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Investment analysts on the state of the cable economy

Michael Angelakis of Comcast moderated a panel on the financial state of the cable TV industry with the financial analysts Jason Bazinet of Citigroup

By PETER WHITE

Published: 23 June, 2011

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Michael Angelakis of Comcast moderated a panel on the financial state of the cable TV industry with the financial analysts Jason Bazinet of Citigroup Investment Research, Thomas Eagan of Collins Stewart, LLC, Doug Mitchelson of Deutsche Bank Securities and Benjamin Swinburne of Morgan Stanley. A summary of what they said follows.

The cablecos have only about 30% of the potential for their three services — pay TV, broadband and phone — so there’s an enormous upside. Additionally the advertising revenue could be increased from the $4-to-$6-billion range to the $6 to $7 billion range. The company that integrates all content sources into a single, easy-to-use interface will have a big advantage.

Over one-half of the cablecos’ profits come from video and broadband has a big upside. ARPU increased 60% over the last 10 years and should continue to increase. The cablecos’ biggest threat is the content companies are licensing to the OTT services. The OTT services now don’t have the scale, the local programming and high-quality content of the cablecos. However, Netflix is not the ultimate threat to cable TV. Everything could change quickly if a major player that had accumulated lots of cash from another business entered the OTT market — such as Google, Microsoft or Apple — and gets a license deal for IPTV devices with someone like DirecTV.

Any of those companies could sell content at break even and still make money on search ads and viewing devices. There’s a missed opportunity among the young and the underclass who cannot afford cable TV’s prices. 14% of US households are headed by a single person. Half or more are female and may feel they don’t need sports over and above what’s on local broadcasts, cannot afford cable or decide they don’t need it. One analyst proposed household fee based on the number of devices it had. Another analyst reminded the audience about how many times financial analysts had been wrong.

The biggest cable-TV competitor yet to emerge will be online. The biggest cost issue facing cablecos is the cost of programming, especially sports. One analyst said he’s bullish on broadband and the advantages that DOCSIS has over the telcos’ DSL technology. However, he feared the cablecos could become only a pipe for delivering someone else’s content. The Internet, unlike the cablecos’ pay-TV service, is by nature an open platform. Another expressed a concern that the content owners are putting more and more content online, rumors about “out-of-market” activity by Comcast/NBC Universal and the rapid changes in users’ consumption of content.

The cablecos have to get their products on more devices. One urged the industry to roll out a usage-based model for broadband, calling it inevitable like it is for electricity, gasoline and water. One said the industry should put Netflix on the STB and sell it for a dollar or two more a month — one smart box does it all. Keep the quick product development cycle shrinking, said one analyst. Concerning the lack of rollouts of network DVRs, one said it’s harder to do than expected, and technology and content rights are not currently in synch. Don’t put any more money into Clearwire, one said. It’s not justified to buy or build a wireless network. Instead use Sprint and Clearwire. In any event, the cablecos could get their spectrum if they went belly up. Mobile data delivery will never be a cost-effective alternative to wireline. Move aggressively at putting Internet access on STBs.

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