Sound of silence

Been thinking a lot about the cable industry of late. The media is carried away by the current re-transmission battle and is devoting a lot of real estate to that end. I want to touch on other inflection points that will hit the industry in the future. The only question is whether it will happen quickly or slowly. Lets look at residential services. Currently cable companies provide three types of service namely, wire-line, video, and data. The gambit is data. Unless 4G LTE adoption breaches desktops/laptops/tablets the cable companies will have a great opportunity to become a coherent service provider i.e. high speed data. At current pricing for 4G LTE (15 MB/$) versus cable (100 MB/$, assuming lower end) it will be a while before LTE competes with high speed data. Reliability/availability of data services is also a big win for the cable incumbents versus the telcos (think subways, remote areas etc). Verizon’s FiOS, the fiber alternative to the coax offers a price point of ~90 MB/$ (for roughly same speeds). Also, Verizon has decided to stop investing in FiOS and there will be no further build out. Google is still only experimenting with Fiber and is not mainstream yet. Ergo, cable companies will continue to be in the driver’s seat as far as high speed data is concerned.

I was at an event to hear Chet Kanojia (Aereo) speak a couple weeks back. An entrepreneur walked up to me and we started talking about the industry at large. We both agreed that the TV experience really sucks for the user. Google’s Chromecast is a great start in this regard. This brings me to the other inflection point. The TV is destined to become a ‘dumb pipe’.

Finally, with the democratization of content distribution via cable companies, over-the-top services like Aereo, Netflix, Hulu, Amazon Prime, content creators are gaining more options to reach the consumer. More avenues to recoup costs. This is in essence the crux of the battle. The distributor feels that the digital rights for content is now a commodity as it is available over multiple platforms and should therefore be cheaper. Or just added to the existing distribution deal as a kicker.

This democratization of content will lead to a portfolio theory of accessing content. Rather than depend on a bundler to provide services, customer will soon start to BYOS (Build Your Own Service). Imagine a household with a Netflix account, Amazon Prime, Aereo, and on demand live sports. At an annual price of $280 + bandwidth for sports it’s a win for the customer. Compare this to a conventional double play service’s annual price, $1000 (low end). What this means is that the cable companies will essentially offer on-demand live sports (maybe not?) as well as the key ingredient – access to the internet. It comes down to how much pain are they willing to stomach. Will they stay in the $720 range for sports & internet or will they hike rates? Time & some competition will tell.

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