How nervous should traditional pay operators be?
The past few weeks have been filled with news of new video on demand offerings, content deals with Hollywood studios, Apple, Google and Amazon all getting in on the streaming action, and continued talk of 'cord cutting'.
Now Microsoft is riding the entertainment wave, announcing that this autumn it will be expanding its digital entertainment service Zune outside of the US, hoping to give some additional entertainment gusto to its Windows Phone 7 before it launches.
Microsoft said it would be bringing the free Zune software, Zune Marketplace online store (so international competition with iTunes), Zune Pass music subscription service and enhanced features on Zune.net to markets including the U.K., France, Italy, Spain, and Germany. This, it said, would be providing a "comprehensive entertainment experience on Windows-based PCs, on the go with Windows Phone 7 and in your living room through Xbox LIVE".
"The integration between Zune, Windows Phone 7 and Xbox LIVE is an exciting expansion in our entertainment offerings," said Craig Eisler, Corporate Vice President, Interactive Entertainment Business Group at Microsoft. "Zune enables users to access the entertainment they want, wherever they want it — and now, more people than ever will be able to enjoy the freedom and flexibility that the Zune service offers."
Apparently looking in the common direction of the iPhone and iTunes for inspiration, Zune software has been upgraded with new features and functionality and will serve as the Windows Phone 7 synchronization client. It will also enable instant streaming of high-definition movies, as well as the ability to purchase films from the Zune marketplace which can then be watched on the phone, PC or through the Xbox. This is in addition to music purchase, or use of the 'Zune Pass', which provides unlimited downloads and music streaming capabilities from the Zune music library.
The monthly music subscription service will be available for €9.99 or £8.99 per month for unlimited download and streaming access to the Zune music catalogue, again available on any of the three devices. Microsoft said its US offering would remain at $14.99 per month for unlimited downloads and streaming access, with the ability to keep 10 MP3s per month. This seems a clever way to go about things, providing both that on-demand stream that is gaining in popularity, as well as that going some way towards fulfilling the innate need for 'ownership'.
Microsoft said that the global expansion of its service was the latest step in a series of milestones for Zune, including powering Bing music search results, the added ability to purchase music and video on Zune.net, and the forthcoming integration with Xbox LIVE and Kinect for Xbox 360. "By continuing to integrate Zune across the most important screens to consumers, Zune provides an all-in-one music and video service for users to discover, enjoy and experience their entertainment wherever they want".
It is also another offering in the ever increasing stable of 'cord cutting' alternatives available to consumers, and its portability across devices makes it an interesting option, while of course simultaneously driving sales of the new Windows phone.
So is this yet another reason for traditional cable and satellite providers to be getting nervous? Maybe. This week Reuters reported that media and cable company stocks had dipped after Credit Suisse downgraded shares of Disney, Viacom, News Corp., and Time Warner, while raising their price targets for Netflix shares from $90 to $140.
Credit Suisse is anticipating an increase in the number of young people dropping their traditional pay television providers in favour of services like Netflix, or the range of other services becoming increasingly available. The repercussions of this would be obvious, in that that cable companies would have to reduce their fees to TV networks and Hollywood studios – or come up with viable alternatives of their own.
Credit Suisse has actually carried out a survey of Netflix subscribers, which found that almost 30 percent of those subscribers between the ages of 25 and 34 now watched Netflix instead of cable or satellite. Nearly a third of the service's users between 18 and 24 have cut the cord in favour of Netflix.
"Netflix's low cost, subscription streaming service is our biggest worry and could become 'good enough' for consumers with moderate income," said Credit Suisse.
Overall, only some 17% of Netflix users had dropped their traditional service, but the trend among those young customers should be worrying for traditional operators. As alternatives increasingly become available, and the cost of those alternatives remains far less than traditional operator charges, this is a trend which will only gain momentum; and the ability to transport movies, television programmes and music across multiple devices makes those alternatives even more attractive.
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