Disclaimer– This article is for informational purposes and does not constitute financial advice. Please consult with your financial advisor before making any investment decisions. Please read full disclaimers here. Author of this article owns cable stocks.
The future of the cable industry is remarkably dynamic at this moment in time. The regulatory environment is changing, the industry structure is changing, consumer preferences are changing, and the cable industry is fighting to find its place in this continuously changing industry.
Below are our top takeaways from the INTX panel:
- Local market consolidation opportunities – Jim Dolan (CEO of CVC) and Tom Rutledge (CEO of CHTR) both spoke of efficiencies to consolidate local markets by swapping subscribers with each other to gain scale at a local level. This would allow for more efficient servicing of customers, more efficient marketing to consumers, and more efficient rollout of local market wi-fi.
- Every cable company seems to be speaking with each other– it was abundantly clear that all the cable company executives are speaking with other to figure out the best industry structure going forward.
- Europeans are “baffled” by US regulators – below are comments from Mike Fries, CEO of Liberty Global:
- “I’m baffled by the Chairman’s remarks and I’ll say it because he doesn’t regulate my business…On one hand, he says the cable industry through consolidation, through scale, fostered innovation in programming as a closed network, yet there is a presumption of guilt and a punishment of success that this industry has achieved that I have never witnessed before in my life.”
- “European regulators are also baffled by what’s happening here”
- “What European regulators have focused on is a level playing field, they have focused on a light touch, they have focused on infrastructure competition. They have not arbitrarily defined broadband as 25mb for example. I mean, what incentive is there for a telco to invest with that as the definition. Why would they do that now?….we’re happy to be abroad, let’s put it that way”
- “To say that the cable industry here or anywhere in the world has not embraced the Internet as a distribution platform for video is crazy…TV Everywhere is at a tipping point. The fact that I can watch my Xfinity Go app, or Horizon Go in Europe anywhere I want, with lots of linear channels, thousands of hours of content, looks like the same interface, if that’s not embracing the Internet as a distribution platform for video, I don’t know what is.”
- Cable bills to go up as a result of Title II – Cable bills are likely to go up not down because of recently enacted Title II / Net Neutrality regulation from the FCC because of new taxes and legal costs that cable companies will ultimately have to pass onto its consumers. See the below quote from the Pat Esser, President of Cox Communications:
- “We have invested $23Bn into our network since 1997. Then, after taking all of this risk, the rules get changed while we’re totally exposed and continuing to invest in our network. All of a sudden, the rules get changed with rules that were really written in 1930.”
- “We are already seeing early signs that within weeks after Title II coming out of the FCC, we are seeing pole attachment fees go up. We’re already seeing new classification of taxes. My legal costs are going up. The legal structure I’ll have to put in place with to deal with all the filings and complaints that come through this process. At the end of the day, my customer pays for that. I just don’t think it’s needed.”
- Broadband is potentially 7x more profitable than video– according to Jim Dolan (CEO of CVC), broadband generates 7x the profit that their video business generates. The implication here seems to be that serving customers with the best possible broadband is where the future of the industry lies even while the video business gets smaller. For example, if cable companies can sell cheaper bundles to consumers by selling smaller video packages but with better broadband access, then, net profit dollars can go up as the mix shift continues toward broadband over video.