23 January 2018

Starz Dropped from Altice - Premium Channels Not on Consignment

In one of the first cable programming outages of 2018, the channels of premium TV provider Starz are no longer carried on the cable systems of Altice. Many cable programming affiliation agreements expire at year end and the one between Starz and Altice (the owner of the former Cablevision/Optimum and Suddenlink cable systems) is one such deal. What caught my eye about this dispute was a quote from Altice, emphasis added.
Given that Starz is available to all consumers directly through Starz's own over-the-top streaming service, we don't believe it makes sense to charge all of our customers for Starz programming, particularly when their viewership is declining and the majority of our customers don't watch Starz,” Altice said in its statement. “We believe it is in the best interest of all our customers to replace Starz and StarzEncore programming with alternative entertainment channels that will provide a robust content experience at a great value.
Of course, all Altice customers do not pay for Starz. Starz is a premium channel and is usually sold a la carte or in higher level cable programming packages. It is not provided to all cable TV customers like a broadcast channel (e.g., ABC, PBS) or virtually all customers like a widely-distributed basic cable channel (e.g., CNN, USA, ESPN). So, Altice customers do not all pay for Starz.
What this means however, is that Starz licenses its channels to Altice on a per-basic-subscriber basis, not on a per-Starz-subscriber basis. Starz doesn't share in the revenue that Altice generates from its service; it has effectively a marketing guarantee from Altice, which then can package the service in the way that it feels most benefits Altice's business.
Such per-basic licensing of premium channels is hardly new to the pay TV business; I first saw such a deal in the early 1990s. Such deals can benefit the cable operator -- instead of having a $10 premium channel subscribed to by only 10% of customers for which it pays 50% of revenue ($5 wholesale), and generates $0.50/basic subscriber in margin, the MSO can provide this "$10 retail value service" in lots of packages for effectively a lot less than $10 -- it can provide more value to more consumers with that kind of packaging flexibility and upside.

However, the revenue upside of earlier cable is well in the rearview mirror now. Cable programming at the retail level is too expensive in today's competitive world.

That the third-tier premium provider (Starz is well behind HBO/Cinemax and Showtime/The Movie Channel/Flix in market share; this is not a commentary on the quality of its programming) is licensing its content on a per-basic guarantee really shows how inverted the pay TV business has become. With the competition among distributors, the winners have been the programmers who can require terms of the MSOs that they cannot get in the over-the-top world (when the programmers sell direct, they don't get a revenue guarantee). In the over-the-top world, the programmer has greater costs to market the service themselves, not via the cable operator, and greater control (uniform national pricing) but in that distribution channel, the programmer keeps the retail revenue, not just the wholesale, and also has control of the packaging -- no leaving the smaller channels out..

Update: Starz asks FCC to intervene in its dispute with Altice (Sara Fischer article at Axios)

08 October 2017

Google Fiber Launching Without TV

Google Fiber isn't dead yet, but as yet another sign that its strategy at launch was, if not fundamentally flawed, at least, not where the market was going. Fiber's next cities, Louisville and San Antonio, are not getting the Internet and TV service, but only its Internet service. It turns out, cable TV is a hard business.

Google notes that there are now a wealth of over-the-top "cable TV" services that can ride over its laudable gigabit connections, and that is true. Its own YouTube TV is one of them.

04 September 2017

Google Fiber Stalled Out in KC

It is not exactly new news, but Google Fiber, which hoped to jolt the Internet access business with its signature $70 per month, 1 gig service, has hit the wall in Kansas City.

I have been involved in the cable TV industry for a long time and can safely say that it is exceedingly complex. The vast majority of cable operator employees do things like installations and customer service, which is really outside of Google's core competency. The packaging of programming involves business relationships with a handful of key suppliers (e.g., Disney, Comcast/NBC Universal, Fox, Discovery, CBS, AMC, A&E Networks) for whom there are typically no good substitutes. The business structure of the industry developed as a local monopoly (via exclusive franchises granted community-by-community). The early cable technology was very one-size fits all, not easily addressable to an individual house, which led to the big "basic cable" bundle. Despite all its assets, Google couldn't remake the television programmer-operator relationship with its small scale.

As an Internet access business, at $70 per month, it was simply a lot more expensive and powerful than a typical cable Internet service and naturally appealed to well-heeled early adopters, despite sincere efforts by Google to sell the benefits of high speed interest to less-well-off people. The analogy that comes to mind is selling higher-priced organic food to people who cannot afford it without sacrificing something else that they already buy -- not easy.

Google Fiber never made it to NYC, I would have liked to try it.

29 March 2017

AT&T's U-verse Withers Because of Physics

When I wrote this post (DirecTV is to AT&T as HITS Was to TCI) it was pure speculation.

When AT&T launched U-verse, which attempted to provide TV, Internet and phone service without a fat pipe (i.e., cable or fibre) into the household, I recalled that cable engineers said that it wouldn't work. I recall the quote from one. He described the problem as: "physics".

For a few years, however, it did. AT&T could provide TV, Internet and phone service via twisted pair (traditional telephone wiring), provided the Internet speeds were not too fast and the household was not watching or recording too many HD programs at the same time. Until a 2010 upgrade, a household could not watch more than 2 HD programs at the same time.

However, now the writing is on the wall. Since AT&T acquired DirecTV in July 2015, it has steadily deemphasized its newer U-verse offering (launched 2006) in favor of expanding DirecTV (launched 1990). U-verse lost 1.36 million video customers in 2016, while DirecTV added 1.23 million subscribers. Since the multichannel television market is not growing, but Internet access is, clearly moving customers off of U-verse TV service (and shutting it down) will allow AT&T to devote that bandwidth to offer faster Internet speeds on such systems without a complete rebuild. Reason: physics.

Today brings an article about the likelihood of shutting down the U-Verse website on which it markets the triple play.

29 November 2016

DirecTV Now Renames DirecTV's DBS Packages

Unnoticed in the hubbub over its debut yesterday, DirecTV Now, the new over-the-top video service from AT&T, shares its basic packaging scheme with DirecTV's core DBS service.
  • "Live a Little" is based on Entertainment
  • "Just Right" is based on Choice
  • "Go Big" is based on Xtra
  • "Gotta Have It!" is based on Ultimate (apparently only spending $70 per month warrants an exclamation point)
Original marketing piece for DirecTV Now did not include many channels

There are some exceptions as noted in white (Crime & Investigation and FX Movie Channel do not appear to be in any DirecTV DBS packages) or blueberry (in the case of FXX, which is in the DirecTV DBS package "Xtra", not "Entertainment" as one would have expected) or light blue (in the case of Justice Central which is in the DBS package "Choice"). Source for the channel lineup list was Todd Spangler's article in Variety. The prices at the top of this chart are the expected retail; as per the marketing piece above, there is a $35 introductory rate for "Go Big" for the first 3 months.

There are some channels in DirecTV's DBS packages that are not in the corresponding DirecTV Now package. Among the more conspicuous absences: Aspire, INSP, ION, Mav TV, Ovation, Reelz, and the shopping services like QVC and HSN. All are independent programmers.

[Many of the channels are public interest channels, which DirecTV is required to provide space for on DBS by law (there is no similar law for over-the-top). Examples of public interest channels are BYU TV, Free Speech TV, and NASA TV; they are all non-commercial services.]

One note on the apparent loss-leader nature of parts of the offer: Prepaying $105 (3 months of Go Big at the $35 introductory rate and getting a free $150 Apple TV) is a good deal even if you don't want DirecTV Now. $105 is even less than the $129 that Apple charges for a refurbished unit.

Another take: Todd Spangler at Variety quotes analysts saying DirecTV Now's most attractive package is a money loser. Earlier he wrote about skinny bundles potentially killing to pay TV ecosystem, back when he thought DirecTV Now was a skinny bundle.

15 September 2016

The Essential Truth of Licensing Cable TV Networks

Steve Burke, CEO of NBCUniversal, made a simple statement yesterday that underlies the future of multichannel competition.
“Our job at NBCUniversal is to license our products and maximize the cash flow of our individual channels. If people are interested in putting together OTT businesses, like Sling or the Hulu product or Sony or others, we are going to sell to those suppliers. We want to make sure that we make as much or more selling to an over the top supplier as we do selling to an MVPD.” (emphasis added)
The implication is clear and Burke's view is no different from that of the leaders of Fox, Disney, CBS, etc. Apple is not going to get to carry and pay for NBCU's popular channels, they are going to have to take the whole bundle or pay a premium for taking less. That's what Sony is looking at with PlayStation Vue.

Maybe Sling TV isn't taking the whole bundle, but thinking about it more broadly. If Dish Network rolls out a secondary Disney channel a bit more broadly to its 13 million DBS subscribers, Disney will certainly be willing to give up not getting the full bundle onto Dish's Sling TV service with its less than 1 million subscribers.

There is no good reason for the owners of the must-have content to support new competitors who give them worse economics than they get from the incumbents. New entrants to the market always pay more for the must-have programming. DBS paid more than cable. Telcos paid more than DBS.

If the incumbent's business is declining and the upstarts are growing there is even more reason to insist on the same or better terms. Unless somehow an upstart grows without must-have programming. At that point, it is no longer must-have content, of course.

Burke was speaking at the Bank of America Merrill Lynch Media, Communications & Entertainment conference in Los Angeles.

A previous post: Getting Content for Dish's OTT Service

12 August 2016

Hulu Puts Down Its Free Service - The Evolution of Broadcaster Streaming

Word came last week that Hulu is dropping its free service of fresh off-broadcast programs. It is hard to overstate how big a change this is.

The change has not gone unnoticed. When Seventeen magazine publishes a story "Hulu is Getting Rid of the One Thing You Love About Hulu"...well, having multichannel business issues show up in Seventeen...that isn't something this blog has ever seen before.

What it means to me is that the original motivation for the formation of Hulu by NBC and Fox (later joined by ABC and recently by Time Warner) -- the fear of piracy is now much less of a concern for these companies and the potential of creating a subscription revenue business is a much greater one.

At the time of Hulu's launch, it solved a few problems for its owners:

Because they controlled Hulu, they had opportunity to revise program licensing terms (if business conditions change/require it). Because the partners were all in the same business, they knew that they were all facing the same types of issues.

In the event there was a business in this, that would play out over time and the big networks didn't have to worry about valuation issues since they were equal partners (and were licensing programs to Hulu on similar terms).

Hulu launched to the public in March 2008 and was rightly declared a success within a year per Forbes. The successful launch decimated the market for pirating the programs available on Hulu.

And then the business evolved...

In 2009, Fox CEO Chase Carey said Hulu would need start charging for some content. Presumably there wasn't enough ad support to be attractive. Hulu Plus (a service at the time without ads) launched in 2010; Netflix was on the radar screen.

When Hulu launched retransmission consent revenues were a small part of the business of most broadcasters. When that revenue stream started growing, the multichannel providers (cable, satellite and telco) wanted something in exchange for their higher payments. Since the broadcasters couldn't shut off over-the-air access to their shows, they offered the multichannel operators a "window" of exclusivity in online access to their shows. If a viewer wanted to watch the program online during the week after it aired, the viewer would need to "authenticate" that he or she had a multichannel subscription.

Comcast bought control of NBC in 2011. Part of what made NBC attractive to Comcast was the growing retransmission consent revenue stream for the broadcast network.

In 2011, Fox changed its Hulu policy to push its most recent episodes of its network series behind the paywall for one week after airing. The impact on piracy was swift and dramatic. According to TorrentFreak pirate downloads of two representative Fox shows went up over 100% following the change.

When Hulu launched on the Apple TV in 2012, there was no free service only Hulu Plus was available.

As Netflix's growth exploded and its valuation followed, Hulu's owners saw the market making the investor case for a video streaming subscription service. Being ad-supported had become passé.

Some might see the change at Hulu cynically. Recode's Peter Kafka writes that Hulu's network owners "have been uncomfortable with the notion of putting all their stuff up for free on the web. And they’ve been trying to back away from it for many years." To my eye, the story is a bit more nuanced. The owners were always looking for the money and didn't have any idea where it was at first. Since they found the money, they have been following it.

In some ways, this latest change -- to exit free -- may be all about branding. As Seventeen notes, free streaming from Hulu will still exist, but not on hulu.com. The new streaming service will be called Yahoo View. I supposed branding a free service as from Yahoo is as good a way to kill it as any other.