For the past two years now, many in the online video industry have been falling all over themselves to hype TV Everywhere services and preach about how they are the future of the broadcast industry. But beyond all the hype, the fact remains that Comcast, who is the only major MSO to even offer such a service in the U.S., has stated that they lose money with Fancast Xfinity TV and don’t know how they will turn it into a profitable business.
So it comes as no surprise to me that over the weekend, Comcast announced that for the second time in less than a year, they are raising rates. Starting on August 1st, customers in some areas of California and Pennsylvania will see their rates go up 3.5%. Comcast has been quoted as saying the rate increases are as a result of, “new technology, new features, additional programming, higher broadband speeds and improved customer service.” In other interviews, they have said the increase is to pay for “digital services” and someone I spoke with at Comcast, who didn’t want to be quoted for the blog, said the rate increases are helping to offset the costs associated with their Xfinity streaming service amongst other digital products.
For many customers, this is the second rate increase in less than a year as Comcast previously raised rates across the board on April 1st for what they said was, “part of our commitment to provide you with the very best entertainment and communications experience.” And six months before that, in the fall, they raised rates again. While raising rates is something the MSOs have always done, no one that I have seen does it as often as Comcast. And with the Fancast Xfinity TV offering, all it does it give them an excuse as to why they have to raise the rates, telling customers that the service has value, even if many customers don’t agree. While Comcast is quick to point out that they need to raise rates to pay for “better” services for consumers, it should also be noted that last quarter Comcast’s operating income was $1.9 billion.
For those that think TV Everywhere is the future, it’s not. In the U.S. at least, consumers are not willing to pay for the service, in the current state, and cable companies can’t afford to offer a so called “free” service that they lose money on. If MSOs offered real TV Everywhere services that allowed for linear programming viewable to multiple devices, then consumers would pay for it. But no MSO is going to offer that as it then competes with their core business. The entire reason why Comcast doesn’t charge a monthly fee for Fancast Xfinity TV is because they know they won’t get enough people to pay to cover the cost of the service. So instead, they raise rates even for those who don’t even use the service as they have no other way to try and get their money back.
Is this the kind of service and business model that the industry should be getting all excited about? Absolutely not. As I’ve written before, TV Everywhere is a pipe dream, something that people speak of without looking at reality, refusing to give up hope that it can save the broadcast industry. The first problem for someone who thinks this is that they are under the false impression that the broadcast industry needs to be saved. It doesn’t. For all the talk about how great TV Everywhere is going to be, online video services are never going to replace cable and will always be a compliment to TV.
Another problem with TV Everywhere is the fact that there aren’t enough large MSOs in the U.S. to make an entire business out of the service. Last year, the top 25 MSOs in the U.S. had a combined total of 60+M subscribers. Of that number, the top three MSOs combined, Comcast, Time Warner and Cox, made up 70% of those subscribers. Seventeen of the top 25 MSOs have less than 1M subscribers each. Looking at those numbers, it’s clear that very few MSOs are going to be in a position to offer TV Everywhere services. There is no incentive for a MSO with 300,000 subscribers to bring to the market any type of TV Everywhere offering.
While I can understand that people want to get excited about new technology, there is nothing new about the technology used for TV Everywhere type services. It’s the same online video technology we’ve had for years, re-packaged into a business model that does not and will not work. When I hear people say things like “TV Everywhere is disrupting the traditional business model,” that’s simply their way of trying to sound hip, kind of like how everyone used to drop the word “convergence” into as many sentences as possible. The reality is that TV Everywhere isn’t disrupting anything. When most people write about the topic they seem to always focus on the technology used or the authentication process and not about the business model, because one does not exist.
The true value of any service is whether or not people are willing to pay for it. I’m sure Comcast would argue how popular Fancast Xfinity is by providing all kinds of data on how many number of streams have been served or how many hours of videos people have watched, but that means absolutely nothing. If the service was so popular and considered valuable, then consumers would pay for it and it would be a profitable business, but that’s not going to happen with TV Everywhere.