As I worked in the video delivery industry for 15 years and spent nearly two of them at Comcast, three recent news items caught my attention. First, was the introduction of Google’s Chromecast. This was followed by Comcast announcing outstanding quarterly results. Finally, Time Warner Cable could not come to an agreement with CBS over broadcast fees. So, TWC dropped CBS from their channel line up. These three items define the past, present, and future of the video delivery industry and it’s clear that the future will increasingly involve mobile.
The video delivery industry has a similar problem to the healthcare industry. In both, fees are negotiated by organizations removed from the consumers who pay for them, and can easily pass on increased costs. Healthcare fees are negotiated by insurance companies. Likewise, the cost of video content is negotiated between the content providers – companies like Sony, CBS, FOX, etc. – and the companies that provide video to consumers – Comcast, TWC, DISH, etc.
To maximize revenue and profits, both sets of companies have an incentive to make costs as high as consumers will tolerate. This makes for a market that is opaque and prevents normal market forces from constraining prices.
The analogy between healthcare and video delivery does break down. In spite of what some people believe, no one has ever died because they couldn’t afford to pay for access to Monday Night Football. Video consumption is not a necessity for life. So, if consumers don’t feel the price of video delivery is worth the value of what is delivered, they will stop paying for video.
This is currently the only constraint on increasing prices for video and is the root of the TWC-CBS disagreement. The fees video delivery companies have been paying to content providers have been rising steadily for decades, with significant increases in the last decade, as a large percentage of consumers moved from over-the-air video to cable. (Nearly 60 percent of U.S. households have cable, including a large fraction of the middle- and higher-income ones.) This led both groups to feel consumers had little choice and would pay whatever costs they demanded.
New Trends, New Impacts
Meanwhile, new options for video delivery have started to become feasible. Netflix has always been a viable option for movies and non-first-run TV shows, Apple has been flirting with video delivery through iTunes and AppleTV, and now Google is making a push into the industry via Chromecast. Google made its intentions clear in the way it named the device, it’s clearly a competitor to Comcast.
The trend is to make video more personal and, with the exception of certain live events, less time constrained. Video consumption is becoming less focused on large screens and more focused on personal-sized ones. Also, consumers are less willing to set their schedule around a broadcast and want to watch at their convenience. Again, certain live events, such as sports and political debates are exceptions to both of these trends. Both trends play on mobile devices that are inherently personal and time flexible. So, both Apple and Google are putting effort into making viewing video on mobile devices convenient.
Now that viable options are appearing for consuming video outside of traditional cable subscriptions, the video delivery industry is starting to worry about losing subscribers. Chromecast and iTunes make mobile devices a prime method for consumers to bypass the traditional broadcast companies. The continuing feuds between the content providers and the video deliverers will only accelerate this, as consumers become fed up with the blatant display of corporate greed.
Given Comcast’s recent results, it’s not yet happening to any significant extent. Subscribers to every service, Comcast reported, increased. At some point though, as consumers realize they can get the content they desire through other channels that are cheaper and provide more options, that will change. The industry term for that is “Cutting the Cord”.
The video delivery industry has been protected from competition since its inception. The major CATV providers don’t compete and satellite services such as DISH offer only a part of what Comcast or TWC do. Now that competition is appearing, there may finally be a transparent market, giving consumers a choice and keeping prices under control.
By way of full disclosure, I cut the cord several years ago shortly after leaving Comcast.