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Netflix Loses 130,000 U.S. Customers After Raising Its Price to $12.99/Month

Phillip Dampier July 17, 2019 Competition, Consumer News, Netflix, Online Video, Video No Comments

Netflix stock lost over 11% of its value late today after the company reported second quarter results that underwhelmed Wall Street, including a surprising loss of 130,000 U.S. customers that left the streaming service during the last three months.

Netflix added 2.7 million customers in the second quarter, a much smaller number than the 6 million it added during the same period last year. As of the end of June, Netflix now has 151.6 million customers worldwide. Wall Street expected between 153-156 million by that time. The $2/month U.S. rate increase during the first quarter for Netflix’s popular two-concurrent stream plan (was $10.99, now $12.99 in the U.S.) helped keep company revenue up 26%, to $4.92 billion for the quarter. But analysts expected $4.93 billion. Profits also declined to $270 million, compared with $384 million a year ago during the same quarter.

The company blamed the lackluster results on the lack of compelling content during the second quarter. In a letter to shareholders, Netflix claimed the recent price increase slowed growth, but the real problem was overheated growth during the first quarter and not a lot of blockbuster movies and shows to watch.

“We think [the second quarter’s] content slate drove less growth in paid net adds than we anticipated,” Netflix executives said.

The company also noted it is raising prices in several European countries including the United Kingdom, Spain, Ireland, France and Germany.

Netflix does not believe competition with other streaming services had a material impact on its subscriber numbers during the quarter, but analysts suggest Netflix should be concerned about forthcoming streaming competition from AT&T/WarnerMedia (HBO Max) and Walt Disney (Disney+). As more services become available, consumers are likely to take a hard look at the streaming services they are watching and ditch those they are not.

Netflix also declared it will not introduce a cheaper, ad-supported version, despite increasing speculation it would.

“We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.” Netflix told shareholders.

The Wall Street Journal reviews the many challenges to Netflix from forthcoming contenders in the streaming wars. (4:36)

The Drumbeat for Netflix to Start Running Ads Grows Louder

Phillip Dampier July 10, 2019 Competition, Consumer News, Netflix, Online Video 2 Comments

Could this be the Netflix of the future?

Investors concerned about the increasing costs of developing new original content for Netflix have caused a drumbeat for the world’s largest on-demand video streaming company to start running advertising inside TV shows and movies.

A new study finds that almost one-third of Netflix customers claim they would not mind seeing advertising if it meant paying a lower price for Netflix.

The Diffusion Group, based in Los Angeles, asked 1,292 current Netflix subscribers if they would switch to a new, lower-priced Netflix tier that included commercial advertising. Nearly 32% of respondents expressed confidence they would make that switch, with 49% opposed and 20% undecided.

A recent streaming conference in Europe seems to have stoked interest in the concept of an ad-supported Netflix, although the company has repeatedly claimed it has no plans for an advertiser-supported tier, dismissing the idea as a concept dreamed up by their competitors, notably Comcast/NBC and Hulu.

TDG Research president Michael Greeson believes advertising on Netflix is inevitable however, driven by a backlash from Wall Street over how much Netflix is spending on content as it continues to lose access to some of its most popular licensed content, being pulled off Netflix by its competitors Disney and AT&T/WarnerMedia.

“Given the rising costs of programming and growing debt, so goes the argument, it is just a matter of time before the company makes a move,” TDG said in its report.

Netflix’s early days of streaming depended on a deep library of popular movies and TV shows that were readily licensed to the company by major Hollywood studios. But in the last five years, those studios have demanded dramatically higher licensing fees, and in the last year they have ended some contract renewals altogether to reserve content for the launch of their own affiliated streaming services, including Disney+ and HBO Max.

“Netflix’s response to its thinning third-party library is to spend more on originals, which it’s gambling will keep subscribers from jumping ship,” Greeson said. “But with half or more of its most-viewed shows being owned by three studios, each of which is launching their own direct-to-consumer services, how long can you convince 55+ million US consumers that your service is worth paying a premium price, especially compared with Hulu (offers an ad-based option), Amazon Prime Video (free with Prime), and Disney+ (coming in a $6.99/month)?”

Greeson

Netflix has faced growing pressure from investors to reduce the level of debt it has accumulated financing those original productions, including pushes for rate increases and advertising. Netflix raised prices, but has publicly opposed advertising. Some investors now want another rate increase, which Greeson warns would be perilous for Netflix’s subscriber count, because their research found the last price increase “strained the limit of the service’s value.” That research was done before subscribers start to discover their favorite shows will increasingly be pulled off the platform. Greeson believes another rate increase will cause at least some customers to flee, stalling Netflix’s growth.

The happy medium in Greeson’s view is the introduction of an ad-supported tier for price-sensitive subscribers, and he predicts Netflix will introduce it in the next 18 months.

“Ads will become an important part of a comprehensive tiering strategy that helps bullet-proof Netflix for years to come,” Greeson said.

Montana’s 3 Rivers Communications Getting Out of the Cable TV Business On Oct. 31

After years of increasing costs for video programming, the disadvantages of not being large enough to qualify for lucrative volume discounts, and a declining customer base, a Montana cooperative says it is calling it quits on cable television service later this year to focus on its broadband business.

3 Rivers Communications, a rural telecommunications cooperative based in Fairfield, Mont., this week announced it was discontinuing television service on Oct. 31, 2019, inviting its members to choose a streaming TV provider (DirecTV Now, YouTube TV, etc.) instead.

The co-op serves 15,000 customers across two significant service areas in Montana. Only 1,800 still subscribe to cable television service — a number that has dropped steadily since the introduction of streaming TV alternatives. Most cable networks and local stations charge a sliding scale fee to carry their programming, with substantial volume discounts offered exclusively to large providers like Comcast, Charter, AT&T, DirecTV and Dish Networks. Small, independent companies are at a disadvantage because they must charge substantially more to cover their higher wholesale costs. Many have attempted to mitigate these high fees by pooling resources and buying programming through a national cooperative, but even that arrangement cannot keep costs low enough to prevent subscribers from canceling service after each rate increase.

Local TV station rate inflation, along with sports programming price hikes, have made offering cable television untenable for a growing number of small cable operators. As an example, 3 Rivers customers in Big Sky pay $32.99 for a basic cable TV package of 23 channels, including C-SPAN, Local Access, three religious networks, three home shopping channels, and around a half-dozen digital multicast TV networks. A comprehensive digital cable TV package costs $104.99 a month, just for television.

The 3 Rivers Communications television lineup for Big Sky, Mont.

In the last ten years, 3 Rivers has been focused on expanding its fiber to the home network, now reaching 65% of its customers. But the costs to provide service in rural Montana remain high, and internet packages remain costly. A 10 Mbps unlimited internet account costs $74.95/mo, 20 Mbps costs $94.95/mo, and 30 Mbps costs $114.95 (add around $10/mo for voice service). Offering television service originally boosted the average revenue received from each subscriber, but now that costs have skyrocketed, 3 Rivers now feels it should focus its investments on better broadband service.

“With all the new streaming options available, [including] Netflix and Hulu and Amazon Prime, in addition to traditional satellite providers like Dish and DirecTV, we just can’t really compete anymore,” 3 Rivers marketing director Don Serido told KRTV News. “We’re getting out of the TV business and we’re really going to focus on providing the best broadband we can to all of our cooperative members. That’s really what people want and need.”

Serido also said the company’s lack of support for pay-per-view and on demand programming also hurt its TV business. As a convenience to members, 3 Rivers is waiving all early termination fees and will continue to honor its promotional agreements until service is ended on Oct. 31.

The biggest impact will likely be felt by Montana TV stations that will lose retransmission consent revenue from 3 Rivers. Only a handful of streaming providers offer TV stations from the Great Falls market, forcing many cord-cutters to depend on on-demand viewing from services like Hulu and over-the-air antennas to pick up local stations.

As a member-owned cooperative, 3 Rivers returns all of its profits to members through capital credits. At the end of each fiscal year, the cooperative allocates a percentage of the margins to each patron on a pro-rata basis according to the total amount paid or produced for services. These allocations to patrons are known as capital credits. Upon approval of the Board of Trustees, these allocations are refunded to cooperative patrons. As a result, 3 Rivers has no incentive to overcharge its customers. Instead, it often invests its funds in improving service for its customers. When the cooperative was formed in 1953, it was the only provider of telephone service in north-central Montana. It has offered internet service for the last 20 years, with television only becoming a part of its menu of offerings a decade ago.

3 Rivers Communications will get out of the cable television business this fall, reports KRTV News in Great Falls, Mont. (1:05)

N.Y. and California Head 10-State Lawsuit to Block T-Mobile/Sprint Merger

 James

New York Attorney General Letitia James and California Attorney General Xavier Becerra today filed an unusual multi-state lawsuit, along with eight other State Attorneys General to halt the proposed merger of telecom giants T-Mobile and Sprint, deciding not to wait for a decision from the Department of Justice, which is also reviewing the merger. The complaint, filed in the federal Southern District of New York court in coordination with Colorado, Connecticut, the District of Columbia, Maryland, Michigan, Mississippi, Virginia, and Wisconsin alleges that the merger of two of the four largest national mobile network operators would deprive consumers of the benefits of competition and drive up prices for cellphone services.

“When it comes to corporate power, bigger isn’t always better,” said Attorney General Letitia James. “The T-Mobile and Sprint merger would not only cause irreparable harm to mobile subscribers nationwide by cutting access to affordable, reliable wireless service for millions of Americans, but would particularly affect lower-income and minority communities here in New York and in urban areas across the country. That’s why we are going to court to stop this merger and protect our consumers, because this is exactly the sort of consumer-harming, job-killing megamerger our antitrust laws were designed to prevent.”

“Although T-Mobile and Sprint may be promising faster, better, and cheaper service with this merger, the evidence weighs against it,” said Attorney General Xavier Becerra. “This merger would hurt the most vulnerable Californians and result in a compressed market with fewer choices and higher prices. Today, along with New York and eight other partner states, we’ve filed a lawsuit to block this merger and protect the residents of our state.”

The states departed from traditional courtesies in the case, deciding to launch a pre-emptive legal challenge to the transaction without providing Justice Department officials advance notice of their decision to sue. That decision may have come after FCC Chairman Ajit Pai gave his full support for the merger, with indications the Republican majority on the FCC would also vote in favor of approving the deal. Staffers in the Antitrust Division of the Justice Department object to the merger, and are recommending it be rejected. But the Justice Department’s unpredictability, and its poor track record trying to block the AT&T-Time Warner (Entertainment) merger in court may have pushed the state attorneys general to also act on their own.

T-Mobile USA and Sprint are the third and fourth largest mobile wireless networks in the U.S., and are the lower-cost carriers among the “Big Four” — with market leaders Verizon Wireless and AT&T controlling the larest share of the wireless market. Intense competition, spurred in particular by T-Mobile and Sprint, has delivered declining prices, increased coverage, and better quality for all mobile phone subscribers. According to the Labor Department, the average cost of mobile service has fallen by roughly 28 percent over the last decade, while mobile data consumption has grown rapidly. The merger, however, would put an end to that fierce competition, argue the attorneys general, which has delivered a great number of benefits to consumers.

States with large urban poor communities are particularly sensitive to the merger, because both T-Mobile and Sprint focus their coverage on urban areas. With the average U.S. household spending $1,100 annually on wireless phone service, even small rate increases can dramatically increase service suspensions or disconnections due to late or non-payment.

“Low-and moderate-income (LMI) New Yorkers put a greater share of their household income toward their phone bill, and when you are looking at a budget that is already stretched thin, every dollar counts,” said Mae Grote, CEO of the Financial Clinic. “Cellphones now not only give us the ability to communicate with friends and family, here and abroad, but are increasingly the way we engage with many critical services. Our customers use cellphone apps to access public information, send and receive money, manage their SNAP benefits, look for a job, and even communicate with their doctors, and maintaining competition in the market for this critical service ensures LMI consumers have the same access to quality, affordable service as the more financially secure. The Clinic is proud to advocate on behalf of the communities we serve to protect their inclusion in the modern economy.”

The attorneys general investigation laid bare many of the alleged merger benefits offered by T-Mobile and Sprint to win approval of the merger. The group found many of the claimed benefits were completely unverifiable and were likely to be delivered years into the future, if ever. But within weeks of approving such a merger, the companies would have an immediate incentive to raise prices and reduce service quality. Sprint’s network, in particular, was scheduled to be largely mothballed as a result of the merger, even though Sprint provides coverage in some areas that T-Mobile does not. Although the two companies could identify several self-serving deal efficiencies that would reduce their costs and staffing needs, there is no evidence the merger would deliver consumers lower prices and were outweighed by the merger’s immediate harm to competition and consumers.

Additionally, the merger would harm thousands of hard-working mobile wireless independent dealers in New York and across the nation. The ten states are concerned that further consolidation at the carrier level would lead to a substantial loss of retail jobs, as well as lower pay for these workers in the near future.

Becerra

“CWA applauds the Attorneys General and especially General Letitia James’ leadership in taking decisive action today to prevent T-Mobile and Sprint from gaining anti-competitive power at the expense of workers, customers, and communities,” added Chris Shelton, president of the Communications Workers of America (CWA). “Reducing the number of national wireless carriers from four to three would mean higher prices for consumers, job loss for retail wireless workers, and downward pressure on all wireless workers’ wages. The states’ action today is a welcome development for American workers and consumers, and a reminder that regulators must take labor market concerns seriously when evaluating mergers.”

Before filing suit, the states gave significant consideration to T-Mobile and Sprint’s claims of increased coverage in rural areas. However, T-Mobile has yet to provide plans to build any new cell sites in areas that would not otherwise be served by either T-Mobile or Sprint. As stated in the complaint, the U.S. previously won the “race to LTE” as a direct result of vigorous competition among wireless carriers. Finally, continued competition, not concentration, is most likely to spur rapid development of a nationwide 5G network and other innovations.

“This merger is bad for competition, and it is bad for consumers, especially those living in or traveling through rural areas, who will experience fewer choices, price increases, and substandard service,” stated Carri Bennet, general counsel for the Rural Wireless Association. “We are pleased that the New York Attorney General, along with nine states have filed their lawsuit to block the merger. The process at the FCC has not been transparent and the FCC appears to be blindly accepting New T-Mobile’s words as truth.”

The complaint was filed under seal, because it contains unredacted confidential information, in United States District Court for the Southern District of New York.  A redacted copy of the lawsuit is likely to be made available later.

T-Mobile currently has more than 79 million subscribers, and is a majority-owned subsidiary of Germany’s Deutsche Telekom AG. Sprint Corp. currently has more than 54 million subscribers, and is a majority-owned subsidiary of Japan’s SoftBank Group Corp.

Comcast Hiking Some TV Prices at Least $10 a Month In 2019

Phillip Dampier April 15, 2019 Comcast/Xfinity, Consumer News 2 Comments

Comcast has begun gradually rolling out 2019’s rate increases for cable television, equipment, and various service fees, starting with some markets on the east coast, sending the cost of Xfinity’s Digital Starter TV package over $100 a month when customers add typical equipment fees and surcharges.

Comcast has also set a $70 charge for service calls, a $70 installation fee, and up to $99.99 for a complete setup of Xfinity Home.

Customers on lower priced tiers will find the paperless bill discount is gone, as are discounts for selecting more than one service. In fact, Multi Product discounts no longer apply to certain Xfinity TV and Xfinity internet services, including but not limited to: Limited Basic, Digital Starter, Internet Essentials, and services purchased under a bulk service agreement.

Cable TV Rates for 2019:

  • Limited Basic: $32.95
  • Basic: (Includes Limited Basic, Streampix, and high definition programming) $30.00
  • Extra: (Includes Limited Basic, Sports & News, Kids & Family, Entertainment, Streampix, high definition programming, and 20 hours of Cloud DVR) $70.00
  • Preferred: (Includes Extra plus additional digital channels) $90.00
  • Digital Starter: (Includes Limited Basic, additional digital channels, TV Box and remote for primary outlet, access to Pay-Per-View and On Demand programming and Music Choice) $69.95

Fees (often compulsory) for 2019:

  • Broadcast TV Fee: $10.00
  • Regional Sports Fee: $8.25
  • DVR Service: $10.00
  • HD Technology Fee: $9.95

Xfinity Internet Prices for 2019 (discounts apply for some packages when bundled)

  • Performance Starter: $50.00
  • Performance: $70.00
  • Blast!: $80.00
  • Extreme: $90.00
  • Extreme Pro: $100.00
  • Gigabit Speed: $110.00
  • Gigabit Pro: $299.95

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