In the run up to Cable Congress, IHS analyst Guy Bisson gives his views on the state of the industry and where he got it wrong.
What were the most significant developments for the cable industry in 2013 and what are some of your predictions for the industry in 2014 and beyond?
If only I was a ‘glass half full’ type of person. If I was, I could claim to be 50 per cent right in foreseeing what I think were the two key developments for the cable industry in 2013. Trouble is, I’m not. Not only do I generally see every glass as half empty, but I believe that half a glass is already as good as gone. That means I have to admit to being half wrong last year in thinking that Vodafone would not push ahead with its acquisition of German cable operator KDG—one of the two key developments in 2013.
The other key development was the moves by Virgin Media and Sweden’s Com Hem to bring Netflix on board as a content partner within the TiVo platform. That one I did predict some years back, as any regular at the Cable Congress will know.
On the face of it, these two events seem unconnected. What links the acquisition of a German cable company by a telecoms operator eager to access a local fixed-line network, and the content and channel negotiations of two Northern European cable companies? Well, not only are these two events closely related, they set the scene for my five predictions for 2014 and beyond in terms of key industry developments.
1/ Mobile operators will increasingly seek alliances with cable infrastructure owners and other TV platform operators and content owners.
Here’s a true story: some years ago I got a call from a client in the telecoms business telling me my forecasts for European pay TV ARPU were “obviously wrong”. The reason, they argued, was that ARPU always goes down, not up as my forecasts showed. I politely explained that in the pay TV business, it was indeed possible for ARPU to increase over time, a concept that was completely alien to the client concerned.
In this anecdote lies an illustration of why the Vodafone/KDG deal may not be the only alliance we will see between mobile and cable. Mobile operators are sitting on increasingly fat distribution networks driving the industry more and more into the realm of video and entertainment distribution. For the mobile players, entertainment means an opportunity to get a bite of that mysterious upward ARPU flow.
At the same time, cable and pay TV operators not only see broadband as key to their offer, but are looking to provide entertainment services on the move to multiple devices. Suddenly, alliances that some years back looked like questionable partnerships to add quad-play to the cable service portfolio take on a whole new rationale. Mobile is one of the key planks in the future of multichannel entertainment, broadband provision and, of course, telephony: the cable Holy Trinity.
2/ The Content Distribution Network (CDN) will become the next area of focus for cable investment and acquisition.
Here’s another one that has been on my predictions list for some time, but I believe that another area not only of investment but of potential strategic merger activity will be cable operators and CDN infrastructure owners. Cable operators have always been in the business of investing in and owning infrastructure. Now the CDN is crucial to successfully scaling entertainment delivery in the OTT space. By investing in or acquiring CDN infrastructure, cable operators have the opportunity not only to maintain their central role as entertainment pipe providers, but also to establish a new business-to-business revenue segment offering channel and content partners CDN services. To me, a natural fit for the industry.
3/ ‘Quint-play’ by adding Wi-Fi and out-of-home access to entertainment content will be the norm.
By now you can hopefully see a pattern. If mobile alliances become common and CDN investment becomes the norm, then as cable operators look to move beyond triple and quad-play, the out-of-home entertainment network will become the fifth service in the cable arsenal. Wi-Fi access is already available from a number of cable providers, but this will evolve to embrace a full provision OTT service offering that reflects the best of the cable content offer and encompasses broadband and mobile services on the move. This will mean that…
4/ Super-fast broadband will no longer be enough to differentiate the cable proposition, and content will again be thrust to the fore: cable’s position as broadband pipe provider will make content investments and alliances important again.
All of this means that control of content, something the industry has backed away from in recent years with content division divestments, will again be pushed to the fore as a means of service differentiation. Fast broadband has been a major driver for growth in the cable industry over the last decade and an essential part of the triple-play proposition. To date, cable has been highly competitive, winning the price-to-speed battle hands down across Europe.
Now though, as broadband is seen as a way to access full-service entertainment content (indeed some of the first widely available 4K HD will be distributed over broadband rather than via traditional broadcast means), cable operators will differentiate their broadband offers on the content access and services that they bundle. That could mean that money that is no longer being spent on linear channel operations is diverted to OTT content propositions. But, of course, one source of content alliances and immediate differentiation are the existing OTT providers like Netflix, meaning….
5/ OTT providers will be seen as friend, not foe.
OK, so this can’t really be a prediction anymore as it’s already happening through the deals that Netflix is inking with the likes of Virgin Media and Com Hem, but it’s important to re-iterate because these deals unify all five of the predictions made here. Let’s summarise:
• Cable is moving beyond triple-play…
• Mobile operations that also embrace Wi-Fi are looking like attractive partners as data and entertainment on the go become core…
• CDN investments will be needed to fully participate in both the future of entertainment delivery and the future of entertainment service provision…
• To differentiate bundled services in the future, the content proposition will be key, and this content proposition will increasingly be about OTT…
• Meaning, OTT content will be essential to the overall bundle. Of course, this doesn’t mean only third-party OTT providers like Netflix, but cable-curated services too. Today though, existing OTT propositions with a well-established name represent a quick win for cable operators.
So there you have it. My top predictions for 2014, and beyond… at least near-term ‘beyond’. But in the fast-moving entertainment industry, predicting any further out quickly enters the realms of Science Fiction: cable operators offering neural implants for entertainment and communication? Ask me again in a few years.
Guy will be speaking at the Cable Congress 2014 event taking place in Amsterdam on 12-14 March 2014. For more information and to register, please visit cablecongress.com.
