Nov. 8, 2012,
As I’ve often explained recently, I’m worried about the future of the TV business.
Viewer habits are changing, and none of the changes favor the participants who are currently coining money in traditional TV–namely, networks and pay-TV providers like cable companies.
But I’ve always assumed that, in the end, the cable companies would be fine.
Because the big threat to traditional TV is Internet-based video distribution–the ability of consumers to download or stream TV and movie content over the Internet instead of going through the traditional cable, satellite, or telco gateways. Those gateways are worth hundreds of billions of dollars to the TV industry, and the Internet is now eroding their value. But in order for consumers to take advantage of Internet-based video delivery, they need Internet access. And in addition to providing the traditional TV gateway, cable companies are also the dominant provider of home-based Internet access.
The bullish story for the cable companies has been that cable profits will continue to transition from traditional TV to broadband Internet access and “Triple Play” telephone service. Providing broadband internet access is extremely profitable for cable companies, so this story made sense. Since laying last-mile fiber is extraordinarily expensive and cable companies are only one of two providers with a widespread footprint of wired households (telcos being the other), cable seemed safe. The cable companies would just gradually increase the cost of broadband Internet access to offset the erosion of the TV profits.
But now that whole premise seems fundamentally threatened.
Because wireless Internet access is getting pretty darn fast.
Have you used a smartphone with LTE-speed access?
It’s blazingly fast.
As a moderator at a media conference observed yesterday, LTE is often faster than his home-based Internet access, which is provided by Time Warner Cable. The speed and reliability of cable access, the moderator went on, also continues to get worse and worse.
Even using only 3G access, I have often had to switch over to wireless when my home-based Internet access (also provided by Time Warner Cable) gets slow. The 3G isn’t as fast as cable when the cable is working right, but it’s perfectly acceptable. LTE-based access would be an adequate replacement for cable for many users, at least for normal Internet usage.
Yes, HD movies and other super-huge applications benefit from the peak download speeds provided by cable. But those download speeds often vary wildly. And most of the HD video that we watch in our household, at least, is either buffered or downloaded in advance. So it’s a question of how many HD movies you really need to download, and how fast you need those downloads to be, not whether or not you want to watch HD video.
And, yes, the issue is not just speed but capacity. If a household that watches seven hours of HD TV a day switched over to wireless, the wireless company would either have to charge huge amounts for that data throughput or, in an “all-you-can-eat” plan, lose a boatload of money. But wireless costs will continue to come down. And not all households watch seven hours of HD video a day.
Right now, wireless access subscriptions are generally device-based. The industry hasn’t put a lot of effort into packaging and marketing LTE as a replacement for cable access in the home. But if the industry ever does lean into that, it’s easy to imagine LTE grabbing market share away from households that hate cable companies (many) and don’t care about traditional pay-TV service. This will become especially true if cable companies keep raising prices for greater speeds and data levels.
In the coming years, moreover, wireless access will only get faster, and the options for accessing TV content via the Internet will only improve. So what might seem like a sacrifice now–unplugging your house from cable–may soon become a common and viable choice.
If that happens, the cable companies are screwed.
The cost of installing and maintaining a hard wire to each neighborhood and house vastly exceeds the cost of installing nearby wireless towers. If and when wireless performance, packaging, and marketing reaches the point where wireless is a perfectly reasonable choice, the cable companies simply will not be able to compete on price.
And there’s another very important reason why wireless companies are in a great position to utterly destroy the cable industry:
The Internet is mobile and ubiquitous.
The idea that any of us should have to maintain separate data subscriptions for our homes, our phones, our offices, and our tablets or laptops is absurd.
We access the same Internet content from everywhere–wherever we happen to be.
So there is no reason at all (other than status quo) for us to have to pay two, three, or four companies separate Internet access fees. And there’s also no reason at all why we should have to pay separate subscriptions for every device.
Since we use the Internet everywhere, the wired cable-telco duopoly in the household is a liability for the incumbents in the race to provide a single subscription, not an asset.
For cable and wired telco companies to provide a single-subscription for global Internet access, they would have to also build out vast wireless infrastructure.
For wireless companies to provide this single data subscription, meanwhile, they will just have to make their existing infrastructure faster and more ubiquitous.
The bottom line…
From a high level, the Internet has put several massive and wildly profitable industries on a collision course. The collision is happening slowly, but it’s happening. And just as the gradual collision of tectonic plates causes vast upheaval, the collision of the tech, telecom, cable, wireless, and media industries is eventually going to demolish the status quo.
When it comes to figuring out which type of company has the obvious advantage when it comes to providing ubiquitous mobile Internet access, you don’t have to think very hard:
The answer is “wireless companies.”
So if the single-wireless-subscription ever becomes reality, the traditional cable and telecom companies really will be screwed.