Pay-TV Paying Off; When Earnings Are Mixed; Cablevision Doublespeak?

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June 13, 2011 – 12:03 am

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Pay-TV Paying Off

What cord-cutting? Globally, pay-TV dollars are rising nicely, thanks to the bundled services for Internet and phone, along with the usual range of programming choices, says Jason Blackwell, digital home practice director at ABI Research. Blackwell’s study says that both subscriber numbers and revenue are growing. Specially, by the end of Q1, combined pay-TV service revenue generated from satellite, cable, terrestrial and telco TV was up 10 percent to $53 billion year-over-year. Read the release

It makes sense: in hard economic times, bundled services are increasingly attractive as more consumers stay home and therefore have even greater desire to surf the web and watch TV. And as digital services and HD have gotten more ubiquitous, pay TV will bring in more than $218 billion by the end of 2011. To put that in context, most forecasters believe global online advertising revenues will wind up somewhere between $60 billion and $100 billion this year.

Asian boost: Regionally, North America and Western Europe own the highest market shares of pay-TV service revenue, thanks to the higher cable/satellite bills. Emerging markets play a role as well, of course, as the Asia Pacific region owns the third largest market share of global pay-TV service revenue. That region is likely to have larger market share than Western Europe in next two years, primarily due to increased cable penetration in China and India.

Safe, for now: But doesn’t the growth of Internet services threaten pay TV’s future growth? To an extent, yes. But the cord-cutting is going to remain the province of the young and technologically-inclined. At the same time, economically distressed people will also more likely turn to cord-cutting as over-the-top services become more prevalent.

For the most part, the established cable companies have the wherewithal to beat back these challenges by continually co-opting OTT (see the recent apps from Time Warner, Cablevision and programmers like HBO). In general, consumers will always opt for simplicity and one-stop-shopping when it comes to home entertainment. As the economy improves over the next few years, consumers around the world will want more services, more options across the connected household, not less.

OTT’s impact: As strong as pay TV is, OTT will undoubtedly have an impact on the industry. OTT services can expect 1.3 billion subscribers by 2016 and will see revenues of up to $20 billion, according to another ABI Research report cited by OnlineVideoNet’s Troy Dreier. (ABI is selling the report here.)

Currently, Netflix ranks number one in OTT revenues. It’s fitting since, Netflix has been incredibly successful in attracting its subscribers to streaming media. Following Netflix are Apple iTunes and the major broadcaster-backed Hulu, which each claim 15 percent of the current market.

Disintermediate yourself or die: All of these companies involved in those efforts have adapted their models to the changing video landscape. The TV Everywhere concept being pushed by the big MSOs, where cable/satellite subscribers can watch programming on mobile devices and the PC, represents catch-up by the industry. It’s still early in the OTT/pay TV game. 2012 will be a pivotal year.

As the above numbers show, the pay TV business is healthy and it is bringing in unprecedented amounts of revenue because it was able to move into Internet and phone services. OTT is a tricky balance and means the threat of cannibalizing the industry’s existing business. But industries evolve quickly and the lesson of the last decade, whether its music or newspapers, is that if and industry doesn’t try to disintermediate itself, some other industry will come along and be the one to do it, causing the establishment to quickly shrivel.

Rentrak’s Mixed Earnings

The mixed earnings that Rentrak reported for its fiscal year Q4 and 2011 this past week appear to reflect the imbalances in addressable/advanced TV space at large. On one hand, the Q4 loss the Portland audience measurement company posted was due to lower revenues higher operating expenses. In particular, home entertainment dollars fell 14 percent on weaker performance of rental titles, something that has affected all industries related to the video rental business. Nothing Rentrak can do about that.

Progress: Luckily for Rentrak, home entertainment is a smaller part of its business. Thanks to its shifting toward advanced/addressable TV, gross margins rose to 44.2 percent from last year’s 41.5 percent as the company continued to shift services to the advanced media information division, which generates a higher return than its home entertainment business. That unit now represents 37 percent of Rentrak’s total revenues, up from 28 percent during the same period in 2010.

Looking ahead: It’s clear that Rentrak is able to piggyback on the rise of addressable TV. As that becomes a bigger business, Rentrak is perfectly positioned to capitalize on the industry’s growth. The one caveat is whether it will be able to better deal with higher fixed costs related to obtaining data. The company has made a number of smart acquisitions, like Cine Chiffres and Media Salvation that should make it more self-reliant as it clients demand more and more services and competition around targeted TV and analytics expands. In meantime, Retrak is continuing to secure new clients across the media field, including video games publisher Capcom Entertainment. Deals like that should help keep grow its revenues as balances other parts of its business. Read the release

TRA, Mediabank Team-up

TRA and MediaBank, two companies whose business models are predicated on transferring online media buying methods to TV, have struck a partnership to create an integrated media transactions tool. The deal calls for TRA, which produces data that attempts to connect the dots between ad viewing and purchasing behavior, to employ MediaBank’s processing system to make TV buys simpler and avoid discrepancies.

Swinging: MediaBank CEO Bill Wise said that TRA’s “purchaser ratings points system” will be used to capture “swing purchaser” households – in other words, consumers that spend heavily in a particular category, but spend less than 25 percent of their category dollars on a specific brand. The notion is that these household purchasers are most apt to be swayed by a “gentle reminder,” namely a targeted ad. TRA claims delivering targeted spots to swing purchasers can result in a 10 percent sales lift for the brand, with sales lift that can reach as high as 50 percent.

Certainly, advertising has always served to provide a tap on the shoulder to consumers in market for a car or cereal. But targeted advertising aims to prove it. If these two can pull off the partnership and demonstrate actual results, that will quickly boost ad spend in the addressable space, ensuring that it’s more than just an experiment. Of course, if the data doesn’t quite produce the expected results, this high-profile partnership could set things back. Time will tell. Read the release

Cablevision Doublespeak?

That’s what Arthur Sando is accusing the Long Island MSO of doing in a piece posted on TVWeek. Sando finds a contradiction in Cablevision’s opposition to a la carte pricing and its filing with the FCC on a retransmission consent reform. Specifically, Cablevision, which has suffered through intense battles over retrans rights with ABC and Fox over the past two years, told the FCC that distributors should not be forced to carry cable channels owned by broadcasters.

So the argument is that if cable companies shouldn’t be forced to carry specific channels, then why should consumers have to take channels they may not want as part of a package offered by MSOs. It’s a novel viewpoint and it’s fair to say there is a degree of hypocrisy on Cablevison’s part.

And yet, the FCC is charged with protecting the public at large. If consumers can pay whatever they want to receive certain channels and not others, then that will benefit only wealthier subscribers who can afford to pick and choose. Smaller, niche channels, which might be of interest to consumers who may not have the means to individually support it, would likely go out of business or be forced to scale back programming.

Ultimately, two separate classes of subscriber would be created, causing tremendous imbalance for the industry. So while the current situation is a bit socialistic, it ultimately benefits both consumers and the industry. In order to make the argument stick, Sando and those with similar views would have to either come up for a practical way for ensuring the support of the smaller cable channels that make cable viewing attractive in the aggregate or be content with the fact that this argument may look great on paper, but it wouldn’t hold up in reality.

But Wait. There’s More!

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June 13, 2011 – 12:03 am

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