A rumor is running the circuit today that ISP EarthLink will announce tomorrow a major reorganization and a slew of layoffs, a not-surprising move given the deteriorating state of the once-hot company’s finances. Indeed, when EarthLink announced its Q2 07 earnings results, which were not pretty, CEO Rolla Huff said the company was exploring ways to “create a more focused business strategy and sizing our cost structure to fit our current business.”
EarthLink has been steadily losing customers as dial-up subscribers migrate to broadband options and as EarthLink’s broadband service partnerships dry up. The provider lost 177,000 customers during Q2 07 and expects to lose 400,000 to 500,000 customers during the full year. At the end of June 2007, EarthLink served a total of 4.1 million customers, down by about one million from June 2006 levels.
Not helping at all is the fact that EarthLink’s diversification efforts are flops, at least from a financial perspective. Helio, EarthLink’s wireless data and voice joint venture, is expected to lose up to $360 million this year, with half of that shouldered by EarthLink. The company’s big push into building muni-Wi-Fi networks is a failure, and all further build-outs of Wi-Fi networks have been put on hold.
It’s no surprise, then, that EarthLink’s revenue dropped 8% from Q2 06 to Q2 07, while income from operations plummeted by 26%. Given all this, the rumor of big layoffs and a corporate reorg shouldn’t be a surprise either.
Update: Over at GigaOm, an EarthLink employee confirms in the comments to Om’s post on this topic that an announcement will be made tomorrow. The company, however, isn’t talking officially about this.
Posted by Cynthia Brumfield at 2:28 PM | Print | Comments (0)As part of a comprehensive analysis of the recent slow-down in broadband growth, which I conducted earlier this month, I concluded that the recent drop in new high-speed subscriber additions would spark price reductions in cable modem and telco-based broadband offerings — in the most competitive markets, anyway. Sure enough, Verizon announced this morning that it is offering a new, broadband “price-for-life” package.
Under this option, consumers who sign up under a two-year commitment are guaranteed no further price increases for their DSL-based services for as long as they keep Internet service over a Verizon phone line. Verizon DSL customers that sign up online for the 768 Kbps/download service are guaranteed a lifetime price of $14.99/month, while customers that buy the 3 Mbps/download service online are guaranteed a lifetime price of $27.99. (Customers that opt to call in for these service options will be charged higher monthly rates, a move designed to discourage the costly call-in process.)
What isn’t covered in this price-for-life offering is Verizon’s super-fast FiOS service. That’s because FiOS is still going gangbusters. Moreover, the capital costs of the fiber-based service are still too high; Verizon can’t afford to lowball the price of this service just yet.
What’s interesting about this next round in the broadband pricing war is that unlike the first battle, sparked by the incumbent telcos in 2003, the price reductions are more complex. Back in 2003, Verizon and SBC simply lowered the monthly prices of their DSL options to jumpstart market share gains.
Now, however, as Verizon’s price-for-life move suggests, telcos and cable operators are going to play around with effective prices, not nominal or absolute prices. Although price-for-life doesn’t sound like a rate cut, it will play out the way in the future, or so Verizon seems to be suggesting.
Another major broadband service provider (and top Verizon rival), Cablevision Systems, plans a similar effective price reduction, although Cablevision’s high-speed price adjustment will be buried in a triple-play option that offers video, voice and data service for $99/month. The $99/month plan is nothing new — Cablevision has been offering this for a quite a while to totally new customers. What is new is that Cablevision plans to extend this option to its existing subscriber base.
This broadband price war redux, then, is more sophisticated, more complicated that the first head-to-head battle between telcos and cable operators. That’s to be expected. Phone companies are already pricing their DSL services as low as they go and cable operators don’t want to give up the fabulous margins their cable modem services deliver. Any further rate reductions have to deliver other benefits, such as lower churn (price-for-life) or expanded subscriptions ($99 triple-play bundles.)
Posted by Cynthia Brumfield at 1:32 PM | Print | Comments (1)
The Internet is the great equalizer. People with good ideas and the wherewithal to back them up can, for a few bucks and a lot of sweat equity, create a franchise and a business for themselves.
Hollywood, it seems, is getting wise to this dream (which, like most dreams, is more difficult to pull off in reality) and at least one Hollywood powerhouse, Viacom, is willing to share revenues with the talented team of Matt Stone and Trey Parker rather than risk the “South Park” creators setting up their own shop on the web.
As part of a new package deal that gives the innovative animators a greater share in revenues and profits from all outlets, Viacom has agreed to create a new web site, South Park Studios, that will be an incubator for new web applications featuring the iconic South Park characters and will serve as a distribution hub for South Park-related videos, applications and new services.
But that’s not necessarily the groundbreaking part, although the fact that “South Park” gets it own destination is yet another indication that brand names and not corporate ownership wield the most power on the web. The game-changing part of the deal is that Stone and Parker will get 50% of all ad revenue, an unthinkable concept in the TV industry, where talent has had to resort (think Seinfeld and the cast of “Friends”) to threatened no-shows to reap more profits from their labors.
As MTV Networks President Doug Herzog notes, the low barrier to entry on the Internet just invites big-name talent to jump ship — and the studios had better sweeten their offers or else.
“The landscape has shifted dramatically,” Mr. Herzog said. “The way of the Web seems to be, there’s a very low barrier to entry, so you don’t need, necessarily, a major media company to be in business, or a movie studio, or whatever it is — you just need to be able to set up shop and go. You’re seeing a lot of guys doing this, funnyordie.com being the best example.” (Funnyordie.com was started this year by the comic actor Will Ferrell and his production partner, Adam McKay.)
Admittedly Stone and Parker have the swack to demand such revenue splits, while up-and-coming creative types probably still have to settle for what they can get. But the balance of power in the entertainment business is no doubt shifting away from the big studios and networks and toward those who can create.
Posted by Cynthia Brumfield at 9:38 AM | Print | Comments (0)
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