Disruption in the cable space due to disintermediation and fragmentation is undeniably real. You only have to look at Time Warner Cable’s plan to bring live, in-home, IP video to a raft of new devices this year, including PCs and gaming consoles, as further proof. But is a potential real menace to cable operators — namely a virtual MSO — on the horizon?
According to sister publication CableFAX, it depends on who you ask. In a recent analyst note, Sanford Bernstein’s Craig Moffett argued “no.” Sure, such companies as Apple or Amazon theoretically could beguile programmers by paying more for content than MSOs currently do (Comcast pays approx $30/month), but “as anyone who has ever tried to launch a streaming video business can attest, there are huge and very real infrastructure costs,” Moffett wrote. “For a large scale start-up, the cost could run into the billions.”
Moreover, he added, cable operators would counter the success of any virtual MSO by adopting usage-based pricing that “would undermine the fundamental premise of the virtual MSO — that it is cheaper.”
In December 2011, BTIG analyst Richard Greenfield said, “The stage is set for one or more virtual MSOs to be created in 2012,” and he argued a virtual MSO could address the potential bandwidth problem by incenting customers to upgrade to higher service plans. Customers would oblige, he said, because “they would be saving video bill dollars in the first place by shifting to the virtual MSO from a facilities-based competitor.”
YouTube’s launch of dedicated content channels is underway, and Microsoft’s Xbox Live service offers cable channels on an a la carte basis and through U-verse TV and soon FiOS TV — both logical precursors to a virtual MSO model.
Yet Moffett pointed out that Microsoft has given up on advancing the model; would enough programmers be willing to shun the traditional cable set-up to allow Apple or Amazon to move forward? Netflix CEO Reed Hastings doesn’t think so.
If we’re talking about “a national footprint over-the-top MVPD, I don’t think that’s going to come into existence,” said Hastings recently. “Several large firms have tried to put that package together and backed off. I think what we’ll see is a continuation of the current localized ‘over your own pipe’ model.”
Moreover, he said, “there’s very little market just for streaming rights. Hulu Plus and Amazon are quite small bidders compared to the cable networks that we bid against.”
On the flip side, Robert Kyncl, vice president/Global Content Partnerships at YouTube, said at CES last month he believes 75 percent of all channels (whether currently on TV, online, etc.) will be transmitted and born on the Internet by 2020 (click here for more information). Until then, BTIG’s Greenfield cites Amazon, Hulu, Samsung and DISH among those companies that could go the virtual MSO route.