The question we’re entertaining today is: when Cox Communications said (repeatedly) that its FlareWatch IP video experiment was only a trial, did it really mean it?
The question pops up after an IHS analyst estimated that Cox’s margins on FlareWatch were less than half the margins it gets on its traditional video service (22.1 percent versus 46.7 percent, respectively). The firm stated outright that that’s why Cox shut down the IP trial: "Cox Communications has ended its pioneering Internet TV service flareWatch just three months after a limited launch, likely because financial rewards proved minimal for the fledgling effort."
FlareWatch occurred at a time when cord-cutting became measurable. At the same time, Apple, Google, and Sony are all maneuvering to become virtual MVPDs. The cable industry long ago acknowledged that video eventually will go all-IP – someday. Techno-pundits can see the current TV model is beginning to look a little wobbly. Within that context, Cox’s FlareWatch, an IPTV service with a solid lineup of channels offered at a lower price point than the typical cable package, can look like the first of the last-ditch efforts by the Old Guard to save whatever business they can.
Except for the part where cord-cutting, while measurable, remains statistically insignificant. Or the part where Apple, Google and Sony can’t sign up enough high-profile content owners to create a commercially attractive channel line-up. Or the part where current pay-TV services are still profitable businesses, no matter how much subscribers say they hate their cable company and wish for something – anything – else.
The last statistics I’ve seen on the subject (as of only a couple weeks ago) is that cost per bit of delivering data over DOCSIS is still 20 times more expensive than the cost/bit over QAM. Programming costs aren’t any cheaper if the video is delivered IP versus RF. Cox could have juggled the specific channels and the total number of channels to manage FlareWatch programming costs, but it’s not clear FlareWatch could have been cheaper for Cox to deliver than its regular video service. So when a Cox spokesman tells me that FlareWatch was priced the same way Cox would price any other promotion, I’m initially inclined to accept the statement at face value.
FlareWatch was available only in the Orange County area of Southern California. The service used a new box from Fanhattan, and included 97 channels at $34.99 per month. Cox gradually added features, such as adding 30 hours of cloud-based DVR, and then VOD, and then music services, and raised the cost by increments as it did so.
“The end of the flareWatch trial was inevitable because our analysis led to two key discoveries,” said Erik Brannon, analyst for U.S. cable networks at IHS. “The programming slate represented a minimum in terms of what channels need to be included in a lineup to meet customer expectations; and the financial benefit for Cox to continue offering the service could not be firmly established. But even though its channel lineup represented a minimum in terms of what is likely required to be successful, the overall composition of the lineup was still considered nearly on par with basic digital cable lineups."
Well, it’s probably true that if Cox was making money hand over fist on the service it would be expanding it across its footprint. But it would have been so simple for Cox to calculate costs and prices before it offered FlareWatch to the first test customer that I cannot imagine it didn’t already know it was going to have lower margins.
Apple has significantly changed the way media companies behave. There is now a much smaller cost to trying something in public. It doesn’t work? You fix it. Experimentation in public is encouraged. And the cable industry, as slow as it looks to people with iPhones in their pockets, is adopting those approaches.
With FlareWatch, Cox was trying out a different delivery mechanism (all-IP), a new box (Fanhattan), a new user interface, a different remote control, a different installation process (self-install), and different billing (direct to credit card).
The company says it was all an experiment, and the more you look at it, the more it looks exactly like the experiment Cox said it was, more so than the desperation maneuver to remain relevant versus Netflix that some analysts would like it to have been.
The company pulled the plug on FlareWatch three weeks ago, and Cox maintains it is still digesting what it learned. Of course it knows what it learned, but it is treating that stuff as proprietary. That may be aggravating, but it’s also standard corporate operating procedure.
“We didn’t walk away from this for financial reasons,” said a Cox spokesman. “Some of stuff we learned could be applied to anything – standard offerings, new offerings. We could entertain a lengthier trial, or it could be something applied to anything in the product pipeline.”
Note: flareWatch carriage fee load uses cable rates. Source: IHS Inc., October 2013
The margins on the low-cost, IP-based TV package might have been half what they were on Cox's comparable standard video package, but was that why the MSO pulled the plug on the service after only three months? Even after announcing FlareWatch was only an experiment?