Digital Consumer

• 04Mar

  Should Every TV Content Owner Take a Stake in Hulu?

  Connected TV, Digital media No Comments

  Viacom is not happy. It is not happy sharing ad revenues with Hulu for their hottest TV shows. It believes the shows should worth more than Hulu can offer now. So Hulu has to remove Comedy Central’s The Colbert Report and The Daily Show With Jon Stewart. Here is Hulu’s blog post about the issue with Viacom.

  This is clearly bad for consumers, who want to have their content access all at one place rather than going to different sites. As Internet is playing a more important role in TV and video content distribution, consumers benefit from the openness of Internet, where they can search for specific content they want. Meanwhile, they also have to live with the pain that content distribution is so fragmented online that they have to jump around a bunch of video websites to watch different content.

  Some media executives say that media industry is a convenience industry. What it means is that one of media companies’ major value propositions is to provide convenience to consumers to purchase and to enjoy media content. It is apparently true. If a media company creates great content, but makes it hard or unaffordable for consumers to access, it would end up for consumers either pirating the content or looking for something else to entertain themselves. This might not be the case for the two Viacom’s show, as consumers can still watch the show at TheDailyShow.com and ColbertNation.com, but it at least suggests that Viacom hasn’t found its ideal content distribution practice online.

  Hulu, founded by NBC and FOX in 2007, provides consumers an single gateway to access content from NBC and FOX as well ABC now. Its owners like Hulu, as it is their own distribution channel online that is fully controlled by them. 100% of the revenues generated by Hulu goes to the shareholders proportionally, after subtracting the costs. However, for an outsider like Viacom who does not have a stake in Hulu, the video aggregator is merely like another YouTube with more targeted audience, as Hulu will take a cut of the revenues generated by Viacom content.

  We at Strategy Analytics have been long positive at Hulu’s business model than at YouTube’s, given that Hulu is not required to pay upfront minimum guarantee to its owners, while for YouTube, the upfront payment is usually needed. But in Viacom’s case, Hulu has no difference from YouTube for them.

  I believe it is a loss for both parties to remove the show from Hulu, as Hulu loses great content whereas Viacom loses audience, despite Viacom believes that its own loss is not as big as Hulu’s. So is there a solution for the issue? Probably. Viacom could join ABC, NBC and FOX’s club to own a stake in Hulu, which could let them enjoy Hulu’s long-term growth in stead of caring about short-term money. Hulu would also benefit from Viacom’s high quality programs enhancing its current competitiveness. Consumers will love it since they don’t need to jump to different websites to watch the videos they like.

  Certainly, there are several barriers that need to be tackled in order for this to happen. First, it is unclear if ABC, NBC and FOX are willing to let their competitor to own a part of Hulu. Even they are, conflicts on the control of the site among these large media companies could be an issue in the future. Second, Hulu would be declared as a monoply if they gain investment from most of the big media firms. A similar online video service proposed by BBC, ITV and Channel 4, Project Kangaroo, has already been blocked by the UK Competition Commission. 

  Stay in the status quo or go to buy a stake of Hulu? Now it’s up to Viacom to decide.

  Jia Wu

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

  Technorati Tags: Online Video

• 24Feb

  Where is Google’s next multi-billion dollar business?

  Technology business, Digital media No Comments

  It’s now another season for earning releases. With positive numbers from major companies, the media and tech sectors return to growth track along with the general economy.

  Despite the recession and the changing industry landscape, News Corp still generated $30.9 billion sales in 2009, which is 1.3 times Google’s revenue for the same period. News Corp is once again on the sustainable growth trajectory since the fourth quarter of 2009. Google, returning to decent growth in Q4 as well, generated $23.7 billion in 2009. But here, the interesting thing about their financials is that Google has a market capitalization of $172 billion in February 2010, while News Corp’s market value only hit $35 billion, which suggests a 7.26 price-to-sales ratio for Google and 1.13 for News Corp.

  So why does a company, which earns less money than the other, end up having 5 times more market value? Of course, it’s the future growth or expected growth. (Although factors such as profit margin play a role, it is the future growth that has the most impact on Market Cap.) Google clearly grows its revenue by 8.5% in 2009 over the previous year, whereas News Corp’s sales dropped by 5.5% in 2009. But given News Corp’s decent post-recession rebound in Q4 and Google’s growth deceleration for the past years, is the two companies’ difference of current growth trends big enough to make up the entire $137 billion Market Cap gap? I doubt it.

  The investors definitely expect way more revenues from Google in the future than it’s generating now in order to substantiate its high market value. And given Google’s heavy investment in different areas such as mobile, computer OS and social networks, there is a fairly high possibility for Google to achieve it. But here the question becomes where Google’s next Multi-billion dollar business is? Google has publicly stated that display advertising, which includes banner ads on its online properties and video ads on YouTube, will be the next billion dollar business. I have no doubt about it. But I doubt that the growth potential in display advertising is sufficient to support people’s expectations on Google. Strategy Analytics believes online video ads will be nice business in the coming years, but it is more of a traditional business model other than that of Google search ads. Search is all about aggregating users’ intention and monetizing on that, while display ads are just old-fashioned magazine types of impression selling. There is nothing wrong with the old ways of selling impression, but that is not what Google eventually aims for. Google needs a new multi-billion dollar business to go for, as the groundbreaking AdWords it has invented many years ago.

  Since most of Google’s new inventions are or will be free, like Android and Chrome OS, I believe that Google’s next multi-billion dollar business will remain in search, and all that Google is doing now aims to increase the world’s Internet users and usage, which will in turn make the pie of search advertising larger and larger. It remains unclear that if there will be enough advertising dollars in the market to reward Google for its research and development, but at least Google makes the world better.

  Jia Wu

• 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

• 10Feb

  US Pay Television Angst…or was that ennui ?

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

  A report we just published  analyzes the findings from a nationwide survey of 856 US Digital Pay Television consumers.  In it, we look at satisfaction for key performance  metrics, analyze customer willingness to churn, and look at the role of the bundle in mitigating churn.  This is presented at both an overall and platform-level (including Cable, Satellite and TelcoTV / IPTV). A few key findings from the report:

  Digital Television Satisfaction is High Overall, but Cable is Still Vulnerable

  Seventy-one percent of respondents in the survey reported to be “somewhat” or “very” satisfied with their current service. While this may seem like positive news for the digital television industry, the story changes somewhat when viewed at the individual platform level.

  The differences among Cable, Satellite, and IPTV were impressive, with  Telco/IPTV customers reporting 95% overall satisfaction, compared to 67% for Cable. Cable underperformed in virtually every satisfaction metric.

  Low Perceived “Value for Money” among all Digital Pay TV customers

  Virtually across the board—and irrespective of platform—respondents reported low satisfaction in the metric of `Value for Money.’ There was very little measurable difference by platform among respondents, and in all cases, fewer than 22% of respondents felt the service “exceeded” or “greatly exceeded” expectations of value for money.

  This is among the most important findings of study, as it underlines the vulnerability of pay television in its current state. Indeed, in a report published in 2008, we found that over 50% of US digital pay television customers would be willing to scale back or completely drop their television service if household budgetary circumstances dictated.

  Cable Customers Most Willing to Jump Ship

  Despite a high stated satisfaction rate, digital television respondents displayed relatively high price elasticity. A somewhat surprisingly high percentage of respondents indicated a willingness to switch providers when offered a competitive deal 10% or 20% cheaper than their current spend.

  Cable customers displayed the highest propensity to churn, with 47% saying they would switch for a 10% price discount. When the price discount was raised to twenty percent, over two-thirds (68%) said they were willing to jump ship.

  Malaise?  Angst?  Ennui?

  Whatever it is,  it doesn’t feel good.

  Despite a rather high stated satisfaction level, pay television customers in our survey indicated a substantial willingness to churn, and a general feeling that they were not getting high value for money from their television service provider.  Both of these factors further underline the threat that Over-the-Top (OTT) distribution poses to traditional service providers.

  Among platforms, IPTV appears to being doing best in terms of satisfaction and anticipated growth.  Its success, however, is not a foregone conclusion.

  

• 28Jan

  Apple underwhelms after tablet hype-fest: iPad needs to become more than a “big iPhone”

  Vendors, Connected TV, Digital media, Wireless No Comments

  Apple cynics seem to have taken the initiative following the announcement of Apple’s iPad internet tablet. I tend to shy away from anything as hyped as this product has been. Surely the most hyped Apple device ever… And for that reason alone I am feeling underwhelmed. Is the iPad really what this was all building up to?

  Let’s think about the applications:

  Books - ok, I get this. if you want e-books this seems like a reasonable way to carry and read them. A nice way to read newspapers as well – I’m not sure the publishers will make money from it though.

  Web browsing and applications - I suppose the brower must work well. This is definitely the primary set of apps in my view. Consumers need an easy and fast way to get to websites quickly when they’re at home and don’t want to boot up the laptop.

  Music - ok, but who would rather listen to their music through a 1.5 pound portable device with (presumably) tinny speakers rather than either a) a small iPhone/Pod plus headphones, or b) plus docking device?

  Photos - yes of course – iPad could be a very nice digital photo frame.

  Games - could eventually become a killer app but control and input functions will need to be adapted to a larger screen device and iPhone app developers need to get to work to match the screen’s HD resolution.

  Productivity applications - I’m struggling here. is this really how the iPad is going to get used? The virtual keyboard may be good, although early reports are not promising. But think about how are people going to hold or rest this device: sitting down in a chair - it would have to rest on the flat table, so you are leaning over it to use it properly. Sitting in an armchair - so it’s on your lap, but again you have trouble positioning the screen at the right angle; or standing, so you hold it resting in one arm and only have one arm free to touch the screen. Or you use a stand and add-on keyboard, and it becomes… a laptop! OK, maybe the iPad could be used occasionally for productivity applications, but I just don’t see this device as a breakthrough for work-based devices.

  and finally… Video.
  Video playback is reported as stunning - I can believe this. But where are the extra video content applications or TV deals? The specialised video apps like TV-transfer? No HDMI for TV connection? Apple seems to be struggling more than ever to break into the home video market in a big way.

  And no multi-tasking… this is crazy. I can’t play music while I surf?!

  Form factor: maybe I was expecting too much from Apple, but really the iPad is hardly a revelation. Have they done what we expected? ie take all previous tablet-type implementations, improved on them and added innovative style and usability and content integration to create a unique package? I don’t see this from what I’ve read and seen. And it’s too heavy to be held in one hand, much heavier than some e-readers.

  Wireless:
  So the key question - how often would this device be used in truly mobile situations, and of those situations, how often would a user need to have cellular data service? The cellular service can be bought ad hoc - and I think it will be primarily. Not much new recurring revenue for carriers there then…

  The iPad is surely primarily a “free data” wifi device. It doesn’t need always-on connectivity for messages and voice - I’m always going to carry a phone for those. I can get online for websites and apps via hotspots when needed, and primarily use my home broadband to load it up with content.

  Having said all this, of course the lower than expected price points mean they will sell millions to Apple fans who won’t blink at spending another $500 on the latest Jobs gizmo.

  (And did anyone at Apple really not investigate the unfortunate connotations of the device name for the female market? - one wonders if Jobs has really lost his touch.)

  Client Reading: Consumer Imperatives for Digital TV Media Browsers

  

• 15Jan

  IPTV Challenge: Differentiate Beyond Content

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

  In a report to be published in the few days, my colleague Martin Olausson and I talk about the new challenges facing France Telecom (Orange), in light of a recent ruling by the French Competition Authority.

  According to a commission appointed by France’s Competition Council, Orange’s exclusive carriage of channels on its “Orange TV” IPTV platform “has drawbacks in the short, medium, and long-term,” rendering it “undesirable to maintain.” This decision could potentially have repercussions on the entire industry, and Orange will need to fundamentally alter its marketing strategy to stay in the game.

  A few thoughts…

  If not content, then what?

  Strategy Analytics has long held that content—particularly exclusive content—would be a key differentiator and driver of IPTV uptake. Recent developments in the hyper-competitive French market threaten to change that model. 

  Orange, which was unable to differentiate itself on the basic services level, has pursued an aggressive content strategy in recent years, spending over €200 million to acquire exclusive rights to sports and other content, packaged under its Orange Sport and Orange Cinéma Séries brands. The strategy has worked quite well for the operator, and utilizing exclusive content to market its pay TV services has led to rapid growth of its pay TV segments.

  Now all of that is in limbo, and the operator will need to find other ways to stand out.

  Pricing matters…but differs by region

  One of the takeaways of a report we published back in September was that platforms don’t matter to customers—features do.   Well, features and price.

  Further customer survey work we have just completed confirms that price as a churn motivator depends largely on the individual market. Our research shows French consumers to be the least motivated by price, and those in the UK most influenced.

  

  Much of this has to do with consumer perception. In France, all the major triple play service providers offer very similar packages at essentially the same price. Our interpretation is that the typical French consumer might not feel it worth the time to make a switch—even for a 20% discount. The perceived disparity is much greater in markets such as the UK, where pricing and bundling disparities are much more pronounced.

  Challenge is in finding ‘non-content differentiators’

  The recent ruling by France’s Competition Council suggests that the “traditional” differentiation through content may not be viable for much longer. As such, operators will be forced to find other ways to differentiate and “own” the customer. The easiest way to do this, in our opinion, is to control the gateway into the home and offer a better QoE, and more value for money (i.e. better bundles) for the consumers than the competition.

• 11Jan

  CES 2010: Two Cool Gadgets from Sony and Plastic Logic

  Technology, Connected TV, Digital media No Comments

  Sony has introduced what it calls a new device category at CES 2010: the “Personal Internet Viewer”. This takes the form of Dash, a small, 7” touch screen internet access device with WiFi access to the home network. It will launch in April 2010 and retail at $199. Dash is based on Flash technology, so, “for Flash, get Dash”.

  Dash is based on Chumby’s internet service. It currently features more than 1000 internet services and applications across social networking, news, music and video, and can access video from Sony’s Bravia internet video platform. It can run multiple applications simultaneously. One drawback is that it is only mains-powered, so in-home portability is out of the question. Nevertheless we felt this was a very nice implementation of a simple to use, and relatively inexpensive internet access device. At $199 it could well become a favourite for kitchens and bedrooms.

  We were also impressed with the progress made by Plastic Logic, a company originating from the well-known hub for advanced display technologies – Cambridge in the UK. PL was showing off its QUE ProReader e-reader. At $649 the product is aimed very much at the professional needing to access multiple documents on the move, such as newspapers, books, newsletters and reports. Barnes and Noble is behind the QUE bookstore, and connectivity is via WiFi and AT&T’s 3G network. The device is extremely thin, light and easy to read, and battery life is supposedly several days in normal use. If volume sales lead to cost efficiencies and price declines this technology could find its way into the mass market. In the meantime the company is looking towards adding colour and eventually video capabilities.

  Client Reading: Consumer Imperatives for Digital TV Media Browsers

  

• 09Jan

  CES 2010: Connected TV Land Grab Continues – Updates from Boxee, Yahoo and Sonic

  Connected TV, Digital media No Comments

  We met with Boxee which was demonstrating its first set-top box, developed by D-Link and based on Nvidia’s Tegra 2 chip. This is a powerful platform allowing full HD capability. The box will not include an integrated HDD in order to keep the price below $200, but supports USB drive attachments. It will ship in 1H10 in the US and Canada. Boxee let slip to us that they also expect it to be available “shortly after” in Europe. Boxee currently has 750,000 users through its PC-based platform. This device is certain to give a boost to those numbers and looks like a compelling new entry into the connected TV market.

  Meanwhile, Yahoo continues to make progress with its connected TV offer. In spite of our scepticism over the widget strategy, based on our own user research, Yahoo expects to have shipped between 3 and 5 million TVs globally by the end of Q110. 60% of sales have been in Europe and the remainder in the US. The company’s target is to have shipped in between 10 and 12 million devices by 2011. Like other connected TV companies their goal is to develop a large scale platform from which monetisation of app stores, advertising and other opportunities can be realised. As things stand today Yahoo appears to be fairly well positioned, but it will come under threat from many alternatives over the next few months, and TV manufacturers will be wary of becoming too dependent on a single partner.

  One competitor could be Sonic Solutions’ Roxio/CinemaNow platform, which is being repositioned as a white label service for retailers and device manufacturers. Indeed, as we were meeting Sonic was in discussion with one of the major US retailers. It makes sense that retailers would be interested in selling connected TV services in addition to the devices on which they make small margins. We can expect to see a great deal of activity in this space in the US and Europe over the coming year as the connected TV landgrab continues.

  Client Reading: Consumer Imperatives for Digital TV Media Browsers

  

• 06Jan

  CES 2010: Opening events and highlights

  Connected TV, HD and 3DTV, Technology business, Digital media No Comments

  The depth of the recession in the US consumer electronics market was highlighted today by CEA data which confirmed a decline in dollar revenues in 2009 of 12%. The outlook for 2010 improves but only in the sense that the rate of decline falls to 3%.

  In the meantime we’re hearing news of new 3D TV channels already, with both ESPN and Discovery throwing their hats into the ring. This is great, if expected, news for the many 3D-ready TVs we expect to see over the next few days.

  At this evening’s CES Unveiled event Sensio were showing their passive 3DTV, even though the company today announced its partnership with Visio to launch an active 3DTV later this year. Mitsubishi was also showing its laser 3DTV with the adaptor which will be necessary for compatibility with Blu-ray 3D players when they are lauinched.

  Logitech was showing its new Lapdesk N700, a laptop “cushion” with in-built speakers designed for enhanced laptop usage in the comfort of the armchair. The peripheral retails at $89.99 and also features an in-built cooling fan to prevent over-hearing, a familiar problem for those many TV viewers who now sit with a laptop on their knees. Logitech have thoughtfully added a grip to help keep the laptop steady, but unfortunately in my case it failed to prevent the Macpro falling to the floor. No damage done, luckily, but perhaps evidence of a need for further improvement in design.

  Logitech was also demonstrating the fruits of its recently closed acquisition of Lifesize Communications, a videoconferencing specialist. On display was its Passport set-top videoconferencing device. This retails at $2500 and allows anyone with a minimum 2-way 1Mbps broadband connection to communicate using HD video (720p). The service downscales to lower resolutions for slower bandwidth connections. Logitech claims that this device is a third of the price of any other similar product on the market. That may be true today but is unlikely to remain so for much longer. Videoconferencing and telepresence are shaping up to be one of the emerging trends of this CES and we will hear a lot more over the next few days, in addition to the Skype/Panasonic/LG announcement today.

  Yet another OTT video set-top box was being demonstrated by Syabas with its Popbox product. This grew out of the company’s Popcorn Hour device. The Popbox has been designed to be especially user-friendly, and the user interface does appear attractive and accessible. The service integrates currently 20 “content application channels”, which means things like Netflix, and is working with 200 application developers. It will launch in March 2010 and retail at $129, plus $20 for the optional WiFi module. The Popbox is 1080p-capable, although the only 1080p content was demonstration material. If Syabas manages to sign 1080p deals with content providers it will certainly be a step ahead of most competitors.

  ProVision CEO Steve Cliffe was confident enough in his company’s wireless HD technology to carry a laptop across the show floor while it streamed 1080i HD content, and there was no loss or deterioration in signal. This UK firm was founded by professors at Bristol University, and uses proprietary error correction and RF management techniques to improve HD video streaming over 802.11n. The company is talking to set-top box and TV manufacturers looking to support HD distribution to multiple home devices.

  Another UK firm, Imagination Technologies, was launching its Pure digital radio products for the US market. Pure is the leader in the UK but virtually unknown overseas. It will, rightly, tread carefully as it enters the notoriously challenging US market, and will obviously (since the standard is not used) drop DAB from its US product line-up, instead concentrating purely (sorry) on internet radio. Its Sensia product is the highlight of the range and features a full-colour touch screen LCD display as well as additional interactive capabilities like Twitter and Facebook. Pure confirmed to us that video-capable devices are a natural step forward and can be expected in the next year or so.

  Client Reading: HDTV: Standards Muddle Clouds Outlook For Wireless Displays

  

• 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.

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