Ever since Time Warner Cable's (TWC) Melinda Witmer uttered the quote of the year, I've been interested in how content deliverers, particularly cable companies, are dealing with the new media reality.
I don't know what a TV is anymore. It's kind of an anachronistic term.
- Melinda Witmer, Wall Street Journal, 3/25/2011
Nielsen (NSLN) released a study last month that shows the very real (and exciting) transitional period content deliverers and creators find themselves in. The following takeaways should not come as much of a surprise:
- Cable is not dead, but it's not growing.
- "Traditional" television viewing skews older (50-64 years of age).
- Internet video viewing skews middle age (35-49 years of age).
- Mobile video viewing skews younger (25-34 years of age).
- 18- to 34-year olds who are "heavy-streamers" of online content tend to "under-index" on traditional TV viewership.
- 12- to 17-year olds spend one-third of their time online watching video; presumably they'll become heavier mobile users as they prepare to exit their teens.
As somewhat of an aside, I found it startling that Nielsen reported the following:
Overall TV viewership increased 22 minutes per month per person over last year, demonstrating moderate growth and remaining the dominant source of video content for all demographics. Even the lowest fifth quintile of TV viewers still averages an hour of TV consumption per day, with the highest quintile tuning in for nearly ten hours per day.
I guess the obesity researchers will not rejoice at this breaking development. As the various content deliverers and creators jockey for position, however, they undoubtedly will. And, make no mistake, they're jockeying. Cable and satellite companies certainly do not want to go the way of AM radio, left with a dying audience as the young folks shift tastes to today's equivalent of FM Radio - online and mobile viewership.
As an investor, I like to consider how companies anticipate trends as they prepare themselves to remain relevant one, five and 10 years from now. Led by people like Witmer, the cable companies have at least started to take the initiative. While they'll likely go in and out of court, content deliverers and creators will soon realize that their best interest lays in ensuring one another's survival (for the cable company) and success (for all).
However it shakes out legally and contractually, cable companies are poised to relegate the physical television to nothing more than just one of many ways to view content. Time Warner Cable has an Internet/mobile application, as noted in the above-referenced article about its negotiations with Viacom (VIA). Cablevision (CVC), Comcast (CMCSA) and a zillion other TV Everywhere purveyors provide the same. The programmers are in on the action as well with Time Warner's (TWX; the programmer, not the cable company) HBO GO and Disney's (DIS) ESPN app drawing the most attention.
Bottom line - the chips are still falling. First, it's impossible to keep track of (a) how many TV Everywhere initiatives exist and (b) who drives them - content deliverer or provider (or a true partnership between the two). Soon, I think you'll see clearer collaboration. it only makes sense to set up a model in which the programmers continue to create the content and the establishment delivers it via any device a consumer wishes to view it on. The possibility for dynamic social interactivity and creative, revenue-generating advertising platforms abound.
As Netflix (NFLX) CEO Reed Hastings said himself recently, TV Everywhere poses the biggest threat to his company. Cable companies exist as location-specific entities. Cablevision means little to me in Santa Monica, California, while everybody on Long Island knows its name. It only makes sense for the cable companies to cut deals with the programmers to have complete access to content across devices. Stop licensing content and start sharing the massive subscriptions and advertising revenue that becomes possible under a well-defined and standardized partnership between cable company and content provider.
Why pay $8 a month for reruns on Netflix when you can get them on-demand and/or live TV through a cable company app that comes free with your cable TV subscription or for a monthly charge without one? And there's no reason why the programmers cannot sign separate deals with satellite providers, DirecTV (DTV) and DISH Network (DISH). Ongoing competition between cable and satellite will prevent both establishments from resting on their laurels.
Of course, Netflix will cry collusion, but they'll get over it. In fact, the programmers will likely be happy to continue accepting a check from Netflix for stale programming that, on its own (as in, not part of a package that includes fresh content), carries little, if any, value. In other words, Netflix better hope that House of Cards works.
There's always got to be a next step, however, particularly if you want to survive in a world where companies no longer become blue chips. I often chide Netflix for owning nothing, other than its merchandising and recommendation engine. It farms out everything from storage to infrastructure to other companies. It even notes that it relies on an online streaming competitor, Amazon.com (AMZN), to run its business.
If I am in the boardroom of a major cable company, I am talking about doing something Netflix could not possibly afford to do - buy companies that make online and mobile streaming and advertising possible. If you're serious about owning content delivery and creating a truly innovative, interactive and lucrative viewing and advertising platform, why not buy Akamai (AKAM), Limelight Networks (LLNW) and/or the many progressive mobile advertising companies that Google (GOOG) and Facebook seem to gobble up every other week?
Instead of relying on the likes of Amazon, Akamai, Limelight, Google and Facebook, cable companies should take the initiative, hire instead of eschew young tech hot shots and build a business that relies on more than desperately seeking (and paying way too much money for) other people's hard work. Netflix cannot compete with this type of fire-powered approach. And the cable companies, unless they open their pocketbooks and unleash their aggression - now - probably cannot compete with a Hulu-fied Google or Microsoft (MSFT).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.