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.

Boeing claims planes should be classed as indoors for connectivity

Aeronautical engineering firm Boeing has submitted a filing with the FCC arguing aircraft should be defined as indoor space to more easily permit the use of unlicensed spectrum.

The filing focuses around the use of 6 GHz unlicensed spectrum and the growing demand for in-flight connectivity. As you can imagine, delivering connectivity at almost 40,000 feet while travelling at 500 mph is somewhat of a complicated task, therefore Boeing is requesting more assistance from the FCC.

“On April 3, 2019, representative of The Boeing Company (“Boeing”) met with Commission staff to discuss the technical justifications for treating the inside of large commercial aircraft as being equivalent to indoor locations for purposes of the Commission’s rules for unlicensed devices operating in the 6 GHz band,” General Counsel Bruce Olcott wrote in the filing.

In-flight connectivity is one of the fastest growing trends in the digital era, with Deloitte predicting on billion passenger journeys, one quarter of the total, across 2018 were on aircraft equipped with gear to make the internet possible. It might still be expensive for passengers, but as momentum grows the price will certainly come down. In fact, Inmarsat predicts the in-flight connectivity market could be worth as much as $130 billion annually by 2035.

To continue this momentum, Boeing is now arguing the inside of aircraft should be technically defined as indoor locations to make unlicensed spectrum more accessible.

The argument from Boeing does sound quite logical and reasonable. The firm argues the fuselage of an aircraft provides radio signal attenuation levels, blocking the signal, of at least 17.3 dB on average in the frequency range of 6 GHz. This is effectively the same as many buildings, suggesting there will be little to no additional interference from using the spectrum.

Boeing also points out that the Federal Aviation Administration has banned the use of wireless communications below 10,000 feet. Therefore, any ground operations making use of the 6 GHz spectrum would have zero interference as the aircraft would be well out of range when at cruising speeds (38,000 feet).

When combining the remote locations of airports (for the most part) and the fuselage of an aircraft blocking any signal inside the plane, Boeing believes aircraft carriers should be permitted to offer wifi services on unlicensed 6 GHz spectrum while the plane is parked at airports and in flight.

The filing comes at a time where the FCC is considering rule changes for unlicensed spectrum in the 6 GHz band. Certain parties are supporting the idea, though AT&T and other telcos are resisting, suggesting broadband and satellite operations should remain under more stringent protection.

Back in October, the FCC Commissioners voting unanimously to expand the 6 GHz band to support next-generation wifi devices, 1,200 MHz of spectrum to be exact. Although there is risk of displacing existing devices, the FCC appears to expect minimal interference between prior and future devices, as wifi is most likely to operate indoors.

“…with the massive amount of wireless traffic that is off-loaded to wifi, opening up this wide swath of spectrum for unlicensed use could be a big boost to our nation’s 5G future,” Pai said in a statement following the decision.

Whether the FCC had in-flight connectivity as a usecase while they were drawing up these rules is uncertain, but it is certainly a trend which is worth addressing.

Verizon hits reset button with 2.0 launch

Verizon has announced it is now a new business, one which is customer centric and ready for the digital world of tomorrow. Smells like a polite way of announcing a restructure.

It might sound like a PR plug to stay relevant, heavily relying on friendly buzzwords such as customer centric and corporate social responsibility, but there is some pragmatism in behind the fluff. Like many telcos around the world, Verizon appears to be prepping for a restructure to refocus the business on tomorrow’s digital bonanza.

“It’s not only that we have a new operational structure from today, but it is also about the way we are thinking about our customers, the way we are thinking about our culture and leadership and society,” said Hans Vestberg, CEO of Verizon Communications. “We have a strategy that we are going to execute on.”

The plug itself seems to be focused on five areas. Firstly, corporate social responsibility. This will now be one of the promoted corporate values of the business, and will also factor into procurement decisions, but will also likely be included in various marketing campaigns.

While this sort of announcement might get some excited, Verizon is late to the show and, quite frankly, we’re surprised it has taken this long to include CSR in the corporate values. This is PR 101 and is a play which almost every other company on the planet is taking advantage of. Verizon might plug this as ‘innovation’, but the tiresome beast is catching up on a trend which ran wild years ago.

Secondly, the business will split into two business groups, Consumer and Business. Again, this seems like a move which should have been made some time ago.

Thirdly, Verizon 2.0 isn’t just a PR play but also symbolises progress which has been made on the network. Network virtualisation and softwarisation of the network is key here, and a critical component to ensure Verizon is a competitive force in the digital economy of tomorrow.

“We’ll also be working in new ways,” said Verizon employee Sravya Gajjala. “2.0 is our opportunity to take a look at what’s in front of us, at our existing processes and make fundamental changes across the business.”

This is the fourth point which to us sounds like corporate slang for restructure.

It might sound like a dirty word, perhaps because pain is a natural accompaniment to restructure, but it is critical. If Verizon is to maintain its lofty position of influence, it needs to be a business which is ready for the digital economy. This might mean redundancies, but it will certainly mean evolving from a Communications Service Provider (CSP) to a Digital Services Provider (DSP).

The final plug is innovation, the most overused and meaningless buzzword in the technology industry. Innovation means very little when everyone claims to be innovative because, quite frankly, only a small percentage actually are. For Verizon, this means pushing into new segments and offering new services. The imagery in the promotional video, which you can see at the foot of the article, suggest data is going to be a key aspect.

This might not sound revolutionary or new, but it is critical. The data intensive industries of tomorrow are going to rule the economy, but the telcos are not sitting in a strong position to capitalise on the gains. Trends are leading the telcos towards the role of utility, though there is still an opportunity to play a valuable role in the blossoming and disruptive segments.

This is the crux of the message; Verizon is attempting to re-model itself as a business which is relevant for the digital economy. It wants to be a partner of these innovative companies, offering services which go above and beyond the connectivity utility.

 

 

BT mulls redundancies for a quarter of staff – report

BT is considering further redundancies to increase profitability at the firm, with 25,000 jobs, a quarter of its employees, reportedly under threat.

According to Bloomberg, the battle-weary telco is mulling over the plans as new CEO Phillip Jensen prepares for his first meaningful earnings call in May. The telco has not confirmed or denied the reports thus far.

Having taken over the business from Gavin Patterson in February, Jensen is currently in the unenviable position of turning the supertanker. BT has been under pressure in recent years, not only due to an industry where profitability is decreasing rapidly, but with increased competition and CAPEX demands from the government, none of the trends seem to be favouring BT.

Sources claim internal discussions have been taking place, setting a target headcount of 75,000. The redundancies will allow for greater automation of back-office roles, while the team is also considering business disposals and streamlining the management functions. The plan is reportedly to trim headcount down by 25,000 by 2023.

This is of course not the first time BT has discussed redundancies, with the team also announcing 13,000 cuts back in May. The first round of cuts accompanied efforts to overhaul BT’s supply chain as part of a wider restructuring process to make the business more agile and fit for the digital era. These cuts, should the rumours turn out to be true, would be seen as a continuation of this strategy.

As you can see from the graph below, BT is not in the healthiest position and could be viewed as bloated in comparison to other telcos throughout Europe.

Bloomberg Intelligence

Source: Bloomberg Intelligence

Jensen now has the unenviable role of ensuring BT is fit for purpose, both from a business and network perspective, as the demands of the digital era start to weigh heavy. Not only has BT got to fuel 5G deployment, fibre connectivity is being demanded by customers and the government. BT has seemingly been able to ignore some of these demands in by-gone years, but the emergence, and initial success, of alt-nets are providing stern competition.

Although investors are seemingly happy with the rumours, share price increased by 1.6% following the report, we’ll have to wait until May to get the full details. It is believed Jensen will unveil the next stage of BT’s transformation during the earnings call.

Google weighs in with its own AI ethics ideas

Seemingly not happy to let the bureaucrats and legislators dictate the ethical landscape of artificial intelligence, Google has launched its own initiative to join the debate.

In the last couple of months, we have been witness to a flurry of new councils, committees and think tanks, all of whom have been charged with defining reasonable and ethical behaviour surrounding the development of AI. In February, President Trump launched the American AI Initiative, while the UK announced it’s unveiled the Centre for Data Ethics and Innovation last week.

There are now more than 20 countries around the world running these initiatives, and it was only going to be a matter of time before the private sector entered the fray.

“Last June we announced Google’s AI Principles, an ethical charter to guide the responsible development and use of AI in our research and products,” Kent Walker, SVP of Global Affairs wrote in a blog entry to announce the group.

“To complement the internal governance structure and processes that help us implement the principles, we’ve established an Advanced Technology External Advisory Council (ATEAC). This group will consider some of Google’s most complex challenges that arise under our AI Principles, like facial recognition and fairness in machine learning, providing diverse perspectives to inform our work.”

The group does not actually contain any Googlers but is instead made up of eight experts from academia, private industry and politics. That said, you can bet the majority (if not all) are Google friendlies and won’t say anything which would shine a bad light on the firm or set in motion any storylines which will negatively impact the business in the long-run.

This is perhaps why more of these councils and advisory groups will emerge over the coming months. Private industry will want to put forward its own ideas on how AI should develop, forcing policy which would be beneficial to private industry, or attempt damage limitations plays at the very least.

Before Google claims too many plaudits for its vision and philanthropic nature, be aware this is just another form of lobbying. By being proactive and demonstrating to governments around the world that it is seeking external advice on how to act responsibly in the AI-orientated era, rule makers will be less inclined to swing the heavy hammer of regulation. There will of course be new rules to govern this new dynamic, however the friendlier private industry presents itself, the more light-touch the regulation will be.

The world of artificial intelligence does of course promise a lot, but it will come with trade-offs. As with every industrial revolution, certain jobs become redundant as technology swallows up livelihoods. The ‘intelligent’ era will be exactly the same, though the pace of change creates more of a threat as society has less time to adapt to the new status quo.

Think of passport controls in airports. With the introduction of biometric identification less border patrol officers are needed. The same can be said with self-check out machines in supermarkets, while some of the technology giants are already trialling stores with effectively no human staff members. Autonomous vehicles threaten numerous different careers, while a recent report from the Office for National Statistics estimates 1.5 million people in England are at high risk of losing their jobs to an algorithm and/or robot. Waiters are one of the professions under threat.

AI is becoming highly politicised, and quite rightly so. The impact on society is going to be incredibly wide-ranging and profound. Some of it will be good, some great and some devastating to families. This is unavoidable, but it can be managed hence the creation of groups to oversee the ethical side of the technology.

However, private industry will always feel these groups will have to be managed themselves, such is the pressure to ensure regulatory reform does not have too much of a deep impact on business prospects.

FTC launches investigation for privacy practices in US

The Federal Trade Commission (FTC) has issued orders to seven US broadband providers seeking non-public information to assess privacy practises.

Although this investigation is relatively broad, this might be another attempt from the US Government to get a handle on the privacy practices of the fast-evolving digital economy. Several scandals over the last 18 months have demonstrated current rules are not fit for purpose, containing too many loopholes and inadequately governing an industry which has progressed beyond the reach of bureaucracy.

The FTC has been under pressure in recent months to get a better handle on the data machines which power the digital economy, bringing in billions for the likes of Amazon and Google, but increasingly the telcos. While many fingers have been pointed at the residents of Silicon Valley, the telcos have been making money through the transfer of personal information also.

This investigation is an important step forward in creating a better understanding of the data and sharing economy, a foundation to create resilient and future-proof regulations. Some might suggest this sort of investigation should have happened years ago, but hindsight is always 20/20; who would have predicted the scale of scandals we have witnessed recently.

AT&T, AT&T Mobility, Comcast Cable Communications, Google Fiber, T-Mobile US, Verizon, and Cellco Partnership are the firms which have received the demands.

As part of the investigation, the FTC is requesting:

  • The categories of personal information collected about consumers or their devices
  • Purpose of collecting data for each of the categories
  • Methods of collecting the data
  • Policies for employees to access this data
  • Retention policies
  • What information is transferred to third-parties
  • How the data is the information is aggregated, anonymized or deidentified
  • Disclosures to customers about data collection and transfer to third-parties
  • What choices are offered to the customer
  • How accessible personal data is to the customer

As you can see, this is an incredibly broad and in-depth request, with a lot of the information being non-public. Many of the telcos who have been sent the orders will be uncomfortable releasing this information, though they’ll have no choice.

Although this is a good first step for the FTC, we would hope the investigation is broadened further in the future. More information and insight needs to be collected from the OTTs, the masters of manipulating the data-sharing economy. The telcos are small fish in this expedition, but it is progress.

All eyes from the data-sharing community will be keenly directed towards the FTC over the next couple of months. While this investigation is nothing more than a virtual pebble dropped into the digital pond for the moment, there is the potential for those ripples to grow into waves. This could be the first step towards major regulatory reform, an overdue revolution to gain a better handle on the wild-west internet economy.

Ofcom outlines plans for 2019/20

With the country on the verge of realising the promise of the digital economy, the pressure is still on Ofcom to make sure a fair and sustainable landscape is developing. Here, the team outlines its plans for the next twelve months.

“It’s a great way of being able to explain why our work matters and what some of the areas are we want to give a particular focus to,” said Ofcom CEO Sharon White. “And it’s also a way of being able to be held accountable for those areas.

“This year we’re talking about two big consumer themes. Fairness for customers, how do we make sure whether your getting broadband or mobile, you’re getting a great deal, a fair deal from your provider, and the other big these is better broadband, better mobile wherever you live.”

The plan itself actually focuses on four areas. Firstly, better connectivity. Secondly, fairness for customers Thirdly, supporting UK broadcasting. And finally, raising awareness of online harms.

Starting with better connectivity, over the next 12 months the Government’s planned universal broadband service will be getting more attention, while the team will continue to focus on opening up access to BT’s network of underground ducts and telegraph poles. Addressing the mobile not-spots, more airwaves will hit the auction lots and it would be a fair assumption more coverage obligations will be heading towards the telcos.

On the fairness side, work will continue to ensure operators are being more transparent when informing customers about the best available deals and tariffs. One area which has been prioritised is for those customers who pay for their handsets bundled with airtime, or those who pay more because of their contract status.

Looking at UK broadcasting, the message here seems to be value for money and ensuring public service broadcasting is still fit for purpose. A lot has changed over the last five years, look at the growth of OTT streaming services and downfall of linear TV, and there is a feeling something needs to change to ensure public funds are being spent in the best interest of those who pay the taxes in the first place.

Finally, in terms of the final part of the programme, this will be a tricky one. There is of course a need for consumers to be more aware of the dangers of the digital economy, but this is an area which has been largely ignored to date. No-one is particularly to blame here, as without the consequences it becomes very difficult to educate on dangers and be taken seriously. That said, there have been plenty of scandals and data breaches in recent memory to give Ofcom ammunition.

With the 5G dawn breaking and the increased drive for fibre finally hitting home in the UK, there is plenty to be excited about but much work which needs to be done. An excellent example of this is the Which report panning ISPs for failing to deliver on consumer expectations. Telcos are traditionally slow-moving beasts, though technology developments are increasingly speeding up, dominating more of our lives, change might have to be forced through.

Ofcom not only needs to ensure there is an effective landscape for the telcos to thrive, it needs to ensure these benefits are being passed across to the consumer and the economy. The next twelve months promise a very business time for Ofcom employees.