Days of Future Past
Walking the floor of the INTX convention held in Boston 16-18 May left me with an overwhelming sense of nostalgia and an even larger sense of disappointment . For decades , this was known as the Cable Show . The new moniker stands for the Internet & Television Expo and is clearly an attempt by the National Cable and Telecommunications
Association to reposition the industry to reflect the fundamental changes that have turned the business upside down . The fact that the first word is now ‘ Internet ’ is a stark reminder that it is highspeed data subscriptions that drives industry profits , not the traditional video business .
It ’ s not that the industry is in trouble , though booming OTT services and changing TV consumption habits , especially among millennials , poses continuing challenges , especially on the video side of the business . The biggest challenge is that between traditional cable , DTH satellite and wireline telco ; virtually the entire country can choose between several providers of multi-channel programming and the only households that don ’ t subscribe are either very light users of television or are economically
Television industry veteran Larry Gerbrandt reflects on how the cable TV sector has changed over the years .
challenged and cannot afford even a basic service .
Organic growth from new household formation is offset by cord-cutters using OTT . So part of what I saw in Boston was simple industry maturity and consolidation , with only a
handful of players controlling large numbers of geographically concentrated systems . And the largest cable operator in the industry — Comcast — has hedged its bets by owning basic and sports networks , the NBC broadcast network , the Universal studio and has just struck a deal to add Dreamworks Animation to its asset portfolio .
The sense of loss I felt walking the INTX floor was for opportunities missed . The fact that Netflix has a market capitalisation of $ 38 billion and Time Warner ( which owns not only HBO but bundles of cable networks and the Warner TV and movie studio ) is valued at $ 56 billion underscores my central thesis that the cable industry let the transactional video business — VoD — slip through its fingers . Cable operators will note — with some justification — that bandwidth hogs like Netflix benefit operators through greater retention of their high profit margin data services , even if OTT leads to some cord cutting of lower margin video services . But there is nothing that Netflix does that cable operators could not have done … and possibly have done it cheaper .
But the real question is how did a sophisticated and powerful industry let an upstart like Netflix come to effectively own the VoD business that cable operators had spent billions pioneering in the first place ? There is no one big reason for why cable failed to dominate VoD . Part of it was failing to market VoD effectively to subscribers . The margin on high speed data and telephony was far larger than that for VoD and took most of the marketing budgets .
Another reason is that premium services such as HBO , Showtime , Starz and Epix had become increasingly expensive , costing $ 15 / month or more and the way operators packaged them it could cost a subscriber $ 150 a month or more to get the full bundle . These premium channels did have a much better movie window than Netflix and also had critically lauded original series ( like Sopranos and now Game of Thrones ). Even with recent price increases
Netflix still costs less than $ 10 / month and offers movies and TV series from all the studios , even if many of them are in older windows .
The regional nature of cable franchises did place them at a marketing disadvantage . From its start , Netflix was a service nationally available and with a national brand that could be promoted on network TV . Even after many rounds of consolidation , the cable industry is still a pastiche of regional fiefdoms and some major markets have multiple operators in the region .
Ultimately , what may have dimmed cable ’ s VoD future was an on-screen guide that was consistently difficult and confusing for customers to use . Even worse , most of the industry ’ s digital set-tops didn ’ t have enough onboard memory for anything other than a fairly rudimentary interface that is nearly impossible to upgrade .
There is a glimmer of hope embodied in Comcast ’ s slick new Xfinity set top box and service but one of the innovations is that OTT services like Netflix , Hulu , Amazon Prime and others are also accessible as separate virtual channels . I suppose in the end it is what cable operators have always done best : bundle channels and services into one bill and into a single wire … but it still feels like settling for squeezing life out of a legacy platform rather than reinventing the medium .
Larry Gerbrandt
larry @ mediavaluation . com has been a media analyst for more than 25 years with companies such as Kagan and Nielsen . He is a principal at Media Valuation Partners , which provides strategic consulting , research , valuation and expert witness services and is a managing director of Janas Consulting , which provides management consulting , valuation and investment banking services .
24 EUROMEDIA