30 August 2011

In Praise of the DVR's Incredible User-Friendliness

Compared to many new technologies, it is astounding how user-friendly the generic, cable box DVR is.  Other TV or online technologies could learn from its lessons.

The DVR has one truly great user-friendly feature - the list of recorded shows.  The beauty of this feature is a direct result of the DVR's limitations.  There are a limited number of shows (because hard drive space is limited) and the shows are all relevant to the user (because he or she chose to record them).  This list is easy to navigate (because it is short) and highly personalized.

The list of recorded shows will be easy to navigate from any phone capable of playing video.  The phone's small screen is up to the task of navigating through this simple list.  This becomes a simple and valuable implementation of TV Everywhere once the DVR storage moves to "the cloud".

The contrast with cable VOD and the current, early TV Everywhere offerings could not be more striking.

23 August 2011

NFL Sunday Ticket without DirecTV

DirecTV, which has exclusive rights to NFL Sunday Ticket, will be selling the subscription package to any non-DirecTV subscriber for the first time this fall.  In an interview with Multichannel News, Alex Kaplan, DirecTV's Senior Director of Product Management, said that "It's our attempt to open up the universe a bit to people that can't get DirecTV -- students, people who live in big apartment buildings and people who live in New York City -- and it's a new revenue stream for us."

NFL Sunday Ticket via the PlayStation 3 will be cost $339.95 for the season; the package sells for $334.95 on DirecTV.

Letting Others Get Your Crown Jewel - Is that Smart?

It is a widely held belief that the main purpose of Sunday Ticket exclusivity for DirecTV was to attract customers to its platform (instead of cable, Dish or telco video services.  It is well known that NFL Sunday Ticket is, if not a loss leader, does not generate a whole lot of margin for DirecTV.

Making Sunday Ticket available to non-subs, is, at least, a little odd.  It is hard to imagine Cablevision providing News 12 over-the-top to Verizon customers.

Cable operators have long coveted access to Sunday Ticket (no one likes to be the platform WITHOUT a top quality programming service). It seems that if the package is available to cable customers over-the-top, by definition it is no longer is as much of competitive differentiator for DirecTV.

DirecTV's Kaplan says the target is residents in cities like New York, where tall buildings prevent a clear signal for satellites, and video-game playing college students. “There are real revenue opportunities here from non-DirecTV customers, and while they won’t sign up for DirecTV right away, ultimately these people could move to the suburbs, and we’ll have a relationship with them that could lead to a conversion to DirecTV,” said Kaplan.

That sounds fine, if the PS3 is more penetrated in New York City or college campuses, but I think most of the PS3s are probably in the suburbs.

Why PS3?  What About Other Platforms?  We Are in an Experimenting Age

The NFL has argued that Sunday Ticket has a minimal cannibalizing effect on the viewership on the nationally telecast games because its availability is limited to DirecTV. That's important because the vast majority of NFL television revenue is from Fox, ABC/ESPN and NBC, not DirecTV.

However, if the goal was experimentation, the PS3 is an odd choice.  The PS3 accounts for more streaming hours for Netflix than any of its other platforms -- 30% of the total, according to an analysis by Sandvine; this choice was the not obvious toe-in-the-water play, that say, Roku, would have been.

Eagle-eyed observers will note that DirecTV has offered Sunday Ticket via broadband already with Sunday Ticket To Go, a $50 add-on for DirecTV Sunday Ticket subscribers that has been offered since 2008.  STTG is available on iOS, BlackBerry, Android, other consoles, etc.

DirecTV did make Sunday Ticket To Go available to DirecTV non-subscribers in 2009 (in Manhattan) and 2010 (everywhere), but this offer was only available to people who could not subscribe to DirecTV service.  In fact, a prospective customer would have to first sign up for DirecTV, then be rejected by a DirecTV installer.

DirecTV's Kaplan's other interesting comment in the interview is that "We're not going to let it [NFL Sunday Ticket subscriptions on PlayStation] go to an unlimited number.  We're trying to figure out what is the market for this at that price point."  Confusingly, in a later interview with Bloomberg, he added “If this test is successful, we have the opportunity to distribute ‘Sunday Ticket’ through various different devices, and we’re certainly open to relationships with other consoles and Internet-connected devices.”

Perhaps DirecTV thinks that they have already picked off all of the viable satellite television customers who really valued Sunday Ticket. It could be that the real test is less about the incremental revenue the broadband offering will bring, but whether the existing DirecTV Sunday Ticket subscribers will churn out at any greater rate if Sunday Ticket is available over-the-top.

08 August 2011

Tangible Evidence of "Cord Shaving"

The title of this post is provocative, but it is not as provocative as the content that inspired it.

For many years, cable executives and some industry analysts have downplayed the impact of cord-cutting on the multichannel subscription television business. The arguments have some merits. Multichannel penetration continues to rise each quarter. Broadcast has been free competition for cable television forever. The most popular online video is YouTube, which, while a wonderful service, is not a substitute for a television subscription, except in the sense that people watch television and people watch YouTube. Netflix, even in its DVD-by-mail incarnation, got a lot closer to being a substitute. The programming (movies and TV series) was the sort of thing that people watched on TV. It did offer a large amount of choice -- one of the primary virtues of a multichannel subscription versus broadcast television. It was an all-you-can-eat subscription that offered a lot of value for heavy users (or multiple person households). Netflix was seen as a good service for "cord shavers" who might drop premium channels like HBO and Showtime and get their movie fix from the company with the red envelopes.

For those waiting for the multichannel television business to be roiled the way that the music business was, the first big cracks were admitted last week. The dirty little secret is porn.  Porn on cable was a wonderful business.  The retail prices were high, the marketing costs were low (consumers who want it seek it out) and the wholesale costs were modest (there are lots of companies that make porn and the cable companies easily pit them against each other; also there are few barriers to entry in the porn business and it requires little capital, so new suppliers are always entering the market).

Multichannel distributors never talked much about porn in their earnings calls before.  The subject was considered...in poor taste.

Time Warner Cable and DirecTV were forced to admit that the reason for the declines in their VOD business were large declines in the sale of porn.

It is no wonder that porn is the canary in the coal mine. Anonymity is a plus for consumers (no need to explain the VOD purchase on the cable bill is a plus in many households). Short form content is often a good substitute for long form content in this genre (most long form content could be considered a compilation of scenes -- the unit of payment for the performers). A relatively small amount of the porn market is branded (Playboy, which doesn't consider what it provides as porn, is the strongest brand name in "adult video"). Also, there is a tremendous supply of free content on the Internet.

What is the next genre to be cord shaved? Many categories of news seem to share these characteristics:  weather information, sports highlights, entertainment news are some of the more obvious examples.  These sorts of services (The Weather Channel, ESPNews, E!) do have the advantage of being bundled on the basic tier, rather than being a separate purchase, for consumers. These channels are also bundled with other channels for sale to the distributor. Therefore they are not easy to drop, even if their value to the bundle is declining. But it sure looks like their value to the bundle is, in fact, declining.