Posts Tagged ‘Streaming’

Cable TV – Socialism?

We’ve just passed through a very contentious mid-term election, characterized by a change in the political majority in the House of Representatives, and a smaller margin in the Senate.

In addition to the usual established political parties, a newer movement, the self-named Tea Party, is grounded in protests against ‘big government,’ deficit spending, and ‘creeping socialism’ and has managed to secure quite a few seats for itself in Washington come next January.

Regardless of how you feel about the recent tempestuous election and its outcome (which isn’t anything new; review your American history and you’ll find similar political uprisings in the past), you’d have to agree that there is widespread concern about our government trying to be all things to all people, filing in the economic holes that free market, capitalist systems often leave behind.

The way our system of government works now, many of your tax dollars go to benefit people in other towns, cities, counties, and even states. You may not be aware of it (most people aren’t), but for every mile you drive on a federally-subsidized interstate highway, someone in another state is driving on a similar highway, part of which was paid for with your tax dollars. (n some states, LOTS of your tax dollars.)

Is that socialism? Sure it is! Our legislators made a decision that all American citizens benefit from an interstate highway system, even if most of us never drive more than 50 miles from home.

Now, back to my cable TV analogy. You pay taxes because you have to, and your tax dollars subsidize many government agencies and programs. But you don’t pay cable TV bills because you have to. After all, no one forces you to watch television!

Yet, your cable TV payments subsidize numerous TV networks that you’ll probably never watch. That’s because your cable TV operator has decided that all of its subscribers benefit from having 200+ channels of programming to choose from, even if most viewers never watch more than 15 channels.

Is this socialism? Essentially. Your cable TV payments (beyond operating costs and profit) are split up and shared among a wide variety of channels using a tiered model of distribution. You pay for a block (tier) of channels, and you can watch or ignore them – it’s your choice. This revenue structure ensures that all cable TV networks get a guaranteed rate of return, although there is quite a disparity between the most popular networks like ESPN (over $4 per subscriber) and small-audience channels like Lifetime and Oxygen (nickels and dimes per subscriber).

Trouble is; many Americans are trying to make ends meet in a recession right now. And all of their monthly expenses are coming under scrutiny, including ever-escalating cable TV costs. So it’s not unreasonable to ask why cable companies expect them to pay every month for an ‘all-you-can-eat buffet’ when smaller, a la carte dishes will suffice.

And there’s the thrust of my argument. Cable TV revenue subsidizes minor TV networks and channels that would never make it on their own in a free market system – they just wouldn’t draw enough viewers. Yet, we still have to pay for them anyway and keep them alive whether they deserve to stay in business, or not.

Satellite TV systems, FiOS, and U-Verse also work the same way. You pay a flat monthly rate and are delivered a slew of channels, many of which you’ll simply ignore as you stay hooked to ESPN, Discovery, Fox News, USA, AMC, MSNBC, TBS, TNT, and other ratings leaders.

Is it time to move to a different model? You betcha, especially when cable TV channel subscriptions are being dropped like hot potatoes. Even the head of Time Warner cable, Glenn Britt, has acknowledged that it is probably time to come up with ‘value’ cable TV packages that will convince customers to stay aboard, yet deliver the popular channels that viewers really want. (For more on this story, read what GigaOM had to say about Britt’s comments.)

The cable TV industry has vigorously resisted any moves towards a la carte pricing, because channel tiers are best for the company’s bottom line. But that may have to change, as consumers start to value Internet connections more than TV channel packages and access TV content over broadband connections in lieu of changing channels.

So my question is this: If socialism is supposedly a bad thing when it comes to government, why is it a good thing when it comes to cable TV service?

3CD: Well, that was fun. I’m bored. What’s next?

I stopped in at my local Best Buy this past Saturday (10/30) to look for an inexpensive upscaling DVD player (yeah, I know that’s redundant) for my in-laws.

While I was there, I wandered around the store to see what was being showcased in the store demos. 3D, which was a big thing back in April, had clearly fizzled out – at least, as far as store personnel were concerned.

Of four possible 3D demo stations, only one had any glasses – the Sony Bravia 3D demo in the Magnolia section. A nearby Panasonic 3D demo had clips from Avatar rolling in 3D on a plasma TV, but not a pair of glasses to be found.

At the entrance to the Magnolia store was a Samsung 55-inch LCD 3D demo. Trouble was, the channel was set to a 2D telecast of the Michigan State – Iowa college football game and no 3D glasses were anywhere to be seen.

Behind the service counter in the regular TV section was yet another 3D demo, this time featuring the 46-inch UN46C7000 Samsung LCD TV. And just like my last visit, the TV was showing Monsters vs. Aliens in 2D, again sans 3D glasses.

A possible fifth demo at the end of one of the aisles used to feature Panasonic’s 50VT20 plasma, but it had been taken down. This was the only demo that had any working 3D glasses a few months back.

So, what was all the  buzz about at BB this time? Why, Sony Internet TV, of course!

If you think TV remotes are complicated, wait until you try THIS keyboard!

Yep, it’s time to get out on the Internet and dig for content, using Google’s search engine and Sony’s incredibly small and dense keyboard. I didn’t see a single person attempt to use it during my 30 minute visit to the store.

In addition to Sony’s support for Google TV, Logitech has a new set-top box you can connect to the Ethernet port on your existing TV – or to the HDMI input.

Sony also showed a new “Internet TV Blu-ray Disc Player” that incorporates the Google interface. It’s the silvery box in the lower middle part of the photo, and encourages you to “take advantage of Full HD 1080p Blu-ray Disc Capabilities.” (???) No mention of 3D anywhere in the exhibit, so there may be a ‘separation of church and state’ thing going on as far as Sony is concerned.

Oh, and that inexpensive upscaling DVD player? I wound up going down the street to 6th Avenue Electronics and scoring a Panasonic DVD-S58PP-K with HDMI output and CEC for $50. Can’t beat that with a stick.

It’s all in the Way You Spin the Numbers

Ahead of next week’s Blu-Con Blu-ray lovefest in Beverly Hills, the Digital Entertainment Group has just released its latest market analysis numbers for packaged media.

According to the DEG numbers, total consumer spending on packaged media through Q3 2010 came to $12.6B, a decline Y-Y of about 4%, while consumer transactions for home entertainment products were flat for the year. Digital distribution, which includes electronic sell-through (up 37% Y-Y) and video-on-demand (up 20% Y-Y), accounted for 13.5% of the total, totaling $1.7B.

Other interesting tidbits: Blu-ray saw its sell-through increase by 80% Y-Y to $1B. I’m not really sure what that number means, because overall packaged media (Blu-ray and conventional DVDs of movies, etc.) sell-through declined by 8% Y-Y, continued a slow and steady decline that started almost five years ago and has shown no signs of abetting.

The DEG states that Blu-ray hardware sales increased 104% Y-Y, with more than three million “set-top units” sold. According to DEG, this brings the installed base of Blu-ray disc playback devices to 21.2 million units in the USA.

Note that a “Blu-ray disc playback unit” obviously includes Sony PlayStation III consoles, but there’s no reliable way to tell how many of those are being used to watch Blu-ray movies.

Conventional packaged media is clearly in decline. Rentrak numbers show that spending on DVD and BD rentals was down 4.4% Y-Y to a total of $4.4B. That number would be a lot worse if not for Redbox and other kiosk rental operations, which saw an increase in revenue of 55% Y-Y.

DEG also went on to say that 98 million Blu-ray discs have shipped to retail so far this year, up 57% Y-Y. But that number doesn’t tell us anything about how many of them have actually sold. (It’s like the early days of DTV, when manufacturers quoted the numbers of TVs shipped to retail, and not the actual sales numbers.)

A few things can be divined from these numbers. First, as I just mentioned, the decline in packaged media sales shows no sign of slowing down, and the Blu-ray format is doing little to stem the tide. That’s been the case ever since the BD – HD DVD format wars were declared over, nearly three years ago.

Secondly, Hollywood may have some major bones to pick with Netflix’ and Redbox’ business models, but it’s these same two companies that are saving the studio’s chestnuts right now.  (Forget Blockbuster; they’re preoccupied with Chapter 11 bankruptcy proceedings and arranging temporary ‘debtor-in-possession’ financing just to keep their doors open.)

Finally, electronic sell-through is gaining momentum, even faster than video-on-demand. Customers like the idea of consuming entertainment at home through a high-speed broadband connection, feeding some sort of DVR or streaming in real time at lower resolution. They really don’t care whether they have a physical copy of the movie on a disc, as long as they can get it off a server someplace.

Home theater fans will argue that last point with me, but they’re automatically disqualified from the argument because they constitute a niche and a relatively small percentage of the population – a percentage that studios could never make a sustained living from.

No, the average viewer at home doesn’t care about squirreling away DVDs or BDs and hunting for them on movie night. And that’s been pretty clearly reflected in packaged media rental and sales trends for almost half a decade.

It’s all in how you spin the numbers.

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.