1. Netflix Is #Winning

It’s been a big week for Netflix. Not only did the service add 8.8 million subscribers, they actually earned money—revenue was up 8 percent to $8.5 billion.

The service took the opportunity to announce a $3/month price hike on their highest priced plan, the one that was $19.99 and provided 4K and four simultaneous download streams. 

They also announced their first foray into live sports, a Nespresso-sponsored golf tournament featuring Formula 1 drivers. So sort of the modern-day equivalent of when characters from one sitcom would show up on another, only different.

This is all news because no matter how much they proclaim otherwise, Wall Street still views the health of the streaming industry as strongly tied to Netflix’s quarterly subscriber numbers. And because everyone’s been wondering when Netflix was going to get into live sports.

Why It Matters

Let’s start with the price hike.

The press wasted no time in portraying this as “your evil corporate overlords are making more money and oppressing you with higher prices.”

Nice try.

The reality is two-fold. 

On the one hand, prices for Netflix and other streaming services have got to go up—they are severely underpriced—and as noted a few weeks back, price hikes are going to largely be centered around the ad-free plans as a way to make the ad-supported plans more attractive. 

Netflix raised the price on their most expensive current plan, one relatively few people actually have. The plan most people do have—the ad-free plan at $15.49/month is going to stay unchanged.

So there’s that and then there’s the reason why Netflix is struggling to get viewers to sign up for the ad-supported version. I mean other than the ads themselves, that is.

Netflix, like Max, Apple and other SVOD services, has trained its users to subscribe to watch a single series.

In days when subscriber numbers were all that mattered, it did not matter how much time viewers spent on a service, only that they kept renewing each month.

And if you are paying Netflix $15.49 this month because you want to watch Beckham or Super Pumped, saving an extra six dollars is not going to really seem worth it. 

Lean In vs Lean Back 

There are, at a macro level, two ways people watch TV: lean-in and lean-back.

Lean-in shows are the ones you look forward to seeing, the ones you put your phone down for, the ones you get annoyed when someone in the room is talking. For most people, paying an extra six dollars to ensure this experience is ad-free is money well spent.

Lean-back shows are the ones you have on as background noise, the ones you’ve already seen or don’t care that much about. People seem to be okay with ads during these types of shows, Only these shows are not why they subscribe to Netflix. 

So that’s the conundrum—getting people to think of Netflix and other SVOD services as something more than just “streaming HBO” and why raising the prices on the ad-free tiers so that the price differential is way more substantial than six dollars is going to be the way ahead.

Live sports will help too. 

Viewers don’t mind or even much notice ads during live sports—it’s preferable to having announcers-not-named-Charles-Barkley natter on, and they’re usually somewhat relevant to the audience.

Netflix’s “The F1 Guys Play Golf” experiment is a good way for them to get their feet wet. But in case you missed the not-exactly-mass-market appeal of the show, the fact that it is being sponsored by Nespresso really hammers that home.

Now to be fair, I own a Nespresso machine that I have faithfully used every morning for the past 20 or so years, but it’s not exactly a mass market product.

Which is fine for Netflix—they don’t need to be mass market, at least not yet—and Nespresso isn’t exactly Prada, but at some point, America’s largest streaming service is going to need to think about America's most popular sports. 

What You Need To Do About It

If you’re Netflix, maybe think about separating price increases from positive earnings reports. I suspect you figured the news about one would outweigh the news about the other, but you were wrong and the buzz has not been good and so lesson hopefully learned.

Speaking of PR, you’re still in the early days of being the Password Sharing Police (PSP), so make sure that stays under control. Because you know the media is going to find the one example of someone you kicked off the service who actually wasn’t sharing a password and there will be social media hell to pay.

If you are one of the other SVOD services, Netflix is, yet again, a good case study in what you should and should not do. Watch and learn.

2.  Fixed Wireless Broadband Haunts Cable Execs

Halloween is almost upon us, and if there is one thing that should be scaring cable broadband providers (MVPDs) it is a report from Ookla that T-Mobile’s fixed wireless broadband can now reach speeds of 221.57 megabits per second on downloads, which is only marginally slower than the fastest cable broadband download speed.

Why is that so scary? 

Because Fixed-5G-To-The-Home has been a specter for so many years, a potential threat to cable’s monopoly, and now it seems about to become very real.

Why It Matters

When the US was first wiring the country for cable, the internet wasn’t yet a thing and cable was all about better TV signals. As such (and for multiple other reasons I won’t go into here) local governments frequently got involved in the initial deployments of the actual cables and thus many cable companies had a monopoly or something close to a monopoly. 

That changed slightly with the entry of AT&T and Verizon and fiber-optic cables, but the reality is that cable companies rarely compete with each other for the same territory and their only real competition (other than the telcos) has been from much smaller MVPDs, many of whom focus on business customers.

In other words, a monopoly at worst, an oligopoly at best.

That’s all about to change if fixed 5G becomes a thing.

Suddenly, consumers will have options from four or five major providers, not just one or two.

And to be clear, Verizon, T-Mobile and AT&T are not startups. They are multibillion dollar companies with huge marketing budgets.

Meaning a price war is likely.

And since the cable companies make most of their money from broadband these days, losing those customers is going to hurt.

One thing they might do to staunch those prospective losses is to push back on paying the networks high carriage and retrans fees.

Or any carriage and retrans fees.

Meaning they may just decide that offering a traditional pay TV bundle of any sort is not worth it, given the costs, and that they’ll be better off offering a streaming bundle of X number of services plus broadband for, say $100/month.

The telcos might go the same route. Or they might pair up with vMVPDs like YouTube and Hulu to offer an alternative to the digital bundles. Sneetches, stars and all that.

Regardless of which group goes which route, it is bound to shake up the current status quo and further reduce profit margins all around.

One bright star for the cable companies is that they appear to be the beneficiaries of much of the internet-for-all largesse of the new Infrastructure Bill, especially in rural areas.

It probably won’t make up for the losses in markets they currently dominate but it’s not nothing. 

The other potential bright star is that fixed broadband to the home has yet to be tested on a wide scale basis. So there’s an outside chance it will not pass the test.

What You Need To Do About It

If you are a cable company or telco with a sizable fiber optic business, now is the time to be signing up as many customers as possible. This means getting those broadband-only bundles lined up and ready, striking deals with Spotify and other non-TV monthly subscription providers and otherwise creating packages that are as attractive as possible and then locking in subscribers. Here’s a Pro Tip: the SVOD services all fear churn and getting users to subscribe for a year is going to sound very good to them. Use that to your advantage.

If you are a telco, then you are like a lioness waiting in the fields observing her prey. Which is all well and good, but make sure your product can handle an influx of millions of new users.

If you are the television ad industry, celebrate: this battle is going to add billions to your coffers.

If you are a consumer, this can only be good news as it means lower prices whichever broadband provider you choose.