A favored telecommunications analysts painted a bearish, if not bleak, picture for a loyal following of small and medium cable operators, as he considered new Internet rules and price regulations.
MoffettNathanson principal and senior analyst Craig Moffett, a longtime cable bull, gave the crowd at The Independent Show in Boston a mixed forecast for the next decade.
He reminded the crowd of the painful market forces that have begun to buffet cable operators – and programmers -- of all sizes at this moment in time.
TV ratings are down, and programming costs are up. The biggest programmers are licensing more shows to OTT players.
“They’re increasingly licensing content (to OTT) because it’s the only way to plug the hole in the income statement,” Moffett said.
He suggested that the trickle of OTT services could swell to a torrent that could do real harm to the traditional dual-revenue stream business model that has served programmers and cable operators so well for so many years.
And there is ample evidence that cord-cutting continues to accelerate, he said, triggering nods in unison around the crowd when he noted the pressure on the bottom line.
As if the current conditions weren’t bad enough, Moffett said the near future will be tougher to navigate. The one, big bright spot for cable operators from a revenue viewpoint – broadband service – may soon see the end of its heady growth as the market matures.
Penetration of broadband has been steady, but slower growth is ahead; almost everyone who can afford broadband or wants it, has it. Of the people who don’t have broadband, most are not ideal customers: Half of them make less than $25,000 annually, or are considered undereducated or don’t own computer, Moffett noted.
While he said he saw some bright spots with potential for growth, they were few. Potential growth lies in such areas as business services, and the growth of wireless demand holds promise for cable’s Wifi offerings. The most obvious option for revenue growth: Cable operators can leverage the pricing of broadband.
“It’s the one thing here that you have some flexibility to control, at least competively,” Moffett said.
But if they do, they risk the ire of the FCC, which is soliciting complaints. Title II “is absolutely about broadband price regulation,” he said, “and in that context lies the real challenge for the cable operators.”
Still, he said, Title II is not a certainty either, as the new rule could be quashed by a new congressional action or get tossed out by a federal court or even left inactive by a new FCC chairman.
“This topic of regulation is unavoidable as you think about the next 10 years,” Moffett said.
