At the Corner of Tech and Finance


As someone who hasn’t balanced a checkbook since the mid-80s, accepting an invitation to interview Wall Street cable pundit Craig Moffett came with some trepidation.

It was all part of the California Cable & Telecommunications Association’s annual meeting. No, not in Anaheim. Nonetheless, the Western Show nostalgia was thick as a Hilton drink line during a private B-52s gig. Or a Jerrold/GI pool party. Or the line into the White House restaurant. (OK, I’ll stop.)

The session went a half-hour over its allocated duration, stopping only when Moffett had a plane to catch, so the trepidation was apparently unwarranted. This week’s translation aims to capture the highlights.

We start with the matter of “dumb pipes,” and the viability of cable’s financial future were it to shift to a usage-based model.

His view: “Dumb pipes are the greatest thing ever!” Why? Because being a commodity is only bad when supply exceeds demand. And nothing, in the history of consumable goods, has ever grown at a compound rate of 50% or more (since 2009, when Netflix started streaming video), other than broadband.

How to model anticipated usage? If people watch 254 hours of TV each month, and that video is digitally encoded at 2 Gigabytes per hour (using H.264 compression), then we’re all using about 500 GB every month, by Moffett’s model.

Currently, mobile carriers charge $10 and up per GB of usage. Cable could do it for eight cents per Gig, Moffett’s model proposes, to get to the $40 per month it would need in transport fees to offset the margins it currently supports in a mixed transport/video-aggregation model.

Speaking of video aggregation: Ever wonder why there’s so many more aggregators, these days, than providers of the wire into the home that today’s aggregators go “over the top” of? Answer: It takes hundreds of billions of dollars to build that infrastructure.

This means that if one were to examine that $40 per month in gross margin, $39.95 of it is likely transport and a nickel is aggregation.

That brings us to Moffett’s gas station analogy, which goes like this: Gas stations make 6 cents per gallon to do two things: Store gas, and pump gas. All the other Big Oil stuff that shapes the price of a gallon of gas? It’s a pass-through, if you own the gas station.

In addition to the video-aggregation function, cable operators also do two things: Store content and transport content to subscribing homes. That 10% rise in programming costs per year? It’s a pass-through.

Is it plausible, that this could happen? Probably not at this stage — net-neutrality regulations are likely too far along, and switching up financial models is not for the faint of heart. But if nothing else, it’s a useful way to understand what’s going on at the intersections of tech and finance.

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