Do Programmers Really Believe in Streaming, or Just Business Leverage?

The latest moves by HBO, CBS, ESPN and Starz in the area of channel unbundling have been heralded as the beginning of a wave of over the top streaming moves by a wider range of networks.

Such moves, it is said, will put pressure on the distributor relationships that have anchored the linear video subscription business. And that might be precisely the point, some argue.

In that view, the whole point of launching over the top services is two fold. Such moves--irrespective of actual take rates by end users--puts more pressure on big distributors including cable TV, telco and satellite TV distributors, giving the networks more negotiating leverage when contracts are up for renewal.

For CBS, which often earns $2 per subscriber in payments from distributors, the existence of a rival $6 a month direct-to-customer service raises the threat of direct competition to linear video services.

A programming network might rightly guess that the existence of the threat makes more likely an increase in program fees paid by distributors.

At the same time, CBS is offering linear video distributors wholesale access to CBS All Access, so the streaming service can be sold directly to linear video customers. That would mirror existing business relationships, where programming is sold by networks on a wholesale basis to distributors who in turn sell at retail to end users.

Part of the reason Time Warner is launching a standalone HBO product is to gain more leverage against the cable companies that it feels do not do enough to promote HBO as a premium channel, some argue.

Some cable systems have as few as 14 percent of their subscribers taking HBO, while others have as much as 44 percent take rates.

So whatever benefits consumers might reap, there is at least some element of jostling within the ecosystem for business advantage, not necessarily some newfound belief that streaming’s time has come.

Spectrum Futures 2014

Find out more

"Fast Follower" Strategy Might Not Work in Video Streaming Business

As a rule, major transitions in technology and revenue models are slower to develop than most predict.

In other words, the amount of change tends to be overestimated in the near term, and underestimated in the long term.

That has direct implications for would-be suppliers. Overestimating near term demand means some firms will enter too early, and fail before the opportunity can be realized.

Others simply will over-invest in promotion, before conceivable sales justify that level of investment.

Other potential constants will wait too long to enter the market, and fail to gain a foothold at all.

In fact, some common business strategies, such as the “fast follower” model, will fail, in part because brand-new markets, after an inflection point, are created so fast that there is no time to use that strategy.

In fact, that illustrates the tension between the “first to market” and “fast follower” strategies overall. The “first to market” principle suggests that firms entering a new market need to move quickly, so they are in position to dominate the new market.

Others argue that, generally speaking, a “fast follower” strategy works better, and that the benefits of being a first mover are over-rated.

That might not be true for every market, and almost certainly will not be the case for over the top video. The reason is that big new markets often develop so quickly, once an inflection point is reached, that contestants not already in the market do not have time to get in.

So maybe, somewhere between “first mover” and “fast follower” is a position that might be termed “early mover,” where a contestant perhaps is not first, but is early into a developing market, without waiting for the market to develop to the point where a “fast follower” strategy works.

The other issue is what qualifies as “fast.” Some firms, especially those facing disruption of their core legacy businesses, simply wait too long to respond, and might be called “lagging followers.”

Others who might say they are “fast followers” wait until they are fairly certain a sizable market exists before jumping in. That can make them “faster, but not fast enough” contestants, if the market goes from a small number of early adopters to mass market too quickly.  

Such decisions are tough because inflection points, where adoption of any new product dramatically increases, are tough to spot, in advance.

In the consumer electronics industry, the inflection point often occurs when the innovation is adopted by about 10 percent of homes. As slow as adoption might have been before the inflection point, adoption often is quite rapid after the inflection point.

Seven years after the iPhone was launched, 70 percent of the US population is using smartphones.

Smartphones existed before the iPhone so the category is older than seven years but as far as adoption goes this is nearly the fastest ever.

The CD Player reached 55 percent adoption in seven years and the Boom Box about 62 percent. If measuring the period between nine percent penetration and 90 percent, Asymco estimates a nine-year period between smartphone inflection point and saturation.

So if market saturation is reached in nine years, one might reason that a firm has to be ready to scale up in the first years of a new market where global distribution and manufacturing are required.

The reason is simply that the market will be saturated in just nine years. Any firm that requires four years to build a global capability will already have missed half the potential market before it is ready to compete fully.

More to the point, it took only six years for smartphone penetration to grow from 10 percent to 70 percent in the U.S. market.

Even competitors already in the smartphone market were not assured of success. “Late” in this case was tantamount to “never.”

Something like that could happen in the over the top video streaming market. Consider the effort, time and money Netflix is spending to build a more-global capability, as much as it dominates the U.S. market.

Netflix, which operates in about 40 countries, has to spend money to add local programming in many of those countries, and local content really does not scale. And Netflix points out that 80 percent of the potential market lies outside the United States.

Whether you consider Netflix a first mover or a fast follower, it is in the market at a point where the broader inflection point--a shift of most major channels to over the top delivery--has not yet occurred.  

The larger point is that the inflection point is approaching. Would-be leaders in the video streaming market essentially need to be in the market, or get into the market soon, to ensure they are in position once the inflection point is reached.

The National Basketball Association and ESPN are planning a new online video service that would stream regular season games, apparently on an over the top basis, without requiring purchase of a linear video subscription.

The contract rights for such a move have been approved by the NBA, which means we might eventually see a direct-to-consumer NBA package similar in revenue model to

HBO's over the top streaming service and the CBS All Access over the top streaming service.

Starz likewise is launching an over the top video streaming service for Asia, Africa, the Middle East and Latin America.

It seems only a matter of time before other channels and networks also decide it is time to launch their own OTT services as well.

You might wonder why the inflection point, and which firms are in the market when that happens, matters.

The “fast follower” strategy might not to work.

In brand-new markets, adoption grows so quickly after the inflection point that there simply is not time for a new contestant to gear up to meet the demand.

If a firm has not already positioned in the new market space, it often takes too long to respond to the new market’s sudden emergence.

And that means market leadership goes to one or more firms that already have invested in the new space, and are poised to scale up operations quickly once a mass market develops.

Once the inflection point is reached, contestants might have only six to nine years before most of the market is taken by one of the suppliers.

FCC Looks at 24 GHz for Mobile Communications

The Federal Communications Commission is looking at whether 24 GHz spectrum can be released for mobile communications applications.

The Notice of Inquiry occurs at the same time that Google has asked for permission to test communications across different high-frequency spectrum bands, including millimeter-wave systems operating in the 71 GHz to 76 GHz band and the 81 GHz to 86 GHz range.

“Years ago, engineers and policymakers debated the feasibility and practicality of using spectrum above 2 GHz for mobile wireless services,” FCC Chairman Tom Wheeler noted.

More recently, 3 GHz has been seen as the highest frequency that could be used to support mobile operations.

The difference now is signal processing that allows practical communications at frequencies traditionally unusable. But cheaper signal processing now means it is possible to overcome propagation issues that have prevented use of millimeter waves for mobile or fixed communications apps.

So there now is optimism that frequencies above 24 GHz could be used to support mobile service, a previously-unthinkable option.

This matters for obvious reasons. More spectrum is needed. Also, the basic trade off--capacity and distance are inversely related--means very-high capacity is possible at millimeter wave frequencies, even if distance is limited.

Physics dictates the higher bandwidth possible at millimeter wave frequencies, even if coverage is more limited than at frequencies below 2GHz. Despite digital coding, potential bandwidth still is dictated by the number of oscillations a radio wave makes in a single unit of time.

In other words, at the peak of the cycle, coders might represent a positive bit, at the trough, a negative bit. So the total number of possible symbols depends on the frequency, or number of instances in a given unit of time that the waveform crosses between high and low states.

As the name implies, higher frequency signals have many more oscillations than lower frequency signals. Hence, more potential bandwidth, using any particular coding and modulation scheme.

The trade off is the effective distances at which such waves are useful for mobile or fixed communications, as millimeter waves are attenuated by water and, in some cases, oxygen. The trick is to use frequencies where attenuation is relatively lower, as is the case for optical communications as well.

Still, it seems highly probable that new frequencies, best suited for use in dense population areas, will be released for service, at some point.

Find out more

LTE Users Consume 5X as Much Video as 3G Users

Long Term Evolution 4G networks have a rather predictable impact on mobile data consumption: the amount of data consumed each month grows, compared to data consumption on 3G networks.

In fact, some studies also suggest that access to LTE networks also increases use of Wi-Fi.

A study of Android smartphone users by Devicescape, conducted over six months, found that 4G LTE users consumption of Wi-Fi and mobile data doubled, compared to data consumed by 3G users.

On average, 4G smartphone users consume 2.1 times more mobile data per month and twice as much Wi-Fi than their 3G counterparts.

This is due to the fact that 4G customers use their mobile device about 40 percent to 50 percent more than 3G users and consume richer content. Also, as a practical matter, one minute of use of LTE results in more consumption than one minute of 3G usage simply because more data can be transferred in the same amount of time.

A September 2014 report by Citrix found that video accounted for 52 percent of all mobile traffic, on both 4G and 3G networks.

But 4G users were 1.5 times as many requests for video over 4G LTE networks than on 3G networks, and those requests resulted in five times as much video data traffic on 4G compared with 3G.

Google Wants to Test Millimeter Radio Systems

Given its commercial Google Fiber service, as well as Wi-Fi networks at other venues, plus Project Loon tests, and its ownership of an unmanned aerial vehicle company, all of which deal with ways of providing Internet access, it might not be totally surprising, or even unexpected, that Google wants to test millimeter wave radio access systems as well.

Google has asked the U.S. Federal Communications Commission for permission to conduct tests in California across different high-frequency spectrum bands, including millimeter-wave systems operating in the 71 GHz to 76 GHz band and the 81 GHz to 86 GHz range.

Those bands have not been used for communications purposes in the past.

Google also has asked to test systems in the 5.8 GHz band as well, at three sites in the San Francisco Bay Area, including one in San Mateo county and two locations a half-mile apart which appear to be on Google’s Mountain View, California campus, according to Reuters.

Historically, the millimeter bands have not been so useful for communications purposes because of distance limitations and the requirement for line-of-sight paths. That has meant millimeter communications have been practical for point-to-point backhaul connections.

Rain fade and other signal attenuation issues have limited theoretical reach to a kilometer or less.

In the United States, the 38.6 GHz to 40.0 GHz band is used for licensed high-speed microwave data links, and the 60 GHz band can be used for unlicensed short range (1.7 km) data links.

The 71 GHz to 76 GHz, 81 GHz to 86 GHz and 92 GHz to 95 GHz bands are also used for point-to-point communication links.

The upcoming Wi-Fi standard IEEE 802.11ad will run on the 60 GHz (V band) spectrum with data transfer rates of up to 7 Gbps, and might be properly considered a local distribution platform (as a local area network technology), rather than a local access (connection between a place and the wide area network) platform.

The issue is how much can be done, using antenna arrays and spatial division, for example, to create an Internet access capability, beyond point-to-point backhaul.

All of that exploration by Google, and growing efforts by Facebook, does raise the question of vertical integration, to some extent. Google Fiber already creates a vertically-integrated operation that combines access, managed apps and then, in a less direct way, Internet apps.

That somewhat resembles the way telcos or cable TV companies, TV broadcasters and radio broadcasters earlier integrated access and apps.

Apple is another firm with potentially similar interests, though coming at the issue as a supplier of managed apps (iTunes, App Store) and devices. Some have suggested there could come a day when Apple might want to package apps, devices and access.

All that illustrates what might be an obvious point: it arguably is easier for tier one app or device suppliers to add access, than it is for tier one access providers to add devices and apps.

Spectrum Futures 2014

Find out more

Will Apple Pay be a Mobile Payments Breakthrough?

With Apple’s Apple Pay launch, set to go live October 20, 2014, we might finally get an inkling of whether contactless mobile payments can become a relatively common form of retail payment, outside the confines of Starbucks locations.

Apple Pay offers an easy, secure and private way to pay using Touch ID on iPhone 6  and iPhone 6 Plus devices.

Apple Pay also will be enabled on  iPad Air 2 and iPad mini 3 tablets as well.

If security is an issue, Apple Pay is designed to protect the user’s personal information and overcome that objection.

Apple Pay doesn’t collect any transaction information that can be tied back to a user and payment transactions are between the user, the merchant and the user’s bank.

Apple doesn’t collect purchase history, so when a user is shopping in a store or restaurant Apple doesn’t know what a user bought, where the user bought it or how much the user paid for it.

Actual card numbers are not stored on the device, either. Instead, a unique Device Account Number is created, encrypted and stored in the Secure Element of the device.

The Device Account Number in the Secure Element is walled off from iOS and not backed up to iCloud, either.

Apple Pay supports credit and debit cards from the three major payment networks, American Express, MasterCard and Visa, issued by the top US banks.

In addition to American Express, Bank of America, Capital One Bank, Chase, Citi, Wells Fargo and others, who announced support in September, more than 500 new banks from across the country have signed on to Apple Pay.

Users can make purchases in stores and within apps, with credit cards issued by many of the leading banks nationwide, which make up 83 percent of the credit card purchase volume in the United States.

Spectrum Futures 2014

Find out more

In addition to the 262 Apple retail stores in the US, availability from leading retailers at launch include: Aéropostale, American Eagle Outfitters, Babies”R”Us, BJ’s Wholesale Club, Bloomingdale’s, Champs Sports, Chevron and Texaco retail stores including ExtraMile, Disney Store, Duane Reade, Footaction, Foot Locker, House of Hoops by Foot Locker, Kids Foot Locker, Lady Foot Locker, Macy’s, McDonald’s, Nike, Office Depot, Panera Bread, Petco, RadioShack, RUN by Foot Locker, SIX:02, Sports Authority, SUBWAY, Toys”R”Us, Unleashed by Petco, Walgreens, Wegmans and Whole Foods Market. In addition, many others will add support this year, such as Anthropologie, Free People, Sephora, Staples, Urban Outfitters, Walt Disney Parks and Resorts.

Apps with the ability to use Apple Pay at launch include: Apple Store app, Chairish, Fancy, Groupon, HotelTonight, Houzz, Instacart, Lyft, OpenTable, Panera Bread, Spring, Staples, Target and Uber. Many more will support Apple Pay by the end of this year with popular apps such as Airbnb, Disney Store, Eventbrite, JackThreads, Levi’s® Stadium by VenueNext, Sephora, Starbucks, StubHub, Ticketmaster and Tickets.com, among others.

As might be expected after several years of consumer exposure to the idea of contactless payments, awareness no longer is the biggest barrier. That includes both efforts to commercialize mobile payments, as well as to promote use of contactless payment cards.

A study conducted for Visa recently found that 45 percent of Internet users in France who owned a contactless bank card had already used it.

About 25 percent of respondents said they were ready to pay this way.

Contactless payment cards might allow users to complete transactions nearly twice as fast as traditional payment methods.

When asked about the main advantage of completing a transaction with such a device—an open-ended question with no prompted responses—nearly half of France’s web users mentioned contactless payments’ speediness.

No other benefit was cited by more than 15 percent of respondents.

In principle, use of a mobile phone for contactless payment is functionally equivalent to using a contactless payment card.

Do Mobile Usage Caps Really Block App Development?

Do high prices for mobile Internet access, or limited usage caps, really block a cycle of virtuous app development? Some think so.

“While fees remain high, the virtuous cycle of development and user deployment that drives the demand for bandwidth can’t get started,” says Mark Pesce, a contributor to The Register. “Killer mobile apps never make it through the development process.”

Maybe not. Smartphones are to some extent content consumption devices, and also content creation devices, to the extent that taking photos and videos and sharing them is an act of content creation.

In 2011, for example, video entertainment represented 42 percent of all mobile Internet data consumption, according to Allot Communications.

File sharing represented 26 percent of mobile Internet data bandwidth.  Web browsing represented 24 percent of bandwidth consumption from mobile devices.

Moreover, Internet traffic is shifting to devices other than PCs. Over half of all IP traffic will originate with non-PC devices by 2018. By 2018 the non-PC share of total IP traffic will grow to 57 percent, according to Cisco.

Traffic from wireless and mobile devices will exceed traffic from wired devices by 2018, as well, Cisco predicts. What that suggests is that many of the activities and apps people use will shift from PCs to mobiles.

That means consumption of entertainment video. By 2018, global IP video traffic will be 79 percent of all consumer Internet traffic.

That does not include video exchanged through peer-to-peer (P2P) file sharing. Adding in P2P video, all forms of video (TV, video on demand, Internet, and P2P) will be in the range of 80 to 90 percent of global consumer traffic by 2018.

The point is that bandwidth, as such, is not a barrier to app development or innovation. People are choosing to consume video, at least so far the heaviest bandwidth consumer, and that drives bandwidth demand.

If developers and business strategists had been able to come up with big new apps that use as much bandwidth as video, and if people really wanted to use those apps, they could.

Sure, bandwidth and access speed so far in excess of current app requirements should lead to creation of apps and features that use lots of bandwidth.

Whether that results in lots of innovation or not is hard to say.

When computing cycles got cheap, software developers often just wrote what some might call “sloppy code” and created “bloatware.”

In the earlier days, coding had to be economical because computing resources were relatively expensive. These days, coding efficiency might be nice, but is often unnecessary. People can “waste cycles.”

It is hard to argue that lack of bandwidth (in the form of caps) or access speeds really are a major barrier to app development in developed markets.

But compelling apps and business models that require lots of bandwidth have been relatively few, beyond entertainment video.

So some might argue that human ingenuity and user demand are the key barriers, not speeds and feeds. Faster networks and devices are nice. But, so far, the new mass apps requiring lots of bandwidth and usage caps are pretty “dumb.”

As some of us might be tempted to say, “all this work, all this capability and power and we use it to watch television.” Really?

Spectrum Futures 2014

Find out more