Is Cable’s Worst Nightmare About to Come True?

Monday December 28, 2009 – Antonette Goroch

It’s no secret that traditional pay TV operators (whether cable, DTH or telco) have been looking over their shoulders for some time at the prospect of “over the top” content (mainstream broadcast and pay TV content delivered via broadband Internet rather than traditional pay TV networks) gaining widespread traction among their subscribers and threatening their core businesses. Operators have been both terrified of the ramifications broadband holds for their high margin, walled gardens of content, while simultaneously enticed by the possibilities broadband holds for their own bottom lines.

These fears may reach a whole new level of realization next year, as Apple is reported to be in negotiations with ABC and CBS for a new “all you can eat” type monthly subscription content service in 2010. Clearly, the depth, breadth and usability of Apple’s content will be key to the model’s success and there have been few details to emerge regarding this. Still, Apple appears willing to put cash behind its effort, reportedly offering broadcasters (who have the most to lose for any impact this might have on their ad-supported model) from $2-$4 per month per subscriber for inclusion in the service.

The key question is—should Apple secure a fairly decent library of content (analogous say to the level Apple debuted prior services from music to video rental) will consumers, (or perhaps how many consumers?) turn off their rather expensive pay TV subscriptions in favor of a $30 per month on demand access to a handful of their favorite shows?

Pay TV operators have, to date, put their efforts behind massive bundles of TV/phone/Internet services which offer subscribers one flat fee for more content and services than most people could ever use. But how will consumers react if they are able to pay one low flat fee for broadband access, then cherry pick their desired content for desired devices for less money on a more a la carte basis (a model that cable operators have eschewed)?

Content providers have shown more and more willingness to put out their content to as many distribution points as possible—whether Internet, mobile or other alternate platforms—understanding that the landscape of tomorrow is one with multiple distribution outlets rather than one primary means as is the case today with pay TV.

This means Apple may very well have a strong offering come 2010, and pay TV operators might see the real effects of “over the top” content sooner than many may think.

On the 1st day of Christmas…

Monday December 22, 2009 – Maya Jasmin

So Black Friday has come and gone and holiday shopping has officially entered the last minute stage and while hunting down my son’s Christmas requests I was stopped in my tracks by one seemingly harmless item. Now you may think it’s because I combed the world (both physical and cyber) over and couldn’t find the new hot “it” item, good guess but you would be wrong. My problem was quite the opposite; I had too many options from which to choose to grant this particular wish to my child

You see, I was trying to decide in which format I should purchase his favorite movie and apparently the makers of the movie weren’t too sure in which format (DVD, BD, electronic download) consumers want to have it either. My 4 year old has numerous video playback options – laptop, DVD, and BD.

Now maybe I was just delirious from continuous days of holiday shopping but this dilemma kept the movie on my list way longer than need be and got me to thinking how these various avenues of video distribution are faring in today’s marketplace.

According to DTC DVD is still king, currently DTC estimates that over 5 billion pre-recorded units will ship by year end 2009 and 4.8 billion units will ship in 2010. While decline is projected throughout the entire forecast period 3.5 billion units are still expected to ship in 2014, hardly a number to frown upon. Internet program buys also boast impressive estimates, coming in at 255 million in 2009 growing to 416 million and 946 million in 2010 and 2014 respectively. So while this toddler- phased content delivery option has a tall order to fill before it outpaces pre-packaged optical disc shipments, it’s faring pretty well.

Then there’s BD, the once thought heir apparent to DVD. DTC expects that 262 million BD will ship in 2009 growing to 591 million in 2010. By 2014 DTC expects that 1.9 billion BD will ship in that same year. So while BD shipments may never reach the success its predecessor, DVD, reached in its peak, BD is making a name for itself. Now armed with an arsenal of data and analysis I revisited my movie dilemma and what did I do?

I purchased the BD bundle that comes with a DVD and an electronic download version of the title; I figured there was no way I could go wrong with that. But I wonder how much longer I’ll be met with that option when purchasing video entertainment. The fact that the studio bundled an electronic download can’t be a good sign for packaged media. The day may soon come when I won’t even bother with the disc and just buy the electronic version. But then I can’t wrap it up, put a red bow around it and put it under the tree.

3D HDTV Update

Monday December 14, 2009 – Stewart Wolpin

Details about the timing, shape, pricing and availability of 3D HDTV continue to come into focus.

According to XpanD, a leading manufacturer of the active-shutter 3D glasses used in theaters and, the company hopes, in the home, the first 3D HDTVs will be coming in 3Q and 4Q next year. The first sets will likely be plasmas from Panasonic and LCD models from Sony, Vizio and possibly LG, with DLP projectors and LCD sets from Mitsubishi. Philips is expected to follow with its own 3D models in early 2011. All data and consumer grade DLP projectors equipped with Texas Instrument's DLP Link chip available in 2010 will be 3D capable.

Stunningly, XpanD's CEO, Maria Costeira, says the manufacturers expect to sell 100,000 3D HDTVs each in 2010, which sounds wildly optimistic to us.

Glasses Half Filled?

Two sets of glasses are likely to be bundled with each 3D HDTV; additional pairs will be priced between $75 and $150, depending on style and materials used – the technology and the lenses themselves will be the same. Consumers will be able to tote their own glasses to watch stereoscopic 3D movies or sporting events in 3D venues.

As we've previously noted, the glasses will be powered by rechargeable batteries with 250-hour viewing life spans. Users will get a single series of flashes when the glasses are down to four hours of power remaining, reducing the odds of them conking out in the middle of a game, movie or show. Glasses will have microUSB jacks for recharging, the XpanD is planning four-pair charging stations.

XpanD is currently in the design stage of consumer glasses, which will be sleeker and more stylish than the bulky near-goggles used in movie theaters. The company is designing models for particular constituencies, primarily gamers and kids. XpanD plans glasses in a variety of colors for gamers and fashion-forwards, and adorned with licensed characters to entice kids.

3D Broadcasting?

Most of the 3D broadcast action is happening outside the U.S., however. There are three hours of 3D broadcasts in Japan, for instance. FIFA will film up to 2 World Cup games this summer in South Africa for public venue showings; there are no plans to broadcast any of the matches live in 3D.

The U.K. has been the most active 3D market, at least in terms of content. Last year, the BBC broadcast an England vs. Scotland match to a theater in London; organizers of the London 2012 Olympics are planning to shoot some events in 3D, upcoming World Cup; and, Star is planning to launch the U.K.'s first 3D channel sometime next year, aimed initially at the pub market. Star already has shot several sports and entertainment shows in 3D.

All these 3D updates are fascinating, but one 3D pink-elephant-in-the-room question remains: will consumers don glasses to watch TV at home? XpanD says gamers and kids will be the Trojan horses for home TV glasses-wearing, but Costeira admits no one really knows how the whole glasses issue will shake out, probably the most interesting aspect of this entire topic.

U.S. IPTV: Flying High, But Challenges Await

Tuesday December 9, 2009 – Antonette Goroch

Though IPTV growth is has begun to slow in the markets of Europe and Asia, it’s only just heating up in North America. IPTV subscribers in the important U.S. market have climbed dramatically in the last two years, rising from just over 1 million in 2007 to a projected 5 million by year end 2009. While this growth is impressive, garnering attention from many of the largest worldwide IPTV suppliers once disinterested in the mature U.S. pay TV market, the questions of profitability and long term growth are still open ones.

Growth in U.S. IPTV has been driven almost exclusively by the two largest telcos, AT&T and Verizon. Both have seen strong gains all year, with AT&T reaching 1.8 million subscribers at the end of the third quarter, and Verizon’s FIOS TV reaching 2.7 million subscribers. Obtaining such gains in such a saturated market is no small accomplishment, but it surely has come at a high cost. Neither company has released figures on subscriber acquisition costs and few details on revenue per subscriber, both key metrics for long term success.

New subscriber deals typically include free set-top boxes for multiple TVs, free movie packages and no termination fees for disconnection. In many cases add to this the cost of truck rolls, since installation is complex and often includes line upgrade on the premises. Back-of-the-envelope calculations suggest subscriber acquisition costs could easily top $500 per sub, an almost unprecedented number in U.S. pay TV history. AT&T officials recently remarked that their IPTV subscribers would likely generate about $2 billion in bundled voice/data/TV revenues for 2009, but this translates to only $92 per subscriber per month for all three services. Assuming a generous 30% profit margin, it would take more than 18 months for these subscribers to generate enough revenue to justify that initial subscriber acquisition outlay—a tall order given there really is no long-term incentive to stay beyond convenience and service quality.

Clearly, all current efforts are on gaining as many subscribers as quickly as possible, as they should be if these services are to achieve viability. Very soon though, operators will have to shift their focus to what may be the more difficult task of retaining subscribers while reaching profitability.