Digital Consumer

• 25Feb

  US Broadband Still Strong, Despite FCC Findings

  Broadband No Comments

  An FCC report released February 23 announced the findings of its National Broadband Plan Consumer Survey, “Broadband Adoption and Use in America.” The findings reaffirm what Strategy Analytics has been saying for years about the state of Broadband in the United States. Namely, that in the “metrics that matter,” including speed, availability, penetration and price, the US falls woefully behind.

  The FCC study finds that 67% of US households “contain a broadband user who accesses the service at home,” in line with the Strategy Analytics estimate of 63.4% household broadband penetration in 2009. According to the study, 93 million Americans (representing roughly 43 million households) are so-called ‘non-adopters.’

  The reasons cited for “non adoption” of broadband include affordability, digital literacy, and relevance. These barriers to adoption will be—and must be—overcome in the near future.

  Affordability Remains an Issue in US

  Thirty-six percent of the “non adopter” respondents in the FCC study cited affordability as a key barrier to broadband adoption. Indeed, Americans do pay more on per Mbps than most of our peers. When it comes to faster speeds (i.e., above 50Mbps offerings), the “rip off factor” is even more evident.

  We estimate that, on average, Americans pay almost $16 per Megabit received to the home. In Korea, the amount is $2.00. Central to the relatively high cost of broadband in the US is the lack of meaningful competition. With essentially zero intra-platform competition, service providers have little incentive to innovate offerings beyond par.

  

  Digital Comfort Factor and Relevance

  Another notable finding from the study was the importance of digital literacy and ‘relevance’ as barriers to adoption. Twenty-two percent of non-adopters indicated a lack of comfort with the technology, while 19% saw little if any personal relevance. Of the one-third of American households falling under the “non-adopter” category, the largest sub-group doesn’t use the Internet at all. This particular category was older, lower-income, and less educated than occasional non-home users and/or dialup users.

  Growth Opportunities Remain

  Despite the 93 million unconnected Americans estimated in the report, Strategy Analytics continues to be bullish on the future of broadband in the US. We expect household penetration to breach the 80% mark by 2013.  Why?

  It’s Generational

  It’s not surprising that older Americans are more intimidated by (and see less need for) broadband. This group, however, is being replaced by a generation who will have known no world without broadband. They won’t be able to imagine a world without ubiquitous connectivity.

  People Come Around

  As was the case with non-adopters of microwave ovens, VCRs, cable tv and cell phones, people eventually do come around. Interestingly, 78% of the “Digitally Distant” (non-Internet using) respondents had cable or satellite tv at home, and over half had a cell phone.

  It’s Inevitable

  Broadband is so tightly woven into the fabric of our culture and society that it is almost impossible to imagine a future devoid of the technology. We truly do live our daily lives online, and the pipe dreams of five years ago are fast becoming reality. Telepresence, a technology until recently dismissed as a niche enterprise application, will be launched to consumer households this year. Telemedicine and distance learning are inching their way into the mainstream of American life.

  

• 18Feb

  SeeSaw unites Web TV content from UK broadcasters

  Connected TV, Broadcasting, Broadband, Digital media No Comments

  A new Web TV Portal launched in the UK this week. It is made up by the remnants of “Project Kangaroo”, the Web TV joint venture between ITV, Channel 4 and BBC which was blocked by the UK’s competition commission a year ago. After Project Kangaroo stalled, the technology platform was scooped up by infrastructure and media services company Arqiva which is now launching its own Web TV portal named SeeSaw.

  At launch, SeeSaw is offering 3,000 hours of television content and will be the first major Web TV portal in the UK that offers content from UK broadcasters BBC World, Channel 4 and Five in one place. Content from ITV, however, is notable for its absence.  

  ITV is believed to be contemplating an exclusive deal with HULU, the American Web TV joint venture between Disney, News Corp and NBC Universal, which is yet to launch in the UK but most likely will instantly become SeeSaw’s biggest rival once it does.

  Until now, many broadcasters in the UK and elsewhere have done reasonably well from offering their own individual Web TV services but what HULU has made devastatingly clear in the US market is that – given the choice – most consumers will choose a Web TV portal over individual channels’ Web TV services.

  In the long term, there is likely only going to be room for a couple of large mainstream Web TV portals in each market. This is just the nature of the Internet and we’ve seen it over and over again with Google in search, Facebook in social networking and Amazon in ecommerce. The Web TV space is no different in this respect and at the moment it’s very much a race for land-grab and positioning in a nascent but rapidly growing new market.

  The fact that SeeSaw managed to launch before HULU in the UK market will undeniably give it a head start in attracting users but the real test will come when the American Web TV portal finally launch later this year.

  Client Reading: European Web TV: Era of Anywhere, Anytime TV Approaches

• 05Jan

  Apple’s TV Plans Threaten Cable’s Calculus

  Vendors, Technology, Connected TV, Broadcasting, Broadband, HD and 3DTV, Digital media No Comments

  When I switched my home television service  from DirecTV to Comcast last summer, the slick sales guy on the other end of the line promised me that I would be receiving an identical channel lineup to the one I was currently receiving.  “Apples to apples,” he promised. “Only cheaper.”   What’s not to like?

  You’d think that I, someone who gets paid to research and write about digital television, would have done more due diligence on his own account. 

  I didn’t.

  So, when it became apparent that two “must have” channels for me (NatGeo and BBC America) were not in my Comcast tier, I called again to inquire.  Seems that to get those, I would have pay an additional $15 a month to buy up to the next highest tier, one filled with numerous channels of no use or interest to me.   Suddenly the calculus changed.  This was no longer a good deal.  

  This time, it’s not coming from the FCC

  Recent movements suggest that change may be afoot. 

  No sooner had Comcast announced the launch of its OTT-mitigating Fancast Xfinity TV service than rumors started circulating about Apple’s talks with CBS and ABC.  Seems the folks in Cupertino are mulling a subscription-based video service, obviating the need for iPhone/iPod users to depend solely on the Apple iTunes service for downloads.

  If the Apple service is successful at elegantly bridging  the ‘’screen gap,” and delivering compelling online content to the tv screen, it could fundamentally alter the way MSOs sell content.  The much maligned “bundled” system currently in place, whereby consumers are required to purchase content in blocks of channels–rather than individually–could finally be on the chopping block.  And that’s good news.

  What is interesting, though, is that the catalyst for this change will be the market—not a government mandate as previously feared.

  A la carte used to be somewhat of a cause célèbre in the television world, and one that the FCC has been wrestling for years. It was only the more recent emergence of “net neutrality” that has stolen the spotlight from the issue.

  Former FCC Commissioner Powell’s administration commissioned a 2004 report finding that, under an mandated a la carte scheme, customers would end up paying more.  That report has since been largely discredited and found to be riddled with misinformation and half-baked analysis.  Successor Kevin Martin embraced “cable choice,” though apparently more for the way it allows parents to monitor and block channels, than for household consumer budgetary reasons. One analyst firm  rather dramatically predicted ‘economic ruin’ if the FCC went ahead with its plan.

  Who moved my talking points?

  Government-mandated a la carte is bad for cable consumers, who would wind up paying higher prices to receive the same level of service and fewer channels than they receive today.”-NCTA Issue Brief, January 2009

  The National Cable Television Association (NCTA ) talking points were crafted to respond to a possible “government takeover” of television.  In the context of a market driven change, the memo reads somewhat differently.  Most of the arguments fly out the window, and the market will call the cable industry’s bluff on the supposed technological barriers to offering personalized programming.

  As usual, the problem does not lie in the technology, but rather in the business model

  The very nature of cable advertising is in flux, brought upon largely by digital television.  The 30-year old model in place today, whereby flagship channels lead certain tiers and support fledgling new ones, could be facing some changes.  While the NCTA estimates that half of cable companies’ revenues come from national ad sales, this is certainly shifting.  Intelligent two-way networks will herald in addressable advertising—the next step in demographic targeting.

  Indeed, vendors I spoke with only months ago alluded to some “user identification” scenarios that could pinpoint actual viewers within a household, based on their “jitter signature.”  Seems that we all shake and tremble in our own unique ways, and it is possible to use these signatures like fingerprints, and serve up completely targeted advertising. 

  To be sure, , vendors will need to overcome the “creep out” factor first, but the general idea is the same.  Linear advertising as we know it is going the way of the dodo, and the MSO’s ‘old math’ will need to change.

  It’s not about choice…it’s about the illusion of choice

  Our research shows time and time again that consumers are tired are feeling that they are being screwed by their pay television providers.  The nickel and diming in all aspects of consumers’ lives has grown out of control.  Our latest survey work (to be published in Q1) found that only about 20% of pay tv customers felt that the ““value for money” they were getting from their pay television operator exceeded expectations.

  Part of the issue is consumers’ feeling that they have no control, that they are somehow being  taken advantage of..

  Choice—or more importantly, the illusion of choice—is an extremely powerful tool.   Think of the immensely popular Build a Bear Workshop franchise, whose stores dot shopping malls across the world.  BABW allows customers to design and personalize their very own stuffed creatures by visiting eight “stuffed animal-making stations,” where they can choose (and buy) everything from stuffing to clothing.  The concept has been a huge hit, and the company is now a $300 million/year concern, with over 400 stores worldwide. 

  What is the secret to the company’s success?  Certainly not selling adorable plush animals; anyone can do that.  Rather, BABW has perfected the illusion of choice and flexibility.  All customer start at the same default position: buying a bear.  The trick is, they end up paying more for the additional  features relevant to them.

  How about “Build a Bundle?”

  What prevents MSOs from employing a similar strategy—allowing customers to design their own bundled offerings?  All would start at the same default position, the $XX/month basic tier.  The real money comes in the add-ons.  Critics say this is not how advertising works in the cable industry.  Guess what?  It’s about to change.

  My (still untested) hypothesis is that, if customers were given the choice to “personalize” a  television bundle, ARPUs would actually increase–or at least stay the same.  Allowing them to configure a package conveys the illusion of choice and control, and makes customers think they are in the driver’s seat.

  Sounds like a great project-opportunity…phone lines are open if someone out there wants us to test the concept.

• 08Dec

  2010: Expect More M&A Activity in UK Broadband Market

  Broadband No Comments

  We’ve just published our European Broadband Tracker for Q3, focusing this month on the happenings in the UK market—a market that witnessed a significant change in landscape in the third quarter.  With its acquisition of Tiscali for a “fire sale price,” Carphone Warehouse now finds itself in the number two slot in the UK.  Three providers in the market now claim over 4 million subscribers; however, BT Retail still maintains a commanding 780,000 subscriber lead ahead of its nearest competitor. 

  Sky remains the fastest growing broadband service provider in the UK, though the company’s quarterly growth has slowed down from double digits a year ago to half of that this quarter. Nonetheless, Sky is poised to potentially approach three million subscribers by the end of 2010.

  While Orange’s subscriber loss in the UK market persists, we believe that the impending Orange and T-Mobile merger—reported to be on fast track from the Office of Fair Trading (OFT) –could potentially help to stave off further subscriber churn, through a combination of multiplay bundling and innovative service deployments.

  Indeed, we  expect to see accelerated M&A activity in the UK market in the upcoming year, with Carphone Warehouse a potential acquisition target.

• 12Nov

  IPTV: Déjà vu–again

  Technology, Broadband, Digital media 1 Comment

  I’m on my way back to Boston,after spending 2 days at the Telco TV event in Orlando, a somewhat small–but nonetheless impressive–show focused on the IPTV space.  I’m posting this online at 35,000 feet, which is one of the few places I don’t particularly mind (or at least won’t audibly complain about) paying for connectivity.

  My overall takeaway from the show is that IPTV still has a long way to go–and I feel like I say that every year at this time. A few notes and observations from the keynote sessions, workshops, and meetings:

  What have you done for me lately?

  For years, we’ve been hearing about the promise of IPTV, and the jaw-dropping array of services and applications it will ultimately deliver. The potential and promise of IPTV has been widely hyped. Jeff Weber, VP of Video Products at AT&T, suggested that IPTV’s upside is “beyond our understanding.” The question remains, though, what has the technology delivered?

  Research we recently published confirms the strong growth opportunities for IPTV in the US—that growth, however, is dependent on a few basic conditions, including sustainable customer take up, and achievable and meaningful differentiation. The “me too” services won’t cut it anymore.

  Um…the datestamp on that slide is “2005”

  Sadly, the slideware on display at this year’s keynotes and sessions might as well have been from five years ago. The same tired slides and examples keep showing up again and again, presented as “innovative” and “new.” These include on-screen Caller ID (a curious notion in the first place, given the rapid decline of residential landlines, and the inherently personal nature of telephone communication), customizable EPG skins (really??), multiview, and remote DVR programming.

  Not exactly earth shattering stuff.

  Is there an app for that?

  While IPTV may not fully realize its full potential for several years, the general consensus seems to be that the likely path to innovation in the space may come through the open “widgetization.” Drawing parallels to iPhone apps, proponents of this theory foresee a flood of new applications migrating to the television screen. Whether or not these can be (or should be) monetized remains another question. It does loop back to the fundamental question: how to compel a consumer to move to IPTV.

  No first mover advantage

  IPTV represents the first time in the Telcos’ history that they have been second to market…indeed, they enjoyed near or complete platform monopolies for decades. Television has a long and storied past, and consumers have developed a set of expectations and quality thresholds. Having to build to a set high-water mark is no easy task. And they have to do more than replicate what the cable companies are offering—to be successful, they have to surpass it.

  What the Telcos have in their favor, however, is a long legacy of delivering “five nines” quality to consumers; an established brand and existing customer base.

  The challenge is in meshing the two pieces together: harnessing the experience and success of the past, while simultaneously changing the fundamental Telco mindset from one of a monopolistic utility provider to that of a competitive provider of services.

• 05Nov

  BRIC Broadband Opportunity: $46 Billion by 2013

  Technology, Broadband No Comments

  We’ve just published a report on broadband opportunities in the BRIC (Brazil, Russia, India and China) countries, estimating that broadband revenues in the four-country region will reach $46 billion by 2013.

  The BRIC designation, attributed to Goldman Sachs analyst Jim O’Neill, captures the commonalities shared by the four countries, including  rapid economic growth, burgeoning middle classes, and increasingly sophisticated communications marketplaces. 

  Just as the BRIC countries are expected to be a dominant force in the global economy in the next decade, so too will they become important leaders in broadband consumption. The bloc’s still somewhat young and immature broadband consumer base, rapidly growing upwardly-mobile middle class, and increasingly important consumer purchasing power all point towards substantial opportunities in the upcoming years.

  We see the region as one of the next broadband frontiers, more than doubling its number of broadband connections between 2009 and 2013.
  While there are some positive commonalities shared among the four countries, there are likewise some negative aspects which may ultimately hamper their success. Widespread and institutionalized corruption, social and political instability and inefficient bureaucracies all make for a less-than-ideal environment in which to do business. 

  Nor do we see the BRIC countries necessarily marching in lockstep. In many ways, the four countries are more different than similar, and it would be unwise to expect them to follow exactly the same path.  Rather, we think broadband adoption will play out quite differently in each.

• 03Nov

  Comcast and Time Warner Expected to Post Flat Sub Growth in Q3— Predictions

  Broadband No Comments

  As we’ve said before, and as evidenced by AT&T’s and Verizon’s recent reporting, the days of consistent double-digit broadband growth are probably behind us.  The US market is rapidly maturing–we are estimating 63% household broadband penetration by year-end– and the new customer pool is dwindling. 

  Q3 was a fairly flat quarter for the Telcos in terms of subscriber growth, and we expect to see similar results from Comcast and TWC when they report next week.  We estimate sequential subscriber growth for each to be just around 1%, bringing Comcast’s total broadband base to around 15.4 million, and Time Warner’s to near 8.9 million.

  

  The name of the game for service providers today is mitigating churn–that is, holding on to what they’ve got.  Research we recently fielded in the US market (to be published soon) showed that Americans report very high satisfaction with their current service provider (75% are “somewhat” or “very satisfied”.  That said, when presented with a compelling competitive offer (20% price discount or doubling in speed), roughly two-thirds would jump ship.

• 22Oct

  Net Neutrality Brings Politically-Charged Tone to Supercomm

  Broadband No Comments

  The tone of this year’s Supercomm is certainly more political than usual, with net neutrality at the center. Otherwise benign speeches and presentations are punctuated with “keep government out of broadband” taglines. All of this is very à propos, of course, as the FCC today is expected to vote on a proposal giving the green light to rules formulation on net neutrality–something the Telcos view as an existential threat.

  In yesterday’s keynote, Verizon CEO Ivan Seidenberg ripped the idea of net neutrality as “a mistake, pure and simple–an analog idea in a digital universe,” and blasted the “Silicon Valley digital elites” (oh God, using “elite” perjoratively is sooo 2008!). Net neutrality threatens to stifle progress, he suggested, noting that “if we can’t earn a return on the investments we make in broadband capaicty, our progress toward a connected world will be delayed, if not halted altogether.”

  In what some have referred to as “astroturfing,” i.e., creating an artificial grass roots movement, Seidenberg suggested that net neutrality could create a public safety hazard, saying “If we can’t differentiate betewen packets, we can’t prioritize emergency communications for first responders, telesurgery or heart-monitor readings for digital medicine, or videoconferencing over spam for telecommuters.”

  While it may tug at the heartstrings, the argument is a bit of a red herring. Nothing in the net neutrality discussions occuring now would prevent lawful and reasonable network management.

  Today’s decision should come as no surprise to anyone; the US policy on net neutrality was effectively made last November with the election of a new administration.

  Twitter: twitter.com/DavidMercer_SA

  Client Reading: US IPTV Market Sizing: 15.5 Million Subscribers by 2013

  

• 22Oct

  AT&T and Verizon to See Double-Digit IPTV Growth

  Broadband No Comments

  In a press release published today, we predict that AT&T and Verizon will post double digit IPTV subscriber growth for the third quarter. Both have seen an impressive growth clip over the past year, and are likewise experiencing increased consumer take up percentages. Consumer take up, clearly, is key here.

  In a report we released back in September, we talked about drivers and inhibitors to IPTV growth in the US market. One key driver of IPTV uptake is household broadband penetration, which is currently at 63%, and estimated to grow to 81% by 2013. Likewise, household familiarity and comfort levels with bundling will drive uptake-this has certainly been the case in European markets including France, where IPTV was initially “bundled” with broadband as a giveaway.

  The “content is king” adage continues to hold true, and operators able to secure exclusive premium content will likewise have the upper hand. Satellite provider DirecTV’s exclusive “NFL Sunday Ticket” has proven to be an effective churn mitigator and revenue source. Finally, aggressive marketing, such as the print and television campaigns currently underway by AT&T and Verizon, will continue to raise awareness and generate demand among television households.

  Several factors stand in the way of consumer takeup, however, and these must be overcome if IPTV is to truly take off in the US market. Among these potential inhibitors are “Over the Top” (OTT) content-programming and content available for free or inexpensively online-which to some households will obviate the need for pay television altogether.

  Customer unfamiliarity is another key hurdle Telcos must overcome; to date Telcos have done an inadequate job in communicating the benefits of IPTV over cable or Satellite. They must make this a priority. Likewise, strong and aggressive competition from cable players, who currently have pipes into 90% + of US homes, must not be overlooked.

  Twitter: twitter.com/DavidMercer_SA

  Client Reading: US IPTV Market Sizing: 15.5 Million Subscribers by 2013

  

• 12Oct

  Live Internet Football Game Grossed More Than £2m

  Connected TV, Broadcasting, Broadband, Digital media 1 Comment

  Perform and Kentaro have confirmed that “close to” half a million viewers watched the live internet stream of Ukraine v. England on Saturday (see my previous post). While this number includes British troops and cinema audiences, these numbers are not likely to reduce the internet audience significantly. At a conservative average revenue per subscriber of £5 (given that some proportion - those who paid in the last day or so - will have paid significantly more) this means that income from the match will have exceeded £2m.

  Ironically £2m is also the sum Kentaro (the rights holder) was reported to have been demanding for rights to broadcast the game live on regular TV. So if these estimates and reports are accurate, Kentaro may be pleased that it has generated more income than it originally hoped.

  Of course, it is not quite as straightforward, since Kentaro will have shared income with its distribution and marketing partners such as the national newspapers, and will have had to bear the significant costs of internet delivery with its partner, Perform. Whether the game actually made a profit for either partner is likely to remain a well-kept secret.

  Kentaro’s willingness to negotiate a last-minute deal with the BBC for highlights suggests that it was not prepared, contrary to its previous statements, to rely solely on the internet for its revenues. This suggests that it was struggling to balance the books on this event through online-only distribution. It also risks alienating future online sports subscribers who may in the future be reluctant to pay on the assumption of online exclusivity, only to find highlights will be available free-to-air after all.

  But as I indicated previously, it seems clear that delivery of live internet sports to a mass audience is now at least technically viable, and Perform should be congratulated for the technical success. Whatever the financial results of this particular event, hundreds of thousands of sports lovers have now seen with their own eyes that live internet sports broadcasting can be delivered effectively, and that has a significant marketing value. The quality is clearly not close to the best television can offer, but it will only improve over time.

  Twitter: twitter.com/DavidMercer_SA

  Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence!

  

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