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Why Cable Operators Need an Apps Strategy

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Back in 2008, the biggest new media challenge facing cable and satellite providers seemed to be online video. With consumers in ever-growing numbers turning to the Internet to watch TV content — a trend that continues — MSOs feared it would lead to “cord cutting”: consumers disconnecting their cable subscriptions and relying on a combination of over-the-air broadcasts and online video to feed their TV habits. Their response was TV Everywhere, an effort to accommodate consumers’ desire for online access to TV content while bringing it within the walls of the MSOs’ subscription gardens.

Last week, however, there was evidence that online video may not be developing into quite as serious (or at least as imminent) a threat as it once appeared. According to a study released last week by the Convergence Consulting Group, online video still accounts for only a tiny fraction of total TV viewing, while cord cutting remains a very limited phenomenon. As CCG analyst Brahm Eiley told Broadband Reports, “Internet TV is not going to become a competitor for at least a decade, half generation, more.”

Before MSOs and satellite providers get too complacent, however, there is another threat brewing for which TV Everywhere is not likely to be an effective response: app stores.

Since Apple introduced the iTunes App Store for the iPhone, the market for mobile apps has grown rapidly, from zero in 2008, to an estimated $1.6 billion for 2010, to as much as $11 billion by 2014, according to the Yankee Group. Apple’s introduction of the iPad is likely to spur further growth in the market for dedicated, non-browser based apps.

While streaming video apps have so far accounted for a relatively small share of the apps economy, that’s likely to change as app stores get embedded on devices with larger screens. Early data on iPad owners, for instance, suggest they spend more time watching streaming video on the iPads than they do on the web.

Now, embedded app stores are finding their way onto connected HDTVs, Blu-ray Disc players and set-top boxes, where streaming video apps are likely to predominate. With the number of connected devices expected to grow rapidly over the next five years, cable and satellite providers could again find themselves facing the threat of disintermediation. This time, however, the threat would come not from web-based startups like Hulu or Boxee but from major apps platform providers like Apple, Google and Yahoo.

By colonizing connected devices, the major apps platforms could eventually be able to offer content owners the means to reach viewers directly on both in-home devices and mobile devices, including new video-friendly form factors like the tablet. The shift from in-browser to app-based video streaming is also likely to get a boost from aggregators like DivX and Vudu (now backed by Wal-Mart), which are rapidly transforming themselves from online streaming services to embedded apps platforms for connected devices. Faced with that shift in consumer behavior, a browser-centric offering like TV Everywhere may not be the most effective response.

Instead, cable and satellite providers could soon find they need an apps strategy — and one that does not cede the subscription relationship to other platform providers.

An apps strategy might actually be easier to implement and manage than current browser-based TV Everywhere plans. The specific Comcast or Cablevision app that a subscriber downloads, for instance, could be associated with that subscriber’s particular programming package at the time of the download. Subscriber authentication, therefore, would only need to happen once for each device, when the app is downloaded. Any changes to a subscriber’s programming package could then be handled in the background and reflected in the app through an automatic update, eliminating the need to do an authorization check each time the subscriber requested a particular piece of content.

The best reason for developing an apps-based streaming solution, though, may be defensive: if the MSOs don’t do it, Apple and Google surely will.

Question of the week

Would an apps strategy be better for cable and satellite providers than a TV Everywhere strategy?