Monday, November 9, 2015

Cable TV vs. Cable Broadband; the cat bird's seat

I read an article by Peter Kafta discussing a possible pullback of content resale to Netflix from top content companies, and followed it by an article by Michelle Clancy about how the cable companies will only benefit from Apple and others for cable broadband service growth. At TVOT last summer a further connecting viewpoint was made by Jennifer Mirgorod, Turner EVP of Brand Distribution, suggesting that Turner had been positioning their contracts for content long ago to avoid exclusivity so they could put their content in front of as many viable eyes possible.

The TV environment is changing at a fast pace. Cable Operator third quarter announcements highlighted that they had net gains in cable subscriptions, a hopeful trend away from losses, but if you looked at the numbers, the gains were a tiny fraction compared to their gains in broadband subscriptions. As Michelle pointed out, while the monthly broadband subscription dollar amount is significantly lower, the margins are much higher.

So it would seem that if the MSO's growth business is in their smart pipe to the home, they might prefer that content owners continue to sell to multiple outlets putting demand on the pipe and driving a desire from consumers to increase the bandwidth to the home. Will this shift in revenue change how MSO's contract for content? This is a conundrum for the MSO's as they strive to reinvigorate their video business against a consumption spectrum of video content options that multiply every year (reflected by the ever changing list of services on my smart TV).

From the content creator/owner point of view, I am not so sure they will abandon outlets, as Ms. Mirgorad makes a good point. The higher potential eyes the more opportunities for brand building and ad dollars (aside from paid non-ad services and blocker software).  So this may be more about the details in the contracts, than outright cancelation. Netflix is fast becoming the service that can most readily distribute content to a huge global audience, so I don't see them losing much steam. Their content pool will be more localized and diversified beyond the major US studios as they supply content to a multi-lingual and multi-cultural world.

The future for the Cable companies is fascinating right now. With a variety of approaches to attract millenials and cord-cutters; from MCN acquisitions (on-line Multi-Channel Networks), to skinny bundles, to delivering on consumer devices and more, operators are making every attempt to shore up the video business. It will be interesting to see what works best, but either way it looks like the cable companies will win on the other end with their expanding broadband business.

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