Apple's Plan To Destroy The Large Cable Bundle

The cable bundle is misunderstood. While analysts and pundits focus on when the cable bundle will finally succumb to Netflix (NASDAQ:NFLX), HBO, and Hulu, the reality is the future of television will be built on the video bundle's back. Due to attractive economics, video bundles are one of the best values in the media space and will remain the dominant way we receive premium video content. We are quickly approaching the point where Apple (NASDAQ:AAPL) can capitalize on market dislocation to destroy the modern-day big cable bundle with a leaner bundle that is built to thrive in a mobile world.

Video Bundle Economics

The cable bundle has been one of the best consumer deals in the modern era. By subsidizing content's true cost, the bundle makes it possible for consumers to receive a vast amount of video content for an artificially low monthly price. The bundle works marvelously well as long as everyone pays into the system, and this has been the case for the last 20 years. Nielsen estimated there were 116 million homes with televisions in the U.S., of which approximately 100 million had some form of pay TV for the 2014-2015 TV season. ESPN is one of the most widely distributed cable networks, reaching 95 million homes. ESPN has a farther reach than Facebook (NASDAQ:FB), a testament to how much power the cable bundle holds.

While the video bundle will remain relevant for many years, the content associated with the bundle will change. New companies have relied on the old bundle parameter, namely, selling a wide range of content to as many people as possible to carve out a piece of the subscription video streaming market. Companies like Netflix, HBO, and Hulu sell video bundles. Instead of charging viewers by individual shows and series, these companies charge for access to a wide selection of content appealing to a range of consumers.

Most cable networks are in existence today because of the large cable bundle. Without the bundle, these networks would not be able to fund their current slate of programming. The mistake many people make when analyzing the bundle is to ignore the value of access. Having a window to nearly 100 million households is in many ways more lucrative than the pennies or nickels that the average channel receives from each household each month. This is a cable distributor's key selling point, and we often see fighting between content owners and distributors over access.

The Trickiness in Going Direct to Consumer

When contemplating the future of television, many have thought the strongest cable networks can one day bypass the large cable bundle and sell their programming direct to consumer. For simplicity's sake, I position ESPN and AMC as the poster children of this theory. In the current system, ESPN receives approximately $6 per month from every household subscribing to cable. AMC receives quite a bit less, approximately $0.50, although it is still well above the average $0.15 received. If ESPN and AMC were to leave the bundle and embrace the direct to consumer model, they would need not only to make up lost subscriber fee revenue, but also contemplate losing access to 100 million households. AMC relies on that access to sell new series, like "Fear the Walking Dead," to viewers. "Fear the Walking Dead" just became the highest-rated series premiere in cable TV history thanks to AMC's reach. ESPN also benefits from grouping sports programming into one channel, appealing to a much wider fan base, including those who may only watch a game or two each month.

There is no question that the best networks will have loyal fans ready to pay top dollar for a direct to consumer option. However, that won't be enough since these networks are simply not built to support such a model. It will be very difficult for ESPN and AMC to stop subscribers from signing up for their content only to watch their favorite series or sports season and then cancel their membership afterwards. With the cable bundle, such month-to-month volatility does not exist.

I am very skeptical that a cable network will be able to go 100 percent direct to consumer. The economics are just not in their favor. Instead, a hybrid approach may work although in many instances, the best case scenario would be to just get to a point that matches the current large cable bundle. There is much incentive on the part of cable networks to make the bundle work.

Time for Action

The mobile revolution has weakened the large cable bundle's fundamental underpinning. Mobile hasn't changed just the way we communicate, but also the way we create and consume content. Having new types of video content in our pocket has led us to no longer sit in a particular room at a particular time to watch a particular show. As smartphones continue to grow in screen size, all other pieces of smart glass in our lives, including our television sets, will lose value and importance.

The old definition of TV doesn't do justice to the much wider array of available content that we now have at our fingertips. As smartphone adoption grew, the idea that anyone could be a content creator became reality. While YouTube may still lead in terms of mindshare when thinking of user-generated content, we also have plenty of interesting content found on video-sharing networks like Vine, Snapchat, and Periscope, not to mention premium content from the likes of Netflix, HBO Now, Hulu, and Amazon.

One example of an entirely new form of content that people are increasingly turning to is vlogs, which is short for video blogs. The following Google Trends chart highlights vlogging's expanding popularity. The vlogging industry, notorious with young people chronicling their daily activities, is still in its infancy. Vlogging combines elements of reality TV with scripted television as many vloggers record real-life situations although the heavy use of editing and some pre-planning suggest there are also elements of a regular sitcom.

Via: Seeking Alpha

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Air Conditioning, Cable TV, and an Xbox: What is Poverty in the United States Today?

Abstract: For decades, the U.S. Census Bureau has reported that over 30 million Americans were living in “poverty,” but the bureau’s definition of poverty differs widely from that held by most Americans. In fact, other government surveys show that most of the persons whom the government defines as “in poverty” are not poor in any ordinary sense of the term. The overwhelming majority of the poor have air conditioning, cable TV, and a host of other modern amenities. They are well housed, have an adequate and reasonably steady supply of food, and have met their other basic needs, including medical care. Some poor Americans do experience significant hardships, including temporary food shortages or inadequate housing, but these individuals are a minority within the overall poverty population. Poverty remains an issue of serious social concern, but accurate information about that problem is essential in crafting wise public policy. Exaggeration and misinformation about poverty obscure the nature, extent, and causes of real material deprivation, thereby hampering the development of well-targeted, effective programs to reduce the problem.

Each year for the past two decades, the U.S. Census Bureau has reported that over 30 million Americans were living in “poverty.” In recent years, the Census has reported that one in seven Americans are poor. But what does it mean to be “poor” in America? How poor are America’s poor?

For most Americans, the word “poverty” suggests destitution: an inability to provide a family with nutritious food, clothing, and reasonable shelter. For example, the Poverty Pulse poll taken by the Catholic Campaign for Human Development asked the general public: “How would you describe being poor in the U.S.?” The overwhelming majority of responses focused on homelessness, hunger or not being able to eat properly, and not being able to meet basic needs.[1] That perception is bolstered by news stories about poverty that routinely feature homelessness and hunger.

Yet if poverty means lacking nutritious food, adequate warm housing, and clothing for a family, relatively few of the more than 30 million people identified as being “in poverty” by the Census Bureau could be characterized as poor.[2] While material hardship definitely exists in the United States, it is restricted in scope and severity. The average poor person, as defined by the government, has a living standard far higher than the public imagines.

As scholar James Q. Wilson has stated, “The poorest Americans today live a better life than all but the richest persons a hundred years ago.”[3] In 2005, the typical household defined as poor by the government had a car and air conditioning. For entertainment, the household had two color televisions, cable or satellite TV, a DVD player, and a VCR. If there were children, especially boys, in the home, the family had a game system, such as an Xbox or a PlayStation.[4] In the kitchen, the household had a refrigerator, an oven and stove, and a microwave. Other household conveniences included a clothes washer, clothes dryer, ceiling fans, a cordless phone, and a coffee maker.

The home of the typical poor family was not overcrowded and was in good repair. In fact, the typical poor American had more living space than the average European. The typical poor American family was also able to obtain medical care when needed. By its own report, the typical family was not hungry and had sufficient funds during the past year to meet all essential needs.

Poor families certainly struggle to make ends meet, but in most cases, they are struggling to pay for air conditioning and the cable TV bill as well as to put food on the table. Their living standards are far different from the images of dire deprivation promoted by activists and the mainstream media.

Regrettably, annual Census reports not only exaggerate current poverty, but also suggest that the number of poor persons[5] and their living conditions have remained virtually unchanged for four decades or more. In reality, the living conditions of poor Americans have shown significant improvement over time.

Consumer items that were luxuries or significant purchases for the middle class a few decades ago have become commonplace in poor households. In part, this is caused by a normal downward trend in price following the introduction of a new product. Initially, new products tend to be expensive and available only to the affluent. Over time, prices fall sharply, and the product saturates the entire population, including poor households.

As a rule of thumb, poor households tend to obtain modern conveniences about a dozen years after the middle class. Today, most poor families have conveniences that were unaffordable to the middle class not too long ago.

Poverty: A Range of Living Conditions

However, there is a range of living conditions within the poverty population. The average poor family does not represent every poor family. Although most poor families are well housed, a small minority are homeless.

Fortunately, the number of homeless Americans has not increased during the current recession.[6]Although most poor families are well fed and have a fairly stable food supply, a sizeable minority experiences temporary restraints in food supply at various times during the year. The number of families experiencing such temporary food shortages has increased somewhat during the current economic downturn.

Of course, to the families experiencing these problems, their comparative infrequency is irrelevant. To a family that has lost its home and is living in a homeless shelter, the fact that only 0.5 percent of families shared this experience in 2009 is no comfort. The distress and fear for the future that the family experiences are real and devastating. Public policy must deal with that distress. However, accurate information about the extent and severity of social problems is imperative for the development of effective public policy.

In discussions about poverty, however, misunderstanding and exaggeration are commonplace. Over the long term, exaggeration has the potential to promote a substantial misallocation of limited resources for a government that is facing massive future deficits. In addition, exaggeration and misinformation obscure the nature, extent, and causes of real material deprivation, thereby hampering the development of well-targeted, effective programs to reduce the problem. Poverty is an issue of serious social concern, and accurate information about that problem is always essential in crafting public policy.

Living Conditions of the Poor

Each year, the U.S. Census Bureau releases its annual report on income and poverty.[7] This report, though widely publicized by the press, provides only a bare count of the number of Americans who are allegedly poor. It provides no data on or description of their actual living conditions.

This does not mean that such information is not available. The federal government conducts several other surveys that provide detailed information on the living conditions of the poor. These surveys provide a very different sense of American poverty.[8] They reveal that the actual standard of living among America’s poor is far higher than the public imagines and that, in fact, most of the persons whom the government defines as “in poverty” are not poor in any ordinary sense of the term. Regrettably, these detailed surveys are almost never reported in the mainstream press.

One of the most interesting surveys that measures actual living conditions is the Residential Energy Consumption Survey (RECS),[9] which the Department of Energy has conducted regularly since 1980.[10]The RECS survey measures energy consumption and ownership of various conveniences by U.S. households. It also provides information on households at different income levels, including poor households.

The first half of this paper uses RECS data to analyze and describe one aspect of the living standards of the poor: ownership and availability of household amenities.[11] The second half provides a broader description of the living standards of America’s poor.

Availability of Amenities in Poor Households

This section uses RECS data from 2005, the most recent year for which data are available, to analyze the amenities typically found in poor households.[12] The 2005 RECS data represent the living conditions of the poor before the current recession. Conditions are likely quite similar today.

Because the current recession has increased the number of poor persons in the U.S. since 2005, it might seem likely that poor households would have fewer amenities and conveniences today than in 2005. However, the increase in poverty during the recession is, to a considerable degree, the result of working-class families losing employment. One would not expect these families to dispose of their normal household conveniences in those circumstances. Thus, paradoxically, the increase in the number of working- and middle-class families who have become temporarily poor is likely to increase slightly the share of poor households that own various items. When the present recession ends, the living conditions of the poor are likely to continue to improve as they have in the past.

Chart 1 shows the percentage of all U.S. households that owned or had available various household amenities and conveniences in 2005. For example, it shows that 84 percent of all U.S. households had air conditioning, 79 percent had cable or satellite television, and 68 percent had a personal computer.[13]

Chart 2 shows the same information for 2005 for poor U.S. households (those with cash incomes below the official poverty thresholds). While poor households were slightly less likely to have conveniences than the general population, most poor households had a wide range of amenities. As Chart 2 shows, 78 percent of poor households had air conditioning, 64 percent had cable or satellite TV, and 38 percent had a personal computer.[14]

Via: Heritage Foundation

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WATCH: The 13 Craziest Cable News Moments of the Summer

Things tend to go off the rails on cable news when summer rolls around. People go on vacation, stop paying as much attention and usually there’s less actual “news” happening. Between major Supreme Court rulings in this country and everything happening abroad in Egypt and Syria, the summer of 2013 had more than its fair share of real news to cover. But of course, that didn’t stop America’s cable news networks for airing some absolutely outrageous segments on a long list of ridiculous subjects.

Now that Labor Day has come and gone, kids are getting back to school and Congress is getting back in session, here’s a look back at highlights (or low-lights, depending on your point of view) from one crazy summer of cable news.

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Russell Brand Crashes Morning Joe

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Somehow, Mika Brzezinski not knowing who actor Russell Brand is produced one of the most riveting (and honest) cable news segment of the summer. “Is this what you all do for a living?!” Brand asked the hosts incredulously.

Via: Mediaite.com

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CBS and Time Warner win; viewers lose in cable dispute

So here's the final score: Time Warner Cable got some but not all of what it wanted. CBS got pretty much everything that it wanted.

And after a month of being denied access to CBS, Showtime and other popular channels, Time Warner subscribers got the certainty of even costlier monthly bills and the assurance that money-grubbing squabbles among multibillion-dollar media giants will continue.

Excuse me if I'm not exactly thrilled about this week's conclusion to the latest in a series of go-ahead-make-my-day confrontations between greedy corporations.

Moreover, why aren't our elected officials hopping mad about these ongoing industry food fights and racing to pass legislation aimed at finally giving consumers a break from the endless cycle of rising pay-TV bills?

"We need regulators who are willing to stop powerful special interests, whether broadcasters or cable firms, that use consumers as pawns in their spats," said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group.

"In the long run, we need better rules, including a la carte pricing, to help change the video marketplace," he said.

I've been pushing for years for a la carte pricing — paying only for the channels you want. More on that in a moment.

First, let's sample the bury-the-hatchet statements released by Time Warner Cable and CBS after they made the peace.

Glenn Britt, Time Warner's chief exec, said the company's hard-nosed bargaining stance was guided by wanting "to hold down costs and retain our ability to deliver a great video experience for our customers."

"While we certainly didn't get everything we wanted, ultimately we ended up in a much better place than when we started," he said.

Via: LA Times

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