Cox's flareWatch Trial Ends, Leaving Questions
The IHS expert quoted in this release is available for live and recorded television interviews today from our studio in Santa Clara, California, which is equipped with a VideoLink ReadyCam system. Call or e-mail our press contacts below to set up an interview.
El Segundo, Calif. (Oct. 2, 2013)—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, according to analysis from the TV Intelligence service of IHS Inc. (NYSE: IHS), a leading global source of critical information and insight.
FlareWatch, which was available only in the Orange County area of Southern California, required a Cox Internet subscription. Launching in July to mitigate the threat posed by so-called over-the-top (OTT) cable entities such as Netflix, flareWatch offered 97 channels at a price of $34.99 per month, which included 30 hours of cloud-based DVR. No Video-on-Demand (VoD) service was provided, unlike conventional cable offerings, and a separate TV set-top box had to be procured at a cost of $99.99. The box, from Fanhattan LLC, acts as an aggregation device for TV Everywhere services, but also supports Cox's services.
As flareWatch went on during its short-lived trial and beta period, the monthly subscription price ticked up to $39.99, with the price of the required Fanhattan OTT set-top box cut to $49.99. In addition, VoD and a music service powered by Rhapsody called flareListen were added to the total package.
Nonetheless, Cox decided to terminate the initiative despite what many considered to be an extremely compelling offer, which made its selected package of TV shows available to buyers at a significantly lower price than regular cable subscriptions from rivals running into more than a hundred dollars.
Overall, flareWatch delivered an estimated financial margin of 22.1 percent compared to an estimated 46.7 percent for cable in general before any other expenses, as shown in the attached figure. The margin is computed by dividing the monthly price of the service in question by the total carriage fee load. In flareWatch’s case, the margin, while positive, was considered low.
“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."
FlareWatch represented an attempt by Atlanta-based Cox to regain business lost to a new generation of “cord-cutters” and “cord-nevers,” which are consumers who have eschewed traditional pay-TV in favor of Netflix and other OTT services. Because of such consumers, growth in U.S. pay-TV subscriptions has stalled, and cable penetration into the total U.S. population has begun to decline, forecast to fall to 81 percent in 2017, down from 86 percent in 2009.
Where to, now?
The end of flareWatch poses some intriguing questions.
To be sure, any premium paid in affiliate fees can significantly impact the potential profitability of a pure OTT like Netflix, or of a pay-TV Internet-based subscription service like flareWatch. And while the price points won’t allow the pay-TV pie to grow any larger, new slices of the whole could still be carved out by pure OTT or pay-TV entrants, which implies a possible place in the future for efforts like flareWatch if they deliver a credible value proposition, Brannon noted.
Content is key in any initiative, Brannon added, as demonstrated by flareWatch's channel lineup. This means that any startups without existing good relationships with content providers stand little to no chance of entering the cutthroat cable market, let alone surviving.
All told, the transition to a pure Internet-based video delivery system is coming and inescapable. But given the current rate of monthly cable prices and carriage fee loads, it is hard to believe that even future Internet-based video services are going to help grow the pay-TV revenue pie, Brannon said.
The overall prospect of a diminishing cable market could add to the formidable challenges already in store for providers in the future, a future in which services like flareWatch take the fight to OTT.
# # #
About IHS (www.ihs.com)
IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today's business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs approximately 8,000 people in 31 countries around the world.
IHS is a registered trademark of IHS Inc. All other company and product names may be trademarks of their respective owners. Copyright © 2013 IHS Inc. All rights reserved.