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Cable Technology Feature Article

May 24, 2014

Cable Technology Week in Review

By Tara Seals, TMCnet Contributor

Mega-mergers and TV options is the theme of the week.

AT&T agreed last weekend to buy No. 2 U.S. pay-TV operator DirecTV (News - Alert) for about $48.5 billion, adding to the consolidation frenzy that’s shaping up in the industry. The announcement of course comes as Comcast attempts to win approval to buy No. 2 cable MSO Time Warner (News - Alert) Cable for about $45 billion. Conventional wisdom holds that if the Department of Justice and other regulators say yes to Comcast then it will be forced to also say yes to AT&T (News - Alert). And that leaves many wondering: if both deals go through, what will that do to the competitive landscape?

For one, it will mean that two companies, Comcast (News - Alert) and AT&T, control about two-thirds of the pay-TV market. The consumer advocacy response was typical here: This wave of mergers is “about eliminating the last shred of competition in a communications sector that’s already dominated by too few players,” said Free Press CEO Craig Aaron. But others say that digging deeper into the deal reveals that there’s more to consider than meets the eye.

Video costs are going up and there’s no denying it: Surveyed retail prices for the most-popular tier of cable TV service grew by five percent in 2013, while the average price per channel (a measure of wholesale price inflation) grew by two percent, according to the U.S. Federal Communications Commission. Also, additional charges for set-top box rentals or HDTV service represent additional costs. And the reported FCC (News - Alert) figures do not include taxes and fees.

The average price of expanded basic service grew at a compound annual rate of 6.1 percent over the 18-year period from 1995-2013, the FCC also notes. Other studies show that expanded basic prices doubled over 10 years. Cost increases were lower for “antenna TV” services, and roughly were in line with overall inflation.

But cable operators might argue that those rate hikes are in line with the growth of the number of channels offered and new features such as high-definition TV. From a consumer perspective, are they adding value to go with the price hikes?

While the mega-mergers of Comcast-Time Warner Cable and AT&T DirecTV slog slowly toward possible approval, upstarts such as Layer3 TV plan to quickly drive innovation and new service offerings to draw attention – and business - from the eye-rolling, video-hungry consumer masses. On its Spartan website, Layer3 TV describes itself as “a next generation cable provider spearheading a new era of home media, combining the best of television, social, and digital life,” but doesn’t provide detail. Layer3 TV is likely building an IP-based video package that could also include programming. Layer3 TV’s focus on IP is emblematic of an intensifying shift to more flexible and available video services. It could enable smaller operators without the deep pockets of a Comcast – and lacking the time to build and IP infrastructure - to get in the IP game faster and be more competitive in their offerings.

Amazon is apparently looking to boost demand for its just-launched over-the-top (OTT) set-top box, dubbed the Fire TV. The “e-tailer” is sending out targeted “try before you buy” offers to select members.

The company is offering certain account holders the opportunity to try out the box for 30 days, after which they can return it for free if they don’t want to keep it. It’s a classic gambit from “as seen on TV” wares and infomercials, but one that’s rarely seen in the tech world. The approach is roughly analogous to a policy that Amazon has had in place for time immemorial—the 30-day money-back guarantee. The difference here is that users don’t have to pay up front. But, the move suggests that the company could be running into competitive flames, as it were, in trying to find an audience for the device in an increasingly crowded OTT field.

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

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