Pay TV Lost 3.1 Million Traditional Video Subscribers Last Year → Overhead

I wonder what the overhead expenses look like when comparing OTT vs traditional cable?

Wireline overhead is shared with other revenue operations like HSI and telephony. OTT is completely different as more and more nets do direct selling, tossing their app into app stores instead of getting into bundles like Hulu TV, DirecTV Now, Youtube TV etc. In 15-20 years it will all be like CBS All Access, HBO Go and Disney Streaming. They will be like "Why give Google, Hulu or AT&T a cut when we can get all of it direct from the customer?"

Then their overhead will be transit including HSI provider double dipping thanks to the killing of net neutrality.

That's a very valid question. Karl keeps talking about how OTT customers pay less, but that number means very little on its own, you need to know the expenses to figure out how viable either business is. Cable is close to being a loss leader, particularly with promos, which is why they're so eager to sell you that double/triple play; Internet/Voice are where the money is.

New services typically always get a better deal from content owners.... we saw this with U-Verse and FIOS when they launched their TV services to compete with cable and satellite. Initially, their service was dirt cheap. So cheap it majorly annoyed the cable companies.... but fast forward 3 to 5 years after initial launch, and when it became time to renegotiate.... prices went up, and they are now on par with regular cable and satellite.

That said: OTT services don't have a network to maintain. All they need is some space in a few data centers across the country, maybe 1 east coast, 1 west coast.... a few fat internet pipes to provide streaming to everyone, and a technical staff to maintain it.

Traditional cable providers have a network to maintain, with cables spreading like an (aging) web across their footprint, which costs a LOT of money to maintain. Internet connections make the most profit, so that profit pays for the bulk of the maintenance and upgrades.

The biggest cost in TV distribution on a cable network is the video distribution hardware and its maintenance you have to keep up everywhere.

CATV is hardly a loss leader. For Comcast, video is more than 1/2 the ARPU and then you have video derived revenue like equipment rentals ($7.50-$10 per outlet).

IF it was not clear, I meant the traditional cable offering vs the OTT that those same cable companies are now offering. Both Comcast and Charter now offer OTT products without having a cable subscription(their internet is required).

It is my understanding that most of the cable companies NOW generate more revenues from HSI than from the TV side.

ARPU says nothing about profit after expenses, which is what I was talking about.....

The big providers make this as opaque as possible, but the little provider (Service Electric) I used to have in Pennsylvania used to hand out fliers showing what they "made" from CATV and it was next to nothing. Now, it's possible they were lying, but why would they?The fact that they do that suggests the published rate does not deliver a sufficient ROI. This is one area where regulators should step in, and mandate a truly universal STB technology, but meh, if that happened they'd just raise the published rates.

Precisely.

You indicated that video is a LOSS leader. No established provider is LOSING money on video, especially given shared infrastructure.

Obviously they have good ROI, consistently over 5% for DN and last quarter closer to 9%. Why on earth would you leave even more returns on the table by offering free equipment? If you can make $30 on video and optionally another $9 on equipment, who with a brain is going to go, nah, we will just take the $30 because we are very nice people. No, they are going to take all $39 and then scheme how to pry open your wallet and gouge you for even more. Even if they were making $100 on video, they would also try making $100 on equipment if they could get away with it.

Video is making them a MINT. APRU from linear video is going up, not down and they pay these fees per sub, so they are content taking more cash from fewer customers as they pivot in response to the market. Comcast is not losing money. Dish Network is not losing money. DirecTV operations are not losing money. To the contrary, they make billions in profit from linear video and dwarf OTT services.

As they pivot to OTT, they are finding out that competition and customer acquisition costs blow goat. Now instead of just 1 other wireline and a DBS competitor to deal with, everyone and their dog is offering sub $50 packages driving down what you can charge for your shiny new OTT offering, while you spend $600 trying to get that horribly low ARPU sub (who can quit on a whim) in the first place. Churn up, customer aqui up, at the mercy of competitors to deliver your service, zero barrier to switching, multiple platforms to support and no shared infrastructure to help pay for it all. Good luck with that OTT guys. You think linear margins are tight, wait until you are full hot into OTT and start seeing sub 3% margin.

I said it was "close" to being a loss leader and that the real money is in internet and voice.

Close to loss = profit OTT margins are going to suck. WAY too much competition and zero barrier to switch.

If you care to read back up through the thread you jumped into, my first question was whether OTT has higher or lower expenses than traditional linear TV. I wouldn't bet money either way on that. If they are lower it's likely because of the discount referenced by maartena for new services.

In the long term, I wouldn't be surprised if OTT ends up costing providers (and by extension, consumers) more money, because no matter how well you engineer the infrastructure you're not going to get past the fact that you've taken a highly efficient point-to-multipoint distribution system and replaced it with point-to-point. You've also replaced a CATV headend with one or more data centers that will certainly require more equipment (capex) and electricity/security (operating expenses) than the old way of doing things.....

Any consumer savings from OTT comes from ala carte, but how long is that going to be possible as every single content provider jumps into the business? Eventually, they'll stop selling you HBO, and instead make you buy a bundle that includes CNN, TNT, etc......

There are providers offering linear TV and LOSING money on it, aka loss-leader. I know this as a matter of fact.

You hit the nail on the head with the equipment rentals. Their margins are tight after paying carriage fees, but the stb rental is their equivalent of $10 movie theater popcorn.

Also, Comcast is a content owner, a chunk of their carriage fees get paid to themselves. That vertical integration explains why they continue to make it so hard to drop traditional video compared to some of their telecom competitors.

Many of your assertions are off point. Like it or not, cable is still an anchor technology for these companies. Full stop. I have read they still make margins of 20-30% on content, and then there is equipment fees which is almost assuredly more.

Will they retain those margins, yes and they will probably expand them because they will pivot to more realtime (aka sports) and that works efficiently as broadcast/multipoint? So while ARPU may be lower, profit margin will go up dramatically. Wall street loves that.

Moving on. By taking away channels from cable, this frees up more space for IP. With the collapse of net neutrality, expect them to monetize IP traffic, and for that matter spy on you. There is way more $$$ in it. This is essentially AT&T's play.

They will not need large datacenters, because that cost will be borne by the OTT providers, not the cable/telco. They will need a few fiber feeds and some Juniper switches.

Forth - With the deregulation of backhaul, providers like Sprint w/ weak infrastructures are going to pay Verizon, AT&T, Comcast, etc through the NOSE for backhaul data. This brings me to business services, which is ultra profitable. This is why Softbank is trying to buy Charter.

Fifth - IoT - That is coming, there is trillions to make in this space. On the business front, they are well positioned to be there. 2nd reason why Softbank wants Charter.

In any case cable while profitable is not the end of the road for these guys, there is much money to be made. Expect a few of these guys to gobble up Sprint and/or TMO or in reverse. They won't last by their lonesome forever. If TMO really starts to eat pie of OTT, watch out. Merger time.

Think of it in macro-economic terms.

The small will die, end of story. This is a scale game now, not mom an pop cableco.

Because they put onerous restrictions on OTT, and you need a Flinstones decoder ring to figure them out.

Don't think AT&T is turning a profit on DTTV now, its a loss leader. But they will turn up the heat, and make it like Ryan Air. Hulu is a good example with how it is going to go. Fees up the a$$.

To me Youtube TV looked great on the surface, until you rudely find out after a few days most content goes into VoD mode and you are forced to watch 10-15 min of commercial per hour. I can go on, each one is hobbled in their own special way on purpose and I won't even get into none of them even have HQ audio.

On top of that, YTTV for instance costs MORE than my cable which has hundreds of channels, inc RSN and I can skip commercials.

You are full of crap. Go look at page 8 of the latest AT&T quarter briefing:

»investors.att.com/~/medi ··· 2017.pdf

Page seven on charter:

»phx.corporate-ir.net/Ext ··· 04032094

2 for two they make more revenue on video. I could go on.

Did you miss the part where AT&T got into the OTT business with DTV Now? Do you think they're going to be the only traditional provider that does this? Not likely.

"you've taken a highly efficient point-to-multipoint distribution system and replaced it with point-to-point"

Not necessarily. OTT can be done in the exact same manner (multicast). I suspect as the cable companies move further into OTT that they will use a hybrid (still all OTT) approach. Make the top most popular channels(say 50) multicast and the rest in the traditional single cast. While both charter and comcast now require using their internet offering in order to use their OTT product I suspect that will change in the future. As the costs of traditional cable offerings increase and the lack of any large scale leverage the smaller cable companies may drop back to HSI only and offer resale packages of charter and comcasts product. Since charter and comcast are basically prevented from increasing their footprint much larger. This will allow them to leverage their size for better rates and increase their product sales(OTT) without breaking the size limitation regulations.

As far as the costs of running the servers, just look at how Netflix does this now. These costs do not seem to have harmed their bottom line to any significant amount.

I'm sure they'll do fine but that doesn't mean the New Way of Doing Things™ won't be more expensive than the old.....

As for IP multicast, I doubt it. What you just described is called AT&T uVerse and they're going in a different direction for the future. People want DVR/On-Demand functionality and that can't be done with multicast, nor can multicast really work reliably on a "best effort" network, so unless you're talking about DirectTV Now on the AT&T network........

OTT multicast is already being done by a lot of the OTT companies. This is how they offer "live" tv. USTV NOW is just one of the operation being done this way currently.

Overhead? capex for a couple of antemnas for local news and kodi boxes, then $10/mo for netflix

I cut the cord because Charter raised their prices too much after buying Brighthouse , not because I wanted to.

People like me are/were the ultimate consumers

I loved cable TV, and added netflix - everbody won.

One thing I don't hear about is how much better internet news shows are like democracy now, news with ed schultz, and on and on. There's tons of them from all over the world. Not the stuff that passes for news on US cable these days. Get a kodi box and couple of apps, and tv is enjoyable and informative again.

Until the US closes off the internet

Most companies do not host data centers for their CDN. Pretty sure DTVN uses Akamai. Netflix is mostly AWS. Hulu moving it's live TV to AWS.

So none of them are really going to build their own DC for this, however the cost will be borne by them and it is much cheaper and flexible than current head end equipment. It's a scale and how do they move to IP with the right mix and monetize it not immediately cannibalizing their satellite investment.

You are right tho, they are inter-dependent vertical hydras.

USTV NOW does not operate on the public Internet.

Please cite one multicast service available on the public Internet, not restricted to a private network or particular service provider.

How will it be possibly be cheaper to go from a single point-to-multipoint CATV style head end, that serves thousands to millions of customers (depending on the size of the market....) with video, to a IP solution that requires storing all of that content on hard drives and serving up individual streams to each customer?

AT&T's uVerse infrastructure provides one possible roadmap, for live TV, but that would require ISP buy in, to provision QoS and multicast, and it doesn't address the on demand/psuedo DVR functionality that consumers will demand.

The bottom line, at the end of the day, is that for all the griping about cable TV we're going to end up paying more for less. Some creative people will find a way to save money, those that are willing to "juggle" streaming memberships on a month-by-month basis, sign up for CBS All Access when Star Trek concludes, Netflix when House of Cards releases, and so forth, but eventually the providers will find ways to discourage such behavior, with a combination of contracts and discounts for annual memberships.

And of course there will always be piracy: Limited selection, excellent prices.....

That is funny because it is on my roku and kodi.

»watch.ustvnow.com/guide

Not delivered via IP Multicast.

Bingo. I would love to just own my box that works on ANY cable tv system. If you want premium channels, you get a nice cable card.

Call it what you will, but each "channel" on does not play on demand. It plays to all viewers simultaneously.