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Operators Blunder in Online Video Era

When I imagine looking back on this time in the emerging online video space, there's a narrator saying in a serious Walter Cronkite-type voice, "Experiments were conducted. Mistakes were made."

Video service providers are making mistakes all over the place; some of which will end up being problems for the companies themselves, and some of which are going to stymie growth or lock out competition, which in the end could outweigh the near-term benefits of convenience and lower costs for consumers. Some miscalculations are so old, I wonder how operators don't recognize the mistakes of their past. Others are brand new, made possible by new technologies and a never-ending quest for new revenue.

I've started to give the different categories of mistakes their own names. Here are three of my favorites.

Chasing portals
Back in the early days of the World Wide Web, ISPs decided their home pages should be the entryway to all things on the Internet. They hosted webmail, offered local news and weather, and in Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s case, served up "The Fan" -- a wheel of video that allowed users to play clips without launching a separate media player application.

The problem with all of these sites? Most people weren't interested in having ISPs curate the web for them. The experimentation led to some interesting new trajectories for some of the operators (think Comcast's shift into software development and user interface design), but the portals themselves weren't very compelling.

And now operators are doing the same thing again. This time around, they're calling the products apps instead of portals, but the concept is analogous. Verizon Communications Inc. (NYSE: VZ) launched Go90. Comcast has introduced Watchable. And Cox Communications Inc. is preparing Flare MeTV, an app designed for viewing online video with features for customizing video feeds and playlists. (See Verizon's Go90 Is Live – Will Anyone Watch?.)

Screenshot of the Cox Flare MeTV app
Screenshot of the Cox Flare MeTV app

I have to wonder, though, who wants to spend time on these apps when YouTube Inc. already exists and there's already a playground for finding anything you want online? (It's called Google (Nasdaq: GOOG).) Operators may have some success with offering exclusive content or by integrating these apps with other services, but today, these shiny new apps look a lot like the ISP web portals of a decade ago.

An app is not a channel
Apple Inc. (Nasdaq: AAPL) recently declared that apps are the future of TV, and very quickly a number of video service providers jumped on the "apps as channels" bandwagon. Unfortunately, the public has been fairly oblivious of the fact that TV apps have a serious downside. Instead of behaving like channels, apps allow service providers to create their own walled garden environments. Within an app, a service provider can control the entire viewing experience -- not just the content itself, but also how that content appears and how users can interact with it. (See In the Ring: Apple TV Versus Cable.)

Equally important, nothing inside of an app is accessible by default outside of that closed environment. It's the same debate that's taken place in the mobile space with non-video apps, like apps for shopping, news, social media and more. Most of the content in apps isn't indexed for outside use, and that means it's not visible in search engines, or available for integration with other information services unless a specific business deal is made.

There's a certain amount of justifiable business protection in that model, but it also amounts to creating a default-closed Internet service rather than a default-open one. And throwing up walls rarely leads to faster innovation.


Want to know more about the impact of web services on the pay-TV sector? Check out our dedicated OTT services content channel here on Light Reading.


Don't forget the price of shipping
Everyone knows that video is eating up the web. It's taking up a huge amount of bandwidth, and particularly where mobile Internet is concerned, it's a major cost issue for consumers.

Enter T-Mobile US Inc.

T-Mobile has just announced that starting on Sunday it will bundle free data usage with seven top online video services. In other words, if you're a T-Mobile user and you want to watch Netflix (or Sling TV, or Hulu, etc.) over a cellular connection, you can do it on the T-Mobile network without the streaming traffic counting against your monthly data cap. (See T-Mobile Goes OTT With Free Video Streaming.)

In theory, there are no net neutrality concerns here because video companies don't have to pay to be included in the new "Binge On" program, and any video provider can participate. That means T-Mobile is subsidizing video traffic and potentially lowering costs significantly for its customers.

Unfortunately, the money to support video streaming has to come from somewhere. Unless T-Mobile can achieve Amazon-like scale, this isn't a program that looks like it can survive in the long run without driving up costs elsewhere for consumers and/or content providers. If something looks too good to be true, it probably is. Or put another way, there's no such thing as a free lunch, free shipping or free video delivery.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

kq4ym 11/25/2015 | 5:38:58 PM
Re: Brilliant! Yes, it would surely seem that companies wlll always seek that extra buck even at the cost of infuriating customers sometimes. I always guessed that Google really put a crimp in the plans of those companies that wanted their own walled garden putting out apps and specialized home pages. But, "people weren't interested in having ISPs curate the web for them" when it's much easier to find things through a search engine or go directly to the content.
mendyk 11/11/2015 | 1:57:07 PM
Re: Brilliant! Very few busineses set out to purposefully screw their customers. But Goal 1 for almost all businesses is to come up with ways to extract more revenue and increase profit margins.The screwing is a byproduct of pursuing those goals.
TomNolle 11/11/2015 | 1:37:15 PM
The Cost Transfer is More Complicated than it Seems It might sound crazy for T-Mobile to subsidize video, and it does mean that in the long run they have to make up their loss.  That doesn't necessarily mean charging consumers more, though.  Capex is only about 20 cents on every revenue dollar.  The cost of customer acquisition and retention makes up about 12 cents of every revenue dollar.  The capacity cost T-Mobile is giving away might reduce their acquisiton and retention cost enough to be justified without changing service prices at all.  Nobody breaks their costs or plans down like this, though, so we'll have to wait and see what happens.
Smoochy18 11/11/2015 | 1:06:21 PM
Brilliant! Very well said. At the end of the day, if your revenue stream is based on screwing the consumer, your business model will be short-lived.
Marcos El Malo 11/11/2015 | 12:31:49 PM
The new app model vs channels, etc Thanks for this article. The point about portals is especially pertinent (and is causing me to re-examine my model for weaknesses at this moment). I also agree that "curation apps" are a dead end, although curation itself is important. The thing about the app model replacing the channel model is this: it's not a direct one for one replacement that is the new model (although channel operators are welcome to try). The app model deconstructs the channel model. In the current broadcast/cable model, the broadcasters and cable operators are the gatekeepers and the middlemen between content producers and the audience. The new app model allows the content producers to find their audience directly and the audience to find their desired content. This will also open up a lot of nontraditional avenues for monetization.
mendyk 11/11/2015 | 11:26:57 AM
Sentenced to fragments The apparent answer to coping with audience fragmentation is ... more fragmentation. Supported by intrusive ads that nobody wants to look at. It's a brilliant solution in the Bizarro world.
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