Cast Aside?: Why Comcast and Other Cablecos Are Struggling

Analysts still don’t have estimates as to the exact cost of upgrades to cable company networks.

"The upgrade to DOCSIS 3.0 itself won’t be too expensive, relative to what Verizon has to spend to pass and turn up a FiOS subscriber," claims Heynen. "But, when you add in the upgrade to switched video, the total cost to upgrade their existing infrastructure to keep pace with the satellite operators on the video side and the telcos on the broadband side will be pretty significant."

Not everyone is sold on cablecos needing substantial network upgrades to deliver their current content-driven services, however.

"If cablecos use what they know about their customers — such as what they’re watching from their set-top boxes — and extrapolate from that, they can pre-cache all types of content either close to their homes or in home gateways to avoid having to send the content through known chokepoints in their networks," explains Rod Randall, senior managing director at venture capital firm Vesbridge Partners.

While this may require cable operators to up storage close to and in home devices, the associated expense would be far lower than big bandwidth upgrades, contends Randall, who started his career as an engineer at the original Bell Laboratories. This architecture would ease bandwidth demands placed on net bandwidth by transmission of HD programming and, he stresses, also could set the stage for follow-on, revenue-generating, functionality.

For example, switched video technology also can be used to enable cablecos to deliver dynamic, targeted advertising, which is fast becoming an operator focus area.

Randall believes the revenue opportunity for this type of advertising will be in the range of $12 billion to $15 billion in 2012.

All this said, it’s important to remember that cablecos still hold several key advantages over newer entrants in the landline entertainment and communications services business. They start with cableco networks reaching many more homes than telco nets, resulting in a far larger customer base. U.S. cable companies served a combined total 65.7 milllion households last year, according to the National Cable & Telecommunications Association (NCTA). By comparison, Verizon said it had 717,000 FiOS TV customers at the end of the third quarter, while AT&T claimed it had 126,000 U-verse TV and Internet customers in the same period, together representing nearly 850,000 customers. Cablecos also have long-standing relationships with content owners and producers with whom telcos fight an uphill battle just to approach — ties that could translate into a key edge with cable’s Web video efforts.

At least for now, the cablecos typically are better at marketing to consumers because they’ve been doing it for decades while telcos have done almost none, until recently. "That specific advantage is not necessarily durable though," says CIMI’s Nolle, citing telcos’ improving customer marketing efforts.

Cablecos also work as a group through venues such as CableLabs to achieve common business and technology goals, while telcos typically see each other as archrivals.

Meanwhile, Comcast, in particular, is seen as an innovator and pioneer on several fronts in the content industry. In November 2006, Comcast announced a long-term programming deal with The Walt Disney Co. that Disney said marks the first time ABC broadcast programs will be available on video on demand by any cable company. Several ABC primetime series will be offered free by Comcast in ABC-owned television station markets. The companies also said they will work together to make promotional content from the Disney-ABC Television Group available on Comcast’s portal.

"This agreement reflects our ability to distribute content on multiple platforms and signals — another first for Comcast and Disney as we continue to explore the evolving possibilities of digital technology," said Roberts, at the time of the deal. He called putting ABC’s, Disney’s and ESPN’s popular content on Comcast VoD "a watershed event for both companies."

The cable colossus also has since cut a deal with CBS whereby it provides the network’s top series, including the CSI franchise, NCIS, Numb3ers, Survivor and last year’s hit Jericho episodes free on VoD the day after they air. What’s notable about this is how the two dodged the feared ad-skipping issue. CBS keeps the "ad breaks" to one short spot for an exclusive advertiser, or to one short promotional spot for another CBS property. By the time the fast-forward kicks in, you almost always advance into the continuation of the show, making the functionality unattractive.

By contrast, many telco TV providers have yet to deploy pay or free VoD, citing content licensing requirements and the cost of security wares and infrastructure such as servers.

On the Web media front, Comcast launched its social network-type site, Ziddio, in 2006. And while not nearly as popular as a MySpace or Facebook, the cableco teamed with the latter nearly a year ago in a deal to allow Facebook users to create and share user-generated videos and vie for a role in a new television series titled "Facebook Diaries." Comcast and Facebook created a program that includes contests asking users to submit short video segments about their lives. Throughout the contests, Facebook users are encouraged to upload, view, share and rate the videos. Selected videos are featured prominently online on Facebook and Ziddio.com and on television, including Comcast’s on-demand service.

This arrangement represents Comcast’s realization of the importance of harnessing user-generated video and social networking as a form of TV programming. While other companies have dipped their toes in the water, partnering with a major player with a huge audience also should help boost use of its own portal.

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