Netflix Hits an Inflection Point

“By every measure, we are now primarily a streaming company that also offers DVD-by-mail,” said Reed Hastings, Netflix co-founder and CEO. That's what you might call an inflection point. Netflix has passed the point where most of its viewing happens by network delivery, not mailing of a DVD.

The percentage of subscribers who watched instantly more than 15 minutes of a TV episode or movie in the third quarter of 2010 was 66 percent compared to 41 percent for the same period of 2009 and 61 percent for the second quarter of 2010. In the fourth quarter, a majority of Netflix subscribers will watch more content streamed from Netflix than delivered on DVD, the company believes.

As with other metrics about video entertainment, observers will ask what it means. Some will say Netflix streaming now represents an alternative to cable TV, for example, while others will maintain it is supplemental viewing that more likely displaces purchases of HBO subscriptions, for example.

What virtually nobody will be able to contest is the fact that Netflix has made a successful transition from a supplier of DVD by mail services to a provider of streaming movie content.

Netflix ended the third quarter of 2010 with approximately 16,933,000 total subscribers, representing 52 percent year-over-year growth from 11,109,000 total subscribers at the end of the third quarter of 2009 and 13 percent sequential growth from 15,001,000 subscribers at the end of the second quarter of 2010.

The net subscriber change in the quarter was an increase of 1,932,000 compared to an increase of 510,000 for the same period of 2009 and an increase of 1,034,000 for the second quarter of 2010.

Gross subscriber additions for the quarter totaled 4,101,000, representing 88 percent year-over-year growth from 2,180,000 gross subscriber additions in the third quarter of 2009 and 34 percent quarter-over-quarter increase from 3,059,000 gross subscriber additions in the second quarter of 2010.

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Cisco Study Says IT Policies Hamper Mobile Workers

Cisco's most recent study of global communications finds that security concerns are slowing adoption of mobile enterprise capabilities.

Telcos Poised to Grab Bigger Role in IT Services Business?

Look for signs of growing channel disruption as cloud-based managed services start to gain traction. The reason is that technology suppliers historically reliant on some channel partners, seem to be shifting to alternate channels, especially the large telcos.

Technology vendors are in many cases favoring distribution by the large telcos, the analysts say. For example, Microsoft is making its Windows Azure Platform Appliance and Office 365 available only to select telcos. Cisco Systems likewise is relying on telco partners to sell its managed service products.

The big potential issue is that many of the new managed services products might be more suitable for delivery by telco partners than by the historic channel partners such as  value-added resellers, system integrators, managed service providers, resellers and other partners, say Tim Harmon and Peter O’Neill, Forrester Research analysts.

Forrester Research estimates that more than 60 percent of technology product revenues are generated through channel partners including . But cloud technology options, including software-as-a-service (SaaS), therefore are poised to significantly alter channel structures.

HGTV, Food Network Back on AT&T U-Verse

AT&T Inc. and Scripps Networks Interactive have reached an agreement to bring back several cable channels, including HGTV and Food Network, that had temporarily gone dark on U-Verse due to a contract dispute.

The cable channels, which also include DIY and the Cooke Channel, went dark on U-Verse for the same reason other channels have gone dark on other distribution platforms: disagreements about the programming fees distributors pay to carry the networks.

News Corp.'s Fox Networks and Cablevision Corp. recently came to an agreement to end a high-profile blackout of several Fox channels, including the national network.

All of those spats provide evidence of growing stresses in the multichannel video business between distributors and programming owners, each attempting to maximize revenue and profit at a time when price resistance by consumers appears to be growing.

AT&T, Scripps Networks Reach Deal For HGTV, Food Network - WSJ.com (subscription required)

Time Warner Cable to Launch "Look Back"

Time Warner Cable is launching a service called "Look Back" that allows its subscribers to watch some of their favorite shows three days after they've originally aired. The move is a way of adding more "on demand" features offered by over-the-top providers such as Netflix and Hulu.

The new service also will provide differentiation from satellite providers DirecTV and Dish Network, as well as video services from the phone companies Verizon Communications and AT&T. The satellite providers cannot easily match the service because of bandwidth issues, while the telcos likely could match the offer, but haven't done so, so far.

Time Warner Cable targets rivals, Hulu with Look Back | Reuters

Europe Debates Neutrality issues

Though it appears there is little to no chance of significant network neutrality legislation or regulation in the U.S. market over the next couple of years, the subject still is being looked at in the European Community, which has largely seen this as a U.S. issue, for the most part.

A Sept. 30 report by the Body of European Regulators for Electronic Communications, the European Union’s telecommunications advisory group, has concluded that there was no new need for new regulation of this type, at this point.

The group, which is made up of the bloc’s national telecommunications regulators, said operators in more than a dozen countries — Austria, Croatia, Germany, Italy, the Netherlands, Portugal, Romania, Switzerland, France, Greece, Hungary, Lithuania, Poland and Britain — had either blocked or throttled services like Skype or file-sharing Web sites.

But most blocking stopped after being reported to local media or regulators. Some might be more comfortable with regulations, but the EREC points to those instances as examples of problems working themselves out quickly, without the need for regulatory action.

 read the full report here

Who Buys Metro Bandwidth, What Do They Buy?

Zayo Group recently closed its deal to buy American Fiber Systems, which provides metro bandwidth services in Boise, Kansas City, Las Vegas, Nashville, Reno, and Salt Lake City.

So what types of firms buy metro bandwidth products in those cities? As you might expect, communications carriers and Internet access providers, especially the large carriers, represent 40 percent of sales. Enterprises or large public organizations represent 27 percent of sales.

But mobile companies account for 15 percent of sales as well. Education organizations represent seven percent of demand while content companies represent six percent of sales. Healthcare organizations represent five percent of sales.

About 33 percent of sales volume is dark fiber and 29 percent of sales are for private line services.

Ethernet now represents 16 percent of sales while Internet access contributes 13 percent of revenue. Optical wave sales contribute another eight percent of revenue.

Zayo Group Closes Its Acquisition of American Fiber Systems

Facebook Rapidly Gains Display Ad Share

You'll note that neither Google nor Apple shows up among the share leaders, at least, not yet.

Nokia takes back control of Symbian

Nokia now will assume a role in Symbian development more analogous to what Google is doing with Android, and unlike its recent effort to create a bigger open source community around the mobile operating system.

Nokia says it now will care of Symbian platform development from April 2011 onwards, while the cross-industry Symbian Foundation will in the future take care of only licensing of the software.

Nokia bought out other shareholders in Symbian in 2008 and opened the software for any manufacturers to use for free on an open-source basis. But that effort has fizzled, leaving Nokia as the primary backer of the mobile operating system.

Nokia takes back control of Symbian software | Technology | Reuters

NTIA Finds 66% of Broadband Adopters Say "Lack of Interest" is Reason for Non-Adoption

Lack of need or interest, lack of affordability, lack of an adequate computer, and lack of availability are the main reasons people do not use broadband Internet access at home, a new study by the National Telecommunications and Information and the Department of Commerce's Economics and Statistics Administration say.

Internet non-users reported lack of need or interest as their primary reason for not having broadband at home. This group accounted for two-thirds of those who don't have broadband at home.

http://www.esa.doc.gov/DN/

Study Looks at Impact of Comcast-NBCU Merger on Subscriber Fees

In a new economic study released today, the American Cable Association predicts that consumers over the next nine years will pay at least $2.4 billion more for pay-television service as a result of unrestrained pricing power that will flow from the combination of Comcast Corp. and NBC Universal.

What isn't clear to me is whether the predicted price increases for national and satellite, telco and regional cable operators because of the merger is greater than the estimates a reasonable economist might have made for annual price increases based strictly on "programming cost" rationale. The study seems to assume an average of about 22 percent a month fee increases to distributors, and a typical fee for NBCU national networks of about $1.56 per subscriber, per month.

Those estimates are derived from 2009 per subscriber per month subscription fees for the NBCU national cable networks estimated at USA - $.55, CNBC - $.29, SyFy -$.21, Bravo - $.19, MSNBC - $.16, Oxygen = $.10, and mun2 - .06, for a total of $1.56.

The study also assumes an increase in retransmission consent fees for the NBC over-the-air signals of about 50 cents per subscriber, per month.

You can be the judge of the merits of the argument.

http://www.americancable.org/files/110810%20Rogerson%20III%20Ex%20Parte%20Comcast-NBCU%20FINAL.pdf

How Big Will U.S. Tablet Market Be, For Mobile Operators?

Chetan Sharma predicts that in less than five years, the connected devices category will generate more revenue for the operators than the entire prepaid segment in the United States. If you assume the prepaid market generates about 18 percent of all mobile subscriptions, that will give you some idea of the magnitude of revenue.

Yankee Group researchers estimate 50 million prepaid customers at the moment. If you assume average monthly revenue of about $40 for each of those accounts, or $480 a year, you could estimate a market worth $24 billion or so. Since most connected devices these days use Wi-Fi rather than data plans, connected device revenue as big as prepaid assumes robust uptake both of tablets and a switch to mobile broadband connections in place of Wi-Fi as well.

Today, connected devices represent about three percent of the quarterly data revenues.

By the end of 2010, Sharma expects the average U.S. data consumption to be approximately 325 MBytes per month, up 112 percent from 2009. This puts United States right behind Sweden in the top two nations, ranked by per capita mobile data consumption, says Sharma.

While the United States lags Japan and Korea in 3G penetration, most of the cutting edge research in the areas of data management and experimentation with policy, regulations, strategy, and business models is taking place in the networks of the U.S. operators and keenly watched by players across the global ecosystem, Sharma says.

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96% of Enterprises Say They Ultimately Will Unify All Communications

For what it is worth, a new survey of 106 enterprises found that 96 percent expect "eventually" to unify all communications modes into a single end user experience, says Matthias Machowinski, directing analyst for enterprise voice and data at Infonetics Research.

More than half of surveyed companies indicate they already have unified at least some important communications functions and features, and it isn't surprising that the nearly half that haven't moved to do so believe they will do so at some point.

In some ways, such open-ended questions are akin to asking whether enterprises believe all their communications ultimately will use Internet Protocol. It's hard to give any other answer.

Infonetics Research - Unified communications gaining appeal among North American enterprises

HTC to Launch an App Store?

HTC, the Taiwanese smartphone maker rapidly moving from a contract manufacturing to a branded retail approach, appears to readying its own app store.

Acer and Apple have launched app stores for PCs and HTC is but the latest smartphone manufacturer to conclude that an app store is a clear way to build differentiation or value in the smartphone space.

HTC already supports Kobo ebook downloads.

FT.com / Technology - HTC to target online app store

Google Voice and FaceTime are Threats to Carrier Voice

The future in mobile communication is being written at the application layer by Apple and Google, smaller startups such as GroupMe and Twilio, and not at the infrastructure layer by the AT&Ts and Verizons of the world, some now argue. "The carriers had a chance to provide a better voice and messaging experience with 4G, and to charge a toll for that experience, but they are missing that window," says Steve Cheney at TechCrunch.

When iPhone 4 was released, people wondered why Apple made FaceTime an open standard. Scale is the reason. A closed standard may have caused an overly fragmented market for video-calling.

Google Voice and FaceTime – Why the Carriers Are Losing Their Voice

Google Instant Appears to Change Search Behavior

Many wondered whether "Google Instant" would change search behavior, not to mention ad impressions. An analysis by Marin Software seems to suggest there have been changes.

Users seem to have increased their number of searches and clicks, for example. And user search preferences also seem to have changed, in facor of short searches (defined as three or fewer tokens), which saw a greater increase in impressions and clicks, when compared to long searches, Marin Software says.

That suggests a side effect of "Google Instant." While the 9.3 percent jump in ad impressions could simply be due to more searches, it could also be an artifact of users interacting with predicted search results, or pausing to review interim search results while they refine a longer search query. 

That was something some observers had expected might happen, and it seems to be a valid observation. 

Click volumes also went up by 5.6 percent.  The implication here is that users are probably responding to interim ads while they’re still typing or refining search queries. The analysis suggests that users are now more engaged with the search page and search results. This change in user behavior is a direct consequence of how Google Instant has changed a user’s search experience, says Marin Software. 

The cost per click for exact and phrase-match terms decreased significantly when compared to broad-match terms, implying that search marketers should pay increased attention to refining their match types in a post-Instant world, Marin Software argues. When users have the ability to target and modify searches "on the fly," it appears they respond by narrowing their search parameters.

Some had suggested that the "on the fly" suggestions would lead users to explore a bit more, dwell a bit more and adjust a bit more, in some cases allowing more ad inventory to be displayed than would formerly be the case. That seems to have happened. Google Instant seems to have boosted ad impressions and clicks, increased cost slightly while dropping cost-per-click, a study by Marin Software has found.

Marin Software found that impressions for paid search ads increased by more than nine percent while clicks increased by more than five percent through the first two weeks of Instant’s existence on Google.com.

For the typical enterprise search marketer, it is almost certain that Google Instant will result in more impressions and clicks. Some advertisers may see a decline in their CPC, but it is likely that as advertisers increase daily budgets, CPC values will rise to their pre-Instant values.

Spending rose two percent after "Instant" launched, according to Marin, which compared data for keywords from the two weeks before and after the launch of Google Instant.

Though impressions and clicks rose, cost per click actually went down by 3.47 percent. That could be accounted for by a more -rapid depletion of daily budgets than anticipated, plus lower average costs per click for subsequent inventory auctions.

The study suggests that impressions and clicks increased more for short searches than they did for long searches. That might suggest that a post-Instant world there will a trend to more short searches than before.

By helping users refine search queries through predicted search phrases, Google Instant appears to have changed user behavior and biased it towards shorter search phrases.

While broad-match terms still command about 70 percent of all impressions and about 47 percent of all clicks, exact-match and phrase-match terms gained ground after Instant was launched. overall broad-match costs have risen, while costs for exact-match terms have declined despite being accompanied by relatively more clicks.

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Mac App Store Changes Software Distribution

The upcoming Apple Mac "App Store" might change the way software gets packaged, developed and sold in the OS X part of the PC market, one might suggest, either augmenting or displacing the "preloaded when you buy it" or "shrink wrapped product sold in retail stores" models.

Some might argue that is the whole point, mirroring in the device software market the shift from physical to virtual distribution of music, video and other information products. Similar ecosystem issues also will grow.

Developers might not like having to abide by Apple's terms and conditions. Developers might not like the compensation schemes or rates. But consumers probably will get used to the idea. Even Best Buy already has announced that it will, at some point, cease to sell shrink wrapped movies in its retail stores.

One has to wonder whether music and software will be that far behind.

Mac App Store: boon or bust for developers?

Is Sprint's Fate Linked to Clearwire?

Clearwire has issued a "going concern" warning in its latest 10Q report to the Securities and Exchange Commission, saying it could run out of money by mid-year 2011 if it does not secure a large infusion of new capital, estimated to be in the couple of billion dollars range.

It seems unlikely Clearwire would fail to secure such funding, though it seems to have proven unusually difficult so far.

The unknown is whether Clearwire's potential troubles might also lead to changes at Sprint Nextel, which owns 54 percent of Clearwire. In principle, even a dramatic change of ownership at Clearwire would not directly lead to changes at Sprint Nextel.

But it appears there is some level of interest by offshore buyers in Sprint Nextel. Some speculate a combination deal to buy Sprint Nextel and Clearwire would make sense for both companies.

Clearwire Says It May Not Make It - 24/7 Wall St.

Video Entertainment Decline Seems Not to be a Blip

Much was made of a first-time-ever decline in multichannel video subscibers in the second quarter. So the big issue became "what will happen in the third quarter?"

Though all of the data is not available (some firms are private and do not have to report), it does appear that the second quarter decline was not a one-time anomaly.

Dish Network lost about 29,000 net subscribers during the third quarter of 2010. CableVision Systems Corp. lost 24,500 basic video subscriptions in the quarter. Comcast earlier reported a loss of 275,000 subscribers in the third quarter, while Time Warner Cable says it lost 155,000 video subscribers, representing a collective loss of 483,500 customers.

Verizon's FiOS TV service had an increase of 204,000 net new subscribers, while AT&T's U-Verse had an increase of 236,000 new video subscribers. That represents a gain of 440,000 subscribers. DirecTV added 174,000 net new U.S video customers. So telcos and DirecTV gained a net 614,000 net new customers.

Based on what happened with the major public companies, telcos and satellite companies (at least DirecTV) gained 130,500 more customers than the cable companies and Dish Network lost.

So here's an exercise to figure out what might have happened. Comcast, Time Warner Cable, Cox, Charter Communications and Cablevision Systems between them represent about 80 percent of all U.S. cable video customers.

Comcast and Time Warner represent 59 percent of all U.S. cable video customers. So asume every cable operator lost customers at the same rates as Comcast and Time Warner.

That would suggest overall cable industry losses at about 728,800 customers. If the telco and satellite competitors gained 614,000 net new customers, that leaves 115,000 customers who simply stopped buying.

But what that that means for the "video cord cuttting" thesis is unclear. We don't know whether the estimated 115,000 lost customers corresponds to reality. If the number is mostly correct, we don't know whether the change in behavior is permanent or temporary.

But it seems possible that the overall size of the U.S. multichannel video market is contracting at the moment. It seems to have done so for two quarters in a row, an unprecedented event. Whether that means a shift to over-the-top video consumption, a shift to over-the-air viewing or something else cannot yet be determined. Nor can we tell whether the behavior is temporary or permanent.

But the cord cutting thesis cannot be discounted. Up to this point consumers seem to have responded to tougher times by cutting back on premium services, pay per view and other ancillary services that have been driving cable video revenue growth. Over the last two quarters, consumers might be cutting even more than that, abandoning video service altogether and perhaps shifting scarce discretionary income to other services deemed more important, such as mobile or broadband services.

Will Enterprise Mobile Security Issues Slow Mobile App Adoption?

You always can get an argument about the importance of data security in an enterprise setting, and that applies to use of mobile devices as data appliances as well.

Nick Jones, Gartner analyst, argues that Android is "probably" the least secure of the mainstream mobile platforms if only because it’s the least mature and has one of the least regulated app stores.

Even the best of them, RIM, is dependent on things outside the platform’s control, such as trusting the person who provides an application, says Jones.

When will mobile the security backlash happen?