Connectivity has become cable’s No. 1 product, Cablevision Systems CEO James Dolan said at an industry conference Tuesday, adding that as video margins dwindle, providing a speedy and reliable pipe to access content and other services will become essential to cable company survival.
Doan said that data service outperforms video at his company by a 7-to-1 margin, and as high-speed Internet customers surpass video subscribers, operators have to shift the way they approach the business.
“Connectivity has really become our No.1 product. It’s no longer video. …That actually is a significant change to the model,” Dolan said. “We recognize that the connectivity experience we offer is going to be crucial to being able to keep the customer and be able to maintain margins and monetize.”
Dolan pointed to Cablevision’s WiFi service, currently available through more than 100,000 public hotspots in its service territory and more than 1.2 million when residential routers are included. He added that customers regularly use the WiFi service to cut down on data usage on their cell phone plans, a benefit that Dolan said the industry needs to better communicate to customers.
“The trick is to get the customer to recognize that,” Dolan said.
At Cablevision, which was a pioneer in rolling out WiFi service, the usage numbers are growing. Dolan said monthly data usage is up 123% from last year, average monthly customer usage is up by 121% and WiFi usage is up 60%. Cablevision already has rolled out one specific product to take advantage of its WiFi superiority – the WiFi only mobile phone and data service Freewheel and others will likely follow.
That focus on data and connectivity also led Cablevision to introduce its cord-cutter packages earlier this year, essentially a digital antenna and high-speed data service ranging in speed form 5 Mbps to 50 Mbps.
Dolan said that initially he and the Cablevision team didn’t think there was enough over-the-top content to encourage a sizeable number of people to cut the cord, but that changed after offerings began to surface from CBS, ESPN and others. Now he believes that the traditional programming bundle will begin to unravel as more and more content companies go over the top.
“The one thing that we see as being inevitable, is a reduction in the number of customers that take the big bundle,” Dolan said. “That is going to have an impact on the programmers. How much of an impact? My own personal guess is somewhere around 20% to 25% over the next five years.”
Dolan said as more networks go over the top, it will likely impact smaller content companies that have relied on being part of the larger programming bundle for survival.
“You have a new generation coming in that likes watching on their computer,” Dolan said. “The remote isn’t quite as cool to them. As that all evolves, you’re going to see some degradation of the bundle for the programmers.”
Dolan said that some will thrive, especially those that have highly viewed original and scripted content, like Game of Thrones and Mad Men.
“If you’re a channel that is not highly viewed, that is extremely niche, you are going to have a hard time because you’ve been living off the ecosystem where everybody takes the bundle,” Dolan added. “If you don’t have a corresponding audience that goes along with that, then you’re not essential anymore.”
