Apocalypse Now?

Apocalypse Now? Incumbents Foretell of Stormy Seas "My Generation" Portends New Generation of "Dual-Screen" TV

TDG was the first research firm in the U.S. to warn of the very real threat that OTT TV would have on the traditional business of home video. In fact, several years ago we predicted many of the specific headlines you are now reading (Blockbuster implodes, Netflix rises, substitution and replacement of PayTV services by OTT, and the inevitability of a la carte as a consumer option). This issue covers many of these important stories, but we're saving Blockbuster for next week (its bankruptcy deserves special attention ). It's weeks like this that make us happy we started OTT Monitor!

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Apocalypse Now? Incumbents Foretell of Stormy Seas

While four distinct stories are featured below, in combination they warn of the precarious position in which incumbent PayTV operators now find themselves (and thus offer up a nice rhetorical theme). Is this "the end of times" for traditional PayTV? Of course not. Is cord cutting going to overtake the consumer market in the next six months? No. That said, there is no doubt that the PayTV business - and the business of home video in general - will never again be the same. But you don't have to believe us - just listen to the incumbents!

• Verizon Admits OTT Threat - At Least for Cable (?) On Thursday, Verizon CEO Ivan Seidenberg told a Goldman media conference crowd that cord cutting is not a myth, not even greatly exaggerated, but inevitable - especially for cable operators. "Over-the-top is going to be a pretty big issue for cable." Wouldn't OTT also be a big threat for TelcoTV operators like Verizon? Not exactly. Why? Cable operators are overly dependent on a TV-centric bundle, whereas telcos are relatively to the video game and tend to center their bundles around broadband.

Yeah, whatever! This rationalization, while humorous, reveals Seidenberg's deeply held belief that OTT is a serious threat to all PayTV incumbents - cable, satellite, and TelcoTV players. Related Reading: The Wall Street Journal/All Things Digital [http://r20.rs6.net/tn.jsp?llr=o8uqg7bab&et=1103715217045&s=57&e=001zF-EswkCsfdWLD-qfhBoOpQAKLRhrdsMWMjtSDg6uJFeZRGaJ_d-ElRtOyBX6m07pa68E0mIy0RzOzhop_p88vdf2Y2w8fHHAIBZXd3Ink245W7aXpN5vveePPbAxfZNGkgkoCDeQoCiumUrx3ziFnaZbclT6dGVC22NkWsHx6kl-Kjg-j1hmQJg85eCyyd29lukfxI7QY6prhv85qtf6CgRUynrfsw4HhCaBXHgG1E=] • Comcast Tacitly Admits Extent of Netflix Threat Speaking at a September 15 Bank America Merrill Lynch media conference, Comcast CFO Michael Angelakis took time out to discuss the growing competitive issues between Comcast VOD and Netflix. The Xfinity platform, he argued, is also designed to support streaming video, something Comcast will have to do if it is indeed it is to compete with Netflix. In his own words, Comcast no longer has its "head in the sand" regarding the competitive threat known as Netflix. Perhaps the most interesting thing about this: Comcast feels that Netflix is now enough of an issue that he needs to explain to investors why Comcast will be able to compete. A tacit admission of Netflix's long-term competitive potential? Absolutely. Related Reading:

Home Media Magazine [http://r20.rs6.net/tn.jsp?llr=o8uqg7bab&et=1103715217045&s=57&e=001zF-EswkCsfeDC5m6GTJzbvJUAi_KlaGoVcywvdCusvtRGqgfDr2reWmSmNSIqXbsK5588dVWkQbBfiBxZyDnJ8x5B5eGmy-sVSq9TDaKVi2ili4-ybYZOcAnATyVHiFCwmPpzTbiYpgBqvQBXKFGQrNK7XkKVYfpUbfr9Zju781LfippiLSC1fa_pJ9N55jzrgKs3lOpjf6DtNJRIJB-MQ==]

• Time Warner Cable's Q3 to Reveal Significant Video Losses Twice in two weeks Time Warner Cable's executives have "dropped the bomb" about the expected loss of video subscribers during Q3 2010. Are they trying to tell us something? Speaking at the same Bank of America Merrill Lynch media conference previously mentioned, TWC CFO Rob Marcus said the company expects year-over-year PayTV subscriber numbers to decline during Q3 2010, the cause of which he said was the poor economy. During Q3 2009, TWC lost 84,000 video customers, meaning Q3 2010 will likely see video losses exceeding 100,000 subscribers (our words, not his). TWC stock fell nearly 5% on the news. In an attempt to downplay, Marcus's prior comments, this week TWC CEO Glenn Britt reminded the Goldman Sachs Communacopia crowd that the reason TWC will lose more video subs is the poor economy, not mounting competitive threats. Britt stressed that subscriber growth was not about to "fall off a cliff," but added that the weakness in video, voice and data customer growth was tied to the economy, specifically the increasing presence of "multi-family arrangements" and "vacant homes." So how effective was his attempt to downplay prior comments? TWC shares fell 3% the same day. Ouch! Related Reading: Multichannel News [http://r20.rs6.net/tn.jsp?llr=o8uqg7bab&et=1103715217045&s=57&e=001zF-EswkCsferilQ5JE13TTXIoMLihOjxCbZu1j_PaLYD-9STY17Xuwj6mBnw1t6RAdCdNqc27-yRCtXPCz7ERJduScctMbHCs81uyb1NIooa9C-fwLPmqWEVIMcQqQAB41pKjFzNC6F4tM73xvqX1jwvuqxQ1D_0Agb7N548x0Y=](Marcus comments)

Multichannel News [http://r20.rs6.net/tn.jsp?llr=o8uqg7bab&et=1103715217045&s=57&e=001zF-EswkCsfe1sH1IehR7aXdRRkoy6cexjSKjJyob-1sxQkoPI4lfk106pZo7v5FaJg2m49UKg7kQG4d-yzzYTF3IFCO2J7x6AHKwcStZR8Jew4sTwbUu5IC1hLzWh8wmioFiZ2-Q9a5bdxn0NqB5tEBacJLF40vEqTl-RYSKkqfJuUAHQk0fHwQAHPX_kRxkfWD9V9t3ndBMGL9qF3JzzqXcaeuoXxqP](Britt comments) The Wall Street Journal [http://r20.rs6.net/tn.jsp?llr=o8uqg7bab&et=1103715217045&s=57&e=001zF-EswkCsfdwbSpbAo4fnVBtPpNYU6MtbQLZFAyBqPJTwQFwYx0r2LGnYNI7XOshvSVa49PUbLMO-tf1Tdd2R5Si7Cp2Tcfh7tK4p2YUGhoHVrvZGXxu-HQi9wmgNFefCQgLbkjk1I63WhpBB9DiNCZGctUy5hSF](subscription required) • Cablevision CEO Warns that Increased Retrans Costs Could Spur A La Carte - and That's a Bad Thing? Shortly after we published last week's OTT Monitor story on Comcast's warnings that cable prices are likely to go up because of retransmission costs, Cablevision's CEO James Dolan told an investor conference in California "if network programmers push for higher retransmission fees, the cable industry could be forced into a la carte pricing."

You may recall that, though a proponent of a la carte, TDG had little faith U.S. PayTV operators would budge on the issue, even if retrans fees continued to increase. Is Dolan informing use otherwise? Not at all. In fact, this is really a veiled threat, a warning to the video industry of the catastrophes that would follow if rentrans fees continue to escalate. In his words, "The impact of a la carte on the programming industry would be devastating." Okay, not so veiled....

Here's the predicament in which many operators find themselves: either embrace some version of a la carte (a la Canada), or end up fueling demand for less-expensive OTT TV services. Avoiding one or the other requires walking a tenuous tightrope - the heights are dizzying, and the slightest misstep could require altering the entire PayTV business model.

Related Reading: The Wall Street Journal [http://r20.rs6.net/tn.jsp?llr=o8uqg7bab&et=1103715217045&s=57&e=001zF-EswkCsfdXGoBXBcHgaOjBIJ6SXJIWhR6-LSmKg9wVdyKnJ1-w_AoWw1UBK23iThelJN6JaeJRgNJxwBFFXm-fmJBjrCsnoEWHteFWos-y-BJze5xPYTm3YJrTCD4QyZSj5gQ86dvQRGTKIkKfzq52kOwRlOB9](from Dow Jones Newswire)

ENDS

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