Video | Business Headlines | Internet | Science | Scientific Ethics | Technology | Search

 

Mixed Messages from Time Warner Cable

Mixed Messages from Time Warner Cable
http://www.tdgresearch.com/TDG_Opinions_TWC_Mixed_061908

Colin Dixon, Practice Manager, Broadband Media

June 19, 2008


Time Warner Cable has recently announced two moves which could have a dramatic effect on the nascent world of broadband video. The first, announced at the beginning of this month, involves trialling metered Internet usage in Beaumont, Texas.[1] The second, announced May 30, involves offering Web-to-TV video linkup services.[2] Both announcements taken together present a confusing picture of how TWC views the Internet as a video delivery medium and the services it provides to its customers.

“You’re the One Using It, You Bandwidth Hog, So You’re the One Who’s Gonna Pay For It!”
First, let’s address the metered Internet announcement. Packages range from the entry-level 768-kbps downstream with a 5-Gigabyte/month service for $29.95, up to the super-user 15-mbps with a 40-Gigabyte/month service for $54.90. If a consumer uses more than their monthly allotment, they are charged an additional $1 per Gigabyte. TWC claims this will only have an impact on the top 5% of their users, those that consumer by far the most bandwidth each month, and have no impact on the 95% of subscribers whose bandwidth consumption is more “normal.” But is this true?

TDG recently fielded a survey of 2,000 U.S. broadband users and found that 40% were watching at least an hour each week of online video, while 12% watched 25% of their TV online. So, let's look at the situation for those 12%.

Since this group is watching television shows it is reasonable to assume the video is of a higher quality than the average YouTube video. With a bitrate of approximately 700-kbps this provides a decent standard-definition quality using an advanced codec such as MPEG H.264. The average U.S. viewer watches approximately eight hours of TV per day[3], so even if we assume that this 12% of TWC’s broadband users are only “average” viewers, they are spending around two hours each day watching TV programming online. Over the course of a month, therefore, they will consume nearly 20-Gigabytes of bandwidth simply watching online TV (not including other online video they may view or bandwidth consumed by non-video activities). If they subscribe to the entry-level plan from TWC, they will owe an additional $15 a month above their $29.95/month service fees, or $44.95. If they subscribe to the super-user plan, they likely won’t have to pay much more, if anything, than the $54.90 monthly service fee.

The Impact on Over-the-Top TV and Movie Providers

While one can debate the impact that such pricing will have on consumer’s online video consumption, the effect on new Internet PayTV operators will be much more obvious and dramatic. For operators such as SkyAngel and Kylin TV, who offer a niche set of broadband TV channels directly to the TV for $24.95 per month, their business model essentially falls apart. If someone watches all of their TV using these services (which is the intention of the iPayTV operator), TDG estimates they would consume approximately 75-Gigabytes per month. On the entry-level plan, these consumers would owe an additional $70 per month on top of their $29.95/month, or about $100 total. Even with the super-user package, such users would owe an additional $35 per month on top of their $54.90/month fee, or about $90 total.

For emerging movie download services (e.g., Vudu, AppleTV/iTunes, and Xbox 360) or streaming services (such as Netflix/Roku or Amazon/TiVo), the picture is equally worrying. To download one DVD quality movie requires about 2-Gigabytes of bandwidth, meaning that if you downloaded two movies each week for a full month, you’d spend an extra $11 above the cost of basic service, or $42 – keep in mind this is in addition to the $10-$20 you’d pay per movie download. If those movies are HD, these same eight movies will consume 64-Gigabytes and cost you an additional $24 per month on the highest broadband plan, or $80.

Will this have a chilling effect on the consumption of Internet video? Absolutely, unequivocally, certainly it will: for the 12% of consumers who watch two or more hours of TV per day on the web and download a couple of movies a week, they will need to either subscribe to the highest broadband package or accept overage charges, or in some cases both. For OTT operators, this deals a crippling blow to their fragile business models. Either way, consumers will think twice before downloading a movie or watching a TV show online – whether it’s a pay-to-view/iPayTV service such as SkyAngel; an advertising-based online TV startup such as Hulu; or a secondary, virtualized DVR-type offering such as nbc.com.

“Then Again, We’d Love You to Watch More Web Video on Your TV!”

At the same time TWC is discouraging web video viewing by imposing bandwidth caps, it is also encouraging its subscribers to consume web video on their televisions. Yep, you heard that right. Its plan is to sell equipment that makes it easier for consumers to connect their TV to the Internet so they can watch more web video. Why is TWC doing this? Web video viewing is hot, remember, and getting it to the TV is viewed by TWC as a service differentiator. Of course, once this video arrives at the television it is safe to assume that usage of web video will explode. After all, with all your favorite shows available online, ready to watch at your convenience, how could it not increase web video consumption?

Reconciling the Contradictions

So what, then, is TWC really up to? A couple possibilities come to mind. Either (a) this is an evil scheme to sponge more money from its subscribers via overage charges, or (b) a classic example of the left hand not knowing what the right hand is doing. It is hard to be generous and assume this is simply ignorance on TWC’s part, yet when the person talking up the TV/broadband connection is Time Warner CEO Glenn Britt, your sense of generosity is bound to overflow.

According to Mr. Britt, "(w)ithin a relatively short time...it's going to be very easy to get Internet TV on your big screen TV." Well, duh. TDG has long predicted that by 2012 some 100 million households will regularly consume Internet video on their broadband-enabled televisions. Glad to know Mr. Britt is on top of his game, but what are the real motives at work behind these seemingly contradictory positions?

First, it should be stated very strongly that TWC’s current claim that metered usage will only impact the top 5% of users is clearly untrue. According to TDG’s research, at least 12% of TWC’s broadband users will pay an extra $180 a year if this new plan is actualized. That is 2.5 times more consumers than the 5% TWC is targeting. Get your math right!

Second, if TWC is successful with its broadband TV product, the impact of usage caps will be felt by a much broader swath of its broadband customers than the “bandwidth hogs” TWC is looking to tax. Imagine if 20% of TWC broadband subscribers sign up for the new broadband TV product and actually use it? If this new service is successful, per-month prices will skyrocket for these users and, in turn, render the new service significantly less attractive.

Giving such mixed messages to its customers and the market in general is not the right strategy for TWC. Under these circumstances, customers with other options for broadband service will exercise them, not to mention those yet-to-emerge competitors looking for a really good reason to launch a new broadband service that doesn’t employ such caps (can you say Clearwire?).I doubt very much that Mr. Britt had this kind of outcome in mind….

[1] “Time Warner Cable Tests Metered Internet Service,” San Diego Union-Tribune, June 3, 2008.
[2] “Time Warner Cable to Offer Web to TV Video Linkup,” Reuters, May 30 2008.
[3] “Average Daily Household TV Viewing in 2005,” OECD Communications Outlook, 2007


ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

By May 2018: Wider, Earlier Microbead Ban

The sale and manufacture of wash-off products containing plastic microbeads will be banned in New Zealand earlier than previously expected, Associate Environment Minister Scott Simpson announced today. More>>

ALSO:

Snail-ier Mail: NZ Post To Ditch FastPost

New Zealand Post customers will see a change to how they can send priority mail from 1 January 2018. The FastPost service will no longer be available from this date. More>>

ALSO:

Property Institute: English Backs Of Debt To Income Plan

Property Institute of New Zealand Chief Executive Ashley Church is applauding today’s decision, by Prime Minister Bill English, to take Debt-to-income ratios off the table as a tool available to the Reserve Bank. More>>

ALSO:

Divesting: NZ Super Fund Shifts Passive Equities To Low-Carbon

The NZ$35 billion NZ Super Fund’s NZ$14 billion global passive equity portfolio, 40% of the overall Fund, is now low-carbon, the Guardians of New Zealand Superannuation announced today. More>>

ALSO:

Split Decision - Appeal Planned: EPA Allows Taranaki Bight Seabed Mine

The Decision-making Committee, appointed by the Board of the Environmental Protection Authority to decide a marine consent application by Trans-Tasman Resources Ltd, has granted consent, subject to conditions, for the company to mine iron sands off the South Taranaki Bight. More>>

ALSO: