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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.”