Friday, April 24, 2015

The Future Of Cable

With the death bell struck on the Comcast - Time Warner Cable merger, the future of cable will no longer be dominated by a Comcast Cable/Broadband platform.  And as a result of the non-merger, Charter Cable will no longer purchase Bright House Network, and a separate, smaller cable MPVD, to have been run by cable vet Michael Willner, will not be created.  So what will the future of cable look like?

Many wonder immediately what today's news means for the AT&T and DirecTv merger.  I suspect that it actually continues to move forward and gets completed.  It can be argued that they make the combined unit a better competitor to Comcast in markets.  For Time Warner Cable, their choice is to continue as they have or to allow themselves to be purchased by another cable operator, namely Charter.  Prior to the Comcast deal, Charter was mulling a deal for TWC and without Bright House to acquire, TWC is a better fit.  I also suspect that rising valuations for these platforms might finally make Cablevision interested in selling.  Certainly, Tom Rutledge would love a chance to take over his former systems and merge them into his current Charter universe.

As for Comcast, the loss of Time Warner Cable may force them to look at smaller deals in the next few years.  TWC might be too big, but acquiring Cablevision might be the next best thing for Comcast.  With systems in New Jersey, Comcast and Cablevision would make a nice fit; Long Island remains a stand alone market, powerful and wealthy, and can work nicely with any cable operator's portfolio.

But the cable platform should not be limited to the wired competitors.  Given Google's growth in specific markets and the possibility that they acquire a smaller cellular company, Google could expand its wired and wireless reach as a broadband player, delivering OTT programming and expanding the competitive field. 

And then of course we have Verizon and their FIOS platform.  They too bring a strong wired and wireless play to the consumer and are aggressively marketing smaller bundles to stop cord cutting.  It may lead to cord shaving of existing subscribers but the hope by them is that it encourages non-cable consumers to come back to FIOS.  It is an aggressive ploy that content companies like Disney, Fox, and NBC are not happy with.  In addition to claiming contract violations, they are also refusing to carry the new FIOS commercials on their channels, something you would think the FCC would be very interested in reviewing as well. 

So what does the Cable/Broadband platform look like in 2025, 10 years from now.  Expect more consolidation with Comcast and a much larger Charter owning 70% or more of the wired US.  Expect Google to become a much bigger entrant, most likely from an acquisition of a cellular company like Sprint or T-Mobile. AT&T/DirecTv will create a strong chemistry to excel in the space while Dish continues to find an opportunity to bring two-way broadband via satellite to the marketplace. And as to Verizon/FIOS, I expect that more investment will be made into its cellular operations rather than fiber to the home to bring a best of wireless experience to the home and its subscribers.

As the the content side of the business, and more to discuss on another day, I expect that the next 10 years will finally lead to drops of lesser performing cable networks and a consolidation of channels.  Given the rise of OTT subscription services like Netflix and Amazon, consumers are more interested in watching shows, not channels.  As to which networks we say goodbye to, let's discuss.

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