by Chuck Parker
I’ve spent the last few weeks having renewed discussions with a variety of people whose opinion I respect in this space, including those in the Twitter-sphere, the blogosphere, and in plain old real life, and with the NCTA Cable Show happening in Boston next week, I think it is the right time to open this debate up again.
The debate is simple: Who is going to disrupt the current Pay TV industry?
A few months ago at the OTT Con in Santa Clara, I had this discussion in spades with many of the participants in the would-be “cable killer” world (most of whom themselves are “cord cutters” or at least “cord thinners”). My takeaways after those discussions were that it was incredibly premature to even think about “Over the Top” or “broadband” video killing the established Pay TV operators like Comcast, DirecTV and Verizon because only the metrics had indicated that all of the current players combined had only made a minor dent in TV Viewing (3 hours of online viewing vs. 34 of traditional viewing per week, 2% of the $200B TV advertising spent on “on-line” video) and that so far the only business being disrupted in a serious manner was DVD sell-thru, which was suffering as much from physical Netflix and the shift from purchase to rental as it was from digital Netflix. My brief conclusion then was simple: Large pay TV operators were bringing in an average monthly bill per household of close to $100 (ARPU) and the would be disruptors were still in the sub-$15 range and those Pay TV operators were “Striking Back” with their own TV Everywhere solutions, so any would-be survivors in the next 3-5 years would have to deliver an incredibly compelling user experience (UX) centered around Discovery (likely on the second screen).
Gigaom tried to articulate this a little more clearly in a recent article (that perhaps started this debate anew) called the 7 ways Comcast is killing the cable killers. In short, large operators have implemented a multi-pronged strategy of defensive and offensive initiatives including blocking peer-to-peer (P2P) traffic, prioritizing traffic on their network (i.e., giving their own video priority), implementing data caps and data cap exceptions (for their own TV Everywhere traffic), and unleashing offensive TV Everywhere strategies to counter Netflix and Hulu’s impact (StreamPix, authenticated Hulu, HBO Go, etc).
But perhaps we should take a step back and look at the wider “home entertainment” industry and look at what is driving content creators, distributors and consumers to change their business practices and viewing habits. Despite the recent decline in the physical media segment of the industry (DVDs and Blu-rays), physical media still represents 47% (~$15B) of the “pay for play” video consumption market, while Pay TV has been slowly growing its share at 34% (~$11B, not including sports) and what we would affectionately call “Digital” (including PPV, VOD, SVOD, and EST) represents only 19% (~$6B), though this is the fastest growing segment. Since it is unlikely that consumers are going to significantly increase the amount of hours of video they watch (who has 37 hours anyway?), we should assume that any further growth in digital will either come at the expense of the physical DVD world or the Pay TV networks. Since Pay TV has continued to grow during the expansion of digital, it is probably a safe assumption that it will either slow its growth or stay flat in the next 3-5 years while physical media continues to decline.
But when you dig deeper into the economics behind all of this, you find out that the big money makers for the content creators and distributors are Pay TV packages and the sell-thru of movies and the least profitable segments are the subscription digital services and the subscription physical rental services….
Read the rest of Chuck Parker’s article at his blog here.
Stepping up its competition with Netflix, pay-TV provider Dish Network said on Friday that its subscribers will be able to add a premium “Blockbuster Movie Pass” package for streaming access to thousands of films.
Ira Bahr, Dish Network’s chief marketing officer, said that the Blockbuster Movie Pass will be offered as a $10 per month add-on to any Dish Network pay-TV subscription. The new service will launch Oct. 1.
Blockbuster’s discs-by-mail service, which offers rentals of DVDs, Blu-ray discs and video games, will be included as part of the Movie Pass package. Bahr said the service’s $10 monthly price compares favorably with Netflix’s discs-by-mail (Qwikster) and streaming video services, which together cost subscribers nearly $16 a month.
The integration of Blockbuster Movie Pass with Dish’s pay-TV service also would offer customers a single-bill advantage over maintaining separate Netflix and pay-TV subscriptions, Bahr said.
Content distributors participating in the Blockbuster Movie Pass launch include Starz, which recently declined to renew its streaming distribution agreement with Netflix.
While Netflix spends this week marketing the “Qwikster” rebranding of its discs-by-mail service to customers and shareholders, rival Dish Network is planning to announce further details of its anticipated Blockbuster streaming-movie service on Friday, according to reports.
The Friday announcement from Dish—first reported by Bloomberg—will reveal pricing for the new streaming service, which is expected to launch in October. The Blockbuster-branded service could first launch as an add-on package for Dish’s pay-TV customers. More details on the planned press event at CNET.
Meanwhile, Netflix’s Sunday announcement of further changes to both its streaming and DVD services has sparked a new round of analyst speculation and customer commotion. Splat F and The Street offer the analysts’ perspective: both articles address whether the reorganization points to Netflix’s preparation of the DVD business for an eventual spinoff or sale. The New York Times and PC Magazine cover Qwikster’s consumer marketing challenges—evidently among them, distinguishing the service on Twitter.
Dish Network plans to launch a Blockbuster-branded movie streaming service next month, in a move timed to coincide with Netflix’s price increases, Bloomberg reports.
Dish, which acquired nearly all of Blockbuster’s assets in April, could ratchet up dealmaking between streaming video service providers and content distributors for top movies and television series. Netflix, for itself, says that it is looking to spend money that it had previously earmarked for renewal of a streaming agreement with pay-TV channel Starz. That deal, which had brought Disney and Sony films to Netflix subscribers, is now set to expire in February, 2012.
While it implements its price increases in the U.S., Netflix is rolling out its streaming service to countries in Latin America, beginning with Brazil (more at paidContent).
Blockbuster LLC plans to maintain operations of more than 1,500 brick-and-mortar stores nationwide under new contracts with property owners, comprising more than 90 percent of the stores that were offered at the chain’s bankruptcy auction in April.
“By lowering pricing and offering competitive summer promotions, we’ve brought millions of customers back into Blockbuster stores in the last three months,” said Michael Kelly, Blockbuster president, in a statement. “Today, more than 100 million people live near a Blockbuster store.”
The chain had about 1,700 outlets when it was acquired by Dish Network in April. A Dish spokesman tells TheWrap that the chain would be closing about 200 outlets, primarily due to landlords declining to renew store leases. However, spokesman Marc Lumpkin said the company could open new Blockbuster stores, “particularly in those areas where we wanted to keep stores open but the landlords didn’t renew leases.”
NCR Corp. is asking a Delaware federal court to declare that it has a contractual right to continue using the “Blockbuster Express” name for its movie rental kiosks, which number more than 9,000 nationwide.
The Blockbuster Express name, design and related trademarks are held by the BB 2009 Trust — an entity that, according to NCR, was not part of Blockbuster’s 2010 bankruptcy proceeding. Following the sale of Blockbuster’s assets to Dish Network Corp. in April, Blockbuster transferred its interest in the BB 2009 Trust to Dish.
NCR’s license agreement with the BB 2009 Trust runs through January 23, 2016, according to a complaint filed by the company with the U.S. District Court in Wilmington, Del. But in May, the Blockbuster trust notified NCR that it was terminating the contract.
NCR contends that Blockbuster has no grounds to end the trademark licensing pact. Moreover, “termination of the license will work a substantial hardship on NCR,” writes Melanie Sharp, an attorney representing the Duluth, Ga.-based company, in court papers. “NCR has undertaken significant time and expense in establishing and operating kiosks throughout the United States branded with the [Blockbuster] trademarks, and has earned substantial revenues from those operations.”
Blockbuster has yet to respond to the suit.
In one of its first promotions as a Dish Network subsidiary, Blockbuster is seeking to drive traffic to stores by renewing a 99-cent-per-day rental price for “thousands” of titles. The campaign echoes past efforts of the brick-and-mortar chain to keep pace with Netflix and Redbox. Blockbuster also offers customers free movie rentals through July 4.
Walt Disney Co.’s Disney Enterprises and Starz Entertainment filed two separate suits against Dish Network this week, over the satellite TV provider’s offering of the Starz premium cable network to millions of its subscribers for free.
Suing Dish in a federal court in Manhattan, Disney says that by giving away the Starz service — which carries Disney movies such as “Toy Story 3” and “Alice in Wonderland” — Dish is devaluing the films and undermining the studio’s windowing strategy (via Reuters). Starz meanwhile is suing Dish for breach of contract in a Colorado federal court.
Dish Network defends its Starz promotion in a statement, saying that it “pays hundreds of millions of dollars for the right to distribute Starz content to our customers, which includes the rights to a number of Disney movies.”
More on the lawsuits at The Wall Street Journal.
Settlement of DVR patent litigation between Dish Network and TiVo coincides with the satellite TV provider’s plan to develop a new digital video service under the Blockbuster brand.
Litigaton between the TiVo, Dish, and former Dish subsidiary EchoStar had been ongoing since 2006 (via Engadget). Terms of the settlement include Dish and EchoStar’s payment of $500 million to TiVo, with the parties agreeing to license certain patents to each other. TiVo also will play a role in helping Dish promote the Blockbuster digital video service, according to the Charlie Ergen, the satellite TV provider’s chief executive.
Dish also announced its naming of Michael Kelly, the executive vice president of its commercial services division, as Blockbuster’s new president. Ergen said that Kelly “was the visionary behind our acquisition of Blockbuster,” which the company completed last week.
A U.S. bankruptcy court on Thursday approved the sale of substantially all of Blockbuster’s assets to Dish Network, with the satellite broadcast company pledging to pay creditors of the bankrupt video chain approximately $227 million in cash. Closing of the transaction, which carries an overall value of $320 million, is expected to occur on April 25.
The Wall Street Journal documents how Dish Network prevailed in the 16-hour-long “cage match” of an auction for Blockbuster’s assets earlier this week.
Satellite television provider Dish Network submitted a winning $320 million bid for the assets of bankrupt Blockbuster at an auction proceeding yesterday. Dish says in a statement that the company expects to ultimately pay $228 million in cash to acquire Blockbuster, with the transaction closing sometime before the end of June. A bankruptcy court judge has scheduled a hearing to review the bid for Thursday.
Other bidders for Blockbuster were reportedly mulling the liquidation of the company. But Dish views Blockbuster as a “going concern,” a source familiar with the bid tells The Wall Street Journal. The pay-TV provider may tap some of Blockbuster’s brick-and-mortar locations to sell satellite service subscriptions, and integrate elements of Blockbuster’s video-on-demand business into Dish’s own VOD offering.
“With its more than 1,700 store locations, a highly recognizable brand and multiple methods of delivery, Blockbuster will complement our existing video offerings while presenting cross-marketing and service extension opportunities for Dish Network,” said Tom Cullen, the company’s executive vice president of sales, marketing and programming, in a statement. “While Blockbuster’s business faces significant challenges, we look forward to working with its employees to re-establish Blockbuster’s brand as a leader in video entertainment.”
Bidders for the bankrupt rental chain include a consortium of senior bondholders, South Korean wireless firm SK Telecom, investor Carl Icahn, and satellite TV provider Dish Network Corp., with the fate of the company in the hands of the auction winner (via The Street). A bankruptcy court approved the bondholder consortium’s $290 bid in March; The Wall Street Journal reports that the other bids do not exceed $296 million.
The bankruptcy court plans to review the winning bid at a hearing on April 7.
Cable, satellite and phone companies are all raising rates for television services this year, even as some chase penny-pinching households with new, lower-priced basic packages.
Dish Network is seeking the greatest increases, raising subscriptions on average by 11%, according to research firm Sandford Bernstein (via Variety). But the satellite service provider counters that its basic package is still priced much lower than cable rival.
Bernstein analyst Craig Moffet reports that Time Warner Cable will raise rates on average by 7%, while Comcast, DirecTV and AT&T all will hike prices by 4% and Cablevision by 3%.
Pay-TV service providers continue to compete on price for new entry-level subscribers, however. Major cable companies including Comcast and Time Warner Cable have dropped package prices to as low as $29.99/month in select cities, according to The Philadelphia Inquirer.
News Corp.’s Fox Broacasting and Cablevision Systems Corp. ended their public stalemate over retransmission fees on Saturday, with the broadcaster restoring signals to Cablevision’s three million subscribers after the two companies reached an agreement in principle. But the two-week-long dispute seems to have embittered the parties toward one another.
In a statement, Cablevision chastised the Federal Communications Commission for failing to take “any meaningful action” to resolve the dispute, while characterizing the fees it ultimately agreed to pay Fox as “unfair.” Terms were not disclosed, but the LA Times reports that Fox was seeking a long-term arrangement that would require Cablevision to pay about 50 cents per subscriber for its Fox TV stations in the first year, with fees increasing over time to $1 per subscriber, per month.
The news followed Fox’s announcement that it had reached a long-term carriage agreement with the Dish Network: more on that deal at The Washington Post.
Industry analysts say that regulators are intensifying their scrutiny of the proposed merger between Comcast and NBC Universal in the wake of the Fox-Cablevision episode: details at Bloomberg.
Satellite TV provider Dish Network, co-opting a term popularized by the cable industry, is planning a “TV Everywhere” suite of products geared around EchoStar’s Slingbox to let subscribers access live TV and DVR recordings over the Internet and home wireless networks. EchoStar rolled out a similar product line aimed at other pay-TV providers at the Consumer Electronics Show. By Multichannel News
The satellite TV provider added 241,000 subscribers in its third quarter, having aggressively promoted itself as a lower-priced alternative to services from cable providers, telcos and satellite TV rival DirecTV. The added subscribers brings the Dish customer base to 13.9 million. The rate of growth is nearly 10 times that which Dish experienced in the second quarter, when it added 26,000 subscribers. By The Wall Street Journal