Cable Show Wrap: Amid Huge Success, Why Are Executives So Nervous? (Analysis)

NCTA Convention Boston - H 2012

NCTA Convention Boston - H 2012

Threats like "over the top" competitors and runaway data usage are solved or being fixed, but cable still acts like it could lose its dominant position on the media landscape.

BOSTON -- As the annual NCTA convention of cable TV insiders ran out of time and energy Wednesday, there was an odd buzz in the hallways. While there was no doubt that cable is king of the media landscape, there was a definite feeling that the industry sits on a shaky throne. There was surprisingly little glee about all the successes of recent years.

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Among the reasons for cable executive anxiety in recent years:

*The Internet provides a highway for content providers to sidestep the gatekeepers of cable and go directly to consumers.

*There is a threat from “over the top” providers poised to swoop in and steal enough cable customers to drain the profit out of a business with a huge overhead and endless capital needs.

*The business of providing high-speed broadband has grown, but margins are threatened by increased video use by customers on fixed-cost contracts.

*And the recession has made consumers wary of high cable bills, potentially stalling customer growth after years of rising rates on both the basic and pay tiers.

Yet this year as some 13,000 people gathered for the National Cable & Telecommunications Association confab in Boston, all of those threats seemed to be in cable’s rearview mirror, or at least the solutions were in sight. The reality is that there has been no rush by content companies to bypass cable, which has been and remains an important customer. In fact, media congloms Time Warner and News Corp. have lined up with cable to push TV Everywhere, an initiative customers like because it means they can get content on all their devices from the TV to the smartphone.

What nobody likes to say is that TV Everywhere is an insurance policy for cable. That access is only for those who are already subscribers and are willing to “authenticate” that they are paying customers before they can benefit.

The over-the-top threat has mostly fizzled. These services may have the technology, but without the content -- the branded channels everybody wants -- they are just empty pipes. A small cable-channel executive told The Hollywood Reporter during the show that to get carriage on a major cable system operator’s properties, he had to sign a contract that not only banned him from selling to over-the-top competitors in markets that MSO served but in all markets in the entire region around the territory that company serves.

The move to charge consumers for how much system capacity they use when they watch a lot of videos is underway, and during the show, FCC chairman Julius Genachowski blessed these efforts to switch from an all-you-can-use system to one that puts a meter on usage and charges data hogs more. The good news: Backers of the metered plan say that those who don’t use much video can pay less, as if that is going to matter in the era of tablets, smartphones and high-tech games.

While unemployment is still high, people for the most part have kept cable because it is perceived as a good value compared to paying for one movie at a time, going to a theme park or even going out for an evening. While subscriber growth is flat or down, research revealed at NCTA indicated the cord-cutters were people who just could not pay their bills because they were out of work; those with jobs have remained loyal cable customers.

The telcos are still in the game but have not made much progress, and cable has settled with wireless. Cable companies sold spectrum to wireless providers, and they have now turned from enemies to allies. Verizon was at the show to announce partnerships with cable systems that want to sell the quadruple play. Cable provides the content, wired telephone and high-speed service while Verizon provides the wireless to the same consumers.

“Comcast launched the partnership first, rolling out the service in three West Coast markets in January,” said SNL Kagan in a report out this week. “Subsequently, the partnership launched in five Time Warner Cable markets April 12 and an additional seven Comcast markets April 30. Notably, none of these markets overlaps with Verizon Communication’s FiOS, which overlaps 21 Comcast markets and 17 Time Warner Cable markets.”

On top of that, there are now more opportunities for cable to shift to lower-cost operations and higher-margin businesses. The set-top box is going the way of celluloid film, record stores and the dodo bird. Cable will deliver IP service (Internet protocol) directly to smart TVs without those costly boxes from Cisco and Motorola. There will be room for more content, better image and faster speeds, and it will cost cable less to operate and deliver. No wonder Microsoft, Intel, IBM and others didn’t even bother to exhibit this year.

While many independent channels feel squeezed out by cable systems that don’t want to pay sub fees unless the brand is going to bring in and keep customers, others see the coming of IP as the opening of a door to more channel capacity.

Paul Cestari, general manager of Veria Living, a health-and-wellness-themed channel, said he was “pleased to see that technology was a central theme of the show. It is great to see that distributors are trying to use the advanced technology to offer more content to end-using consumers.”

Other independent channels trying to compete with the leverage of big companies with multiple channels were not as upbeat. One told THR that he keeps hearing from cable systems that they have no money to spend because of the need to pay huge sums for retransmission consent to local and network TV channels that they must carry to keep local customers happy.

Maybe that is a reason why many had the feeling cable was still looking over its shoulder to see where the next threat would come from. Canaccord Genuity media analyst Thomas Eagan was at the NCTA and wrote in a report issued Wednesday that he “noted that attendants felt subdued despite upbeat industry trends," adding, "We see no reason for the industry to feel anything but upbeat." 

Back in the day (from the 1980s to the early 2000s), NCTA was as much about programmers making announcements, throwing parties and slapping backs as it was about cable systems and tech. Not this year. Viacom, which has MTV and Nickelodeon among other channels, did not even bother to exhibit. Most of the rest, from HBO to Food Network, sent the sales team to deal with distribution issues, but there were few high-level executives, no big splashy parties and pretty much no programming announcements. Those are now saved for the TV critics tour or elsewhere.

The most crowded booth on the show floor belonged to Comcast, but not the part that owns NBCUniversal. The cable system team was there to unveil new technology intended to dazzle consumers with the speed, flexibility and availability of choices when they want it, where they want it and as long as they are willing to continue to pay.

In a true changing of the guard, Comcast for the first time in years was not represented by Brian Roberts, who did not even bother to attend. Instead Neil Smit, a former Navy SEAL who runs the cable operations with military discipline, seemed to be everywhere. He was co-chair of the NCTA convention, spoke at an event and was visible at the opening general session.

Mark Lieberman, chairman of TRA Inc., a New York data and research company, said the new mantra is ROI comes first – return on investment. “If there is a breeze blowing, it's that it's all about ROI,” said Lieberman, who has attended the NCTA gatherings for decades for various companies. “The creative types and general managers are out, and the CFO is now deciding the advertising and marketing budgets as much as the chief marketing officers.“

Lieberman has partnered with dozens of cable operators that now provide data on what people watch, when and for how long, which he is able to correlate directly to how those consumers spend their money at the local supermarket, store and car dealer. He religiously obeys privacy laws while delivering data to advertisers they have long wanted – robust, targeted, accurate information on who buys and uses what. Cable is a key player in the new world of targeted advertising, delivered right to the individual’s home TV screen based on what they like, want and will buy.

In return, he gives his data back to the cable systems for free, while he sells it to advertisers and marketers. “We call it naturally occurring data,” said Lieberman.

“The real chatter,” he added, “is that it's not about ratings anymore. Now it’s how to target the right individual. Its all about ROI for advertisers when they spend money on a network or a show.”

So maybe the answer to why the king is so subdued in success is that the royal bean counters are really the ones in charge now, and they hate to spend money -- even for things that are necessary, like a few extra channels.

After years of consolidation and decades of capital expenditures to upgrade their systems, cable should be poised for a new golden era. But it seems all they can think about is that he who has the gold really rules.