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R.I.P. the Comcast-Time Warner superpower.  One of the most remarkable and it’s a whole new world factors in Comcast-TWC’s death was the meteoric rise in online streaming services.

The Wall Street Journal reports: “Officials at both the FCC and Justice Department’s Antitrust Division concluded the combined companies would have the incentive and the ability to prevent online video competitors from gaining traction. They also were concerned Comcast would have more power to favor its own NBC Universal content over programming being offered online by its rivals.”

This course change very likely will have more impact on the global content game than even the landmark rights extended to satellite TV services a la DirecTV and DISH in the early 1980s in spite of unmitigated opposition by then entrenched cablecos.  Online video providers represent not only a revolutionary new means of delivering content.  They also represent a nascent democratization of who can provide premiere programming.

Even up to the time of Comcast’s acquisition of NBC Universal, traditional pay TV providers and content suppliers reigned generally unopposed over the premium content universe.  If you wanted great programming, you had to access it through the powers that be.  Barely any Netflix.  No CBS All Access.  Absolutely no HBO Now.

 

Ground zero of this revolution?  The 2008 Netflix-Starz deal.  Just $25-30 million/year bought Netflix streaming access to the Disney and Sony catalogs and a seat at the “big boys” table.  The worldwide pay TV business would never be the same.

Barely a year later, Comcast announced it’s planned $30 billion purchase of NBCU in December 2009.  At the end of 2009, Netflix boasted a shade over 12 million subscribers.  Only in 2010 did Netflix begin its international push with a Canadian launch.  Hardly Sugar Ray vs. Marvelous Marvin.

Since that time, Netflix has added tens of millions of U.S. and international subscribers, is the home of several hit original series and its content obligations rose to a staggering $9.3 billion by the end of 2014.

Perhaps just as important as its content outlays, Netflix has poured billions of dollars into technology and development, rolling out to hundreds of connected platforms.  In fact, Netflix plans to spend $500 million on tech/devo in 2015.

(Interestingly, the cost of building out significant IP infrastructure has dropped dramatically since Netflix bought it first streaming servers.  Now a few million dollars of infrastructure launches new pay TV operators and video providers.  Matrixstream is one such cost-effective IPTV/OTT enabler.)

In military parlance, technology continues to be a “force multiplier” for Netflix’s content and marketing strategies.  A force multiplier makes armed forces more effective than those troops would be without it.  Think Army Rangers or Delta Force.

Pay TV titans more than matched Netflix’s programming investment but almost universally miscalculated the exponential impact of Netflix’s infrastructure and development spending.  While Netflix launched on Xbox, Roku, desktops, connected TVs and an endless parade of other devices, nary a traditional powerhouse recognized the dawn of a new kind of warfare — content + access.

This years-in-making advance paved the way for Amazon Prime, standalone streaming offerings from legacy powers including CBS and Discovery Networks and even “skinny” streaming pay TV bundles.  The web-delivered tidal wave ushered in by Netflix’s combined content and tech spending further fueled the incalculable importance of the broadband pipes they ride on.

 

 

Rightly or wrongly, FCC and Justice ruled that consumers would be terribly served by a single company owning 57% of the U.S. broadband internet market and just shy of 30 million U.S. pay TV subscribers.  Regulators reasoned that Comcast/TWC would amount to a stranglehold on emerging and as yet unimagined kinds of content and ways of delivering it.

Consider the FCC’s recent back-to-back-back moves.  FCC Chairman Tom Wheeler stepped out in favor of MVPD status for web-delivered TV operators (affording them rights to negotiate for programming a la incumbent paid television companies), enacted Title II regulation of internet access which the FCC claims will assure open access whether a company owns the pipes or not, and now putting the kibosh on the Comcast/TWC tie-up.  U.S. regulators are proving more than willing to go to great lengths in their attempts to protect online video and open pipes.

But be careful what you wish for.  Government is unrivaled in blazing a path to destruction with a potpourri of good intentions.  Reversing those inevitable missteps will be an Everest all its own.

In any case, the future is bright for online video providers.  It’s actually also bright for many market incumbents.  What’s next?

Predictions:

1) In striking down Comcast/TWC U.S. regulators put other corporate lovebirds on notice.  If a combined company will own a massive amount of paid content customers and internet pipes/broadband subscribers, the bar of approval is now that much higher.

2)  Pay TV heavyweights and major telecoms in countries with robust regulatory bodies will face renewed scrutiny and that scrutiny will often be backed by a willingness to bulldoze media nuptials.  This shift will likely mean would-be partners unloading a bigger bloc of TV and broadband users, selling off spectrum and web infrastructure and otherwise shrinking their influence to get deals across the finish line, undercutting the case for the mergers they seek.

3) Expect the FCC to enact as much as of the framework of the web-based MVPD and Title II regulations as possible before the 2016 Presidential election.  A new Chief Executive will bring a fresh batch of public/private loyalties, regulatory priorities and government philosophies that will shape policy.  Wheeler’s FCC will move to ensure that the next Administration responds to concrete rules of the game.

4) Comcast, TWC (DISH in a few years) and others that have laid or purchased billions in connectivity still win. Comcast owns 56% of broadband subscribers with 25mbps connections or better = the very people buying Comcast and others’ highest-margin products to enjoy all of that wonderful web-delivered content.  Bundle that connectivity with TV and on-the-go service availability through thousands of WiFi hot spots at a relatively reasonable price and good ole cable, satellite and telco looks alluring after all.

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