I have analog cable TV service with about seventy channels. Last week, for reasons that were not explained to the public, Time Warner turned off four channels. Of those, I watched only one, a secondary C-SPAN channel that can be streamed over the Internet. I was not upset by the change.
It reminded me, though, of a recent report that the under-30 generation isn’t signing up for cable TV – whether analog or digital – like their parents did. What the 20-somethings really want is fast Internet access, both fixed and mobile. They look to Hulu, Netflix, and other companies for programming. Google and Apple are entering that market. Microsoft, of course, is anathema to that generation.
This trend is very disturbing to cable companies. They saturated the market for analog TV long ago. HBO subscriptions, despite all their variants, have begun to fall. Most folks who are willing to pay extra for digital TV have already signed up for it. The majority of households now have some kind of fast Internet access, too.
So, if you run a cable company, it’s not obvious how to grow your revenue. Cable companies are profitable, of course, but they have two problems. One, many of them are highly leveraged and need revenue growth to retire their debt. Two, their equity investors and their executives expect year-over-year revenue gains and won’t be satisfied by only increased dividends.
For the wireline side of AT&T and Verizon, the outlook isn’t better. Their residential fiber deployments are taking some market share from cable companies, but that’s basically a zero-sum game… and the capital outlays required for those deployments are huge. Sales of old-style telephone service, both local and long-distance, to residential markets have fallen sharply.
Meanwhile, revenues of the wireless carriers – mainly AT&T, Verizon Wireless, and Sprint – are being pushed forward by 3G. Steve Jobs and Apple have created a windfall for the wireless carriers; millions of people are signing up for a mobile data plan. This is solid revenue growth for the wireless carriers, and it will last for the next 10 years because the next technology cycle, called 4G or LTE, is already in the pipeline.
I’m mistrustful of wireless companies because they have striven to create a “walled garden” in which they control the availability of phones, the software loads on those phones, the bundling of programming and services, and so on. I concede that the walled garden has been generally successful so far. But eventually it too will run into the 20-somethings’ expectation of a world where all the intelligence (and business value) is on the edge of the Internet -- and the carriers simply sell pipes.
