Grim Future for Much Content, Apps, if Ads are Blocked, Bundles Disaggregated

In a world where the linear TV bundle is diminished, many expect there will simply be “fewer channels” in existence. In a world where app or Web advertising is largely blocked, will there likewise be less ad-supported free content? One is forced to consider that it will be so.

In such a world, without as much ad-supported content, more content will be supported by other revenue models, commerce or subscription, for example.

End users might find there are significantly less “free” content or applications available, with more value obtainable only by paying a transaction or subscription fee.

As with a future “over the top” video entertainment market, popular content and applications will still find an audience. Less-popular fare will not be produced at all, or will have somehow shifted to alternate revenue models for smaller audiences.

Advertising long has been part of the fundamental fabric of media business models, subsidizing lower cost or free consumer access to content products, ranging from over the air radio and TV to newspapers and magazines.

It isn’t the only possible model. Concession and ticket sales support movie theaters, while subscriptions support linear video services or SiriusXM (both of which use a hybrid model including subscription fees and advertising).

But most web content has been provided at no incremental charge for consumers, as advertising supplies the revenue. That could change if “ad blocking” largely becomes the rule.

Less content produced, and much less available “for free” is an inevitable result, in that case, as it will be for unbundled linear video channels.

Most predict there simply will be fewer channels, were unbundling to happen, since current business models are predicated on aggregating packages of popular and niche channels in ways that allow smaller channels to exist. And diminished advertising potential plays a role there as well.

In an unbundled world, smaller channels simply would not be able to generate enough revenue from advertising to survive totally on subscription fees. A simple look at potential alternative revenue models based solely on subscription fees illustrates the problem.

What is the expected retail price for content from any single channel, assuming one believes that will continue to be a relevant form of bundling? Part of the answer hinges on volume, a function of popularity, when people must buy individual channels directly.

Most agree that ESPN and sports would have relatively large audiences willing to pay. But many smaller channels simply could not charge prices consumers would pay.

An analysis by analyst Jason Bazinet at Citi Research suggests that “in a pure OTT world most firms would see their equity value fall,” Business Insider reports.

Where ESPN might be able to earn a return selling subscriptions at close to $20 a month, most of the larger channels (top 40 by audience) could not expect to charge more than $5 a month, and the vast majority would be limited to $1 to $2.

Many niche channels could not hope to reach even the $1 level, most would therefore conclude.

So one might conclude that ad blocking in the app and web domains is going to have impact similar to what is expected if linear video bundles are disaggregated. There will be fewer suppliers of content and apps able to survive.

One Way or the Other, Distributors are Going to Make Less Money from Entertainment Video

Even when there are segment winners and losers as industries are transformed, so too are there possible winners and losers within each segment that is changing. If video entertainment moves largely to an over-the-top distribution model, many have reason to ask what prices today’s legacy providers could command.

The expected retail price for content from any single channel--assuming one believes that will continue to be a relevant form of bundling--is the usual way the question is asked.

In that regard, an analysis by analyst Jason Bazinet at Citi Research suggests that “in a pure OTT world most firms would see their equity value fall,” Business Insider reports.

The exception: Disney, on the strength of its sports franchise (ESPN). He estimates other firms would lose.

Bazinet estimates that sports content is worth 3.7 times more than typical TV content.

In fact, the report estimates the optimal price for ESPN in an over-the-top format is $20 per month, by far the highest of the 41 channels Bazinet analyzed.

To the extent there is good news, it is that profit margins for distributors from selling linear service are dropping. In other words, the linear business is becoming less attractive, over time.

It is one thing if the business produces 25 percent free cash flow . It might be quite another thing if the linear video business produces just nine percent free cash flow margin, as analysts at Deutsche Bank predict will be the case for the larger video distributors by perhaps 2020.

And triple-play service providers already know where this all is going.They will earn more money providing high speed access, less money selling video entertainment, more money from business customers, less money from consumers.

To be sure, some distributors might create new revenue by offering mobile video, their own streaming services or partnering with third party streaming services to provide retail marketing and fulfillment.

But if history provides any guidance, the new markets will be smaller than the former markets, in terms of gross revenue.

FCC Wants Subsea Cable Outage Reporting

The Federal Communications Commission has proposed new rules requiring submarine cable networks to report significant outages to the FCC.

The rules would affect  60 undersea cable networks that provide connectivity between the mainland U.S. and Alaska, Hawaii, Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands, as well as virtually all connectivity between the United States and the rest of the world.

The Commission’s proposed rules requires that submarine cable licensees report major outages (lost connectivity or degradation of 50 percent or more of an undersea cable’s

capacity for periods of at least 30 minutes), irrespective of whether the cable’s traffic is re-routed.  

The Commission also seeks comment on how the agency can improve submarine cable deployment processes generally.

Internet Interests Win Most Political Battles

"The Internet hasn't lost many political battles," says Reed Hastings, Netflix CEO. How true. 

One is hard pressed to think of a major political battle pitting Internet interests against others, where the Internet interests have not won.

The only times when that general rule is in question is when two or more Internet interests or partiipants themselves disagree about a policy outcome. 

No Sustainable Business Advantage, For Anybody

There arguably are no permanent sources of sustainable business advantage in any business, these days. Sooner or later, some attacker will nullify the advantage held by any single provider or firm. In a similar way, no specific business model is permanently safe from disruption.

That might be the growing case for all forms of ad-supported content, applications and services. In part, that is because use of ad blocking software is growing.

Internet access charges and user experience are the apparent drivers of such behavior. Few people claim to enjoy advertising. But an equally-big problem is the fact that advertising bumps up data plan usage. So blocking ads also reduces data consumption.

The advertising community eventually will react in a more-structured way. But stresses are growing, most especially, one might argue, in the key mobile advertising realm. Though gross revenues still are small, they are growing very fast making mobile bigger than desktop as an opportunity.

source: Dadaviz

Know Mobile, Know Internet

If you know the state of mobile network services in most developing countries, you also mostly know the status of communications. The reason is the sheer dominance of mobile-delivered services.

More than 97 percent of Indian voice subscriptions are provided by mobile networks, less than three percent by fixed networks, the latest data from the Telecom Regulatory Authority of India shows.

More than 85 percent of Internet access subscribers likewise are provided by mobile networks.

The number of broadband subscribers increased from 104.96 million at the end of May 15, 2015 to 108.85 million at the end of June 15, 2015 with monthly growth rate of 3.71 percent.

The point is that a quick snapshot of mobile subscriptions and usage in most developing countries is a relatively accurate picture of the status of communications overall.

Facebook Reaffirms Support for Internet.org in India

Undeterred by criticism, Facebook seems committed to expanding its Internet.org program in India and elsewhere.

Internet.org works with mobile operators to create free access to key applications without charge, at least for limited periods of time, in an effort to allow new users to experience the value of the Internet and Internet access.

Some have sharply criticized the program as a violation of network neutrality rules, using the logic that the program “does not treat all apps the same.”

Supporters counter that the program is not different than any other retail policy that offers limited-time promotions, coupons, discounts or incentives to buy or try any consumer product.

The program already has proven to be a useful way of providing exposure to the value of the value of the whole Internet and has stimulated sustainable demand for Internet access.

As practiced by Internet.org, the whole program is voluntary: consumers pay nothing to use the apps. Internet service providers pay nothing to make the offer and Internet.org apps and Facebook pay nothing to operators to enable the access.

Internet.org "does not violate the principles of net neutrality", said Kevin Martin, Facebook VP for Mobile and Global Access Policy."We have no program to withdraw internet.org from India where we provide the platform with Reliance Communications."