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Cable Model Needs Urgent Fix

Alan Breznick
7/31/2013

SAN DIEGO -- Two long-time MSO executives are urging cable operators and programmers to find ways to fix a hurting pay TV subscription business model that they believe may be on the edge of collapse.

Speaking here at The Independent Show this week, former Insight Communications CEO Michael Willner and Atlantic Broadband President and CEO Ed Holleran called on operators and programmers to work out their differences over programming licensing rights fees.

They also called on both groups to adapt to the changing competitive environment as over-the-top (OTT) video players increasingly make inroads in the market, consumers increasingly demand greater choices and lower prices, and cable operators increasingly shed video subscribers.

"There are a lot of things broken about the whole model and it goes all the way up the food chain," said Willner, who co-founded Insight in 1985 and then oversaw its sale to Time Warner Cable last year. "The fact is, the broadband business has replaced video as the core reason to exist for cable."

Willner especially worries that cable providers are not adapting to the market changes wrought by such Internet video providers as Netflix, Hulu and Amazon. Referring to the current times as one of the "moments of inflection" for the industry, he said cable providers could either try to fight the rise of Web video or make creative use of their fat broadband pipes to leverage its growing popularity. He noted that neither of his two grown children has yet signed up for a cable video service but each has signed up for broadband service.

"The fear I have always had is that we get a little complacent about being the incumbent," he said. 'Incumbency can be your worst enemy and best friend at the same time."

Noting that cable broadband revenues will soon surpass cable video revenues for the first time in the industry's history, Halloran indicated that cable operators should start experimenting with lower-priced broadband video services. 'We have to adapt and evolve," he said. "Consumers want this stuff so we should be providing it."

Halloran also urged cable operators to look at improving their user interfaces and search and navigation tools for video customers. In addition, he called for operators to integrate OTT video and broadcast video into joint offerings available on different devices. "Video isn't going away," he said. "People [still] want video. They just want video in different ways."

Like several other speakers at the conference, Halloran took swipes at cable programmers and broadcasters for regularly raising their licensing or retransmission consent fees, prompting cable operators to boost their monthly subscription rates for customers. He especially targeted ESPN, which has drawn increasingly heavy criticism lately for its high affiliate fees. Drawing applause from the crowd, Halloran indicated that it might finally be time to break ESPN and other sports networks out of the basic cable bundle and put them on separate sports tiers.

"Something's going to have to give," he said, noting that cable rates are becoming unaffordable for many consumers. "With all due respect to ESPN, I don't see any evidence that everyone wants to watch sports."

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

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sam masud
sam masud
8/1/2013 | 3:03:25 PM
re: Cable Model Needs Urgent Fix
I thought the most significant and interesting, but nor surprising thing was that Willner's kids have broadband but no cable video. As far as I'm concerned that's the writing on the wall that MSOs need to pay attention to: Young people today, and it will be even more so for the generations that follow, want the flexibility provided by the Internet model and the new devices (smart phones, tablets) in which the user decides what interests him/her. MSOs are continuing to do business the old fashioned way: This is what we have, take it or leave it. That's not going to make for a compelling business case much longer.
Carol Wilson
Carol Wilson
7/31/2013 | 9:15:34 PM
re: Cable Model Needs Urgent Fix
There's an interesting contrast between this story and the companion cable piece, "Cable companies fear congestion, not cord-cutting." That one seems to imply that many cable companies have their heads buried in the sand and may not hear the words of wisdom being shared here.
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