Cox cuts the cord on its own OTT service

Michelle Clancy | 03-10-2013

Cox Communications has ended its out-on-a-limb 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.

FlareWatch was available only in the Orange County area of Southern California, and required a Cox Internet subscription. It launched in July to offer 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.
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 $100.
But according to IHS, flareWatch delivered an estimated financial margin of 22.1% compared to an estimated 46.7% for cable in general before any other expenses. 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 US cable networks at IHS. "The programming slate represented a minimum in terms of what channels need to be included in a line-up 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 line-up represented a minimum in terms of what is likely required to be successful, the overall composition of the line-up was still considered nearly on par with basic digital cable line-ups."
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 favour of Netflix and other OTT services. Cable penetration into the total US population has indeed begun to decline, forecast to fall to 81% in 2017, down from 86% in 2009.
IHS said that 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," Brannon said. "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."
Content is key in any initiative, Brannon added, as demonstrated by flareWatch's channel line-up. This means that any start-ups without existing good relationships with content providers stand little to no chance of entering the cutthroat cable market, let alone surviving.
"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," Brannon concluded.