In an age where most consumer electronics products quickly become commodities, the value of content can’t be understated. The current business model for cell phones is useful here, as there is little money to be made these days in selling the actual smart phones. (Unless you’re Steve Jobs!)
Rather, it’s all of the services that consumers sign up for, along with the apps they download, that (combined with one-year and two-year service contracts) create new streams of revenue generation.
But there’s a limit to how much revenue can be squeezed out of consumers these days, particularly with service contracts ‘nickel-and-diming’ us to death. Do you have a smart phone? How about a 3G wireless plan for your computer? Do you subscribe to a pay TV service? What does your monthly broadband service cost? Do you still have landline phone service, or is it bundled with your pay TV provider?
The fact is, consumers are feeling like sugar maple trees these days - stuck full of taps that are slowly draining their bank accounts. And the current recession has pushed many of them beyond their breaking point, prompting people to start yanking out the taps as they look for more affordable ways to access content.
The continued boom in NeTVs is a perfect example of this ‘flight to economy.’ A recent market research report on the future of connected TVs forecasts that more than 118M of these products will ship worldwide in 2014. And much of the demand for NeTVs is generated by a desire to access content at lower prices than those currently charged by Pay TV service providers and packaged media companies.
Netflix, the market leader with nearly 17 million subscribers, recently predicted that, by the end of 2010, more subscribers will watch movies via its Watch It Now streaming service than on DVDs.
‘All you can watch’ flat-rate pricing for content is a value proposition any consumer can understand, and it’s why Netflix streaming apps are now de rigueur on every new Blu-ray player. Ironically, it’s also one reason why both the Blu-ray and DVD formats are struggling to compete (aside from kiosk rentals) and Blockbuster has toppled into Chapter 11 bankruptcy.
According to a report released last week by the Digital Entertainment Group, digital distribution of movies and TV shows rose 23% through the first three quarters of 2010 to an estimated $1.7 billion in overall revenue. For Q3, digital distribution (streaming and downloads) accounted for 13.5% of total consumer spending on home entertainment, a higher percentage than in any previous quarter.
Let’s be clear that streaming a movie is not the same thing as watching it on a Blu-ray disc. I’d be a fool to suggest otherwise. But the flight to economy isn’t about image quality — it’s about cost and convenience, something many consumers are putting a high premium on these days, as they try and stretch their paychecks.
There are other, more cost-effective ways to access content, as illustrated by the recent retransmission fee disputes between major TV networks and pay TV providers. The latest spat is between News Corporation (owner of various Fox networks) and New York MSO Cablevision, and it’s turned into a battle of newspaper and TV ads and Web sites.
It seems that Fox wants a few more cents per subscriber than what they’re currently getting. From Cablevision’s view, Fox is more than adequately compensated. From Fox’ view; Cablevision is making exorbitant profits from its subscribers and can afford the extra payouts.
The result of this impasse is that all Fox TV channels (as of this writing) are currently blacked out from Cablevision’s channel packages, which in turn means no NFC football games (read: NY Giants) for viewers in New York and New Jersey. Regardless of which side you favor in this dispute, the fact is that many subscribers have another option…and no, it’s not the Internet.
Rather, it’s that little threaded F-connector on the back of LCD or plasma TVs, one that leads to a terrestrial digital TV tuner. Connect a suitable antenna to pull in either channel 5 in New York or channel 29 in Philadelphia, and you can continue to enjoy NFC football mayhem while Rupert Murdoch and Jimmy Dolan play games with each other.
How many consumers still don’t understand that they can get free TV — including HDTV — for the price of an antenna installation? Who dropped the ball here — the Consumer Electronics Association, the National Association of Broadcasters, or TV manufacturers? (Maybe all three did!)
That’s too bad, because free over-the-air DTV is another effective way to cut down on nickel-and-diming. It complements NeTV functionality nicely and presents a viable option to the never-ending rate increases of pay TV operators.
If understood correctly, the combination of OTA DTV and Internet video delivery can also be a driver for TV sales in the near future, as opposed to 3D (still in the early stages and lacking enough content) or Cisco’s just-announced Umi HD home teleconferencing system (too expensive for the average consumer at $599 plus $25/month subscriber fees).
TV manufacturers and content providers ignore the flight to economy at their peril. Qualcomm just found that out the hard way with their costly, limited, and soon-to-be defunct FLO TV service.
Consumers can and do vote with their wallets, and they’re voting a lot these days…