THE CABLE PIPELINE

Apple TV is in the news again, this time with a proposed subscription service that takes aim directly at the Cable Industry, see (Apple Pitching Subscription TV to Content Owners). Apple TV would work directly with Apple iTunes to bring consumers the highly regarded brand of Apple along with a TV Subscription Service for about $30.00 per month, a substantial discount on what Cable Operators are charging for their Digital bundled services which start around $60.00.

Significantly, if Apple is hoping to target their service as one that provides individual channels to consumers without the mass bundling that cable offers, their hurdle will begin with securing the programming rights from a content industry which has largely been successful due to its relationship with Cable Industry giants like Comcast and Time Warner Cable.

This is a tricky proposition for Apple since programmers have lucrative contracts with operators that support both subscription and advertising revenue allowing for all that great content to be produced and distributed over the pipelines. Comcast and Time Warner Cable have huge infrastructures that require packaged bundles, which offer overall cheaper rates for customers, while supporting the enormous costs of the pipelines. Also many programmers have contracts with cable that stipulate carriage of multi-channels which they do not want to jeopardize.

On the other side, just look at iTunes and what has been accomplished with music when Apple began charging for downloads on iPods and now iPhones, which turned out to be wildly successful when the Music Industry failed to realize that consumers were willing to pay for their favorite tunes, of their choosing. This is a key statement that may be behind Apple’s foray into a cable’s multi-billion dollar industry built on broad sweeping content packages.

If consumers are willing to pay $30.00 per month for securing content of their choosing, channel by channel, the aim may be popular, via A La-Carte. But does Apple see a significant market here, quite obviously they do? However the hurdles of securing those key contracts with programmers will be a (make or break scenario), which brings me to the point, that it will be difficult in my opinion, to change the current market in any meaningful way, at least in the short-term. 

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Reportedly a deal may be close with Comcast/NBCU. Ok, I’ve have been inundated with all the reasons why such a merger should not happen, from Wall Street’s pandering of a short-term profit loss, to the remembrance of the botched deal to acquire Disney in 2004. Well this is different, and the landscape has changed significantly since 2004.

Both Comcast’s (CMCSA,CMCSK) Brian Roberts and Steve Burke are out front selling the deal as a long-term strategy that will put the cable giant in a strong position to compete with  the Telco’s, DBS, Netflix, Boxee, and Apple TV, if that hobby ever comes alive.(see Apple Pitching Subscription TV to Content Owners)  Here is the crux of what the merger represents and what NBCU (GE) has to offer, including (Film) with Universal Pictures, Focus Features, and Universal Studios Home Entertainment; (Digital Media) including Hulu, iVillage, NBC.com, CNBC.com; and the (Television Group), with stations that will obviously have to be sold off where markets overlap.

It smacks of a good fit if you consider what Comcast brings to the table, including a footprint of over 24 million customers, Comcast Interactive Media with Comcast.net, Fancast, Fandango, DailyCandy, thePlatform, and Plaxo; its own stable of cable channels with Comcast Cable Networks including E! Entertainment Television, Golf Channel, Versus, The Style Network, G4, TV One, PBS KIDS Sprout, ExerciseTV, FEARnet, and Comcast Sports Group.

From both a long-term competitive and shareholder equity standpoint, the venture sets well with my analysis. After all, it will not break the Comcast bank and sends a stern message to those who might be thinking this company is not ready to take on all comers in the Digital TV and IPTV markets. 

The one question that remains in the back of my mind is whether Docsis 3 and PON (see SCTE Cable-Tec Expo ’09), technologies will be enough to carry the HFC platform, with a well put together content and footprint combination, and as a long-term strategy position? The Cable Industry continues to be convinced of this technology, and they have been around long enough to make well thought out decisions. But FTTH continues to be accepted worldwide as the (end-all) scenario in pushing broadband content and applications through the pipelines. Comcast should make sure that their vision meshes seamlessly with its pipeline capabilities.

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