[opendtv] Analysts to Ops: Fear Silicon Valley | Multichannel

From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
Date: Wed, 30 Jul 2014 22:29:28 -0400
http://www.multichannel.com/news/technology/analysts-ops-fear-silicon-valley/382838

Analysts to Ops: Fear Silicon Valley

 
 
Kansas City-- Finding a small cable operator complaining about high programming 
costs at the Independent Show is easier than finding a barbeque joint in this 
city.

But a group of analysts tried to persuade the cable faithful here that 
programmers shouldn’t be the focus of their fear and ire…Silicon Valley should 
be. 

The panel, “Wall Street Update for Main Street MSOs,” was featured at The 
Independent Show, the annual confab for small and mid-sized cable operators 
hosted by the American Cable Association and the National Cable Television 
Cooperative

Indeed, far from carping about increased programming costs, cable operators 
should feel good about their business. New digital entrants destroyed the 
newspaper, music and Yellow Pages business, but the cable industry has largely 
avoided the mass migration of subscribers and revenue to new digital entrants. 

“This is the only industry to date that has been able to fight the onslaught of 
digital platforms, and so far no leakage”  said Laura Martin (pictured), a 
managing director at Needham & Co. -- a testament to the collaborative 
relationship between cable operators and programmers. "If that fractures, said 
Martin, "seventy percent of gross revenue will disappear.”

Overall viewing of TV content on more devices in the home is up, Martin said, 
which should provide more cover on price increases. In round numbers, cable’s 
$75 billion of subscription revenue, in addition to $75 billion in advertising 
revenue, is up roughly 20% over the past five years.  Moreover, “all those 
consumers that are whining to you that they can’t possibly pay more money are 
paying another $3 billion to Netflix and another $1 billion in subscription 
fees.” 

“You’ve got a better mousetrap – it’s just a question of execution,” said 
Naveen Nataraj, a senior managing director at Evercore Partners. 

Martin suggested the operators in the room think more holistically about their 
business. True, video margins are getting squeezed, compared to broadband 
margins, but video content, in not so many years, will be moving to toward a 
more interactive, real-time experience. Cable operators have a strategic 
advantage with the double bundle – and far better discovery than online sites 
such as YouTube.

“You should think of your video and broadband product as integrated” because of 
interactive possibilities around the corner…”only you can do those fast speeds 
two way.”  “Keep the bundle… the bigger the bundle the better,” Martin said.

“These Silicon Valley companies are much more threatening enemies to you than 
your content companies are,” said Martin. Google, for example, has 50,000 
employees and $55 billion in revenue last year with $20 billion in free cash 
flow. “They lose money on Google Fiber and they don’t care.”  Their intent is 
to disrupt and they have “plenty of money to play with” 

All disruption starts at the low end where there’s no economics and in time it 
moves up into the profit pool, Martin said. Google Fiber is “losing a fortune”  
trying to get cable to invest in higher speeds.  “They want free access to fast 
speeds so they can innovate and deliver things over your pipes for free… 
they’re coming after you and they have big teeth…”
[opendtv] Analysts to Ops: Fear Silicon Valley | Multichannel

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