Could Cablevision Systems become the first major US cable operator to start offering over-the-top video service?

Cablevision Systems Corp. (NYSE: CVC) CEO James Dolan dropped broad hints about such a venture during the company's fourth-quarter earnings call Wednesday morning. Responding to an analyst's questions about the company's thinking on OTT, Dolan indicated that Cablevision is exploring some kind of slimmed-down broadband video offering in response to the rapidly evolving market and may be ready to introduce such a service later this year.

"I don't want to let any cats out of the bag," Dolan said. "But we'll be very reactive to what the consumer wants... More to come, maybe on the next call."

Such a plunge by Cablevision into the burgeoning OTT video market would occur as cable operators, satellite TV providers, telco video players and major content providers are all assessing the possibilities for offering Internet video packages. In the past few months, Dish Network LLC (Nasdaq: DISH), CBS Corp. (NYSE: CBS) and World Wrestling Entertainment have all launched their own OTT services, while such major programmers as Home Box Office Inc. (HBO) , Nickelodeon and Showtime Networks Inc. are planning to follow suit shortly.

Want to know more about OTT video? Check out our OTT content channel on Light Reading.

Dolan made his brief comments about OTT as Cablevision continues to make the transition from a cable company to "a connectivity company." As he has before, he emphasized that Cablevision aims to stand out from chief rival Verizon Communications Inc. (NYSE: VZ) and other competitors by becoming the premier connectivity provider in its New York metro area footprint.

"Connectivity has surpassed video as the primary product for a company like ours," he said, noting that video profit margins continue to narrow while broadband profit margins are still growing. "Consumers, if given the choice of video and data, now almost overwhelmingly will take the data product. That's a pretty big shift."

With Cablevision's video subscriber growth stalled and the company struggling to maintain its current base of more than 2.7 million pay-TV subscribers, Dolan said the MSO will focus even more keenly on broadband and WiFi in the future. Like a number of major US cable operators, Cablevision now has more data subscribers than video subscribers after gaining 4,000 broadband customers and shedding 34,000 pay-TV customers in the fourth quarter. It closed the year with close to 2.8 million data subs, about 41,000 more than its video sub count.

In particular, Cablevision will train its focus on developing its WiFi network, which it views as a prime competitive differentiator in the hotly contested New York metro market. With 1.1 million WiFi hotspots already deployed throughout the metro area, the company plans to expand its network buildout aggressively through at least the end of this year.

"What we're seeing in the marketplace is that WiFi is the wave of the future," Dolan said. "We're seeing more and more and more reliance on WiFi by our customers." He noted that the company's Optimum Online subscribers consumed four times as much data over their WiFi connections in the fourth quarter as they did a year earlier.

Seeking to take advantage of that trend, Cablevision introduced a WiFi-exclusive phone, text and data service in the New York area three weeks ago. The product, known as Freewheel, offers WiFi-only service across the US and the globe for $9.95 a month for Optimum Online subscribers and $29.95 a month for other broadband users. (See Cablevision's New WiFi Try – Freewheeling Enough? and Cablevision Wheels Out Freewheel Across US.)

While it's too early to report any customer metrics for Freewheel, Cablevision officials said they're hearing positive anecdotal stories about Freewheel from its initial customers. They're also seeing unexpected interest in the service from American expatriates and frequent business travelers to Europe who want a flat-rate plan for calling back to the US with no roaming charges.

"We believe Freewheel will be a disruptive force to the cellular industry," Dolan said. He called it the first in "a series of new WiFi products" that the company intends to launch for its customers.

— Alan Breznick, Cable/Video Practice Leader, Light Reading