Voice had a Life Cycle; Does TV Also Have a Life Cycle?

It has been a shocking revelation that voice service is a product like any other, with a product life cycle. Up to this point, it has been fixed network voice that has encountered the cycle.

Mobile voice is on the way, as is text messaging.

Now TV is starting to look as though it will demonstrate it also is a product with a life cycle. 

As with voice and messaging, the maturation of a particular product doesn't always mean people abandon an activity, but that the activity occurs in new ways.

Those new ways of behaving often change the business and industry context, as a result. People still talk, but use Skype. People still send messages, but use WhatsApp.

As television starts to change, people will still watch video and films. But they might consume that video in different ways.

So there are many good reasons why John Malone, Liberty Media chairman, now argues U.S. cable operators need to band together to create a single content-buying entity. 

Among the advantages would be the ability to create a branded over the top video service that could compete with the likes of Netflix.

That likely will be more important in the future if people continue to shift viewing towards online content, and especially if content owners decide to shift more content availability in the online direction.

The evidence for a shift in behavior continues to mount. And though content owners will not move prematurely, so as not to upside their lucrative deals with cable, satellite and telco TV distributors, sooner or later they will have to move.

A third (34 percent) of Millennials surveyed on behalf of the New York Times watch mostly online video or do not watch broadcast television.

The study of more than 4,000 online video users also found that news sites were more popular than sports for online-video watchers, but they were far less popular than video hosting sites like YouTube.

Millennials generally are defined as people born between 1980 and 2000 and includes over 75 million people.

The data likely would not surprise many, given the widespread shift to use of online video. In fact, so common is online video consumption that the next frontier has become mobile consumption of video, and that also is growing significantly.

About 10 percent of all video viewed in the first quarter of 2013 globally was watched on a mobile or tablet device, representing an increase of 19 percent, year over year.

In the U.S. market, the trend is even more pronounced. Mobile consumption of video in 2013 in the United States probably will surpass time spent watching traditional TV screens.

U.S. adults will in 2013 spend an average of two hours and 21 minutes per day on non-voice mobile activities.

That includes mobile Internet usage on phones and tablet, while mobile device is up nearly an hour from 2012 levels.

The share of viewing on smart phones and tablets is still rising at a pace similar to that of 2012, according to Ooyala.

The kind of video being watched online is changing as well. Viewers are watching more longer-form video. About 25 percent of the content watched on tablets globally in the first quarter of  2013 was 60 minutes long or more (long form content).

And nearly an additional 20 percent was at least 30 minutes long. In all, more than 50 percent of all content watched on tablets was more than 10 minutes long or longer.

To be sure, the New York Times survey excluded people who say they do not watch online video. But one wonders how many people are in that category. A Canadian study confirms that people of every age group watch online video. So does a study of U.K. Web users.

Cable Needs Content Buying Entity, and its Own Netflix, Says John Malone

John Malone, Liberty Media Chairman, is a foremost proponent of the idea that U.S. cable TV business has to consolidate further, in part to allow the leading suppliers to gain more leverage in negotiations with progreamming suppliers.

Now Malone also suggests U.S. cable operators band together to create a national buying consortium that would amass the ultimate in scale. Also, such a buying consortium would amass in one place the content rights needed if cable operators want to create their own branded streaming service on the model of Netflix, with rights to operate outside the subscriber premises on a national basis. 

Because cable operators operate on a defined geographic basis, they can't buy programming nationally, he said, and often lack scale to invest in research and technology. 

He said cable companies should "get behind" a service, either one already existing or started by an outsider, which could buy programming nationally.

Such a national buying entity presumably also could allay fears that one or more operators would move to sell such a service on its own, over the top and outside its own geographic boundaries, bringing competition between cable operators to a head for the first time. Comcast likely is the firm most smaller operators might fear, in that regard.

Those notions point to the growing importance of scale in the U.S. communications and entertainment business, both for tactical and strategic reasons. 

For cable operators, it is tactically important to gain negotiating leverage over programming suppliers. Strategically, such a buying consortium and a branded streaming entity would be necessary in the future if and when streaming begins to displace traditional video services to a significant extent. 

But cable operators also are hampered in creating and selling services to enterprises that operate regionally or nationally, as well, because of service footprints that are fragmented. 

There are other implications within the ecosystem, including changing imperatives on the regulatory front. 

As the video business changes, so should the rules and regulations that traditionally have been applied to cable, telco and ISP providers of video services. In fact, many could argue, the traditional franchising rules do not apply at all to over the top providers.

That doesn't mean the place-based access networks will be unimportant. In fact, high speed access will be the foundation for all fixed network revenues. But "video entertainment" could substantially shift to an over the top application. 

CenturyLink to Deploy 1-Gbps Network to a Few Thousand Homes in Las Vegas, More to Come

CenturyLink says it will deploy a 1-Gbps service to some neighborhoods in Las Vegas, Nevada in the fall of 2013. to “a few thousand homes,” with a “significant” increase in 2014."

CenturyLink also has a gigabit service in Omaha, Neb., where it had inherited a fiber-to-home testbed of about 48,000 homes.

The service will start at $79.95 per month with a 12-month contract, or $124.94 when paired with Prism TV, the telco's IPTV service, along with a six-month contract.

CenturyLink will deploy first in areas with the most demand.

CenturyLink says it has about 73 percent of its access lines capable of 6 Mbps speed, over 61 percent of lines capable of 10 Mbps and 32 percent capable of 20 Mbps. Some areas of CenturyLink metro areas can be served as speeds up to 40 Mbps.

Many observers would credit Google Fiber for the new interest in gigabit services. Many also would say the new value-price relationship--a gigabit service for $80, when bundled with video--also is a response to the new price umbrella Google Fiber is creating.

34% of Millennials Do Not Watch Broadcast TV

A third (34 percent) of Millennials surveyed on behalf of the New York Times watch mostly online video or do not watch broadcast television.

The study of more than 4,000 online video users also found that news sites were more popular than sports for online-video watchers, but they were far less popular than video hosting sites like YouTube.

Millennials generally are defined as people born between 1980 and 2000 and includes over 75 million people.

The data likely would not surprise many, given the widespread shift to use of online video. In fact, so common is online video consumption that the next frontier has become mobile consumption of video, and that also is growing significantly.

About 10 percent of all video viewed in the first quarter of 2013 globally was watched on a mobile or tablet device, representing an increase of 19 percent, year over year.

In the U.S. market, the trend is even more pronounced. Mobile consumption of video in 2013 in the United States probably will surpass time spent watching traditional TV screens.

U.S. adults will in 2013 spend an average of two hours and 21 minutes per day on non-voice mobile activities.

That includes mobile Internet usage on phones and tablet, while mobile device is up nearly an hour from 2012 levels.

The share of viewing on smart phones and tablets is still rising at a pace similar to that of 2012, according to Ooyala.

The kind of video being watched online is changing as well. Viewers are watching more longer-form video. About 25 percent of the content watched on tablets globally in the first quarter of  2013 was 60 minutes long or more (long form content).

And nearly an additional 20 percent was at least 30 minutes long. In all, more than 50 percent of all content watched on tablets was more than 10 minutes long or longer.

To be sure, the New York Times survey excluded people who say they do not watch online video. But one wonders how many people are in that category. A Canadian study confirms that people of every age group watch online video. So does a study of U.K. Web users.

New Markets Often are a Zero-Sum Game: Some Winners, Many Losers

One of the perhaps cruel ironies in the communications business is that a business strategy that works for some providers cannot work for all, in part because every segment of the market is limited. In any product segment or location, a few providers might make a nice business serving a particular customer segment with a particular set of products.

Consider the example of smaller business services, historically served by smaller independent providers as well as the leading communications providers in an area. Some of the larger independent telcos, including Frontier Communications and Windstream, for example, have dramatically changed their customer and revenue profile by focusing on business customers.

Cable companies are doing the same, targeting smaller businesses for bundles of voice and Internet access services, mobile backhaul services and enterprise services in a growing number of cases.

Recently, for example, Time Warner Cable acquired DukeNet Communications, a provider of regional fiber services in the Carolinas (North and South) and five other southern states.

DukeNet currently counts among its customers more than 3,500 cell sites as well as other businesses. That’s an example of the growing cable operator emphasis on business services.

From the first quarter of 2011 through the second quarter of 2013, Time Warner Cable grew business customer revenues at an average quarterly growth rate of 6.8 percent, from $312 million to $564 million.

At the same time, business segment revenues grew from seven percent of total revenue to 11 percent of total revenue.

On the other hand, that strategy cannot work for every other provider. The tier one carriers largely stand to lose customers to cable and other providers, for the simple reason that local telcos traditionally have served most of the small business customers in an area.

But some of the market share gained by cable providers, Windstream and Frontier Communications also will be taken from independent providers as well. Small business communications revenue, in other words, is a zero sum game.

There are only so many customers, willing to spend so much money for services, so gains by one provider come at the expense of another.

One might argue that the number of small businesses is growing, and that will increase the pool of potential customers to some extent. At the same time, many small businesses are finding that consumer services and apps now are good enough to supply many of those needs, so there are multiple forces at work.

For businesses that continue to buy “traditional” services, advances in cloud computing and declining costs for Internet access mean many mid-sized firms also can get higher performance while not spending more money.

The point is that a revenue growth strategy that works for some suppliers will not work for all suppliers. So even if a focus on business customers is proving to be a workable strategy for larger cable companies and larger independent telcos, it is not at all clear that works for the typical very-small telco, or even well for independent service providers that historically have served the small business market.

“Eat or be eaten” resonates in this instance because many of the near-term sources of incremental revenue require some scale. And that automatically means a focus on business customer services will fuel growth for some new providers with sufficient scale, but not all smaller providers who might otherwise consider that approach feasible.

Peak Mobile Revenue in 2017?

Though it was not always the case, today’s communications service providers face a business that genuinely requires continual innovation. It matters not whether service providers are especially good at innovation, quick to move or have a clear glide path.

What matters is that we now know the global communications business lives or dies by lead revenue generators that clearly are products with a life cycle. And the industry already has seen enough to understand that from now on, the revenue underpinnings of the  business must be recreated about every decade or so.

To be clear, that means something like a need to replace perhaps half of existing revenue every 10 years or so, as first, one, then the succeeding revenue model matures. Fixed network voice is being displaced by Internet access as the foundational revenue driver.

Mobile voice displaced fixed network revenues as the global revenue driver. Then text messaging began to drive revenue growth. Now mobile Internet access  is driving growth.

And the only certainty is that more transitions are coming. The issue is to identify, as soon as possible, what those replacement products are, and bring them to market, in a scalable way, as soon as possible.

In 2018, for the first time ever, global mobile service provider revenue will drop, declining from 2017 levels by one percent or US$7.8 billion, according to analysts at Ovum, though the number of connections will continue to grow. That suggests 2017 could be the “peak” year for mobile revenues, unless big new sources can be found to both replace lost revenues and then ignite a new round of industry growth.

As has proven to be the case in the past, the issue is whether new revenues can be added fast enough to cover the declines in legacy products.

Global mobile connections will grow from 6.5 billion in 2012 to reach 8.1 billion by 2018, while annual mobile service revenues will rise from US$968 billion to US$1.1 trillion.

Decline already is happening in Western Europe, with total revenue dropping 1.5 percent on a compound annual rate and connections growing less than one percent, Ovum predicts.

The U.S. market, robust and growing, will slow. Global connections still will grow, at a less than four percent compound annual growth rate between 2012 and 2018, while global revenues will grow at less than half that rate.

Africa, on the other hand,  presents the largest growth opportunity, revenues expected to grow at a compound annual growth rate of 4.2 percent.

Since mobility services have driven global service provider revenue growth for at least a decade, current efforts to discover new sources of revenue obviously are required. The forecast assumes that the current growth driver, mobile Internet access, will saturate by about 2018.

“What drives revenue next?” is a question with no accepted answer, which is why so many initiatives are underway, ranging from mobile commerce and mobile payments to connected car, mobile video, home security, home automation, mobile advertising and other potential new sources of revenue.  

One reason you are hearing so much about the Internet of Things, or machine-to-machine services, is that selling mobile connections to enterprises selling services using sensor networks is one obvious way to tap new customers and activate millions of new accounts.

According to Ovum, operators in developed markets face particularly challenging times. Aside from troubles in Western Europe, several other developed markets will see year-on-year revenue declines in 2018, including the United States,  Ovum maintains.

Much of the revenue decline will be driven by falling average revenue per user, which will continue to decline across all markets by a 2.7 percent global CAGR between 2012 and 2018.

If you want to know why tier one service providers are so focused on new revenue sources, the Ovum data is one compelling reason.

The greatest average revenue per user decline will be in the Middle East, where ARPU will fall by a 2.5 percent CAGR.  

Despite the global trend, some growth opportunities will still exist, particularly in Africa, where revenues are expected to grow at a CAGR of 4.2 percent throughout the forecast, Ovum says.

No other region in the world will see revenue growth at a CAGR above three percent during the forecast period.

Select markets in Asia-Pacific and South & Central America will also drive growth over the next five years.

Africa will also have the fastest-growing connections, increasing at a CAGR of 5.6 percent between 2012 and 2018, and ending the period with just over one billion connections.

Growth in Asia-Pacific will slow, but this region will remain the biggest contributor of new connections, driven largely by China, India and Indonesia.  

Connections in the Asia-Pacific region will total 4.2 billion in 2018 and will account for 57 percent of net additions globally through the forecast period.

What Market are Dish Network, DirecTV In?

Are DirecTV and Dish Network competitors in the subscription video entertainment business, or contestants in the satellite TV business? The answer might actually matter.

Antitrust regulators always are forced to decide what a relevant market is when considering proposed mergers and acquisitions. Back in 2002, a proposed merger of DirecTV and Dish Network was blocked by the Federal Communications Commission and Department of Justice because of antitrust concerns. At the time, the relevant market was deemed to be “satellite-delivered video entertainment,” in essence.

Whether that still is the relevant market could become an issue if another merger of the two satellite companies is considered. The new issues are a dramatic drop in cable TV market share, a halt to satellite market share growth and entry of telcos into the business.

Then there is the clear sense that alternatives such as streaming delivery are about to start displacing all the traditional providers. As a rule, one might argue, it is a waste of time and money to spend too much effort adding regulatory burdens for declining businesses.

Some might argue that was basically what happened with the Telecommunications Act of 1996, the first major reset of U.S. communications law since 1934. The theory was that breaking down barriers to provision of voice services would spur innovation in the business.

One might argue the theory worked, enabling cable operators to seize huge chunks of the voice business. One might also argue the focus of innovation also shifted to the Internet, something unforeseen by regulators and lawmakers.

That’s the same sort of context that could become an issue in further consolidation in the satellite portion of the video entertainment business.

In other words, regulators would have to take another look at the relevant market parameters if

a DirecTV-DISH merger were to be proposed again.

What might have been viewed as an unwanted creation of a monopoly satellite video provider at one point in time might not make so much sense in a mature, perhaps saturated video enterainment business where the clear market leader is losing share, satellite share has stopped growing and powerful new competitors are taking customer share.

Also, there is the sense that the economic fortunes of the video entertainment business are changing, in any case, in ways that could threaten all providers of traditional subscription video entertainment services.