Video services

Indie MSOs Plug ‘Dumb Pipe’ Video Model

NATIONAL HARBOR, Md. -- American Cable Association Summit -- If the cable industry evolves into a business that calls on MSOs to generate revenue by selling access to a "dumb pipe" that delivers video from broadband-based over-the-top (OTT) firms or other outside providers, local cable systems could become more profitable than they are now, leaders of several small cable operators said here today.

"That [OTT] business model is probably better than the economics of our current video business," Wave Broadband COO Steve Friedman said during a briefing here at the American Cable Association (ACA) -run conference.

Friedman and other executives pointed to the high cost of sports programming and contracts with programmers that offer little flexibility in explaining why it may be more profitable to sell access to programming distributed by another provider.

"From a distribution standpoint, we control how we distribute from one point to another. We don't control the product and the content. Our video margins are going down year after year," said Colleen Abdullah, the CEO of WideOpenWest Holdings LLC (WOW) .

Cable One Inc. CEO Tom Might warned that cable operators would also have to charge subscribers based on the amount of bandwidth they consume if the industry transformed into a dumb pipe business.

"If someone is going to use a lot, they're going to have to pay more than someone who uses a little. It's not an efficient way to deliver video to the house. But if that's the way the marketplace goes, someone will have to pay for those bits," Might said.

Abdullah also noted that subscribers would have to pay rates based on usage. "If less than 10 percent's like charging the same to someone who keeps their heat at 80 degrees all winter the same as someone who freezes. It's not fair. The more you use, the more you should pay," Abdullah said.

While the dumb pipe model may offer some opportunities for local operators, not all executives were supportive of the idea. "Video is still the bread and butter of our company. We wouldn't be ready to abandon video yet," said Jim Bruder, CEO of Harron Communications, the parent of MetroCast Cablevision .

MSOs could face competition from OTT providers that deliver video over cable's high-speed access lines. In another scenario, a major MSO like Comcast Corp. (Nasdaq: CMCSA, CMCSK) could conceivably sell Internet-fed, subscription-based video programming from its Fancast Xfinity TV site to consumers outside of its cable system footprint. (See Comcast Forges 'Excalibur' for IPTV and Comcast's 'Xfinity' Goes Live .)

Might was unconcerned with the notion that an operator like Comcast could compete with him in Cable ONE's markets. "Bring them on," Might said, noting that Cable ONE has a better customer service reputation than the nation's largest MSO.

Abdullah said WideOpenWest would consider launching its own TV Everywhere (TVE) site that would offer subscribers online access to content from their pay-TV packages, noting that it has the ability to authenticate which subscribers should get access. But she said WOW hasn't been able to reach carriage deals with cable networks that would give it rights to distribute programming on a TVE site. "That's where we're struggling now," she added.

Harron's Bruder also shrugged off concerns about competing with a TVE product from Comcast in his own market, pointing to the quality of Internet video compared to what's delivered on cable's managed digital platform. "The quality is not there today," he said of Web-sourced video offerings.

— Steve Donohue, Special to Light Reading Cable

Jeff Baumgartner 12/5/2012 | 4:39:03 PM
re: Indie MSOs Plug ‘Dumb Pipe’ Video Model

It's rather refreshing to see some of these smaller MSOs embrace the dumb pipe concept rather than shun it. But it's not entirely unsurprising, either. ACA and its members have been among the most vocal about claims of exorbitant network carriage fees and rigid channel bundling requirements... so it could make some sense for them to see if someone else wants to give that a shot as a virtual MSO or some form of an OTT provider and sell a video subscription package that could include both linear and on-demand content.

Why not let those guys bang their heads against the wall trying to negotiate a fair deal with Disney, et al?

With talk that that coupled with faster and faster broadband speeds, it would seem that we are not that far away from witnessing our first virtual MSO that would offer the content packages but ride someone else's access infrastructure.

By the same token, operators like Comcast could turn those tables and offer subscription video services outside its own footprint and use the pipes of Verizon, AT&T, Charter ... you name it ... to deliver those services over the top.

If and when that happens, the chummy cable club could start to break apart at the edges since these operators would suddenly be faced with competing interests. Anyway, just food for thought.

Anyone out there think a virtual MSO model could work? If not, why not? JB

Cooper10 12/5/2012 | 4:38:59 PM
re: Indie MSOs Plug ‘Dumb Pipe’ Video Model Without a doubt, OTT video will force changes on the current business models for both programmers and pay TV providers. There are more and more signs that the current model of requiring a purchase of 100+ channels for $60+/month is simply unacceptable to a growing number of consumers, and OTT provides a viable alternative. The iTunes store is an instructive example of one model for video content aggregation - consumers can pick and choose their content, and it isn't clear that they're spending any less than they were before, but they're happy to have the choice.
Jeff Baumgartner 12/5/2012 | 4:38:58 PM
re: Indie MSOs Plug ‘Dumb Pipe’ Video Model

I think over the top VoD offers a nice option to help consumers catch up on TV series (for a price) and as a value add for subscription service (ie Netflix's Watch Instantly streaming), but I think the real game changer will emerge when there's a solid base of OTT source for live, linear streaming of channels, possibly opening the door to something that more closely resembles an ala carte approach.

Hard to say when the business models will allow that to happen, though, since programmers are being careful not to disrupt or threaten the dual-revenue stream they enjoy today before jumping in with both feet. But the technology pieces are all there. JB

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