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

Phillip Dampier January 15, 2019 Competition, Consumer News, Online Video No Comments

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.

Windstream Dumps Its EarthLink ISP Business

Windstream announced this week it was ditching EarthLink, the internet service provider it acquired in 2017 that has been around since the days of dial-up, in a $330 million cash deal.

Trive Capital of Dallas, Tex., is the new owner of the consumer-facing ISP, which today primarily serves customers over some cable broadband and DSL providers.

EarthLink launched in 1994, when almost everyone accessed online services over dial-up telephone modem connections using providers like AOL, CompuServe, Prodigy, and MSN. EarthLink rode the Dot.Com boom and secured funding to build its own multi-city, dial-in access network, allowing customers to reach the service over local, toll-free access numbers. This allowed EarthLink to be among the first ISPs in the country to offer unlimited, flat rate access for $19.95 a month at a time when some other providers charged in excess of $12 an hour during the business day to use their services.

EarthLink grew to become America’s second largest ISP, reaching 4.4 million subscribers in mid-2001 — still dwarfed by 25 million AOL customers, but well-respected for its wide-reaching availability over more than 1,700 local dial-in numbers around the country. But 2001 was as good as it would get at EarthLink.

The newly inaugurated administration of George W. Bush and its deregulatory-minded FCC Chairman Michael Powell quickly threatened to derail EarthLink’s success.

As EarthLink’s balance sheet increasingly exposed the high wholesale cost of the company’s growing number of DSL and cable internet customers, executives calmed Wall Street with predictions that EarthLink’s wholesale costs would drop as networks matured and the costs to deploy DSL and cable internet declined. The phone and cable industry had other ideas.

Under intense lobbying by the Baby Bell phone companies, the FCC voted in 2003 to eliminate a requirement that forced phone companies to allow competitors fair and reasonable access to dial-up infrastructure and networks. The cable industry had never lived under similar guaranteed access rules, a point frequently made by telephone company lobbyists seeking to repeal the guaranteed “unbundled” access requirements. Lobbyists (and industry funded researchers) also claimed that by allowing competitors open access to their networks, it created a hostile climate for investors, deterring phone companies from moving forward on plans to scrap existing copper wire networks and invest in nationwide fiber to the home service instead.

Both the FCC (and later the courts) found the industry’s argument compelling. EarthLink protested the move was anti-competitive and could give the phone and cable company an effective duopoly in the business of selling internet access. Others argued the industry’s commitments to build out fiber networks came with no guarantees. FCC Commissioner Michael Copps warned that Americans would pay the price for the FCC’s unbundling decision:

I am troubled that we are undermining competition, particularly in the broadband market, by limiting — on a nationwide basis in all markets for all customers – competitors’ access to broadband loop facilities whenever an incumbent deploys a mixed fiber/copper loop. That means that as incumbents deploy fiber anywhere in their loop plant — a step carriers have been taking in any event over the past years to reduce operating expenses — they are relieved of the unbundling obligations that Congress imposed to ensure adequate competition in the local market.

[…] I fear that this decision may well result in higher prices for consumers and put us on the road to re-monopolization of the local broadband market.

Blinky, EarthLink’s mascot, was featured in instructional videos introducing customers to “the World Wide Web” and how to buy books on Amazon.com

In the end, the industry got what it wanted during the Bush Administration, and was also able to effectively wiggle out of its prior commitments to scrap copper networks in favor of fiber optics. Phone companies were also able to raise wholesale prices on providers like EarthLink. In 2002, EarthLink paid about $35 per month to phone companies for each subscriber’s DSL connection, for which the ISP charged customers $49 a month. Financial reports quickly showed EarthLink started losing money on each DSL customer, because it could keep only about $14 a month for itself. The cable industry was slightly more forgiving, if companies voluntarily allowed EarthLink on their emerging cable broadband networks. In general, cable operators charged EarthLink $30 a month for each connection, which gave EarthLink about the same revenue it earned from its dial-up business.

An even bigger threat to EarthLink’s future came when phone and cable companies got into the business of selling internet access as well, usually undercutting the prices of competitors like EarthLink with promotional rates and bundled service discounts.

EarthLink’s subscriber numbers dropped quickly as DSL and cable internet became more prevalent, and customers defected to their providers’ own internet access plans. Attempts by EarthLink to diversify its business by offering security software, web hosting, email, and other services had limited success in the residential marketplace.

By the mid-2010s, EarthLink primarily existed as a little-known alternative for some cable broadband customers and DSL users. But beyond initial promotional pricing, there was no compelling reason for a customer to sign up, given there was usually little or no difference between the prices charged by EarthLink and those charged by the phone or cable company for its own service. EarthLink’s competitors, including AOL and MSN, also saw subscriber numbers start to drop for similar reasons, especially when their customers dropped dial-up access in favor of broadband connections. This was strong evidence that companies that do not own their own networks were now at a strong competitive disadvantage, held captive by unregulated wholesale pricing and no incentive for phone or cable companies to treat them fairly.

In 2017, Windstream paid $1.1 billion for EarthLink, primarily to consolidate fiber-optic network assets and improve its business services segment. After more than a year, Windstream realized EarthLink’s residential ISP service had little relevance to them.

“People paid $5 to $10 a month for email,” Windstream spokesman Chris King told Bloomberg News. “It was not a strategic asset for us.”

With subscriber numbers still dropping to around 600,000 today, Windstream decided the time was right to sell.

“This transaction enables us to divest a non-core segment and focus exclusively on our two largest business units. In addition, it improves our credit profile and metrics in 2019 and beyond,” said Tony Thomas, president and CEO of Windstream.

An EarthLink television ad from 2004. (1:00)

Verizon Says Goodbye to 10,400 Workers; Company Will Slash $10 Billion in Costs

Phillip Dampier December 10, 2018 Verizon, Wireless Broadband 1 Comment

Despite a strong economy, Verizon Communications will shed 10,400 employees and cut $10 billion in costs as part of a transformation initiative promoted by the company’s newest top executive.

“These changes are well-planned and anticipated, and they will be seamless to our customers,” said Verizon CEO Hans Vestberg. “This is a moment in time, given our financial and operational strength, to begin to better serve customers with more agility, speed and flexibility.”

For Andrew Challenger, vice president of Challenger, Gray & Christmas, an outplacement firm that closely monitors corporate layoffs, Verizon’s willingness to let go of 7% of their workforce is an ominous sign of possible additional job reductions in the future.

Vestberg has advocated reorienting Verizon towards a potentially lucrative 5G wireless future. The estimated $10 billion in cost savings could placate investors on Wall Street alarmed about increased spending Verizon is likely to undertake to deploy 5G infrastructure over the next five years.

In October, Verizon offered more than 44,000 employees a voluntary buyout package and announced it would transfer thousands of current employees to Infosys, an outsourcing company headquartered in India. The voluntary separation package included up to 60 weeks’ salary, bonus and benefits, depending on length of service. This morning, accepted participants received word of their last day of employment, which will be the last day of this year or at the end of March or June, 2019. Verizon currently has 152,300 employees.

Challenger believes Verizon is likely to continue letting employees go as the company faces ongoing pressures on its landline and business service units and endures cord-cutting for its FiOS fiber to the home service. Challenger told CNBC the 44,000 workers who took Verizon’s offer likely made a smart decision. Companies that offer voluntary buyouts in good times can be a sign of likely layoffs when the economy slows down. With record low unemployment, the Verizon workers leaving the telecom company are likely to find new jobs much easier than those forced to look during a recession.

Verizon employees transferred to Infosys may be among the next to be targeted in future layoffs, according to Challenger. Verizon workers will be working closely with low-paid Indian staffers who may eventually replace them.

Workers who are assigned to train cheaper workers should keep their eyes open and resumes ready, Challenger warned.

Charter Spectrum CEO Says Company Using Tax Breaks to Buy Back Its Own Stock

Rutledge

Charter Communications is using the benefits of the Republican-promoted tax cut to buy back its own stock, because the only other option under consideration was using the money to buy up other cable operators.

“From a [mergers and acquisitions] perspective, I think cable is a great business. If there were assets for sale that we could do more of, we would do that,” said Charter Communications CEO Thomas Rutledge at this week’s UBS Global Media & Communications Conference. “We’ve been buying a lot of our own stock back. Why? Because we think the cable business is a great business and we haven’t been able to buy other cable assets.”

Charter is not using the company’s lower tax rate to benefit Spectrum customers with lower bills or more extravagant upgrades. Instead, it is accelerating efforts to please shareholders and executives with efforts to boost its share price — something key to top executives’ performance bonuses.

With digital and broadband upgrades nearly complete in areas formerly served by Time Warner Cable and Bright House Networks — the cable companies Charter acquired in 2016 — Rutledge told investors he can initiate additional upgrades without spending huge sums on infrastructure buildouts.

Gigabit speed is now available in most markets, and the company has doubled its lowest internet download speeds in areas where it faces significant competition from AT&T from 100 to 200 Mbps, boosting sales of Spectrum broadband service, according to Rutledge.

Today, about 60% of Spectrum customers are offered 100 Mbps, while the other 40% — mostly in AT&T service areas — are getting 200 Mbps.

Rutledge told investors he does not see much threat from Verizon FiOS or its newly launched 5G offerings, and has no immediate plans to upgrade service in Verizon service areas because neither offering seems that compelling.

“I saw that Verizon had some passings that they could do 800 Mbps in,” Rutledge said. “We have 51 million passings that we can do 1 gigabit in and we can go to 10 gigabits relatively inexpensively and I think we will because I think the world will go to 10 gigabits.”

Analysts are uncertain whether Rutledge’s comments are naïve or brave.

“We see 5G fixed wireless broadband [like that offered by Verizon] as the largest existential threat to broadband providers, by far,” wrote analysts at Cowen. Until now, most broadband competition for cable operators came from phone companies pitching DSL. Verizon retrenched on its FiOS offering several years ago. But AT&T has been more aggressive upgrading urban areas to fiber service, which has forced Charter to respond with higher speeds and better promotions.

Rutledge does not see Verizon’s 5G being a significant competitive threat for several years, and suspects Wall Street may once again punish Verizon for spending money on a wireless network less capable than what the cable industry offers today. Shareholders may also dislike watching Verizon distracted by the home broadband market when portable wireless revenues are much more important to the company.

Verizon officials claim about half of those signing up for its 5G service plan were not current Verizon customers. But the company would not say whether their new fixed wireless customers were coming largely from cable or DSL disconnects, which would prove marketplace disruption.

Windstream’s “Aspirational” Broadband: DSL Customers Not Getting Advertised Speed

An unhappy customer in Georgia.

Victor Brown, like many residential customers in rural northeastern Ohio, has one option for internet access — Windstream, an independent phone company that typically serves areas larger companies like AT&T, Verizon, and CenturyLink forgot. For 17 years, his internet speed has been absolutely consistent, and slow.

“It’s 1.2 Mbps day or night, no more and no less, and for that they are charging me $58 a month,” Brown told Stop the Cap! “In that time, there has never been an upgrade, a real commitment to improve service, or anything except repetitive sales calls and mailers offering to upgrade me to a faster speed level Windstream cannot actually deliver.”

Windsteam has told its investors that it expects to offer 60% of its customers at least 25 Mbps service by the end of 2018. In fact, Brown has already been offered that for nearly a year, but the service is not actually available.

“They will switch you to 25 Mbps today, with the higher bill to boot, but you won’t actually get any better speed than you have right now,” Brown said. “I know because we tried.”

Brown and several of his neighbors all attempted to upgrade to the higher-speed service advertised. Windstream accepted their orders, charged them more, and delivered exactly the same 1.2 Mbps service they have always had.

“It took a service technician coming out to make it clear to us there was no way we would ever get faster speed because there was too much copper wiring between their office and our homes,” Brown said. “The technician felt for us, and about half of his service calls were disappointing customers like us.”

Brown explained the Windstream technician candidly told him that the company’s head office is behind the speed upgrades, but does not actually have a clear understanding of the state of the local network. Marketing then sells customers on better service Windstream’s network is not capable of providing.

“They need to spend money to replace some copper with fiber but there is no money for that,” Brown said. “The most the technician could suggest was installing a bonded DSL connection that would use two different phone lines and deliver 2.4 Mbps. That would come at a price, however.”

Ruth in Cochranton, Penn., is in exactly the same position.

“We are paying for internet speed that we aren’t receiving,” Ruth complained. “It is so slow that we have a hard time getting a short 50 second video to load. Forget watching a YouTube video, it’s not going to happen.”

Over in Lilitz, Penn., Eileen and her neighbors were also dealing with temporary phone lines Windstream installed by dropping both on their lawns and then leaving them unburied for nine months. She cannot get anyone from the company to bury the lines despite seven separate phone calls. Down the street, internet and phone outages can last a week after a strong rainstorm hits the area, and since the weather has turned much colder, hum and crackle on the neighborhood’s phone lines have disrupted phone calls and DSL service. Nobody from Windstream has come to fix the problem.

Windstream tells a very different story to its investors in the form of ‘upgrades by press release’ and cheerful investor conference calls that claim dramatic improvements in service and growth. While cable operators are touting increasing availability of gigabit service, phone companies like Windstream are promising to give a little more than half their customers the minimum definition of broadband service — 25/3 Mbps, by the end of this year. Many of Windstream’s other half get nothing close to those speeds, with 1-3 Mbps common in rural areas.

Wall Street balks at the dollar amounts it would take for Windstream to fully update its network to offer broadband speeds that were common for cable subscribers a decade ago. That kind of network investment would likely drive down the share price, impact shareholder dividends or stock buyback plans, and increase debt. Instead, many phone companies are hoping the federal government will come to the rescue and subsidize rural network improvements through the FCC’s Connect America Fund or government grants. But many of those grants won’t deliver service improvements to existing customers. Instead it will allow rural phone companies to bring broadband to customers who never had it before.

Even the threat of new competition has not inspired many investor-owned phone companies to embark on a spending spree. That competition may eventually come from new wireless broadband services like 5G, but most observers predict that will be years away in the rural communities Windstream traditionally serves. Where Windstream does face competition, it often still loses market share, usually to the local cable company.

“My sister has Comcast and although they are evil as can be, at least their internet speed matches what they sell, and it is shockingly fast in comparison to what DSL has given me for nearly 20 years,” Brown said. “Unfortunately, no cable company is going to wire us up. There are only a few houses on my street.”

Brown believes it is time for the federal government to start insisting that investor-owned phone companies do better.

“We have universal service laws for landlines but not for internet? That does not make sense to me,” Brown tells us. “Isn’t it time for the government to insist that all providers deliver at least 25 Mbps service to their customers? They are not going to do it without someone ordering them to.”

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  • EJ: Charter we appreciate your concern in this manner. We value your complaint and will review it. If need be we send this to arbitration to review the co...
  • Dylan: You could use their router which is an extra $5 a month (a great router usually) or I would recommend looking around either on Amazon or somewhere for...
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