Are cable and satellite TV firms in danger of “disintermediation?”
In economics, “disintermediation” refers to “the removal of intermediaries in the supply chain” — which some critics believe could be cable programming’s fate, as more and more users watch their favorite shows directly online, bypassing the cable and satellite TV companies. Indeed, how these companies will cope in today’s Web-centric market “is the single biggest question facing the media industry,” remarked former News Corp. President and COO Peter Chernin, at the USC Annenberg School for Communications’ roundtable discussion last Fall.
The End? Maybe, But Not Yet
For now, however, cable companies appear to be in good shape. According to a September 2009 report by marketing and media research firm Nielsen, time spent watching TV is up four minutes from the prior TV season, and up 20 percent from 10 years ago — partly because of the increased choice in cable and broadcast content.
And as El Segundo-based satellite TV company DirecTV has shown, it’s still possible for non-broadcast firms to maintain subscriber growth. DirecTV reported 136,000 new U.S. subscribers for the 3rd quarter of 2009, bringing its total base to 18.4 million, with the average monthly revenue per subscriber rising 2.1 percent, says Dow Jones NewsWires.
Cable and satellite companies may still have to watch their backs, however. As video content grows online, so does the online audience. Research firm comScore reports that Web-viewing again reached record-breaking levels this past September, with 168 million users in the U.S. watching videos via Web-based services like YouTube and Hulu.
What’s more, the proliferation of products and services that support the “online viewing” model may continue to threaten cable’s role — such as Internet-ready HDTVs and Blu-ray players, Internet “set-top boxes” like Apple TV and Boxee, “video- and Web-ready” game consoles like XBox 360 and Playstation 3, and pay-per-download/subscription-based services like Amazon on Demand, Netflix, or Apple’s planned iTunes TV.
Salvation = Content Control?
So what can cable operators do to protect their programming revenues and remain relevant? One strategy, it seems, is to take “control” of how their content is accessed online. Time Warner and Comcast, for example, have partnered on an initiative to make their cable programming available online for free — but only to their own paying cable subscribers. Called “TV Everywhere” for Time Warner and “On Demand Online” for Comcast, the initiative is expected to launch by the first part of 2010.
And as we have written about in a previous post on the Comcast-NBCU merger, when Comcast completes its deal to a 51 percent stake in media and entertainment firm NBC Universal, this could give Comcast an even bigger say on how and when TV shows are distributed online — which, incidentally, could also raise anti-trust concerns. "Comcast/NBC would control so much important content that it could charge competitors more for its programs," writes Free Press, an independent advocacy group for media reform.
As for the Bottomline?
For now, there are still more questions than answers as cable firms and other players in the media chain find their footing in the changing digital landscape. Since producing and distributing content costs money if users watch shows online for free, how can cable operators recoup costs of licensed and distributed content, and turn a profit? Will advertising dollars be enough, or will companies like Time Warner/Comcast eventually resort to charging consumers even more for their cable subscriptions, to subsidize their “free” online content? Will content providers, like Disney, for example, break away from cable firms and make their content available on services like Apple’s planned iTunes TV? If yes, who will go first? And from a technical standpoint, can the Internet really handle the huge need for increased bandwidth that will occur if there is a potential mass migration of viewers from TV to online?
The industry is abuzz with reports that NBC Universal (NBCU) will likely be spun off by its parent company, General Electric (GE), once French conglomerate Vivendi sells its 20 percent stake in NBCU back to GE. Who could be the potential buyer, under this scenario? Comcast. According to publications like MarketWatch, the company is considering contributing its cable assets, along with up to $6 billion in cash, to purchase a 51 percent stake in NBCU. While no official announcements have been made, industry analysts are already anticipating the possible consequences of such a merger. For example:
Comcast boosts its content library. The move would significantly expand Comcast’s entertainment portfolio and Web reach, placing it among the top industry players, says ZDNet. Through NBCU, Comcast would gain network TV assets like NBC and Telemundo; cable content such as CNBC, A&E, Bravo, USA Network; global properties such as The Weather Channel; various Universal Studios assets; Internet sites such as MSNBC.com, iVillage and a partial ownership in Hulu.com; and more.
Comcast gains better online leverage. Comcast would also gain more control in deciding how and when TV shows and movies are distributed online, and at what price to consumers, says the LA Times. As more people stream videos online for free [see our previous post on online streaming], cable companies are pressured to step up their game to maintain viewership. Comcast and Time Warner, for example, recently launched a “TV Everywhere” service that allows consumers to watch shows online — provided they are paying cable subscribers.
"This deal (Comcast-NBC) has major implications on the success of TV Everywhere," Thomas Eagan, an analyst at financial advisory group Collins Stewart, tells the LA Times. "Comcast may decide to change Hulu to some degree to facilitate a premium Hulu service much faster." Hulu, now the number two online video site, according to market research firm comScore, is jointly owned by NBCU, News Corp and Walt Disney Co.
Comcast could shorten DVD release “window.” According to studio executives and media analysts, Comcast could try to reverse the current movie release sequence by offering movies through its paid On Demand service ahead of their DVD release date. "It's a potential game changer that could completely upset the traditional windowing position of the studios, if Comcast were to decide to get very aggressive in releasing new movies and TV shows in a variety of ways," Tom Adams, founder of financial and market research firm Adams Media Research, tells Reuters. Such a move, however, is likely to meet opposition from theater owners whose box office revenues could be threatened by a shortened “window,” reports Reuters.
Whether or not Comcast strikes a deal to buy NBCU, however, some analysts believe spinning off NBCU may be a good move for GE. "Selling NBCU will increase management focus on the core infrastructure businesses and that is a good thing," Steven Winoker, analyst for investment research and asset management firm Sanford C. Bernstein, wrote to clients. "GE has long suffered from too much complexity and faced significant investor pressure to part with its media and entertainment assets."
