Posts for 'Telcos'

I’m pleased to present the 361st edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia.

This week Colin and I discuss TiVo’s 16th quarterly Video Trends Report, which we both covered this week (here and here). We agree that the pay-TV industry has painted itself into a high-cost corner. The consequences of this are increases in cord-cutting, cord-shaving and adoption/use of SVOD, reduction in perception of per channel values and budding interest in new skinny bundles.

All of this is bad news for the industry and the report illustrates the specifics of each of these trends.

The report is available as a complimentary download here.

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There is an unmistakable trend taking hold in the wireless industry: video is quickly becoming bait for big carriers to lure and retain subscribers. All 4 of the biggest U.S. carriers have not only launched unlimited data plans, which are being explicitly promoted for video viewing, but in addition 3 of the 4 (T-Mobile, AT&T and Verizon) are also tying in aggressive discounts on video services. As I wrote recently, all of this carrier activity will drive more widespread mobile video use.

The start of the trend can clearly be traced to November, 2015 when T-Mobile launched its Binge On program, which now allows users to watch 120+ video services without impacting the user’s data plan. T-Mobile upped the ante in late 2016 by offering AT&T subscribers who switched to T-Mobile a full year of DirecTV Now for free (a $420 value). In January, T-Mobile further tweaked AT&T by adding a free year of Hulu for these subscribers because of the launch problems DirecTV Now experienced.

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Another day, another move by a major wireless carrier that further boosts mobile video. Yesterday, Verizon announced that it is offering unlimited data plans, for $80/month for the first line and $45/month for subsequent lines. It’s the first time Verizon has offered an unlimited data option since 2011 and is yet another sign of how aggressively wireless carriers are embracing mobile video as a key value proposition, in turn pressuring their business model of incremental payments for data usage.

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T-Mobile is continuing its attack on AT&T by introducing a bonus of one free year of Hulu for AT&T customers who switched to T-Mobile under a prior offer where they received a free year of DirecTV Now. T-Mobile has been sniping at DirecTV Now’s sketchy service since it launched, so its new offer amounts to a make-good for customers who made the switch, but may have ended up feeling underwhelmed by DirecTV Now.

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Akamai has released its State of the Internet report for Q3 ’16 finding, among other things, that global average broadband connection speed increased 21% to 6.3 Mbps vs. Q3 ’15. The country with the biggest jump in the past year was South Korea, which increased 28% to an average 26.3 Mbps, with Hong Kong next, up 27% to an average 20.1 Mbps. South Korea continues to have the highest average connection speed.

The US had an average connection speed of 16.3 Mbps, with the top 5 and their improvement over Q3 ’15 as follows: District of Columbia (24.8 Mbps, up 1.8%), Delaware (21.4 Mbps, up 9.8%), Utah (21.4 Mbps, up 13%), Massachusetts (21.1 Mbps, up 11%) and Rhode Island (20.7 Mbps, up 5.4%).

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According to industry data compiled by Leichtman Research Group, cord-cutting remained relatively modest in Q3 ’16, with the top 11 pay-TV operators, which account for approximately 95% of the market, losing 255K subscribers vs. 210K lost in Q3 ’15. As has been the trend in recent quarters, cable operators performed better than satellite and telco operators, which are disprorportionately bearing the brunt of the overall market’s slow, but ongoing, contraction.

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I'm pleased to present the 345th edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia.

What a week it’s been. Google Fiber’s expansion being put on hold. Vessel sold off just for its technology to Verizon. Twitter planning to close Vine. And yet, none of those are the big story of the week for today’s podcast.

Rather, we dig into the news that DirecTV Now will be priced at just $35/month, a level which virtually guarantees it will be a money-loser from day 1 for AT&T. Worse, it runs the risk of cannibalizing high-margin existing pay-TV subscribers from both DirecTV and other pay-TV operators. We don’t know yet which “100+ premium” channels will be in DirecTV Now, but if they include most of what people are currently paying 2-3 times as much for per month, it could be very disruptive.

More broadly we discuss AT&T’s pay-TV strategy, the DirecTV acquisition last year and now the pending Time Warner deal. All of it is a real head-scratcher for me.

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No doubt by now you’ve read all about AT&T’s plan to acquire Time Warner for approximately $85 billion - it was hard to miss the wall-to-wall press coverage over the weekend. As has been observed by a number of others, this deal is mostly about diversification, specifically AT&T’s desire to add another large revenue stream that offsets its declining wireless business.

Looked at through this lens, the deal represents a kind of “two plus two equals four” motivation; Time Warner brings a totally different set of revenues to AT&T, which makes the company less reliant on its sagging wireless business. If Time Warner can continue to perform at the same level as part of AT&T as it would have on its own, then AT&T wins because it achieved its diversification goal. The key of course is that AT&T didn’t overpay, in turn generating a suboptimal ROI. I’ll leave it to the Wall Street analysts to determine if the deal’s price is appropriate relative to Time Warner’s financial forecast.

Where the deal gets off track to me is the high falutin statements found in the companies’ press release that promise all kinds of benefits that are no more likely to happen as a result of Time Warner being owned by AT&T, and arguably, could actually be LESS likely to happen as a result of the deal. This is the risk that two plus two may actually LESS than four. This is the all too common outcome of many corporate mergers (with the infamous AOL-Time Warner one right at the top of the list).

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Major pay-TV operators made it through another quarter without any substantial acceleration in cord-cutting, according to industry data tallied by analysts MoffettNathanson. In Q2 ’16, pay-TV operators lost an estimated 757K subscribers, compared with a loss of 683K subscribers in Q2 ’15. Note also that the second quarter is always the seasonally weakest. When estimated Sling TV subscribers are added in, the loss declines to 708K in Q2 ’16 vs. 613K lost in Q2 ’15.

In a continuing trend, cable operators again picked up market share at the expense of telcos and satellite providers. Cable’s loss in Q2 ’16 declined to 242K subscribers from 404K lost in Q2 ’15, while telcos swung from a gain of 5K subscribers in Q2 ’15 to a loss of 526K subscribers in Q2 ’15. AT&T accounted for the vast majority of that loss (minus 391K) as it transitioned U-Verse subscribers to DirecTV. Verizon had a loss 41K vs. a gain of 26K a year earlier as it experienced an employee work stoppage.

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Cord-cutting remains one of the industry most-talked about themes, but it still appears relatively muted. According to Leichtman Research Group’s calculations, the 13 biggest pay-TV operators, which account for about 95% of the industry, lost approximately 385K subscribers in 2015. While that’s up from a 150K loss in ’14 and 100K loss in ’13, it still represents a minuscule .4% subscriber contraction, hardly the free fall many observers have long been predicting.

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I'm pleased to present the 312th edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia.

This week we explore the prospects for DIRECTV Now, the new OTT pay-TV service that AT&T announced this week. Though it didn’t share a lot of details, AT&T emphasized affordability and value, which led me to conclude it will be similar to Sling TV as a skinny bundle, and therefore will encounter the same challenges.

However, it’s worth noting that John Stankey, CEO of AT&T Entertainment Group, later said (perhaps based on the media’s reaction), “It is a rich bundle of content; it’s not a skinny bundle of content” and went on to say DIRECTV Now “is about getting that middle road” somewhere between a skinny bundle and a full pay-TV lineup. Exactly what that means is hard to say at this point.

Colin is more sanguine about both Sling TV and also about the prospects for DIRECTV Now. Colin shares how he uses Sling TV currently and whom it might appeal to. I’m still skeptical about the skinny bundle approach (as is Stankey, who also said “We think skinny bundles have a very small application in the market over time”).   

DIRECTV Now won’t launch until later this year, so it will be a while until we find out exactly what it is.

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Another day, another new video service. Or to be specific, another 3 new video services, all coming later this year from AT&T, which announced DIRECTV Now, DIRECTV Mobile and DIRECTV Preview yesterday. The most intriguing of the group is DIRECTV Now. Though few details were released, it feels like it will be more along the lines of skinny bundle Sling TV than full line-up PlayStation Vue. It will likely feature a low entry price with add-on packages of certain networks.

While analysts and press recently reported that Sling TV ended 2015 with 500K-600K subscribers, I remain skeptical about how broadly attractive the service ultimately will be and more generally, how appealing the “virtual pay-TV operator” model is. Barring anything surprising from AT&T, it’s likely that many of my same challenges Sling TV faces will apply to DIRECTV Now as well.

I’ve written about these at length in the past (here, here, here), but to quickly recap:

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The latest evidence that wireless carriers will fuel a boom in unlimited mobile video viewing came this morning with AT&T announcing a new plan that gives new and existing AT&T wireless subscribers who already have or who add either DirecTV or U-Verse TV service unlimited video on their smartphone for $100/month. Options are available for adding more smartphones and tablets for additional fees. AT&T also said it was the “first of many integrated video and mobility offers the company plans to announce in 2016.”

Wireless carriers’ capped data plans have meant that subscribers needed to meticulously monitor their usage as they watched data-intensive video in order to avoid costly overage charges and also to aggressively search out WiFi hotspots. As wireless carriers have migrated to unlimited text and talk, data has become a key source of incremental, usage-based revenue.

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The past week has brought some pretty remarkable statements from Verizon executives, suggesting that the company - which has long-trumpeted its FiOS TV service - has all but thrown in the towel on traditional pay-TV. The decision has broad implications for the pay-TV and broadband industries.

First, at this week’s Ignition conference, Verizon CEO Lowell McAdam said “People do not want 300-channel bundles and the economics won’t work for that.” Instead he’s betting on Verizon’s skinnier “Custom TV” service, which averages between 40-60 channels, and which McAdam said now drives “40% of FiOS’ subscriber volume.” McAdam also talked up Verizon’s Go90 mobile video service as a potential substitute and the company having hired “a couple thousand people” in Silicon Valley.

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It’s been a rough few weeks for all companies in the TV and pay-TV industries as cord-cutting and advertising shifts have taken center stage. Stock market sentiment has turned bearish as investors have extrapolated that the long-stable days of TV and pay-TV are officially over.

But a more granular analysis of actual video and broadband subscriber data for Q2, as well as a clearer understanding of what’s driving the market forward, suggests that such a broad brush approach to all players is misplaced. In reality, big cable operators had a standout second quarter in both video and broadband and should be poised for even further gains going forward as OTT becomes the single biggest industry influence.

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Verizon reported that Q2 ’15 FiOS video subscriber additions declined to just 26K in Q2 ’15, down from 100K additions in Q2 ’14 and 140K additions in Q2 ’13. In the earnings call, Verizon CFO Fran Shammo pinned the blame for the declines on “triple play offer changes at a time of increased competitive intensity” before saying that its new Custom TV packages are now accounting for a third of all new video subscribers.

Verizon is the first big pay-TV operator to share its results and a key question is whether its weak quarter is an early indicator of an accelerating industry slowdown. Last week, in discussing Netflix’s breakout Q2 ’15 results in the U.S. (in which it added 900K subscribers vs. a range of 530K-630K additions in each of the prior second quarters), I asserted that Netflix’s gain could finally be coming at pay-TV’s expense, particularly among younger cord-nevers.

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Netflix released its Q2 ’15 earnings late yesterday, adding 3.28 million subscribers globally, almost twice as many as the 1.69 million it added in Q2 ’14. Everyone knows that Netflix has been expanding fast internationally, but what was most intriguing about the Q2 report was that Netflix added 900K subscribers in the U.S. vs. its forecast of 600K. The 900K compares with 570K U.S. adds in Q2 ’14, 630K in Q2 ’13 and 530K in Q2 ’12.

In other words, in Q2 ’15 Netflix significantly broke out of a relatively narrow growth range it had been in over the past 3 years in the seasonally-weak second quarter. The 900K add is even more noteworthy because Netflix has almost twice as many U.S. subscribers (42.3 million) now than it did 3 years ago (23.9 million). The law of large numbers suggests the bigger a company gets, the harder it is to achieve even comparable unit growth, much less greater growth.

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I'm pleased to present the 273rd edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia.

Since Verizon announced it was acquiring AOL for $4.4 billion earlier this week, there has been a ton of media coverage, with lots of speculation about what the deal means for Verizon going forward. This is at least partly due to the companies doing a relatively poor job of articulating the deal's strategy.

In this week's podcast, Colin and I weigh in as well, focusing mainly on how AOL's video, programmatic and video syndication assets could mesh well with Verizon Digital Media Services, which already provides back-end delivery and monetization to video content providers (see here and here). Combining the two seems like the biggest point of leverage to Colin and me, yet we note that Verizon didn't even mention a VDMS role in any public comments on the deal.

Meanwhile, in a week when the pay-TV industry suffered its first-ever first quarter loss of video subscribers, we also discuss how Verizon seems intent on innovating beyond the traditional multichannel bundle.

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Verizon's surprise $4.4 billion acquisition of AOL, looks like mostly a bet on video, mobile, and programmatic, with content likely the odd man out.

The deal gives Verizon a bigger play in 3 of the biggest trends in the media business - the explosion of personalized, on-demand video viewership, the massive adoption of mobile lifestyles via smartphones, and the shift to automated, data-driven ad buying through programmatic platforms. AOL has been pursuing all of these over the past few years through internal growth and acquisitions.

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