Cable’s entire video business model went on trial Wed at the Indy Show in San Diego, with experts from all sides arguing that the current trajectory is basically unsustainable. "The foe is the price of the bundle," argued Moffett Research partner Craig Moffett. Cord cutters aren’t necessarily ditching the video bundle for OTT, he said, "they’re disconnecting for over-the-air broadcast TV because that’s all they can afford… The risk is that the bundle gets so expensive that people are forced to look for an alternative."
Noting Comcast‘s earnings call Wed in which the MSO said content costs are expected to increase 10% YOY for the full year, Moffett put it this way: "I think the surprising thing about the 10 percent number is that it doesn’t surprise anyone anymore." He called it "a horrifying thing" for the industry as programmers—under massive Wall Street pressure to grow despite full distribution—feel cornered into demanding constant price hikes. "The closer they get to the cliff, the more they step on the accelerator," he said.
Needham & Co managing director Laura Martin said programmers are unlikely to unbundle their various nets, so "I think over time you might have to throw off entire bundles." That’s a scary prospect, considering that many of those bundles include sports content vital to customer retention and Deutsche Bank managing dir Douglas Mitchelson predicting that rising sports costs won’t top out any time soon. "It’s pretty early days, and sports still has a huge amount of leverage," he said.
But in another Wed panel, Pac 12 evp/gm Lydia Murphy-Stephans defended sports pricing as both necessary to fund the "extraordinary" live production costs and to recognize its "DVR-proof" value. Fox Networks pres, distribution Michael Hopkins got a few audible groans from the small operator-heavy crowd when he suggested that "sports is a pretty small percentage" of the overall cable bill after factoring in equipment fees and other charges: "Set-top box charges are more than ESPN." He said "both programmers and distributors have failed" on technology innovation over the years. "Had we all just said ‘let’s do video on demand’ in 2001, I wonder what the DVR penetration would be today," he mused, adding that half of some Fox shows’ total viewing is now time-shifted. Hopkins also suggested that cable emphasize the bundle’s value, noting that grocery store owners don’t publicly complain about the wholesale price of Coke. "I think we spend a lot more time denigrating our industry than promoting it," he said. "We should focus more on promoting what we have instead of publicly talking it down."
NBCU evp, content distribution Matt Bond agreed that cable content is "dramatically by magnitudes improved over what it was 20 years ago" and has never been a better value. That discussion prompted MCTV pres Robert Gessner to rise from the audience and take the mic to argue that it’s not about value—it’s about affordability. Challenging the earlier Coke analogy, he said "I think it would be a far different world if every grocer said you could sell it in a 5-gallon bucket, and that’s it." The Indy Show crowd then applauded. And so the trial continues…