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Forget TV — broadband is the future of cable

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Time Warner Cable (s TWC) CEO Glenn Britt made a surprising comment earlier this month when he told the Wall Street Journal (s nws) that the operator was looking at broadband as its “anchor service.” What’s so surprising about that? Well, not only do video services still make up more than half of Time Warner Cable’s revenues, but pushing broadband at the expense of pay-TV services has been shunned by many who are afraid such a move would relegate the cable operators to being a dumb pipe.

In my latest piece on GigaOM Pro (subscription required), I discuss the reasons why cable operators are afraid of putting their broadband services first, but I also give some reasons why cable operators shouldn’t be afraid to transition from the business of TV to broadband delivery.

Two things are clear: First, broadband adoption is growing at a pretty rapid clip, while at the same time, video subscriptions are flat or down. And second, those broadband services are providing increasingly better margins while the margins on the pay-TV side of the business are being squeezed.

Last quarter, video subscribers declined in record numbers, according to Leichtman Research Group (LRG), which tracks the top 14 multichannel video operators. Meanwhile, the broadband side of the house continues to grow. Cable, satellite and IPTV providers lost more than 325,000 video subscribers in the second quarter, while gaining 350,000 broadband users, according to LRG.

Those broadband subscribers are also a lot more profitable than TV subscribers. Check out this graph of broadband margins versus TV margins from Strategy Analytics:

Of course, there’s an inherent danger to pushing technology that could cannibalize the pay-TV businesses. Cable operators don’t really want to enable Netflix (s NFLX) and its $7.99 a month unlimited streaming video plan to better compete with their traditional video offerings, especially when cable companies don’t make any incremental revenues off online video services. At the same time, they don’t have to share their profits with content creators that distribute online, either.

While video services still make up the bulk of cable revenues today, it might not be long before other cable operators join Time Warner Cable in viewing broadband — not TV — as their “anchor service.”

For more information, check out my piece, “What’s so bad about being a dumb pipe?” on GigaOM Pro (subscription required).

Photo courtesy of Flickr user Sugar Pond.

9 Responses to “Forget TV — broadband is the future of cable”

  1. When broadband becomes the primary distribution means for content, it’s crucial that content providers that aren’t broadband providers be allowed to compete on an equal footing with those that are.

    If those that own the pipes are allowed to stifle competition by limiting access to those pipes by competing content providers, broadband will be the new cable, not a replacement for it. That’s why network neutrality is so important.

  2. Lindsworth Horatio Deer

    True for Cable companies now considering a second act as as Triple Ply Provider with their ISP’s and VoIP telephony as well as Satellite Broadband. This as they are seeking to go into broadband to augment their sagging Cable Business. Especially as Google is showing interest with their Motorola Mobility aquisition and like Netflix they have plans to go to Latin America and the EU

  3. Over the air TV plus Netflix is all you need now. They know it. We know it. It’s about time the MVPD cartel looks themselves in the mirror and understands that they did this to themselves. A la carte could help save their bacon, but they won’t dare to offer it. Fools.

  4. Bruce Benjamin Thomas

    I cut the cord completely and have been receiving my television online. I like being able to watch what I want, when I want, and most importantly the cost savings. I just couldn’t justify paying a lot of tv. However, I must admit that I miss knowing that at the same time I’m watching that millions of others are watching the same thing as old style TV gives us a sense of community involvement which I don’t hear often discussed. Another thing I don’t hear discussed enough which is a benefit to online TV is that I actually like the commercials online as opposed to dumb TV commercials. I enjoy when Hulu says to me “Bruce, people who watched this show are X time more likely to enjoy XYZ show.” I always freak out a bit when I see that and think “How do they know my name” but then I remember that this is smart TV not the old dumb TV. I also like the targeted commercials and being able to give them suggestions about which types of commercials I’d prefer and which I don’t like so that I don’t see those again. As Google first figured out, I don’t mind commercials if they are correctly targeted which is something dumb TV just can’t do.

  5. Tim Smith

    Much like Verizon did to Cablevision and is about to do to Time Warner? There’s nothing that says Cable companies have to exit the video business.. just EVOLVE the business model.. if netflix is so popular.. make your own… didn’t cable companies emulate the VOIP business model? If traditional “CHANNELS” video business is in decline put that on the sellers of the content, don’t make it YOUR problem. Provide what consumers want and not what they don’t.

  6. Advice to cable companies is the same as for any other company: if you don’t look for ways to cannibalize your existing business, your competitors will do it for you.