Game Cycle – MSFT announced their new console, the Xbox One, which combines gaming capabilities with a broader role in the living room. We see the device as MSFT's attempt to regain control in the consumer ecosystem via a Starm TV solution. Xbox One will support a Bluray drive and digital media. While some details are still nebulous, we expect MSFT to introduce new features at E3 that we suspect will feature client server architecture and may help position the box as an alternative set top box. Xbox One is expected to be available this year and will kick-start the eighth gen gaming cycle.
Ultra HD – Consumer electronics manufacturers are gearing up for Ultra HD. Sony started marketing a new line of 4K TVs in a national TV campaign and partnership with retailer BBY (Buy - Janney analyst Dave Strasser). The retailer will showcase the new TVs and is selling a 65-inch Ultra HD TV for approximately $7,000. Separately, GOOG announced that it has nearly completed its next royalty free codec, called VP9, which promises similar efficiency as HEVC/H.265. Pay TV distributors have not yet added 4K channels to their lineup, but DTV has trademarked potential brand names such as 4KN, 4KNET, 4KNetwork and 4K, suggesting it may potentially develop an original 4K network. The availability is likely several years away but the technology may favor traditional MVPDs as OTT players could struggle with the massive broadband requirements (about 10GB/hr). Ultra HD could make today's data caps look relatively low.
Sports Costs? – ESPN saw the first mass layoffs since 2009. It is unclear what is driving the staff reductions, although the unsustainable rising cost of sports rights have been mentioned as a potential driver. However, we doubt that it would force the cuts given there tends to be long term visibility in costs and these are considered in the negotiation of affiliate fee agreements. These cuts could also be tied to digital technology that can help streamline operations, risks tied to emerging competition, or risk from new initiatives to unbundle programming.
Wireless Broadband – DISH is taking additional steps to build out a wireless broadband network via new partnerships, acquisition of spectrum, and mergers. We believe the company is looking to the technology to deliver more services and extend the reach of its products. While any product will be inferior to land-line technology and more costly, it will be interesting to see if these initiatives create a new duopoly structure for broadband access.
Ad Acceptance – The majority of smartphone users (67%) and tablet users (73%) prefer advertising over paying a premium content, according to research by Yankee Group. The research also notes that 70%/53% of smartphone/tablet users are willing to exchange personal information in exchange for a premium app download. It is somewhat odd that most preferred getting a paperback book (75%) as a reward. This was followed by premium in-app content for tablets and music (both 73%) and smartphone premium in-app content (67%).
Tony Wible joined Janney Montgomery Scott in 2008 and is a Managing Director covering the Media and Entertainment sector after spending the previous 10 years at Citigroup Investment Research—most recently covering the Broadcasting and Entertainment Services industries.
Tony can be reached at firstname.lastname@example.org.
Janney Montgomery Scott LLC, is a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the New York Stock Exchange, the Financial Industry Regulatory Authority and the Securities Investor Protection Corp. Disclosures may be reviewed at Wible's Weekly.
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