In an Era of Great Change, Planning for the Future Can't Wait

The worlds of latency, Ethernet, IPv6 and other day-to-day concerns are cable engineers' lifeblood. The folks in the trenches and their immediate bosses are making a mistake, however, if they fail to closely track the arc of the industry's evolution. By not doing so, they cede any influence they have over its direction and are less likely to be ready once C-level executives make their decisions.This is especially true in an era of such rapid change. During the past few weeks, The Diffusion Group, IHS iSuppli and The Leichtman Research Group have released studies that point to the direction in which things are moving. None of the findings is shocking, but together they paint a picture of a video entertainment industry that is highly competitive and in which change, if anything, is accelerating. Engineering staffs must stay abreast of these changes to that they are not blindsided by demands of corporate decision makers.The Diffusion Group found that “late millennials” - folks in the 18-to-24-year-old age group - moving into their first residence after college are almost as likely to sign up with a multichannel video provider as not. Those that don’t either never do or delay subscribing. The firm found that 10.6% never sign up, 51.4% sign up immediately and 38% delay signing up. The press release points out that while the percentage initially signing up with video providers is lower, eventually more than 89% do become subscribers.IHS reports that in the second quarter, the cable industry lost 588,000 subscribers, while DBS lost 162,000 subscribers. Telco TV players - which IHS for some reason refers to with the more generic and less precise IPTV label - gained 398,000 subscribers.The sequential numbers from the first quarter showed roughly a doubling of cable losses, a move from positive to negative territory for DBS players. The satellite industry gained 57,000 subscribers in the second quarter of 2012 and lost 162,000 in 2013. The telco operators gained slightly fewer subscribers (398,000) in the second quarter than they did in the first (423,000).The cable industry did not have a great quarter, according to The Leichtman Research Group. The firm roughly agreed with IHS on the total numbers. It found that the cable operators lost about 538,000 subscribers in 2013, after losing about 555,000 subscribers in the year-ago quarter. Verizon’s FiOS and AT&T’s U-verse gained 373,000 subscribers after having added 275,000 during the second quarter of 2012.There is some difference in thought about the significance of the video losses in the second quarter. Leichtman suggests that the second quarter - when college kids leave school and summer activities begin - traditionally is a weak three-month period. “It traditionally is a weak quarter,” Leichtman said. “The one thing that people still don’t understand about the industry is that it is cyclical.”The presence of strong telco and DBS providers and the rise of over-the-top players means that the cable industry will continue to lose video subscribers. It’s a given. The question is whether the rate of losses it is experiencing is reasonable in an environment characterized by greater competition among traditional providers and OTT players.Erik Brannon, the U.S. television analyst for iSuppli, suggests that revenue per unit (RPU) still is rising on the industry’s video business by a rate of 1% or 1.5% annually - good news, but considerably slower than the 4% or 5% RPU increases of a generation ago. This decrease, he suggests, may be unsustainable in a landscape of rising programming costs.Brannon suggests that the next big milestone - the one for which all areas of the cable companies, from engineering to marketing must be prepared - is tied to distribution rights for linear broadcasting outside the home. Right now, he said, content owners are happy with the status quo in fees. These deals were negotiated at a time that TV Everywhere was just a glimmer on the horizon. They are unlikely to renegotiate until the current deals expire.And expire they will. At that point, Brannon said, serious issues such as the ability of operators to offer programming in others’ territories will be front and center. At that point, a major step - breaching the concept of non-competitive franchises lines - will be at hand. “The tone is that they have the technology and that it’s a rights issue,” he said.That’s the future. Leichtman suggests that the shifts in subscriber numbers are not as dramatic as they seem in isolation. He also says that “cord shavers” - people who retain their subscriptions but reduce the services they take - also is not as extreme as it sometimes is portrayed. “People thought it would impact premium services,” he said. “It could be that the effect is much more on additional boxes and DVR.”Carl Weinschenk is the Senior Editor for Broadband Technology Report. Contact him at [email protected].