The Proposed Comcast - Time Warner Cable Merger

Comcast has announced that it intends to acquire Time Warner Cable for $45 billion.  We really should not be surprised by this deal.  As industries mature and growth declines (or evaporates), firms look to consolidation as a means of cutting costs and enhancing the bottom line.  With cord-cutting a potentially growing phenomenon, the cable companies have to be wondering how they will grow profits moving forward.   Finding cost savings through consolidation may be a reasonable strategy.  Beyond that, the news raises several interesting questions for the key players in the media and entertainment business. 

1. Will federal authorities intervene to stop the merger on antitrust grounds?  

2. Will Comcast agree to expand its net neutrality agreement to cover TWC subscribers as well?

3.  Will cable television networks find themselves in a disadvantageous position as they try to negotiate with Comcast-TWC?  How much will the enhanced bargaining power of Comcast-TWC affect profit margins for the major entertainment content providers?

4.  Perhaps most interestingly, will this hasten or dampen efforts to crack the dominant position that cable has in distributing content?   Will firms such as HBO become more reluctant to strike new deals to distribute content, or will they become more emboldened to find new distribution avenues given the increased clout of Comcast-TWC?  In other words, is HBO now going to be more willing to sell HBO Go subscriptions directly to consumers?   Similarly, will ESPN become more or less willing to consider selling Watch ESPN subscriptions to consumers directly?  What about Netflix?  What are the implications for that firm, as the cable players are clearly concerned about cord-cutters that rely on Netflix for a large portion of their entertainment viewing?  

5.  What about Apple?  Many people, including me, believe that Apple has the means to build a great television, but they are limited in their ability to provide great content.  Apple does not want to simply build a TV; after all, that business is intensely competitive.  They will only enter the market if they can have access to content, as they did with iTunes.  In the music business, the key players struck deals with Apple because selling their songs for 99 cents was better than watching their songs stolen.   With movies and television, the major content providers have been reluctant to offer their content to Apple.  Will things change, as the cable companies gain even more clout?

Amazon, TV Pilots, and the Wisdom of Crowds

On Saturday, the Wall Street Journal reported on Amazon's attempt to develop original television programming (similar to Netflix's entry into this market).   Here's an excerpt from the article that describes how Amazon's efforts differ from the way the large television networks launch new shows:

A group of 14 "pilot" episodes had been posted on the company's website a month earlier, where they were viewed by more than one million people. After monitoring viewing patterns and comments on the site, Amazon produced about 20 pages of data detailing, among other things, how much a pilot was viewed, how many users gave it a 5-star rating and how many shared it with friends.Those findings helped the executives pick the first five pilots—winnowed down from an original pool of thousands of show ideas—that would be turned into series. The first will debut this month: "Alpha House," a political comedy about four politicians who live together, written by Doonesbury comic strip creator Garry Trudeau.

Amazon is taking advantage of the wisdom of crowds.   Traditional networks use focus groups to test out ideas for new shows.  Aren't thousands of reviews better than the responses from a small number of people in focus groups?  After all, focus groups can be very problematic, and not simply because of the small sample size.  Well... it depends.  The wisdom of crowds works when the responses from a larger, diverse audience are INDEPENDENT of one another.  In other words, the wisdom of crowds works when each individual response does not influence the response of others.  Does independence hold when it comes to online reviews, or does herd behavior take place?

Tim Harford of the Financial Times asked this question in a recent column.  He cites an interesting study that I blogged about earlier this fall.  According to the Wall Street Journal, researchers Muchnik, Aral, and Taylor found that, "positive online ratings can be strongly influenced by favorable ratings that have come before."  They discovered that initial positive ratings did create herd behavior.  Ratings that followed were more likely to be positive as a result of the influence of the initial evaluations.  According to Harford, "Positive comments tended to attract birds of a feather – a comment sent into the online world with a single positive vote attached was 30 per cent more likely to end up with at least 10 more positive votes than negatives."  Interestingly, initial negative ratings did not lead to similar herd behavior.  People who liked a product often chimed in to "counterbalance" an early, unusually negative review. 

The Relationship between TV and Twitter: The Sharknado Case

A New Kind of Disney Princess

The Wall Street Journal reports today on Disney's development of a new type of princess for young girls.  Sofia the First is one of the new additions to Disney's family of characters.  She's "confident, resourceful and focused on being a good person. She should not be valued most of all for her beauty. Her royal family should include exactly zero evil stepmothers."    Nancy Kanter, a senior executive at Disney, explains: "We knew we didn't want it to be a young woman looking for a man."    The Sophia the First series debuted on Disney Junior on January 11th.   It has become the year's top-rated show among pre-school children.  Disney aimed to create a princess that would appeal to young girls, but that would provide an image and identity more acceptable to parents than some of the company's traditional princesses.   It appears that they have succeeded.

To me, this case provides another interesting development at Disney, besides the unique way that they are trying to reposition a key type of character.   Here we have a case of a key new animated character debuting on Disney's cable networks, rather than in an animated feature film.   The firm has begun to leverage the character in the theme parks and through its consumer products and retail divisions.  Historically, Disney launched key characters through animated feature films, and then leveraged them to other areas.  With Johnny Depp's Pirates of the Caribbean movies, we saw Disney take a theme park ride and build a popular series of feature films.  Now we have a character debuting on cable and then moving to the theme parks.  Could an animated feature film be next for Sophia the First?   Disney's ability to find different ways to originate content may be a key driver of growth for the future.  Relying only on feature films to launch a new franchise can be expensive and risky.  Having other ways of originating and leveraging characters could be key to the company's future... as important as some of the recent acquisitions have been in terms of adding to the stable of characters in the Disney family.