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The Realities of the Virtual MSO

The Realities of the Virtual MSO

For fans of college football and the NFL, watercooler talk has run rampant the last few months as to who will be at the helm of the Longhorns and the Redskins next year. For followers of the pay TV landscape, speculation has been equally wild, surrounding the future of satellite, telco and cable operators in light of announced (and rumored) acquisitions.

Intel is likely to offload its OnCue TV with a core driver being the cost of content. For pay TV operators, the cost and process of acquiring great content has always been part of their business. As programmers spend millions of dollars (approximately $6MM for each episode of Game of Thrones - well, it's not easy finding dragons for Daenerys) creating great content, the cost transfers to pay TV operators who transfer that to subscribers. Consequently, the OnCue technology would likely be a logical fit for pay TV operators.

Just last November, Time Warner CEO responded to Google's announcement that they--and other over-the-top (OTT) providers--were spending $100MM a year in original content for YouTube, "We're doing five billion dollars a year of production on our networks and TV. So … welcome." 

Can You be Direct Without Digital?
Recent speculation is that operators - DirecTV and Verizon included - may be considering an approach akin to a virtual multiple-system operator (MSO) by delivering content directly to consumers over their home Internet without the standard pay TV subscription set-top box.

One of the greatest changes we see today in how consumers are accessing content is that mobile usage - accessing content and consuming video - continues to grow and - in some cases - has exceeded desktop usage. This mobile lifestyle extends beyond the physical demarcation of home vs. work (or home vs. vacation). The mobile lifestyle implies that even within the home, consumers expect access anytime, anywhere and from any device.

As a DirecTV subscriber for the last several years, I'll share my experience which reflects what I think is fairly reasonable usage. In the home, we have two televisions, each with its own receiver and the ability to view DVR content on the other device. Unfortunately, the capability to access content on both receivers required new hardware (and additional cost); however, most of my working day is spent either in the home office or on the road (often on a plane or train).
DirecTV enables me to

  • Download video on-demand (VOD) content to the DVR
  • Stream VOD and some live content to an in-home digital screen
  • Stream some live content to a digital screen while out-of-home
  • Stream DVR content to a digital screen while out-of-home (via GenieGo)
  • Download DVR content onto a digital screen to view out-of-home (via GenieGo)

Access to live, VOD and DVR content has increased my video consumption both in-home and out-of-home. These services aren't perfect, as content rights appear to restrict the availability of live content for both in-home and out-of-home and the GenieGo process is both cumbersome and optimized only for smartphones.

As we think about DirecTV's initiatives to provide content for every screen, the conversaion shifts. The dependency is the delivery of digital bits: the home broadband connection.

Pay TV Services Bundling
Satellite providers have the envious advantage of reach, but their cable and telco competitors often provide their own "services" bundling: pay TV and Internet.

In these cases, the perceived threat of cord-cutting by existing customers isn't always a 100-percent revenue loss as a customer's decision to replace their television viewing with an OTT provider would still depend on an Internet connection, one that they already provide and that is likely priced higher when selected as an individual service.

With that in mind, DirecTV's streaming ambitions will ultimately be dictated by - as noted by CEO Michael White - "somebody else's highway." Given my personal experience, there are many opportunities to lock in their core content differentiator (i.e., NFL Sunday Ticket) and extend their existing digital services and upsell services to their core. GenieGo, with some admittedly major technical rework to improve UX, performance, and ease-of-use, could easily be a $5-10/month add-on service (as it provides online and offline access) instead of a $99 one-time fee for a suboptimal user experience.

V is for Verizon
Looking at the spectrum of pay TV options, Comcast remains largest in terms of subscribers and continues to innovate (from RDK to SEEiT). Comcast is also in a unique situation as the owner of a premium creator of broadcast content, i.e., NBCU.

However, Verizon represents an interesting horse in the race.

FiOS Video includes 5.2MM subscribers, and FiOS Internet includes 5.9MM subscribers (with speeds up to 100Mbps). While these numbers are outweighed by Comcast's 20.3MM Internet and 21.6MM cable subscribers, Verizon Wireless includes 101.2MM subscribers, with 4G LTE coverage available to (based on their measure) 303MM people. While their 4G LTE network may not be the fastest, Verizon's access to AWS spectrum may push performance to levels competing with its own FiOS service and other options by cable providers.

Verizon's recent acquisitions of upLynk and EdgeCast within the digital space - and its unsuccessful pursuit of Hulu - foretell a strategy that hints of digital and broadcast convergence. Oh, and those OnCue rumors. Assuming Verizon can manage costs, retain access to content as it does today, continue to invest in new content rights such as its billion-dollar NFL deal, and add some of the "Apple magic" for its user experience, Verizon is putting the pieces in place to be a strategic player in the disruption and convergence of pay television, OTT and the digital lifestyle.