Comcast And Netflix: We’re Chill

A story appeared this week in the the music trade Digital Music News claiming that Comcast had coerced Netflix into their recently announced agreement to bundle the streaming service in with Comcast’s pay-TV offering by threatening to impose “paid prioritization” charges on Netflix for delivering its streams to Comcast broadband customers.

The story cited an anonymous source, who pointed to a paragraph in the press release announcing the deal, which reported that “Netflix-related billing will be handled directly by Comcast, giving customers one, simple monthly statement,” as evidence of Comcast’s arm-twisting.

“That billing relationship was apparently something Netflix never wanted to relinquish.  But the on-demand platform has been forced to concede — or face seriously-elevated access charges,” DMW claimed. “Of course, that development opens the door for every other ISP to pinch Netflix in exactly the same manner.  Which means the FCC’s net neutrality rollback is already shifting the playing field in favor of ISPs.”

The report was quickly and vehemently denied by both companies. “These assertions are completely false and have no basis in fact,” Comcast said in a statement given to DMW after the story first appeared. Netflix called the report “entirely false.”

Indeed, the story was a particularly lurid example of a genre of net neutrality scare stories that betray little understanding of the actual power dynamics of the pay-TV and OTT businesses these days. There are lots of reasons to be concerned about the FCC’s abdication, but the fate of Netflix is not one of them.

With nearly 57 million U.S. subscribers, Netflix has more than twice the number of customers as any ISP, including Comcast. And it’s probably growing faster than any ISP as well, adding 1.2 million U.S. subs in just the first quarter of 2018 despite raising prices. No one is going to be putting the “pinch” on Netflix at this point.

If anything, ISPs need Netflix, to drive sales of faster broadband speeds, more than the other way around, which is why Comcast is now hugging its one-time rival so tightly.

To cite another, anecdotal, example of that dynamic, I recently switched my ISP service from Comcast to Verizon FiOS, which is giving me a year of Netflix for free even though I’m already a Netflix subscriber. I’m pretty sure that arrangement isn’t free for Verizon, however. Verizon may be getting a bulk rate on the Netflix subs it is giving away but it’s paying Netflix something for them.

Verizon, in other words, is willing to take a financial hit even where it doesn’t have to — I would have signed up for FiOS without the promotional Netflix offer — because it wants to associate its broadband service with the streaming brand.

(The arrangement also means, incidentally, that Verizon has effectively taken over my billing relationship with Netflix, at least for the next year.)

In fairness to DMW, the billing arrangement might once have been important to Netflix, but at this point it’s probably not a top priority. Billing is a cost center for any service provider and turning those duties over to Comcast is probably a cost-saver for Netflix. Burying itself in the Comcast bill might also reduce a certain amount of churn for Netflix, positively impacting another costly problem for subscription services.

Of far more importance than the billing relationship is the data relationship, and would indeed be interesting to know what the parties of worked out on that score. Comcast, which owns NBCUniversal, would no doubt love to know what Netflix viewers are actually watching. Whether the new arrangement will give them any more incite on that is not clear. For it’s part, one advantage Netflix has had over rivals like HBO, until recently, has been that Netflix has extensive data on its subscribers and everything they watch, whereas, until the launch of HBO Now, the pay-TV network has not had access to comparable data. It is very unlikely Netflix would give up access to that data as part of the Comcast deal.

The biggest problem with the DMW story and its like, however, is that it gets the reason the Comcast-Netflix deal is important exactly the wrong way around. Far from being able to soak Netflix for “paid prioritization” fees, the real value of the deal to Comcast is that it is adding a hugely valuable programming brand to its pay-TV service without the concomitant carriage fees.

That could indeed be a game-changer, although which direction it ultimately breaks is not yet clear. The deal could be an indication that Comcast (and perhaps other cable ISPs) is looking to begin salting its pay-TV service with OTT brands, which could act as a hedge against ever-growing carriage and retransmission fees from incumbent networks.

It could also turn out to be a first step toward Netflix charging ISPs for carriage, just as traditional linear networks charge pay-TV operators.

Either outcome would mark a significant turning point in the evolution of the TV/OTT business. But it has nothing to do with net neutrality.

 

Set-Top Rapprochement

A West German man uses a hammer and chisel to chip off a piece of the Berlin Wall as a souvenir. A portion of the Wall has already been demolished at Potsdamer Platz.

Back in 2012, writing for the now-defunct GigaOm, I predicted that peace would eventually breakout between pay-TV operators and over-the-top services, a process I dubbed the set-top rapprochement (I was able to find one archived example of my musings still available online).

As OTT services evolved into ever-more viable substitutes for traditional TV, pay-TV providers, I assumed, would eventually realize they were better off embracing the enemy that fighting him, lest they be displaced altogether. OTT services, I imagined, would eventually see the benefit to getting their service onto TV-input 1 in households that held onto their pay-TV service, which is to say most of them.

Both sides, moreover, had an interest an interest in gaining leverage with programmers, and on the theory that the enemy of my enemy is my friend, each could be stronger together than apart.

For traditional pay-TV providers facing ever-growing carriage and retransmission fees, incorporating OTT channels into their service could help maintain their value proposition to subscribers while making operators marginally less vulnerable to blackout blackmail by fee-hiking programmers. It would also bolster operators’ pitch for faster broadband speeds, where their margins are better than on their video service anyway.

For OTT services, scale is critical in negotiating licensing fees, and anything that might expand their reach while lowering average subscriber acquisition costs would be beneficial.

I still think that analysis is substantially correct. And, while it has taken longer than I anticipated in 2012, there are signs the process is accelerating.

Last week, Comcast and Netflix announced the cable operator will start bundling the streaming service with the rest of its pay-TV service, allowing consumers to pay for both on a single monthly bill. The arrangement builds on the companies’ earlier agreement to make the Netflix app available on Comast’s X1 set-top box, and marks perhaps the final step to ending to years of hostilities between them.

Meanwhile, as Colin Dixon of nScreenMedia reports, pay-TV operators are slowly starting to embrace the open Android TV platform in their STBs as a means to integrate traditional pay-TV and OTT services.

Dixon is skeptical that integrating OTT services can save the big pay-TV bundle. But it might open other possibilities.

A new study by comScore highlights the increasing fragmentation of the OTT universe, which the analysts liken to the explosion in the number of TV networks in the 1980s with the rapid growth in cable and satellite TV penetration. The evolution of OTT into a multichannel mosaic could eventually create pressure for a new type of aggregator, offering a menu of ala carte channels, or skinny bundles mixing linear and OTT channels, through a single user interface.

After all, even the Berlin Wall eventually came down.

 

Mirror Mirror

Netflix’s content chief Ted Sarandos once famously quipped that his goal was for Netflix to become HBO “faster than HBO can become us.” By that he meant, for Netflix to establish itself as a high-end global TV content brand before the reigning high-end global TV content brand, HBO, could un-tether itself from the legacy pay-TV ecosystem.

So far, Netflix is winning that race. The streaming service now reaches over 100 million subscribers worldwide, more than the entire U.S. pay-TV universe, and will spend upwards of $8 billion in 2018 producing 700 original series.

What’s more, Netflix has successfully colonized HBO’s home turf in the living room. Although today you can watch Netflix on virtually any connected device nearly anywhere in the world, the company reported this week that 70 percent of its streams are delivered to a stationary TV set, either directly via smart TV app, via streaming box, or via its growing number of integrations with traditional pay-TV platforms. Read More »

Pay-TV’s Rising Sea Of Troubles

Change comes slowly, and then all at once. And it’s coming now to the pay-TV business.

For years — even as technology-driven disruption ravaged the music, publishing, and other media industries — the traditional pay-TV bundle largely held together despite a trickling away of subscribers to cord-cutting.

A big reason it hasn’t fallen apart until now is that programmers and operators shared in interest in keeping it together, even as they regularly clashed over carriage renewals. For programmers, bundling channels into a single carriage deal brings in incremental affiliate fees and increases advertising inventory; for operators, the big bundle helps sustain high ARPU rates and long-term subscriber contracts. Neither side had an incentive to fundamentally alter the structure of the business.

Even the emergence of over-the-top “skinny” bundles proved less disruptive than many expected as programmers successfully pushed OTT providers to fatten up their skinny offerings and raise prices to levels nearly comparable to traditional pay-TV subscriptions.

But the trickle of cord-cutting has now become a flood. And as the water rises programmers and operators have begun to turn on each other in earnest. Read More »

M&E Forecast: Slowing Growth, Tighter Choke Points

Two five-year forecasts issued this week together paint a picture of a much tougher business environment facing media and entertainment companies over the next half decade.

According to PwC’s annual Outlook report, the media and entertainment industries are nearing a revenue “plateau,” particularly video-centric industries, as many historical growth drivers are running out of steam. Worldwide, PwC expects M&E revenue to rise from $1.8 trillion in 2016 to $2.2 trillion in 2021, representing a compound annual growth rate of 4.2 percent– a ratcheting down from the 4.4 percent CAGR it forecast last year.

For the U.S., revenue is projected to grow even more slowly, increasing from $635 billion in 2016 to $759 billion by 2021, for a CAGR of 3.6 percent. Read More »

The Other Pay-TV Bundle

Hulu’s virtual pay-TV service went live in selected cities this week, offering a basic bundle of 60 channels for $40 a month ($73 a month with enhanced DVR capability). The launch, still officially in beta, brings to six the number of live, multichannel over-the-top services now available, including DirecTV Now, Sling TV, Playstation Vue, YouTube TV, and Fubo TV. More are likely on the way.

But while Hulu was rolling out, many traditional pay-TV providers were rolling over. According to an analysis by MoffettNathanson analyst Craig Moffett, based on publicly reported results and estimated results for privately held companies, traditional pay-TV providers collectively lost at least 762,000 video subscribers in the first quarter of 2017, more than five times their losses in the same period last year.

“For the better part of fifteen years, pundits have predicted that cord-cutting was the future. Well, the future has arrived,”  Moffett wrote in his latest quarterly overview of the industry. “It leaves the Pay TV subscriber universe shrinking at its worst ever annual rate of decline (-2.4%). And it was the worst ever accelerate in the rate of decline (60 bps).”

The news spooked investors, who sent shares of media companies tumbling. Read More »

Amazon in Good Field Position After NFL Deal

Amazon won the auction for live-streaming rights to this season’s Thursday Night Football franchise with a bid of $50 million dollars for a package of 10 games. That’s 5 times what Twitter paid last year for essentially the same deal: Amazon will share the games with NBC and CBS and will stream the networks’ feeds, including their ads. Amazon will also be able to sell a handful of ads per game itself.

The games will be available for free to Amazon Prime members.

Although the 5X increase in price is impressive — and was probably too rich for Twitter — $50 million is still pretty small beans, both for the league — whose deals with the broadcast networks run into the billions — and for Amazon, which has $20 billion on its balance sheet. For both, it’s largely an add-on business at this point.

For the NFL, streaming is still largely an experiment aimed at finding a way to reach cord-cutters and out-of-home viewers, and to test the viewership waters outside the U.S., not to supplant its traditional broadcast deals. For Amazon, the NFL deal is a way to enhance the value of a Prime subscription and to attract to new subscribers at a relatively modest price. Read More »

Plenty of Bundles, Not Much Joy in Linear OTT

YouTube this week formally unveiled its long-gestating linear over-the-top services, YouTube TV, which will feature a skinny-ish  bundle of about 40 live channels for $35 a month. When it begins rolling out later this year in select cities YouTube TV will join Dish Network’s Sling TV, AT&T’s DirecTV Now, and Sony’s Playstation Vue in the linear OTT sweepstakes, and will soon by joined by a previously announced entry by Hulu and perhaps one from Apple.

As with those other services, however, the lineup of channels in YouTube’s bundle is a bit of a hit and miss affair at this point. Subscribers will get all the major broadcast networks, along with ESPN, USA, Bravo, Fox News and MSNBC, but no CNN, Turner or TBS, and no Viacom-owned networks.

Sling TV will get you CNN and Turner but the broadcast networks are only available in select markets, and again, no MTV, Nickelodeon or Comedy Central.

DirecTV Now will sell you a big bundle of 100 or so channels at the skinny-bundle price of $35 a month, but so far AT&T hasn’t figured out how to deliver it to you without its crashing. Read More »

Verizon Completes It’s Web 1.0 Roll-up, But May Not Stop There

With its $4.8 billion acquisition of Yahoo this week, coming a year and two months after its $4.4 billion acquisition of AOL, Verizon now owns the two dominant players in the web ecosystem — circa 1999. But at least it got them cheap.

Yahoo once had a market cap of $125 billion; AOL’s reached $224 billion in the immediate wake of its January 2000 acquisition of Time Warner — roughly the same as Verizon’s market cap today. So, scooping up both for less  $10 billion could be considered a steal.

YAHOO_headquartersThe question is, why bother? Neither AOL nor Yahoo is exactly dominant in its market today. In Yahoo’s case, it isn’t even clear what that market is. Even in announcing the sale to employees, Yahoo CEO Marissa Mayer could barely articulate a coherent description of what it is Verizon was buying, let alone why.

At best, Verizon is getting, in AOL and Yahoo, a disconnected assortment of online media properties and a pair of online advertising businesses built around display, rather than search, social, or mobile — the dominant modes of digital advertising today. While Verizon’s distribution reach in mobile may be able to breathe some new life into some of those media assets it has a long, long way to go before it could seriously challenge Facebook and Google, the dominant players it today’s digital media distribution and advertising ecosystem, if that’s really its goal. Read More »

The FCC Plays For Time in Charter-TWC Merger

The Federal Communications Commission and the U.S. Justice Department this week each signaled their intent to approve Charter Communication’s $65 billion acquisitions of Time Warner Cable and Brighthouse Networks, subject to several conditions.

The mergers will create the second largest cable-TV provider in the country, with 17.4 million subscribers, behind Comcast’s 22 million. Strikingly, though, none of the conditions attached by the FCC and DOJ have to do with the provision of cable-TV service. Instead, they deal almost entirely with promoting over-the-top video as a viable competitor to cable.

FCC_headquartersUnder the deal with the FCC, the merged company will be prohibited from imposing usage-based pricing or data caps on its 19.4 million broadband subscribers, a tactic many cable internet providers have turned to lately to discourage video cord-cutting by indirectly raising the cost of using OTT services like Netflix.

Charter will also be prohibited from charging Netflix and other OTT providers with interconnection fees for delivering traffic to Charter broadband subscribers.

Under the agreement with the Justice Department, Charter will be barred from inserting or enforcing most-favored nation (MFN) clauses in its carriage agreements with programmers — a tactic many pay-TV providers, particularly TWC, have used to discourage programmers from making their content available on OTT platforms. Read More »

From Winky-Dink to Facebook Live: Social TV’s Next Chapter

Broadcasters have long dreamed of making TV interactive and social. From the days of “Winky-Dink & You,” which encouraged its young viewers to draw on the TV screen along with the show’s host (much to their parents’ dismay), to Time Warner’s Full Service Network in Orlando, Fla., to the short-lived flowering of second-screen apps, broadcasters and their technology partners have tried for decades to make watching TV a more engaging experience by giving viewers the means to interact directly with their programming, and with others watching at the same time.

Most of those efforts have failed to catch on as their backers had hoped, largely because broadcast platforms are inherently uni-directional. They’re winky_dinknot networked to support much beyond overlaying some pre-baked interactive elements. Even today, when second-screen use while watching TV is a mainstream behavior, most of that activity involves something other than the content on the TV screen, or happens on unrelated social media platforms like Twitter and Facebook that are opaque to the broadcaster until after the fact. Dedicated second-screen apps allow for greater dialog between broadcaster and viewer but don’t really capture the broader conversation around the content.

This month, however, we’ve seen the first steps toward what could be a new and more promising stage in the evolution of social TV. Last week, Twitter landed a deal with the NFL to live-stream a package of 10 “Thursday Night Football” games next season. Though Twitter was not the highest bidder for the streaming rights, the micro-blogging service is a natural online home for the NFL. Nearly 50 percent of the conversations on Twitter are sports related and the NFL is one of the most frequent topics of those conversations. Read More »

We’re All Netflix, Now

On April 10th Showtime will make all 13 episodes of its new Steven Soderbergh series “The Girlfriend Experience” available on its VOD platform in a single, binge-ready dump. So too will Starz, with all six episodes of the new Andrew Dice Clay comedy “Dice,” as the pay-TV networks increasingly ape the strategy pioneered by Netflix.

They don’t have much choice. Bingeing is how Americans watch TV now. According to Deloitte’s latest Digital Democracy survey, 70 percent of viewers admit to binge-watching, defined as viewing three or more episodes in a single sitting, and one in three say they binge at least once a week. The average number watched during a single binge, fact, is an astonishing five episodes, which in the case of a drama series could easily eat up four or five hours. Millennials in the survey average six episodes per sitting.

We binge-watch so much TV in fact that we’re making ourselves anxious, depressed and lonely, according to a separate study by researchers at the University of Toledo. Yet our appetite is only growing. According to Deloitte, all age groups in its study binged more in 2015 than they did in 2014.

The seemingly irresistible trend, however, poses a dilemma for traditional linear networks. Making new series or seasons available for bingeing risks undercutting primetime ratings. Read More »

AT&T Prepares To Flex Its OTT Muscles

AT&T announced this week that it plans to take DirecTV over-the-top later this year through a multi-tiered streaming service that will be available to wireline and wireless broadband subscribers regardless of provider.

The top tier, to be called DirecTV Now, will feature “on-demand and live programming from many networks, plus premium add-on options,” which sounds more or less like Dish Network’s Sling TV OTT service. A mid-level tier, called DirecTV Mobile, will offer a stripped down video lineup and a “mobile-first experience.” A third, ad-supported free tier, called DirecTV Preview, will offer a “millennial focused” grab bag of digital-native content along the lines of Verizon’s Go90 service.

cable_TV_not1The announcement itself was no big surprise. AT&T obviously didn’t spend $48 billion to acquire DirecTV just to be in the satellite TV business — a business with little if any organic growth left in it — and extending DirecTV’s business onto broadband and wireless platforms is an obvious strategy. What is a bit surprising is the timing of the announcement.

As of now, AT&T has no programming lineups to announce for any of the tiers, no pricing information and no exact start date. And according to a Wall Street Journal report, negotiations with the networks to secure streaming rights have just begun. Read More »

Paramount Needs A Strategy, Not a Strategic Investor

Under pressure from investors to “do something” about its plunging share price, Viacom has agreed to sell a minority stake in Paramount Pictures in hopes of boosting Wall Street’s valuation of the studio, which has lagged its peers for much of the past decade. But CEO Philippe Dauman has made it clear he intends for Viacom to remain in firm control of Paramount and is interested only in “strategic” partners.

“We have received indications of interest from potential partners seeking a strategic investment in Paramount Pictures and I have decided to pursue discussions with a select group of potential investors,”  Dauman said in a statement. “In this time of change and enormous opportunity in tom_cruise_MIour industry, a partnership will bring significant benefit to Paramount and Viacom, both strategically and financially, provide new opportunities for Paramount’s employees and talent, and enhance long-term value for all Viacom shareholders.

“Paramount Pictures has been a leading motion picture studio for more than a century and is among a select few that has significant reach and scale, a deep library, a robust pipeline with proven global franchises, and a high potential television production operation,”  Dauman added. “In addition, the value of motion picture content continues to increase with the explosion of screens and the rapid expansion of the global theatrical market. This is the perfect time to explore new strategies to capitalize on Paramount’s content expertise and global platform, maximize opportunities for its continued growth, and unlock the value of the business for the benefit of shareholders.” Read More »