Verizon continues quest to correct content car crash

The Verizon mission to conquer the content world has been anything but a smooth ride to date, and now it is reportedly searching for a buyer for Tumblr.

According to the Wall Street Journal, Verizon executives are on the search to offload the platform. The Verizon Media Group has been under considerable pressure in recent months, as the promise of value through content and diversification has eluded the telco.

Looking at the most recent earnings call, Verizon Media Group revenue was $1.8 billion, down 7.2% year-on-year for the quarter. Declines in desktop advertising were primarily blamed, with the dip continuing to more than offset growth in mobile and native advertising. Considering the effort the telco had to exert to acquire Yahoo, not to mention the headaches it had to endure, some might have hoped there would be more immediate value.

The last couple of months have seen Verizon attempt to make money from the mockery, with a particular focus on job cuts. In January, it was announced 7% of the media unit’s workforce, some 800 roles, would be sacrificed to the gods of profits, and now it seems Tumblr is being marshalled to the alter.

What is worth noting is this is a platform which has promise.

After being acquired by Yahoo during 2013 for $1.1 billion, Verizon inherited Tumblr through the much mangled $4.8 billion acquisition of Yahoo in 2017. Although some might struggle to understand what Tumblr does, the all-encompassing blogging platform currently has 465.4 million blogs and 172 billion posts.

Tumblr is a tricky one to understand what it actually does, but instead of trying to pigeon hole it into a definition perhaps the better approach would be to let it just be itself. Tumblr defines itself as a blank canvas, allowing users to post text, photos, GIFs, videos, live videos and audio, or pretty much anything the user wants to.

Perhaps this is why Verizon has struggled with the brand and presumably failing to realise the potential. Telcos generally cultivate traditional and relatively closed-minded cultures. With Tumblr just being itself, rather than fitting into a tidy tick-box exercise, Verizon may be struggling to communicate the value to customers or even devise an out-of-the-box business model to monetize it effectively.

This assessment is perhaps supported by where the media business has seen success. Financial news for example, or the delivery of sports content. These are not exactly complex business models to understand, more difficult to deliver however, as they are more functional. These are the areas CFO Matt Ellis was boasting about during the earnings call.

While there has not been any official commitment or denial to the rumours from Verizon so far, there does seem to be some appetite from the industry. According to Buzzfeed, Pornhub VP Corey Price is ‘extremely interested’ in potentially acquiring Tumblr, promising to re-discover the NSFW edge, one of the factors which drove the popularity of Tumblr during the early days.

The future of Tumblr might be a bit hazy for the moment, but one thing is clear. Verizon is mapping out a very effective usecase on how not to diversify into the content world.

T-Mobile US finally makes foray into TV world

Some might have started to think it was never going to happen, but T-Mobile US has finally unveiled its own attempt to crack the content market TVision Home.

The service, which will initially be launched in eight US cities on April 14, is the re-branded and upgraded version of Layer3 TV, the platform it acquired in early 2018. It might have taken a while for the proposition to emerge, but T-Mobile US is entering the highly congested and increasingly fragmented world of content.

“The Un-carrier has already changed wireless for good, and today’s news brings us one step closer to taking on Big Cable,” said John Legere, CEO of T-Mobile. “And with the New T-Mobile, we can do more than just offer home TV service, we can offer millions of Americans more choice and competition for TV AND home broadband. I can’t wait to begin un-cabling cable and giving millions the opportunity to cut the cord with Big Cable forever.”

While this might not be the big splash some were hoping for, T-Mobile US does plan on launching a streaming service to compliment this cable offering later in the year. For the moment, this is an effort to disrupt a traditional industry, something which Legere is very good at doing, and there is of course an element of the unusual in the launch.

The TV service itself is not the Uncarrier move, but the Satellite Freedom initiative certainly is. According to T-Mobile US, 48% of US customers are locked into a contract and face paying hundreds in early termination fees. To win over customers, T-Mobile US will offer any Dish or DirecTV customers who make the switch a prepaid card with up to $500 on it.

For the moment, it looks more like a bundling service, though this isn’t necessarily a bad thing as it does address a point of irritation for the consumer. Netflix and Amazon Prime will be bundled into the service to start with, while T-Mobile US promises more third-party bundles in the future.

The service begins with 150 channels of local and national content for $99.99 a month, though existing T-Mobile US customers will get a $9.99 discount, while any premium services (such as Netflix, Amazon or HBO) will be extra. When you add everything together, it isn’t that much of a discount on the average cable cost across the US, which T-Mobile US claims is $107.30 per month.

The platform itself is simply an upgraded version of the Layer3 TV service which it acquired to $325 million last year, though considering how long T-Mobile US has kept everyone waiting, it does seem a bit underwhelming. While a lot has been promised, such as the box becoming redundant as the TVision app is installed on hardware, minimal details don’t inspire much confidence. T-Mobile US is promising to deliver on the commitments sharpish but considering how long it took to get the basic proposition to market we’re not entirely confident.

Ultimately, the success of this service will come down to two things. Firstly, pricing, T-Mobile US has been successful in the past by offering more for less, and secondly, the experience. Should the 150 channels offer good content, customers will certainly be happy, though there are plenty of examples of failed forays into TV because the content doesn’t deliver on expectations.

Another interesting development will be the personalisation features. T-Mobile US has stated each member of the household will have their own profile with the discovery engine presumably tailored to that individual. It might sound great, but we are still not convinced this is a feature which many customers will find that intriguing. It might be a nice to have, but we doubt it will be a factor in the buying decision making process.

While there is promise for the future, the launch is a bit flat. Legere has a reputation for creating innovative ideas and challenging the status quo, but this looks to be an assault on a segment which has already been disrupted. There are promises to launch a streaming service, and that might have been something more in-line with what the industry expected, but this service is attacking an industry where the revenues are already declining.

That said, you can’t ignore that this is an opportunity for Legere to make more money for T-Mobile US. The cable segment is declining, but it isn’t dead. The service is not necessarily anything new, but T-Mobile US does have an existing customer base to leverage. This might dictate the quality of content on the platform, possibly the decided factor for success or failure, and we already know Legere is a cunning businessman. Content owners will be intrigued by what he can offer.

Whether it was unreasonable to expect more remains to be seen, though this service doesn’t necessarily look any distinguishable from others on the market.

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.

Apple expected to launch half-baked streaming platform

Rumours are swirling around the Apple content business once again, this time pinning an April launch date on a streaming product which would offer third-party bundles in-app.

The aggregator platform for content is one which is becoming increasingly popular as the industry starts to realise how difficult it is to be a content creator. Apple has tried over the years, with only a sprinkling of success, but it seems it is hedging this new position by bundling other premium subscription services into the same content platform.

According to CNBC, Apple will create a video content platform to host its own content, which will be free to those who own Apple devices and offer the option for users to tie in premium subscriptions from third-parties. This sounds like an excellent idea, the fragmentation of content across different platforms is a frustration for users, though the absence of some might be a significant stumbling block.

As it stands, Apple has been unable to negotiate a relationship with HBO, though this is still a possibility, while the report also claims Hulu and Netflix will not be on the platform. For such an idea, and it is a good one which will appeal to consumers, all the various options need to be available. As it stands, with some of the most popular streaming services absent the appeal of the platform is severely dented.

“Any move is long overdue and comes at a challenging time for any new player,” said independent analyst Paolo Pescatore. “We’ve seen an explosion in OTT SVOD services.

“For the service to be successful it will need stand heads and shoulders over rivals, great content, great UX, a one stop shop destination. Unfortunately the market is hugely fragmented and consumers do not want to sign up to numerous services. There is an opportunity to unite all of these services. Whoever gets this right will be in pole position. If Apple has serious aspirations to compete in this landscape it needs to make a significant acquisition.”

But what could be the issue? Rumours are pointing towards the terms and conditions set forward by Apple; they might be asking for too much.

Looking at the App Store, Apple has traditionally asked for a 30% slice of any subscriptions bought through the platform, a number which decreases to 15% in the second year. It also demands 30% of in-app purchases, leading some developers to take users off-app to complete any transactions, creating a loophole in the terms and conditions. It seems these terms ate being extended to the aggregator platform and might be the reason Apple is finding difficulty in negotiating with partners.

Anonymous sources quoted by CNBC are suggesting HBO is resisting so far as Amazon Prime offered better terms than Apple. Sticking to its guns might sound like an attractive move to the management team and investors, but unless Apple gets a decent level of premium content on the platform to supplement its own mediocre library the platform will not be a success.

“Apple’s strength has always been seamless integration between hardware, software, services and now, presumably, content,” said Ed Barton, Chief Analyst at Ovum. “It has a lot of strengths to leverage in launching a video service. It’s problem is launching a video service in 2019 is about as hard as it has ever been, the competition is insanely strong and very well established in audience viewing habits.

“More well funded competitors are launching this year and making enough shows to attract and retain audiences is getting harder and more expensive. I don’t doubt Apple can launch a great video service, whether apple can sustain a great video service over the longer term in the brutally competitive environment for premium video is the question.”

Another strand of the software and services push will take Apple into the world of magazine subscriptions. Similar to the plans above, premium magazine subscriptions will be offered to users through the iOS news app, though considering the strife traditional content providers are in, Apple might be able to throw its weight around a bit more.

This is perhaps the problem Apple is facing; it thinks it is more powerful and influential than it actually is. Of course, Apple is one of the most respected and dominant brands on the planet when it comes to consumer hardware, though the software world is a completely different dynamic. It cannot bully companies like Hulu, Netflix and HBO into its own terms and conditions, as these are companies which are successful in the content world in their own right. Apple is trying to break into a new space, not necessarily the other way around.

That said, Apple does have a very strong relationship with its hordes of loyal customers. It can add value to any business it partners with, but perhaps it needs to realise it is only one hand amongst hundreds which is trying to lure customers onto its platform. What is clear right now, is that without enough headline grabbing content on the platform, the idea will certainly fall flat.

T-Mobile US ditches streaming for aggregator TV play

After T-Mobile acquired Layer123 back in 2017, the US has been holding its breath for another Uncarrier move to disrupt the content world, but its not going to be as glitzy as some would have hoped.

Speaking on the latest earnings call, the management team indicated there will be a foray into the content world, but it appears to be leaning more onto the idea of aggregation than creation and ownership.

“It’s subscription palooza out there,” said COO Mike Sievert. “Every single media brand is, either has or is developing an OTT solution and most of these companies don’t have a way to bring these products to market. They’re learning about that. They don’t have distributed networks like us. They don’t have access to the phones like we have.

“And we think we can play a role for our customers as I’ve been saying in the past at bringing these worlds of media and the rest of your digital and social and mobile life together. Helping you choose the subscriptions that makes sense, building for those things, search and discovery of content. We think there’s a big role for our brand to play in helping you.”

The T-Mobile US management team might be antagonistic, aggressive and disruptive, but ultimately you have to remember they are very talented and resourceful businessmen. A content aggregation play leans on the strengths of a telco, allowing the business to add value to a booming industry instead of disrupting themselves culturally trying to steal business.

Content streaming platforms have been an immense successful not only because of our desire to consume content in a completely different way, but also due to the companies who are leading the disruption. The likes of Netflix, Hulu and Amazon are agile, creative and risk-welcoming organizations. Such a disruption worked because the culture of these businesses enabled it. Telcos are not part of the same breed.

However, this is not a bad thing. The basic telco business model is connecting one party to another and this can be of benefit to the content segment. Telcos own an incredibly valuable relationship with the consumer as most people have an exclusive relationship with a communications provider (not considering the broadband/mobile split) and a single device for personal use. The telcos own the channel to the consumer.

Sitting on top of the content world, providing a single window and, potentially, innovative billing services and products could be immensely valuable to the OTTs, as well as securing diversification for the spreadsheets internally. The content aggregation model is one which is functional and operational, perfectly suited to the methodical and risk-adverse telcos.

Specifics of this Uncarrier move are still yet to emerge, but the T-Mobile US management team are promising to do something with the Layer123 acquisition sooner rather than later. It might not just look like what most had imagined initially.

Orange builds out security credentials with SecureData acquisition

Orange has announced the acquisition of SecureData, building out the increasingly extensive cybersecurity operations at the telco.

The Orange Cyberdefense Division is another one of Orange’s ventures into the world of differentiation. Like banking and smart home services, this is not a segment which is necessarily core for the telco, but with a close enough link to connectivity it’s a low risk approach to diversification. With annual sales approaching €300 million, over 1,300 employees and a presence in 160 markets, it is also fast becoming more than just an ‘other bet’.

In SecureData, Orange has bought itself more of a presence in the UK, the largest Western European market for managed security services. SecureData’s existing Security Operations Centre (SOC) in Maidstone will add to the existing 9 Cyber SOC’s and 4 CERT’s around the world. The footprint is steadily increasing, gradually making the Orange security business more appealing to both national and international customers.

“SecureData, just like Orange Cyberdefense, has successfully made the transition toward Managed Security Services, and shares the same passion for Cyber,” said Hugues Foulon, Executive Director of Strategy and Cybersecurity activities at Orange.

“Cybersecurity has become a critical element for both large and small companies as they evolve in an increasing digital-reliant world. We are convinced that the combined expertise of Orange Cyberdefense and SecureData will provide a powerful resource for our customers in ensuring the protection of their valuable data.”

While Orange has not necessarily been spraying the cash everywhere, it has steadily been building its cybersecurity credentials. Aside from this purchase, Atheos and Lexsi are two other examples, with the services now being extended to 160 different countries.

These two acquisitions do date back a few years, though in cybersecurity Orange has once again proved it can think ahead of the game. This is a segment which is only starting to get the attention it rightly, and responsibly, deserves but it has been an ambition for Orange for years.

A recent survey from Tripwire claims 60% of respondents were more concerned about IoT security in 2019 compared to the previous year. IoT is a blossoming segment, an opportunity many companies will want to take advantage of for both new revenues and operational efficiency, but few know how to keep themselves secure. The perimeter of the network is about to vastly expand, but right now it is nothing more than a risk. Security needs to radically rise up the agenda.

Like getting ahead of the fibre trends across Europe, Orange looks like it onto a winner with a focus on cybersecurity. With tighter regulations on data protection and privacy, combined with increased public backlash with recent breaches and leaks, as well as new business models, security is becoming more of a priority for companies. The low-risk, long-thinking approach from Orange definitely looks to be paying off.

AT&T just misplaced 267k DirecTV Now subs, but it’s OK

The AT&T earnings call was somewhat of a mixed bag of results, with gains on mobile but it somewhat irresponsibly managed to misplace 267,000 DirecTV Now subscribers; its ok says CEO.

Digging down into the numbers always tends to lead to many twists and turns, but the big one is DirecTV Now, the telcos attempt to blend into differentiation and get ahead of the cord cutting generation. This has not exactly been a rip-roaring success for the business so far but losing 267,000 subscribers in three months is a headline which will take some beating.

So where did they go? According to the business, they were basically just allowed to leave. With $10 a month promotional subscriptions biting down hard on profitability, the powers-that-be seemingly decided to cut the losses. The company scaled back promotions and the number of customers on entry-level plans declined significantly, however on a more positive note, the number of premium subscriptions remained stable.

Unfortunately for AT&T, stable will not cut the grade anymore. Having made the questionable decision to acquire DirecTV for $67 billion in mid-2015, some would have hoped the outcome would be more than ‘stable’ three years later. With another whopper of an acquisition taking place during this three-year period, AT&T will be hoping to scale up success before too long if it is to reduce the debt weighing down the spreadsheets.

“Our top priority for 2018 and 2019 is reducing our debt and I couldn’t be more pleased with how we closed the year,” said CEO Randall Stephenson. “In 2018, we generated record free cash flow while investing at near-record levels.”

The other acquisition, WarnerMedia, seems to be having a better time of it than DirecTV. Total WarnerMedia revenues were $9.2 billion, up 5.9% year over year, primarily driven by higher Warner Bros revenues, consolidation of Otter Media and higher affiliate subscription revenues at Turner. What remains to be seen is whether this can continue. WarnerMedia is a media company which is awaiting the full integration and transformation wonders from AT&T. What impact this risk-adverse, lethargic and traditional business will have on the media giant is unknown in the long-run.

Elsewhere in the business, things were a little more positive. The team added 134,000 valuable post-paid subscriptions in the wireless business, though this remained below expectations, with the total now up to 153 million. Total revenues were up15.2% to $47.99 billion though this was also below analysts’ estimates of $48.5 billion. A bit more positive, than DirecTV’s car crash, but still not good enough according to Wall Street as share price declined 4.5%.

Netflix doubles profit but Wall Street not very happy

Netflix has increased its annual revenues by 35% and doubled profits over the course of 2018, but that didn’t prevent a 3.8% share price drop in overnight trading.

Total revenue across the 12-month period stood at $15.7 billion, though growth does seem to be slowing. Year-on-year revenue increases for the final three months were 27.4%, with 21.4% for the first quarter of 2019, though this compares to 40.4%, 40.3% and 34% in Q1, Q2 and Q3 respectively. However, when you consider the size, scale and breadth of Netflix nowadays this should hardly be considered surprising.

“For 20 years, we’ve been trying to please our members and it’s really the same focus year-after-year,” said CEO Reed Hastings during the earnings call.

“We’ve got all these ways to try to figure out, which shows work best, which product features work best, we’re a learning organization and it’s the same virtuous cycle, improve the service for our members. We grow. That gives us more money to invest. So, it’s the same things we’ve always been doing at just greater scale.”

This is perhaps the reason Netflix has succeeded in such a glorious manner where others have succumbed to mediocrity or failure. Investments have been massive to build out the breadth of content, while the team has not been afraid to alter its business or invest in content which others might snub. Bird Box is a classic example of a movie some might dismiss, whereas we find it difficult many competitors would have given the greenlight to the original Stranger Things pitch.

On the content side of things, investments over the last twelve months totalled $7.5 billion and Hastings promises this will increase in 2019. Perhaps we will not see the same growth trajectory, as despite the ambitions of the team, another objective for Netflix pays homage to the investors on Wall Street. Operating margin increased to 10% during 2018, up from 4% a couple of years back, though the team plan on upping this to 13% across 2019.

Content is where Netflix has crowned itself king over the last few years, aggressively pursuing a varied and deep port-folio, though it will be pushing the envelope further with interactive story-telling.

“I would just say there’s been a few false starts on interactive storytelling in the last couple of decades,” said Chief Content Officer, Ted Sarandos. “And I would tell you that this one has got storyteller salivating about the possibilities.

“So we’ve been talking to a lot of folks about it and we’re trying to figure it out too meaning is it novel, does it fit so perfectly in the Black Mirror world that it doesn’t – it isn’t a great indicator for how to do it, but we’ve got a hunch that it works across all kinds of storytelling and some of the greatest storytellers in the world are excited to dig into it.”

The team are attempting to figure out what works and what doesn’t for the interactive-story segment, but this is one of the reasons why people are attracted to Netflix. The team are exploring what is capable, brushing the dust away from the niche corners and experimenting with experience. They aren’t afraid of doing something new, and the audience is reacting well the this.

Looking at the numbers, Netflix added 8.8 million paid subscribers over the final three months of 2018, 1.5 million in the US and 7.3 million internationally, taking the total number of net additions to 29 million across the year. This compares to 22 million across 2017, while the team exceeded all forecasts.

However, this is where the problem lies for Netflix; can it continue to succeed when it is not diversifying its revenues?

According to independent telco, tech and media Analyst Paolo Pescatore, the Netflix team need to consider new avenues if they are to continue the exciting growth which we have seen over the last couple of years. New ideas are needed, partnerships with telcos is one but we’ll come back to that in a minute, some of which might be branching out into new segments.

This is perhaps most apparent in the US market, as while there is still potentially room for growth, this is a space which is currently saturated with more offerings lurking on the horizon. Over the next couple of months, Disney and AT&T are going to launching new streaming services, while T-Mobile US have been promising its own version for what seems like years. If Netflix is to continue to grow revenues, it needs to appeal to additional users, while also adding bolt on services to the core platform.

What could these bolt-on services look like remains to be seen, though Pescatore thinks a sensible route for the firm to take would be into gaming and eSports. These are two blossoming segments, as you can see from the Entertainment Retailers Association statistics here, which lend themselves well to the Netflix platform and business model. Another area could be music streaming, though as this market is dominating by Spotify and iTunes, as well one with low margins, it might not be considered an attractive diversification.

The other area which might is proving to be a success for the business are partnerships with telcos.

“It’s sort of been this March from integration on devices and just makes that a point to engage with the service to doing things like billing, on behalf of or we do billing integration,” said Greg Peters, Chief Product Officer.

“And now the latest sort of iteration that we’re working with is, is bundling model, right. And so, we’re early on in that process, but I would say we’re quite excited by the results that we’re seeing.”

This is a relatively small acquisition channel in comparison to others, but it is opening up the brand to new markets in the international space, a key long-term objective, and allowing the team to engage previously unreachable customers. This is an area which we should expect to grow and flourish.

The partnerships side of the business is one which might also add to the revenue streams and depth of content. Pescatore feels this is another area where Netflix can generate more revenue, as the team could potentially offer additional third-party content, hosting on its platform for users to rent or purchase. Referral fees could be an interesting way to raise some cash and Netflix certainly has the relationships with the right people.

Netflix has long been the darling of Wall Street, but it might not be for much longer. The streaming video segment is becoming increasingly congested, while the astronomical growth Netflix has experienced might come to a glass ceiling over the next couple of years. The businesses revenues are reliant on how quickly the customer base grows; such a narrow focus is not healthy. Everyone else is driving towards diversification, and Netflix will need to make sure it considers it sooner rather than later.

German regulator effectively confirms IBM/T-Systems talks

As it does from time-to-time, German regulator Bundeskartellamt has published a list of mergers and acquisitions which is evaluating. IBM and T-Systems are lucky enough to make the list.

Reports of the discussions emerged over the weekend, with IBM rumoured to be considering taking the mainframe service business unit off the hands of the struggling T-Systems. Although the specifics of the deal are not completely clear right now, it would hardly be a surprise to learn T-Systems is attempting to slim the business down.

On the Bundeskartellamt website, there is a page which lists some of the main transactions which the regulator is considering in its role as merger overseer. These are mainly deals which are in the ‘first phase’ and usually passed unless there are any competition concerns. Although the description is not detailed, it lists IBM will be acquiring certain assets from T-Systems.

The news was initially broken by German-language newspaper Handelsblatt, quoting an internal email which suggested 400 employees would be transferred to the IBM business in May. Subsequently IT-Zoom has suggested IBM will be paying €860 million for the business unit.

The origins of such a deal can only lead back to one place; the office of T-Systems CEO Adel Al-Saleh. Al-Saleh was initially brought to the firm, having previously worked at IBM for almost two decades, to trim costs and salvage a business unit which, recently, has been nothing but bad news for parent company Deutsche Telekom. Aside from this saga, job cuts of roughly 10,000 have been announced since Al-Saleh’s appointment.

Confirmed back in June, the 10,000 job cuts were a result of a long-time losing battle to the more agile and innovative players such as AWS and Microsoft. Al-Saleh’s objective was to trim the fat, focusing on the more lucrative contracts, as well as more profitable, emerging segments of the IT and telco world.

While T-Systems and IBM do already have an established relationship, it seems options are running thin to make this business work effectively. With headcount going down from 37,000 to 27,000, its footprint dropping from 100 cities to 10 and this deal working through the cogs as we speak, Deutsche Telekom employees will hope this is the last of the bad news. Whether Al-Saleh feels this is enough restructuring to make the business work remains to be seen.

iChief’s Samsung tie up is long overdue

The first (proper) week in January always promises a deluge of stories from CES and one opening gambit is a content-based partnership between Samsung and Apple, which should probably have happened much sooner.

Beginning in the Spring, new Samsung Smart TV models will offer iTunes Movies & TV Shows and Apple AirPlay 2 support for Apple customers, while 2018 models will also be made compatible via firmware update. iCultists with Samsung TVs can access their existing iTunes library and browse the iTunes Store to buy or rent new content, while Apple content will also work with Samsung’s Smart TV Services, such as Universal Guide, Bixby and Search.

The iTunes Movies & TV Shows app will feature on Samsung Smart TVs in more than 100 countries, while AirPlay 2 support will be available on Samsung Smart TVs in 190 countries.

On the surface this could be a very positive partnership for Apple and Samsung, both of whom have struggled to make a significant impact when searching for diversified revenues.

“Fascinating move as both companies have struggled to make strides in services,” said independent tech and telco analyst Paolo Pescatore. “Arguably it is a smart strategic move for both companies which underlines the need for companies to work more closely together. Samsung has made numerous failed moved in video services while Apple is still seeking to crack the TV landscape.”

Looking at Apple to begin with, this is a move which should have perhaps happened a while back. Stagnation trends in the devices and hardware segments will not have surprised anyone in the Apple business, this is the reason why CEO Tim Cook has been emphasising gains in the software and services business units so proudly, but it is now abundantly clear the ‘us versus everyone else’ mentality which made Apple great will not work outside its traditional stomping ground.

Apple has seemingly long-defied trends in the technology world by swimming against the ‘open’ euphoria. This mentality dates back to its stubborn but brilliant founder Steve Jobs, who constantly resisted the idea of openness, instead tightly integrated Apple within Apple, creating a closed ecosystem which forces iLifers to buy more Apple products. Back during a 2010 earnings call, Jobs stated “open systems don’t always win”.

When Apple was creating wonderful products, with each new release offering a brilliant new feature, this was enough to ensure the loyalty of customers despite the closed nature of the Apple business. However, innovation in the hardware segment has stalled and the closed mentality does not work in the software and services world. What some proof? Have a look at the profit warning last week.

The profit warning was the first one released by Apple in 15 years, and despite progress being made in the software and services segment, the gains could not compensate for the downturn. Although Cook pointed the finger of blame at a slowing Chinese economy, the team could not convince enough consumers to buy the ludicrously priced flagship devices in other territories either. This is a wider trend in the hardware segment, consumers are extending the lifecycle of current devices, while some are leaning towards second-hand models, but the software and services unit could not fill the $5 billion hole created.

To make the content business work, Apple will have to become a more open company, adopting the culture which it has resisted for so many years, and in Samsung it has an interesting partner.

In Samsung, Apple has found something which its own smart TVs cannot deliver; scale. According to market research firm NPD, Samsung is the leader in the US premium smart TV market (August report), holding 34% market share. Considering just over 43% of Apple’s revenue comes from the Americas, this is potential a very positive catapult to secure additional services revenues from customers. And this is before we’ve even started talking about the other territories.

Samsung is another business which has struggled to make headway with alternative revenue streams, though its prominent position in the premium home electronics space offers an excellent opportunity for the aggregator business model. When looking for new money each business has to decide where it can add value to the ecosystem; sometimes it is offering new products in parallel segments, but occasionally it means helping other businesses achieve their ambitions. Embracing openness could be an excellent move here.

If Apple wants to make any meaningful impact on the software and services industry, it will have to move away from the closed mentality which brought it success in the Jobs era and embrace the idea of collaboration. It will certainly be difficult to redirect such a massive supertanker, but one thing is clear; the faltering hardware segment, as it currently stands, will not support Apple’s indulgent ambitions.