It seems like cable bashing is the “In Thing” these days. Almost everyone has some sort of issue or is predicting the end of the most successful industries is near. However, when you look at the facts, the demise of the cable Multi System Operator (MSO) is just an illusion.
There is no doubt that the cable industry is mature using any business lifecycle model. It is an industry that is cash rich with an amazing infrastructure built over approximately 40 years.
As a profitable, mature industry there is definitely truth to that the fact that cable lobbyists try to protect their golden egg. This is normal and should be expected to continue for some time. But, unlike Ma Bell and Standard Oil, the cable industry is not yet a monopoly of one and will not be subject to serious anti-trust issues for quite a while.
On the other hand, the success of cable MSOs has encouraged competition to try and obtain a piece of the pie through technology and innovation. This is an expected result and also a normal part of an industry lifecycle.
Does this mean business as usual? The answer is a resounding NO!!!! There is no question that forces are attempting to crack the cable egg and that the outside forces will continue to become stronger and have greater impact. The number one challenge faced by cable executives is to shore up the inside forces to keep the egg stabilized.
Controlling the Cable Illusion
To determine the appropriate course of action it is important to have a clear understanding of the pressures being exerted. Let us take a closer look at the external and internal forces affecting the cable egg. For the purposes of brevity the major factors are listed below solely as a category reference:
External Forces on the Cable MSO Egg
- Content Wars: The only force listed under both external in internal. The ability to deliver timely and quality content is the number one factor that can change the industry. Should companies outside of cable control the best content then cable will lose tremendous value to subscribers.
- Aereo TV. Aereo represents a return to the days of old when TV could be received via antenna. The difference is now content controllers could lose substantial retrans fees if subscribers elect antenna options. For this reason the survival of Aereo is being contested.
- Apple TV, Xbox and PS4: Apple TV, Xbox and PS4 represent the technology changes that could replace the traditional CPEset-top box. At stake is the method to deliver the various content that subscribers demand including gaming, streaming and applications. Cable is combating this with their own different CPE options.
- Consumer Dissatisfaction: This is a true “ouch” for cable MSOs and if not managed properly, will only encourage consumers to look for other options. Cable executives have virtually ignored subscriber dissatisfaction until now simply because the dollars lost have not had a significant impact on the bottom line. This is changing and as technology enables subscriber choice it could be a potential floodgate of disaster.
- Cord Cutters: Cord cutters are subscribers that have stopped receiving one or more services from cable MSOs. They can widen the cracks in the cable egg by driving competition to produce the services they want at a more affordable price.
- Cord Nevers: The newest crack on the egg represents the younger generation of people who have never subscribed to cable services. The reason is simple as they have grown up with other options and have different needs. Cord Nevers may be the biggest long-term problem the cable industry faces if it expects to grow for the next 20-30 years.
- Google Fiber. Google Fiber is a perfect example of a company that sees an opportunity to bite off a piece of the cable profit pie and has the resources to back up their challenge. It is a true yet underdeveloped threat at this point.
- Netflix/HuLu: These companies have gained a foothold by providing streaming services at a lower price than cable. Fortunately for cable MSOs, subscribers still need internet services to use them. MSOs can also control their bandwidth.
- Retransmission Fees: Referred to as retans fees are the subject of bitter disputes between content providers and cable MSOs. The higher the fees from content providers such as Disney (ESPN, ABC, A&E, etc.), the higher cable bills will be. This is one of the primary issues that have led to the content wars.
- Government: Price unbundling legislation (proposed a la carte legislation) , anti-trust concerns, net neutrality issues and so on are constantly being thrown about. Cable fights these concerns with a very powerful political lobby. It should be noted that unless the cable industry consolidates into only 1 or 2 players when anti-trust concerns escalate, government interference is little more than a nuisance factor.
Internal Forces on the Cable MSO Egg
- Content Wars: As stated above, content control will be the glue that keeps the egg together. Cable MSOs are making changes such as Comcast’s purchase of NBC Universal. NBC Universal included channels such as USA (most popular cable channel, SyFy and of course NBC). Cable MSOs are also investing in the production of original content.
- One-stop Shopping: Traditionally, cable’s biggest advantage was that it offered one-stop shopping for Internet, cable TV and telephone at a competitive price. This appeal has changed significantly as subscribers have reached a break point between satisfaction and pricing. To counter the loss of bundled subscribers, cable MSOs have begun offering addition services such as home security. Clearly, One-stop shopping is not the advantage it once was.
- Infrastructure: A true operational strength of cable is the infrastructure that has been built to support products and services. The use of hub and spoke distribution systems and countless headends makes it difficult for new entrants to gain anything other than a local or regional presence.
- New Services: Cable home security systems are just one of the new services that cable MSOs have begun to offer. Products are being developed to address consumer demand for increased app usage as well as smart homes and buildings. Cable MSOs have also started to make major in-roads into business services.
- Logistics: On a national scale or even regional scale cable MSOs are unmatched for logistics. Their ability to coordinate massive amounts of supplies, people and facilities makes it extremely difficult for newer competitors to operate as profitably. This is a strong barrier to entry.
- Inventory Flexibility: Cable MSOs inventory enormous amounts of CPE (set-top boxes, cabling, remote controls, splitters and so on. This gives them the ability to maneuver CPE and respond faster to supply needed product to subscribers.
- Labor Consolidation: Simply stated, cable MSOs have more people, greater vendor control and are more efficient than competitors. It is extremely difficult to imagine a new competitor than can compete operationally.
- Scalability: The size of cable MSOs enables them to ramp up or ramp down market changes. Should a la carte pricing be legislated, cable MSOs can adjust quickly.
- Lobbyist: As mentioned above, the cable industry has a very powerful political lobby. Lobbyist can be used to acquire beneficial events or stall/defeat negative events.
- O: Last but not least the cable industry has an enormous amount of cash that can be used to acquire competition, expand horizontally or vertically, invest in content, fight proposed government changes, conduct price wars and purchase the latest
Will the Cable Egg Break?
The forces upon the Cable Egg will vary in strength in any given time period. The cable industry has so far succeeded in exerting equal forces to prevent an industry collapse. More importantly, cable executives are not standing by relying on the past; they are constantly pushing forward change.
The cable industries survival is 100% dependent on how it manages change. The more proactive and innovative the industry is, the longer the cable egg will stay intact. Technology and subscriber satisfaction are the two biggest wild-cards.
For those “experts” that think the end of cable is near death – you are wrong! Cable is not dying; it is attempting to undergo the changes needed to survive the next 40 years.