High TV content costs threaten the “triple play” commercial Internet infrastructure business model

Television programming costs associated with the “triple play” (TV, Internet, voice) offering of legacy telcos and cable companies are the primary business risk facing the subscription-based, closed access, “own the customer” infrastructure business model employed by the legacy telephone and cable companies as well as Google Fiber.

Those costs are steep and threaten the viability of commercial fiber to the premise deployments that depend on future cash flows from service offerings – which include TV – to cover CAPex and provide ROI to investors.

So dear are TV programming costs that Google Fiber’s Milo Medin described them “the single biggest piece of our cost structure” and “the single biggest impediment" to further expansion. The Wall Street Journal reports costly TV content has prompted some small cablecos to scrap the triple play offering and reposition themselves purely as Internet and VOIP (Voice Over Internet Protocol) providers. Over the top (OTT) TV offerings by Sony and Dish Network are also similarly struggling with the high costs of TV programming.

Susan P. Crawford’s book Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age describes the self-reinforcing TV programming market dynamics that cement the dominance of the big subscription-based incumbent telcos and cablecos – and Comcast in particular for live sporting events. These large players can afford the high TV programming costs. But large scale notwithstanding, it’s not TV for all since the big legacy telcos and cablecos cherry pick their service areas, leaving lots of consumers redlined and without Internet TV since they opt not to build the infrastructure to deliver it.

One possible way around this negative circumstance would be for the OTT Internet TV content players to organize consumers into large regional purchasing pools and cater to smaller providers as well as open access community fiber networks operated by local governments and utility cooperatives. That would shift market power to the purchasing side while at the same time bolstering these home grown Internet infrastructure players.

Businesses Lining Up for Service in Longmont, FTTH Build-Out Studied | community broadband networks

Businesses Lining Up for Service in Longmont, FTTH Build-Out Studied | community broadband networks: If LPC wants to pursue a triple play offering, Uptown estimates it would cost another $6 million. At this point, LPC does not consider triple play a good investment:

"The young generation that's active now, they don't watch TV in the conventional way," Jordan said. At a recent presentation, he said, when he asked a college student how often he watched traditional scheduled TV programming, the response was "Never."

The implication here is the subscriber television channel Internet service offering is losing its appeal going forward with the changing viewing habits of younger adults.  This is a potentially huge disruption of the current business models of both incumbent cable providers and telcos offering TV in service bundles like AT&T's U-Verse product.  It's also very disruptive of the TV advertising business model that has traditionally targeted younger adults.  

Holy disruption, Batman! Tech upstarts threaten TV broadcast model | Reuters

Tech upstarts threaten TV broadcast model | Reuters

Around the time television began to reach most U.S. homes in the 1940s and 1950s, cable TV came into being with CATV (Community Antenna Television), using a single large antenna to pull in and pipe weak, distant TV signals via cable into communities at the fuzzy, snowy edges of metro area TV broadcast signals.

Now just as it has distributed broadcast radio from all over the globe for the past decade and longer, the Internet is becoming a global CATV of sorts, capturing broadcast signals over thousands of antennas, according to this Reuters dispatch.  

This poses a major disruptive threat to the business models of paid cable TV and satellite featuring packages of hundreds of channels. Not to mention over the air TV broadcasters that have invested large sums to upgrade to digital TV broadcast equipment and transmitters with the end of analog TV broadcasts.

As the late mass communications theorist Marshall McLuhan wrote of television in its 1964 heyday, "The medium is the message." Now that medium is no longer TV.  It's the Internet.