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Verizon Buys AOL for $4.4 Billion; Bolsters Verizon’s Mobile Video/Advertising Business

Phillip Dampier May 12, 2015 Competition, Consumer News, Online Video, Verizon, Video, Wireless Broadband Comments Off on Verizon Buys AOL for $4.4 Billion; Bolsters Verizon’s Mobile Video/Advertising Business

aolVerizon Communications this morning announced it will buy AOL, Inc., in a $4.4 billion cash deal that will provide Verizon with powerful mobile video and advertising platforms.

Originally known for its ubiquitous dial-up Internet access, AOL today is better described as a content and advertising aggregator — putting online video in front of viewers bolstered by AOL’s powerful advertising technology that can match a targeted advertising message to a specific viewer in milliseconds.

AOL’s portfolio also includes the well-known Engadget, TechCrunch and Huffington Post websites, which many analysts expect will not be part of the deal, quickly spun off to a new owner(s) to avoid any political headaches over Verizon’s control of the well-known content sites, some including coverage critical of Verizon.

Verizon-logoAll signs point to the AOL acquisition as more evidence Verizon management is shifting priorities to its mobile business, Verizon Wireless. In 2014, Verizon acquired the assets of Intel Media, which was planning an Internet TV service called OnCue. Verizon’s acquisition will help it develop an alternative television platform and many analysts expect it will primarily reach Verizon Wireless customers.

Complimenting online video with AOL’s ad placement and insertion platform will likely be the best chance Verizon has to monetize that video content.

“Certainly the subscription business and the content businesses are very noteworthy,” confirmed Verizon’s president of operations, John Stratton. “For us, the principal interest was around the ad tech platform.”

[flv]http://www.phillipdampier.com/video/Bloomberg Why Verizon Coveted AOLs Ad Technology and Mobile Video 5-12-15.flv[/flv]

Bloomberg says Verizon’s real interest in AOL is their online advertising platform, which can bolster Verizon Wireless’ mobile video service. (2:39)

Verizon’s $4 billion investment in AOL did not go into expanding its fiber optic platform FiOS.

Verizon Wireless Multicast

Verizon Wireless Multicast

“For the price it’s paying for AOL, Verizon could deploy its FiOS broadband service across the rest of its service area, bringing much-needed services and competition to communities like Baltimore, Boston and Buffalo,” said Free Press research director S. Derek Turner. “Instead, the company is spending a fortune to wade into the advertising and content-production markets. In terms of the latter, Verizon has already shown a willingness to block content and skew news coverage.”

As Stop the Cap! reported last week, that isn’t a surprise to some utility companies that believe all signs point to Verizon’s growing disinterest in its wireline division. Florida Power & Light expects Verizon will become a wireless only company within the next 10 years.

While AT&T explores expanding its wireless service internationally and seeks approval for its acquisition of satellite service DirecTV, Verizon Wireless is moving to monetize increased customer usage of its network with the forthcoming introduction of a video service this summer. The product would offer a mix of ad-supported and paid short video content and may offer live multicast programming that can reach a larger audience without disrupting network capacity.

Increased viewing of high bandwidth video will force Verizon customers to continually upgrade data plans, further monetizing Verizon’s wireless business. AOL’s ad insertion technology will allow Verizon to earn advertising income from viewers, creating a dual revenue stream.

Verizon can also sell advertisers information about its massive customer base of wired and wireless customers, including their browsing habits and demographic profile to deliver “data-driven marketing and addressable advertising.”

[flv]http://www.phillipdampier.com/video/Bloomberg Verizon-AOL Deal 1999 All Over Again 5-12-15.flv[/flv]

Bloomberg News puts together several of Verizon’s puzzling recent acquisitions, which point to a shift of Verizon’s business towards its mobile and content platforms. (5:42)

While Your Cable TV Bill Rises Due to “Increased Programming Costs,” So Are Advertising Loads

Phillip Dampier May 5, 2015 Competition, Consumer News, History, Online Video, Public Policy & Gov't, Video 1 Comment
cablebill-web

Cablevision’s broadcast TV surcharge increased in January to $5.98 a month, which amounts to $71.76 a year, on top of your usual cable TV bill.

No it isn’t your imagination. While a growing number of cable television subscribers now face a “broadcast programming surcharge” on their cable bill to compensate television stations and networks for cable carriage, those same channels are larding up their programming with ever-increasing advertising. One quarter of every hour of network television is now littered with commercials — an all-time high for broadcast networks seeking to maximize advertising revenue.

Show openings have been cut to seconds, credits roll by at fast-forward speed – usually compressed into illegibility, and some cable networks have returned to the practice of chopping bits of shows and compressing playback of others to accommodate more commercials. That does not include product placement or “in-program” compensated advertising, which appears when a character picks up a can of Pepsi, walks by a Subway outlet, or reaches for a Pop-Tart for breakfast.

As early as 2009, TNS Media Intelligence found at least 36% of today’s network primetime shows were advertising-oriented. That included 7:59 of in-show brand appearances and 13:52 of commercial advertisements, for a combined total of 21:51 of marketing content.

Reality shows, as well as being cheap to produce, are product placement gold. America’s Toughest Jobs contained 44:50 per hour of advertising messages and product placement, The Biggest Loser ran up 40:37. Before the reality show craze, game shows were program-length commercials in disguise. Game show producers received an endless supply of prizes to give away in return for viewers enduring relentless 10-15 second pitches for Rice-a-Roni, crock pots, living room furniture sets, and current model cars and trucks. Viewers did not escape traditional advertisements along the way either.

Through much of the 1970s and early 1980s, an average hour of network television was between 48-52 minutes of programming, 8-12 minutes of network and local commercials. Short news breaks and public service announcements were often included during those breaks. Shows targeting children usually contained less advertising.

In 1984, the Reagan Administration deregulated broadcasters, claiming the free market was best equipped to contain any abusive practices as consumers theoretically could tune out stations and networks that allowed things to get out-of-hand.

In reality, what one network decided, the others usually followed. Outside of watching commercial-free PBS (although those sponsorship messages increasingly began to resemble traditional advertising over the years), viewers didn’t have much choice. For the last 31 years since deregulation, advertising has increased while show length has decreased. In the 1970s and 80s, pieces of rerun television shows created when ad loads were shorter were often cut from shows to make room for an extra ad or two. What was left after a trip to the cutting room was often played slightly sped-up, which made room for even more advertising. By the 1990s, producers created their shows with increasing advertising loads in mind. Short sacrificial 60-90 second end scenes, deemed non-essential to the show’s integrity, were often chopped when a show entered syndication.

In the 2000s, network executives started demanding producers drastically cut the length of show opening and closing themes. If producers didn’t, studios did it for them when a show was resold to a cable network. A rerun of Law & Order now features a 24-second opening, a big difference from the original 1:45 second opening the show had when it originally aired on NBC. End credits were usually squished on-screen to allow a 15-second network promotion to run at the top. Some networks even began their next show in one window while showing end credits of the last program in another.

But nothing affected commercial loads more than the 2008 Great Recession. Advertising revenue tumbled, along with the economy, and advertisers balked at paying traditional ad rates when online advertising was available for much less. The answer? Sell more ads… at a lower price. Once again, program lengths had to be cut to make room for the increasing number of commercials. By 2009, average network ad loads were up to 13:25 per hour. Just four years later in 2013, that number spiked to 14:15. It’s now 15 minutes and up at some networks, depending on the type of program.

As commercials neared comprising 25% of every hour of television, sponsors finally began to rebel. They were reacting to the pervasive growth of the DVR, which allowed consumers to record their favorite shows, if only to fast forward past the dense thicket of commercials. They sought a ceiling on ad loads and more creative ways to reach ad-skipping audiences numbed by relentless advertising. That meant even more product placement.

Although sponsors of expensive NBC, CBS, ABC, and FOX shows may have rebelled at the 15-minute mark, the same isn’t true with cable networks where ad loads are as high as 24 minutes per hour. In 2009, the average cable network aired 14:27 of advertisements an hour. This year, it’s up to 15:18 and still rising. Among the worst offenders:

ad load

To keep the money flowing from every direction, both over-the-air and cable networks, including those noted above, continue to seek additional compensation from your provider in the form of retransmission consent and carriage agreements. Whether you watch a channel or not, you are paying for it. Some of these compensation agreements are experiencing rate increases approaching 10% annually.

To the surprise of many industry analysts, some of the worst offenders are networks with declining ratings who risk further alienating viewers with even more advertising just to keep revenue numbers up. While traditional ads actually declined by 2% on most over the air networks this year, FOX more than made up for that with a 15% increase in advertising time. The cable networks with the highest ad increases this year were Viacom-owned channels (Comedy Central, Spike, MTV, Nickelodeon) jumping 13%, A+E Networks (A&E, Crime & Investigation, Lifetime, History) increasing 10%, and 9% at Discovery Networks. Which networks increased ads the least? Those owned by Disney, independent cable networks, and Time Warner (Entertainment).

“Generally speaking, the ratings winners (Disney, 21st Century Fox, Scripps Networks) are increasing investment in original content (and not abusively increasing ad loads), whereas the losers (A+E Networks, Viacom, NBCUniversal) and the neutrals (Discovery, AMC Networks) are decelerating investment in original content and stuffing more ad spots into their shows,” said analyst Todd Juenger of Sanford C. Bernstein.

Michael Nathanson of MoffetNathanson Research worries television is repeating the mistakes commercial radio made post-deregulation, when massive increases in advertising accompanied by decelerating investment in programming repelled many listeners, perhaps for good. Some have permanently abandoned commercial over the air radio in favor of commercial free music services, satellite radio, and streaming services.

“Networks can offset ratings challenges and pricing weakness with more inventory, however, we worry that it is a dangerous long-term game that ultimately devalues the consumer experience and reduces ad efficacy,” Nathanson said. “As we saw with radio, once the increased commercial load genie is out of the bottle, it is nearly impossible to put it back in.”

When Stephen Cox was watching The Wizard of Oz on TBS last November, something didn’t sound quite right to him about the Munchkins, who are near and dear to his heart. He wasn’t imagining things. Time Warner-owned TBS used compression technology to speed up the movie. The purpose: stuffing in more TV commercials.

“Their voices were raised a notch,” Cox, the author of several pop-culture books including one about the classic 1939 film, told the Wall Street Journal. “It was astounding to me.”

The Colbert Report hilariously depicts the next generation of product placement: the retroactive ad technology of Mirriad, which can insert products into shows years after they were made. (4:04)

New Revelations About Comcast’s Role in Killing Hulu Sale Raise Doubts Regulators Can Trust Company

Phillip Dampier April 21, 2015 Comcast/Xfinity, Competition, Consumer News, Online Video, Public Policy & Gov't Comments Off on New Revelations About Comcast’s Role in Killing Hulu Sale Raise Doubts Regulators Can Trust Company

sun valleyDespite a firm commitment with the Justice Department not to be involved in the day-to-day management of Hulu as a condition of approving Comcast’s merger with NBC/Universal, new revelations suggest Comcast not only promoted the online video service to its partners as a nationwide streaming platform for the cable industry, it also convinced them not to sell the service to a Comcast competitor.

Two years ago, at the 2013 Allen & Co., conference held in the resort community of Sun Valley, Idaho, executives from Walt Disney/ABC, 21st Century Fox, and Comcast privately met to discuss the future of Hulu, the online video service. Hulu’s chief executive, Jason Kilar, had already made it clear he was preparing to leave the venture, possibly foreseeing a likely sale because of ongoing differences between two of Hulu’s three owners over the future direction of the service.

Rupert Murdoch’s FOX wanted Hulu to emphasize Hulu+, its subscription option. Disney/ABC believed Hulu worked best as a free, ad-supported service. Comcast was supposed to stay out of it, required by the Justice Department to be a perpetual silent partner after the cable company inherited a 32% stake in Hulu through its merger with NBC/Universal in 2011.

But a Wall Street Journal report late Tuesday suggested Comcast had far more involvement in critical Hulu business decisions than the Justice Department might have tolerated had it known. Earlier reports over the weekend suggested regulators were focusing on Comcast’s involvement in Hulu, concerned Comcast may have ignored a consent decree and interfered with the sale of Hulu to protect itself from increased competition.

At the time Comcast acquired NBC/Universal, the Justice Department was concerned the cable company would inherit NBC’s one-third interest in Hulu, a potential online video competitor that could eventually fuel cord-cutting. Comcast agreed to “relinquish any veto right or other right to influence, control, or participate in the governance or management of Hulu.” It also agreed to license Comcast/NBC-owned content to Comcast’s competitors on fair terms.

Despite Comcast’s commitment, people familiar with the matter told the Journal Comcast “felt hamstrung” by the conditions it agreed to in the consent decree. Although Comcast spokeswoman Sena Fitzmaurice insisted “Comcast has no role in making, evaluating or reconsidering any management decisions at Hulu,” Comcast executives in attendance at the Sun Valley meetup suggested Hulu was an important part of the cable industry’s future. The “silent partner” allegedly told Hulu’s fellow owners if they didn’t sell the venture, Comcast would make Hulu the nationwide streaming video platform for the industry’s “TV Everywhere” project, turning it into a potential major rival of Netflix.

Comcast acquired a 32% ownership interest in Hulu after buying NBC/Universal.

Comcast acquired a 32% ownership interest in Hulu after buying NBC/Universal.

According to sources who had knowledge of the matter, Comcast’s proposal, which would enlarge Hulu significantly almost overnight, influenced Disney and Fox to cancel the sale by the end of the week-long conference. At that point, two of the biggest bidders to acquire Hulu were Comcast rivals DirecTV and AT&T, both seeking to develop online video platforms that could compete with Comcast.

As news spread the Hulu sale was off, a piece in GigaOm made it clear Comcast came away the biggest winner, keeping a potential competing online cable TV video platform at bay:

Buying Hulu would have been more than just a TV Everywhere play for AT&T and DirecTV. It could have been the first step towards an online-based pay-TV subscription, with a solid consumer base, name recognition and proven technology.

Now none of this is going to happen — and Comcast couldn’t be happier about that.

Ultimately, Comcast wasn’t much better fulfilling promises to its Hulu partners than it has managed for its customers. Despite promising to market Hulu to millions of Comcast cable subscribers and integrating the service into Comcast’s own systems, discussions surrounding a formal agreement between the two went nowhere, bogged down by a deal-killing Comcast demand that any viewer accessing Hulu be redirected through Comcast’s own video player and platform, which conveniently provided the cable company with Hulu customer data and gave free exposure to Comcast’s brand. That would make pitching Hulu as an alternative to Comcast next to impossible.

After the threat of a sale was a distant memory, Comcast seemed to lose interest in Hulu, refocusing on its expensive X1 set-top box and XFINITY-branded streaming apps.

To this day, Comcast’s X1 still does not offer subscribers a Hulu app.

Amazon.com Slashes Price of Fire TV: $69 for Cyber Monday is $30 Off Regular Price

Phillip Dampier December 1, 2014 Competition, Consumer News, Online Video Comments Off on Amazon.com Slashes Price of Fire TV: $69 for Cyber Monday is $30 Off Regular Price

Amazon’s entry into the online video streaming set-top box market is getting a price chop for Cyber Monday, discounted by $30 for today only.

An out the door price of $69 plus applicable tax will get you connectivity between your home broadband connection and your television, and is particularly useful for Amazon Prime customers seeking access to Prime Instant Video. Amazon Fire TV uniquely uses voice search — at least for Amazon.com’s own video content, and supports Netflix, Hulu Plus, and a variety of other online video resources. Built in Wi-Fi also allows for remote control. The box can be managed through the Fire TV Remote App for your mobile device. The app includes voice search, simple navigation, and a keyboard for easy text entry—no more hunting and pecking. The app is supported on many Android phones and tablets, Fire Phone, and Fire HDX & Fire HD tablets with microphones.

Amazon’s video set-top box fiercely competes with Roku, Apple TV, and Chromecast.

fire tv compare

This Amazon-provided comparison chart is weighed in favor of Amazon’s device, but does offer useful specs.

Comcast’s Streampix and Verizon’s Redbox Instant Gasping for Air; Netflix Killers They Are Not

Phillip Dampier September 30, 2014 Comcast/Xfinity, Competition, Consumer News, Online Video, Verizon, Video Comments Off on Comcast’s Streampix and Verizon’s Redbox Instant Gasping for Air; Netflix Killers They Are Not
Rumors abound of the imminent death of Redbox Instant.

Rumors abound of the imminent death of Redbox Instant.

Comcast’s Streampix and Verizon’s Redbox Instant have not lived up to the expectations of their respective owners and the two Netflix-like services have quietly been partly decommissioned or have stopped accepting new customers altogether.

Loathe to admit the services are roadkill on the TV Everywhere highway, Comcast claims it is simply downsizing its Streampix service and Verizon issued a terse “no comment” to GigaOm’s Janko Roettgers in response to rumors Redbox Instant would begin shutting down for existing customers on Oct. 1.

But truth be told, neither service made a competitive dent in Netflix, either because they were poorly marketed or found no audience. Comcast denies it is even trying to compete against Netflix. But it did admit in a regulatory filing Streampix found very few takers at its $4.99/month asking price.

“Though Comcast sought to create excitement around Streampix by offering the online version through a unique online site and app, and offered Streampix to a small number of XFINITY broadband-only customers in one region, these attracted minimal interest,” Comcast wrote.

Streampix will be a shadow of its former self, continuing on mostly in name-only.

“Going forward, Streampix will simply be part of the XFINITY TV app and website like other video-on-demand offerings,” said Comcast in the filing. The Google Play and Apple App stores seem to confirm as much when customers looking for the Streampix app instead find: “Streampix has moved to XFINITY TV Go. Comcast customers with Streampix should download XFINITY TV Go to view Streampix content.”

Comcast launched Streampix in February 2012 as a streaming-only offering, but added download capability in late 2013.

When customers balked at paying Comcast another $5 a month for the streaming add-on, Comcast began giving it away to customers who subscribed to multiple premium channels or high value triple play packages as part of ongoing promotions.

Comcast's XFINITY Streampix admittedly didn't draw much interest from customers.

Comcast’s XFINITY Streampix admittedly didn’t draw much interest from customers.

Critics of Comcast’s merger with Time Warner Cable suspect Comcast’s real intention was to launch the service to markets outside of its service area to compete for premium over-the-top video customers without cannibalizing its cable television revenue. With the merger under scrutiny at the state and federal levels, some suspect Streampix’s public demotion is a maneuver to protect the deal from a potential political liability over Comcast’s growing dominance in the cable and broadband business.

The troubles with Verizon’s Redbox Instant service go well beyond the realm of public policy debates. Since launching in mid-2013, the service has attracted only minor interest from the public. Critics contend a marketing deal with Redbox was wrong from the start. Redbox’s success comes from renting DVDs from kiosks, not competing with Netflix. Verizon hoped a promotional tie-in offering online viewers up to four free DVD rentals a month from Redbox kiosks would bring the two services closer together. Redbox Instant also rented current movie titles on a pay-per-view basis, and hoped it could convince kiosk users disappointed with out of stock DVDs or otherwise poor pickings to go online and stream a pay-per-view video instead.

But customers would have to be psychic looking for something to stream – Redbox does not publish online movie availability on its kiosk-service website. Unsurprisingly, kiosk users have stayed loyal to renting movies through the kiosk and online viewers usually won’t bother renting a DVD from a kiosk, even with a voucher.

Free trials of Redbox Instant service brought an underwhelming number of customers converting to paid subscriptions. That might be attributed to the heavy overlap of titles available from Redbox Instant and competitors Netflix and Amazon.com, making three services redundant for many. Although Redbox’s parent has invested $70 million in the service, it is dwarfed by the massive content acquisition budgets available to its larger competitors.

It would take a larger subscriber base to change that for the better, but Redbox Instant seems intent on sabotaging its success, still refusing to enroll new customers three months after a security breach. It seems Redbox Instant’s website was an excellent resource for credit card thieves to verify if stolen card numbers were still valid. Current customers are still able to use the service, but reportedly cannot update or change their credit card information, meaning they will lose service if their credit card expires or the credit card number changes.

no new users

A notice on Redbox Instant’s website prevents new users from enrolling.

Company executives have told investors they are not happy with Redbox Instant’s subscriber numbers. Not allowing new customers to sign up while gradually losing old ones because of an expired credit card could go a long way to explain this. Redbox’s parent company previously warned it has the right to pull out of the venture if the numbers don’t improve, and they won’t if the website remains locked down.

When Roettgers asked Redbox and Verizon to comment on a reddit rumor that the service was to close down on Oct. 1, the only reply was “no comment.” Roettgers believes that is telling, because no company would want such a false rumor to spread unchallenged. With Oct. 1 less than 24-hours away, we won’t have long to wait to see what happens next.

Roettgers would not be surprised to see Redbox Instant downsize itself with an end to its subscription video plan and move forward exclusively as a paid, video-on-demand service. It already powers Verizon’s On Demand video store. Having a traditional television partner like Verizon FiOS TV could help Redbox survive in an already crowded marketplace of online, on-demand video stores like iTunes, Google Play, Vudu, Amazon, and others.

In a larger context, the industry’s belief in “if we build it, they will come,” appears to be untrue, especially cable and telephone company efforts developing their TV Everywhere platforms. Content and viewing limitations that confine online viewing largely to the home, a barrage of online video advertising, subscription fees, and the lack of quality content have all hurt efforts to deliver a good user experience that can promote customer loyalty. Nothing now or on the horizon appears to be anything like a Netflix-killer app.

[flv]http://www.phillipdampier.com/video/Bloomberg Bibb Says Comcast Has Little Confidence in Streampix 2-21-12.mp4[/flv]

Two years ago, Porter Bibb, managing partner at Mediatech Capital Partners, panned the then-new XFINITY Streampix service for streaming the same television shows and movies customers can already see on Netflix and other services. From Bloomberg Television’s “Bloomberg West,” originally aired Feb. 21, 2012. (4:30)

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