Verizon Wants to Change the Way it Pays to Acquire Channels for FiOS TV

Verizon wants to change the way it pays networks for carriage rights. Today, affiliate fees are paid based largely on the number of subscribers a video distributor has on its most popular and widely viewed tier of service. But Verizon wants to do something different, and tie affiliate fees to viewership.

There would be many winners and losers, if Verizon were to make headway with some of the programming networks and gain permission to pay affiliate fees based on actual viewership. Some networks, such as USA Networks, might actually wind up being paid much more. 

Other networks, such as TNT, might wind up being paid less. 

Tensions between programming networks, which always seek higher carriage fees (affiliate fees) from video distributors, and cable TV, satellite and telco TV providers, have been mounting in recent years as profit margins in the once-comfortable business have dropped from a routine 40 percent to today’s more typical 20 percent profit margins.

Add in the growing ability consumers have to cut the cord and substitute a range of online sources, and ever-growing subscriber prices, and distributors have reasons for concern.

Derek Blaine, SNL Kagan senior analyst, illustrates the cost of channels, using 2011 figures for annual affiliate revenue, divided by their average daily viewership.

That is one way of matching the cost of a network with the number of people watching those channels.

ESPN, the number one channel, earns more than five times as much per household as the Style Network at number 20.

1	ESPN	$7,368
2	NBC Sports Network	$5,956
3	NBA TV	$5,622
4	NFL Network	$5,540
5	MLB Network	$5,095
6	GolTV	$4,167
7	ESPNews	$3,489
8	FOX Soccer Channel	$3,366
9	Golf Channel	$3,348
10	ESPN2	$3,196
11	VH1 Classic	$2,971
12	CNBC	$2,217
13	Velocity	$2,029
14	SPEED	$1,788
15	CNN	$1,740
16	BBC America	$1,519
17	TNT	$1,468
18	Fuse	$1,460
19	Fox Deportes	$1,442
20	Style Network	$1,420

Mobiles Directly Drive 9% of Fixed Network Bandwidth Consumptiion

Mobile devices roaming at home on Wi-Fi connections now account for nine percent of monthly data on North America’s fixed access networks, according to Sandvine.

Mobiles roaming on Wi-Fi also represent 15.6 percent of real-time entertainment consumed on fixed networks and 27.8 percent of all YouTube traffic.

Those statistics illustrate the growing role played by fixed networks in supporting mobile data applications.

Typical Smart Phone User Consumes 1 Gbyte or Less a Month, Study Suggests

For all the concern about the end of "unlimited" mobile data plans, the typical user still does not use all that much data on a monthly basis.

At least one study by NPD Connected Intelligence suggests that smart phone users on U.S. mobile networks are using up to 1.2 Gbytes of data on a monthly basis. That is higher than other studies suggesting “average” or “typical” users consume about 300 Mbytes to 400 megabytes a month.

But all such studies need to evaluated carefully, as the data is not uniform and consistent. Some studies suggest Android users consume less data than Apple iOS users. Other studies suggest Android users consumer more data than iOS users.

Probably every study conducted over time would show typical usage growing, over time, though.

Mobile Data is 40% of Total Revenue

Global mobile data service revenue, made up of mobile internet and messaging revenue, will rise by 21.4 percent between 2012 and 2014 to represent 40.4 percent of total mobile service provider revenue, ABI Research analysts now predict.

That implies mobile data revenues of about $404 billion of the US$1 trillion mobile customers globally will be spending on their mobile phone services.  

North America will be the first region to see mobile data service revenue eclipse voice revenue in 2016, ABI Research now projects.

“Mobile internet service revenue is very much the main driver of revenue growth,” said Jake Saunders, ABI Research VP. “As smart phones have become the entertainment hub in our lives, music, video and TV streaming’s contribution of mobile internet service revenue has jumped to 26 percent in 2012.”

About 85 percent of the traffic traversing the four nationwide U.S. mobile operators networks is data, according to wireless analyst Chetan Sharma. Data accounted for 39 percent of all mobile data revenues carriers collected in the fourth quarter of 2011.

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T-Mobile 'UnCarrier' Plan: Nice Language, Less Substance

T-Mobile USA has adopted an aggressive marketing tone lately, emphasizing that it will be an  "uncarrier." In other words, T-Mobile USA wants to grow by proving to users that it is not like a mobile service provider, in serious and relevant ways.

It is, to be sure, a bold ambition. Whether it can succeed is perhaps the bigger question. There already are signs T-Mobile USA might not be prepared to do enough in furtherance of that ambition, though. 

A memo suggests that T-Mobile is revamping plans in the near future to make unlimited talk and text a de facto part of the experience, where data is the variable cost.

Whether  T-Mobile USA actually is doing enough to back up its "uncarrier" claim is the issue. Verizon Wireless and AT&T already offer similar plans that make voice and texting (unlimited in the domestic market) a simple fixed cost, while it is the amount of Internet data access that is the primary variable cost.

So in that sense T-Mobile USA is copying the other carriers it wants to distinguish itself from. The moves by T-Mobile USA to "abandon" device subsidies likewise have gotten lots of attention. 

But T-Mobile also is offering installment plans that blunt the difference between device subsidies and installment plans. A more radical move might have been to end device subsidies and not offer installment plans, a route T-Mobile likely rightly decided was too risky. 

At the same time, T-Mobile USA will, at some point, face a Sprint that probably will try in its own way to further destabilize the U.S. mobile market as well. 

Perhaps the initial information is incorrect. Perhaps T-Mobile USA will produce something that has more impact. If T-Mobile USA wants to shake up the business, it will have to do so. 

Content Consumption Shifts to Tablets, Smart Phones

Content that was once primarily accessed by consumers on their PCs, is shifting to mobile devices, according to the NPD Group. Some 37 percent of consumers who used to access content access content on their PCs switched to their tablets and smart phones.

The top two activities that consumers are shifting from their PCs to their tablets and smart phones are web browsing and use of Facebook.

Among tablet owners, 27 percent say they are using their PC less frequently for accessing the Internet and 20 percent say they are using their PC less frequently for accessing Facebook.

Some 27 percent of smart phone owners have decreased both their Internet and Facebook usage on their PCs because they now use their smartphone for these activities, NPD Group fins.

Internet browsing is still highest among PC owners at 75 percent, smart phones at 61 percent, and tablets at 53 percent.  

Facebook usage follows the same pattern, with use of Facebook by PC owners at 63 percent, use of Facebook at 55 percent for smart phone owners and Facebook activity at 39 percent among tablet owners.

Top Activities Where Mobile Devices Mitigate Computer Usage

European Commission Still Wants to Unify 27 Telecom Markets

The European Commission still is working on a blueprint for a single telecoms market in the EC states, a move some tier one service providers want, but which national regulators and smaller service providers might fear.

The issue is how to create one market from 27 distinct national frameworks, as well as how to harmonize investment and operating rules across the different countries. It is not clear that such a move, if successful, actually would create a single regulator across all 27 countries. 

For a few tier one service providers, common rules and a single market would allow a more efficient and profitable approach to providing communications services across Europe. Many smaller providers would find they do not have scale to continue competing successfully, though. 

In fact, the plan might initially entail easier competitor access to tower sites, ducts and other forms of infrastructure. The objective would be to enable some European service providers to achieve greater scale. 

Many would likely argue that the reason AT&T and Verizon Wireless are doing so much better, on a financial basis, than European mobile service providers is that both those firms enjoy a large, continental-sized internal market. The EC moves aim to replicate such advantages in Europe.