Xbox Reaches Out To U.S. Networks; Content Or Ads – More Choices From Netflix And Hulu

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October 10, 2011 – 12:03 am

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Xbox's Gets Authenticated

After years of rumors and false starts, Microsoft is finally bringing cable TV programming to its Xbox video game console. The company has linked up close to 40 television content providers--including Comcast, Verizon, and HBO in the United States--will roll out programming over Xbox Live. The company also has deals lined up with providers in the U.K., Spain, Canada, Mexico, Germany, and Italy. Read the release

As paidContent's Robert Andrews pointed out, the move represents a shift in strategy. Essentially, Microsoft has decided to embrace authentication in order to get U.S. networks and distributors on board. Microsoft's revenue strategy toward entertainment tended to focus on direct revenue from content sources. The new approach will allow it to acquire the kind of critical mass it will take to make the Xbox 360 a true media and entertainment hub, Andrews opines.

In the past, the idea of deriving revenue strictly by adding new subscribers to Xbox made sense. But that didn't bring in enough to cover the costs of new content. While Microsoft will receive limited subscription fees with some of the players, but most of deals appear to be a straight barter. In other words, Microsoft gets the programs, the networks get a powerful distribution outlet for their shows and the attendant advertising. Unders some terms with the cable MSOs, Microsoft has agreed to pay a small "consideration," but that is not the same thing as the more costly carriage fees paid by multichannel operators. The reason is that Xbox is just another option for existing subscribers since its available via authentication, as opposed to being an over-the-top system like Roku, Netflix or Google TV.

Also, unlike MSOs, Xbox gets no advertising dollars for networks it carries. But the new content could still offer a clear advertising opportunity for Xbox through its motion- and voice-sensing controller Kinnect, which can be used with interactive ads.

Consumers' Choice

At a time when viewers' choices are nearly infinite in terms of what, where, when and how they want to watch video, the company that fails to catch the public's many eyeballs is very much behind the times. That's especially true of services like Netflix, which bungled the separation of its pricing and branding when it comes to streaming and DVD rentals, and is trying to make up for it by offering more cable fare available to its subscribers. And then there's Hulu, which is making a bet that giving users the ability to reject some ads in favor of ones that might be more relevant to them will justify the high CPMs it charges agencies and marketers.

As part of a recent string of multi-year content licensing deals the past few months, Netflix is expanding its AMC Networks arrangement for exclusive streaming syndication of the show Walking Dead in the U.S. and Canada. Season one of Walking Dead will start right away, and join its AMC siblings Mad Men and Breaking Bad in the U.S. and Latin America as part of existing agreements with studios Lionsgate and Sony, reported Deadline Hollywood's David Lieberman.

Along with exclusivity for Walking Dead, Netflix is also adding non-exclusive rights for other shows from AMC Networks, including Portlandia and Bridezillas. Separately, New York magazine heard that Netflix may be willing to produce new episodes of cop show parody Reno 911, which was canceled by Comedy Central two years ago. It's by no means a done deal. Although just a cult show, the idea that Netflix would become something of its own network is intriguing. After all, once you have networks available across all devices, what's the difference between Netflix running repeat programming and, say, TBS?

The choice of more programming should help Netflix, as more and more users are using it to introduce themselves to TV shows. Many consumers prefer the ease of streaming rather than wading through weeks of back and forth mailing DVDs for a particular show's season. Time will tell.

Where Netflix is offering more viewing choices for content, Hulu is presenting new ways of putting up with advertising.

The broadcast joint venture unveiled its Hulu Ad Swap last week, touting it on the Hulu's official blog as "the next evolution in user choice and control." When an ad appears in the middle of a streaming show, a user can click on the Hulu Ad Swap icon in the top left corner of the player and bring up a number of ad choices, customized to that user's profile and previous ad viewing preferences.

The move builds on Hulu's Ad Selector feature, which lets viewers pick their own pre-roll ad. The swap function will be available for all Hulu ads over the next few months, starting with its PC version and then on other devices such as Xbox, connected TVs, iPads and Blu-Ray players. Unlike the TV networks that back it, Hulu does not sell ads on shows directly. Instead, it sells "audiences" much like most ad networks do.

As TV networks adopt a wider range of devices, the idea of buying audiences will begin to affect their TV avails too. If Hulu can convince marketers and agencies that it's able to realize higher levels of engagement and brand recall, the policy of ad swapping could make their way to DVRs and interactive TV as well. Early tests claim that swapping will satisfy marketers. But it will take a lot more studying before the industry starts putting more choice about advertising in users hands.

OTT's Aging Process

We can all agree: the amount of cord cutting going on right now is miniscule. As Nielsen has said repeatedly (see this GigaOm post from February), cord-swapping – choosing other satellite, telco and competitor cable subs – is what accounts for the general basic video subscriber losses over the past year. In particular, Nielsen has found that in households with people 25 years old or younger, 8.5 percent are cable-free, which is almost twice the national average.

In other words, the question about cord-cutting is whether these younger cord-cutters will change their behavior as they get older. Will their taste of over-the-top services like Netflix's streaming offerings or Boxee wane? New research from Interpublic Groups' Magna Global suggests (via IDB's tech blog) that the cord-cutting process will grow steadily, but slowly – kind of the way the aging process does.

About 8 percent of all TV homes (8.9 million) will be OTT-only video houses by 2016, up from an estimated 3 million at the end of 2011.

Within the next five years, Magna estimates that 56 percent of the OTT homes will be represented by consumers who never had a pay-TV subscription. The other 44 percent will be "cord-cutters" that supplant regular TV with internet service, it says. Internet-connected TVs as well as game boxes, such as Microsoft's (MSFT) Xbox, will fuel the trend, says MagnaGlobal.

The trends are very fluid about the notion of pay TV and cord-cutting. So it's anyone's guess what the numbers will be in two years, let alone four or five. But it's safe to say that the rise of the connected home and the ubiquity of mobile devices and likely adoption of a variety of payment plans – even, possibly a la carte for cable -- designed to accommodate consumers' intensifying demands for greater choice have already begun to seed the future cord-less viewing landscape.

Measuring Social TV

Aside from speculating about the growth of cord-cutting, TV observers are also curious about what the impact has been of all this "checking-in" to TV programs via social networks like Facebook, micro-blogs like Twitter or apps like GetGlue or Yahoo's IntoNow.

Radha Subramanyam, SVP of Media Analytics at Nielsen has some ideas. Read it. Citing stats from an analysis conducted by NM Incite, a Nielsen/McKinsey joint venture, looking at the correlation between "online buzz" and TV ratings, found a varying connections for different ages.

It's no surprise that younger demos (people ages 12-17 and 18-34), but it was interesting that women tended to check-in and watch a show versus men. Men over 50 showed the weakest buzz-to-ratings ratio leading up to a show's debut. By the middle of the season, though, that relationship strengthened by the finale as all age groups were actively discussing a TV show via social media.

The upshot: A few weeks before to a show's start, a nine percent increase in social buzz equaled a one percent increase in ratings within a given demo. The correlation got slightly weaker as the season went on, with a 14 percent increase in buzz corresponding to a one percent increase in ratings.

But Wait! There's More.


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October 10, 2011 – 12:03 am
  1. One Response to “Xbox Reaches Out To U.S. Networks; Content Or Ads – More Choices From Netflix And Hulu”

  2. Now that DISH Network bought out Blockbuster they are now offering customer access to game, movie and blu-ray rentals by mail and there are no late fee's or due dates. They offer over 3,000 of the latest games to choose from and blu-rays are at no additional charge. Working for DISH I can say they also added in a bonus of allowing customer to stream movies to their TV and PC.

    [Reply]

    By Nathaniel Richmond on Oct 12, 2011

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