Cox Pulls Plug on Streaming Video Service

2 Oct, 2013 By: Erik Gruenwedel

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Cable operator had been testing “flareWatch” in Orange County, Calif.

Cox Communications has abandoned efforts to launch an Internet-based TV service, dubbed “flareWatch,” reportedly due to spirally costs and shrinking margins.

flareWatch, which was being beta tested in select cities in Orange County, Calif., required a Cox Internet subscription. Launching in July as a counter to the burgeoning presence of subscription video-on-demand services such as Netflix, flareWatch offered 97 channels at $34.99 per month, which included 30 hours of cloud-based DVR.

The service, which also required a separate $100 set-top box, did not offer VOD content or transactional movies typically included by most multichannel video program distributors, such as cable, satellite and telecommunication.

Atlanta-based Cox was interested in a proprietary OTT video service since growth in U.S. pay-TV subscriptions had stalled, and cable penetration into the total U.S. population has begun to decline, forecast to fall to 81% in 2017, down from 86% in 2009, according to research firm IHS.

During its short-lived trial, the monthly subscription price increased to $39.99, with the price of the 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.

IHS said flareWatch delivered an estimated margin of 22.1% compared with an estimated 46.7% for cable in general before any other expenses. The margin for the service, while positive, was still considered low.

“The end of the flareWatch trial was inevitable,” 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.”

Brannon said the overall composition of the channel lineup was still considered on par with basic digital cable.

Cox spokesperson Todd Smith said the flareWatch test was conducted as part of the cable operator’s ongoing research to determine how best to evolve its digital offerings to customers.

“We remain focused on helping customers connect to the things they care about in ways that are easy-to-use and reliable,” Smith said. “We will continue to evaluate the flareWatch trial results to determine how this might impact future product plans, but have no specific insights to share at this time.”

Where to now?

The end of flareWatch poses some intriguing questions. If properly valued, marketed and possessing the right content, a start-up OTT video service can compete effectively against Netflix and SVOD, Brannon said.

“Content is key in any initiative,” he said. “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 difficult to suggest 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,” he said.

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