23 April 2012

Nimble TV's DVR Is More Interesting than Its TV Everywhere

TV Everywhere seems both wildly misunderstood and greatly overstated. In this post I will lay out what it is, why it makes sense, and how a startup announced today, Nimble TV fits into the TV Everywhere picture.

The general concept of TV Everywhere is that the multichannel television subscriber should be able to watch anything anywhere, not just at home via the set-top box provided by its MVPD (multichannel video programming distributor). A key question in understanding TV Everywhere is: What is the use case? Or, more precisely, since multichannel television is a household rather than individual subscription, what are the use cases?

  1. In the car, young children in the back seat. Live Nickelodeon or Disney Channel or prerecorded programs (from the family DVR). This use may supplement or take the place of viewing DVDs on portable or car-based players. (Best Buy's selection of such products is extensive.)
  2. Waiting for the bus (apologies to ZZ Top) or plane or train or whatever. There is dead time and while the smartphone has done an admirable job filling such moments with Angry Birds or podcasts or catching up on Facebook, sometimes watching a game, a bit of live news or part of the program on the DVR would be an attractive additional option.
  3. A "second set" within the home. Several MSOs have created iPad apps that offer this functionality already -- Time Warner Cable, Cablevision and DirecTV among them -- and it seems to be pretty popular with everyone except Viacom. Oh, yeah, and there are people who have second sets connected to second set-top boxes, too.
  4. Deep library. One of the appeals of HBO Go is the ability to watch things that no longer air on HBO, like earlier seasons of current shows (How did Game of Thrones begin?) and shows from HBO's past (The Sopranos).
TV Everywhere is added value to your existing multichannel subscription. Because it is not sold separately, it is not a substitute for it. It is "added value" rather than an extra cost service because few would likely pay for it and, more importantly, multichannel operators want to raise the cost of the package (in part because programming costs are growing faster than inflation). While everyone would prefer to create something that would inspire people to pay more for greater functionality, the last service to succeed with that model was the DVR. If the distributor does not charge a discrete amount more to the customer, the distributor has a good argument that it should not pay more to the programmer for these rights (and, in turn, the programmer has a good argument to its program providers that it should not and the program providers have a good argument that the members of the guilds who create the programs should not get anything more either). Presumably, if this innovation adds value to the system, that value will trickle down the food chain, enabling each seller to do a bit better upon the renewal of their deal with each buyer. While there will be the usual squabbling about the terms, TV Everywhere has a few real strengths as an addition to the pay-TV ecosystem.
  1. It is easy to explain to consumers, since it is adding convenience to an existing service, rather than creating a new service.
  2. It is not displacing a significant revenue stream for the programmers. In fact, all of the attempts to create additional TV subscription businesses haven't exactly been huge successes, with the exception of Netflix, which is only truly competitive with pay-TV on deep library (and which does provide some real money to a few programmers, most notably the CW.)
  3. It enhances the value of the subscription and, thus, helps support price increases, in much the way that addition of channels to the basic package did a decade ago.
All of this brings us to Nimble TV, the startup du jour that looks to be about TV Everywhere. Nimble has an interesting business model. The concept is that it will subscribe, for a user, to a package of television service, of the user's choice, from a multichannel operator. Nimble TV doesn't need a deal with the programmer, the theory goes, it only needs a deal with the MVPD. Nimble TV will charge the MVPD's going rate for the package and then mark it up by "around $20" for the benefits that Nimble is providing. In that way, it is like buying stamps at the UPS Store; there is a markup for the convenience of purchasing them there instead of at the post office. 

The convenience, in this case, has a number of qualities:
  1. The set-top box is not in your house, it is at Nimble, taking up their space and sucking down their electricity.
  2. You get full-blown TV Everywhere. Every single program, including those on your DVR (more about that below) is accessible anywhere you have an Internet connection. Nimble TV will deliver a single stream of video from "your" set-top box to your iPad or web browser (the first two available clients) via the Internet. In this way, the functionality is similar to a Slingbox, but with the convenience of not having to buy the Slingbox. 
  3. Instead of purchasing DVR service from your television provider or TiVo, Nimble TV will provide a DVR service with the storage of 10,000 hours (!) of your programs "in the cloud"
Here's the issues that I see:
  1. Multichannel operators may not be willing to allow a third party to have the billing relationship with one of "their" customers, particularly if it allows customers to switch providers more easily (more on that in a moment).
  2. The value proposition for Nimble for a consumer may not be compelling. For subscribers who really value watching TV on their computers or other devices, Nimble does offer that. However, until it also provides service direct to the television (via a game console or Roku or some other box), it appears to offer a more compelling offering on secondary and tertiary viewing devices than it does on the primary device. Addressing this concern, however, should be trivial for Nimble, if they can make an iPad app, I'm sure they can make a Roku app. Getting onto the game consoles, which are far, far more penetrated in US households than Roku boxes, may not come as quickly.
  3. The concept of a single-stream service seems not particularly useful for multiperson households. A Time Warner Cable customer with only one set-top box can still use an iPad as a a "second set" within the household (and a computer as a third set and smartphone as a fourth). While TWC TV's app does not have the same functionality as Nimble's, it does have a large portion of that functionality and Cablevision's app has more. These apps have also improved substantially in the short period they have been on the market. [I'm sure Nimble can provide more than one stream, but doing it with more than one-box would put the kibosh on using the Slingbox as legal precedent.]
  4. The $20 monthly fee for TV Everywhere might not be compelling for many customers. To the extent that the subscriber is getting the DVR functionality from Nimble instead of the core provider, the savings on the television subscription might offset Nimble's cost, in whole or in part, especially as MVPDs raise the prices of their DVRs.
  5. An increasingly large number of multichannel customers purchase more than television service from their provider (e.g., Internet, phone and/or home security service). If the customers takes off the video, substituting Nimble, the price of the other elements of the bundle may go up making the economics of Nimble for a customer a even more challenging.
In his highly recommended and thorough post on Nimble, I believe Rich Greenfield of BTIG Research, is mistaken in his belief that MVPDs will agree to work with Nimble and, if they do so, that the MVPDs will allow Nimble to ignore the geographic boundaries of their systems. Mr. Greenfield foresees a Nimble customers on Long Island, upset with an MVPD's drop of a popular channel during a carriage dispute (e.g. Fox-Cablevision during the 2010 World Series), simply switching to another provider's service. For the same reason that incumbent cable operators have generally not overbuilt each other, there is little reason to see why they would think they would benefit if Nimble facilitated such competition. Verizon and other overbuilders (and the DBS services) would have greater reason to sign up.

Even if the MVPD signed up to work with Nimble, it is impossible to imagine that the programmers and program providers (e.g., sports leagues, movie studios) would agree that the geographic restrictions in place when they license their programs all of a sudden do not apply to Nimble. Regional sports networks do not license their service to MVPD to provide it to customers outside of a defined geographic area and US cable networks that buy movies from the big studios usually do not have the right to distribute them in other countries. Someone else owns those rights. If Nimble does not think that ignoring these rights restrictions would be problematic, they are either hopelessly naive or woefully ignorant.

[One ancillary but related question that comes to mind is: if an MVPD is offering service via Nimble outside of its franchise area -- which community gets the franchise fees? Presumably it has to be the community in which the box resides, but the community in which the subscriber resides might not agree.]

Pulling back a bit, what seems truly compelling to me about Nimble TV is less the TV Everywhere part, than the very high capacity DVR part.  Certainly a large amount of DVR storage is a benefit that is difficult or expensive for consumers to create on their own (via a DVR Expander - 1TB of hard drive space holds about 150 hours of HD video and costs about $100; an individual DVR expander that would hold 10,000 HD hours would cost $6600, at that rate). In my household, managing storage on the DVR is a bit of a pain. While a consumer could add a DVR expander, those products have a reputation for flakiness, as do hard drives in general. Putting the DVR into the cloud, giving it a ton of capacity and making it available on my phone and iPad is something no cable operator is providing right now. However, to make that truly compelling, Nimble needs support for the TV and multiple streams to accomodate everyone in my household. Go down that path a bit and it starts to sound more and more like a service that the MVPD should be selling. Perhaps Nimble ends up going down that route eventually, being a vendor of services to the MVPD. [That was part of Sling's original plan, but being owned by Charlie Ergen didn't put Sling in a good position to be a vendor to its competitors.]

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