Tuesday, April 19, 2011

Bigger Push In Over The Top Content Could Hurt Cable Operators

Cable operators should not be surprised by this story in Ad Age. "A group of deep-pocketed companies, including Microsoft and Verizon, are exploring delivering TV service over the web, a move that could disrupt the economics of cable TV and lead to a new generation of "virtual" cable companies that provide TV without owning the pipe into the home." XBox Live is there already; it is simply trying to dominate the home screen in a bigger way. And don't discount Sony Playstation and Wii as well as the rise of web connected TVs. The push is on to bypass cable subscription to bring content directly to the home.

And as these businesses are competing in the cable space, cable operators are doing the same with mobile apps to access cable programming. "The talks point to a future where consumers have the option of buying broadband internet service from one provider and TV service from another. It also promises to make the current dispute between programmers and cable companies over the right to stream content to new devices like iPads look like child's play." A sea change that could change the relationship between cable operator and consumer.

Cable operators with a broadband pipe to the home will have some leverage. The challenge will be in differentiating the value of the service from other broadband suppliers. Access to broadband may not require that a home be wired and wireless players could hit cable revenues hard. If broadband access is seen as a commodity, ultimately the lowest priced service will come out the winner.

Are we talking a revolutionary change in viewing habits; obviously not. But we are seeing a rise in cord shaving and ultimately cord cutting. Early adopters are already using over the top programming while eliminating their cable bill. Others are actually paying cable higher fees for broadband service to improve their streaming. But the rise of alternative players and the competitiveness of broadband services will force cable operators to rethink their business strategies.