Netflix Keeps Growing Share of OTT Video Subscription Business

Someday, some firm might challenge Netflix in the subscription over the top video business. Perhaps not soon, though. Netflix continues to grow its share. 

In the second quarter of 2015, Netflix passed the 65 million member mark, with over 42 million in the United States and 23 million internationally, adding a record 3.3 million new streaming members in the second quarter of 2015, compared to 1.7 million net new subscribers in the same quarter a year ago.

Most of that growth came in international markets. Netflix gained 0.9 million members in the United States and added 2.4 million members internationally in the quarter.

Netflix predicts it will add 2.4 million net new international customers in the third quarter of 2015.


source: Business Insider

Will Common Carrier Regulation Reduce Investment?

To be sure, one cannot be absolutely certain, as a matter of “scientific fact,” that any specific policy “works” or “fails to work.” There simply are too many variables, and no way to create control groups.

Still, the argument is that common carrier regulation (applying Title II to Internet access) does not dictate specific rates of return, and it does not stimulate entry, but it does likely increase costs and regulatory hurdles for providers, authors Kevin A. Hassett, American Enterprise Institute director of economic policy studies and Robert J. Shapiro, Georgetown Center for Business and Public Policy senior policy fellow.

Such a framework increases uncertainty, and uncertainty almost always leads to delays in long-lived investments.

Common carrier regulation could lead to substantial price increases and consumer costs on top of any universal service fees, they also argue.

In the case of telephone service, numerous studies have found that common carrier regulation inhibited competition, discouraging and dramatically slowing innovations in telephone service, the study argues.

Innovation always entails substantial risk of failure and often involves substantial sunk costs. Therefore, we should expect that the incentives to assume those risks and bear those costs are greatest when the additional costs of regulation are absent, they argue.

The authors note that as the Federal Communications Commission  phased out some of its regulation of telephony carriers, new service offerings increased by 60 percent to 99 percent.

Some studies also suggest that if the regulatory system had never been applied to telecom, consumers would have 62 percent more services.

The authors argue it is reasonable to expect large negative effects on investment from Title II regulation, if Title II regulations move the United States closer to the European regulatory model that prevailed in continental Europe in the first decade of the 21st century.

Again, the problem is that researchers, policymakers and economists do not all agree on the likely impact of Title II regulation on investment levels, and there is no way to create a control group.

But some would argue it is likely that when profit margins are limited, investment will be limited. When profit margins are unlimited, more investment will likely be made, all other things being equal.

Intel Earns 4% of Revenue from IoT

“Second-quarter results demonstrate the transformation of our business as growth in data center, memory and IoT accounted for more than 70 percent of our operating profit and helped offset a challenging PC market," said Intel CEO Brian Krzanich, commenting on second quarter 2015 financial results.

Of course, whenever big segments get lumped together, one has to parse them.

Client Computing Group revenue was $7.5 billion, up two percent sequentially and down 14 percent year-over-year.

Data Center Group revenue was $3.9 billion, up five percent sequentially and up 10 percent year-over-year.

The Internet of Things Group revenue was $559 million, up five percent sequentially and up four percent year-over-year

Software and services operating segments revenue of $534 million was flat sequentially and down three percent year-over-year.

In other words, Internet of Things revenue did grow five percent sequentially. But IoT represents only about four percent of total revenue.

Asia Mobile App Use Grows 77% Over One Year

Mobile now drives revenue growth in the telecom industry, and Asia drives mobile revenue  growth. Since mobile also drives Internet access, it can be said that mobile drives Internet access growth, and Asia drives global Internet access growth.

Between 2014 and 2015, Asia experienced double digit growth in its mobile app economy.

When we compared at total session growth in the trailing 12 months from April 2014 to the trailing 12 months from April 2015, we found that sessions in Asia grew 77 percent, Flurry says.

The double-digit growth in the region is driven by consumer categories that provide a clue about the growing purchasing power and sophistication in the region.

Three categories of apps stand out as driving this growth: hopping and lifestyle, news and reading, plus utilities and productivity.  

The fastest growing category of mobile apps now is “shopping and lifestyle,” followed by “news and reading.”

Growth in use of messaging and social apps is a reflection of already-high usage in that category. Simply, most people already rely on messaging and social apps to a high degree.

In Asia as elsewhere, “everybody” uses messaging. Messaging apps’ daily use is 4.7 times higher than the average app, Flurry notes.

The average daily use of an app across all categories is 1.9 times. Messaging apps are used, on average, almost 9 times every day.

Although messaging is a large driver of sessions in Asia and around the world, it only represents 13 percent of users time spent in their mobile apps.  That means smartphones are used for a wide variety of purposes on a typical day.

Asia also is a region where the phablet is the fastest growing device type to date, with 148 percent year over year growth worldwide.

Globally, session distribution between medium phone and phablet is 60 percent and 31 percent, respectively.

In Asia, sessions are split evenly between the devices, with medium phones contributing 45 percent and phablets 42 percent.

In Asia phablet users also conduct 78 percent more sessions than the average smartphone user.

Compared to the rest of the world, Asia is a unique app market, where it comes to photography, lifestyle and shopping, and personalization categories.

Although 81 percent of Asia’s photography app users are female, men in Asia are 1.9 times more likely to use photography apps than men in the rest of the world.

Women in Asia dominate the lifestyle and shopping category in terms of use, but are also 1.4 times more likely to shop in mobile apps as compared to women around the rest of the world.

Globally, 81 percent of personalization app users are men, though in Asia, usage is split evenly between men and women, 51 percent and 49 percent respectively.

This makes women in Asia 2.7 times more likely than the global female population to use personalization apps. That might be a result of Android adoption, Flurry suggests.

Mobile Addicts Grew 59% in the Last Year

Consumers who launch applications 60 times or more per day are called “mobile addicts” by Flurry.

The number of global mobile users who do so grew from 176 million in the second quarter of  2014 to 280 million in the second quarter of 2015, a 59 percent  increase.

From the second quarter of  2014 to the second quarter of  2015, the total population of smart devices measured by Flurry grew from 1.3 billion to 1.8 billion, a 38 percent year over year growth.

“Regular Users,” consumers who use apps between once and 16 times daily, grew from 784 million to 985 million in the same period, a 25 percent increase.

“Super Users,” consumers who use apps between 16 and 60 times daily, grew from 440 million to 590 million, a 34 percent increase.

Those findings are consistent with a similar report sponsored by Bank of America, which indicated U.S. consumers are constantly connected to their smartphones.

Mobile Addicts interact with virtually every category of smartphone apps, but also  use some categories of apps at rates over 100 percent higher than “average” users.

Messaging and social apps are clearly the leading apps used by Mobile Addicts. In fact, Mobile Addicts use Messaging apps 6.56 times (an over-index of 556 percent) more than an average mobile consumer.

Flurry says “messaging has become mobile’s killer application.” But Mobile Addicts are using their smart device as the sole computing device and conducting every aspect of their lives on that device.

Mobile Operators Account for 1.2% of GDP; Mobile Industry 4.7%

The mobile industry in Asia Pacific was worth more than US$1 trillion per year to the region’s economy in 2014, equivalent to 4.7 per cent of the region’s gross domestic product, with over a quarter of this economic contribution generated directly by mobile operators, a study sponsored by the GSMA.

Mobile operators directly contributed US$286 billion to the total in 2014, equivalent to 1.2 percent of regional GDP.

It is forecast that the Asia Pacific mobile industry will be worth US$1.8 trillion by 2020, accounting for 5.9 percent of projected regional GDP by this point.

In 2014 the mobile ecosystem directly and indirectly employed 12.5 million people in Asia Pacific, a figure expected to rise to 15 million by 2020. T

he industry also makes a substantial contribution to the funding of the public sector, with approximately US$130 billion contributed in 2014 in the form of general taxation. This is set to grow to over US$150 billion by 2020.

The study reveals that Asia Pacific now accounts for half of the world’s unique mobile subscribers and mobile connections and will continue to grow at a faster pace than the global average over the next five years, adding 600 million new unique subscribers by 2020.

Migration to 4G networks and services in markets such as China is now occurring at a faster rate than was the case in developed regions such as Europe and North America

At the end of the first quarter of 2015, there were 1.8 billion unique mobile subscribers in Asia Pacific, representing 45 per cent of the region’s population.

China, India, Indonesia and Japan account for over 75 percent of the region’s subscriber base.

Many of the largest markets in the region are still relatively underpenetrated, however.

India, Pakistan and Bangladesh, for example, have a combined population of over 1.6 billion, but a unique subscriber penetration rate of only 36 per cent on average.

Connecting these unconnected citizens will therefore be a major focus for both the mobile industry and policymakers in the region over the coming years.

The number of unique mobile subscribers in the region is forecast to grow by five percent per year over the remainder of the decade (2014 to 2020 CAGR), faster than the global average (four percent) and making Asia Pacific the second-fastest region globally behind only Sub-Saharan Africa.

Total mobile connections in the region stood at 3.7 billion in the first quarter of 2015.

Fourth generation networks accounted for nine percent of connections, a figure expected to reach a third of the total by 2020.

South Korea and Japan lead the world in 4G adoption, but the region also contains markets where 4G deployments are at an early stage (such as India, Indonesia and Pakistan) or where 4G licensing has yet to take place (such as Bangladesh, Myanmar and Vietnam).

Smartphones now account for 40 percent of connections in the Asia Pacific region and are set to account for 66 percent of the total by the end of the decade.

According to Cisco, mobile data traffic growth in Asia Pacific will grow at a 58 percent compound annual growth rate through to 2019.

Digital Realty Buys Telx

In a move that shifts its strategy “up the value chain” and obviously positions it against rival Equinix, Digital Realty Trust is buying Telx in a deal valued at $1.9 billion.

The acquisition almost doubles Digital Realty’s  data center “footprint,” but the other important change is access to Telx’s interconnection business. That moves Digital Realty “up the stack” in terms of products.

Digital Realty describes its business as “data center and colocation solutions.” It describes Telx as a supplier of “data center colocation, interconnection and cloud enablement solutions.”

The latter two clauses--interconnection and cloud enablement--represent the move up the stack. The additional facilities will be easy to integrate.

As of the end of March 2015, Telx managed 1.3 million square feet of data center real estate spread across 20 facilities in the U.S., two of which are Telx-owned. Of the rest 11 were leased from Digital Realty.

The announcement comes several weeks after Equinix agreed to pay £2.3 billion ($3.6 billion) for TeleCity, a move that allowed Equinix to create what many would say is Europe's biggest data center company.

Equinix is one of the world's biggest colocation providers and is likely to be one of Digital Realty's chief rivals following the move for Telx.

Hard to Pick Winners, Winning Strategies in OTT Subscription Video

Most observers sense an inflection point for streaming video has been reached. Most observers would agree that potentially large shifts of revenue, market share, profit margins and market size are possible, as the transition gains momentum.

That perhaps is the counterpoint to trends showing that ESPN, for example, has lost subscribers over the last year; some 3.2 million accounts, leaving a current base of about 93 million households.

That matters for Disney since ESPN is expected to make up 25 percent of Disney’s total profit in 2015.

But who the winners and losers are, and how much they stand to gain or lose, is a big question.

Less contentious is the idea that streaming revenues are about to grow rapidly. Premium OTT revenues are expected to grow from $4 billion in 2014 to between $8 billion and $12 billion in 2018, with Netflix remaining the largest single mass-market provider, according to industry executives polled by MTM on behalf of  In May 2015, Ooyala and Vindicia.

Beyond that, there is great uncertainty. Industry participant say it is difficult to determine which services will be successful. There also is a general expectation that the mass market will remain dominated by a small number of major service providers.

There was a strong consensus that Netflix will remain the largest single subscription OTT video provider in the United States (a reasonable and likely safe prediction).

But many expect Netflix market share to dip from the 85 percent market share Netflix held in 2014 to around 50 percent market share in 2018.

The issue is how many other significant providers can exist. A common thought is that the number will be few, for any number of reasons, including the time and expense of aggregating a critical mass of content.

Most industry participants believe that the market will continue to be dominated by a small number of major OTT service providers, most likely the existing incumbents with established subscriber bases and strong positions in the market.

The reason is that the main barriers to entry for new entrants are believed to be access to large volumes of differentiating, exclusive premium film and TV content, an ability to attract new customers, and an ability to sustain substantial investment over time. The leading linear distributors have all that.

In that view, today’s major linear video providers have the inside track. They have the financial assets, content and customer relationships, distribution economies and brand names to succeed in what is expected to be a highly-competitive and expensive business.

Also, as the market becomes more crowded and competitive, new entrants will find it increasingly difficult to differentiate their services from the market leaders. Fundamentally, streaming or linear businesses are about unique content.

Most industry participants believe that developing a critical mass of premium content with mass-market appeal, such as original content or early-window film and TV content, is now harder.

Existing content libraries have largely been licensed and the cost of new premium content is growing as well.

With increased competition, premium content costs additionally are widely believed to be rising.

Upstarts will have to spend heavily to catch up. And many studios are locked into long-term content deals, making it harder to quickly license a critical mass of attractive content.

But integration, multi-platform client development and high-quality user interfaces also are essential.

Just the task of acquiring and creating unique content will be expensive, time-consuming and difficult, especially for later entrants.

Even price differentiation--a common and effective positioning--will be difficult, given the low price at which Netflix sells.

The issue is whether today’s leaders can manage the new business without simultaneously destroying the legacy business.

On the other hand, Niche services, perhaps as many as 15 to 20 entities in total, each will have an opportunity to acquire audiences of 100,000 or more paying subscribers by 2018, with many more attracting smaller numbers of subscribers.

Those services, in other words, will not scale.

Logical candidates in the niche segment are services selling into existing fan bases. Many of these services are likely to be bundled with wider subscription or membership offerings and marketed and retailed through third-party distribution platforms.

Some of the potential categories reflect the similar niche audiences in linear TV: sports, kids, anime, foreign drama, expat and ethnic services (e.g. Korean, Hispanic) and personality-based offerings (music, performing arts).

Still, the economics of niche services are likely to remain challenging. Profit margins will be relatively low, while technology, content and marketing costs will tend to be relatively high.

The study aimed to ascertain prospects for streaming video subscription services in the United States, as seen by industry executives in the business.

As multiple new OTT services launch in 2015 and 2016, industry participants believe that content

Apple Share of Mobile Device Profits Grows to 92%

As has been the recent pattern, Apple earned 92 percent of the total operating income  from the world’s eight top smartphone makers in the first quarter of 2015, up from 65 percent of profits in 2014, according to Canaccord Genuity managing director Mike Walkley.

Samsung earned 15 percent of industry operating profits.

First Photo of Pluto from New Horizons, After 9-Year Journey

The New Horizons spacecraft traveled nine years and three billion miles to take this picture of Pluto. Some of us were taught Pluto is a planet. These days, it is not a planet. Sometime later in 2015, perhaps Pluto again will be declared a planet. 

Perhaps Ceres (orbiting the sun between Mars and Jupiter) will get the appellation as well. 

Google: Non-Search Assets To Drive Near-Term Growth; Long Term Growth Built on Connectivity Assets?

Marginal cost pricing is part of the strategy, of course. Google will be more aggressive about this than legacy ISPs.

But even legacy ISPs will face pressure to price at marginal cost.

Huge implications, to be sure.

Google: Non-Search Assets To Drive Near-Term Growth http://m.seekingalpha.com/article/3319235?source=ansh $GOOG, $VIA, $VIAB, $FB, $GOOGL

Netflix Credential Sharing is Marketing, Not Piracy

When is "piracy" actually a form of "sampling" and therefore a customer acquisition tool? When it is done by Netflix.

About half of U.S. households buying Internet access also buy an over the top video service, according to Parks Associates.

Parks also defines as video piracy the use of shared credentials by people other than account holders. Whether Netflix considers such sharing “piracy” is questionable, since Netflix seems to encourage the practice.

You might wonder why a subscription service would encourage people to give other non-subscribers access. Creating a new habit is one reason. Encouraging sampling is another reason.

Consider the firm’s finding that 20 percent of OTT users 18 to 24 use an OTT video service paid by someone outside the home,.

Only 10 percent of OTT subscribers 25 to 34 admit to this behavior. That’s the key behavioral insight. Netflix gambles that non-paying users will become paying subscribers once they reach their mid-20s.

In that sense, the credential sharing creates permanent behaviors that rather quickly become buying habits.

Atmel Emphasizes Internet of Things Ecosystem

Atmel Corporation, a leader in microcontroller and touch solutions, launched the Atmel Internet of Things (IoT) Cloud Ecosystem Partner Program.

The new program enables developers using Atmel “SMART MCU” and Atmel “SmartConnect” wireless solutions access to Atmel’s ecosystem partners for device management, data analytics, and visualization.

With the increasing need to collect, visualize and analyze data from IoT edge nodes and to manage the associated services, cloud connectivity is becoming an essential element for product development, Atmel argues.

Device management is also an important aspect of cloud services as more devices are performing functions through remote management, such as a connected thermostat that is programmed remotely and sends climate information back to the user’s remote device reducing overall power consumption while providing a better user experience.  

Sprint's "Debt Bomb"

Is Sprint facing a “Grexit” problem (unsustainable debt load) of its own? Some think so.

Ignore for the moment the statement by T-Mobile US owner Deutsche Telekom that T-Mobile US  is not sustainable as an independent firm with its current position in the market, Timotheus Höttges, Deutsche Telekom CEO has said.

Some now say Sprint’s position might well be unsustainable as well, given “severe financial distress,” according to MoffettNathanson principal Craig Moffett.

The upshot is that either a previously-unthinkable merger between Sprint and T-Mobile US a year ago could become a possibility. In order for that big a change in regulatory thinking to occur, Sprint would have to flirt with complete failure, however.

“If Sprint really is in severe financial distress, as we think they will be within a relatively short period of time, then it’s possible that the government would look at that deal differently,” said Moffett.

That is not to say Sprint’s operating performance is quite so challenged. Indeed, Sprint seems to be improving, operationally. Sprint says it stopped declines in its business in fourth quarter of 2014 (calendar first quarter of 2015). And Sprint added important postpaid accounts in the quarter, instead of declining.

CEO Marcelo Claure noted that Sprint retail net additions of 757,000 actually beat Verizon and AT&T.

In the year-ago same quarter, Sprint lost 1.1 million accounts. To be sure, Sprint postpaid net additions trailed it competitors, “but the gap to Verizon and AT&T is closing dramatically compared to the 800,000 difference a year ago, and we have closed the gap with T-Mobile by more than 40 percent,” said Claure.

The big problem is debt. In 2011 Sprint had less than $23 billion in debt. Today Sprint has more than $33 billion in debt, a 50-percent jump in just three years. Some argue Sprint does not have either the profitability or cash flow to pay down the debt.

Of course, a merger between Sprint and T-Mobile US is only one possibility.

Dish Network, Comcast or perhaps another firm might see a weakened and therefore “cheap to buy” Sprint as a strategic asset, given that both those firms intend to enter the U.S. mobile market.

What seems clear is that neither T-Mobile US nor Sprint are strategic buyers, but are strategic sellers. What is entirely unclear are the names of the eventual buyers.

If Sprint declines enough that antitrust authorities do not believe a merger with T-Mobile US is problematic, some other contender is likely to have moved first.

Packet Loss is Chief Experience Degrader on Mobile Networks

Traditional network “quality” metrics are based on throughput and latency. But according to a study by Kwicr, the chief source of mobile app quality problems now are packet loss and throughput variation.

Throughput and latency matter, but only to a lesser extent, in the mobile environment.

In part, that is because mobile video has emerged as a key app, and mobile video and mobile audio are affected by both packet loss and throughput variation.

But devices matter as well, in particular older devices with slower processors and less available memory. Additionally, older devices may only support more crowded 2.4GHz Wi-Fi bands, or not be enabled with the fastest cellular technologies such as LTE and LTE Advanced.

Both types of impairments result in stalls and lower quality streaming, even if there is ample bandwidth to service the customer.

Kwicr says content delivery networks are effective ways to improve app performance, particularly for apps with cacheable content such as streaming video, streaming audio, and static web page content.

That is a logical observation for a company that sells a mobile content delivery network.

The main point, Kwicr argues,  is that mobile Internet access networks are different from fixed Internet access networks.

TCP performs exceptionally well with wired networks, because packets are lost only when the network is congested, Kwicr says.

TCP is designed to work with wired networks and equitably split bandwidth across the applications that are utilizing the fixed sized links on these networks.

Mobile broadband is characterized by quickly varying available bandwidth, caused by impacted by endpoint motion, weather, topographic feature interference (mountains and buildings), the active or passive coordination between multiple access points or base stations, and contention for spectrum.

All that leads to a rapidly-changing bandwidth environment, something TCP was not designed to anticipate.

“Our data indicates that the throughput available to a mobile app for download and upload varies greatly during a single app session,” said Kwicr.

Wi-Fi and Long Term Evolution (4G) have the highest average throughput, but Wi-Fi has unusually high rates of packet loss events.