Cord-cutting may be the best thing that has ever happened to the cable industry.
That might sound like counterintuitive assertion right now (a Google search on “cable industry” prompts the autocomplete suggestion “dying”), but smart Multi-System Operators like Rogers, Comcast and Time Warner stand to benefit enormously from the shift from to coax to ethernet.
Why? Because once the shift to digital is complete, the businesses formerly known as “cable companies” will be able to explore entirely new ways of leveraging their core assets (infrastructure, pipe and people) to monetise their biggest asset: their customer base.
If this first efficiency stage is about a la carte bundling, new on-demand video platforms and mobile devices (including wi-fi phones), the second opportunity stage will revolve around connected cars and homes, which represent a huge commercial opportunity.
Let’s start with the shift from cable to Internet that’s happening now, or what I like to call the “efficiency stage.” Who’s driving this shift? We are. Consumers’ attitudes have changed.
As we make a hundred-year transition from a traditional product economy to a service-based subscription economy, the real value now lies in access, not ownership. On-demand is now the preferred model for media consumption.
TV watchers want to build their own bundle, and a number of forward-thinking MSOs are about to start letting them do it. I know this for a fact, because my company Zuora is helping them build the back-end finance systems that will allow them to accommodate all sorts of a la carte subscription packages.
The distinction between a television and a monitor has always been a semantic one, but it’s becoming increasingly more so as we watch “House of Cards” on our flatscreens through a Roku box. Cable subscriptions among viewers aged 18 to 24 dropped to 71% in 2014, down 6% from the year prior, according to a recent report from PwC. A full 71% of pay TV subscribers aged 25-34 subscribed to Netflix last year, up from 51% in 2013. There are over 10 million broadband-only households in the United States right now, a number that will continue to grow.
As a result, it’s becoming increasingly obvious that all the major channels that haven’t yet announced an OTT (“Over The Top”) platform have one in the works. In addition to first movers like Netflix, Hulu and Amazon, the last few months have seen announcements from all the major sports networks, HBO, CBS Access and Sling TV (a basic cable-like bundle play that includes the holy grail, ESPN). Apple and HBO Now just made the most recent announcement. Expect many more to come.
Overseas, where Netflix has yet to arrive in many countries, the OTT environment is even more dynamic. Brazil’s cable operator NET is shifting its entire content library to IP-enabled device delivery, for example, and the Dutch broadcaster RTL Nederland recently purchased its country’s second biggest VOD platform, Videoland. There are subscription-based video platforms for video games (Twitch), anime shows (CrunchyRoll), and Bollywood films (BigFlix).
Yes, the providers are taking a hit on cable subscription revenue, but their margins have always been better in broadband. Remember, those customers aren’t going anywhere – they’re just demanding different digital services. Saying goodbye to the bundle might be painful in the short term (most cable subscribers only watch 9% of what’s available anyway), but it will eventually unlock more focused revenue streams. Smarter usage-based billing and cloud-based updates (Comcast augments its Xfinity X1 service roughly 1,200 times a year) will make their video content services more responsive and valuable.
But I think that the second “opportunity stage,” which will coincide with the mass market adoption of connected cars and homes, will be where the real growth lies. We’ve all seen the statistics. Gartner predicts that the number of Web-connected devices — not counting PCs, tablets and smartphones — will hit 26 billion units installed in 2020. The problem is that we’re nowhere near establishing a standard platform for all of them.
What do cable companies have right now? Well, for most of us, they still have a direct pipe into our living room, as well as huge infrastructures and employee bases (Comcast, Cox and Time Warner employ over 200,000 people). What could they have in the future? The opportunity to become the ecosystem of IoT.
In a few years we could be using our former “cable company” to upgrade an alarm service, schedule a new refrigerator installation or discover we have some loose roof shingles on our roof. Time Warner already has an interesting platform in the works.
To be able to offer this broad portfolio of services (broadband, video, wireless phones, alarm systems, etc.) MSOs will need a different type of digital commerce platform, one that will allow them to quickly deploy new product catalogues and effectively cross-sell across service plans. They’ll need to become much more flexible, to be able to effectively negotiate a host of variable pricing and packaging challenges in order to grow and monetise their customer base.
That’s why I think this is the beginning of a new golden age for smarter, IP-invested cable providers.