The Netflix fans on Wall Street who’ve helped its stock price rise 500% over the last 12 months to hover around its all-time highs have two fantasies about the streaming service. Some imagine that it will grow into a popular haven for people who want to cut the cord with cable or satellite’s TV services, attracting upward of 50M subscribers — up from about 29M now. Others say that Netflix can make peace with distributors, leading them to offer it as another premium channel much like HBO. Possible? Perhaps. But Bernstein Research analyst Carlos Kirjner doesn’t buy either scenario. In a bracing report today he warns that Netflix is overpriced unless you believe that “we are indeed witnessing the beginning of a fundamental change in the TV business, which would be very detrimental to the [cable operators], and that they are not going to exercise their tremendous and in our view increasing market power to prevent that from happening.”
If you think cable companies already have too much power, just wait. Over the next five years or so the industry “will consolidate to around 3-4 dominant cable operators, which will have sizeable footprints,” Moody’s Investors Service SVP Neil Begley says in a report today. The big guys will start to snap up smaller operators, and swap systems, because it will help them compete with phone companies to attract business customers. “Business services, primarily including voice and data, will be the largest single growth driver for cable over the next decade as residential services growth stagnates,” Begley says. Commercial customers soon will spend about $80B a year for voice, video, and Internet, and cable operators just collected $7.5B from them last year. But cable has a problem because operators’ systems “are like a jigsaw puzzle of efficiency customized to serve the residential customer” but are “inefficient or insufficient to serve multi-location commercial customers compared to most telecom competitors.” The problem is especially acute for mid-sized companies including Cox, Charter, and Cequel Communications, forcing them to choose to be either buyers or sellers. Comcast may have to sit out the consolidation wave “given the regulatory scrutiny it already faces as the largest U.S. cable operator.” But Time Warner Cable “has substantial financial flexibility” to buy.
The change could give cable operators a powerful edge in their competition with phone company broadband services — Bernstein Research analyst Craig Moffett calls the strategic implications “profound.” It will enable broadband subscribers at Comcast, Time Warner Cable, Cablevision, Cox, and Bright House Networks to access the Web for free at about 50,000 hotspots. Cablevision, Comcast and Time Warner Cable already had a sharing agreement covering the corridor from Connecticut to Philadelphia. The new arrangement will provide more access in that area as well as major cities including Los Angeles, Tampa, and Orlando. The announcement kicks off The Cable Show, the industry’s annual trade gathering, being held this week in Boston. Here’s the release:
For all the talk about cord-cutting in the digital era, movement in that direction is relatively slow, as many viewers switch from cable to satellite or telepone providers rather than drop multichannel service altogether. Nielsen reports that 98% of viewing remained on traditional TV in Q4 2011. Cable lost more than 2.9 million subscribers as viewers switched to telephone or satellite providers. U.S. homes subscribing to cable, satellite or telephone providers for their TV service declined 1.5% or about 1.5 million last year, according to figures Nielsen released this week. Subscribers adding telco (about 1.9 million) or satellite service (roughly 280K) weren’t enough to make up the difference.
Last week, Netflix CEO Reed Hastings said that the prospect of having cable operators offer his streaming video service to their customers was “not in the short term” as a possibility — but was “in the natural direction in the long term.” His definition of “short” and “long” is open to debate, though: He’s already in talks with “some of the largest U.S. cable companies,” Reuters reports. It adds that by year end at least one cable company could offer Netflix on an experimental basis. The story doesn’t identify the operators negotiating with Netflix; Comcast recently unveiled its own online video service called Streampix. A Netflix-cable alliance could diminish the talk about cord-cutting. Some analysts say that pay TV subscribers looking to save money increasingly will cancel the $65-a-month video service and replace it with Netflix’s $7.99-a-month package, which mostly consists of older TV shows and movies. It also would give cable subscribers an alternative to premium channels led by HBO.
The 2012 International CES isn’t just an opportunity for the digital cognicente to look at new gadgets. It’s also a chance to brush up on the latest industry jargon. Don’t let it throw you. If you know the following words and concepts, then you should be able to easily hold your own in a conversation with someone returning from the annual consumer electronics spectacle in Las Vegas:
Ultrabooks: These are what you get when you cross a laptop computer with a tablet, and they’re grabbling the lion’s share of attention at the 2012 International CES. Ultrabooks are thin and light; most use solid state hard drives instead of the traditional storage drives built around a rotating disc. Intel is leading the cheerleading squad for ultrabooks, which it hopes will reenergize the laptop computer market.
EXCLUSIVE: Backers are ready to take a victory lap for their two-year Movies On Demand marketing campaign for cable built around the slogan: ”The Video Store Just Moved In.” But the evidence that they’re starting to circulate fails to demonstrate that they attracted lots of new rentals following their TV, print, and online sales pitches, which began last year with a $30M commitment. They point to figures from Rentrak that show cable subs viewed VOD more than 6.4B times in the first 10 months of this year, up 10.3% vs the same period last year. The problem? That figure isn’t just movie rentals — it also includes movies shown for free as well as TV shows. They also note that newcomers to VOD movies — people who hadn’t ordered one in at least three months — paid an average of $7.71 a week this past summer. That’s up 67% from the spring, and it’s “a massive increase since early 2010, when they weren’t spending at all” for VOD movies, says Char Beales, who oversees the Movies on Demand campaign. While she’s probably right, it doesn’t mean much because the group doesn’t tell us
Cable operators serving 85% of all subscribers say today that by the end of 2013 at least 90% of the new set-top boxes they buy and deploy will meet Energy Star 3.0 standards. For example, many will be able to sleep when they aren’t being used — most now don’t, which earned them the nickname “energy vampires” after the National Resources Defense Council released an eye-opening report in June that said the nation’s 160M set top boxes consumed about 27B kilowatt-hours of electricity in 2010. That cost consumers $3B annually, using enough power to serve all of the homes in Maryland for a year, the activist group said.
While it’s nice to see the cable industry do something about the problem, the new initiative is no hardship. Most major operators are reluctantly begining to acknowledge that they can’t keep their grip on
Most major cable companies have committed to supply broadband Internet access to low-income households for $9.99 a month, the Federal Communications System is expected to announce Wednesday. FCC chairman Julius Genachowski has made expanded broadband access a top priority, and he told the New York Times that with cooperation of the big cable companies “we can make a real dent in the broadband adoption gap.” No federal funds are being invested. The plan relies on the cooperation of private companies. Comcast, for example, began offering $9.99 monthly broadband to some low-income households this year after promising the F.C.C. that it would do so when it acquired control of NBCUniversal.
The low introductory price is meant to appeal to new customers who have never had broadband, either because it was not available or because of the cost or perceptions that it was not relevant to their lives. In addition to the low introductory price, a tech company will offer refurbished computers to low-income households for $150 and Microsoft will provide software. Morgan Stanley will help develop a microcredit program to make it easier for families to afford them. Job websites and education companies also will offer content that, in theory, will underscore the value of online access.
For eligible households — those with a child enrolled in school lunch programs who are not current or recent subscribers to broadband — the $9.99 monthly price will apply for a two-year …
The message for the television industry at this year’s National Cable Show was clear: It’s all about broadband now. Programmers agreed that they have to focus on consumers who want to watch video on their smartphones and tablet computers. Meanwhile, cable operators know that they can make a lot of cash by enticing new customers to buy broadband now that the TV service business is mature. The big question is whether the Big Media companies can move fast enough to head off competitors such as Apple, Google, and Netflix. But we’ll let the moguls have the last word:
Viacom CEO Philippe Dauman
- “For the content owners there’s never been a better time.”
- “Netflix is primarily a service that provides library programming. … Netflix got involved in one show (House Of Cards) that was a pay television kind of project, but that isn’t their fundamental business.”
- “If we are ad supported, (then) we need to have a measurement system in place so the mobile device in the home can sell ads. … (Nielsen) is not measuring it now. That’s one of the obstacles [for TV Everywhere].”
- “Consumers are changing. … People don’t want to watch the 17th repeat of the same show.”
- “In a world of a lot of choices, Snookie still rules.”
News Corp COO Chase Carey
- “We have to do a better job of exciting consumers.”
Time Warner CEO Jeff Bewkes
- “Let’s all cheer up. This isn’t the music industry. It’s the cable industry. … It’s morning in the cable industry.”
- “We’re all sitting here at this convention at the cusp of putting all of [our programming] on demand. … We need to get [shows] on every device.”
- “Put the TV on all the Internet devices and don’t charge people to do it and allow them to [access] they way they’re accustomed to.”
Comcast CEO Brian Roberts
- “We are demonsrating a whole new level of (Internet) speed. … It’s where the future of broadband is headed.”
- “We need to make the television feel as relevant as all of these other products [such as smartphones and iPad tablet computers].”
Time Warner Cable CEO Glenn Britt
- “There’s no such thing as a TV anymore. There’s a video display device.”
- “I see Netflix as another programmer. But clearly if there is something that makes consumers not want to buy the big package (of programming) that we’re selling then that’s a threat to all of us.”
- “There clearly is a growing underclass of consumers that can’t afford [cable TV] and they want it. It would behoove all of us to have smaller packages… The economics make it difficult, but it would serve us well to worry about that group.”
Cox Communications President Pat Esser
- “You have to keep going back to the consumer and asking what they value. … Consumers wil reward you for doing that. And in some cases you won’t control all of it.”
Liberty Media chairman John Malone is probably getting an earful from his pals in the cable industry this afternoon after he made a comment that’s sure to haunt both him and them. Talking to Wall Street analysts about the growing number of consumers who buy high-speed Internet services from cable companies, Malone said that “cable is pretty much a monopoly now” in broadband. Oops. The executive who once was considered such a monopolist in cable TV that Al Gore referred to him as Darth Vader caught himself, adding, “I don’t want to use that word.” But he may be reminded that he used the M word every time consumer advocates call on federal regulators to crack down on cable — for example, by insisting on net neutrality rules. Malone says consumers won’t cut the cord with cable even as services including Netflix offer movies and TV shows over the Web. Phone companies such as Verizon and AT&T “are not going to aggressively” build out fiber-optic services that could match the speed and security of cable’s broadband, he said. Meanwhile, “the threat of wireless broadband is way overblown. There just isn’t enough bandwidth” for them.
In contrast to Malone’s blunt comments, other Liberty executives said they wouldn’t provide many details about Starz’s new lawsuit against Dish Network. Starz, and in a separate suit Disney, allege that Dish violated their contracts by giving satellite customers free access to the premium channel for about a year. Starz CEO Chris Albrecht says that his company didn’t lose money; Dish pays a fixed annual rate to offer Starz and Encore. But the additional viewers may have helped Starz’s ratings.
EXCLUSIVE: Mary Steenburgen is set to star in the FX drama pilot Outlaw Country. This marks the first casting on the project described as a crime thriller/family drama set against the backdrop of southern organized crime and Nashville royalty “where music and love, hope and tragedy collide”. Steenburgen will play a powerful country music icon who is very protective of her daughter Annabel. Steenburgen is also expected to sing in the role, which has the vibe of
Video-on-demand/online service FearNet is planning to go linear October 1. The multi-platform service, owned by Lions Gate, Sony Pictures TV and Comcast, said it will launch as a high-definition ad-supported movie channel. No carriage agreements have been announced though having No.1 cable operator Comcast as a parent should come in handy. FearNet on demand is currently available in 28 million homes.
EXCLUSIVE: Matthew Lillard and Gillian Vigman will play the two leads in the CMT comedy pilot The Hard Life. The project, written and executive produced by Bill Diamond (Murphy Brown), is a single-camera half-hour that explores the contrast of modern parenting vs. old school parenting. It centers on parents
EXCLUSIVE: Patrick Fugit and Shanna Collins have been added to the cast of HBO’s original movie Cinema Verite. The movie, written by David Seltzer, is a behind-the-scenes look at the making of the groundbreaking 1973 PBS documentary series An American Family. Almost Famous star Fugit, repped by Gersh, and Collins (Swingtown) will play the young doc filmmakers behind the series, Alan Raymond and Susan Raymond, who would go on to win a documentary Oscar 20 years later. Cinema Verite stars Diane Lane and Tim Robbins as Santa Barbara couple Pat Loud and Bill, who, along with their children, were the subject of the documentary, and James Gandolfini as the documentary’s producer.
Additionally, Caitlin Custer also has been signed to play one of the children, Delilah, joining previously cast Thomas Dekker as the oldest son, Lance. Gavin Polone and Zanne Devine are executive producing Cinema Verite, which is being directed by Shari Springer Berman and Robert Pulcini. Filming is slated to begin next month in Los Angeles.
In other HBO castings, Alex Wolff, star of the Nickelodeon series The Naked Brothers Band, will do an arc on the upcoming season of In Treatment as Gabriel Byrne’s son. Meanwhile, Wolff’s brother and fellow Naked Brothers star Nat Wolff has landed a role in Peace, Love and Misunderstanding opposite Catherine Keener and Jane Fonda. Both are with CAA and Untitled.
Like, duh. But Broadcasting & Cable claims that NBC affiliates association board chairman Brian Lawlor and past chairman Michael Fiorile engaged Comcast COO Steve Burke and others at the Philadelphia headquarters in some “tough negotiating” over key points and protections on broadcast vs cable issues. “The affiliates wanted assurances that Comcast would remain committed to over the air television, and would keep the same amount of sports programming on NBC and not shift it to cable,” B&C says. “The affiliates also wanted what one insider termed a ‘firewall’ between retransmission consent negotiations and affiliate renewals if and when Comcast takes over.” After the meeting, the affils agreed to file the letter before the FCC deadline of Monday for public comments on the merger.