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U.S. Pay TV Infrastructure: Is It Up To The Mobile + Internet Video Challenge?

Greater than 90% of U.S.TV Households (USTVHHs) pay a cable, satellite, or telco video distributor for their TV. That’s a lot of people demanding a lot of ones and zeros, to say nothing of the mobile wireless users.

In addition, video distribution today is supported by a hodge-podge of various systems and players. At its core, are several different sets of player types, largely based on the type of infrastructure each uses to deliver its video signals.

Yet, despite some pretty world class infrastructures already in place, a real question remains as to the capability of those future pipes, when they really start meeting the future demands of video distribution.
Cable’s Core

To begin with, the oldest pay TV video delivery system, cable, is based upon a wire into every home or business serviced. A decade and a half ago, the majority of the cable operators realized the opportunity of improving the core cable infrastructure, thus they committed to install a new base of fiber optic and digital transmission. Current claims tout $100 billion as having been spent to upgrade cable’s U.S. plant since the mid 1990s. As a result, today cable operators have a “Triple Play” offering of voice, video, and Internet broadband service, brought to consumers by way of a pipe that is generally considered among the best in the business. Core cable video is estimated to service an estimated 60 million U.S. subscribers today. This covers almost 60% of U.S. pay TV HHs.
DBS Distribution

Next in the pay TV infrastructure line-up would be Direct Broadcast Satellite (DBS), which is known for offering competitively priced video direct to consumers’ homes by way of geostationary satellites located 22,300 miles above the equator. These, too, are multibillion dollar infrastructures, yet few are two-way, and video thus becomes the core asset for the two core U.S. DBS players, Dish Network and DirecTV. As such, both are currently at something of a disadvantage to cable and telco video, because using its core infrastructure, DBS cannot offer voice or competitive broadband Internet to most Americans. Core DBS video is estimated to service 33 million U.S. subscribers today. This covers about a third of U.S. pay TV HHs.
Telco Transmissions

Like cable, telco video services are offered by the biggest and many other telephone companies, such as Verizon and AT&T, and a slew of smaller telcos, respectively. Telco video players have a wire - at least in the form of Verizon’s FiOS fiber to the household -that is as good or better than cable’s. As such, the telco line into the home or business can deliver the “Triple Play” of voice, video, and Internet broadband. Plus, unlike most of cable, the telcos can also offer cellular wireless services, which their cable rivals cannot. Core telco video is estimated to service an estimated 7 million-8 million U.S. subscribers today. This covers approximately 7% of U. S. pay TV HHs. Noticeably for the future, in areas where telco infrastructure is not yet able to support video, partnerships with DBS providers are used to provide a complete product set.
Online Offerings

Yet another, newer video distribution service comes to consumers in the form of Internet-delivered broadband video services that leverage some of the cable and telco infrastructure. In the video industry today, those online video sources have taken on the moniker of “Over-The-Top” (OTT) providers. These OTT services are typically delivered to consumers by their cable or their telephone service providers, which means these two infrastructure providers - cable and telco — typically collect distribution revenues from those Internet broadband video creators and owners, as well. Given that most U. S. households have Internet access, that means most households also can access video content on the Internet via these OTT providers. This may lead to a significant alternative to the businesses of cable and satellite TV. This online video is already proving to be a popular in-the-home mobile content delivery path for current cable and satellite operators, as well as for their company’s subscribers.
Mobile Video

Mobile video is a related entity, creating the area of greatest video growth today. This, in turn, has resulted in a significant increase in demand on the existing wireless infrastructure. Possible solutions to capacity constraints include 1) more spectrum (which is not immediately available), and 2) trying to squeeze more capacity out of existing spectrum (which is being done by adding more base stations). This latter solution increases the requirement for backhaul distribution to the cell sites that connect to the mobile operator’s core network. It is this backhaul route that represents an opportunity for satellite, since some of these sites are in areas that are not well served by terrestrial facilities.
Replaceable Infrastructure?

With that description, what many say is the real question ahead is whether even the best of the telco, satellite, and cable video infrastructures is up to the task of being able to adequately deliver the unfathomable numbers of ones and zeros that will have to be distributed in a few years.

Indeed, there is already concern developing in today’s community of pay TV chief technical officers (CTOs), that even the best of the new cable delivery systems will not be capable of handling the coming onslaught of bandwidth that will be demanded when more and more of the communications traveling around the world become video (and high quality video, at that) delivered to every device, always, and wherever located. In fact, some are even suggesting that this is a matter that Wall Street has misread in its valuations of many of these telco and cable providers.

Opportunities for Mixed Signals?

If so, this is an area that is rich for change, and rich for both backstopping by the traditionalists, and entry by the challengers. Indeed, one amazing new trend that is coming forth is that of ‘hybrid networks. These are distribution systems where content owners and licensees are being driven by customers to package and send their content via additional, multiple paths that are beyond the traditional broadcast and pay TV infrastructure, in the form of terrestrial fiber, terrestrial cellular, and satellite-delivered IP-based video. As such, this new “hybrid network” has the capability, indeed, perhaps even the likely outcome, of uniquely combining the assets and businesses of cable, telco, mobile, and satellite distributors. (And coincidentally, long ago, this also happens to be a core reason behind the naming of this column, “Mixed Signals”).

In short, we are on the cusp of these major players consolidating even further, and in need of amazing new technological solutions, which are coming.
Jimmy Schaeffler is chairman and CSO of Carmel-by-the-Sea-based consultancy The Carmel Group (