Disrupting cable TV will take a team effort

by Ian Rosenwach on 2.22.2014

Bottom line: Cable is a huge entrenched industry. Innovation and disruption will take a team effort. 

The proposed Comcast Time Warner merger cements the fact that the cable industry is not open to disruptive partnerships. If approved, the company would maintain the status quo by providing consumers with fewer choices; not innovation.

See Paul Krugman’s Op-Ed on innovation:

Interestingly, one cliché seems to be missing from the boilerplate arguments being deployed on behalf of this deal: I haven’t seen anyone arguing that the deal would promote innovation

And this on the status of Netflix talks with Time Warner:

The discussions are unlikely to progress before Time Warner Cable (TWC)’s $45.2 billion acquisition by Comcast Corp. (CMCSA) is completed, said the people, who asked not to be named because the matter is private. Comcast, which isn’t as far along in its own talks with Netflix, is focused on increasing film downloads and rentals with its new X1 set-top box platform, they said.

There’s also the issue of a single company controlling access to content for so many people. This would give a combined Comcast Time Warner huge leverage in picking winners in the media business. A play-to-pay model could emerge, where high-growth media companies have to pay a toll to access the mass market.

Time Warner – A Partner No More

Both Netflix and Apple were talking to Time Warner about partnerships to (presumably) integrate their technology and content with Time Warner’s cable infrastructure. We don’t know the details, but now that Comcast’s in the picture the prospects for those talks have dramatically lessened if not removed from the table completely.

Comcast touts their X1 and upcoming X2 as the future, acting as (in borrowing a phrase from Silicon Valley’s playbook) an “Entertainment Operating System” –

Comcast has more than 1,000 engineers working on software improvements for X1, said Sam Schwartz, chief business development officer for the pay TV provider, which finished 2013 with 21.7 million video subscribers and could grow to 30 million by purchasing Time Warner Cable. (Bloomberg)

Is it reasonable to expect the next game-changing innovation in TV to come from within the industry? History suggests not.

Comcast has been successful as a cable company, not a technology company. They can hire as many engineers as they want, but they will work within the confines in Comcast’s existing and highly successful cable business. The chances for any real innovation that dramatically improves people’s lives are tiny, if existent at all.

Any success in getting customers to adopt a new product from Comcast Time Warner is the fact that they’re already captive to their service.

Recent History of Innovation

The iPhone transformed the mobile communications industry. Apple led the transformation of the smartphone market with the launch of the iPhone – not the phone companies. They simply came along for the ride.

Worth noting is Steve Jobs’ 2010 explanation of why Apple launched a phone instead of the TV  –

It’s not a problem of technology, it’s not a problem of vision, it’s a fundamental go-to-market problem. (Business Insider)

Jobs explained that since the cable companies give away set top boxes, consumers had very little interest in buying a box that wasn’t part of a bigger package. The perceived value of the hardware was already zero – it was all about the content.

Like mobile phones before the iPhone. Very little focus on the design of the hardware and software. Cable companies, like mobile phone companies of old, give away a mediocre product to maintain control over the underlying service.

The iPhone changed the consumer expectation of what a mobile phone could be. The same will happen to the set top box. Except the cable industry is not interested in coming along for the ride – they want to be in the drivers seat.

Creating A Viable Alternative

It’s time for Apple, Netflix, and other companies to work together to bring innovation to cable.

At a basic level, cable companies provide access to content and distribution. Let’s break down the pieces of our cable subscription and how each could be supplanted –

  • Content delivery, including “last mile” (Google Fiber, funded by the consortium)
  • Set-top box (Apple TV)
  • Operating system (Apple iOS)
  • Sell direct to consumers (Apple stores, Amazon, other retail partners)
  • Broadcast TV access (Aereo)
  • Marketing (Apple, funded by consortium)
  • Strike deals with content providers to offer their content on Apple TV (Apple, Google, Netflix & partners)
  • Premium cable content (Netflix, Hulu, YouTube)
  • Channel curation (Yahoo, AOL)
  • Billing and payments (Apple iTunes for a la carte and Amazon Prime for subscription)
  • Live Sports (ESPN)

The list could go on, but you get the idea.

Key to the success of the effort would be market positioning. The message could be that consumers finally have an alternative to their expensive cable and internet service. But not just that – it’s a better experience. Consumers won’t have to deal with a guide that has irrelevant channels, making navigation easier. Advertisements will be less intrusive. Best of all – it’s cheaper! 1

In Conclusion

One thing holding Silicon Valley back is an aversion to partnerships from the biggest companies. This makes changing entire industries more difficult, but not impossible, as we saw with the iPhone.

It’s time to change this mentality in order to improve cable TV for millions of Americans.

Bottom line: Cable is a huge entrenched industry. Innovation and disruption will take a team effort. 

  1. Being cheaper is not guaranteed. This depends on what content is included in a subscription package, what the price of the subscription is, and how much a la carte content people buy.

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