New AT&T U-verse "Screen Pack" Illustrates "Value-Based Pricing" Dilemma

AT&T is offering U-verse TV customers a new Screen Pack feature, costing $5 a month, and offering access to unlimited viewing of a library of about 1,000 movies. The content can be viewed on U-verse TV, U-verse.com and on the U-verse app for tablets and smartphones, AT&T says. 

In one sense, that is a simple business decision by one Internet service provider. There is no absolute reason why any particular service or application has to be sold at retail on any basis directly related to the cost of providing the service. 

In fact, there is no reason why a firm cannot sell a product at cost, or at a loss. Still, service such at Screen Pack, and streaming of Netflix movies, do raise questions. Ignoring marketing and fulfillment costs, what does bandwidth and content licensing really cost, for such services.

And what level of actual average usage is a "breakeven" business case? By some estimates, a standard two-hour high-definition movie might consume about 3.6 gigabytes. A standard definition movie of the same length might consume only about 700 Mbytes (much depends on coding, of course). 

One presumes there is some clear point where AT&T might start to "lose money" in terms of licensing fees, incur higher network usage that could affect peering deals, or incur consumer displeasure because monthly caps are breached. On the other hand, AT&T and other ISPs might someday create "video-specific" usage plans that accommodate the higher usage heavy video watching represents. 

Though it is not a real question at the moment, one wonders how to reconcile the cost of bandwidth for video, which currently might be said to "cost" as much as bandwidth used for voice, messaging, web surfing or other applications, but which has quite different quantitative dimensions, and a clear expected consumer price point. 

In other words, including costs of bandwidth, peering, marketing, delivery, licensing and other costs, people expect "unlimited streaming" for a small fixed cost. In that sense, the "cost" of any single video event is deemed to be relatively low, even if "value" might be moderate to high. 

Another way of putting matters is that a consumer would expect unlimited access to 1,000 movies for $5, while a bucket of voice minutes of use might cost an order of magnitude more, even while consuming a vastly-smaller amount of bandwidth. 

The way I used to describe this was that 24 hours of video delivery of an older analog TV system would easily represent the equivalent of scores of DS-3s worth of delivered "data."

Yet where a single local DS-3 might cost $10,000 a month, for a cable TV subscriber the cost of scores of DS-3s used for video would be $35 a month up to $80 a month. 

It used to take as much as 24 MHz of bandwidth to deliver a single, uncompressed full-motion video stream, or about half a DS-3. 

These days, using much better coding, we can squeeze multiple standard-definition TV signals into a couple of megabits per second, or less, and a single HDTV signal into 6 MHz of bandwidth. 

The point is that there is a vast difference between the "value" and the "price" of network resources and bandwidth used to deliver a single TV event, compared to two hours of talking or texting, or web surfing. 

On a revenue-per-bit basis, voice and texting are really high value, for the amount of bandwidth consumed. The revenue-per-bit for entertainment video is frightfully low. How to reconcile those extremes is going to be an issue, some day, if value-based pricing happens. 

Video has for some time been driving bandwith consumption, but without a good relationship between value and revenue, from an ISP perspective, or from a retail buyer perspective, based on prevailing tariffs. 

Is Amazon Web Services Worth $19 Billion?

Amazon Web Services is in many ways a proxy for the cloud services business, or at least the infrastructure portion of the cloud services market (infrastructure as a service or platform as a service).

Macquarie Capital estimates that the overall cloud market will hit $71 billion in revenue in 2015 and suggests AWS will have $38 billion, or 53 percent of the total market. Macquarie Capital analyst Ben Schachter therefore estimates AWS would be worth $19 billion, based on a 5X multiple of Macquarie’s 2013 AWS revenue estimate, or $30 billion using an 8X multiple.

OTT Video Will Remain 10X to 100X Smaller Than Subscription TV, Near Term

Technologists often think that because Internet-based tools can change the way people watch cable TV, such changes naturally will occur. Business issues, though are the issue, specifically the scores of billions content owners and video distributors make from the current business model. 

Consumers likely want to be able to buy only what they want, when they want it. But it is asking too much for a big industry to destroy itself. Over the top video revenues will grow, of course, but will remain a small fraction of the overall video subscription business, which might represent $170 billion just in subscription revenues (irrespective of advertising and commerce revenue) by 2016. 

Mobile Advertising in Developed Countries: $3.57 per person up to $36.35

Mobile advertisers in the United Kingdom spend more trying to reach each mobile internet user in the country than anywhere else in the world, according to new estimates by eMarketer. 

Advertisers spent $36.35 per mobile internet user in the United Kingdom in 2012. The United States has the third-highest spending per mobile internet user in the world; advertisers in the country spent an average of $31.50 to reach each one.

 Japan, which is the world's second-largest mobile advertising market in terms of absolute dollars, saw advertisers spend $26.23 per mobile internet user. 

What Makes Mobile Video Different?

If you were looking for one defining characteristic of mobile video, compared to all other formats, "sharing" would be a logical candidate for that unique feature.


In a recent survey by the Interactive Advertising Bureau of 200 mobile video viewers, 92 percent of respondents said that they share mobile video content with others, eMarketer reports. 

The most popular method of sharing listed by respondents was through posts on Facebook or similar social sites (56 percent). 

But 44 percent said they share videos simply by passing their mobile device off to a friend. In other words, formal sharing by instant message, text message, email or a social network post actually understates the amount of video sharing. 

54% of U.S. Homes Will Use Internet Access From "Non-Traditional" Devices by 2017

Some 66 million U.S. households, about 54 percent of all households, will use video set-tops, media players, e-readers, digital photo frames or cameras to connect to the Internet by 2017, Forrester Research estimates.

Such uses will largely be ancillary to primary broadband access connections, rather than full substitutes,  Forrester Research predicts. 

None of that should be surprising. Pundits have predicted for years that, over time, we would move towards ubiquitous Internet access, with computing embedded into the background. 

The extension of computing into automobiles, microwave ovens and refrigerators, payment mechanisms and other appliances is just part of the trend. 

Why 2013 Won't be "Year of Mobile Payments"

Without in any way implying that mobile payments will fail, 2013 will not be, as pundits often are fond of proclaiming, be the "year of mobile payments." The reason is simply that mobile payments requires changing significant business processes throughout a complicate ecosystem, and those changes always take time. 

Consumer demand is not so much the problem. It's all the other changes that have to happen, ranging from replacing store terminals and software to creating a critical mass of end user devices and awareness, as well as providing a clear value proposition.  

At the same time, expectations have been "dampened" by the continuing slow uptake of near field communications. But none of that should be surprising,  in a historical sense. 

Juniper Research has revised its forecasts for the global near field communications market, significantly scaling back its growth estimates for the North American and Western European markets. In some ways, that might be considered a "good" thing, to the extent that it follows a common pattern of technology adoption.

The most significant change to the Juniper Research forecast is the amount of transaction activity NFC devices will drive, as the new forecast reduced the number of NFC devices in use only slightly.

By 2017, global NFC retail transaction values are now expected to reach $110 billion in 2017, significantly below the $180 billion previously forecast. 


Such revisions are not unusual in the predictions business, especially not for a brand new market that depends on many changes in the ecosystem. That tends to mean excessive enthusiasm early on, with an under-appreciation of what is going to change later.

What is "good" about deflated hopes is that such periods seem "always" to happen, and are just a milestone on the way to eventual adoption on a fairly wide scale. So the argument is that dashed initial hopes mean the market is moving in the way one should expect: high hopes, disillusionment, and finally adoption.

Such hype cycles might be viewed as a typical part of the technology adoption cycle for any important new technology.

New technologies historically take some time to reach 10 percent, then 50 percent, then virtually ubiquitous adoption. To be sure, there has been a tendency for new technologies based on digital and electronic technology to be adopted faster. But a decade period to reach perhaps 10 to 20 percent adoption is hardly unusual.

That is not much of an issue for point solutions like computers that can be used without lots of additional change in infrastructure. That is not true for highly-complex ecosystems such as payments, though.

ATM card adoption provides one example, where "decades" is a reasonable way of describing adoption of some new technologies, even those that arguably are quite useful. 

Debit cards provide another example. It can take two decades for adoption to reach half of U.S. households, for example.