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Streaming and Cord Cutting Take Toll on European TV Networks, License Fees

Phillip Dampier February 4, 2019 Competition, Consumer News, Online Video, Public Policy & Gov't Comments Off on Streaming and Cord Cutting Take Toll on European TV Networks, License Fees

European broadcasters are frightened at the prospect of seeing viewers and crucial mandatory TV license fees erode away as an invasion of American on-demand streaming from Netflix and Amazon takes its toll on traditional television.

Netflix’s almost limitless budget for original local/in-country productions is threatening to outspend traditional European broadcasters and giving viewers a new reason to stop paying compulsory TV license fees, which do not apply to foreign-owned streaming services.

Unlike in the United States, where non-commercial public broadcaster PBS receives most of its financial support from corporate underwriting and voluntary contributions from viewers and listeners, many European countries finance their national, over-the-air public broadcasting services with a mandatory annual license fee.

In the United Kingdom, for example, a household must pay $200 a year if their home has color TV sets or $68 a year for black and white-only TV sets if they watch the BBC. These fees cover the costs of the BBC’s extensive commercial-free radio and TV service and keep it independent of the British government. That fee is a bargain compared to Denmark, Norway, and Austria where TV license fees exceed $300 US annually.

Enforcement officers using TV detector vans drive through neighborhoods looking for unlicensed TV homes by detecting signals emitting from a switched-on television. Warning letters and a visit from an enforcement officer quickly follow. But as streaming services take hold, it is becoming more difficult for licensing officers to determine if a resident is using their television to watch the BBC, which requires a license, or on-demand content from a streaming service like Netflix, which does not require a license.

It’s a growing issue in the United Kingdom, where TV license cancellations are now rising for the first time in five years, particularly as younger viewers move away from traditional linear-live TV programming. According to the Financial Times, by 2022 Netflix, Amazon, Facebook and Apple could outspend traditional UK networks by a factor of four. Independent of the BBC, Britain’s commercial ITV network is also reporting increasing viewer defections, especially among younger audiences. Traditional pay television, usually delivered by Sky satellite or Virgin’s cable system, is also experiencing dish/cord-cutting as viewers start to abandon traditional TV packages.

(Image courtesy: Financial Times)

UK networks are planning to respond to the threat by building on their current streaming successes, particularly BritBox, a joint venture of BBC Studios and ITV targeting North American audiences with on-demand British television series and original productions. BritBox has attracted a loyal following in the U.S. and Canada willing to pay around $7 a month, effortlessly raising almost half of the amount of a traditional UK TV license from North Americans without the expenses of traditional broadcasting, staffing, and collections. In the UK, a TV license grants viewers automatic access to iPlayer from the BBC, which offers live streams and short-term access to on-demand programming. Both UK broadcasters believe a service like BritBox, offering a more extensive library of older programming and full seasons of TV shows may interest UK audiences more — perhaps enough to pay another $7 a month for access, in addition to their TV license fee.

Other European broadcasters are dabbling in streaming ventures, but currently see less threat from the English-language dominant catalog of content from services like Netflix. In fact, many of those European broadcasters, particularly in Scandinavia, Germany, France, Switzerland, the Netherlands, and Belgium are earning extra revenue by licensing their native language content, subtitled for English language audiences, to streaming services like Netflix, MHz Choice, Hulu, and Amazon Prime.

AT&T: “2019 is the Money Year” – Company Plans Big Rate Hikes, Makes It Tough to Disconnect

Phillip Dampier January 29, 2019 AT&T, Competition, Consumer News, DirecTV, Online Video 7 Comments

AT&T shareholders are frustrated. They are not getting the dividend payouts and shareholder value they expected after AT&T put itself $170 billion in debt last year — the highest debt load of any non-financial American corporation.

As AT&T has bet big in recent years on video-related acquisitions, including DirecTV and Time Warner (Entertainment), investors are skeptical AT&T can properly monetize its video business. Many have sold shares after criticizing company executives over the company’s strategy and high debt, driving AT&T’s market capitalization down to around $225 billion, comparable with considerably smaller Verizon Communications.

But no worries, AT&T CEO Randall Stephenson, has reassured. AT&T expects those investments to yield results this year, helped by forthcoming broad price hikes for AT&T’s consumer services.

“2019 candidly is the money year,” Stephenson said in an interview with the Wall Street Journal. “This is a year when we get everything rationalized.”

According to AT&T, customers are irrationally paying too little for AT&T’s video-related services, which include DirecTV (~19 million customers) and DirecTV Now — the two-year old streaming service that has attracted nearly two million subscribers.

Stephenson

Although DirecTV has recently been extremely aggressive about offering deep discounts to convince satellite customers to stay, AT&T plans to pull back on those discounts as two million DirecTV customers see their two-year contracts end this year. Instead of granting renewed discounts for signing another contract, AT&T plans to deliver significant rate increases.

“As those customers come due, we’ll get closer to market pricing,” AT&T’s John Donovan told investors at a November investor conference. “We’ll be respectful of our customers, but [prices] will move up.”

That may prove a difficult sell for DirecTV satellite customers, who have recently been abandoning the satellite platform in favor of cheaper streaming TV alternatives. Even with package discounts, DirecTV is the pay television industry’s most expensive provider, collecting an average of $120.36 a month for its TV packages. In contrast, Dish Networks gets an average of $103.99, Charter Spectrum earns $91.14 and Comcast, $84.50.

DirecTV defections, largely over price, have been growing at an accelerated rate, with 1.4 million customers turning their back on the satellite provider over the last two years. Analysts expect AT&T will report 300,000 more lost subscribers in the last three months alone. At that rate, AT&T will lose at least $1 billion in operating profits in 2019 from its declining satellite TV unit alone.

(Image courtesy: WSJ)

DirecTV Now customers, who already absorbed a $5 rate hike last summer, and will face even more rate increases and channel reductions in 2019. Stephenson expects DirecTV Now’s price point to be in the $50-60 range, which means many customers will likely face an average of $10 in rate hikes this year. For AT&T, that would deliver “the right price” and gets the service “to where it is profitable,” according to Stephenson.

But customers are likely to balk if AT&T reduces channel lineups at the same time it raises prices. AT&T has already faced substantial DirecTV Now customer defections after last summer’s rate increase, and the company has also reduced new customer sign-ups by cutting back on new subscriber promotions, which often included a free set-top streaming device. Waiting to pick up exiled streaming and satellite customers are AT&T’s competitors, especially Google. YouTube TV has proved to be a DirecTV Now killer, now charging $40 a month for 60+ channels. It also comes with an unlimited cloud DVR feature and a complete lineup of local channels across most of the country. YouTube TV is reportedly still growing, attracting more than one million customers so far. AT&T executives claim the service is popular only because Google is suspected of subsidizing what they believe to be an unprofitable venture by around $9 a month.

Investors are also unhappy about customers slimming down their TV packages, because average revenue per customer is cut in the process, sometimes dramatically. Wall Street was accustomed to video packages bringing in at least $100 a month. In many cases, that revenue is cut in half after a customer switches to a streaming provider. AT&T hopes investor pressure on those new ventures and ongoing wholesale programming rate increases will both conspire to bring back familiar annual rate hikes for streaming services as well. Programming cost inflation almost feeds itself. As programmers set new wholesale rate records for their networks, other programmers believe there is now room to raise their wholesale rates as well.

Programming costs are not just important for consumers, either. Wholesale programming rate inflation was one of the reasons AT&T spent $49 billion to acquire DirecTV. Volume discounts for DirecTV meant the satellite provider was paying an estimated $20 a month less on programming than AT&T’s own U-verse unit, which had a much smaller customer base. AT&T’s purchase of Time Warner, which owns several popular cable networks, was also a hedge against programming rate increases because AT&T would effectively pay any increases to itself.

(Image courtesy: WSJ)

The Journal reports AT&T executives were unprepared for the speed cord-cutting has taken hold. Most most under-30 have abandoned the concept of paying for live, linear cable television at any price, preferring a combination of on-demand streaming from Netflix, Hulu, and other video streaming services with an over the air antenna to watch local stations for free. Older Americans are gradually following suit.

According to the Journal, AT&T’s latest tactic to slow down customer departures is to make cancellation as difficult as possible:

“There’s no way that we could make the numbers we were told to make,” said Altrina Grant, former manager of a Chicago-area AT&T call center. She said some agents would promise to call back a customer about a request to drop service rather than immediately disconnecting, which would count against their compensation. Irate customers would later call another employee to ask why their request wasn’t honored, she said.

“These reps were getting thousands of dollars because they knew how to manipulate the system,” Ms. Grant said.

Cyrus Evans, a former call-center manager in Waco, Texas, said employees’ pay could swing between $50,000 and $80,000 a year depending on their performance, which was often influenced by how many disconnection requests they could deflect. Mr. Evans said employees often got angry calls from customers who had been promised their service would end, only to receive a bill the next month. He said the incentive structure rewarded bad behavior.

Former AT&T workers said the company launched a new audit team in 2017 to crack down on support staffers making promises they couldn’t keep. Ms. Grant said this initiative led the company to fire some workers but several customer-care executives are still in their jobs.

AT&T disputes these allegations, claiming false promises to customers violate AT&T’s Code of Business Conduct and are “extremely rare.”

YouTube TV Now Offers Local Channels in Top-95 TV Markets

Phillip Dampier January 23, 2019 Competition, Consumer News, Online Video, YouTube TV Comments Off on YouTube TV Now Offers Local Channels in Top-95 TV Markets

YouTube TV, which offers cable-free live television, today announced it now offers local network affiliates covering over 98% of the U.S., allowing consumers in smaller cities to cut the cord and still keep good reception from most local, over-the-air stations.

Since launching almost two years ago, YouTube TV has gradually added local stations from most metro areas, but many smaller markets were not covered. Effective today, YouTube TV adds most local ABC, CBS, FOX, NBC, and some independent stations in these areas:

  • Alabama: Dothan, Montgomery-Selma
  • Alaska: Anchorage, Fairbanks
  • Arkansas: Jonesboro, Monroe-El Dorado
  • California: Bakersfield, Chico-Reading, Eureka, Monterey-Salinas, Palm Springs, Yuma-El Centro
  • Colorado: Grand Junction
  • Florida: Panama City, Tallahassee-Thomasville
  • Georgia: Albany, Augusta-Aiken, Gainesville, Macon
  • Idaho: Boise, Idaho Falls-Pocatello, Twin Falls
  • Indiana: Evansville, Ft. Wayne, Lafayette, Terre Haute
  • Illinois: Peoria-Bloomington, Rockford
  • Iowa: Davenport-Rock Island-Moline, Ottumwa-Kirksville, Sioux City
  • Kansas: Topeka
  • Louisiana: Alexandria, Lake Charles
  • Maine: Bangor, Presque Isle
  • Massachusetts: Springfield-Holyoke
  • Michigan: Lansing, Marquette, Traverse City
  • Minnesota: Duluth-Superior, Mankato, Rochester-Mason City-Austin
  • Mississippi: Biloxi-Gulfport, Columbus-Tupelo, Greenwood-Greenville, Meridian
  • Missouri: Columbia-Jefferson City, Joplin-Pittsburg, St. Joseph
  • Montana: Billings, Butte-Bozeman, Great Falls, Missoula
  • Nebraska: Lincoln, North Platte
  • Nevada: Reno
  • New York: Binghamton, Elmira-Corning, Utica, Watertown
  • North Carolina: Wilmington
  • North Dakota: Fargo, Minot-Bismarck-Dickinson (Williston)
  • Ohio: Bowling Green, Lima
  • Oregon: Bend, Eugene, Medford-Klamath Falls
  • Pennsylvania: Erie, Johnstown-Altoona
  • South Carolina: Myrtle Beach
  • South Dakota: Rapid City, Sioux Falls
  • Texas: Amarillo, Beaumont-Port Arthur, Corpus Christi, Laredo, Lubbock, Odessa-Midland, San Angelo-Santa Barbara-Santa Maria-San Luis Obispo, Sherman-Ada, Tyler-Longview (Lufkin & Nacogdoches), Wichita Falls
  • Virginia: Charlottesville, Harrisonburg
  • Washington: Yakima-Pasco-Richland-Kennewick
  • West Virginia: Bluefield-Beckley-Oak, Clarksburg-Weston, Parkersburg, Wheeling-Steubenville
  • Wisconsin: La Crosse, Wausau-Rhinelander
  • Wyoming: Cheyenne-Scottsbluff

Additional small markets will be added later.

YouTube TV offers over 60 networks, on-demand programming, cloud DVR service with no storage limit and unlimited simultaneous recordings, up to six personal accounts (three simultaneous stream limit), for $40 a month.

Hulu Announces Pricing Changes: Basic Hulu Drops to $5.99, Cord-Cutting Package Sees $5 Rate Hike

Phillip Dampier January 23, 2019 Competition, Consumer News, Hulu, Online Video 1 Comment

Just days after Netflix announced its largest rate hike in the history of the streaming service, Hulu is following with its own announcement of “new pricing options” that will cost some customers less and others more.

“Over the past year, Hulu has added thousands of exclusive TV episodes and movies, launched nearly a dozen additional popular live TV channels – including The CW, Discovery Channel, TLC, Animal Planet and ABC News – and upgraded the technology platforms to support more devices and provide superior quality to our viewers,” Hulu announced on its Hulu Updates website. “With more than 85,000 episodes of on-demand television — more than any other U.S. streaming service — as well as thousands of movies and more than 60 popular live television channels, Hulu makes it easy for TV fans to get the most complete television experience. Today, we’re announcing updates to our pricing options (that will go into effect next month) to allow current and new subscribers to choose the best Hulu experience for them.”

New Rates

  • Hulu Basic (with commercials) drops $2 per month from $7.99 to $5.99.
  • Hulu (No Ads) remains $11.99 a month.
  • Hulu + Live TV, the entry-level cord-cutters package with more than 60 live channels and access to Hulu on-demand content with commercials increases $5 per month to $44.99.
  • Hulu (No Ads) + Live TV is also increasing $5 a month to $50.99 and features more than 60 live channels and Hulu’s on demand content with no commercials.

Hulu Basic had often been offered at $5.99 a month during special promotions, and the new lower price could attract more long-term subscribers. The increase in price for live television service comes as the result of increasing programming expenses and a desire to increase revenue. Hulu’s competitors have also been raising prices on packages featuring live networks and local channels.

Hulu’s new pricing will take effect on Feb. 26. Existing customers will see the price changes reflected in billing cycles beginning on or after Feb. 26.

Netflix Announces Biggest Price Hike Ever: Most Will Pay $12.99 a Month

Phillip Dampier January 15, 2019 Competition, Consumer News, Online Video Comments Off on Netflix Announces Biggest Price Hike Ever: Most Will Pay $12.99 a Month

Like cable companies, streaming services are not immune to raising rates, and the country’s biggest and most popular streaming service — Netflix — this morning announced its largest rate hike ever.

Most Netflix subscribers will see their monthly rate increase by $2 a month.

Netflix’s rate card effective January 15, 2019 (for new subscribers).

The rate hike will raise at least $100 million a month in revenue and will apply first to new subscribers, and will gradually apply to all 58 million current U.S. subscribers over the next three months, as well as those in Latin America where subscriptions are paid in U.S. dollars (except in Mexico and Brazil, where rates remain unchanged). Rates for the 78 million Netflix subscribers outside of the U.S. are not expected to change immediately, partly due to ongoing promotional spending and marketing efforts to boost subscriber numbers overseas.

Wall Street had been increasingly pessimistic about Netflix’s revenue and profit projections because of ongoing increases in spending to finance an avalanche of original Netflix productions. The company’s stock price dropped by 21 percent, from a peak of $423.21 last June to $332.94 just before the market opened this morning. Netflix’s chief content officer told the media last spring about 85% of the company’s estimated $8 billion in content spending for 2018 was for original TV shows, movies, and other productions. By summer, Netflix had $12 billion in debt before borrowing another $2 billion in October. But that debt never changed Netflix’s plans to premiere 1,000 new movies and TV series in 2018, with an even larger number of productions scheduled for 2019.

Netflix has been pushed towards producing its own content as movie studios and studio-owned television production companies raise contract renewal prices on Netflix or end those contracts altogether, bringing content back to those studios as they prepare to launch paid streaming services of their own. WarnerMedia, Disney, and NBCUniversal are all planning launches over the next 24 months, while other existing services like CBS All Access and Hulu continue to beef up their own viewing menus, often with shows that were formerly found on Netflix.

Netflix is also depending on a growing international audience for its offerings, and has expanded original productions in many languages to find that global audience. Netflix usually benefits from much lower production costs for shows filmed overseas, and English language subscribers have surprisingly embraced dubbed and/or subtitled content at levels beyond Netflix’s expectations. Back in North America, the massive increase in demand for original content by Netflix and its competitors has made it possible for production companies, directors, writers, and talent to command dramatically higher salaries, raising Netflix’s expenses.

Investors cheered today’s price increase, causing its stock price to rise at least 6% in early trading. Wall Street believes Netflix is now nearly immune to cancellations over its price, which is still below the monthly retail price of HBO. But this morning’s announcement does represent the largest rate increase ever for the 12-year old streaming service.

Netflix will also use some of the additional revenue from the rate hike to pay down its substantial debt. Few expect any backlash reminiscent of Netflix’s 2011 decision to raise prices and unbundle its DVD-rental-by-mail service from video streaming, which resulted in a 60 percent rate increase for customers seeking both streaming and mail rental options. Netflix lost 600,000 subscribers after that announcement, initially making the company more cautious about future rate increases.

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