• by Tim Ware , Op-Ed Contributor, October 19, 2015

It is fascinating how television consumption patterns are becoming dangerously fragmented. According to Nielsen’s Q1 2015 Total Audience Report, 18-34 year olds spend nearly as much time using digital devices as they do watching TV. The television advertising and video subscription businesses have the most at stake.

The rise in TV Everywhere has created a false sense of hope for cord-cutters and cord-nevers: The idea that linear networks will band together to create slim bundle packages or direct-to-consumer offerings through a la carte deals is an absolutely disruptive concept. 

It is a logical first step, but not a long-term solution for anyone. 

Sure, viewers have never experienced this degree of choice in digital platforms and OTT content, but the distribution and content discovery challenges remain.  

At the forefront of this chaos are the multichannel video programming distributors (MVPDs), who have been maligned for either denying or completely ignoring the eventuality of cord-cutting and the emergence of cord-nevers, investing in lobbyists so they might cling to the regulatory and bundling models that are beginning to crumble. 

They’ve never encountered a business cycle whereby they weren’t organically increasing customer bases and channel capacity. Furthermore, the high-speed Internet services commonly sold in accordance with video programming TV bundles have labored furiously to keep up against rapidly increasing consumption. 

Meanwhile, net neutrality laws have protected streamers like Netflix, Hulu and YouTube from having to pay supplemental fees as drivers of heavy bandwidth consumption. 

The picture looks somewhat bleak, but the industry is nowhere near the event horizon that some of the critics of the current broadcasting and cable model are suggesting, for two reasons; access and speed.

Access

Short of launching your personal satellite and/or laying some fiber in the backyard, the MVPDs still own the biggest data pipe into the household. They still benefit from first-mover status and market share that has evolved into Internet and voice.

Cable operators have been a primary conduit for television content and bandwidth to enter the majority of U.S. households. They benefit from a 35 to 40 year head start building customers and services. Yes, their infrastructure requires significant upgrades and investments, but they continue to be the fattest data pipe into the household.

Speed

The need for speed was fully realized at the turn of the century during the height of the ‘dot com’ boom, and was a tipping point for Web consumption. As high-speed modems grew in sales and use, there would be a symbiotic relationship between consumers, content creators and service providers that brought us to the present moment. 

Now, unless Google/Alphabet somehow gains FCC approval to roll out fiber nationally or some other disruptive phenomenon that would enable high speed access direct to your home, the MVPDs are sitting in the catbird seat. That is not to suggest that it will be easy for them, but high speed delivery into the household is their business to lose. 

The stakes are high, as is the opportunity and investment. Bets need to be placed. M&A will continue and subscription and advertising models will continue to evolve. 

The one constant is that video consumption and fragmentation will grow to the benefit of all TV consumers. And while MVPD’s ‘video subscription’ offerings may dip, revenues will be more than offset with the growth of bandwidth services. The bandwidth business should arguably generate better margins once infrastructure investments begin to yield returns.

Subsequently the bundles and programming tiers will give way to more choice from a consortium of slimmer packages and direct-to-consumer offerings like Netflix, Hulu, Crackle, CBS All Access, HBO Go, etc. 

This unto itself becomes an a la carte pricing model that cable company lobbyists will have difficulty denying. Customers will benefit with more personalization, choices and touch points to consume his or her favorite content. But it's unlikely they will save any money. 

Sports is another huge wildcard but at the moment is the strongest asset preserving the pay bundle, but that is for another time.

Content maybe king, however distribution is vital and the last time I checked, the cable, telco and satellite providers have all the pipes directly into your home. There is too much great programming and too many ways to consume it for MVPDs to screw it up. The operators will just have to work a little harder to support and win your business, which should be good for all of us.