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Warning: US Cablecos Will Go National

Mari Silbey
2/9/2018
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We've known for years that the borders between regional cable providers are slowly disintegrating. Commercial services are expanding beyond traditional franchise territories, Comcast licensing agreements have put its technology in homes far outside its footprint and new mobile services are only artificially being limited to existing, in-region cable customers.

But oddly enough, it's the new Winter Olympics experience via Comcast's Stream TV app that has me convinced the timeline for national cable company expansion has shrunk dramatically. How dramatically? I'm generally terrified to make predictions in writing, but if I had to put money on it, I'd say Comcast Corp. (Nasdaq: CMCSA, CMCSK) and/or Charter Communications Inc. will be national players within the next two to three years.

Here's what started me down this path. I accepted Comcast's offer to try out the Stream TV app during the Winter Olympics even though I'm not a Comcast subscriber. To access the content for the Olympic Games, I had to download the app and then enter the credentials provided by Comcast.

That's it. That's all I had to do.

Now, as far as I can tell, I have access to virtually all of Comcast's TV lineup online. That includes both live and on-demand video. While I'm guessing there are some local channels missing (I think I'm getting a Philadelphia version of the service), there's nothing glaringly absent.

And it works well. There's some buffering when tuning to a new channel, but not enough to be an issue.

In short, I have zero Comcast infrastructure in or leading up to my house, and yet I was able to sign in and start streaming Xfinity TV service in about 30 seconds. I knew all about the possibility of password-sharing before, but until I experienced the sign-in process personally, I had no idea what that looked like in reality.

Comcast has said again and again that it has no financial reason to offer video service outside its existing footprint. The value for Comcast is in the bundle, and specifically in using its infrastructure investments to maximize both the value it can deliver to subscribers and the revenue it can collect in return. (See Comcast: X1 Strong, No Need to Go OTT Today.)

However, the company has very clearly hedged against the day when the financial equation changes. Economically speaking, Comcast wants to protect its current high-cost in-home service bundle. But technically? It can deliver a full-featured TV service anywhere. And it's worked very hard to be able to do so.

So what might change about the financial equation? First, the way others are offering TV service has shifted. AT&T Inc. (NYSE: T) may be taking a bath on DirecTV Now at the moment (it definitely is), but as the satellite business continues to decline, it will inevitably have to price the OTT offering in a way that allows it to make money on video and not just reduce wireless churn. And in the meantime, AT&T will put increasing competitive pressure on other service providers (including cable companies), both through direct-to-consumer pricing and through resale deals with other broadband providers.

Second, both Comcast and Charter are entering the wireless market. Today Comcast's wireless service is limited (Charter won't launch until later in the year), but the cable companies have the resources and incentive to expand their offerings, particularly as many aspects of wired and wireless networks start to converge in the run-up to 5G. As their wireless services grow over the long haul (say the next five to ten years), they will ultimately be able to take financial advantage of bundling TV with wireless broadband -- where there are far fewer technical boundaries to broad geographic coverage than there are with cable networks -- in the same way they bundle video service with wireline broadband today.


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Okay, so the wireless shift isn't going to happen overnight. So what? The fact that the market is headed in the direction I've described means Comcast and Charter have to prepare for that eventuality. Wireless carriers are becoming national TV providers. Cable companies will do the same.

Specific to timing, it wasn't clear to me initially that the cable operators would move more quickly to go national than their wireless trajectories proscribed. But, now that I've tried the Stream TV app, I'm convinced. It's literally all right there.

Comcast can slice and dice and package and price the service all it wants, but the fact that it could be selling Stream TV outside its footprint and bringing in brand new revenue means that it will. It will move carefully and do everything it can not to cannibalize its existing TV business during the long wireless transition, but it will move.

Money talks. I'm betting it will talk sooner than many people think.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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Phil_Britt
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Phil_Britt,
User Rank: Light Sabre
2/19/2018 | 1:56:15 PM
Re: The question for national delivery
No doubt that regional delivery will die as providers continue to look for "efficiencies of scale."
brooks7
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brooks7,
User Rank: Light Sabre
2/12/2018 | 12:16:17 PM
Re: The question for national delivery
Mari,

On my STB, I am on the older system (pre-X1) from Comcast.  The X1 is available via my desktop.

I guess when I am random searching things, X1 is better.  But for watching live TV sports, it is not actually much good.  I know the channel numbers of the sports channels and type in the relevant one.  

Also having been on Netflix and Sling TV, I don't see a lot better UI compared to those platforms.  Those are the UI competition (along with Hulu and Youtube TV as well as Google, Apple and Amazon) for X1.  I think there is going to be a dramatic contraction in platforms that are just distributing (not making) content.  Note that all the OTT services are trying to gain subscribers via proprietary content.  

However, none of this has anything to do with operating a network.  The investment and business models of the two are completely different.  As are the valuation models.  One truly important note is how this proprietary content thing will play out.  In the past, the goal has been to make your content as available as possible.  The idea of the proprietary content is to move people from an ad-supported model to a subscription model.  I would say it is up in the air if the current content generation model will continue to work and grow or what changes need to happen.

 

seven
msilbey
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msilbey,
User Rank: Blogger
2/12/2018 | 9:04:34 AM
Re: The question for national delivery
I do agree that the content is by far the most important part of a TV offering, but my Fios TV service is pretty awful, precisely because it makes access to content difficult. Menus are terrible. On-demand is worse (and on-demand is important). And Verizon won't replace my old, stuttering set-top unless I pay them a lot more money to upgrade. 

I don't disagree that the SPs need every dollar of revenue as ROI for capex. But that's also precisely why I think Comcast will go after new revenue outside its footprint. It's a pure numbers game, and when they can make more money by adding OTT customers than by solely preserving a shrinking base of higher-revenue subs, that's what they'll do. 

The question is when that tipping point happens. And I'm now thinking it happens sooner than later. Both because of what's happening in the market, and because Comcast has so clearly prepared itself to make the OTT jump.
brooks7
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brooks7,
User Rank: Light Sabre
2/9/2018 | 6:06:08 PM
Re: The question for national delivery
I am a Comcast sub and see NO differentiation in the service versus others.  The only reason that I buy the service is that I can get the smallest package at about $10 less with Comcast.  I was using Sling TV but needed both packages to get all the sports I wanted.

But the content is what I am buying.  The Big Bang Theory is exactly the same on any platform.  That is why nobody has an advantage.  I can get the exact same content from a number of content distributors.  Is my Comcast service competent?  Yes.

The reason for the "need to compete" is the other way around.  Comm Service Providers need every dollar of revenue and profit is to get a reasonable ROI on the $B they put in infrastructure.   Note:  my data service is 2x the price of my video service.  Imagine what they could do if they through all their video transmission equipment away and used 2x the amount of current cable spectrum for delivering small cell service....

seven

 
mendyk
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mendyk,
User Rank: Light Sabre
2/9/2018 | 4:10:01 PM
Re: The question for national delivery
It's hard to see the disagreement.
msilbey
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msilbey,
User Rank: Blogger
2/9/2018 | 4:03:44 PM
Re: The question for national delivery
Ah ha! But I disagree with you both. Yes this is essentially an OTT service, but it's also based on a video service that Comcast has worked very hard to differentiate among pay-TV offerings. The general market consensus is that connectivity providers need to be able to provide video in order to compete. Comcast does this very well in-footprint today, and as a mobile player, the gates are open to do the same nationally. 

Comcast has been very careful because it doesn't want to de-value the more expensive service it offers in its existing customer territories today. But that service is slowly getting devalued by cheaper OTT options anyway. I believe there will be a tipping point when foregoing the revenue from a national customer base no longer makes sense. 

I don't think Comcast will give away the store and suddenly offer something as fully featured as X1 for a bargain price online. But I think it will create packages that are available to a wider national audience as the market continues to shift.

On the content versus infrastructure company point, who knows where they'll be in a decade, but for the moment, there's far greater benefit to Comcast in being both things than there is in separating them out. 
brooks7
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brooks7,
User Rank: Light Sabre
2/9/2018 | 3:29:52 PM
Re: The question for national delivery
Dennis,

Yeah at some point over the next 10 years, I see the two separating again.  The business models, valuation models, and investment models make no sense to be in 1 firm.

seven

 
mendyk
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mendyk,
User Rank: Light Sabre
2/9/2018 | 2:59:13 PM
Re: The question for national delivery
To further the point about OTT, keep in mind that Comcast is as much a content company as it is a cable infrastructure provider. In this case, the end game for content is different -- and even conflicting with - the end game for the cable infrastructure business.
brooks7
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brooks7,
User Rank: Light Sabre
2/9/2018 | 2:33:23 PM
The question for national delivery
"It can deliver a full-featured TV service anywhere."

But essentially this is an OTT service.  The question is how an OTT service that Comcast would offer would compete in the market.  I think this is why Comcast has not offered the service.

I think the real question is what happens 10 or 20 years from now when 90% of video is OTT.  Will the cable companies still offer linear pay tv and will it hamstring them the way the POTS network has the telcos (Imagine that their Franchise requires linear video and they can't turn it off and have almost no subs on it.).

seven

 
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