At the Comedy Works South in Greenwood Village in early March, cable professionals gathered to hear about the future.
It came in the form of graduate students sharing what they would do if they were in charge of Peacock, the new Comcast NBCUniversal streaming service debuting for Comcast cable customers on April 15 and to everyone else in July.
“Peacock Gold,” the University of Colorado-Colorado Springs team offered, would add a tier with “better content and quality but a higher price.”
Or, perhaps, more enticing to the cable professionals in the audience, said the University of Colorado-Denver team, “What if we told you we could make you 200% more revenue in one year?”
The audience laughed. But it wasn’t a joke.
Money was a priority for the business students participating in the annual Rocky Mountain Cable Association’s “Cable Apprentice” event held on March 6. The cable TV industry has seen dramatic changes to its bottom line since the first student competition in 2006. Netflix started streaming a year later. Non-video companies Amazon and T-Mobile jumped into the video business, while traditional channels like HBO and Starz launched their own online streams.
The video side of cable has become the troubled stepsibling to the much more lucrative broadband. Cable’s broadband subscribers overtook cable TV subscribers back in 2014. Video remains messy with negotiations and regulations, and much less profit. Even so, video gets all the attention. It’s sticky. That’s why everyone wants to talk about new streaming services, from Disney+ and Apple TV last fall to this month’s Peacock, even if the new services are expected to lose money.
“The conversations that you have every day are going to be about what you last watched,” said Duane Dick, a partner at Denver management consulting firm San Cherry Associates and also a founder of the Cable Apprentice event. “Content is still king. Content will never not be king.”
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Comcast’s answer? Free streaming TV
The thing about Peacock is it’s going to be free — with ads — for everyone. Comcast shared details in January that the new service will make part of its massive movie and TV series library available to anyone in the U.S. with a decent internet connection.
There will be a premium tier offering the full 15,000-hour library that will be free to Comcast and Cox Cable subscribers but $4.99 a month for everyone else. And an ad-free premium tier will cost $4.99 for cable subscribers and $9.99 for everyone else.
For free, it’s sure to get even noncable subscribers’ attention. But it’s the content that the company hopes will keep customers coming back. Similar to Disney+, Peacock has an impressive video library from NBC’s hit shows like “The Office” and “Friends.” There’s also the strategic acquisitions of DreamWorks Animation, the rights to Harry Potter films, and its ownership of Universal Pictures.
“We have one of the most enviable collections of media brands and the strongest ad sales track record in the business,” Steve Burke, chairman of NBCUniversal said in a news release.
Comcast may be a cable TV company, but it’s making money from other sources. Its revenues grew 15.3% to $108.9 billion last year compared to 2018. While it lost a lot of video customers — roughly 671,000 last year — its video revenues were only off by less than 1%. The growing business credits its high-speed internet service, which added 1.3 million subscribers in 2019 and grew revenues 9.4% from 2018. Comcast reported 31.5 million customers at the end of 2019.
“For the large operators, we’re talking about low double-digit margins on the video side. And I mean very low double digits of 11% for the top operators,” said Tony Lenoir, a senior analyst at Kagan, the media research unit within S&P Global Market Intelligence. “On the broadband side, margins are about 60%.”
It’s the smaller cable operators that don’t own or create their own content that are struggling. They’re asked to pay more to air TV channels. They’re losing subscribers. They’re unable to attract cord-nevers, or kids who move out of their parent’s home and never subscribe to cable.
“They’re hardly making any money. And actually the very small ones aren’t making any money at all,” Lenoir said. “We’ve started to see small video providers get out of the video business. They’re striking partnerships with services such as YouTube TV, Hulu with live TV, Fubo. so they can offer their broadband subscribers a video product.”
That’s why small cable companies, such as Pioneer Communications in Kansas, are focusing on broadband and have dropped traditional cable TV. They offer streaming video services to customers. Bigger names are following the trend. In February, Google Fiber dropped its traditional TV service.
The students from the CU Denver team suggested that Peacock could help keep the cable TV industry afloat by working with those smaller cable providers nationwide already offering NBC channels. Such cable operators are called multichannel video programming distributors, or MVPDs.
“NBC is missing out on so many people who know and love their content,” Vasanth Rajasekar, a CU Denver student, said during his team’s award-winning presentation. “MVPDs are already seeing Peacock as a threat. … But if NBC can preemptively get them on board by offering their subscribers more content for free, (NBC’s) got a little more leverage. And why wouldn’t they? MVPDs know that cable is changing and they know they’ve got to be offering better deals and better discounts to keep their current subscribers, let alone to attract new ones.”
That intrigued Roger Seiken, senior vice president of video programming at WOW!, a cable provider based in Englewood with 823,400 subscribers. Seiken was a judge in the competition. He said NBC hasn’t reached out to discuss the possibilities of a partnership, but he believes that’s coming.
“They acknowledged that to make Peacock the most successful, they’re going to need to partner with existing (cable TV providers),” Seiken said. “Look, it’s a very deep library and we pay NBCUniversal, like we do all major media companies, a lot of money. And if we can provide a Peacock service as a value add to our existing customers, that makes our video service stickier and helps keep those customers and deliver more value without having to increase rates or anything else.”
Cable caves, supports streaming
WOW! is already experimenting with offering online video from someone else. It’s running a trial in Charleston, S.C., to try Philo, fubo TV, Sling TV and YouTube TV for customers there even though the customers could subscribe to those services on their own. WOW! doesn’t have cable service in Colorado.
“Consumers view those as viable video entertainment solutions, which is in large part the reason why WOW! decided to (partner) with them,” Seiken said. “We recognize consumers value those services, and they are moving to them. And we want to be there to help facilitate our customers to enjoy those experiences all over our leading broadband network.”
And the same has been true for Liberty Global, another Denver-based cable service with no customers in Colorado. Its customers are spread throughout Europe, which makes streaming video in the right language and with the right permissions more challenging, said Bob Greene, who oversees Liberty’s business development as part of the Technology and Innovation group.
But Liberty has been offering streaming for years through its own box and has since integrated video services like Netflix and Amazon Prime.
“We believe that our big position is we should always be that connection to whatever content or services you want. You want Netflix? You shouldn’t have to go to an A/B switch and have another device. You should just be able to go to your voice remote and say, play Netflix,” Greene said. “And that’s exactly what we’ve done.”
There were other ideas from the students at the Cable Apprentice event.
The University of Denver team proposed “clipify to monetize,” which would place five-second “guaranteed ads” in front of short clips of Jimmy Fallon, the Olympics or other video people actually would watch, even with commercials.
The CU Denver team pitched “Flock Talk” to take advantage of the screen most dear to millennials — smartphones. The feature would live inside the Peacock app to engage fans who want to discuss “fan theories, alternate endings or they can keep arguing whether Snape and Lily Potter, from Harry Potter, were actually meant to be together.”
The ideas from the student event may not save the cable TV industry. But one thing is for sure: the students are cable’s future.
“The idea was how do we get fresh blood into the cable industry? The competition has been a great talent gateway, a pipeline,” said Dick, who is a founder of the event. “Right now, we’re focused on new ideas and innovation outside the industry and what’s on the mindset of millennials, Gen Z, because that’s a demographic that these (students) have direct access to. It’s free market research.”
Top online streaming services in U.S. for 2019
Stuck at home and looking for online-video options? Here are the top 10 based on subscribers as of October 2019, according to Parks Associates, a market researcher. The list does not include Disney+ or Apple TV, which have since launched. Note: In a first-quarter 2020 update, Parks said the top three kept their spots, with Disney+ reaching fourth and ESPN+ at fifth.
- Amazon Prime Video
- HBO Now
- CBS All Access
- Sling TV
Source: Parks Associates