Is Cable Access Becoming a Utility?

Consumers and content creators are turning to alternate means for content distribution over broadband and wireless networks that bypass traditional cable distribution. The question on the minds of cable providers is: What impact will this have on the subscription video model in the future?

With an explosion in the number of network-ready devices and other emerging options for content distribution — including Hulu, YouTube, Roku boxes and Apple TV — there are more ways than ever to access filmed entertainment without a cable subscription.

Content creators are in a strong position because of the appeal of their content and the shifting behaviors of the consumer public toward more PC- and mobile-device-centric lifestyles. Hardware and consumer-electronics companies have power because of their strength in consumer marketing.

On the surface it seems cable companies are at risk of being cut out of the equation. The threat is that cable companies could become “utilities” that provide just a basic service.

While consumers greatly value the content they watch — from National Football League games to American Idol — and the devices they use to watch it — HDTVs, laptops and smart phones — they don’t necessarily ascribe value to the network over which the content traverses. Consumers don’t make the association between the benefits they receive and all the components that are required to deliver that benefit.

In 2010 and beyond, cable companies have a primary mission: to prove they are still a valuable — and even critical — entity for meeting consumers’ entertainment needs. While the wave of increased video consumption via alternate means shows massive growth, cable companies have three fundamental things going for them:

  • A history of pragmatic timing. Cable is rarely accused of being overly aggressive in innovation; however, it has a remarkable track record of catching a technology wave at precisely the right time to address the mass market. Broadband, Internet-protocol telephony and digital video recorders are precursors to how cable will address over-the-top video content. Not too soon and not too late. Cable companies are now rolling out their own online services, such as TV Everywhere and Fancast Xfinity TV, giving subscribers more reason to keep their subscriptions.
  • A simplified and unified user experience. Consumers are largely predictable in terms of how they react to emerging technologies and they are not currently organizing to cut the cable cord. It will take a market-shifting event to change the current dynamics, and that “event” — whatever it may be — is likely to be countered by cable. Consumers will gravitate to the solutions that are the easiest, most convenient and have the lowest incremental investment. Cable has the ability to inculcate emergent consumer behaviors into their existing service packages, adding revenue-generating units and keeping the mass market as valued customers.
  • Economies of scale. Cable companies have power in the video-distribution ecosystem and are not afraid to wield it to protect their interests. When content developers spend millions of dollars to develop a show, they want to reach the broadest audience possible with ubiquitous content in order to achieve a maximum return on their investment. Cable companies are currently the only players in the content-delivery ecosystem that offer massive distribution systems with built-in mechanisms for monetizing that content, including a combination of subscription fees and advertising dollars. The alternative to this — garnering an audience and generating revenue via content posted on the Internet — can take huge amounts of time and effort and doesn’t always yield the maximum return on investment for content creators.

For cable companies, the collision of content, devices and networks is driving changes faster than ever before. Seeing the changes is just the first step. Time will tell if 2010 was the year that cable companies were able to prove their value in meeting consumers’ entertainment needs in this new environment.