion.

DirecTV is taking some steps to solve the problem today, announcing the launch of its 24-hour 3D channel in conjunction with Panasonic at a New York City press event. That’s good news for DirecTV customers, but it’s not much help to cable or Dish Network subscribers who are currently limited to ESPN 3D.

If this seems like déjà vu all over again (apologies to Yogi Berra), it is. Remember the start of the digital TV transition in 1998, when exactly two DTV stations went on the air? (For trivia buffs, they were WRAL (CBS) in Raleigh, NC, and WFAA (ABC) in Dallas-Ft. Worth, TX.)

Set-top boxes cost about two grand. You needed component inputs on your TV that could accept the 1080i signal from the box (good luck with the 720p outputs), plus an antenna, and maybe a preamp, and a bunch of coax, and a compass to tell you where to aim the antenna.

Oh, and yes – you needed HDTV content. But there was very little of it back then, aside from some CBS prime-time programs and the ABC Saturday Night Movie. It wasn’t until four years later (2002) before most of the TV networks were carrying a majority of their evening programs and sports coverage in HD. Can 3D TV manufacturers afford to wait that long?

It’s encouraging that 70% of the sales associates interviewed by CEA felt competent enough to answer questions about 3D. But that’s not the problem, based on my experience last Sunday at Best Buy. Only two out of four 3D TV demos in the store were actually working, and one was located in the worst possible spot for a demo. The other had only one pair of working 3D glasses. How do you answer questions about 3D, when customers can’t even see a demonstration of it?

This is where a company like Sony has a leg up with their Sony Style company stores. They can ensure (and they’d better!) that potential customers get the best possible 3D demo, with a large screen LCD TV and comfortable seats positioned at the correct viewing distance. And they can put together a nice mix of live 3D (Sony is a World Cup sponsor) and clips from Sony Pictures 3D movies (think Cloudy with a Chance of Meatballs).

Samsung’s ‘experience’ store in the Time-Warner Center in New York City is also an excellent place to demo 3D. (Hmmm. Maybe Samsung should be thinking about opening their own company stores!) Alas, Panasonic has no such showcase and is at the mercy of Best Buy and Sears. And Mitsubishi (who has some of the most compelling 3D TV value propositions right now) has no 3D showcases at all. (Too bad they can’t just truck their June NYC line show around the country!)

Now, THIS is how ALL 3D demos should look. (Dream on…)

But all the demos in the world won’t do any good if there is nothing to watch in 3D. And for the vast majority of potential 3D TV customers, there just isn’t enough to watch in 3D right now, so the credit cards and checkbooks are staying in pockets and purses.

Hopefully, that problem will sort itself out by year’s end, when we should see a flurry of 3D BD releases, more coverage of sporting events, the launch of Discovery’s 3D channel, and maybe even some 3D streaming from Netflix. (That last possibility assumes Netflix can get over some significant technical hurdles, such as bandwidth.)

Hint to TV manufacturers, and to Fox Sports: S-U-P-E-R B-O-W-L I-N 3-D. (Think that was subtle enough?)

So, we’re back to 1998. Grab some shovels and picks, and let’s get started on those highways! (Maybe there are still some stimulus funds available?)