Kate Bulkley, Media Analyst.

Cable has a lot to learn from OTT

By Kate Bulkley

Broadcast News

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For Broadcast Mar 16, 2017

A fast pipe is not enough in today’s market

I’ve been attending the Cable Congress in Europe on and off for more than 20 years, but this year there was a different vibe. There were still plenty of tech-dominated booths and coffee-break conversations between (mostly male) engineers and widget providers.

But there was also a new, somewhat grudging, respect for OTT providers like Netflix and Amazon, and fresh strategies such as investing in sports and other content to differentiate cable services, plus the launch of several pay-TV-lite services.

The desire to provide the biggest and fastest broadband pipes into homes still figures large in the industry’s thinking. And well it should, given that the margin on broadband products is typically two to three times more than what those companies can earn selling video.

But there is a renewed appreciation for what one analyst called the “power of the bundle” – which is one reason why Virgin Media owner Liberty Global has bundled Netflix into all its cable boxes across Europe.

According to Ben Keen (until recently a senior analyst at IHS) the ‘cable bundle’ of services allowed operators to push up their average revenue per user from ¤20 (£17.50) per subscriber in 2012 to ¤24 (£21) in 2016.

But cable companies need to differentiate themselves from the likes of Google, which launched YouTube TV in the US this month (essentially a cable bundle of TV over the internet), and Netflix, which will soon reach 100 million global subscribers. In this context, owning a fast pipe is not enough.

Omnicom Media Group chief executive of global investment Barry Cupples painted a future for brands and ad agencies in which speed of delivery is a given. What he’s concerned about is AI and algorithms.

He knows that consumer engagement is key and that mass audience ratings are just one element in attracting the customer. Netflix certainly understands how to use its customer data to offer a better-curated and, therefore, stickier service.

For Cupples, when facing up to Google, Amazon, Netflix and Facebook, cable had better become more data-led and insight-rich – and quickly – or it risks bringing “a knife to a gun fight”.

Tellingly, several senior cable execs don’t quite know what to do with Amazon Prime Video. Is it like Netflix, a sort of premium HBO-like service, or is it something else?

Not one but two senior Liberty Global executives told the audience that cable’s business interests and Amazon’s don’t align, because Amazon is not really in the business of selling TV.

Amazon is in the business of selling everything else and uses TV as loss leader, a bit like how Walmart and Tesco used to use DVDs to generate footfall in their stores.

YouTube TV’s ‘cable bundle’ of channels sells for $35 (£29) per month, but the cost of the content is likely $33 (£27) per sub per month. “We don’t understand the economics,” say the cable guys.

But that’s the point. Google’s YouTube TV model is all about eyeballs and advertising; Amazon’s is about getting people into its virtual store.

The cable guys may not recognise this, but they had better figure out how to compete against them or work with them. Because one thing is for sure: Amazon, Google et al are not going away.

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