TV Everywhere Will Stall Growth of Online Video, One Can Argue

Some observers, not without reason, predict the days of linear multi-channel video are numbered. But that possible transition is likely to take much longer than most expect, in part because incumbents still have weapons at their disposal, including the $32 billion in fees cable operators alone pay to programmers every year.

"TV Everywhere," will allow online viewers to watch shows for no incremental charge, if they're cable subscribers. If programmers go along with the concept, there is almost no way a sizable alternative channel will open up, at least for network fare.

Cable industry executives hope the plan will indeed deflect the online video threat. At least so far, content owners seem unwilling to abandon their long-standing distribution agreements with cable operators. And so long as cable and other distributors remain so key to profits in the broader video ecosystem, no challengers are likely to succeed.

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U.S. Wireless Business Twice the Size of Wireline in 5 Years

In five years, the U.S. wireless business will be more than twice the size of the entire landline services business, say researchers at Insight Research Corp.

Keep in mind that the U.S. wireless and wired network businesses were roughly equivalent revenue producers in 2009.

That is but one example of a profound change in the telecommunications business globally, where wireless already has emerged as the key telecommunications service, with wireless accounts outnumbering wireline voice lines by a four-to-one margin.

In 2000 there were 738 million global mobile subscribers. In 2010, there are 4.3 billion mobile subscribers. In other words, mobile users have doubled twice in just 10 years.

It took just four years to double the number of global mobility users, from 2000 to 2004, and just another four years to double yet again, from 2004 to 2008.

All U.S. landline communications spending stood at $161.4 billion at the end of 2009 and will grow slowly to $165.7 billion by the end of 2014, representing a negligible compound annual growth rate of 0.5 percent.

Total U.S. wireless spending stood at $160.3 billion in 2009. But wireless revenue will grow at an 18.4 percent annual rate between 2010 and 2014, reaching $373.2 billion in 2014.

It now appears 2000 was the year U.S. wired voice accounts hit their peak, as they have been steadily declining ever since.

It is a truism that new technologies cause far less change in the early going than observers predict, but also cause more change than expected once the changes really take hold. It is a related truism that tipping points occur with great suddenness. Long periods of gestation, where each year appears to be much like the next, suddenly erupt, with acute changes unexpectedly obvious.

It appears the U.S. communications industry is about to hit one of those important inflection points, where a new pattern suddenly is obvious.

Will Historic Consumer Spending Patterns Hold Up?

Long-term interest rates are quietly heading higher, and consumer confidence is headed lower, economists and financial analysts now say. Rising rates are a drag on the economy, making it more difficult for businesses and households to finance spending and investment.

This is going to slow the economic recovery and challenge my thesis that communications and multi-channel video entertainment businesses suffer slower growth, but still grow, even in recessionary times.

Just to recap, over the last 25 years, in every recession, telecom and cable TV revenues, for example, have grown, year over year. Growth rates slowed, but were never in negative ranges, overall.

That does not mean consumers were not economizing, they likely were. But overall spending on what have come to be viewed as essential services has not faltered in any recession over the last 25 years.

What tends to happen in a recession is that consumers stop buying incremental or enhanced features and products. That can take the form of less spending on premium TV, pay-per-view and on-demand content; delaying the purchase of a new mobile phone or switching to a prepaid account.

Consumers also typically shift spending away from other activities in recessionary times, propping up core communications and video entertainment services.

There has been pressure of other sorts, though. Firms including Verizon and Time Warner Cable mention that housing market distress has lowered new customer acquisition rates. When people are not moving into new houses, or stop renting and move in with relatives, or lose their homes, that reduces new subscriber additions and increases churn.

But there are other structural changes bubbling away underneath. Fixed voice lines mostly have been a case of shifted market share from telcos to cable operators, but also some apparently-growing amount of abandonment in favor of mobile. Roughly the same thing has been happening in the video business, as cable operators slowly lose share to both telco and satellite providers.

Trading market share leaves the overall business about where it was, overall. Over the past decade, though, service providers have benefitted from one truly new product--broadband Internet access--and skyrocketing additional mobile accounts. To the extent voice lines actually are shrinking, not just being shifted to new providers, mobile revenues and broadband have more than compensated for the losses.

In all likelihood, mobile broadband now is going to replace mobile voice as the revenue and growth driver for the next five year period. Assuming there is no change in the underlying rate of mobile substitution, and no sudden replacement of the multi-channel video product by an over-the-top alternative, I would continue to stand by my prediction that, even in the face of sluggishness on the economic front, cable and telco providers will continue to show revenue growth, if slower than they would like.

The real danger comes from some unexpected shift of demand that radically changes spending patterns. That is the sort of thing one cannot anticipate very well, and the reason I spend so much time trying to follow consumer behavior.

related story on growth issues

Two-Tier Internet is Not Necessarily a Bad Thing, Says Esther Dyson

"The biggest problem that net neutrality has is nobody knows what they’re talking about when they talk about it," says Esther Dyson, noted computer industry analyst. "The issue is who pays and whether they’re monopolies or not, so there’s a whole lot of, I think, disingenuous discussion about control without ever really looking at the fundamental issue, which is somebody’s got to pay for more bandwidth if consumers are gonna be uploading and downloading video."

"As long as there’s healthy competition, I have no problem if someone pays extra for additional bandwidth, as long as that doesn’t cut off people’s access to the other stuff," says Dyson. That does not mean she believes access providers should be able to put up walls around Internet content. 

"There’s this disingenuous discussion of if you don’t allow us to pay extra, you’re not gonna get free content," she says. "Well, of course not, but let the consumer decide whether they want paid or subsidized."

Beet TV

"Superphones" Will Drive Widespread Media Consumption, Glaser Says

Many observers have called the mobile phone or smartphone the "fourth screen" for multimedia content, and RealNetworks agrees with that assessment.

In fact, a new generation of devices one might call a "superphone" will be a primary way users consume video and audio content, says Rob Glaser, former RealNetworks CEO.

The future of media will be information consumed on superphones while on the go, Glaser argues. By 2013 the installed base of smart and superphones will exceed the installed base of PCs, and those Web-surfing devices will be mobile.

People want digital persistence, he argues. In other words, they want their content to be available everywhere, at any point in time, Glaser argues. That implies a world in which content is available on any number of devices, with methods for verifying the right any single has to use paid-for content.

That's part of the thinking behind the cable industry's "TV Everywhere" initiative, but also a way for cable distributors to maintain their relevance in a world with alternate distirbution channels.

Such ability to experience TV or video on mobile devices will have repercussions for a wide range of participants in the video ecosystem. Mobile providers will have to supply an order of magnitude more bandwidth. Devices will have to adapt to form factors conducive to media player usage.

Distributors will have to work to maintain their relevance in the content distribution system, and mobile marketers will find mobile video a more-attractive marketing medium.

Books Lead Apple App Store Inventory

There are lots of applications available in the Apple App Store. But a huge number of those items are discrete book or game titles, not applications. And those most applications downloaded from the App Store are of the "free" sort, about 75 percent of the books and games are "for fee" downloads.

In fact, "books" are the biggest category in the store, followed by games.

The App Store is an awful lot like iTunes, it appears: a distribution mechanism for content.

VoIP Will be a Mixed Blessing for Mobile Service Providers

This prediction for use of mobile VoIP by about 2013, made by In-Stat, might suggest the reasons why incumbent voice providers have been somewhat hesitant to fully embrace VoIP.

The pie chart suggests that a majority of VoIP activity on mobile phones will be provided by third party, over-the-top providers, not the "service providers" themselves.

That's roughly the same experience fixed line operators have had: most of the usage is enabled by third-party application providers or competitors, notably cable companies.

Some might find it odd, but VoIP actually has been a mixed blessing for incumbent voice providers. It represents the next generation of voice, but the next generation of voice turns out to be an application "anybody" can provide.

VoIP proponents have hammered away at the theme that VoIP is about new features, not price. The market keeps demonstrating by its spending that price is what VoIP "really is about." Features are nice, especially in the business market, but consumers seem to buy based on their ability to "save money," rather than for the whiz-bang new features.

The fundamental dilemma for an incumbent voice provider is that they essentially must invest more money, to provide new features end users won't pay for, at lower or the same prices. To a certain extent, that's the similar problem service providers face when upgrading to fiber-to-home or fiber-rich access networks. Video services are truly new. But broadband access has been following a "more speed for the same money" trajectory, for the most part. Fiber-rich access networks have made possible new faster tiers, sold for more money, to be sure.

But it would be tough to make the argument that the new sales of faster access, plus revenue from new video services, have earned sufficient return to justify the investments in a classic sense. More often, such investments are strategic, intended to ensure that a provider still has a business, more than investments that immediately produce attractive revenue lift.

VoIP has been a mixed blessing for incumbent telcos, though it has been very satisfying for cable operators and some over-the-top providers.