NBCUniversal writes another line in the cinema’s obituary

The streaming revolution has changed our content consumption habits on multiple fronts, and now NBCUniversal could add further pain to the cinema by offering theatrical releases as in-home rentals.

Coronavirus has started to threaten businesses in the entertainment and retail segments, as more of us are compelled to stay at home for extended periods of time, but this move from NBCUniversal could further threaten the cinema’s place in society. Starting with DreamWorks Animation’s Trolls World Tour, new theatrical releases will be available for a 48-Hour rental period from NBCUniversal sister companies Comcast and Sky, as well as a range of on-demand partners.

For the moment, this is a temporary measure to ensure NBCUniversal can recapture some of the investments made in these titles, but should it prove to be popular, this could be another line added to the cinema’s obituary. Why shouldn’t direct-to-streaming be considered a valid distribution strategy?

“Universal Pictures has a broad and diverse range of movies with 2020 being no exception,” said Jeff Shell, NBCUniversal CEO. “Rather than delaying these films or releasing them into a challenged distribution landscape, we wanted to provide an option for people to view these titles in the home that is both accessible and affordable.

“We hope and believe that people will still go to the movies in theatres where available, but we understand that for people in different areas of the world that is increasingly becoming less possible.”

This is not a cheap alternative for customers, however. The 48-hour rental period will cost $19.99, or the equivalent in international markets. It is slightly more cost effective than going to the cinema, but whether this proves to be an adequate replacement from an experience perspective is unknown. But then again, who says the digital natives of tomorrow demand this cinema experience.

Looking at the statistics, annual admissions over the course of the last decade have remained relatively stagnant.

Year Annual admissions Year Annual admissions
2010 169.2 million
2011 171.6 million 1936 917 million
2012 172.5 million 1946 1.63 billion
2013 165.5 million 1956 1.11 billion
2014 157.5 million 1966 288.8 million
2015 171.5 million 1976 103.9 million
2016 168.3 million 1986 75.5 million
2017 170.6 million 1996 123.8 million
2018 177 million 2006 156.6 million
2019 176.1 million 2016 168.3 million

The numbers are steady, as you can see from the column on the right, the cinema does not command the same status as it has done for previous generations. Digital natives have demonstrated they are open to new experiences, perhaps explaining why the upward trend of cinema admissions from the 80s onwards has flattened; the new generations are perhaps not as interested.

Looking at an EY report on changing consumer behaviour, 54% of households spend more time on the internet than traditional TV, while 64% of 18-24 year olds state that streaming via the internet is the primary way they watch TV programs and films. This number declines to 30% for older demographics.

Like linear TV, the cinema segment could come under threat from new consumption habits and accessibility of content.

Ultimately, companies like NBCUniversal will not care about how the content is distributed, as long as the company grows revenues year-on-year. If there are greater profits, while also keeping the customer happy, in going directly to the living room like it is here, why would it bother including the cinema?

What you have to consider today is how accessible content is becoming. Some streaming services are coming bundled into existing content offerings or pre-installed on smart TVs, while data tariffs are becoming cheaper each year. Accessing streaming services wherever, whenever is becoming almost second nature.

There will be those who suggest the death of the cinema is a preposterous idea, but once upon a time there were those who questioned whether there would be a future for mobile phones and personal computers or believed banks would be a permanent of the high street. Netflix killed Blockbuster and now with its streaming cronies, it could be squaring up to the cinema.

Another interesting chapter to this story is the acceptance of Netflix in the entertainment clique. In 2019, Netflix movie Roma caused quite a stir as it received several nominations for the 91st Academy Awards after an incredibly short run in the cinema. The traditionalists in Hollywood criticised the decision, which almost led to rule changes, though the Department of Justice intervened with the threat of an anti-trust investigation should streaming companies be treated differently to other content creators.

As it stands, to be eligible for an Oscar nomination a film only has to include a seven-day run in a commercial Los Angeles County theatre with at least three screenings a day. This is a minor box to tick and may not have a significant impact on the decision-making process for distribution strategies.

This is a very interesting development as it adds credibility to films which don’t have an extended run in the cinema. In years gone, straight-to-video was a dirty concept, but with Netflix collecting 24 nominations for the 92nd edition of the Oscars, has the idea of skipping cinema been validated?

The cinema industry looks to be one which is prime for disruption from those who think further ahead than tomorrow. The experience of the cinema cannot be easily replicated, but it is an industry which has not really changed over the last few decades and is becoming more and more expensive. It is losing its status in society, opening the door for new ideas. Skipping the cinema in launching new content might soon become a more attractive idea the digital era of tomorrow.

Some reading this article might not be convinced by the idea, but a more relevant question is how receptive digital natives, the primary audience of tomorrow, would be?

Comcast NBCUniversal makes new movies available to stream immediately

In recognition of the fact that nobody is allowed to go to the cinema anymore, Universal pictures will allow people to rent new movies as soon as they’re released.

The first title this move will apply to is DreamWorks Animation’s Trolls World Tour, which will be released on Friday 20 March and will be immediately available to rent for, for 48 hours, 20 bucks or local equivalent. Prior to this, movies tended to have a cascade of commercial windows, with the price reducing over time, but the streaming era has made that model look increasingly obsolete.

“Rather than delaying these films or releasing them into a challenged distribution landscape, we wanted to provide an option for people to view these titles in the home that is both accessible and affordable,” said Jeff Shell, CEO of NBCUniversal. “We hope and believe that people will still go to the movies in theatres where available, but we understand that for people in different areas of the world that is increasingly becoming less possible.”

This seems like a good idea since much of the world is on lockdown thanks to COVID-19 and it wouldn’t be surprising to see other movie distributors follow suit. The only potential downside for them is that it will be hard to put the genie back in the bottle once the crisis is over and it seems likely that the era of being compelled to go to a cinema to see new releases is permanently over.

AT&T follows Italian lead by temporarily unlocking data limits

AT&T has announced it will suspend download limits on its broadband products in response to the coronavirus outbreak.

The restrictions on data usage, which accounts for both downloads and uploads, are dependent on the amount charged for customers. Those with a DSL service are limited to 150 GB per month, FWA customers are limited to 250 GB, and for those who have a service with maximum speeds between 768 Kbps to 300 Mbps, the data restriction is 1 TB per month.

These limitations will now be lifted as the telco reacts to the on-going global pandemic.

In response to the more significant impact COVID-19 is having on the US, more than 1,000 cases have been confirmed to date, a group of 17 Senators have written to the major telcos to suggest the same actions are taken across the industry.

“No one should be penalised or suffer financial duress for following guidance from the CDC, their employer, local health public officials, or school leaders,” the letter, addressed to CEOs of the major telcos, states.

“While its likely that your networks will experience significantly greater traffic as a consequence of social distancing measures, we encourage you to forebear from application of broadband caps and associated fees or throttling as workers and families cope with the effects of this health emergency.”

Comcast is another which has taken action against to assist low income families. New customers for the Internet Essentials Service, the $9.99 a month broadband product, will be able to sign-up with without a long-term contract, credit checks will be dropped as will shipping fees for routers.

These actions seem to be following the actions of the Italian telcos who have been lifting data restrictions for all mobile and broadband products for customers in the impacted areas. Italy is the worst affected country outside of China and Iran.

Interestingly enough, as more people are forced to self-isolate or work from home, the more strain communications infrastructure will come under.

In Italy, Telecom Italia has said it has seen internet traffic across its network of 70%, mostly thanks to the increased use of video and gaming applications. The telco has said Fortnite and Call of Duty are applications which have seen notable increases over the last few weeks as schools have been closed and children need to be entertained.

With more companies asking employees to work from home and the potential for more schools to be closed, home broadband networks might be strained in a way never seen before. These are elements of the network which have not been designed to deal with this intensity of data traffic; how this is managed will certainly be an interesting story to unfold over the coming weeks.

NBC’s opportunity to cut through the streaming noise with Olympics

With NBCUniversal set to launch its own streaming service in 2020 the risk of content fragmentation is becoming more apparent, but this only underlines the importance of a niche.

Although many of these streaming services might think they are doing something innovative or novel, in reality they are copycatting Netflix. The big issue is that Netflix is already moving onto the bigger and better. Original content is the new frontier, though NBCUniversal might have stumbled across another unique selling point.

“Peacock will be the go-to place for both the timely and timeless – from can’t-miss Olympic moments and the 2020 election, to classic fan favourites like The Office,” said Bonnie Hammer, Chairman of Direct-to-Consumer and Digital Enterprises business unit.

The Olympics, and live streaming sport on the whole, is an area which the streaming giants have largely ignored to date. Amazon has dabbled with tennis, NFL and has a few English Premier League games for the 2019/20 season, while Twitter (admittedly not a streaming service) has got a partnership in place with the PGA Tour. YouTube has toyed with some live events, but never nailed it. It’s a bit sporadic, rather than a coherent assault.

With the Tokyo 2020 Olympics, NBCUniversal has a great opportunity to carve a niche and create a unique position in streaming ecosystem.

Through the NBC Olympic channel, the company has produced every Summer Olympics since Seoul in 1988 and every Winter Olympics since Salt Lake City in 2002. It has all media rights on all platforms to all Olympic Games through to 2032, paying $7.75 billion (US rights) in 2014.

This is a major attraction for consumers around the world and could form the central cog of a new type of streaming service if the team plays its cards right. Olympics coverage averaged 27.5 million viewers across all platforms, with streaming growing particularly. Nearly more than 2.71 billion minutes of coverage was streaming from the Rio Olympics, more than double the previous two events combined.

This is what the new streaming challengers need to understand; they cannot replicate the success of Netflix.

Disruptors to a fast-evolving ecosystem often try to do this and it fails due to the rapidly changing landscape. Netflix found success in being a content aggregator, bringing together titles from a variety of different sources. This model is dead. It cannot be replicated.

The creation of Peacock is another sign of content fragmentation. From next year onwards, Netflix viewers will no-longer be able to view titles such as ‘The Office’, ‘Parks and Recreation’, ‘Brooklyn Nine-nine’ and ‘30 Rock’. This is a consequence of each of the newly emerging platforms. When HBO Max emerged, Netflix lost ‘Friends’, ‘The Fresh Prince of Bel-Air’ and ‘Pretty Little Liars’. With Disney+, all Marvel content will be removed from the Netflix library.

This is a dangerous position for any challengers. The Netflix model is dead because everyone wants to home their content exclusively. The value to the consumer of the aggregator model which drove Netflix in the early years is dwindling away as the content landscape becomes increasingly fragmented.

This is the importance of original content for the streaming services; it allows the creation of a selling-point beyond price. Admittedly, the Netflix original content will not appeal to everyone, but it has big enough budgets to create the breadth and depth, so each show does not have to be a catch-all, mass market product. Anyone who thinks they can compete with Netflix on original content will have to spend a lot of money to do so.

With coverage of the 2020 Election and the Tokyo Olympics on the NBCUniversal streaming platform, there is a notable opportunity to create a proposition which can cut through the noise.

Another very interesting opportunity for NBCUniversal is a fast-emerging trend in the content world; interactivity. This was a notable theme at IBC 2019, and sports presents an opportunity like few other genres.

Viewers could personalise their experience through the selection of different cameras or commentators. Value add content can be generated for months prior to the live-streaming of the event. Technologies such as virtual and augmented reality have a natural home in the sports ecosystem. Partnerships can be developed for additional monetization. There are endless troves of data points to engage every niche of viewer. The opportunity to build a more complete story all the way through the year is very evident.

The question is how aggressive NBCUniversal will be. Will it expand into other sports and live events? Will it look to drive engagement outside of the US market? These are unknowns and will largely be dependent on the delivery of the Tokyo Olympics, though it has a very good opportunity.

Sky saves the day at Comcast

Comcast managed to misplace 224,000 customers over the last three months, but this oversight was compensated for by the 304,000 net gain in subscribers which Sky brought to the party.

The cable cutting revolution might be causing some pain in the US, but in Europe, Sky is looking as strong as ever. The European premium TV leader might have seen revenues decrease by 3.3% year-on-year, but with the customer gains and EBITDA increasing 13% for the quarter, Comcast executives will be pleased with the returns this acquisition is delivering.

Total revenues for Comcast over the second quarter totalled $26.8 billion, a 23% year-on-year increase due to the inclusion of Sky, while EBITDA stood at $8.7 billion.

“Our company’s consistent, profitable growth is fuelled by our leading scale in direct customer relationships and premier content,” said Brian Roberts, CEO of Comcast.

“We now have nearly 55 million high-value direct customer relationships, including the 456,000 net additions in the second quarter, and a vast library of intellectual property and new productions that are extremely popular across generations and geographies. Our teams throughout the company continue to collaborate to make themselves and each other even stronger, and I’m excited about our growth opportunities ahead.”

Looking at the Comcast business, aside from cord cutting generation causing a bit of a headache, operations are holding strong. Broadband demonstrated growth, albeit at a slower rate, adding another 209,000 subscriptions to take the total up to 24.4 million consumer and 2 million business customers.

Although this would not be the worst earnings call to deliver to shareholders and the team did beat market expectations, it isn’t the most of comfortable positions. TV losses are going to start to weigh heavily on the business before too long, while internet subscription growth is starting to slow. The latter concern might well be heightened with more CSPs adding FWA offerings to their portfolio.

Don’t expect upstarts to knock Netflix off its throne – report

A new report from UK analyst firm Re-Think has painted a gloomy picture for those attempting to muscle into Netflix’s dominance in the streaming world.

With the likes of AT&T, Disney and Comcast all attempting to diversify revenues, the riches being raked in by Netflix in the entertainment streaming market must look very tempting, though the rewards will not come easily. This is not to say there is not room for new services, the price point creates an opportunity for multiple service providers in a single household, but Re-Think is predicting Netflix will continue to hoover up profits.

“Despite moves by major studio conglomerates come 2024 Netflix will remain the dominant force in streaming, earning more streaming revenue than the big three put together,” the report states. “Its market share will dilute from 63% last year to 52% by 2024, but our forecasts show that Netflix cannot be shifted from the number one spot.”

Despite going through years of dredge, swallowing the ‘reward’ of being a loss leader in an emerging market, Netflix shareholders are beginning to see the breaking dawn. During the last earnings call, CEO Reed Hastings proudly told shareholders revenues had grown 35% to $16 billion across 2018, with operating profits almost doubling to $1.6 billion. The business finished with 139 million paying memberships, up 29 million across the year.

139 million might sound like an incredible number already, but then you have to consider whether this is just the beginning. International subscriptions, outside of the US market, accounted for approximately 63% of the total offering plenty of headroom for growth. The team is forecasting an additional 9 million additional subscriptions over Q1 alone.

This is the challenge which the upstarts are facing. Not only is this a company which is sitting very comfortably in the number one spot, but it has momentum which it is doubling down on. At IBC last year, Maria Ferreras, VP of EMEA Business Development at Netflix pointed towards partnerships with telcos (carrier billing), more original and local content, as well as launching in new markets to continue the growth.

During the results call, Hastings confirmed these plans were scaling up. The relationships with local partners were working well, and the team were searching for more, while more investment was being directed towards content. Investments over the last twelve months totalled $7.5 billion, and this number will only grow. It probably won’t be on the same trajectory as previous years, but the number of big-budget titles are visibly increasing on the platform.

“The extraordinary success of Netflix has got it lined up in the sights of the big studios and content houses and the big question now is how well it will stand up to that assault on multiple fronts,” the report states.

Hulu is an established platform, as is Amazon Prime, but with Disney entering the market with an impressive portfolio, while Comcast is pushing forward, and AT&T will soon start making waves with its $85 billion acquisition of Time Warner. There is a lot of competition emerging on the horizon, but these the upstarts have a lot of distractions.

Over the next couple of months, we see two developments which will worth keeping an eye on in this space. Firstly, the protection of traditional TV services and also the consumer appetite for AVoD services, streaming with advertising.

Advertising is clearly big business. In the UK, you only have to look at the success of Sky as the leader in the premium content space as an example. Like the social media giants, Sky has created a sophisticated advertising platform, AdSmart, allowing advertisers to drive engagement through hyper-targeted campaigns. This model continues to work with Sky, but perhaps it is living on borrowed time.

The Netflix model is the opposite. An upfront payment and the promise of no advertising to break-up shows or movies on the platform. The more people who subscribe to Netflix, or similar platforms, the lower the tolerance for adverts will become. Netflix might be missing a cash generation opportunity, but it also might be irrevocably changing the industry. This will not happen overnight, but it might be the light at the end of the tunnel.

The second point, protecting legacy services, is going to be a tricky one. The likes of Comcast and AT&T will have cash revenues to worry about as they effectively cannibalise themselves in search of the OTT dream. Looking at the revenues on the traditional TV services, Re-Think is forecasting AT&T will decline from $64.7 billion in 2018 to $47.7 billion in 2024, Comcast from $25.8 billion to $20 billion and Disney from $11.5 billion to $9 billion.

Should these companies encourage users to migrate to their streaming alternatives, the decline could be even steeper. This might give the streaming service more opportunity to succeed in an increasingly fragmented market, but investors might get spooked. It’s a catch-22 situation, with one option killing revenues but the other holding back a more future-proofed concept.

The challenges for those trying to break Netflix dominance is not only dealing with the beast’s popularity, but also handling the internal politics of change. This might be much more of a challenge, especially when you consider the traditional culture of the challengers.

Ultimately the feedback here is relatively simple; Netflix is king and don’t expect the usurpers to wobble the throne too much.

And the winner is… Comcast!!!!

Comcast has emerged as the winner of the drawn-out Sky acquisition battle with 21st Century Fox, offering shareholders £17.28 per share.

After 21 months, much bickering and passive aggressive commentary, the auction was completed on Saturday 22 September, with Comcast valuing the business at £30 billion. The unusual auction process was overseen by The Takeover Panel, an independent body established in 1968, whose main function is to issue and administer the City Code on M&A.

“We consider the Comcast Offer to be an excellent outcome for Sky shareholders, and we are recommending it as it represents materially superior value,” said Martin Gilbert, Chairman of the Independent Committee of Sky. “We are focused on drawing this process to a successful and swift close and therefore urge shareholders to accept the recommended Comcast Offer.”

“Sky is a wonderful company with a great platform, tremendous brand, and accomplished management team,” said Comcast CEO Brian Roberts. “This acquisition will allow us to quickly, efficiently and meaningfully increase our customer base and expand internationally.”

In securing Sky, Comcast not only adds an additional 23 million customer relationships to its current subscriber base of 29 million, it also increases its footprint in international markets. Prior to swallowing the Sky business, Comcast attributed 9% of its revenues to the international markets, though this now increases to 25%. It’s a more diversified business, offering comfort for Comcast shareholders, while also creating a broad and varied content portfolio. Alongside partnerships with HBO and Showtime, Sky also brings with it a heavyweight position in sport content, a presence which has underpinned its success.

Looking more specifically at the auction process, it was a slightly unusual one. Starting on Friday night, both companies made a starting bid, with the lowest offeror at the commencement being afforded the opportunity to make an increased bid in the first round. In the second round, only the offeror that was not eligible to make a bid in the first round could make an increased bid. If there was not an increased bid in the second round, the auction would have been concluded, though it did run to the third (and final) round, where both companies were offered a final opportunity to increase bids.

As a result of this process, Comcast tabled a bid of £17.28 compared to £15.67 per share from 21st Century Fox. The winning bid represents a premium of 125% to the closing price of £7.69 on 6 December 2016, the last business day before 21st Century Fox’s initial approach. Sky has proven to be a very successful bet for investors representing a ten-year total shareholder return (since 1 July 2008) of +402%, compared to +97% as an average of the FTSE 100.

While this might seem to be the end of a prolonged saga, there are a couple of twists yet to be turned. Firstly, Comcast still has to convince shareholders to part with their assets, and secondly, what will the future hold for the Sky telco business?

In terms of the shareholders, for Comcast to officially secure Sky it will have to gain approval of 50% of shareholders. Fox/Disney currently owns 39% of the business and is yet to disclose what its own position will be, meaning Comcast will have to convince 82% of the remaining shareholders to be safe. Due to the Fox/Disney 39% stake, de-listing Sky will be an unlikely outcome (75% threshold is needed), as will squeezing out remaining shareholders (90% ownership is required). 21st Century Fox could remain a thorn in Comcast’s side for some time.

Another question worth considering is what to do with the Sky telco business. Comcast’s intentions in acquiring Sky have been clear; it is Europe’s most powerful content business; though the telco business comes with this prize. Sky certainly has a notable broadband business in the UK (roughly 6 million subscriptions) and has successfully launched its own MVNO, though it is currently unclear whether this is an area Comcast would like to develop or whether it will look for a sale.

According to RBC Capital Markets, an acquirer would have to shell out in the region of £4.5 billion to purchase the Sky telco business, though there do not seem to be many suitors. BT, Virgin Media and TalkTalk are too large for antitrust approval, leaving only O2 and Three in the telco space. Considering the precarious financial position of O2’s parent company Telefonica, and recent comments from CEO Mark Evans dismissing the convergence craze, O2 seems unlikely.

Like O2, Three has a large mobile business but no presence in the broadband space; a converged offer would be of interest to cash-conscious consumers. It is unknown whether Three parent company Hutchison would want to pursue this avenue, though considering it has begrudgingly spent and cash in the past, instead trying to use political influence to better Three’s prospects (it has a reputation as a moany, spoilt child for a reason), we can’t see this as realistic.

The only other option which would be on the table would be a player from the financial market, though RBC Capital Markets feels Comcast will retain the telco business without expanding it to the continent. Sky is demonstrating the convergence business model can work, and it is an important aspect of the offering in customer eyes; why would it want to undermine a healthy position. As the old Bert Lance motto goes, ‘if it ain’t broke, don’t fix it’.

The auctions bring to close a long-running chapter in the European content game, but this is by no means the end of the story. With its 39% stake in the business, 21st Century Fox can still be a prominent character.

A view from the States: No summer slowdown here

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece strategic advisor Whitey Bluestein explores how recent developments on the other side of the pond are redefining the mobile landscape and blurring lines between telecoms and entertainment.

Hope you’re not waiting for a summer slowdown, at least in telecoms. In the last three months, several developments are redefining the mobile landscape and blurring lines between telecoms and entertainment. These include:

  • The AT&T-Time Warner merger was approved by a federal judge over the opposition of the Justice Department in mid-June, and the deal closed a few days later. AT&T’s $85 billion acquisition includes HBO, Cinemax, Turner Entertainment, CNN, Warner Brothers and much more. AT&T acquired DirecTV less than three years ago. (A few weeks after the trial court’s decision and merger closing, the Justice Department appealed, but most observers expect the deal to stand.)
  • Shortly after acquiring Time-Warner (now WarnerMedia), AT&T made a deal to buy AppNexus, an ad tech platform that will give advertisers an alternative to Google and Facebook for ad spending and data analytics;
  • T-Mobile and Sprint announced plans in late-April to merge the #3 and #4 wireless carriers, respectively, in a $26 billion deal which, if approved, would make the merged company the second largest U.S. wireless operator, behind Verizon;
  • 21st Century Fox accepted Disney’s $71.3 billion cash and stock acquisition offer over Comcast’s $65 billion offer in late June. Disney, which owns ABC and ESPN, among other assets, would acquire Fox’s film and production assets (but not Fox Broadcasting, Fox News or Fox Sports), global TV channels such as National Geographic and two major satellite distributors, Sky in Europe and Star in India.

The latter two deals still must be approved by regulators, but the AT&T green light increased confidence that the other deals will clear. Telecoms and entertainment are clearly converging, and mobile is increasingly the preferred viewing device.

Consolidation

The recent federal court approval of the AT&T-Time Warner merger without conditions means market consolidation is likely to continue or even intensify. Now all eyes are turned to the T-Mobile and Sprint deal. T-Mobile (including MetroPCS) and Sprint (with Virgin and Boost) have attacked the U.S. market with aggressive pricing and promotions, particularly in the no contract space.

With these two companies merging, many project a more stable, less cut-throat market; any price stability would presumably be good for MVNOs, who still buy data by the megabyte and must closely manage users’ data consumption in order to compete with unlimited carrier plans. The merger is also good for the industry; Morgan Stanley sees the “return to wireless industry service revenue growth for the first time since 2014, as competitive intensity has moderated.”

On the down side, since Sprint and T-Mobile both have hosted traditional (voice, data and messaging) MVNOs over the years, there will be one less operator offering traditional wholesale services and thus fewer carrier options for MVNOs going forward. (All four of the big operators have moved aggressively in the IoT space and have robust wholesale programs for IoT/M2M/connected devices; this is where the market is going and growing. Further, all of the operators are aggressively pursuing new business in the IoT/M2M and connected device segment.)

The Justice Department, which can ask the courts to block acquisitions and mergers deemed anticompetitive, nixed a merger of the same companies less than four years ago — and an earlier AT&T/T-Mobile deal as well. Much has now changed. Then, Sprint and T-Mobile were near equals. In the last four years though, T-Mobile’s “Un-Carrier” campaign has made it the industry’s fastest growing player, while Sprint has continued to struggle. The T-Mobile/Sprint deal is a merger of two direct competitors, thus raising very different issues than AT&T’s acquisitions of Time-Warner or DirecTV, both of which were “vertical” diversification into the entertainment space.

Still, traditional antitrust criteria for mergers suggest that a “3-4” merger in a concentrated market is not sustainable, due to risks of tacit collusion and decreased price competition post-closing. In the aftermath of their embarrassing AT&T-Time Warner loss, the Justice Department could challenge the proposed merger. T-Mobile and Sprint are keenly aware of this risk. In their application to the FCC, which also must sign off on the deal under a more government-favorable “public interest” test, the companies said, “T-Mobile and Sprint are merging to beat Verizon and AT&T, not to be like them.” Given the success of the Un-Carrier campaign, this is smart (and credible) positioning. AT&T, Verizon and T-Mobile are each pursuing different business strategies, and three strong competitors each moving in their own direction bring a growing range of choices and services. Some believe that the merger is critical just to keep up with AT&T and Verizon from a spectrum and technology standpoint. For all of these reasons, especially after the AT&T/Time-Warner approval, odds are up that in today’s changing wireless market, the T-Mobile-Sprint merger will go through, although there may be some conditions.

Enter the MSOs.

The two largest U.S. cable companies – Comcast and Charter – each launched MVNOs. Comcast’s Xfinity Mobile launched last May, and Charter’s Spectrum Mobile launched this month.

Xfinity’s first year of operations have gone well. With two pricing options – $45 per line for unlimited monthly LTE data or $12/GB for shared LTE – these two plans can be mixed and matched based on each user’s data consumption, allowing a family or group to average down per-line pricing to well below $45/line. Comcast, which has 22.5 million video subscribers, now has more than a half million mobile customers. New Street Research predicted that Xfinity Mobile could soon add two million customers per year. Although Charter just launched Spectrum Mobile, New Street predicted similar growth for Spectrum. Spectrum’s service, also on the Verizon network, is priced similarly to Xfinity on the unlimited plan, at $45/line, but at $14/GB for LTE data. Interestingly, New Street also concluded that Comcast pays Verizon $5/GB, the lowest reported wholesale LTE data rate in the U.S. This makes for a very good margin on per GB data customers but very thin margins on unlimited users, who reportedly use 15 percent more data than average customers. Much of the data is offloaded on Wi-Fi, which helps.

Comcast and Charter together cover about two-thirds of the U.S. population. Each has the key attributes of a successful virtual operator – a large existing customer base, deep pockets and the ability to bundle services in a single bill. Because these companies offer pay TV, Internet, phone service, and now mobile, they can cross-promote and discount other services to attract customers to their mobile offering. Coupled with a growing willingness among consumers to try lower-priced options like cable companies, this makes the analysts’ multi-million subscriber projections credible.

In April, Comcast and Charter announced a 50/50 operating platform partnership focused on development and design of backend systems to support their mobile services. They appear to be in it for the long run. Whether or not it makes sense to invest in and build all of the backend systems that they need (versus buying an existing solution) is the big question. Both launched with and are hosted by Arterra Mobility today. My experience informs me that in a build-or-buy scenario, companies often underestimate the costs, staffing and time-to-market required to build robust and scalable backend systems from the ground up. Further, integrating multiple vendors, even those with best-in-class components, always takes more time and money than expected. The risk is that they build a gold-plated backend that actually hampers their ability to compete.

Getting to market is one thing. Finding and retaining the specialized and operational talent it takes to be fast, flexible and smart enough to remain competitive in the fast-moving wireless world is extraordinarily challenging. It goes beyond retail wireless products and into IoT, campus/facility/building-based networks which could enable and may be necessary to serve the lucrative enterprise market, which will be more important as cord-cutters impact their residential base.

The more strategic question is whether and how Altice, a new Sprint-hosted full MVNO, and other MSOs become some part of that partnership, despite the fact that Comcast and Charter are on different mobile networks. The deals are strategic in that they involve some asset- and technology-sharing with their respective host operators, but the possibilities of expanding or creating a separate marketing partnership with a nationally branded mobile service could reduce marketing costs and result in a seamless mobile product nationwide, with the scale to keep carrier and other costs low. This makes the operating platform partnership more strategic and potentially far-reaching, if done right. The front-end marketing play to extend overall reach is far more important strategically than focusing on the back-end. Of course, it takes both, but effective marketing is key.

In the no-contract (prepaid) segment of the market, AT&T has Prepaid (formerly GoPhone) and Cricket, T-Mobile has its MetroPCS unit, and Sprint, through Boost and Virgin, all have very competitive prepaid offerings that are compelling from a price and value standpoint. But wait, there’s more.

Now there’s a new entrant to the operators’ branded plays. Verizon has entered the fray with Visible, a no-contract brand priced at $40/month for unlimited data, messages and minutes. While there’s no data cap for this low-priced option, there is a speed limit – up to 5 Mbps on the network, enough to stream video at 480p resolution. Verizon tag line is, “Exactly what you need. No fluff.” For now, while Verizon is “working a few things out,” it’s invitation only.

The MVNO space has been very active, too. Some interesting developments include:

  • Comcast and Charter launched, as described above, and have been successful by any measure, with Comcast now at more than half million subscribers and most expecting both to be multimillion subscriber players.
  • Multiplay is getting to be a “thing,” with one UK player, Smart, recognizing that there is strong interest in buying services from a single provider as a bundle, offering energy and insurance along with mobile. With the high cost of energy and insurance, they can package fantastic offers to attract subscribers without discounting mobile. Their “all in one” mobile App underpins a differentiated quint-play experience putting customers in control of their essential needs, allowing them to view bills, order services, obtain care and submit meter readings among other things.
  • Tracfone, the largest U.S. MVNO, with 22.1 million subs, lost SafeLink subscribers because of Lifeline rule changes, while its main brand, StraightTalk grew to nearly 9 million subs. The change in mix resulted in an ARPU increase to $25.
  • Ultra Mobile, one of the fastest growing MVNOs, launched Mint Mobile two years ago, positioning itself as the direct-to-consumer disruptor in the wireless category. Much like what Dollar Shave Club did to razors, Mint Mobile combines the direct-to-consumer business approach with warehouse pricing, where customers buy in bulk and save. Subscribers purchase service up-front, including data (2, 5 or 10GB) in bulk for 3, 6 or 12 months of service, with commensurate bulk savings, starting at $15/month. It’s no surprise that Mint has been growing dramatically, surpassing 200 percent growth year-over-year.
  • Kajeet, once an MVNO serving kids with sophisticated parental controls, has morphed into a six-carrier national mobility solution provider for the education market. With nearly 700 school district customers, including libraries, and expanding into school vehicle connectivity with its SmartBus™ offering, has expanded to Canada with Bell Mobility. Their parental controls now help schools, teachers, administrators and parents keep kids on task economically, and manage and analyse usage. Google recently hired them for their Rolling Study Hall project.
  • Newcomer Wing is focused on the higher end of the market, offering “stress-free” care, ease and value. As a result, nearly three-quarters of their customers come from a Big 4 carrier. Wing has digitalized the carrier experience similar to Amazon vs. Walmart. Customers are onboarded via text or call. Wing offers flexible plans that credit subs for unused data. Users track data, manage/change plans, and pay their bills via an app. Wing offers the same premium features as the Big 4 carriers, including international data roaming across 135+ countries at just $13/GB.
  • Lycamobile, with 15 million subs in 23 countries including the U.S., just launched Lycarewards in the UK. The loyalty program offers customers free data bundles and gift cards for viewing ads and special offers on the lock screen of their Android phone. The free service, delivered by app, uses an ad-funded model from U.S.-based AdFone, whose platform generates incremental monthly ARPU of up to $3 per user for its customers.

These are just a few of the more high-profile MVNOs. Of course, the IoT and connected device space includes many players providing value added services for which connectivity is an enabler rather than the raison d’etre. Many MVNOs and MVNEs are taking their connectivity experience and business relationships and extending them into the IoT space. This is the most exciting, innovative and fast-growing space in mobility.

 

Whitey BluesteinWhitey Bluestein advises young technology companies on mobile strategies and helping them win deals, as an advisor and as interim corporate development executive. His business is all referrals from clients, colleagues and the strong network of business and personal relationships built over his 35-year telecoms career. He works with young companies – mostly A and B Round startups – helping them navigate the mobile ecosystem and developing strategic relationships with mobile operators in North America, UK/Europe and AsiaPac. He’s also worked for big companies, including Disney, Google and Cisco, on new mobile initiatives. Current clients include Orion Labs and Payfone, among others. Recent clients are based in San Francisco, New York, Montreal, London and Paris. Whitey Bluestein is a regular speaker at the MVNOs Series events – including the MVNOs North America and MVNOs World Congress.

Outfoxed Comcast looks to the Sky

US telco conglomerate Comcast has decided it can’t be bothered with 21st Century Fox but is still really keen on Sky.

Apparently determined to complicate things for media rival Disney at every possible opportunity, Comcast seems to have decided that forcing Disney to come up with an extra $19 billion to get hold  of Fox is enough for now. The real fun will now consist of making sure Disney doesn’t get hold of Sky when the Fox deal goes through.

Disney bid $52.4 billion for Fox at the end of last year, but Comcast decided to throw a spanner in the works by offering $55 billion for it in June. This forced Disney to come back with a $71.3 billion offer soon after, which turned out to be enough to make Comcast throw in its cards. “Comcast does not intend to pursue further the acquisition of the Twenty-First Century Fox assets and, instead, will focus on our recommended offer for Sky,” said the Comcast announcement.

This seemed to be the likely outcome when Comcast quickly escalated the bidding war for Sky last week. An intriguing aspect of this bid is that, if it succeeds, Comcast and Disney will have to coexist in the running of Sky, since Fox already owns 40% of it. It’s hard to see how they could sustain that bizarre symbiosis, so something will have to give. On the other hand Disney could just decide to hold on for a bit just to annoy Comcast.

Digital TV Europe did a good analysis of the various plot twists back when the Comcast bid for Fox was just a rumour, which you can read here.

US DoJ throws $85 billion spanner in the works of AT&T-Time Warner

The US Department of Justice has decided to appeal the June 12 court ruling allowing AT&T’s $85 billion acquisition of Time Warner, it announced late on Thursday.

In a brief Notice of Appeal filed on July 12, the DoJ notified the District Court that it intends to bring the case to the Court of Appeals against the ruling that will allow AT&T’s planned acquisition of Time Warner to go ahead with no restrictions.

The US government, which had until August 12 to ponder an appeal, took a month to decide it would lodge an objection to the mega-acquisition. US entertainment industry news site Deadline sourced a copy of the Notice, signed by Craig Conrath, who was leading the government’s legal team during the trial. It doesn’t elaborate on the grounds upon which the appeal would be lodged, but the decision to appeal seems to have caught AT&T by surprise.

“The Court’s decision could hardly have been more thorough, fact-based, and well-reasoned,” David McAtee, the operator’s General Counsel, said in a statement. “While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances.  We are ready to defend the Court’s decision at the D.C. Circuit Court of Appeals,” he blustered.

The ramifications of the potential appeal could hardly be greater — not only regarding the future of a newly-created WarnerMedia business, and whether it might need to decouple from its parent company, but also for the whole telecom and media industries. The boardrooms of Comcast and Disney will be full of sweaty palms (yuk!), as the outcome of the appeal will set a precedent for future vertical integration deals, including their bidding war for 21st Century Fox.

If the DoJ was to win the appeal, the US Solicitor General could bring the case to the Supreme Court, where the judges generally siding with President Trump are in the majority. Since the days when he was a candidate, Mr. Trump has been a vocal opponent to the merger, citing the danger of “too much concentration of power in the hands of too few.” However, such a decision would not be without a twist: Eriq Gardner, the Senior Editor at The Hollywood Report, discovered in a disclosure paper that John Roberts Jr, one of the Supreme Court Chief Justices, still holds Time Warner shares.

AT&T has been moving very fast after the June 12 ruling to integrate the two companies, from appointing executives to stamping its authorities over HBO, although it has decided to leave Turner Broadcasting, the owner of CNN among other assets, independent until February 2019. However, it has already broken at least one promise related to the deal: instead of making the service more affordable, it just raised the monthly bill for its DirecTV Now service by $5.