Indie MSOs Plug ‘Dumb Pipe’ Video Model

Execs say offering broadband video from third parties may be a more profitable play as network carriage fees rise and video service margins drop

April 20, 2010

3 Min Read
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

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