Yes, Video Entertainment Revenue Easily Could Drop by Half

 With the caveat that much could, and will, happen as the subscription video business switches to an over the top model, it already is possible to predict that as much as half of current subscription revenues could be lost over a decade.

Already, consumers can spend 40 percent less, using a bundle of OTT services, compared to a standard linear video subscription, according to Federal Communications Commission data.

Those fees likely do not include the add ons (taxes, fees, box rentals, outlet charges) that increase an average bill closer to $103 a month.

Indeed, much of the total cost of a video subscription comes from regulatory fees, taxes and rental charges for equipment a consumer does not need when using a streaming, over the top approach. All of that can easily add up to as much as 30 percent of the total monthly bill, beyond the advertised subscription cost.

OTT streaming does not require rental of one or more cable TV decoders ($10 each, per month), additional outlets ($10 each, per month) and a number of regulatory fees not charged for OTT services.

The point is that it is not a rhetorical statement to argue that as much as half of all current subscription video revenue will disappear over the next decade. In fact, we could get close to a fall of 50 percent if consumers simply no longer needed to rental decoders and pay for additional outlets.

Since OTT relies solely on the internet access connection, and uses Wi-Fi for internal signal distribution, there is no outlet charge or requirement; not need for decoders or the regulatory fees.

That alone would drop gross revenue for subscription video 20 percent to 30 percent. So why bother with entertainment video, if a firm is a telco? Even at 50 percent of current revenues, subscription video still produces scores of billions of annual consumer account revenue, in the U.S. market.

Consider how hard it is to create a brand new, billion dollar a year revenue stream any other way. It is worth it, especially as voice and messaging clearly are headed for a 50-percent reduction as well.

source: FCC

Cisco Incorporates Machine Learning (Artificial Intelligence) in New Network

Machine learning (artificial intelligence) continues to be deployed in practical ways, including by Cisco routers and networks.

Cisco calls this intent-based networking and it incorporates machine learning to “create an intuitive system that anticipates actions, stops security threats in their tracks, and continues to evolve and learn.”

At least in part, the new network is built for pervasive computing, supporting enormous scale in terms of devices. “The new network provides machine-learning at scale,” Cisco says.

“We must move to a place where we build technology that is intuitive from the start and continues to evolve and learn over time,” says Cisco CEO Chuck Robbins.

“The new network delivers a world where you can connect billions of devices, identify them almost instantly, know what’s trustworthy and what isn’t, and draw exponential value from the connections – and you can do it in hours instead of weeks and months,” Cisco says.

Intent-based networking supports “a network with a purpose, one that can think ahead.”

Interpreting data with the right context is what enables the network to provide new, more meaningful insights, Cisco argues.

Will Microsoft Catch AWS in 2018?

Amazon Web Services leads the infrastructure as a service market, a finding virtually nobody would challenge, at least for the moment. For the moment, the  issue is Microsoft’s role in IaaS, as it is, according to Gartner, the leader in best position, at the moment, to challenge AWS.

“AWS remains the dominant market leader, not only in IaaS, but also in integrated IaaS+PaaS, with an end-of-2016 revenue run rate of more than $14 billion,” Gartner says. “It continues to be the thought leader and the reference point for all competitors.”

By way of comparison, Microsoft Azure is second in market share, with revenue run rate of about $3 million. That suggests annual revenues higher than $12 million.

source: Gartner

What Will Drive Future Telco Revenue?

Internet access is the anchor service for both fixed and mobile service providers, if only because those two services generate the bulk of service provider revenue in many markets, and because video depends on high-capacity internet access.

AT&T’s first quarter 2017 financial results hint at the contribution made by video services, which drove 32 percent of total revenues. For Comcast, the cable communications business that corresponds to AT&T’s business had 45 percent of revenue driven by video, while 27 percent was driven by internet access.

It remains to be seen whether internet access revenue contribution will be greater than content revenues, in most markets, eventually. It is virtually certain that voice, no matter how important, is destined to shrink, as a revenue driver.

What is happening is that all legacy services are mature, or maturing. That suggests, eventually, that some new revenue contributor will emerge.

source: Comcast

What Will Video ARPU Be, in the Future?

Only a few telecom products ever have been universally adopted by consumers. Voice, messaging, mobility, internet access and video entertainment are those products. Everything else is a niche. The paucity of universally-demanded services illustrates the problem of new service creation. It never has been easy, and will not be easy.

At the same time, it is easy to illustrate the new range of universally-demanded services, such as social networking, search and shopping, supplied as apps accessible “over the top,” and not intrinsically bundled with an access service.

Given the historic high demand for network-delivered content (video, especially), it comes as no surprise that OTT entertainment video services are so popular. As was the case for use of voice, new forms of highly-popular services (mobile voice rather than fixed) have much-higher value for consumers.

A majority of U.S. online consumers, for example,  now subscribe to at least one paid OTT video service, according to researchers at IBB Consulting Group.

About 33 percent of those subscribers buy two services and 18 percent subscribe to three or more services.

Some 63 percent of paid OTT subscribers also subscribe to a linear TV service from their cable, telephone or satellite provider.

What is not yet clear is how demand for “live” events and programming will develop. Up to this point, the largest streaming services have offered pre-recorded content. Only recently have services that deliver “real time” programming begun to be widely available.

To the extent that all OTT video services involve bundles of some sort--either bundles of pre-recorded content or bundles of “live” channels--one major question for suppliers is the future shape of bundles (large or small numbers of networks, live or pre-recorded content, content genres).

The biggest questions concern channels that mostly rely on “live” content, as it is somewhat obvious that pre-recorded content is “best” or “easily” delivered using some on-demand format. News (for some) and sports (for more) provide the clearest examples of content venues especially leading the “live” category.

At least so far, buying behavior suggests that for “libraries of content,” a price of about $10 a month for an OTT service is viewed by consumers as reasonable. Since about 60 percent of consumers buy both linear and at least one OTT service, current propensity to buy represents something north of $90 a month in total spending.

The big issue for OTT is whether average spending ultimately is closer to $10 a month than $100 a month. Many of us would argue the eventual result is a blended average revenue per user close to $50 a month, including $40 a month for a skinny linear bundle, plus at least one OTT service at $10 a month.

What is not clear is whether video suppliers can dramatically change the perceived value proposition. If so, ARPU could stickier on the high side. What the subscription video industry hopes will result is that when a big bundle is purchased, all or most of that content also can be viewed on a streaming, over the top basis. That would tend to maintain current spending levels.

On the other hand, most consumers do not view most channels, creating constant pressure to craft more affordable, smaller bundles that meet the needs of most consumers.

source: IBB Consulting

"Like and Dislike" Often Tell Us Nothing About Future Behavior

Consumer research always is difficult, but it is more difficult when questions about “value” are asked independently of price and other attributes. Consider the oft-noted observation that people hate ads.  In the abstract, and all other things being equal, that seems true enough.

But “liking or tolerating ads” is something different, if the issue is free content or “free functionality” in exchange for the ads, then people, even when not fond of ads, will tolerate them, within some reasonable bounds.

So people may not like ads, but will tolerate them so long as they see tangible benefits in exchange. That noted, there is a value-price relationship that content providers and advertisers have to be aware of.

Consumers will not tolerate  “excessive” amounts of advertising, or “highly intrusive” forms of advertising, repeated too often.

The point is that asking consumers what they like, and do not like, in the absence of value and cost considerations, will nearly always fail to capture or predict actual behavior.

Asking a typical consumer whether they “like ads” does not provide valuable insight. Behavior depends on the full value-cost relationship. Most consumers will tolerate some advertising to obtain free content or use of apps, with no major issues (think of Facebook, Google or other ad-supported services and apps).

Consumers might also say they prefer “no ads” experiences. But behavior depends on the mix of value obtained and costs paid to have an “ads-free” experience. Perhaps few consumers would choose “no ads” experiences if it meant substantially higher cost to use their favored apps and services.

It is generally true that consumers “hate advertising.” It also is true that those attitudes do not generally matter, when ads support free use of apps and services they value.

Design Element	Users Answering "Very Negatively" or "Negatively"
Pops-up in front of your window	95%
Loads slowly	94%
Tries to trick you into clicking on it	94%
Does not have a "Close" button	93%
Covers what you are trying to see	93%
Doesn't say what it is for	92%
Moves content around	92%
Occupies most of the page	90%
Blinks on and off	87%
Floats across the screen	79%
Automatically plays sound	79%

source: Nielsen Norman Group

Will Azure Catch Amazon?

With the caveat that comparing Amazon Web Services and Microsoft’s Azure is a bit of an “apples compared to oranges” situation, Azure seems to be emerging as the key challenger to AWS.

AWS revenue grew 43 percent year-over-year to $3.7 billion (a run rate of about $14 billion annual), in the first quarter of 2017.

Azure reported a 93 percent increase in sales for the same period. Azure includes the Microsoft cloud application businesses The “Intelligent Cloud” business unit grew sales growth of 11 percent year-over-year to $6.8 billion.

Synergy Research Group data suggests that Amazon Web Services (AWS) is maintaining its dominant share of the public cloud services market at over 40 percent, while the three main chasing cloud providers--Microsoft, Google and IBM--are gaining ground but at the expense of smaller players in the market.

In aggregate the three have increased their worldwide market share by almost five percentage points over the last year and together now account for 23 percent of the total public IaaS and PaaS market.

Still, analysts at Pacific Crest now argue that Azure is set to surpass Amazon Web Services (AWS) revenue for the first time in 2017.

"We estimate that in the second half of this year, Microsoft's Commercial Cloud segment could surpass Amazon Web Services (AWS) in absolute revenue, becoming the largest public cloud platform for the first time in 10 years and firmly marking its transition from cloud laggard to cloud leader," said Brent Bracelin, Pacific Crest senior research analyst.

The firm also believes cloud spending could triple to $239 billion in five years.

source: Synergy Research