Preface:

I have been away for a while – trying to cater to small life events like getting married and changing my day job. For those of you who have followed this blog – my apologies.

Being away from the business of writing, unfortunately, has an unintended impact of taking away the habit to ratiocinate – such an important precursor to insightful writing.

So, finally, when I decided to write this post – it took me a really long time to put it together. Regardless, here’s a stab at getting back to blogging again.

The actual post:

As most of my readers know, I have this abiding interest in Telecom and Media industries. Due to my recent job change, I have started focusing and researching more about the Media segment – specifically as it relates to the evolving landscape of MSOs and MVPDs (Multi Channel Video Programming Distributor) and thinking about how do these companies respond to the challenge of a very rapidly changing landscape and fresh entrants with no or little barriers to entry (aka Netflix, Hulu, YouTube etc.)

Before writing this post, I decided to read the latest 10K for Comcast / NBC to understand their perspectives. You can find it here.

The crux of the question that I am attempting to think about here is this – how do incumbent MSOs with their associated franchise and regulatory costs deal with the new wave of entrants in the field of content distribution. Additionally, some of the incumbents have extremely diversified businesses (e.g. Comcast with their acquisition of NBC) – consequently they also produce and own a lot of the content that they distribute – which adds additional operational costs.

There are a few other competitive drivers that are changing the landscape of the industry:

  • Changing viewer expectations:  The world is increasingly getting used to an On-Demand, a la carte model of consuming content. Incumbents have been reacting to this by introducing “watch anywhere” type of services (e.g. DishAnywhere etc.). What MSOs and MVPDs continue to struggle with are negotiating with media companies to rationalize the carriage fees agreements. (Currently, media companies only sell their content in bundles of channels – which forces the hand of MSOs to offer a la carte options to customers – because it enables them to charge these fees per subscriber for every channel in the bundle even though as a consumer you probably only watch ESPN and not HSN). And it is increasingly unclear how MSOs / media creators can continue this business model of forcing consumers to pay for what they don’t use in the changing landscape

 

  • Wireless (aka LTE) and Video Compression technology: In my opinion, one of the most critical disruptors in the industry is going to be the ubiquity of LTE and the evolution of video compression technology to support HD video using bandwidth much more efficiently. This has already started to happen and over the next few years will be another option for wireless providers to become content distributors (Think FIOS offered wirelessly). The risk for the incumbents is that presumably, the wireless providers won’t have to deal with all the “franchisee fees” that cable providers have to pay local municipalities and state government – and presumably won’t be beholden to all the regulatory requirements that the incumbents have to be. (This is an educated assumption because the wireless carriers will only be using the spectrum “real estate” they have paid for).

 

  • Cost of Content: Some key incumbents (e.g. Comcast) have acquired media companies to vertically integrate their offering stack. It is great in the short run but adds additional operational financial burden and no unique value proposition. In other words, buying media companies don’t necessarily give MSOs the ability to produce exclusive content (e.g. MSNBC will still be available on TWC and not just on Comcast just because they own NBC). However, it does add to overall operating expenses potentially lowering free cash flows and margins. But is the solution for MSOs just to be dumb pipes?

 

A multifaceted and evolving industry isn’t going to be resolved in one blog post. However, it is fascinating to think about how the industry is evolving and what it will eventually mean for us, the subscribers.

For e.g., there was an article on Fierce Cable on how providing ubiquitous WiFi is definitely in Comcast’s strategic roadmap – at a later time, this can translate to a viable VoIP platform with Comcast offering voice and data services over WiFi – at a price advantage over traditional carriers (because they use public WiFi spectrum).

We will see where this all evolves to – but the next few years should be fascinating in how wireless, media and MSOs continue to evolve to offer products and services in this space.

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