ACA Summit: Challenges Seen As Video Rides Broadband Wave

From left to right: Moderator Bob Fernandez, Philadelphia Inquirer, Craig Moffett with MoffettNathanson, Steve Weed, Wave Broadband, Gene Kimmelman, Public Knowledge, Ross Lieberman, ACA

For independent cable operators like Wave Broadband, a big chunk of the company’s growth comes from broadband as the video business continues to be flat, CEO Steve Weed said during a panel at the ACA Summit Wed. It was a sentiment echoed by many at the annual gathering of independent cable operators in Washington, D.C.

“After you acknowledge that broadband is the lead product, there’s a recognition that video is just an application” running on broadband pipes, Craig Moffett, principal with MoffettNathanson, said.

But will the broadband business end up mirroring the pay TV model as more consumers view content online?

Thus far, the broadband experience from a consumer’s perspective “has been vastly different from the cable or satellite experience,” said Gene Kimmelman, the new pres/CEO of non-profit Public Knowledge. “It’s not some bundle product. It’s been this amazingly open market with innovations and new products and services and the unbelievable ability to customize…”

But he’s concerned that the model could change as more video proliferates broadband. “Do over-the-top providers have to pay the same prices” that traditional providers do? There’s a belief that virtual MSOs will never be able to take off under those economics. Moffett questioned whether they’d even want to, suggesting most businesses would scoff at the idea of having to negotiate with customers and inform them their costs are going up every year.  “It’s a terrible future,” he said. “Early on, everyone used to say, the cable industry is going to get killed by disintermediation… It shouldn’t take longer than a couple of minutes to say you would never want to do that.”

The current pay-TV industry has an “odd” business model: Competition drives price up rather than down, Moffett said, noting even as more players entered the industry over the years, prices have increased. AT&T and Verizon’s video entry didn’t bring about the price war some had hoped for. … “Interestingly, will the emergence of Netflix or Amazon, actually drive those prices even higher? … The challenge for an industry that has too much pricing power is it makes a very attractive business until suddenly it doesn’t,” he said. “Eventually, pricing power would be self-defeating.”