Technology is once again preparing to challenge the dominance of cable multiple system operators (MSOs). In an earlier post, Cable MSO Challenges – Internet TV, the impact that Google and Apple TV might make was discussed. Now, a new form of competition is emerging from the makers of gaming consoles as they try to outdo each other by adding additional capabilities.

The Xbox Factor for Cable MSOs

On November 29, 2010, TechCrunch published an article indicating that Microsoft was talking with HBO and Showtime about providing content through the Xbox system. Xbox already offers ESPN through its console. The idea is that gamers or families could choose selected HBO and Showtime programming on demand.

This type of access to content has the potential to significantly influence Cable MSO profitability for a number of reasons. These reasons include but are not limited to:

Impact on Cable MSOs

  • A reduction in premium pay service subscribers. Premium pay channels account for between 19 and 25% of cable video revenues. The potential loss of premium pay service subscribers does not bode well for the bottom line of cable MSOs.
  • A continued decline in overall subscribers. Making the sale without a cable CRM software will become harder as subscribers have more choices. Churn is also likely to increase as subscribers look for ways to lower their bills.
  • Other gaming consoles such as Wii and PlayStation won’t be far behind, increasing competition. Inevitably other delivery platforms will also be marketed.
  • Non-cable content providers will look to maximize their profits through greater distribution other than the traditional set-top box.
  • Cable MSO content providers (Comcast purchase of NBC, Brighthouse Network’s Catch47 channel etc.) will face increasing demand from non-subscribers to make content available through non-traditional viewing methods.

What Does the Future Hold for Cable MSOs?

The discussions between Microsoft and premium content providers sets the stage for a bidding war for premium content providers such as HBO, Showtime, Cinemax and TMC as well as other specialized events. The greater the competition the greater the price of the content. This can affect the future of cable in a number of ways:

Possible Cable MSO Developments

  • Premium viewing becomes fragmented as alternative and new technology platforms cannot afford complete access. This is good for Cable MSOs as they have the financial strength to provide a complete package.
  • Pricing for premium viewing gets too high, subscribers decide they only want to pay for what they will actually watch and leave in great numbers. Given the rate of subscriber loss the last two quarters, this would be the worst case scenario.
  • Cable MSOs recognize the need for technology change to embrace the viewing trends of subscribers. The days of the proprietary set-top box are over.

There have been over 50 million Wii, Xbox and PlayStation consoles sold in the USA so far and over 100 million portable devices. The potential financial impact to Cable MSOs is huge should they all develop content viewing alternatives to cable offerings.

With subscriber loss at a record high the last two quarters as a result of the economy and competition, Cable MSOs cannot afford to ignore the threat to one its most profitable offerings. Cable MSO technology change is coming. It is imperative Cable MSOs think through a long term strategy that does not cause a revolt, increase net neutrality concerns .