TRANSCRIPT 🔗
Scott: Well, welcome once again to another edition of Broadband Breakdown. I'll be your host for this session. My name is Scott Meyer. I'm in the marketing department at Innovative Systems. And I have a man from the land of great cheese, Chad Mix over in Wisconsin. And we're sure happy to have you with us today, Chad. How are you doing?
Chad Mix: I'm great. Thank you and thanks for having me.
Scott: Hey, no problem. So we're going to talk a little bit about something that may be a little bit controversial, maybe a little bit cutting edge as far as the thought process, but that's why we like to do these podcasts. We like to explore some interesting and innovative thoughts and concepts. And before we talk about Norvato, which is the company that you work for, Chad, I just want to frame this up real quick. A lot of people have started to see over the last couple of years, and we've seen validation of this with our 11th annual rural subscriber study, the creeping into rural America by the Leos. Obviously Starlink has been here for quite some time, but also the home wireless offerings now with the big companies like Verizon and T-Mobile and AT &T. But there's another threat looming on the market that A lot of us, including you folks at Norvado feel could be a much greater threat and that is Amazon Leo, which is on the horizon. And that's going to be the topic of our discussion on the podcast today. But before we get to that, Chad, tell us a little bit about Norvado and your company, where you're located, what you offer for services, and how many subscribers you have.
Chad Mix: Sure. Well, we are on Nevada and we're located in Northern Wisconsin. So in very rural markets, we're near the Schwab again, national forest. So there is a lot of a forest and a lot of space between the houses that we provide. But we do have between 17 and 18,000 customers today. So we've been growing rapidly in the last five years. You know, I think we've over doubled our. our subscriber base, is a good sign for sure. And we provide kind of the traditional telecom services. We provide fiber-based products, internet, television, Wi-Fi, and other managed services like security or IoT, et cetera, on the residential side and on the commercial side. We provide all of those things, but we have hosted telephony as well. So Hosted is kind of a primary driver on the commercial side for our business. So yeah.
Scott: So you guys are a little bit more than a small rural provider. You are growing. That's very impressive. Appreciate your sharing that information with us, Chad. So one of the things that predicated this podcast was a meeting that we had amongst people that are really actively engaged in rural America, not only in the United States, but I should say in Canada that are offering video from more of a local small operator perspective. And we were talking a little bit about video is just another suite of services that you can have in your portfolio. And the validation point came about as far as the threats from our 11th annual rural broadband study. And this year, we, after we did 830 rural Americans and 32 % of rural Americans do not know what their speed is. And some people may think, well, so what big deal. But we feel, and I think you guys agree, is that that lack of understanding of what speed they have make them very vulnerable to slick advertising promotions and those types of things to say, well, hey, I can get 5G and it says it's great and it says it's fast and I get a bunch of free stuff and it's cheaper and all of a sudden they're gone and it's hard to get those customers back. But the bigger threat that we see, Starlink's been around for quite a while. but we see a threat of Leo, Amazon Leo, and we're gonna talk about that, but before we do, wanna give for concept. We asked a question in our study, if you had the opportunity to subscribe and switch to Amazon Leo, if they offered you a comparable service, 43 % overall of rural Americans, and that's out of over 800 rural Americans, said they would consider switching. And so you particularly identified Amazon Leo. So I'd like to get your take Chad on why you think they would even be a greater threat than say even a Verizon, a T-Mobile on the wireless side or Starlink on the Leo side.
Chad Mix: Yeah, so let me just talk about the other two first, and then I'll talk about Amazon Leo. You know, in our area, may not be true in everybody's area, but in our area, you know, the home internet provided by cellular is a hit or miss, and most often it's a miss because cellular coverage is not all that great in the great Northwoods. Now, as they put up more towers, as they fix that, it could become more of a threat, but it's a little less of a threat for us today because your cell might work really great here in a one block over, it's not so great. So it's not as big of a deal. And I think Starlink is going to become, and they have become a much bigger threat, but at one time they were just a provider of last resort, right? the only way you would go to them is if you had no other option. And that's pretty much who they had. Well, today they're far more mainstream, right? They've changed their pricing. They've changed their installation. There's not a big upfront cost. And because people don't really understand what speeds they need to do what they need to do in the home, their $50 offer becomes very appealing to people. And And so we are seeing them as a much greater threat. And I see that they are working on their own satellite phone as like a mainstream competitive phone. Today, they integrate with others as a kind of last resort call if you have no service, but they're looking at and working on their own phone. Well, the more products that they provide, Right? The more that they can offer a value to the customer, the more that they're able to be less commoditized and get into our space. And that is what scares me about Amazon Leo, because Amazon has television offerings.
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Amazon has smart home offerings. They have all kinds of IOT offerings. You know, they can... you know, work, they could easily have cell phone offerings. And once they have internet offerings, now they can come in and complete the owning of the home. Because they've always wanted to own the home. They've always wanted to make us kind of a dumb pipe commoditized service. And we keep fighting them on it. So now they're just going to provide it themselves, right. And if they decide to compete, which I think they are, they could be very problematic for us. But so could Starlink. And the more products they offer, the tougher they're going to be on small rural providers like us, at least in our opinion.
Scott: Well, let's talk from a marketing perspective because that's what we do. I you've been doing marketing for a long time. I've been doing it for a long time. And when you think about the installed base that Amazon currently has, Amazon Prime users, we're talking millions and millions of people. So you don't think they're going to take that database and they're going to market this amazing new Leo product, which is going to give them blazing fast internet. They won't need anybody else. I mean, how powerful is that?
Chad Mix: Well, I think it's extremely powerful and dummies like me have been putting in their product in, right? So we sell our TV and then we go ahead and put in Amazon Firesticks. Well, now they have a direct link provided by us to market their other services. And so, you know, we've now taken a stance that we can't do that. We have to have our own products that We have to differentiate from the Amazons who are going to come for us and come for our business. But look, we have thousands of devices out there that they have a direct link to advertise in, you know, services to displace us. And that's not a great position to be in. But yes, they're a powerful marketer. They have a ton of money and they know how to compete and they can, they've built themselves on lost leaders, right? So they can lose in one area and make it another. And they're come out there, they're monetizing the data. We are not monetizing the data. So they're tracking through the data and selling that data, which allows them to sell, you know, the fire stick or internet at a much less cost upfront. But, you know, they're making it in other ways that we are not.
Scott: that's interesting that you bring that point up about putting in a fire stick into the home. It's almost like putting the fox in the chicken coop, so to speak, right?
Chad Mix: We're definitely is.
Scott: So let's just talk for a moment about video and how, you know, I mean, obviously have Norvato as an innovative video customer and we do have a set-top box that does work in the streaming mode. Do you feel that moving down the road, this might be more advantageous to keep Amazon Firesticks out of the home. And I know a lot of people are gonna have them regardless, but if their video product is running on
something that's proprietary, are there advantages to that versus the stick delivering that service?
Chad Mix: Yeah, there are advantages of having a proprietary set-top box in place. think, you know, maybe not great for innovative, I think, but good for Nevada. We're working on our own streaming stick that, you or streaming box that's sort of like a set-top box, but less costly, you know, because it's not quite as good, but is a little bit more, it's... it's a little bit more consumer prosumer, right? Than it is a set top box that is definitely pro. So, we're always trying to balance the cost to the consumer or the replacement cost of us if we have thousands of these out there and they're ours. So we're going down a path of our own streaming box or streaming stick that we can control and we can... manage that user experience where it's not managed by Amazon. They're not advertising all this stuff. You I don't like their interfaces. They're way too commercial. They're very hard to find. There's lots of advertising. And so I like the idea of us having this clean service that we can provide that is closer to a consumer rated product for the customer. but that we have a lot more control over and can manage that experience to the customer.
Scott: And I'm expecting your cable lineup would be delivered on that as well, right?
Chad Mix: Yeah, when we, know, Scott, we've taken up, we definitely have the, you know, big bundled TV package lineups, but we also have a basic local lineup. And we've taken up the strategy of combining the basic local lineup with streaming choices for the rest of your content. And we deliver those streaming choices, right? They pay us, we're buying the... Netflix platform or the HBO Max or the Friendly or anybody, anybody, Disney or whoever. And we kind of, we just call it hybrid TV. So, you know, it's very hard to compete with a big lineup of channel packages against the YouTubes of the world, but it's not that hard if we combine our basic local channels with streaming platforms. And so if we deliver that over our device, we can auto provision them and do things that save us money elsewhere. And so we think that's the path. I mean, to just get rid of TV for us seems like a bad choice when our competitors want to own the home. And so if we can't own the home, we're a commodity. And if we're a commodity, we got to be price competitive. And not that we don't have to be price competitive, but we have to be low price. That's not the business we're in. We're in a high touch, white glove sort of model that we have to compete with. We have to own the home. so having TV, having streaming services all bundled together, having internet, having security, having IOT and all the rest, cellular, et cetera, is really the path forward for Novato.
Scott: Let's break that down into a couple of components and kind of expand on that just a little bit. Let's first start with the TV. You had mentioned in that Pro Video Group call a while back that you see from your perspective that there's a greater potential of generating more revenue from your video product. Can you explain the thought process behind that? Because that's kind of, that's like out there, man. I mean, you're...
Chad Mix: Yeah
Scott: I mean, but I think it's great because you guys are thinking outside the box and really you have to to compete against these big dogs.
Chad Mix: Yeah, so if you think about TV, mean, TV, mean, customers are used to getting TV from their internet provider, right? Whether it's cable or it's a traditional telecom or whoever. And so, and all customers have, not all, but almost all customers have TV of some type. Whether it's a cable package, a satellite package, a streaming package or multiple streaming packages, they have TV. 90 some percent of people have TV. So if you have 20,000 customers, 90 % of them have TV, but they're not buying it from you. And they're not buying it from you because maybe you're not competitive. We've taken the approach that TV is our greatest revenue source. 90 % of our customers have it. They're used to buying it from us. We have to find a way to sell it to them. Now our path to selling it to them is kind of hybrid TV where we're combining streaming choices and streaming platforms with traditional basic TV. But we have every type of TV. If you want a premium 200 channel package, we have it and we will sell it to them. we, you know, we, make money on TV, but in order to do so, you have to continue to raise your rates, right? Our rates raise. We have to raise them to the customer. And for the last six years or so, we've been doing that and they have become accustomed to it. and, know, everybody else does it to them too. They start them with these low introductory things, but they raise their rates too, because their rates are changing. And it's just like buying gas, right? If the gas station's cost goes up, the customer's cost goes up. We have to be able to do that. And we have to be able to offset that growth by being creative. And our creative path is. Let's embrace streaming. Let's bring streaming on with our product and let customers have exactly what they want at the price they want. And that's been our approach. But the highest revenue source we have that we could go get today is television. Right. It is. There's no two ways about it. You can't make that revenue in cellular, although that's a big revenue option. You probably can't make it in IOT. So we have decided let's not abandon this. Let's go embrace it and get it and figure out what do our customers want and how can we make money delivering it.
Scott: Good point, and we had a off-channel conversation about this the other day, and I think that a lot of the people that are getting out of video are getting out because they have not done what Norvado has done and been very conscious of moving that price and passing it through to the customer. I had a conversation most recently where, well, we were looking at a
great big price increase. So we just decided to get out of video, which between the lines that's they sat on the same rate for way too long. And to go up exponentially versus incrementally over every year is much more painful to the customer. So you guys have taken the right approach to that for sure. But let's just break that second part down that we're talking about. And that's, you know, The best thing that you can do as a real service provider is to have a portfolio of services, i.e. used to call it bundling. Some people went so aggressive as just totally getting out of bundling. So let's talk a little bit about having that suite of services, not necessarily bundling them all together, but having them and being able to deliver those to the customer to tie them up a little bit more to compete.
Chad Mix: Yeah, I mean, here's my perspective. I think that if you're a single pro, you there was such a movement to go internet only. And my perspective is if you're internet only, then you don't have any flexibility. You have a fixed cost for that internet and you can only go as low as you can go. And you're kind of on a path to the bottom. Our strategy is to preserve our internet margin. by making less margin on ancillary products that the consumer is buying anyway. So the consumer is buying TV, the consumer is buying IoT devices, whether they're cameras or smart plugs or smart lights or whatever, whatever it is they're buying, they're buying it. They're buying cellular, everybody has a cell phone. They're buying all these products, right? What I'm basically doing is saying, well, I'll deliver those products to you and I'll give you a lower total cost of ownership that preserves my margin on the internet side, right? And it grows my margin, but it grows in small chunks, right? Like I'm not making tons of money on TV, not making tons of money on IOT or security or anything else, but I'm maintaining that internet margin. I'm growing my customer margin slightly with each product they bring on and I'm saving them money overall. Right? So if they went out and pieced them all out individually, I'm giving them a better deal while still I'm growing my money. So it's kind of the pinnacle or catalyst of marketing is I'm giving you a better rate. I'm saving you money while I'm making more money than I would have if I just sold you internet. And, and so it's, it's a perfect scenario that telecoms have to go provide, but it's where it's hard is to get the right products. to integrate them all, make it really smooth customer experience. And that's where we're working really hard to do. And on TV, that's pretty easy because you have the middleware like innovative that can bring you streaming immediately, right? But other areas we have to lead a little bit and work on. But ultimately, it makes the customer stickier. The more products you have with them, the harder it is for them to go say, I got this promotion for a cheap cell phone. I'm going to piece that off. And
so it makes it a lot stickier, but they don't really look if our overall price is better than doing it individually. And I'm maintaining my margin. So it's kind of the best of both worlds for both the consumer and for, you know, Nervado as a company.
Scott: very calculated strategy and I hope people pay close attention to that. But for those who, maybe you could offer just a little bit of advice since you've obviously worked through this quite thoroughly. If I'm sitting there starting from scratch, where should I go? I'm just, I don't know what to do. I mean, I'm thinking I might want to get out of TV, but I still got a thousand subs. I can offer some other things. What is... Where should they go? What should be the foundation for building that strategy, Chad?
Chad Mix: Yeah, I mean, this is my perspective. I think that you have an older demographic of folks in the rural market that will pay for the convenience of TV the way they always have watched TV. So you really do want to keep the three or four large bundles of TV channels for that customer that they will pay for. But the rest of the world is looking to decrease their costs and they're finding lots of different choices in how they can get content in different ways for different amount of money. Instead of fighting that, I think the best path is embracing it and finding a way to combine, we call it hybrid TV, but combine parts of the traditional TV delivery with streaming and making it way easier for the customer. It's all on one bill. They don't have to manage all these different platforms. They can turn them on and turn them off if they'd like. But it's a simple, better customer experience for the customer. And I'm embracing where the world is going for everybody but the elderly while still providing for the elderly. So it's being creative in how you package. package the TV together. That's where I would start. But you also have to know you have to increase price as your price increases and and you can offset that by having more products, right? So if you if you add security and now you're making $8 a month on that security product and your TV price goes up for you could eat it if you want it and the customer doesn't see it. And so how you bring all these things together and own the home, so to speak. gives you so much more flexibility to stay competitive in the marketplace.
Scott: You know, that's really interesting too that you hit on the real true pain point of customers these days. And I've used the term for a number of years and the term is app fatigue. And when we first started doing a rural broadband study, we asked, I think it was in, I can't even remember. It was like half a dozen years ago, maybe a little bit longer than that. Only, I think only four streaming services came up. in the report. There was, I think it was Hulu, Amazon, Netflix, and one other. Well now, fast forward to 2026, we had 14 streaming services that showed up in the report back from our over 800 respondents. So it's frustrating. It's a multiple credentialing. It's just, there's a whole lot of things. And I think you're really on the right path there, Chad, when you're talking about making it. easier for the customer because that's what we're here for, right? To solve their problems, make it easier for them, right?
Chad Mix: Right? Yeah, I mean, our our way we haven't fully addressed it yet, but we're close. We're on the path to addressing it with, you know, like a super password or super credentials that we use AI to set up for the customer. So, Scott, you're a customer of a Nevada and you say, yeah, I want my local channels because I want to watch the Packer game. Great. That's our basic package. And then I also watch, you know, these four things. I get them to you through streaming. So now you have three streaming apps. We're working on using AI to go set up those accounts for you, set up the super passwords, set up the super credentials, automatically provision it to our streaming box. And now you don't have to deal with it at all. You push power on the TV and the only changes you switch between Nervado or Netflix or Nervado Netflix and HBO or whatever they are, it's really not that much of a difference. And, you know, the remote is more basic. People are accustomed to it, especially on non-elderly side, and we're accommodating the marketplace with unique delivery of services that they want.
Scott: Well, all I can say in response to that is I won't be subscribing to Packer TV.
Chad Mix: Well, you should. No, I'm just kidding.
Scott: Well, hey, you know what? This has been great. And I love your progressive thought process on this. And like we talked earlier, you have a different approach to this. But really, we have to have different approaches sometimes to be competitive and not just roll over for the big guys. Because you guys are independent operators for a reason. So.
Chad Mix: Yeah.
Scott: Thank you so much for joining us today.
Chad Mix: Yeah, and just my last thought is these are, you know, we haven't, we haven't had to compete against AT &T, the big guys of the telecom. They've stayed in their area. Well, these are the big guys of business period. Amazon, Starlink. These are the big guys of business period and they're coming to our spot. They're coming to us after us. And so if you're not thinking differently, if you're not trying to creatively figure out how can I answer the customer's problems, and if it's only lower price, you're not going to last long. And so that's why we've been trying to get ahead of it. I'm not saying we're perfected by it by any means, but we're really trying. And I think trying gets you there eventually.
Scott: That's awesome. Great to close, Chad. Thank you so much for joining us on Broadband Breakdown.
Chad Mix: Thank you.