In Cable, The Rich Get Richer

Daniel Frankel, over at FierceCable, noted an interesting pattern in the Q1 data from cable operators this week. All of the vaunted rebound in video subscribers during the period was concentrated among top-tier providers.

Comcast, Time Warner Cable and Charter collectively added 89,000 video subs.

Mid-size operators, however, all experienced continued erosion among video subscribers. Cablevision lost 15,000; Cable One lost 13,000; and Mediacom lost 2,000 across its two operating units.

money_bagsFirst-quarter data on smaller providers, which is compiled by SNL Kagan, is not yet available. But it would be surprising if the pattern there were different from that of the mid-size providers.

In both cases, operators are increasingly making a de facto, if not quite formal, decision not to fight very hard to attract or retain video subscribers because of the high programming costs that come with them and to focus their business primarily on their broadband service.

“The lower end of the market can no longer afford the big bundle; the number of disruptive OTT technologies and vendors are now multiplying rapidly; and the millennial generation has very limited interest in traditional TV viewing,” Cable One CEO Thomas Might told Fierce. “These patterns will inevitably bring an end to the ubiquitous fat bundle, but only slowly and painfully.”

Slowly and painfully perhaps, but the data also suggest it could happen at very different speeds in different markets, depending on the size of the local providers’ national footprint.

Like many smaller operators, Comcast and TWC have more broadband subscribers than video subscribers today, but unlike their smaller brethren they clearly still see value in competing for video subs and holding together the big bundle.

The cable business, in other words, may be evolving into very different businesses at different ends of the market. At the top, operators remain more or less committed to the current structure while at the middle and lower levels the current structure frays more quickly, as operators and their subscribers increasingly find themselves priced out of the traditional video delivery market and more dependent on broadband delivery.

The gulf between big and small operators will only grow wider in the wake of the FCC’s ruling this week approving Charter Communications’ acquisition of TWC and Brighthouse Networks.

Such a scenario, should it come about, would hold obvious implications for programmers. At a time when audiences are already fragmented it would add a level of distributor fragmentation programmers haven’t had to deal with before, complicating both their own marketing and their pitch to advertisers.

For those thinking over-the-top bundles like Sling TV or the new services planned by YouTube and Hulu will be the great re-levelers, moreover, Holman W. Jenkins, Jr. has some bad news for you. Writing in the Wall Street Journal this week, Jenkins argues that the capacity for delivering live, linear video over-the-top at scale is unlikely to be evenly distributed across the internet:

Live TV is also the biggest challenge for the Internet: Everybody is watching at the same time; you can’t store local copies in advance. Live TV, if handled like on-demand TV, would clog up the Internet with duplicate streams for every viewer. A single so-so NFL matchup would buckle the Internet.

The solution? IP Multicast, which (belaying much jargon) allows an infinite number of devices to tune into what amounts to a single stream across much of the network.

Now here comes the billion-dollar question: Is it possible to implement IP Multicast across the entire Internet, so any content owner could address live content to millions of users simultaneously, without buffering, undue latency or chronic picture breakup?

Or, realistically, does it involve so much managerial heavy lifting that it will be implementable on a big scale only inside the networks of major cable and wireless providers?

We suspect the latter. In fact, it’s already unfolding this way in wireless, where the parallel technology is LTE-B (B for broadcast).

And so, mid-size and smaller operators and their subscribers are already getting priced out of traditional video delivery, and they may not have the financial and managerial heft to get in on the next-generation of delivery.

That’s not the way the revolution was supposed to go.

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