Charlatans and Shakedowns

Have you ever felt like an utter charlatan?

I try to avoid this each time I teach college students; they can sniff out BS faster than you can read this.

But I almost fell into a charlatan role as I was preparing to speak at last month’s Iowa DTV Symposium. Run by Iowa Public Television, the symposium had invited me after an organizer read my column “Variables in the Digital Video Logjam."

In that column, I argued that the crowded field of broadband video providers (players such as AppleTV, Vudu, Netflix and others delivering streaming TV and movie content) would be winnowed by four variables: device, library, pricing, and catering to volatile consumer viewing behavior.

As I prepared to speak, a conviction that had been growing for some time suddenly crystallized: none of those variables would matter if the economic meltdown steamrolled weak business models.

Speaker after speaker at several panels, including the keynote by Gary Shapiro, head of the Consumer Electronics Association, had delivered glowing assessments of the digital transition and consumer uptake of HD devices.

Some were not so sanguine.

“Many of the new set-tops delivering TV over the Internet will fail,” said Phillip Swann, president and publisher of TVPredictions.com, who added that Apple will dump its AppleTV project, and others will soon be “gathering dust.”

Of course, Swann also predicted HD set sales will increase in December and January.

It’s a forecast I’m sure he’d love to retract now. As this issue went to press the Dow continued its dizzying downward spiral and consumer confidence fell to record lows. The consumer confidence index dropped to 38 in October, down from 61.4 in September (in contrast to a glowing 95.2 index a year ago), as reported by the Conference Board’s Consumer Research Center.

Those numbers, say analysts, will likely make this holiday season unremittingly gloomy. But for providers of broadband video, the shockwaves will take their toll.

Grim Reaper

Simply put, any service that isn’t braced for the storm will likely fail in the coming months.

For some, like AppleTV and Vudu, which charge $300 or more for their set-top boxes, the upfront cost to the consumer will be a massive turnoff. The lowest-priced entry, a $100 Roku player, can stream movies from the Web to the TV, but has been limited in its library access with partner Netflix Watch Now service.

Others, particularly Vudu, which have no major studio or technology financial backers, will flameout. Vudu has already cut staff by 20 percent, sacked its CFO, and resorted to adding nudie titles and 99-cent flicks to its offerings.

A third group laden with debt, such as telco players like AT&T’s U-Verse and Verizon’s Fios, will be under even more pressure to add features to their DVRs and subscribers to their bankrolls. For example, AT&T’s new U-Verse Total Home DVR, at up to $99 per month for service, offers connectivity from up to eight TVs to a DVR with 133 hours of SD programming and 37 hours of HD. But AT&T is little more than halfway to its year-end goal of 1 million subscribers, while Fios counts little more than 1.5 million.

Shotgun Marriages

One benefit of the economic bust is that it will drive a frenzy of partnerships that have been slow to form, particularly marriages of content with device providers.

Roku, for example, has announced it will open its box to stream content from any provider. Netflix, meanwhile, has trumpeted deals to offer CBS and Disney Channel TV shows through Watch Now, and said it will team with Microsoft to stream content to Xbox 360 gaming consoles (a player I labeled a dark horse in July’s column).

Netflix, along with established cable operators, are the most stable of the broadband video providers. But even Neftlix, which has been profitable in its mail-order business, just weeks ago downgraded its subscriber growth forecast to hit about 9 million by year’s end, an announcement that sent its stock to a 52-week low.

This is the new reality, and it contains only two silver linings I can see, both hypothetical.

The first, speculated on several times at the Iowa symposium, is that the digital transition confusion will cause consumers to throw up their hands and subscribe to cable or satellite (note to U-verse and Fios: NOW is your best chance to boost subs).

The second is what some grandiloquent academic might label the Economic Hibernation Entertainment Syndrome. If consumers hoard their dollars by withdrawing to the comfort of their (non-foreclosed) homes, they might watch more TV.

But for now those are mere conjecture, something only charlatans specialize in.