Comcast, TiVo, AT&T, Dish: Four Possible Q4 Video Strategies

It is wise to occasionally remind readers of the reason behind this column’s name, “Mixed Signals.”

“Mixed Signals” got its name because so many of the video silos we construct to help us understand and organize the chaotic video marketplace are rather artificial. This is another way of saying that the businesses and signals carried by each of the carriers in those silos often overlap, and intermesh.

Indeed, as a great example, what appears to be a fairly well-defined market sector, that of the Multichannel Video Program Distribution (MVPD), morphs into another thing involving video distribution, when combined with one of the market leaders in mobile services. That morphing is also known as the summer 2015 merger of Direct Broadcast Satellite (DBS) pioneer, DirecTV, with long-time traditional landline and cellular giant, AT&T.

Another “Mixed Signals” example is AT&T’s rival in the landline and cellular space, Verizon, deciding in late 2013 to acquire the content distribution network (CDN), Edgecast. That then prompted Comcast to create its recently-announced Comcast Wholesale CDN division.

In short, companies in this market are consolidating and diversifying.

This is driven no doubt in part by the so-called “Eat Lunch or Be Lunch” maxim (Scott McNealy famously had a needlepoint of this on his desk).

Vertical and Horizontal

There are also, importantly, two basic strategies here: Vertical diversification and horizontal diversification.

AT&T’s acquisition of DirecTV had a significant horizontal aspect: One MVPD acquiring another. But, that merger has the vertical potential, as well. For example, AT&T uses its new MVPD market clout to take the lead in new mobile video services.

Another example is that of Verizon’s acquisition of CDN, EdgeCast. This was mostly horizontal, but it contained some seeds of the vertical, as well. 

And Comcast’s creation of its new Comcast Wholesale CDN is a similar message of concurrent vertical and horizontal accomplishments.

In summary, each of these big corporate gorillas is pursuing a horizontal diversification strategy, since this enhances their existing market power and resources. But, they all also position their companies for vertical diversification.

Indeed, there are lots of examples of “Mixed Signals” these days, and certainly more to come. These four “strategies” below are replete with suggestions and observations of possible “Mixed Signals,” as each of these telecom, media, and entertainment providers either just consider or actually enact complete redefinitions of their business missions.

With that in mind, working with a long-time colleague, Steve Symonds, managing director of Symonds Associates, of Chicago, IL, “Mixed Signals” presents the following four predictions of what might be out there -- either merger-wise or in terms of new businesses -- for some key stakeholders in today’s video marketplace.

This first iteration delves into actual or would-be content distributors.

Comcast

In this “Mixed Signals” regard, Philadelphia, PA-headquartered Comcast, casts a couple of fascinating observations, both worth explaining.

One observation is that after the May 2015 demise of the Comcast-Time Warner Cable merger, Comcast has some “good” and “bad” on its merger/acquisition table. The “good” is that it now has much of the cash it didn’t spend on TWC to spend on other possibilities. The “bad” is that Comcast has to be really careful about what it does these days, until the specter of the failed merger (and of Comcast being perceived as “too big, and too likely to put sand into competitors’ gears”) has faded quite a bit.

Comcast’s recent CDN offering in the form of the Comcast Wholesale CDN, interestingly, responds well to both those concerns mentioned above.

Yet, what will remain troubling for the new Comcast Wholesale offering is the fact that CDNs have become a commodity business. Carrying ones and zeros via fiber from point to point is no longer unique, or even discernable, one CDN to another. On top of that, offering ancillary services, such as caching, greater speed and reliability, and more security, are less attractive to most CDN users than the CDN providers would like them to be. In short, Comcast Wholesale will find it is getting to be a tough place to launch a new CDN competitor to Akamai, Level 3, Limelite, Edgecast, and Highwinds. 

Conversely, Comcast has this rather large footprint and a large installed fiber infrastructure. Those will help Comcast a lot in terms of “hitting the ground with its feet running” in the CDN space. This is especially the case for the domestic versions of Comcast Wholesale. Overseas, that is where Comcast Wholesale will be truly challenged.

What’s ahead for the Comcast Wholesales and other CDNs in the Internet delivery side of the business?

For one, Comcast Wholesale might consider purchasing third-ranked CDN (sizewise), Limelite. That would also help Comcast Wholesale in the international side of the CDN world, for Limelite’s presence there is far greater. Or Highwinds could be a Comcast Wholesale acquisition target.

Meanwhile, most of the existing CDNs can no longer depend on organic growth among their customers. That is because, much like the traditional pay TV business, the low hanging fruit is gone (and was gone, some time ago).

TiVo

The several hundred employees of recommendation engine TiVo, in that odd little town, Alviso --north of the Silicon Valley’s 237 freeway, and almost across the street from the new 49ers stadium -- keep pumping out new ideas. The big issue remains, however, how to monetize?

Like its historical and technological brethren, Roku, a few cities to the south and west, TiVo has a real opportunity in the form of what these days is called a “content farm.” TiVo could replicate what Roku has done.

Why, one might ask? Because Anthony Woods’ Roku makes money from every one of the 2,000 “Roku” channels it supports.

Another reason to support the idea of TiVo supporting more channel launches is to observe the other consumer online video device companies. Be it Amazon’s FireTV, AppleTV, or Chromecast, all are creating content communities, some more successful than others.

Another reason for TiVo to add content: content communities drive device sales, which is still a real part of TiVo’s business model. And coming full circle, every sale of a consumer electronics box can then also work to create that new content community for those new to the devise.

Plus, solid content works to reduce churn, and to most importantly create that Holy Grail of video today: new revenue streams!

TiVo, TiVo: It’s time to wake up to some new vertical strategies!

ATT/DirecTV

Three strategic moves fashion current day AT&T, and are worth noting. Indeed, the folks in Dallas have a lot going on these days.

Following the theme started above, of investing in CDNs, there might be something for AT&T in the purchase of a U.S. CDN, such as Limelight or Highwinds. AT&T is without the proliferation of head-ends that supports a Comcast-like infrastructure, however, it certainly sports other assets – both hard, in the sense of equipment, and soft, in the sense of programming -- that could combine well to better add a CDN to its stable.

Telecom rival Verizon snapped up Edgecast two years ago, thus the precedent is set for AT&T to consider a similar move. Indeed, as broadband and the Internet become more the delivery system for video, and as video proliferates, CDNs are becoming more important.

A couple more AT&T observations: 1) Why hasn’t AT&T invested more substantially into digital media and content, and 2) specifically, in that vein, why hasn’t AT&T purchased its own studio or program group?

A recent Multichannel News article by Mike Farrell highlights the impact of AT&T during the past year or so, titled “AT&T: Distributor of The Year” (subscription required).

DISH

Last, but certainly not least (in many ways, Charlie Ergen and his several companies are the most interesting, strategically), is DISH Network.

Based upon the summer governmental approval of the AT&T purchase of DirecTV, AT&T’s telecom sibling, Verizon, would be a logical suitor for “The [Satellite TV] House That Charlie Built.” Verizon would become the third largest MVPD, were it to capture DISH Network’s 14 million subs. That new Verizon-lead DISH Network, third largest in the MVPD world, with nearly 20 million total subs, would then have subscriber negotiation power three million shy of Comcast’s, with 22 million; and six million short of AT&T’s 26 million video subscribers. And like AT&T did with DirecTV, it could concurrently deploy both horizontal and vertical strategies.

The real negotiation, however, would involve what assets New York-based VZ would take away with such a purchase. Thus, if VZ could also obtain the land-based spectrum DISH has acquired in recent years, that would make a DISH acquisition very attractive…and worth spending a lot to get.

But that outcome is not likely, because Charlie Ergen is a man with lots of miles left on his engine, and he is very unlikely to relinquish the spectrum he worked so hard to acquire. Indeed, he has spent huge sums of the past six years becoming what this author deems a “Master of The Wireless World.”

The better bet is that DISH itself will be buying. That is because Mr. Ergen has been trying to escape the gravity of the Direct Broadcast Satellite (DBS) sector for many, many years. This is what Mr. Symonds calls Mr. Ergen’s “Closer To Earth Spectrum Play.”

Unlicensed spectrum operators, also known as the WISPs (for fixed wireless internet service providers, which is to be differentiated from mobile wireless carriers), might be a DISH target. Indeed, Mr. Ergen could likely acquire most of the hundreds of those existing today for a very rational sum.

Yet, even acquiring all of the WISPs would get DISH a relatively small number of new subscribers. Or at least it would be a small number based on the time and effort that would go into separately negotiating with those hundreds of WISPs. And that limits revenues. In the end, that’s likely just too small of a play for DISH today.

Which most likely brings us back to but one real obvious strategic merger possibility for DISH, i.e., that DISH buys a company like one of the # 3 and # 4 cellular providers (after VZ and AT&T), which would be either Sprint or T-Mobile.

And that possibility continues to fit Mr. Ergen’s MO, because he still likes those mobile wireless plays.

Jimmy Schaeffler is chairman and CSO ofThe Carmel Group, astreaming/broadband, broadcast and pay TV/video consultancy based in Carmel by the Sea, Calif.; he writes about telecommunications and media.

Jimmy Schaeffler

Jimmy Schaeffler is chairman and CSO of The Carmel Group, a nearly three-decades-old west coast-based telecom and entertainment consultancy founded in 1995.