Rentals of physical discs have dropped by -11% in the US in 2011, and the leading provider of rentals is the ubiquitous Redbox vending machine from Coinstar Inc. (NASDAQ: CSTR). The Redbox’s share of rentals rose to 37% in 2011, up from 25% in 2010. Netflix’s disc rentals remained stable at 30%. Blockbuster stores, now owned by Dish Network Corp. (NASDAQ: DISH), saw disc rentals fall by -6% to 17% of the total.

An NPD executive noted a “sea change” in viewing habits:

The movie-rental market is clearly undergoing a sea change, as consumers become better equipped to access on-demand and streamed movies and are more comfortable with available delivery options. Even so renting physical discs from now-ubiquitous kiosks in grocery stores and other venues has taken the lead as the most popular movie-rental method in the U.S.

Shares in Netflix are up more than 5% at $103.33 in a 52-week range of $62.37-$304.79. Coinstar shares are up nearly 2% at $47.61 in a 52-week range of $37.43-$60.71.

Paul Ausick

Verizon Wireless, the joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone Group plc (NASDAQ: VOD), did not just sit on its hands while AT&T tried to push through the T-Mobile deal. The company paid $3.6 billion for unused spectrum owned by SpectrumCo, a consortium of Comcast Corp. (NASDAQ: CMCSA), Time Warner Cable Inc. (NYSE: TWC), and Bright House Networks.

Other potential AT&T acquisitions include MetroPCS Communications Inc. (NYSE: PCS), Leap Wireless International Inc. (NASDAQ: LEAP), and even Sprint Nextel Corp. (NYSE: S). But none would be as good as a deal for Dish.

AT&T’s main problem is that it would have to pay a premium price for Dish — perhaps as much as $50/share, or about 70% above today’s share price. That would value Dish at around $22 billion, a steep price given that AT&T just paid out $4 billion to T-Mobile in break-up fees. Even Ma Bell can’t afford to pay that kind of money too often for nothing in return, and it’s a sure bet that Dish would want a substantial break-up fee as part of any deal.

A report at Bloomberg News notes that Verizon Wireless owns 56 percent more 4G spectrum than AT&T in the top 10 markets and 46 percent more in the top 100. Verizon Wireless also claims 107.7 million subscribers compared with AT&T’s 100.7 million. Had AT&T been able to acquire T-Mobile, it would have increased its spectrum by 62%, leveling the playing field.

Dish recently acquired wireless spectrum from two bankrupt satellite television companies for about $2.8 billion in a deal that is still awaiting FCC approval. Verizon’s deal with SpectrumCo also needs regulatory approval, and so far there is no indication that either approval is in trouble.

But what does AT&T want with a satellite TV business? Of course it could hive it off once the deal is done, but it might make more sense to go after MetroPCS or Leap, both of which are simply wireless carriers. Or AT&T might be able to get Dish to sell just the spectrum. That would not be the best deal for Dish shareholders, but the company’s management would certainly be able to retire following such a transaction.

Dish shares are trading up more than 2% today at $29.34 in a 52-week range of $20.85-$32.56. Shares of AT&T are up almost 1% at $30.30 in a 52-week range of $27.20-$31.94.

One issue to consider… Dish would have every right in the world to demand another massive deal break-up fee in case the telecom giant could not convince regulators that this is good for consumers.

Paul Ausick

Pandora has also recently signed a deal with satellite TV provider Dish Network Inc. (NASDAQ: DISH).

Pandora does not require a subscription, and the company’s 125 million registered users far outnumbers Sirius XM’s 22 million subscribers. Pandora also claims a 68% share of Internet radio listeners who tune in an average of 18 hours a month, according to reseach firm Triton Digital.

In recent comments at a media conference, Sirius XM’s CEO Mel Karmazin had this to say about Pandora:

Pandora is a really good company. They’ve been around for as long as we have — they’ve been around for about 10 years. They have about 40 million regular users, maybe more now, and they have $300 million in revenue. So, you know, business models matter. We like our business model of subscription better than the advertising-driven model.

Karmazin’s boosterism aside, Pandora and other Internet radio/music services are a real threat to the Sirius XM model. For Internet users, ‘free’ is the model they like best and most are willing to put up with some advertising to get free music.

What Sirius has on its side, though, is a radio model that is understood by the music industry better than the models of companies like Pandora, Spotify, or MOG. Karmazin can leverage that understanding into lower costs for content than the huge upfront fees music companies demand from the likes of Spotify, which offers a hybrid advertising/subscriber model, and has just released its own radio player to compete with Pandora.

Whether Pandora, or Internet radio in general, can displace Sirius XM remains to be seen. If Sirius lowers its subscription price (rather than hiking it) anytime soon, we’ll have our first evidence that Karmazin is more concerned than he lets on.  Maybe radio programs with Howard, Oprah, Martha, and news just aren’t really important… Maybe. 

Paul Ausick

Nuance has been thought of as a potential takeover name for Microsoft Corporation (NASDAQ: MSFT) and for Apple Inc. (NASDAQ: AAPL) on and off for some time.  This may not change the speculation status much.  But what this does accomplish is a new platform to “easily find content by speaking channel numbers, station names, show and movie names.”  This would allow for searching by content, actor, and genre.  The notion that this allows for staying connected through Twitter, Facebook and Skype may just be gravy.

Dragon TV was unveiled as a voice and natural language understanding platform for TV, device and set-top box OEMs and service operators geared toward making it easy to find and access the TV show that a subscriber wants to watch.

If Nuance can open this up to cable outfits Comcast Corporation (NASDAQ: CMCSA) and Time Warner Cable Inc. (NYSE: TWC), and to AT&T INc. (NYSE: T) for its uVerse, let alone DIRECTV, Inc. (NASDAQ: DTV) and Dish Network Corporation (NASDAQ: DISH) for satellite, then Nuance may get a much wider footprint.

How this gets monetized is up for anyone’s guess.  Nuance projected that about 1.6 billion TVs should be connected to the web by 2014 according to Strategy Analytics.  It even notes the difficulty in finding what is on television.  How many times have you been looking for a televised game or show and have no idea what channel it is on?

This will allow OEMs and service operators to deliver TVs, set-top boxes and applications that let consumers find and experience content with Nuance’s leading voice technologies.

Again, the trick is on the monetization.  If it can get a piece of a upcharge for the service then this may open up millions and millions more in revenues per month.  If it is a promotional feature, then this may just be a another brand building effort.

JON C. OGG

Read the ten best online stores this holiday
Read the ten worst online stores this holiday 

To put those customer service rankings in context, we looked at how the parent companies that own the websites have performed recently.  We found that a strong customer service rating often coincides with a company that has widely regarded brands.

It begs the question: Does Apple (NASDAQ: AAPL) have such a high customer service ranking because so many consumers love the Apple brands? Or, is Apple’s customer service for online shoppers really superior to that of other e-commerce businesses? Apple is tied for second place in the index. Amazon.com is in first place. It also has a sterling reputation with consumers, as do some of its major products like the Kindle.

At the bottom of the ForeSee index are Gap (NYSE: GPS), Sony (NYSE: SNE) and Overstock (NASDAQ: OSTK). Gap recently said it would close 21% of its U.S. flagship stores. Sony has had trouble gaining sales for its PCs, games, smartphone and TV products. Overstock, an also-ran online department store, was founded in the days of the dial-up internet. It is hard to see how any of these could be at the top of the list. Or, perhaps if they were at the top of the list, they would not be in such deep trouble now.

ForeSee’s E-retail Satisfaction Index included the top 40 retailers by sales. The company surveyed 8,500 customers between Thanksgiving and Christmas. Despite its shortcomings, 24/7 Wall St. used the data from ForeSee as a foundation, because it is a reasonable measurement of the experience that consumers have with specific e-commerce sites, whether those sites are part of highly successful companies or ones on the verge of failure.

There is also some evidence that a few troubled retailers have actually performed well online. Whether that success is enough to save the companies themselves is impossible to tell. One such example is Avon (NYSE: AVP), with online service that is tied for second among all e-commerce sites in the ForeSee index. But Avon recently posted a disastrous quarter, and its CEO of 12 years was dismissed. Similarly, JCPenney’s (NYSE: JCP) online operations’ customer satisfaction is equal to Apple’s, which is also tied for second place in the ForeSee rankings. However, JCPenney has lost sales to big-box retailers such as Walmart (NYSE: WMT) for years. It is worth noting that JCPenney just hired the head of retail stores at Apple to turn the bricks-and-mortar retailer around. Apple is one of the few companies that was successful online long before it began to build physical stores.

These are the the companies with the best and worst online customer satisfaction. To draw our conclusions about why they are on the list and what the relationship is between the companies and their e-commerce operations, we examined three factors: the ForeSee satisfaction data, the annual sales of each of the companies, and the amount of traffic each site had in November — the most recent month measured by audience research firm Compete.com. Foresee describes its rating as “Average customer satisfaction with the top 40 U.S. e-retail websites increased by one point this year to tie 2009’s all time high score of 79 on the study’s 100-point scale. Satisfaction scores for individual e retailers span a 16-point  range, from a high of 88 (Amazon) to a low of 72 (Overstock).”

Bank of Japan says it will hold to current policies as the economy in the Asian nation has weakened. (Reuters)

Amazon.com (NASDAQ: AMZN) considered buying Research In Motion (NASDAQ: RIMM). (Reuters)

Electronic Arts (NASDAQ: ERTS) puts a large investment into its new Star Wars: The Old Republic. (Reuters)

The Federal Reserve offers new rules to cut risk-taking by U.S. banks. (Reuters)

Oracle (NASDAQ: ORCL) misses estimates and shares fall 8%. (Reuters)

AT&T (NYSE: T) may buy Clearwire (NASDAQ: CLWR) or Dish Network (NASDAQ: DISH) now that its T-Mobile bid is over. (Reuters)

HTC begins to test new models after a patent suit loss to Apple (NASDAQ: AAPL). (Reuters)

Credit Suisse (NYSE: CS) buys HSBC’s (NYSE: HBC) Japan private bank. (Reuters)

Chinese hackers hit the U.S. Chamber of Commerce. (WSJ)

Some $200 million may have been transferred from MF Global accounts to JPMorgan Chase (NYSE: JPM). (WSJ)

Nokia (NYSE: NOK) and Microsoft (NASDAQ: MSFT) considered a bid for RIM. (WSJ)

Wendy’s (NYSE: WEN) may pass Burger King in sales. (WSJ)

Honda (NYSE: HMC) to shift more production to the North America. (WSJ)

A lack of action by Congress could raise payroll taxes to 6.2% and eliminate long-term unemployment payments. (WSJ)

Fund Starboard Value attacks Aol (NYSE: AOL) for its ongoing plans to invest in content. (WSJ)

LightSquared pushes the FCC to approve its service, which some think interferes with GPS devices. (WSJ)

The Commodity Futures Trading Commission says firms must disclose data on trading over-the-counter securities. (WSJ)

Bill Gross’s Total Return Fund will have its first outflow since 1987. (WSJ)

Spain’s borrowing costs drop as it auctions new bonds. (WSJ)

EU banks probably will take advantage of new European Central Bank loans. (FT)

Troubled EU banks sell more mortgage securities. (FT)

French banks will try to raise $48 billion to satisfy debt needs. (Bloomberg)

Douglas A. McIntyre

Italy’s sovereign debt interest rates rise sharply. (Reuters)

Toyota’s (NYSE: TM) profits fall and it withdraws its full-year forecast. (Reuters)

Greece cannot decide on its new prime minister. (Reuters)

New Census Bureau data shows 49 million people in the U.S. live in poverty. (Reuters)

Barnes & Noble (NYSE: BKS) launches a new version of its NOOK e-reader. (Reuters)

Experts find a bug in Apple’s (NASDAQ: AAPL) app software. (Reuters)

Google’s (NASDAQ: GOOG) chairman says his company will not favor Motorola Mobility (NYSE: MMI) as its develops new software. (Reuters)

Societe Generale’s results hurt by Greece. (WSJ)

Dynegy’s (NYSE: DYN) holding company files for Chapter 11. (WSJ)

Johnson Associates says Wall St. bonuses will drop sharply this year. (WSJ)

Vodafone (NYSE: VOD) lifts its guidance. (WSJ)

The State Department may have improperly handled hearings on a pipeline to run from Canada to the U.S. (WSJ)

A drop in home prices may hurt the consumer economy in China. (WSJ)

Best Buy (NYSE: BBY) will move out of some international markets to focus on the U.S. (WSJ)

Dish Network (NASDAQ: DISH) may move into the internet TV market. (WSJ)

The SEC defends a $285 million settlement with Citigroup (NYSE: C) over fraud charges. (WSJ)

More people use the Walmart (NYSE: WMT) bank as traditional financial firms charge higher fees. (NYT)

The crisis in Europe prompts a tightening of bank lending in the U.S. (FT)

U.S. regulators increase their investigation of MF Global. (FT)

Banks begin to sell sovereign bonds that could make the eurozone crisis worse. (Bloomberg)

Douglas A. McIntyre

The company blamed the subscriber losses on more intense competition and a weak economy. The company’s main competitor, DirecTV (NASDAQ: DTV) offered subscribers free access to all NFL games, an offer that led to subscriber growth of 327,000 in the third quarter. Dish has no comparable deal with the NFL. The weak economy also hits Dish’s generally lower-income subscribers harder, causing them to cancel subscriptions more quickly when pennies need to be pinched. The company’s churn rate fell, from 1.98% a year ago to 1.83% in the third quarter, but the competitive punch from DirecTV and the “quality of subscribers acquired in past quarters” remain significant threats to subscriber retention.

Dish is also trying to position itself in the streaming market, where Verizon Communications Inc. (NYSE: VZ), AT&T (NYSE: T) are also competing for customers of their high-value broadband services. Then there are Netflix Inc. (NASDAQ: NFLX) and Amazon.com (NASDAQ: AMZN) which also offer subscription packages for streaming video.

Dish is still trying to finalize its acquisitions of DBSD North America and TerreStar, which the company plans to use to integrate wireless and wireline services in a single offering. FCC approval is pending for both acquisitions, but even if it comes, there are still a lot of questions about whether or not Dish can make the offering work.

The company is also working to integrate its acquisition of Blockbuster. The introduction of its ‘Blockbuster Movie Pass’ during the quarter didn’t exactly bring a rush of new subscribers. Current subscribers have to pay $10/month, more than either Netflix or Amazon charges for streaming content. Dish is hedging its plan to keep the 1,500 bricks-and-mortar stores it acquired with the Blockbuster purchase, saying it has negotiated “flexible termination” leases on 900 of the stores in the event that revenue growth doesn’t materialize as planned.

Dish reported diluted EPS of $0.71 on revenue of $3.6 billion. The consensus estimates called for EPS of $0.73 on revenue of $3.63 billion. Subscriber losses were forecast at 81,000, considerably below the actual loss of 111,000. To soften the blow, the company announced that it would pay a one-time dividend of $2/share

EchoStar Corp. (NASDAQ: SATS), the satellite spin-off from Dish, also reported third-quarter earnings today. The company posted revenue of $863 million and an EPS loss of -$0.22. Analysts were expecting revenue of $755 million and EPS of $0.38. Because Dish buys its set-top boxes from EchoStar, and because Dish had fewer gross additions, EchoStar felt the pain.

Dish carries a market cap of around $10.5 billion, about a third of DirecTV’s and a sixth of Comcast Corp.’s (NASDAQ: CMCSA) and a tenth of Verizon’s. What Dish is trying to integrate — wireless spectrum, wireline broadband, video rental stores, video streaming, satellite subscriptions — could be a huge success or not. If the company appears to be making it happen, a buyout by a telecom compay — say, Verizon — could make a lot of sense. We’ll know the integration is not working, if Dish ends up selling its spectrum licenses. Those are the key to its grand plan.

Dish is trading down more than -3% in the pre-market this morning, at $22.70, in a 52-week range of $17.95-$32.56.

Paul Ausick

So far in 2011, consumers have spent $464 million on streaming content, a larger total than the $406 million spent on digital downloads, what the report calls electronic sell-thru. Total spending on digital content grew 33% year-over-year. Quarter-over-quarter growth topped 55%. Total spending on rentals, including video-on-demand, grew by 3.4%, and sales of DVDs and Blu-Ray discs, including electronic sell-thru but not streaming, have fallen by -13% year-over-year.

Movie studios and their management may be many things, but stupid is not usually among them. Even though streaming content represents just a small portion of current consumer spending, it is the only sector with double-digit growth. And it has plenty of room to continue growing. Disc sales and electronic sell-thru accounted for $6.9 billion in sales in the first nine months of 2010. That total has fallen to $6 billion this year.

So if consumers are staying home and sales of discs are falling and rentals are barely growing, it only makes sense that media producers will try to front-run the move to streaming. The consumer blowback directed at Netflix should rightly have been aimed at the media companies. Of course Netflix could not have done a worse job in announcing and implementing the fee hike, but that isn’t the issue.

Netflix may have lost a ton of subscribers and seen their revenue and forecasts fall, but that doesn’t change the basic landscape. Streaming video, and its cousin Internet TV, are the future. What’s not to like about streaming high-definition movies into your own living room as many times as you want for less than the price of a single movie ticket or a single disc?

Paul Ausick

There are plenty of challenges facing the network and cable TV industry these day, not the least of which is the growth in streaming video. The well-known troubles of Netflix Inc. (NASDAQ: NFLX) to one side for a moment, the market for streaming is growing, while some cable operators are losing subscribers. Broadcast networks with content to license are better placed to profit, while cable operators with their own spectrum might be in the best position of all, at least in the near term.We’re looking today at 10 companies with broadcast or satellite/cable businesses (or both): CBS Corp. (NYSE: CBS), Walt Disney Co. (NYSE: DIS), Comcast Corp. (NASDAQ: CMCSA), Time Warner Cable Inc. (NYSE: TWC), Dish Network Corp. (NASDAQ: DISH), DIRECTV (NASDAQ: DTV), Viacom, Inc. (NYSE: VIA), Liberty Starz Group (NASDAQ: LSTZA), Discovery Communications Inc. (NASDAQ: DISCA), and Charter Communications Inc. (NASDAQ: CHTR).

All data from Yahoo! Finance and current stock prices were gathered about noon today.

CBS Corp. (NYSE: CBS) has a median target price of $31.00 from 22 brokers. Shares are trading today at $25.66, for an implied gain of $5.34, or 21%. CBS’s forward P/E is 11.62 and the company pays a dividend yield of 1.6%. The stock’s 52-week trading range is $15.99-$29.68, and at today’s price that’s about 60% above its 52-week low, posted earlier this morning, and 14% below the 52-week high. CBS is scheduled to release third-quarter earnings on Thursday. The consensus EPS estimate is $0.46 on revenue of $3.43 billion. A year ago the company posted sales of about $3.3 billion and last quarter revenue totaled nearly $3.6 billion. There’s room for the share price to rise, but neither the 52-week high nor the target price are endangered in the near term.

Walt Disney Co. (NYSE: DIS) has a median target price of $40.00 from 24 brokers. Shares are trading today at $35.34, for an implied gain of $4.66, or 13%. Disney’s forward P/E is 12.28 and the company pays a dividend yield of 1.1%. The stock’s 52-week trading range is $28.19-$44.34, and at today’s price that’s about 25% above its 52-week low, posted earlier this morning, and 20% below the 52-week high. Disney is much more than a distribution channel. Its ability to create compelling content and then license it for further distribution is practically equal to a license to print money. Analysts expect EPS of $0.54 on revenue of $10.36 billion when Disney reports third-quarter earnings next week.

Comcast Corp. (NASDAQ: CMCSA) has a median target price of $30.00 from 24 brokers. Shares are trading today at $23.60, for an implied gain of $6.40, or 27%. Comcast’s forward P/E is 12.35 and the company pays a dividend yield of 1.9%. The stock’s 52-week trading range is $19.19-$27.16, and at today’s price that’s about 23% above its 52-week low, posted earlier this morning, and 13% below the 52-week high. Comcast owns both content and the fat pipes to distribute that content. Because distribution of streaming content is fast becoming a commodity, it’s Comcast’s NBCUniversal media business that will carry Comcast forward. The $30 target price is probably safe for a while, but the company’s 52-week high could be in the sights.

Time Warner Cable Inc. (NYSE: TWC) has a median target price of $85.00 from 22 brokers. Shares are trading today at $62.91, for an implied gain of $22.09, or 35%. Time Warner’s forward P/E is 11.25 and the company pays a dividend yield of 3.1%. The stock’s 52-week trading range is $47.89-$79.21, and at today’s price that’s about 31% above its 52-week low, posted earlier this morning, and 21% below the 52-week high. In its last quarter, Time Warner lost subscribers and posted lower profits. The company believes it will make its forecast annual profit, but warned that advertising was falling. It’s easy for subscribers to drop cable subscriptions in a tight economy, and as the holidays come round, dropping cable service to have a few more bucks to spend on gifts will occur to a lot of viewers.