AT&T delivers bullish 3-year outlook amidst a mixed Q3

US telecom and media giant AT&T has reported a steady Q3, with revenues slightly down coupled with improved operation. A bullish 3-year outlook to further de-leverage is welcome news to the capital market.

The company lost 1.2 million premium pay-TV subs, but the HBO business registered growth. The corporate level revenue of $44.588 billion is a 2.5% decline from a year ago (2% decline on constant currency). Operating income grew by 8.7% to reach $7.901 billion, up from $7.269 billion a year ago. EPS was dropped by 23% to $0.50.

When it comes down to business group level, the Communications group delivered a largely steady result. Wireless service revenues edged up, helped to a large extend by the increase in postpaid subscriber base (including 173,000 postpaid smartphone subs) and the upward move of postpaid ARPU ($55.89, up from $55.58 a year ago). The entertainment part of the Communications business was less steady. The company lost 1.16 million “Premium” pay-TV subs (DirecTV satellite and U-verse IPTV) and 195,000 OTT-TV (AT&T TV Now) customers. The total number of AT&T pay-TV subs stood at 21.56 million by the end of Q3, down from 25.15 million a year ago.

Numbers from WarnerMedia, the second largest business group of AT&T, epitomised the “mixed” nature of the results. The total group level income went down by 4.4% to $7.8 billion, but HBO reported an impressive 10.6% year-on-year increase in revenue to reach $1.8 billion, and the $714 million operating income represented a 13.7% growth.

The strong performance of HBO came at a time when AT&T is about to launch HBO Max later today. Priced at $14.99, the current HBO package is the most expensive offer among the major video streaming services (Netflix and Amazon at $12.99, Disney+ at $6.99, Apple TV+ at $4.99). It remains to be seen how AT&T will choose between maxing the user base by pricing HBO Max more aggressively and defending profitability by retaining it at the premium tier.

Guidelines to 2022

The company delayed its Q3 results reporting by a week to finalise its discussion with activist investor Elliott Management Corporation. Presumably as a result of that discussion, AT&T published a rather detailed 3-year financial guidance (to 2022). The key items include growing revenues by 1-2% CAGR, EBITDA target set at 35%, free cash flow to reach $30-32 billion, and no major M&A planned.

The items that made most headlines are related to debt reduction. Specifically, AT&T promised to “Pay off 100% of acquisition debt from Time Warner deal; net-debt-to-adjusted-EBITDA5 of 2.0x to 2.25x in 2022”. Its current net debt to adjusted EBITDA ratio is 2.5, down from 2.66 at the beginning of the year.

According to the analysis by the Washington Post, the Time Warner deal could have cost AT&T over $108 billion including the debt it assumed from Time Warner at the acquisition. AT&T would not be able to pay off its debts, which stood at $153 billion by the end of September (coming down from $166 billion at the end of 2018) with the income generated from its business operations. This means more non-critical assets will be divested. The company is on way to generate $14 billion through asset monetisation in 2019 and plans to recoup $5-10 billion of non-strategic asset sales in 2020.

“The strategic investments we’ve made over the last several years have given us the essential elements to meet growing demand for content and connectivity,” said Randall Stephenson, AT&T chairman and CEO. “Our 3-year plan delivers both substantial and consistent financial improvements over the next 3 years. We grow revenues, EBITDA and EPS every single year, and free cash flow is stable next year, but then grows in both of the next two years, as well. And all of this is inclusive of our investment in HBO Max.”

When it comes to what qualifies as strategic or non-strategic, Stephenson told investors “we have no sacred cows. We’re always open to making portfolio moves.” However, DirecTV, albeit being highlighted by Elliott as one of the failed acquisitions, is not viewed as a target to liquidate in the near future. The business “will be an important piece of our strategy over the next 3 years”, said Stephenson.

The guideline largely reflected what Elliott’s letter to AT&T has demanded. In addition to the defence of DirecTV, probably the only other exception AT&T has made in its guideline was Elliott’s call for management change – AT&T stated “CEO transition not expected in 2020”.

Verizon banks on Disney for SVOD credibility

US operator Verizon has done a deal with Disney to offer its new Disney+ subscription video to its customers.

Rival AT&T has gone all in on video through its acquisition of Time Warner, which enables it to offer things like HBO Max to its loyal customers. Verizon has no offsetting video assets of its own and its digital content efforts in general seem to be struggling, so it’s compelled to look for partnerships if it wants to remain competitive.

So today we have the news that Verizon is the exclusive wireless carrier partner of Disney+ and will offer all 4G and 5G customers a year’s access to all those lovely cartoons and super hero movies, which includes Fios Home Internet and 5G Home Internet subscribers. Assuming Verizon customers attach some value to Disney+, this is effectively an $84 discount on their phone bill for a year.

“Giving Verizon customers an unprecedented offer and access to Disney+ on the platform of their choice is yet another example of our commitment to provide the best premium content available through key partnerships on behalf of our customers,” said Verizon Chairman and CEO Hans Vestberg. “Our work with Disney extends beyond Disney+ as we bring the power of 5G Ultra Wideband technology to the entertainment industry through exciting initiatives with Disney Innovation Studios and in the parks.”

Vestberg may have been making a nod towards a few minor 5G announcements it had drip-fed over the past few days. You can read an excellent summary of them on Light Reading here, which is testament to the conscientiousness of its writers. Verizon also seems to be focusing its efforts on densely populated environments such as sports arenas.

While it remains highly debatable that operators will ever make significant profit from content, it does at lease serve as a good sweetener to current and prospective customers. Verizon couldn’t afford to lose too much ground to AT&T in this area after its Time Warner acquisition, so partnering with Disney makes sense. But Verizon’s negotiating position will have been weak so it has probably paid a heavy price to retain SVOD credibility.

France pushes forward with trials of much-hyped mmWave airwaves

Much has been spoken about the promise of mmWave spectrum bands, and France has announced 11 trials to separate the wheat from the chaff in 26 GHz.

Launched by Agnès Pannier-Runacher, France’s Secretary of State to the Minister for the Economy and Finance, and Sébastien Soriano, Chair of the Electronic Communications and Postal Regulatory Authority (Arcep), the trials will sweep the country, covering a handy number of different usecases, while also bringing in an attractive number of different technology companies.

It’s a comprehensive approach few other countries could match-up to. Interestingly enough, several of the projects are being led by enterprise companies, or organizations that do not specialise in telecommunications. To some, it might not sound like the most sensible approach, though it will ensure business demands are priority number one; the problem with telcos is that they specialise in telecommunications and very little else.

The first project will be led by Universcience, at the Cité des Sciences et de l’Industrie, and will focus on public engagement. The La Cité des sciences et de l’industrie 5G trial platform will showcase use cases to the public, through open events, as well as temporary and permanent exhibitions.

Although many in the general public would claim to have heard of 5G, few will actually understand what it is. Education programmes are critical not only to ensure the public is made aware of progress, but also to encourage the next generation into the STEM subjects. For any nation to capitalise on the opportunities presented by the 5G era, the skills gaps will have to be closed.

The second, at the Vélodrome National, will bring together Nokia, Qualcomm, Airbus and France Television to understand how 5G can aid sports media. Low latency and increased bandwidth will be key topics here, as will the integration of artificial intelligence for operational efficiency and augmented reality to improve consumer experience.

The third trial will pair Bordeaux Métropole, the local authority, with Bouygues Telecom and will aim to capitalise on public lighting networks to deploy new infrastructures.

The Port of Le Havre will lead the fourth trial alongside the Le Havre Seine Métropole urban community, Siemens, EDF and Nokia. This initiative will explore 5G applications in a port and industry-related environments, with use-cases such as operating smart grids and recharging electric vehicles.

At the Nokia Paris-Saclay campus, trials will be conducted in a real-world environment, both indoors and outdoors, thanks to Nokia 5G antennae installed at different heights on the rooftops, and in work areas. This project also includes a start-up incubator programme.

The Paris La Défense planning development agency and its partners have submitted another interesting usecase. With 5G CAPEX budget strained already, the Government department will test the feasibility and viability of owning infrastructure and selling turnkey access to operators. This might erode coverage advantages which some telcos might seek, though in assuming ownership (and the cost) of network deployment, the 5G journey might well be a bit smoother in France.

The seventh trial will pair Bouygues Telecom with France’s national rail company, SNCF, at the Lyon Part-Dieu train station. Tests will focus on consumer applications, such as VR and AR, as well as how transportation companies can make best use of data and connectivity to enhance operations. The eighth trial will also be led by Bouygues Telecom, focusing on industrial IOT in the city of Saint-Priest.

Orange will oversee two trials at part of the wider scheme, with the first taking place in Rennes railway station with SNCF and Nokia. Once again, part of this trial will focus on consumer applications, making waiting a ‘more pleasant experience’, with the rest focusing on industrial applications such as remote maintenance using augmented reality.

The second Orange trial will focus on various 5G use cases in heavily trafficked areas, such as enhanced multimedia experiences for people on the move and cloud gaming. This trial is supposed to be generic, and another opportunity for start-ups to pitch and validate their ideas in a live lab.

“The 26GHz spectrum band will allow us to explore new services based on 5G,” said Mari-Noëlle Jégo-Laveissière, Chief Technology and Innovation Officer of Orange. “We are aiming to set-up experimental platforms that will stimulate collaboration on these new use-cases across all economic sectors.”

With the spectrum licenses live from October 7, the trials are now officially up-and-running. Each of the projects must have a live network operational by January 2021 at the latest and have to make it available to third parties to perform their own 5G trials.

This is perhaps one of the most interesting schemes worldwide not only because of the breadth and depth of the usecases being discussed, but the variety of companies which are being brought into the fray. Although the telco industry does constantly discuss the broadening of the ecosystem, realistically the power resides with a small number of very influential vendors.

This is a complaint which does seem to be attracting more headlines at the moment. If you look at the Telecom Infra Project (TIP) being championed by Facebook, the aim is to commoditise the hardware components in the network, while decoupling them from software. Ultimately, the project is driving towards a more open and accessible ecosystem.

France’s initiative here could have the same impact. By designating enterprise companies and local municipalities as leaders in the projects, instead of the same old telcos and vendors, new ideas and new models have the potential to flourish. This looks like a very positive step forward for the French digital economy.

Verizon buys into alternative realities

Verizon has announced the acquisition of Jaunt XR, adding augmented and virtual reality smarts to its media division.

While few details about the deal have been unveiled, the deal will add an extra element to a division which has been under considerable pressure in recent months. The Verizon diversification efforts have proven to be less than fruitful to date, though this appears to be another example of throwing money at a disastrous situation.

“We are thrilled with Verizon’s acquisition of Jaunt’s technology,” said Mitzi Reaugh, CEO of Jaunt XR. “The Jaunt team has built leading-edge software and we are excited for its next chapter with Verizon.”

Jaunt XR will join the troubled media division of Verizon which has been under strain in recent months. The ambition was to create a competitor to Google and Facebook to secure a slice of the billions of dollars spent on digital advertising. On the surface it is a reasonable strategy, but like so many good ideas, the execution was somewhat wanting.

Since the acquisition of Yahoo, Verizon has had to deal with the after-effects of a monumental data breach, write off $4.6 billion of the money it spent on the transaction, spend big to secure a distribution deal with the NFL and cut 7% of its staff. The first few years of living the digital advertising dream has been nothing short of a nightmare.

Looking at the financials, during the last quarter the media division reported $1.8 billion in revenues. This was down 2.9% from the previous year and accounted for only 2% of the total revenues brought in across the group.

With Jaunt XR brought into the media family, new elements could be introduced to the portfolio. Details have not been offered just yet, though with VR, and more recently, AR expertise, there is an opportunity to create immersive, engaging content for the mobile-orientated aspects of the business.

This transaction will certainly add variety and depth to the services and products in the media portfolio, but soon enough you have to question whether Verizon is throwing good money after bad. This has not been a fruitful venture for the team thus far.

Elliott starts calling for AT&T CEOs head – report

Elliott Management, the activist investor which steamrolled into the AT&T business, has called for the replacement of CEO Randall Stephenson.

Stephenson, who has been running the telco since 2007, will hopefully have seen this move coming. The vulture fund has somewhat of an action-plan template when attempting to cause chaos, and a complete restructure of the management team is a tried and testing phase of the battleplan.

According to Fox News, Elliott Management is not only calling for the resignation of Stephenson, it is requesting it be made responsible for sourcing his replacement and demanding representatives on the Board of Directors.

After announcing it had snapped up a $3.2 billion stake in the telco, Elliott Management set to work. As with other companies the vulture fund has invested in, the objective is disruption, slimming back the focus of the business to realise value for the shareholder. This value will take the form of increased dividends and a bump in share price.

The first phase of the Elliott Management plan has already been set into play. Uncertainty has been placed in the mind of investors with the suggestion of a new strategy for AT&T. Elliott did the same at Telecom Italia when it bought its way into the debate. At AT&T, this is a divestment in the media business and a refocus on more traditional telco business activities.

The second and third phases of the disruptive battleplan are plain for everyone to see here. Elliott Management wants to appoint friendlies on the Board of Directors, and it wants to reform the executive team. Both of these phases of the plan will put the right people in the right place to act as internal champions of the Elliott Management approach to telecommunications.

The strategy being proposed is a very simple one, though it will fundamentally alter the direction of the AT&T business. Through the acquisition of both DirecTV and Time Warner, AT&T was looking like a digital services giant with connectivity at the route of the various different products. Elliott Management wants to get rid of these added value components.

Let’s not underestimate or underappreciate how much of a drastic change to the AT&T business this is.

How this saga will evolve remains to be seen. Perhaps the content businesses will be spun-off. One insider is suggesting a JV with a private equity partner and Dish. Some might assume this would be a complete divestment. Maybe a spin-off and an IPO is on the cards to recover funds and reduce AT&T debt?

There are a lot of options, but AT&T will fundamentally be a different business. It will be one which is focused on the commoditised business of connectivity. However, if Elliott Management want to succeed in their ambition, they will need some internal friendlies at the telco. For Stephenson and other executives, this might well mean a new job.

Is the consumer the broadcaster of tomorrow?

It’s an interesting thought that might force telcos to rethink how networks are built; will the increasingly influential trend of consumer created content demand greater upload speeds?

Download will of course always be more important than upload, we will always consume more content than we create, but with video messaging, social media and remote working becoming increasingly important aspects of our daily lives it is worth asking whether the upload metric, often ignored by the vast majority, will need some love in the future.

At IBC in Amsterdam this year, the opening keynote was made by YouTube. This is hardly unusual, it is one of the architects of the OTT revolution, though the focus on content creators was much more apparent than in previous years. Cécile Frot-Coutaz, the head of YouTube’s EMEA business, claimed the number of YouTube channels which generate more than $100,000 per annum has increased 30% from 2017 to 2018. The creation of content is becoming increasingly fragmented and straying outside the norms.

And this is not only visible on YouTube. Snapchat is a platform which was primarily designed to offer a platform for consumer content creation. In January, Facebook said there are now 500 million daily active users of the Stories feature on Instagram. Even the way we communicate is becoming more visual, with more consumers opting to video chat on the go.

Nexmo claims a 175% increase in regular live video usage in the last three years, with millennials leading the charge. 25% of young people use video chat on a daily basis. These trends will only increase as more banks, retail and healthcare companies offer live video services, and more of our lives revolve around the smartphone.

The video trends which we have discussed to great lengths over the last few years have primarily focused on the consumer downloading content. It is a one-way street of information, though this is not necessarily going to be the same in years to come. The big question is whether telcos are deploying networks which can compensate for the slight twist of strain. It is a nuance, but often the biggest challenges emerge from nuance.

A few weeks ago, the New England Patriots opened their Super Bowl LIII against the Pittsburgh Steelers. Over the course of this game, 11.58 TB of data traversed across the wifi network. The peak spike for the network was during the Super Bowl LIII banner reveal, with 34,982 concurrent users and 23.24 Gbps network utilisation. The breakdown of download and upload has not been revealed, though the team prepared themselves for an increase in sharing.

“The home opener for a Super Bowl champion is special,” said Fred Kirsch, VP of Content for the New England Patriots and Kraft Sports Productions.

“The team unveils its championship banner and every fan in the stadium wants to capture that moment along with all the other festivities leading up to it. We’ve been lucky enough to have done this before and saw huge spikes in social sharing during this game so our IT department, along with Extreme Networks, made sure we were prepared.

“Man, are we glad we did. At more than one terabyte, social sharing volume during the Super Bowl LIII banner unveiling at Gillette Stadium represents the highest data throughput rate of any moment during any sporting event.”

It might be a trend which irritates some technophobes and traditionalists, but social media is a genre for sharing. It started with the written word, users simply penning their thoughts, moved into sharing of existing content, and now it is increasingly becoming defined by the user creating and sharing their own content.

This creates a new dynamic and a new consideration for those who are deploying networks. Experience is often defined by download speed or latency, however there are will be an increasing number of people who will pay attention to the upload speeds moving forward.

Another interesting element for the upload speed metric will be the fast-developing gaming ecosystem. Download speeds are all well and good, but if you are playing a game which requires you to interact with other players online, uploads speeds are just as important. They do not need to be as high as download speeds, but there do need to be continued improvements to ensure connectivity meets the demands of gaming performance.

For example, Xbox currently suggests a consistent 3 Mbps download and 0.5 Mbps upload speeds for minimally acceptable performance. PS4 suggests 3 Mbps download and 1 Mbps upload, as does Nintendo Switch. For PC gaming, download speeds are suggested at 3-6 Mbps, while upload speeds are 0.75–1 Mbps.

These speeds might be achievable in the home, but with the cloud gaming segment growing, these titles can be taken onto multiple screens and onto different networks. Will upload speeds offer a consistent and reliable experience on the mobile networks which are so consistently put under strain.

All of these factors don’t even take into account the increasingly complex or immersive content which will emerge over the next few years. Or the more advanced cameras which smartphone manufacturers are putting on their devices. More tech means more data which needs to be uploaded.

We are all narcissists deep down, craving for attention. Social media is allowing us to do this by sharing video content of our own experiences, and now the networks will have to deliver on the promise.

AT&T reportedly considering TV U-turn

A report is suggesting AT&T is mulling over the prospect of selling its DirecTV assets as pressure mounts on the management team.

With the Elliott Management vultures circling overhead and an investor lawsuit hitting the New York District Court, AT&T is reportedly considering its options. Wall Street Journal sources are suggesting a divestment could be on the cards, a humbling move for AT&T executives who are seeing their diversification strategy crumble before their very eyes.

Although the sale of DirecTV is still a slim possibility, some executives might believe this is the best way in which to save their jobs. To demonstrate the scale of this potential outcome, cast your mind back to May 2018, a critical point during the AT&T defence of its Time Warner acquisition.

While the Department of Justice was looking for means to block the acquisition, for a brief moment, a concession was offered to the team; divest DirecTV assets and we’ll OK the Time Warner deal. This was almost immediately shot down by CEO Randall Stephenson, the purpose of Time Warner was to bolster the DirecTV offering.

This is the conundrum which the executive team is facing. The long-term business plan is sound; a purchase of an excellent content creation business to marry the delivery platform could create a notable share of the entertainment segment. However, the short-term threats might well force the team into a re-think.

Last week, a coalition of investors filed a lawsuit, naming a series of AT&T executives as defendants, accusing the telco of misleading executives over the performance of DirecTV. As the success of the DirecTV acquisition was being used to justify the Time Warner acquisition, the investors seemingly feeling violated, believing the gains were exaggerated or at least the longevity of the gains.

Perhaps more worryingly however was the emergence of Elliott Management. This vulture fund specialises in seeking undervalued businesses and introducing radical changes to increase dividends and share price. More often that not, when Elliott Management gets its claws into a business, executives usually find themselves heading towards the exit and a major restructure of the strategy is put in place.

If the sources are to be believed, this might well be a move towards appeasing the criticism before the HR department starts drafting emails.

What is worth noting, is this might well turn into nothing. Rumours of this magnitude might well be true, but the idea of discussing a divestment and then actioning these ambitions are two very different points of consideration. One question which remains unanswered is who would buy the assets?

AT&T is not going to be selling the business for pennies on the pound, therefore the potential purchaser will have to have a considerable bank account. It is also less clear whether this is a complete divestment or just the satellite assets. If it is just the ‘traditional’ content business, with the streaming side attached, this looks much less attractive to a potential investor.

One option could be a sale to Dish, a rival satellite TV provider. A merger of the two entities has been quashed by competition authorities in the past, though as there is now much larger variety of content options for the consumer it might be a possibility. That said, considering Dish is working through the $5 billion acquisition of the Boost prepaid mobile brand, it might not have the appetite for another large transaction.

Although this is a move which many AT&T executives will struggle to stomach, perhaps survival instincts have kicked-in.

The acquisition of DirecTV and Time Warner was supposed to be a means of diversifying the business, chasing the ever-increasing dollars which are being spent on digital entertainment by consumers and digital advertising by corporates. This was supposed to be a move to future-proof the business and drive growth opportunities.

Without DirecTV, the entertainment unit looks quite hollow. The AT&T business will look much more like a traditional telco, one which is built around the decreasingly profitable and increasingly commoditised business of connectivity. Many companies are looking to leverage their relationship with customers with additional services, and for AT&T, this was supposed to be video.

What is worth noting, is the divestment looks unlikely at the moment. It might happen, but it might well be more sensible for a spin-off and partial divestment. This would recover funds, partially satisfying the vultures at Elliott Management, while also keeping some skin in the game. It would also allow for the appointment of a new management team, perhaps one which is more aligned with content as opposed to the current set-up which is primarily focused on telco.

However, the ability of Elliott Management to cause chaos in a business when it has outlined its intentions should not be underestimated. This is a firm which has a track-record in getting its own way and raising support from other investors. Above all else, the AT&T management team should be very concerned about their future at the telco.

IBC 2019: Interactive takes centre stage as VR shuffles to side lines

Every couple of years there seems to be a massive resurgence for the promise of virtual reality before it is cast to the shadows. This year, interactive content took the limelight from VR.

This is not to say VR and augmented reality wasn’t present at IBC in Amsterdam. Throughout the exhibition halls you could see plenty of headsets and software to build the immersive environment, but on the conference stage it was barely mentioned.

The main stage is the business-end of almost every conference; it a technology or company isn’t a headliner, the ‘also-ran’ category list has gotten a bit longer. This is the conundrum which VR and AR has found itself in; there are some interesting technologies and discussions going on, but the most important people are talking about something else.

AR is progressing very quickly from the pale imitation which captured the imagination through the Pokémon Go app, but the illusive business case continues to frustrate. That said, an important trend which was evident through several sessions was interactive content.

This is an area which looks genuinely exciting. Everything from ‘Bandersnatch’ on Netflix, through to personalisation of sports content (selecting a commentator or parallel content) or Celebrity Big Brother, where users can select the camera they want to view and create their own viewing experience and story to follow. This is the next stage of content, and it is immediately more realistic than some of the blue-sky thinking ideas which are scattered throughout the exhibition halls.

Of course, this should not really be that much of a surprise. The idea of interactive or supplementary content being built into platforms is just one step along from how many younger generations consume content today. It isn’t a single point of consumption, its multiple screens, complimentary experiences and a variety of simultaneous touch-points.

Research from YuMe and Nielsen suggests the trend for adults who use their smartphone or laptop while watching TV content is increasing each year. For 2018, 187.3 million US adults admitted to using multiple screens simultaneously, up 6.4% from the year before. Users want more ways to engage with content and building interactive opportunities into content platforms is certainly one way to apply this trend in the real-world.

IBC 2019: is 4K anything more than hype?

While some people are still unsure whether there is any value in downloading content in HD over SD, the 4K and 8K hype is continuing to build; but is there any point in it?

For the ‘man on the street’, technology often looks like another language. Acronyms are a speciality of the TMT industry, and each day there seems to be another buzzword to keep track of. And when you look the development of the content world, paying particular attention to 4K and 8K, you have to wonder what the point actually is.

Mike Zink, VP of Technology at Warner Bros, summed up the point pretty simply. Having just been to IFA in Berlin, Zink commented that almost every stand had an 8K TV on it. It is a product which is increasingly getting pushed onto consumers, but there is very little 8K content to actually justify the expenditure on the new technology.

Some analysts and commentators might suggest that it is a sensible decision for the consumer to purchase a product which is laden with future-proofed technology, however we think it is simply a ruse to bleed as many dollars out of already strained wallets.

And when you look at the numbers, the market penetration of 4K (we’re not even going to look at 8K right now) is steadily creeping up, but it is not as high as you would expect.

Maria Rua Aguete of IHS Markit estimates market penetration of 4K TVs across Europe is 46%. North America exceeds this percentage, though penetration drops to 42% when you look at China and further down to 19% in Japan. The consumer is being subjected to an assault of 8K messaging, though the 4K evolution is still a work in progress.

Another challenge which the industry faces is a lack of 4K content. In Europe, there is 4K content, though it is one of the few areas where the expenditure is partially justified by experience.

Without the content, is there any point in a 4K TV purchase? And if the market penetration does not increase, will the content creators be swaying into the additional expense of creating 4K content? It is a chicken and egg situation, where those who have been convinced to purchase a 4K TV are ending up in a suspect position.

Perhaps this is a reality check which some in the industry will welcome. The telcos, for instance, which be scratching their heads to figure out how they deliver the desired consumer experience. The increased consumption of video is already placing strain on the network, and 4K/8K would certainly make the creaks louder.

This is perhaps something which the content industry is missing. There is an expectation the infrastructure will be there to deliver the experience, though this might not always be the case.

The telcos are under some pretty severe pressure at the moment. Not only do they have to worry about the deployment of 5G networks, a pretty expensive job to say the least, there are demands on the home broadband side as well. If more consumers are expecting 4K content in their living room, they might end up a bit disappointed.

Trends in the connectivity world are heading the right direction, ‘fibre-first’ is a mentality which is being championed by a huge number of telcos, but are these trends moving fast enough?

If you are thinking about buying a 4K/8K TV right now, it might not be worth the extra investment. Not only is the supporting content thin on the ground, but you should also seriously consider whether you have a broadband connection which can underpin the desired experience.

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.