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 incumbents 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.

06 July 2016

Opening Up the Set-Top Box

With yesterday's announcement of an agreement between Comcast and Netflix to make the leading SVOD service available on the largest cable operator's set-top boxes, we are starting to see the regulatory "sausage get made".
Ma Bell would rent you a Princess phone

As you may recall, in late January FCC Chairman Tom Wheeler announced a plan to open up the cable set-top box marketplace, drawing an analogy to an earlier time when the FCC opened up consumers' ability to use their own phones on Ma Bell's telephone network. It is not a terrible analogy, although the actual proposal may not have been the most well thought through idea with National Cable Telecommunications Association CEO Michael Powell, himself a former FCC Chairman, leading the chorus of boos and the cable industry responded by saying the proposal was ridiculous or worse

No, it doesn't make sense that a third party can reconfigure a "cable TV package" for which it has not negotiated without the permission of the programmers (who own the channels) or the distributor (which licenses them and delivers them to consumers). Also a third party shouldn't be able to insert its own ads into such programming either. As I said, it wasn't the most well thought through idea.

In early June, the cable industry put together its own proposal to address the issues raised by the FCC - "Ditch the Box". While that didn't make everybody happy, it was clearly a step towards what Wheeler had laid out as goals.

With Comcast's agreement with Netflix, the cable industry is providing an example that it can and will work with over-the-top programming sources. Would Comcast had done this without the threat of Wheeler's proposal? Maybe not.

Having seen deeply stupid cable regulatory schemes in the past, from this observer's view, it looks like there is something to be said for this process this time.  Let's see how this plays out.

Update (8 July 2016): It looks like the FCC is receptive to some parts of the cable operators' proposal. The process is moving along.

02 May 2016

Revisiting The Innovator's Dilemma and OTT Competition with Cable

Over two years ago, in November 2013, I wrote one of the most popular posts on this site, Over-the-Top Video and The Innovator's Dilemma. In the wake of a Wall Street Journal article on Hulu's plans to offer a cable competitor service with live streams of certain channels controlled by its owners, Disney and Fox, I thought it worth revisiting that post. Where was the analysis on target and where did it miss? More importantly, what really changed?

What Changed?

The Hits

The Miss
  • The availability of over-the-top services didn't happen in one form that I expected -- the roll out of Aereo to additional markets. 
  • I made no mention that over-the top services would expand, but they have. PlayStation Vue, Sony's over-the-top service, not mentioned in the original post, launched in a handful of markets, then went national this year. Hulu's build-out of a service with streams of linear channels would be another expansion geared to the mass market. There have also been all manner of subscription video on demand services for niches by major companies like NBC Universal's SeesoWorld Wrestling Entertainment), and Crunchyroll for Japanese anime (its backers). In an earlier time, each of these would have been a cable program service.


    The Innovator's Dilemma continues to be a useful lens through which to look at the development of over-the-top video, finding its purchase in markets/use cases not central to the big screen at home. Unlike other innovations, however, the role of content makes the video distribution system unique. Some holders of high profile content can make more money going direct to consumers than through the cable bundle -- adult video made the leap a long time ago. The next ones to prosper over-the-top are the new services that probably couldn't get carried by distributor's protecting their margins (Crunchyroll, WWE), followed closely by those that are already sold a la carte (HBO, Showtime, and Starz). Those left are the basic cable channels, whose play in over-the-top is focused on their library content (like Lifetime Movie Club) and may be for a long time.

    13 April 2016

    Ultra HD Content Is Coming

    With yesterday's announcement that DirecTV will carry 25 MLB Network games in Ultra HD (also known as 4K), it might be time to evaluate whether this format will be a paradigm shift (as was high definition) or not (as was 3D).

    HD benefited from the following:

    • Clearly better pictures
    • Development of flat panel set technology allowing for big screens without the big bulk of earlier HD sets (rear projection or very heavy tubes)
    • Digital transition, requiring stations to stop broadcasting analog signals in July 2009 and greatly increasing the amount of high profile native widescreen HD programming
    HD was no more convenient to use than standard definition television before that.

    3D, it is clear in retrospect, was more of a mixed-to-bad bag. The 3D effect could be compelling at times (like in Avatar), but, 3D had some considerable negatives:
    • 3D effect did not work for many people or actually gave them headaches
    • Glasses required for 3D made it less convenient to view
    • No new desirable set technology was associated with 3D
    • 3D content did not benefit by a change in the law regarding television broadcasting
    • 3D content was difficult to produce -- it required more than simply higher resolution cameras and other equipment
    Ultra HD avoids the 3D negatives. However, it is less than clear that Ultra HD's benefits are worth the cost to consumers. To a significant extent, all new television formats face an uphill climb. It is a very rare consumer who wants the obligation to buy a new set or other equipment.

    Ultra HD feels more like the transition from DVDs to Blu-Ray discs, a technically better format that consumers are willing to buy as long as there is little cost premium associated with it. If Ultra HD catches on, expect a much slower adoption curve.

    Early HD sets:

    2004 65 inch Sony rear projection HDTV set is 27 inches deep
    Sony KV-40XBR800 FD Trinitron - weighs 325 pounds
    Update (25 May 2016): This report from John Archer on forbes.com notes that Ultra HD sets have become the de facto standard for 50+ inch TVs, more because manufacturers are not making non-Ultra HD sets in that size, rather than consumers paying a premium to get UHD sets.