As cable operators struggle to keep up consumers as they demand more seamless content integration, we sat down with David Jacobs, CTO of Amdocs’ Broadband, Cable & Satellite Division, to analyze challenges facing distributors. He walks us through the “value zone,” and also explains why he thinks the “dumb pipe” model can actually be “brilliant” for some ops.
Multiplatform and authentication has changed the game. What’s the biggest challenge for MSOs right now?
Previously, we had this closed environment with the vendor in the room. Now we’ve got connected TVs, PS3s, game consoles—much more open ways for other vendors to enter the living room and to enter the consciousness of individuals. And we’ve seen the rise of Netflix… A lot more competition in the living room for the same people. Now that’s great, and the pay TV distributors of today can respond to that. But many of the challenges to that are that many don’t have the infrastructure to respond in an appropriate way.
So what do these traditional distributors need to do?
The first element is that largely their IT infrastructure is a subscription based IT infrastructure. Much of it is very much oriented toward a device or a home. It doesn’t necessarily have the sensibility to deal with individuals within the home and recognize that there are individuals who might want their own capability. The second thing is that master catalogs have mostly dealt with what I would call coarse-grained product—bundles of content… Even if you take TV Everywhere type concepts and forget everything else that’s going on, everyone will agree that you’ve got a much finer grain to knead for catalog items.
So is that upsell opportunity the big monetization angle here?
I see three key areas coming together and that are creating this value zone. I think that’s really the way you have to see it: as a value zone. And the value zone is [about] having cataloging capability—in other words, “What have I got? What’s available to me? What am I entitled to?”… The second dimension is obviously the content itself… The third thing that comes together to create this value zone is the ability to perform transactions.
Some, however, suggest that cable stop trying to control this environment and just use third-party vendors, at least for the transactional element. Is that a good idea?
I think that there is a recognition that the bill is already large, don’t add to it and have that handled by a credit card or a Paypal or some other solution like that. But that doesn’t mean the primary pay TV operator doesn’t want to own that experience that the customer is getting… I don’t think I’m unfair if I say that for a very long time the IT functions within many of the pay TV operators was at the very end of the thought process. They’re not part of the product; they’re there to support the product. And now we’re starting to see a change of attitudes in that where IT is part of the product… Most of the IT is very subscription oriented. It handles subscriptions well… But the machinations that have to go on behind the scenes to make it work are not very nice.
But changing those systems can be expensive. Are there ways to do this economically?
One of the things we’ve been working on is adding… a layer that can add this kind of capability to our IT infrastructure, add the elements that create identities for individuals, add the elements that will allow for better extraction in certain areas… So yes, I think there is definitely an intermediate step. I think Amdocs will be one of the vendors that provide a layer that will make some of that happen. But I think we will see incrementally that people will be revamping their IT infrastructures because it’s the only way that they’ll be able to keep up.
What about small operators? They face a lot of competition as well, but they have very small IT resources? What do they do?
Maybe some of them will move to be a brilliant pipe provider and seek to resell other people’s capabilities—almost through a wholesale model. I think the ones that are the most challenged and are in what I call a poverty trap are the tier twos. On the one hand, they still have the deep pockets that the tier ones have got, yet they don’t want to [lose] the existing revenue they get today from pay TV today… I think the model is that they’re very much going to say, “What is the value that I can create myself, and how can I leverage what other people are doing?” Not build it myself, but somehow be able to buy it on a wholesale [basis]. So I do believe that the small guys will embrace the Netflixes, will embrace many of these other alternative providers… and offer that as their service because that’s the way they maintain some level of concurrency with the rest of the industry.
Most would say “dumb pipe.” You say “brilliant.” Why?
Because everyone still makes a good quality pipe… Even today, if it’s not a good quality pipe… people won’t pay for that. There’s more evidence coming out that people will pay for that consistency and that quality.
Any final thoughts?
I think everyone’s really excited, but you have to remember where we are. We’re still at the 0.5 at best of what we’re creating here. I don’t think we’ve reached 1.0 yet… We’re still really early days… I think we all need to kind of remember that.
(Michael Grebb is executive editor of CableFAX)