Hulu Next Steps

The owners of Hulu, Disney, NBC, and Fox, may have created a monster.  While it provides a new revenue stream from online subscription and advertising, it also appeals to cord-cutters, those consumers that have dropped their cable subscription for online content only.  For the parents of these owners, ABC, Comcast, and News Corp, that means the loss of monthly cable license fees and TV dollars.  And no doubt, the new revenue stream won't cover the loss of the old revenue stream for quite some time.  So what to do?

Some owners want to sell Hulu and there are a number of possible buyers kicking the tires, including Time Warner Cable and DirecTv.  But once sold, would the former owners continue to license their content to the venture.  Other ideas include converting Hulu into a TV Everywhere platform for authenticated cable subscribers.  But what about those current subscribers that are not cable customers?  Dropping them would mean a loss of subscriber revenue and hurt the growth of the venture.

The truth is that the genie is already out of the bottle.  If Hulu doesn't want to reach cord cutters, others will and have already.  In fact, Netflix and You Tube rank as the top two sites in online video consumption.  Hulu owners should actually look at this platform as actually recapturing lost cable customers.  And Hulu is already trying to gain more revenue with a heavier load of advertising content. 

The simple fact is that the cost of cable for consumers has risen so fast and gotten so expensive that some folks can no longer afford it.  Broadband has become more crucial to their home than cable and the content online can be enough to satisfy.  Hulu becomes that next platform that at $7.99 a month is much easier to afford.  And online video, whether offered by Hulu or someone else, will not go away.  Cord cutting will increase but the decline in cable subscription will be gradual.  Hulu owners need to embrace this evolutionary change in viewing as it is inevitable and growing quickly.

If the current Hulu owners can get along and agree, they would find that maintaining their current approach while exploring more TV Everywhere approaches is the way to go.  If they can't agree, then it is indeed time to sell and let others with the passion for innovation  take the reins. 

Waiting For The Next Apple Innovation - Keep Waiting

While tweaks to the operating system are always meant to keep current product lines from becoming obsolete, Apple seems to be spending more time fighting tax code questions and less on new product innovation.  Since the release of the iPad three plus years ago, fans of Apple have waiting patiently for the next new product release.  Is it the death of Steve Jobs, is it loss of talent, did the product R&D group take a holiday? Despite rumors of smart TVs and watches, we are left waiting.

And it appears we may have to wait longer.  "Consumers awaiting Apple's rumored wearable, watch-like device might need to wait until next year before the gadget sees the light of day."  While the buzz is about wearable technology and Google is already pushing the Google Glass design, Apple appears not ready to announce or release its own wearable technology. 

And if not an iWatch, then what can we expect in 2013?  Will Apple finalize its deal with Sony and announce a streaming music service to compete with Pandora?  Will Apple pursue a rental video or subscription video service?  Will it be an iTV or more innovation of the Apple TV box?  Or are we just left with the next release of an iPhone and iPad?   And so, the Apple consumer continues to wait.

Is Next Gen XBox A Winner?

Microsoft just announced the pending release of the next generation of its gaming device dubbed XBox One set to replace Microsoft 360.  Certainly the freshening of the franchise is necessary as gaming tastes change and new uses are uncovered.  With both voice and gesture controls, XBox One seems to push a more interactive experience.  And whether gamers care or not, the box plugs into your cable box to enable live viewing.  It also features Skype controls, Blu-ray, and a whole new variety of games to play.

Of course, to pull forward, one must push away from the past and that means that old XBox 360 games will not play on the new system.  Unless gamers want to go cold turkey on their old games to trade in their 360 box for the new system, they will be working with two different boxes through the transition.  Some might not mind, others may be annoyed but will ultimately embrace the new system should they find the game playing to be a better experience.

But XBox, Wii, and Playstation all have to worry about the rise of tablets and mobile game playing on these devices.  Enabling better interactivity between tablet and game platform will help.  Still gamers are embracing these casual games on handheld devices.  And how many different versions of shooting games can there be.  Already, they try to push the limits with more blood and sexual content in the games.  Most games of any interest to gamers get rated M for mature; a ratings system that does little to stop younger gamers, 13 and under, from buying these games.  Tablet games seem to rely more on strategy and speed, less on violence and sex. 

For X-Box, this new console is a big change for the product line.  For Microsoft it means adding more functionality and a better experience for the price point to encourage current users to upgrade and new users to buy up into the new box.  Once released, we will be able to better see the execution of this Microsoft strategy.

VOD Gaining Traction

I am a firm believer in Video on Demand (VOD).  I have had the good fortune to work with it from the early days when networks were overly cautious about pushing viewers off linear to recognizing its power today to actually encourage linear viewership.  But VOD relies on content and immediacy to it.  Missed last night's Saturday Night Live.  Unless you DVR it, you will have to wait a few days to watch it on VOD.  Even then, the show will be missing the musical performances.  Missed the finale of your favorite TV show, it may take a week before it appears on VOD.  Those challenges are but one reason viewers seek content off the TV set.  The other is the limitations where to watch, strictly through the set top box on the TV screen.

Finally, it seems, networks are embracing VOD.  "Some television networks are also big believers in the technology because it can help partially piece back together their splintered audiences and protect their advertising revenue."  VOD can provide some advantages including disabling the fast forward button to require viewership of commercials.  But more importantly, "for the first time, Nielsen counted VOD views of ABC’s shows the same way it counts digital video recorder playback — that is, within three days of an episode’s premiere." And that means more advertising eyeballs and higher revenue for the shows these networks aired.

And viewers are embracing VOD, watching more hours then ever before.  "This television season, VOD views of ABC’s shows are up 32 percent versus the same period last season, according to the network."  A big motivation to continue to launch more shows, past and present, on VOD.  For consumers already subscribed to cable, VOD brings a ton of extra value.  But challenges still exist.  In addition to the lack immediacy to content comes the difficulty of finding content through search and tree and branch movement through the menu.  It is clunky, inefficient, and detrimental to the discovery process.  Improving the menu process should help to further improve usage. 

Comcast strategy of promotion of content from subscription services like HBO and Showtime with free on demand usage both brings more viewers to use the VOD menu and build interest in purchasing these premium networks.  And that's a good start.  Improving the on screen menu and extending the VOD reach on IP devices of authenticated viewers are the next big steps.

Dish Wants Spectrum

It seems that Dish is very intent on acquiring spectrum to extend beyond its satellite delivery.  Not only have they put a bid for Sprint/Clearwire but they are also bidding on the assets of bankrupt Lightsquared.  And Dish remains in the hunt with Sprint.  "Dish Network’s month-long attempt to acquire Sprint Nextel moved a step forward Monday after the wireless giant said it had received a waiver of various provisions in its merger agreement with Softbank that would allow it to conduct due diligence discussions with the satellite TV service provider." 

Of course both acquisitions come with hurdles and may take years to help Dish compete more effectively in the wireless space.  And the biggest challenge, overtaking the current leaders in the broadband and cellular space.

Target Adds Streaming Media To The Business Plan

The retail giant Target knows that to compete with Walmart in the brick and mortar space and Amazon in the online space, you have to offer competitive markets.  But with an early jump in streaming media, Target was left behind.  Till now.  "Target is currently testing a service called Target Ticket. According to a Web site running a beta version of Target Ticket, the service is providing 'instant access to 15,000 titles,' including new releases, classic movies and 'next-day TV' shows."  And Target will not only find themselves competing with the above group, but add also Apple, Netflix, Redbox,  and others to a growing list of distribution platforms. 

Like Amazon Prime, Target might use its branded credit card business as a means to incent usage through loyalty.  But Target will also learn that they not also need to increase the size of their inventory but look to exclusive windows and original content to better and more effectively compete.  Of course all this talk is about a beta test.  Where Target goes and how aggressively they choose to roll out such a program remains to be seen.  Still, the blending of physical and online stores continue to demonstrate the trend of retail to compete effectively in the marketplace.  And that is why Target needs to enter this space. 

Broadband Hurt By Lack Of Competition

David Carr's article in today's New York Times shares with us a new book.  "Susan Crawford, a professor at the school, has written a book, 'Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age,' that offers a calm but chilling state-of-play on the information age in the United States." It is unfortunate, but true, that there is a lack of broadband and wireless competition in this country and as any good economist can tell us, monopolistic industries tend to cause higher prices and less innovation.  As Professor Crawford shares, "that the airwaves, the cable systems and even access to the Internet itself have been overtaken by monopolists who resist innovation and chronically overcharge consumers."

When the concern was once about telephone, the government forced the break-up of AT&T into the Baby Bells.  One baby bell ended up owning AT&T while the other NYNEX became Verizon.  Cable, too has seen its share of consolidation with two cable operators owning a majority of franchises and two satellite providers.   But government intervention to force breakups is clearly not the answer.  That stopgap proved temporary at best.  Rather the solution is to simply encourage new broadband and wireless infrastructure to be built.  Google is trying to become a player but is currently in just a couple markets.  Lightsquared tried but is now in bankruptcy.  Clearwire is looking for a partner either with Sprint or Dish.  But are these few enough?

Other utilities are already touching the home.  Water, electric, and gas companies are all connected to the home.  Could government support encourage these utilities to expand into the broadband field?  The cost to build broadband infrastructure is expensive, communities continue to fight back the rise of cellular towers.  But if we are pushing to be a wireless, always on, society, then more competition and more improvement in the speed of the networks are desperately needed.  But government's support of new entrants does not appear likely.  According to Professor Crawford, "And because telecoms and cable companies have done a great job of developing relationships in Washington — as a business, it is more generous in terms of donations than the banking industry — there is little pressure from politicians or regulators."  And that spells bad news for consumers.

US Open Tennis Moves To Cable

We have seen the rise of regional and national cable sports nets, we have watched more and more sporting events move from free TV to cable.  Our NBA Playoff games are now on TNT, our Monday Night Football on ESPN, and boxing on HBO and Showtime.  Broadcast networks have let the cable networks rule the sports programming niche.  And so it should come to no surprise for anyone that the US Open Tennis final matches will move off CBS to ESPN.  Already weekday matches are found on ESPN and Tennis Channel, so this move only brings all the matches to one network.

Moving high profile sports events off broadcast to cable also helps cable operators and the cable networks.  These events are not likely to available to non-cable customers on the web and so it encourages consumers to stay subscribed to cable.  Sports may be a niche, yet there always seems to be a sports fan in every household.  Adding another signature sports event to cable only makes it harder to cut the cable cord.  Of course, the high costs of these programming events causes licenses fees to rise and subscriber fees to rise with it.  So at some point, the cost to view will become too costly for a larger and larger audience.

And so where does that take this trend?  Well don't be surprised if within the decade, a major sporting event is available as a subscribed PPV event.  It logically follows as the next way to capture a higher revenue stream.  As costs for rights skyrocket and old media outlets unable or unwilling to buy, new sources emerge; regardless, ultimately, the consumer will end up paying more. 

What If The Cable Providers Owned Hulu?

Today, Hulu is owned by three cable/broadcast networks - NBC, ABC, and FOX.  And according to reports, they can't seem to agree on the strategic direction of the company, free or subscription.  Most likely, because of the nature of the deals they also have with their cable distribution partners.  Jason Kilar, the founder of CEO is no longer running the show and the partners have been discussing plans to sell.

So while a number of names have been bandied about, now comes word that Time Warner Cable was interested in purchasing it.  Perhaps, too, the Comcast side of the NBC family would want to stay invested and work with TWC on the next stage of Hulu.  If owned by cable distribution companies, the thought is that Hulu would be used to provide content authentication for cable.  Possible, but a sure fire way to end the subscription side of the Hulu revenue business model. And ABC is already moving forward with its own authenticated streaming app for live programming.  If I were running Time Warner Cable, I would rather want to build my own TWC authenticated streaming app so that my brand remained front and center to the consumer.  That my own air line-up was linked to the app and that it was ergonomic in design and simple to use, both for search and recommendation, and for advancing the TV Everywhere concept.  I don't believe a Hulu acquisition delivers that to TWC or Comcast.

And while TWC may have their own reasons to wanting to buy Hulu, others are also kicking the tires.  "Last month, former News Corp. chief Peter Chernin was reported to have a $500 million bid for Hulu, which he helped found in 2007. Bloomberg reported earlier this month that Yahoo CEO Marissa Mayer was exploring a bid for Hulu as she looks to reignite Yahoo's online video strategy.  Amazon.com and Guggenheim Partners reportedly have also shown interest in Hulu."