Someone recently asked a good question.
- What’s the future of entertainment for a cable provider like Comcast?
Although Comcast also provides Internet and voice services, but for now I'll only focus on it content distribution service, aka cable TV. To analyze the future of Cable TV be it Comcast or AT&T, let's see the threats this business face. From a high level, I think there are following threats to Cable TV which all arise from internet (technology)
- Websites like hulu.com
- Netflix
- Rumored Apple TV
- Content creators who now also distribute content on internet, through their own websites
- youtube
Hulu, founded in 2007, has support from NBCUniversal, News Corporation, The Walt Disney Company as they are its part owner. It has partnership with 350 content providers. Its user base is constantly expanding. Many providers who don't provide their shows on hulu, still have links available on hulu that will take you to their website where you can watch the show. One such example is "Unforgettable" from CBS. In this particular case we see that content provider is also distributing it through its own website, falling into our category 4 above.
Netflix which started as a movie subscription service in 1997, now offers online streaming of its movie service. It has also started streaming TV shows just like hulu. Although TV content currently provided by either hulu or Netflix nowhere nears what viwers get through Cable TV, but these providers are constantly increasing the content they provide, so although some years but it seems like it is now a matter of time when virtually everything provided by Cable TV would be available on hulu and Netflix combined.
Third on my list is the rumored Apple TV. This is definitely the one that Cable TV industry should be most frightened of. Apple changed the music industry forever with its famous iPod combined with iTunes library. If and when Apple comes with its TV which some people are already calling iScreen, chances are it will be a game changer for TV industry in General and Cable TV industry in particular. Imagine an equivalent of iTunes for TV.
Fourth on my list are the content providers who have also started to distribute their contents from their own websites. For example if I want to watch my favorite john stewart's daily show, I don't have to stay up late and watch it on TV anymore. I can watch it at my own convenience either on hulu or on dailyshow.com. Now, I don't exactly know the deal between hulu and comedy central for revenue sharing but I am assuming Comedy Central makes more money when I watch the show on their website, giving them an incentive that viewers watch their show on their own website rather than hulu. Then we have, other providers like CBS who stream several of their shows online on their own website.
Lastly, I mentioned youtube. Now this may not sound like a real competitor to Cable TV but youtube recently has made some pretty good changes with its advertising model. It has also started a movie streaming service which is rather expensive. I wouldn't be surprised if Google partners with content providers to provide shows and movies on youtube just like hulu.
For those who are familiar with the concept of Long Tail know that most people don't need what is provided by Cable providers. Every person has its own niche and hulu, youtube, Netflix and websites of particular TV shows, ESPN.com and its live streaming and similar services can now fill those several niches, leaving very little market for Cable TV providers. Only 6 years ago, Cable TV providers had mostly other providers as their competitors. That is not the case anymore. In fact competition from other providers is not as cut throat as it is from several of these players serving these niche areas. I mean how do you beat free?
One of the things that Comcast and other cable TV providers like AT&T are already doing is bundling their services. These providers provide internet, so they are using their advantage as Internet service provider to bundle these other services. But, how long can they sustain it? There are providers like dish network who don't bundle these services so a customer can only get TV from them and go to a different provider for internet.
This is a never ending discussion but at the end I think the real threat to cable TV business comes from specialty providers who are all serving their own niche. Comcast is adapting well by providing on demand features to its Cable customers. To keep up with this emerging competition, it will need to match services while not increasing prices at the same time. This can affect its bottom line and to maintain profits, it needs to find ways to either cut costs or find new areas to generate revenue. Looking at last 10 years of Comcast, it seems like the company has not grown at all and in my opinion it is the pressure from competition we discussed above that is eating its potential profits.
I think future for Comcast is not all that rosy. It will face challenges in growing and worse retaining its customer base. It should continue to increase its partnership with content providers to increase services to tablets and mobile devices. This would be similar to WatchESPN. But if rumored Apple TV is true then partnering with Apple, if Apple looks for a partner, can be a jackpot because the other option will increasingly look like RIMM or Nokia.
