Pay TV should be “afraid, very afraid” of Google Fiber, SNL Kagan says

27 Comments

While even its vast cash resources won’t allow it to roll out fiber to every TV home in the U.S., Google Fiber (s goog) is something pay TV operators should be “very, very afraid of,” said a report issued Wednesday by research group SNL Kagan.

“Google Inc. is reinventing the business of pay TV and broadband — and it may not need to wire every U.S. city to make an impact,” wrote SNL Kagan analys Deborah Yao, in the report’s lead.

Also read: The economics of Google Fiber and what it means for U.S. broadband

Two weeks ago, in Kansas City, Mo., Google launched a new fiber-based broadband and video service.

For $120 a month, subscribers get uncapped internet access that’s 172 times faster than the national average. They get a 2 terabyte DVR, capable of recording up to 500 hours of programming and eight shows at one time. And they get an as yet incomplete but growing selection of basic cable channels, albeit one that currently lacks such powerful draws as Disney’s ESPN (s dis), News Corp.’s Fox News (s news) and AMC (s amcx).

The research company quoted Moody’s investment analyst Gerald Granovsky, who said that even with an astounding $45 billion of cash on hand, Google lacks the resources to accomplish the staggeringly expensive task of rolling out its fiber nationally.

“They don’t have the cash for it,” Granovsky said. “We would be shocked if they were to expand this.”

But as SNL Kagan insinuates, Google — which spent $500 million to bring its Fiber to Kansas City — might just try. Quoting our own Stacey Higginbotham, the research group noted Google’s belief that it won’t lose money in Kansas City, with a customer-required $300 connection fee covering deployment cost.

SNL Kagan added that Google cut expenses by building its own set tops and running its fiber over aerial power lines instead of cutting them into the ground.

Also notable: Verizon spent $23 billion to bring FiOS fiber to 17 million homes.

“One could argue that Google may not have to wire every U.S. city, but just enough cities for pay TV operators to start changing their behavior,” reads the SNL Kagan report. “As Google proves that it can offer a superior product at lower prices, regulators could pressure cable and telecom operators to do the same.

According to the research group (and as previously noted by GigaOM) Time Warner Cable — the largest multichannel operator in Kansas City, with a 33.9 percent market share — is so concerned about Google Fiber, it’s offering employees $50 gift cards for tips about the service.

27 Comments

fabieuxhabieux

Makes sense. Google is into advertising and pay tv is just advertising with content in between. Maybe this is where Google got its revenue model to begin with.

In a sense, tv, phone, radio and even books were the first internets, and now modern internet companies are doing all four. It was inevitable!

woefully hardly helpful?

It’s of little use with a standard TV antenna and a phone line, of course.

Which is likely to stay that way when one is more interested in phonographs and old bicycles.

Kevin Horne

“as yet incomplete but growing selection of basic cable channels, albeit one that currently lacks such powerful draws as Disney’s ESPN, News Corp.’s Fox News and AMC”

um, just a tiny little elephant in Google’s fiber room, dontcha think? very afraid, indeed….

Tom

Bottomline: If you want the telco and MSOs to build abetter plant and provide better costs, two items have to change. The first is the antequated regs built around the telco and MSO models. Change those to allow true compitetion in the IP world and watch out. Howeverm the states will lose a lot of tax revenue – as they do with Vonage and such – so they will start taxing IP services if that is the new norm. Second, the content owners have to get there act together and allow us to help them realize how to monitize there services on an IP/OTT/Ala-carte service. They have the real strangle hold on what is on your system. The advent of OTT service has cut into their traditional/solid cable revenues and they are alittle over whelmed with the new normal that the customers demand and most telcos and MSOs are ready to provide. Change the regs and change the content rules; life will change over night and we can then afford to build fiber. PS the $300 fee is a non-started in KC so they are waiving it for the first to sign up for a two-year commentmnet.

txpatriot

Except that broadband Internet access and non-basic cable are not rate-regulated.

Shawn

What am I missing here, it doesn’t make sense to recreate another broadcast cable provider, they just become a “me too”. Recording 8 stations on the edge device? Really, why?

On Demand is the future. And content licensing is so passé. Google and/or Apple need to be the “tollgate” and everyone should pay as you go to the source providers. Google, Amazon or Apple can take 30% of each transaction to create a viable storefront. and source providers should be on all platforms.

Why do I pay for HGTV if I never watch it?

Virtuous

Pay TV is overdue for transformation. Cable carriers and content providers have stifled innovation with their monopolistic practices.

mike

“One could argue that Google may not have to wire every U.S. city, but just enough cities for pay TV operators to start changing their behavior,”

What behavior changes are they suggesting. The free market and compitition will take care of increasing rates. They way channels are bundled is the only issue that needs to change. An a la carte system is way too long over due. If Google will let me pay for just the channels I watch, then God bless them. I suspect they will just be another provider pushing the same old crappy channel packages and giving cover to all the providers that already claim we dont need an a la carte system because we have plenty of choices in providers to give the people exactly what they want. BS! Or they just want some Obama broadband expansion money ( paid for by rural america) so they can wire the already saturated urban areas and leave rural america to be raped by the communication conglomerates even more.

Justin J. Ware

Forget ESPN. Go straight to the leagues and offer them an innovative deal (both in the business side of revenue sharing and in services for fans). I look forward to the day when there’s an NFL Network, MLB Networks, NHL, etc that broadcasts every game without having to go through a secondary network + cable provider. Then, fans can select which sports they want a la carte style without having to pay the massive cost to a cable or satellite provider for a couple hundred channels they don’t care about.

Mike Smith

Google not being an infrastructure company? Which Google are you talking about? They spend billions on long haul fiber and data centers, worldwide. If you look at industry stats, they carry a massive amount of network traffic, and probably have the largest CDN in the world to power YouTube.

As for Kansas City, they supposedly built a national headend at one of their datacenters, and in some of the press coverage they said they encoded their own TV video streams for quality. And why design your own client hardware for in the home? Why not just pay TiVo to build devices for Kansas City?

It makes no sense for them to do this just for one city. Unless maybe they plan to take their video platform retail and deliver over the top TV channels and compete with cable that way. But either way Google is a bigger infrastructure company than any cable operator is today.

They just may be crazy enough to build all over the US – or at least in cities that match what KC did for them.

Rich Lyons

Google TV: Game, set, match: https://fiber.google.com/about/ ….….Next …Apple TV (Hulu Plus Comes to Apple TV (Apple Device Catches Up With Xbox, Roku and Others) …. NAB IPTV Position? _______ None…. Large Internet companies are adding as much outside content with their OTA & Cable content as possible to increase their basic social network and application revenues …WHY? VOD is leading towards “Everything on Demand” (EoD). Video-on-demand (VOD) technology has become a balancing act for executives weighing how to offer more programming without threatening traditional ad revenue. …. (There are no industry standards). …. TV stations cannot stop the competition, but they can become better competitors. Complacency is their biggest enemy. Internet based companies want your broadcast advertising sales revenue, and not just a piece of it, they want ALL OF IT! Rich Lyons
818 516 0544

Sheila Seles

I’m inclined to agree with Alan and Rich on this one. Google isn’t in the infrastructure business. That’s not to say they couldn’t get into it, but improving connectivity would bolster their existing products and service and allow them to deliver, curate, and advertise against more content. A product like GoogleTV can’t work without a fast connection and the proliferation of reliable IPTV would allow Google to try its hand at addressable advertising on a bigger scale than it’s doing now with remnant satellite inventory. I think Google has more to gain by controlling what goes through the pipes than by controlling the pipes themselves. Google Fiber seems like a tactic to scare those with fiber-laying credentials into expanding service.

aladdin

Google actually makes their own network infrastructure in-house, which can all be applied to the consumer sector.

They’re one of the largest hardware manufactures in the world.

Anti Coyote

The real problem has been collusion. AT&T and Verizon basically won’t compete (with few exception to make their collusion deniable. The biggest problem is franchise agreements which will keep Google out of areas.

BA

The problem is not franchise agreements. There have not been exclusive franchises for years, and most municipalities would love for a competing operator to come in and provide service. The problem is finding someone willing to spend the money for a second system.

What we really need are open networks where anyone can come in and offer services at competitive rates. That is the only way we will ever get real competition, and that won’t happen any time soon.

cablebuilder

It’s not collusion. It’s good business. MSOs don’t overbuild eachother because usually, it’s not feasible to split the market, and neither (assuming two competitors) will gain 100% of the market.

JW

Cables have fiber to all their nodes. Bringing fiber to the home is a much easier and less expensive process for the cables than Google laying new fiber all over the country.

earth

`SNL Kagan added that Google cut expenses by building its own set tops and running its fiber over aerial power lines instead of cutting them into the ground.`

I live in KC and watched them string fiber through sewers as well in many hoods. Many ares of KC have no above ground power lines, especially in hirise living areas.

Scott

How did they send it through the sewer ? Was there a specialist company advertising their company ?

cablebuilder

How did they get permits to run cable through a sewer?? I really want to know about that. That seems highly unlikely. And in reply to the statement from the article about running overhead, ALL communications constructors utilize power poles if possible. It costs about 60-70% less to build overhead than underground.

Steve

“FIOS goes in and rewires the house, which is the only way to get fat pipe broadband: the cables installed in the early 80s don’t do it.”

This blanket statement isn’t true. While Verizon might have needed to rewire Alan’s house, they did not need to rewire my home, which was built in 1980. Verizon ran its fiber optic directly to an Optical Network Terminal they placed inside my home, plus one short coax cable to their router. All the other original cable TV coax is still in use for the hi-def TV signal, while the broadband is over WiFi.

Alan Wolk

One word: FIOS

Verizon, having spent billions on FIOS, admitted it wasn’t worth it to expand coverage anymore and will concentrate on filling in areas they’ve already got presence (which translates as “we’re wiring apartment buildings in NYC, Boston and DC”

Laying cable is a big job – FIOS goes in and rewires the house, which is the only way to get fat pipe broadband: the cables installed in the early 80s don’t do it.

There’s no point for Google to expand this program if they can’t wire a significant portion of the US and that will take years – it took FIOS about 5 hours to wire my fairly modest house.

And given they have yet to sign up their first customer… the gaps in the channel line-up are significant.

Biggest story on their deployment is that they are giving away an Android tablet to use as a remote control, which, if they don’t mess up the UI, really give second screen a boost: http://bit.ly/MOVWzf

Edmund Singleton

Rome was built one brick at a time; let the good times roll…

carlso2

I can at some point envision a re-reg of telecommunications, much like in 1996. Then regs said that incumbent phone companies would have to sell a switch on their network so the cables or anyone could get into telephony.

I can see a day where we have new reg’s and cable companies will be required to provide a TV switch to other competing companies to run competing TV systems to their networks.

Sounds freaky, but congress has bought this one more than once. Look at electricity and natural gas deregulation…. let’s send someone else’s product down the line. It goes in here, and comes out there.

The problems might be horrific, but the software giants can probably figure this stuff out.

Rich

“As Google proves that it can offer a superior product at lower prices, regulators could pressure cable and telecom operators to do the same.”

I think making that happen could well be Google’s intention.

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