Market Insight

Cox's flareWatch trial ends, leaving questions

September 19, 2013

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Cox has ended its internet TV service, flareWatch, in Southern California, three months after launching. Having been a trial service and in beta, the closure of the service comes as no surprise. The cable operator will now begin to evaluate the trial and determine if IP-based services belong in its future.

The flareWatch trial had a very limited reach, but its impact and eventual fate will be closely monitored by the TV industry. The service required a Cox internet subscription and was only available in Orange County, CA. Since launching, the trial saw a few tweaks. It launched with 97 channels and an original price of $34.99/mo, 30 hours of cloud-based DVR, no VoD and the Fanhatten TV set-top was priced at $99.99 each. As the service went on, the price increased to $39.99/mo, VoD and flareListen (music service powered by Rhapsody) were added and the price of each Fanhatten TV was cut to $49.99.

The service was a very compelling offer, with the majority of the channels being available in Cox's Advanced TV package but at a significant lower price. FlareWatch line up consisted of popular channels such as Disney, TNT, USA, TBS and FX. Sports channels were not left out - ESPN, ESPN2, RSNs and TWC Sportsnet were also available.

The end of the trial was inevitable, its relatively short duration adds a certain amount of mystery to its success or failure. Understandably, Cox isn't making any key findings public, but as we have observed the trial, a few are evident to us:

  • Any premium paid in affiliate fees could significantly impact the potential profitability of a pure OTT, or pay TV pure IP based subscription television service.
  • Whether pure OTT or pay TV operator based, IP video subscription television products will likely play a role in cable network linear content delivery.
  • Price points will not allow the pay TV pie to grow in size, rather new slices of the whole could be carved out by pure OTT pay TV entrants.

IHS analysis of flareWatch's lineup led to two key discoveries: that it included a minimum in terms of programming diversity, and that at current Cox cable pricing when the monthly price is divided by the total carriage fee load, it  yields a margin that was positive yet minimal. This presents a significant barrier to entry for startup pure OTT subscription television operators who do not have the existing relationships with content owners. As the rumour mill churns, it is not in the realm of unbelievable to think that they may have to pay a premium for the rights to live linear cable feeds.

The transition to an all IP based video delivery system is inevitable, but at what cost and in what time frame? Certain efficiencies in the customer experience can be achieved when the platform relies upon an IP backend. Improvements in addressable advertising and on-demand sales may result as better data and box art are more easily transported and displayed by IP than QAM.

At the end of the day, it's all about customer relationships; improving the experience will likely drive growth in ARPU, not in number of total subscribers. Following the end of the Great Recession, the pay TV business was set upon a negative trend thanks to the confluences of economy and technology, slightly negative growth through 2017. Monthly prices and carriage fee loads being what they are, it is hard to believe that future IP video services are going to appeal to newly-forming households, rather it is IHS's opinion that newly-forming households are more likely than ever before not to take a subscription to a pay TV video product.

Cox Cox Communications
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