Commentary
The Rise Of The Virtual Cable Company
- by Dave Morgan , Featured Contributor, October 6, 2011
Yesterday, Microsoft announced that its Xbox 360 would now carry free and subscription services in most major markets around the globe. Beyond gaming and Netflix and Hulu, which have been part of Xbox for some time, the connected gaming console will now carry channels like ESPN, HBO, Bravo, Syfy, BBC and services like Comcast Xfinity, Verizon FIOS and TT&T and previously Web-based content like Google's YouTube.
For all of the talk of potentially disruptive Over-the-Top TV services, this is probably the most significant move we've seen since Netflix and Amazon launched their streaming services. Am I being a bit extreme? I don't think so, and here are my reasons why:
Xbox already proven platform for TV viewing. Connected Xboxes today are already used for TV viewing on average of one hour per day. That dwarfs the average Americans Web video viewing by by a factor of 10. More great content on that platform will only drive that number, and ratio, higher.
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Beginning of the end of cable company proprietary set-top boxes. It is significant that several of the largest multichannel video distributors have signed up on the Xbox deal. I'm sure many of them would like to be out of the consumer hardware business. Just wait until we see large volumes of smart, connected TVs. They will become like Xbox too.
Could herald a la carte channel purchasing. With ESPN and HBO doing deals here, how long can it be before other, must-have networks, offer their channels on a stand-alone basis - AMC and "Mad Men," anyone?
Fast path to major ad revenue steam for Microsoft. Steve Ballmer has made it clear for years he aspires to eventually drive 25% of the company's revenue from advertising. Online is not likely to satisfy that goal. TV and it's big dollars just might. Don't underestimate what a company like MSFT might do to finally achieve that big audacious goal.
What do you think? Is Microsoft on a path to being our first virtual cable company?
Lot of comments at National Cable Show in June about Comcast's Xcalibur project which includes moving set top box logic to the cloud - obviously opens up competition and removes franchise de facto exclusitivity - there have been debate on this at Linkedin Group Cable-TV under ala carte discussion - traditionalist in cable think they still have as much as 10 years - many, such as Dave and myself, now see it differently - easily coming within next couple of years. Cable is well behind in targeted marketing via social media. Motorola and Google M&A may also facilitate targeted ad based solutions to cover content costs
As the Four screens converge this Xbox exposure certainly strengthens the MSFT ad opportunity. Already strong in the in-game, web, search, mobile (growing), content and now TV space they will be a formidable competitor for Google as they both aspire to be more than search and web media. As an MSFTie myself I believe! Big news for MSFT and their advertisers.
What will this mean for their stock price?
Herb, I totally agree. There is no way we are going to see but a small fraction of today's proprietary set-top boxes in 10 years. More likely, most will be gone within 5. Once a substantial number of changed out, I think we're going to see a wide open new targeted ad eco-system develop.
I'm very happy to hear this. I live in the Chicagoland area and the dominent provider is Comcast, AT&T U-verse has yet to make it to my area. I can say that I hate Comcast and am always looking for a way to get rid of them. Hopefully Microsoft will be a good option for me.
I agree with Dave's statement, "There is no way we are going to see but a small fraction of today's proprietary set-top boxes in 10 years". Consumers will do away with the cable companies. Dish is also an option provided you don't live in an apartment complex (such as myself) where the owner will not allow anything to be mounted on the building.
I think competition is well overdue. The cable companies need to know that we can survive and feed our tv viewing habits without them.
Dave, nice article. We just published a blog making the same case, but leaning heavier towards Netflix becoming the first virtual premium multi-channel pay TV network:
TV, movies, original programming, subscription .... but on-demand, un-bundled, non-facilities-based and multi-channel.
The Taming of the OTT Video Shrew
http://www.instat.com/infoalert.asp?Volname=Info%20Alert%20%23343