The growing emphasis on emerging and advancing technologies and their potential to bump up cable and broadband company financials along with their appeal to the investor community is intensifying. The result is an accelerated search for innovative technologies that not only drive new services but also company valuations.
And the stakes couldn’t be higher, with competitive pressures, rising customer expectations, thinning margins and investor fickleness all contributing to a cable company’s push for purposeful new technologies and revenue-generating services.
For example, according to PriceWaterhouseCooper’s (PWC) “Global Entertainment and Media Outlook: 2010-2014,” TV subscription and license-fee spending in North America will rise to $108.8 billion by 2014 and video on demand (VOD) will reach $4.5 billion. In addition, the potentially huge advertising market will total $75.7 billion for the entire broadcast TV market.
Add to the mix cable’s loss of 1.8 million customers from its universe from 2005 to 2008, the report noted, and it’s no wonder the cable industry is taking advanced technologies and their business implications seriously. Very seriously.
“Technology is driving cable company valuations,” said Joe Atkinson, principal for PWC media and entertainment. “The consensus is that valuation at the enterprise level is about free cash flow for operators, getting the customer experience right and squeezing more value from infrastructures that lead to free cash flow. Technology isn’t the answer itself, but certainly is a path to increasing valuation for the industry.”
Major cable MSOs like Comcast are already pushing technologies deeper and wider into their business plans. “Absolutely, discussions about innovative, advancing technologies are at the highest levels and part of our daily conversations,” explained John Schanz, executive VP/national engineering and technical operations for Comcast. “Technologies are coming at us at a faster pace and being viewed as enablers to the future. We must pay attention to them.”
Evidently, the company is paying attention. Comcast, Schanz pointed out, considers DOCSIS 3.0, EBIF, Tru2way and the move to all-digital as vital technological shifts and appealing to investors, adding, “The investor community is focusing on choice, control and capacity, so we’ve really accelerated our investment in 3.0 and will make aggregate bets on start-up and emerging technologies.”
Those bets could pay off if the cable industry can sustain its belief that edgy new technologies can drive new services and investor interest, said Jessica Reif-Cohen, first VP/managing director at Merrill Lynch.
She continued, “Having DOCSIS 3.0 is a big deal. It reinforces cable’s advantage versus the telecoms, especially in non-FiOS markets. EBIF is also an interesting story, and we are a big believer in advanced advertising. Our view is that there are three pools of growth: data and interactive connections, small/medium enterprise and advanced advertising.”
Another pool of note is robust Ethernet transport that, according to Julia McGrath, senior VP/marketing and business development for Optimum Lightpath, a division of Cablevision Systems Corp., is crucial to a company’s perceived value by investors.
“If you don’t have a fully functioning Ethernet network, you’re not adding to your company’s valuation,” she said. “Soon, 40 Gig will be the new 10 Gig, and the need for big bandwidth and managed solutions will drive our business.”
But will it drive investors to add the company to their portfolios and upgrade its valuation? Added McGrath, “We must let investors know what technologies we have and that we are future-proofing the market through upgraded optical transport products, softswitch technology, and that we are ready for increased bandwidth needs. These moves help improve our image and value on the street.”
And for the street it’s mostly about value and the technology driving new services. “Cable operators are looking to utilize technologies to increase ARPU and stem the tide of customers moving to satellite,” concluded Jason Blackwell, digital home practice director at ABI Research. “They are aggressively moving to all-digital but beyond that to Tru2way and full IP. That opens a whole new world of IP services.”
It’s an expanding universe for investors as well, he added: “There’s motivation to roll out new technologies to compete, and there are interesting technologies in advanced advertising. These are definitely important for investors, company valuations and improved revenue streams.”
It’s also tweaking the interest of technology companies. “We’re seeing real change happening with the digital transition, MDU gateways and new technologies. The PRO:IDIOM standard is making a difference, too,” said Gabriel Joseph, director/business development at Vecima Networks.
At the end of the day, however, many industry experts agree that emerging and advancing technologies must continue to evolve as a vital component to a company’s valuation.
Concluded ABI’s Blackwell, “The combination of advancing technologies, not just a single technology, will move the industry forward. But it must also stay ahead of the technology curve. That will keep it valuable for the investor community.”