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Cable Technology Feature Article

January 25, 2014

Cable Technology Week in Review

By Tara Seals, TMCnet Contributor

It’s been a busy week for cable technology and business. We’ll start off with regulatory: In the wake of the FCC’s recent Net neutrality defeat, it still is not clear how growing consumption of video entertainment on fixed and mobile networks will affect the ISP business model. Nor is it clear how growing use of connected TVs will affect ISP business models. At a high level, Internet-based consumption of TV makes the broadband connection more valuable, drives much more usage, and therefore could provide incremental revenue. The issue is that it might not be easy to correlate retail prices with the amount of new usage. But does anybody really believe consumers are willing to pay two to three times more, for Internet access, than they presently do? Thorny issues indeed. Our columnist discusses how telecom service providers and Internet service providers potentially are affected by video entertainment in a number of ways. Transit and peering agreements can be upended if one network suddenly becomes a supplier of Netflix content, for example.

Also this week, Intel finally gave up the ghost on its OnCue online TV service, which looked to replicate a traditional pay-TV service only with the quirk of providing a la carte channel options, so customers could choose what to pay for. Verizon (News - Alert) agreed to buy Intel’s video assets after the silicon giant failed to make headway in content negotiations to populate the service. But now, Amazon may be looking to expand its online video efforts beyond the Amazon Prime Instant Video streaming service. It has officially denied it, but sources said it is approaching at least three major content companies about licensing their TV channels to do so.

Meanwhile, Netflix, which grew its revenue six-fold in the fourth quarter, adding 4 million+ new subs, has always said that its prime competitor is not the cable companies of the world, but rather premium cable networks like HBO and Starz. A new study from the NPD Group (News - Alert) has revealed that subscriptions to HBO, Showtime and other premium TV channels have actually declined over the past two years, as Netflix and other subscription video-on-demand (SVOD) services have gained in popularity. But, it’s worth noting that the decline is not coming from the top dogs: Starz added a net 1.2 million customers for the 12 months ended September 2013, to hit 22 million. Showtime also grew last year, adding 1 million subs to reach 23 million at the end of 2013. That suggests that Netflix is not cannibalizing premium cable, but is rather being adopted as an ancillary service in the home.

And traditional TV is redoubling its efforts, anyway. ABI Research points out that DirecTV’s Genie, Liberty Global’s Horizon, DISH’s Hopper and the boxes that power Comcast’s (News - Alert) X1 service have something in common other than hip, marketing-friendly names. They are the new generation of set-top boxes (STB) that are evolving into home gateways—and Trojan horses for advanced IP services. We are seeing the emergence of gateways delivering a whole host of next-generation services—video and otherwise. And according to ABI Research’s STB market findings, last year North American and Western European operators shipped 4.5 million advanced units in a market which is conservatively estimated to grow 84 percent to 8.5 million by 2018. We discuss how MSOs are approaching the opportunity, here.

But, platforms are only as good as the content they deliver. On that note, the Weather Channel went dark for DirecTV’s 20 million customers last week, after the two couldn’t agree on carriage fees for the channel. This week, it became clear that it may take a while to get past the impasse: the No. 1 satellite broadcaster has countered The Weather Channel's (TWC) proposed rate hike of a penny per sub per month (from 13 cents to 14 cents) with a demand for a 20 percent rate cut. The implied insult—that TWC offers merely non-valuable, “commodity” content—was underscored by DirecTV’s bringing on of a replacement network—a small, independently owned network called Weather Nation, which is apparently charging a zero license fee. For both sides of the argument, an ongoing blackout presents some significant business model difficulties.

Meanwhile, on the other side of the pond, two behemoths of the U.K. communications landscape are in talks to combine forces to provide a quad-play option for consumers, encompassing home phone, broadband, TV and mobile. According to sources, Vodafone Group Plc and BSkyB (News - Alert) are discussing ways to combat the threat posed by BT. BSkyB already provides Sky Sports content to Vodafone mobile users. Any new deal would allow Vodafone to offer more of BSkyB’s sports and movie channels on a mobile basis, and the two would team on a broadband service, the Sunday Times reported, putting Vodafone (News - Alert) into the home consumer business in a way that it hasn’t been in the past.

To check out more details on all of this and more, visit our homepage. And have a great weekend!

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