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May 06, 2015

99 Channels, But You Only Want One? Jay-Z, Verizon and the FCC Create New Blueprints for Media Providers

By Dinesh Dhanasekharan

Watch the throne! There is a New World Order in communication and media, and the consumer is now king.

Technology is continuing to evolve to suit the enterprise; but the more products and services that businesses supply, the more consumers seem to demand. In addition to competing with each other, communications and media providers must compete against what CEO of Time Warner Cable Rob Marcus calls "the killer app" for the high-speed data world – online video.

Providers can no longer survive as just a pipeline, and they are scrambling to stay afloat in the rapidly changing market – making customer experience one of their highest priorities. Consumers and producers are no longer satisfied with depending on providers for third party entertainment, and are now looking for ways to receive and supply desired content at the highest quality and best possible pricing. In addition, providers have even been required to change their offerings to better suit their consumer. For example, the FCC mandated a major satellite radio operator to offer their customers the ability to choose their own radio channels.

With the history of these FCC mandates, Verizon's new a la carte options and Hip Hop superstar Jay-Z's newest music streaming service venture Tidal, a new wave of media production and consumption may be on the horizon.

For the Consumers: Verizon's (semi) A La Carte TV

"Pay only for the types of channels you love." This seemingly simple idea was once seen as both a legal and financial impossibility despite customer demand, but it is now plastered on Verizon's homepage. The service provider is offering personalized TV services to their customers, where customers can select their own channels and offerings and only pay for the options they choose.

Verizon's Do-It-Yourself TV service is plausible because it is not entirely a la carte. In a purely a la carte model, all products and services would be purchased and sold separately, causing major billing concerns and confusion for the content producer, provider and consumer. To offer customized services without the financial and service headaches, Verizon's marketed "A La Carte" service actually works as a mixed bundling service. In this model, basic services are sold in "skinny bundles," and additional services are sold separately. For $55 dollars per month, customers can have a base package, a few TV channels and a choice of 2 out of 7 of the following bundle options, and additional bundles will cost extra:

  • Lifestyle
  • Entertainment
  • News
  • Pop Culture
  • Kids
  • Sports Pack Tier 1
  • Sports Pack Tier 2

How does mixed bundling help Verizon and their customers?

Optimized Value. In this saturated market, the customer experience is key in preventing churn. Bundling on paper is perfect for the consumer who may be looking to reduce their cable bill. According to Forbes, viewers only tune into about 17 out of the average 189 channels included in their TV package.

Increased flexibility. In addition to being able to pick and choose the channels they pay for, consumers are in no way tied down to a specific selection of bundles in this model. There are no contracts, and consumers can switch up their bundles every month if desired.

FCC Mandates Favor A La Carte

FCC mandates have continued to support a la carte service offerings, and they are drastically affecting businesses. For example, Verizon's new cable offering is legally supported by established mandates. According to the FCC, "there is no law that requires (or prohibits) cable companies to offer channels or programs on an 'a la carte' basis."

While there are no laws requiring cable companies to allow consumers to choose their own channels, mandates have pressed satellite radio companies to offer a la carte. As part of a major acquisition involving the nation's largest satellite radio operator, the company was required to abide by the FCC's regulatory contingencies. These requirements included the offering of a la carte radio channel selections for their consumers. The operator requested that Excelacom build an "a la carte" Channel Selector module while the operator focused on its current business– generating new tools and self service capabilities for new and existing customers. The module not only put the operator in ordinance with FCC's mandates, but also gave customers flexibility and choice thus improving the overall customer experience.

For the Producers: Jay-Z's Tidal

Even in the music industry, being a content pipeline is no longer enough. Consumers flock to content and providers work to supply the content in the most personalized ways they can. However, simply producing tailored content hasn't been enough either. Actual producers of the content have continuously gotten the short end of the stick in terms of revenue. In the music industry, popular music providing/streaming platforms pay artists a fraction of total revenue from advertisements earned, and independent artists are completely overshadowed by the mainstream names. For example, Spotify pays artists 70% ($0.006 to $0.0084 per stream), which is then split between the record label, the writers, producers, artists, etc.

To combat the royalty payment discrepancies and the overshadowing of indie artists, Jay-Z joined forces with some of the biggest musical juggernauts to launch Tidal: a paid, premium music streaming service "Connecting artists with fans through the best High Fidelity sound quality, High quality music videos and expertly Curated Editorial". There is no "free" option as there is for other streaming sites, and service options for subscribers are as follows:

EXCELACOM-TIDALCHART3

What are Tidal's benefits?

High-quality content available to subscribers. Tidal is ad-free, and boasts as being "the first High Fidelity music streaming service" with a heavy focus on the quality of music. In addition, features including live concert streaming, exclusive behind the scenes footage, and first access to tickets, music videos, songs and albums before they are released to the general public.

Pays mainstream and independent artists premium in royalties. "Tidal is where artists can give their fans more without the middlemen," Jay-Z tweeted. Artists, writers and producers who host their exclusive material will be paid 75% in royalties from subscriptions. In addition, up and coming independent artists are featured on their curation website and are constantly being sought and recruited. According to Jay-Z: "Indie artists who want to work directly with us keep 100% of their music," and Tidal's sub-platform Tidal X was created to connect artists to their developing fan base.

Criticism and Controversy

While both Verizon and Tidal are looking for ways to serve both the consumers and producers of content, both services have been met with heavy criticism and even legal action.

ESPN sues Verizon for its A La Carte offering. In Verizon's new system, ESPN and ESPN2 fall into optional sports tiers, thus lowering total subscriber numbers and ad revenue for the Walt Disney Co. if consumers choose not to buy packages that include ESPN. Previous agreements made between ESPN and Verizon have prompted to file a lawsuit in New York Supreme Court. ESPN is currently the only company to pursue legal action, but other production companies including Century Fox Inc. and NBCUniversal have expressed that the a la carte option is a breach of their contracts as well.

Tidal's rejection by consumers. While Jay-Z prides Tidal of having over 770,000 subscribers (many who have been subscribers since before Jay-Z's relaunch) the premium streaming site has continued to drop, falling from the iPhone top 20 download chart to completely out of the top 700. Media outlets and consumer's credit its poor marketing campaign for its descending success. Featuring multimillion dollar artists as the figure heads of a paid premium service that was created to support artists better financially appeared as a "rich getting richer" scheme. In fact, the service has an adverse effect in comparison to its competitors. While Tidal continued to drop, Spotify and Pandora skyrocketed to the top 5 US iPhone downloads charts.

Future of New Services: is this an Industry Game Changer?

Despite the controversies, new service options catering to the consumer are on the rise. Content providers will continue to face competition from producers looking to make platforms on their own, and from other content providers continuing to make the customer experience as personalized as possible. Consumers are demanding the holy grail of entertainment and service, and it's up to providers to either ride the new wave or drown in the saturated market.

For more information on how Excelacom can help prepare you for the changes in business models for communications and media providers, email us at marketing@excelacom.com.

 
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