Business Planners: Pay Attention to the Evolution of Video Distribution

Carl Weinschenk

The cable industry grew to be a giant for one reason: People wanted their MTV. Along the way, its networks became major providers of voice and data. They have changed how people are entertained, communicate and do business.

But it is a world that is gradually changing. Most obviously, video is now transmitted to mobile devices. This capability, teamed with other technical innovations, is nudging providers toward an era in which over the top (OTT) delivery of content displaces traditional cable bundles.

Early this month, DSL Reports said that Frontier Communications’ CEO Daniel McCarthy, during an earnings call, implied “that the telco may want to get out of the traditional cable business and instead shift to a streaming video approach.” The story points out that small cable operators are looking at this strategy because they lack the market strength of the Comcasts and Charters of the world to cut favorable deals with programmers.

Frontier is no small fry, however: It is a Fortune 500 and S&P 500 company that provides services in 29 states. It is not the only big telecommunications company dipping its toe in the OTT water. Last week, Bloomberg reported that Comcast has included provisions in programming contracts that let it sell content outside of its service areas. The idea is that being prepared is important:


Accumulating nationwide rights gives Comcast a hedge in a changing world where internet services like Dish Network Corp.’s Sling TV and AT&T Inc.’s DirecTV Now are proliferating. Comcast’s cable unit accounts for 62 percent of total revenue, with the rest coming from NBCUniversal, according to Bloomberg data. Video represents about half of the cable unit’s sales.

There are several layers to this. The cable industry evolved in a world in which multiple system operators had de facto monopolies in their service areas. Though those days are past, the potential Comcast strategy is a way to deal with the legacy of parochialism. The use of OTT by Frontier, which isn’t historically a cable operator, is simpler. The company wants to cut costs.

OTT delivery of a la carte channels gives providers an answer to an age old complaint by subscribers: Why should somebody who only wants CNN and The History Channel, for instance, be forced to also pay for ESPN, Bravo and MSNBC? Streaming (and, to a lesser extent, limited “skinny bundles”) finally provides what appears to be an attractive option.

The situation may not be so simple, however. A close look at the reality of streaming, at least according to one survey, suggests that it may not be for everyone. The Hub Entertainment Research study gathered opinions of 1,502 people between 16 and 74 years of age who watch five hours of television per week and have a broadband connection.

Telco Transformation reported that participants first were asked to put together their own bundle of programming, without prices included. The average size of the respondent-created packages was 18.8 programming channels. Once prices were attached, the number of channels taken dropped to 8.8. The average cost of the request bundle was $66 which, as the story points out, is hardly a bargain. Thus, the survey suggests that OTT streaming may not be a compelling alternative to traditional bundles.

How carriers approach streaming is a complex topic. The bottom line is that it is a rapidly changing landscape. Businesses need to keep abreast of what is happening because it will affect the development of networks. This, in turn, will have significant impact on what is available to small- and medium-sized companies and branch offices of large enterprises. Telecommuters will be affected across the board.

Carl Weinschenk covers telecom for IT Business Edge. He writes about wireless technology, disaster recovery/business continuity, cellular services, the Internet of Things, machine-to-machine communications and other emerging technologies and platforms. He also covers net neutrality and related regulatory issues. Weinschenk has written about the phone companies, cable operators and related companies for decades and is senior editor of Broadband Technology Report. He can be reached at cweinsch@optonline.net and via twitter at @DailyMusicBrk.

 


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