The Future of Cable (Or is That the Future of Content?)

Steve Rubel at Micro Persuasion has an interesting post on “The Future of Cable TV in an Open World.” He posits three scenarios:

1) The Cablecos Embrace Change and Re-address the Economics
Right now cable and satellite TV are very inefficient. If you hate sports, you’re out of luck. You still need to pay for it since it sits on your deck. The smart cable/satellite companies will begin to experiment with a-la-carte pricing. Further, they will make sure their set top boxes can connect to the Internet, allowing you to choose what goes on your set from a virtually limitless choices.

2) The Cablecos Simply Become Plumbing
Cable and satellite companies are not exactly known for their speed. The tech players mentioned above and others, such as Google and Yahoo, could rush in to provide subsidized boxes for your TV if you were to subscribe to their so far non-existent IPTV services. They will deal directly with the networks and reduce the value that your cable company offers to just pipes. This will turn their services into plumbing – commodity bandwidth.

3) A Hybrid Scenario
Under a third scenario, both IPTV and cable co-exist together in your living room. They are used for different purposes. Cable recognizes that they offer the greatest value in serving up live and local and leave the canned national content to go the way of IPTV carried by others.

cableWhile I agree these are likely scenarios, I look at the issue a little differently. I think much of the future hinges upon how the content creators get paid. As a principle, that’s obvious, but the answer, I think, drives the cablecos’ future.

As a consumer, I want as much programming as possible, from wherever it comes, and I want it on my TV screen. The cable operator’s goal must be to become the consumer’s gateway to all video programming. If this is accomplished, the operator has at least secured a role as plumbing. Next, the operator must seek to provide that video to the consumer. The degree to which this is accomplished determines if the future is the hybrid scenario or a re-addressing of the economics.

The role of video provider also depends, however, on how the content creator gets paid. If the creator is paid in advertising dollars, cable begins sliding back toward plumbing because it has little to offer the content creators. One possibility is that the cablecos develop strong ad sales operations, gurantee revenue to content creators and then try to sell enough ads to cover the guarantee plus a profit. Or, perhaps a licensing model, which would be similar.

If networks (content creators) get paid as they do today – a combination of ads and carriage fees – the future may look much like it does today. NBC may have its videos on the Web, but only a viewer using a Comcast (or other “partner” cable operator) cable modem/set-top box can see them. YouTube will become another network earning carriage fees from the cablecos. Cable and its competitors will all scramble to make sure they have at least the same content as each other, while trying to get one more network, online network, or user generated network that the rest don’t have. The model for new networks would be flipped on its head. They would no longer have to beg cablecos for carriage, they would just start out as free networks with carriage everywhere. As they became more popular they could choose to join with cablecos for carriage fees. Pricing models for this type of arrangement abound, although none is obviously superior. There’s all-you-can-eat (one subscription price gets you everything), tiers, (as the cable companies currently offer), a-la-carte, the New York Times model (some content free, some premium, charge for archives), etc. The key point here is that the cablecos pay the content creators.

Another possibility is that consumers pay the content creators themselves by subscribing to individual networks or Web sites. This seems the messiest and least consumer friendly, but it’s a possibility.

If I were a cable operator today, I would be thinking about how I can make the most money for content creators. If I can make them money, I’ll get access to their content (maybe exclusive access), and I’ll remain relevant to consumers. If I don’t make them money, they don’t need me and I become plumbing.

One other thing – cablecos ignore wireless (whether by satellite, wifi, cellular, or otherwise) at their peril. The world naturally moves from less freedom to more freedom (though it’s always a bumpy road) and there’s no way we’ll continue to be happy tethered to a cable.

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