Looking Forward (To 2013)

Eyeing The Industry's Near-Term Future
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In the quicksilver world of the television business, sometimes it’s hard to see where the next move should be for the best return on investment. Some trends we see from miles away, like the desire to have a personal digital video recorder attached to every TV set. Other trends are much harder to discern, if only because of the very nature of their disruptive force — think tablets.

The technology side of the business, as always, is the driver of so many business initiatives. Pay TV players will push forward on TV Everywhere and multiscreen initiatives, as new over-the-top rivals appear like so many toadstools. The Internet video revolution also means consumers will be hungry for more bandwidth, fueling the need for ongoing broadband expansion and upgrades.

But more than just technology is changing. At the end of the year, to help readers get a sense of what lies ahead in 2013, the editorial staff at MultichannelNews distilled the most important trends and events in the biggest business categories, that when taken in composite, offer a comprehensive report on the industry’s nearterm future.

FINANCE

More Houses = More Cable TV

With several months of growth under its belt, economists are hoping for a surge in new housing formation in 2013, which can only benefit the pay TV industry.

According to the U.S. Census Bureau, new housing starts in October, the latest data available, were a seasonally adjusted 894,000 units, 3.2% above the 863,000 units in September and 41.9% above October 2011’s 630,000 units. Privately owned housing completions were at a seasonally adjusted 772,000 in October, 14.5% above September’s tally and 33.6% above the year-ago figure, the bureau stated.

And in November, the National Association of Homebuilders announced a Housing Market Index — a measure of home-builder confidence in the new construction market — of 46, its highest level since 2006.

That newfound confidence after years of slow to no growth in housing has many analysts predicting that the nation’s largest MSO — Comcast — will be the first cable operator to take advantage of that growth.

Comcast has consistently dialed back its video-customer losses — it shed 40% fewer video subscribers in 2011 and is on track to reduce those losses by at least another 25% less in 2012, possibly even turning positive by the fourth quarter.

Mergers & Acquisitions

With cable stocks on a roll — the MSO sector is up 36% so far this year and programming stocks have added 35% to their value — money cheap and banks willing to lend it, the deal market could heat up again in the cable sector. Already, Cablevision Systems is exploring a possible sale of its Optimum West division — the former Bresnan Communications — because of several unsolicited offers it had received for the properties.

On the programming side, although many expected News Corp., to go on a buying spree with the $10 billion in cash on its balance sheet, it could be spending most of that money on sports rights — an estimated $1.5 billion for a 49% interest in New York regional sports network YES Network and as much as $250 million for control of SportsTime Ohio. News also is one of the bidders for rights to Los Angeles Dodgers baseball games — it could pay between $6 billion and $7 billion — but is reportedly in competition with Time Warner Cable. Still, the programming giant could use some of that cash for acquisitions.

One thing that Pivotal Research Group principal and media and communications analyst Jeff Wlodarczak doesn’t expect to happen is any movement on high programming costs to distributors.

“Despite lots of complaints amid rising content costs, nothing changes on the programming front in 2013,” Wlodarczak said.

— Mike Farrell

PROGRAMMING

In Living Color

Cable networks will continue to make shows for more diverse audiences. With minorities now accounting for more than half of U.S. births and with the combined buying power of people of color (African-Americans, Asian-Americans, Hispanics and Native Americans) expected to rise from $3.6 trillion in 2015 from 2.6 trillion in 2010, according to the Selig Center for Economic Growth — both cable networks and advertisers will look to target that group through programming that will feature more images of people of color in 2013.

Much of the growth will come from the addition of multicultural characters in supporting roles. But other mainstream networks will take a cue from VH1, WeTV, GMC and Lifetime and develop movies and series featuring predominantly multicultural casts.

Such content yielded strong ratings performances in 2013: Lifetime’s remake of the 1980s movie Steel Magnolias, with an all-black cast, was the most watched original movie in 2013, averaging 6.5 million viewers.

OWN has already announced it will debut two new scripted series from actor/director Tyler Perry in 2013. Perry developed several successful series with predominately African-American casts for TBS including House of Payne, Meet the Browns and For Better or Worse.

Concerted Effort at PPV

Boxing, wrestling and Ultimate Fighting Championship events have dominated the pay-per-view event business over the past decade, but 2013 promises to see the return of more non-sports programming to the PPV arena.

The success of a summer comedy show featuring Steve Harvey and the WWE’s distribution last week (Dec. 15) of the Rolling Stones’ 50th anniversary concert has paved the way for other performances to compete with marquee boxing and monthly wrestling and UFC events for consumer PPV dollars. Steve Harvey’s Grand Stand-Up Finale turned in the most successful performance of a non-ring sports event in the last five years and ranks as the most successful “concert-type” event in more than a decade, according to In Demand. The Stones concert — the first major PPV concert event since 2000 — may ultimately top the Harvey performance.

Over the Top

Over-the-top companies like Netflix and nontraditional video distribution outlets will increasingly become a part of the original programming development and distribution model in 2013. Netflix solidified itself as a major competitor to cable networks last month when it acquired exclusive rights to air The Walt Disney Co. theatrical films in the pay TV window beginning in 2016. Expect the online movie company to compete for more exclusive content rights as it looks to position itself as the first choice of consumers for on-demand movies and television shows. Also, DVD movie distributor Redbox will team with Verizon in 2013 to offer a video-streaming service offering more than 5,000 movies for $8 a month. Other outlets such as YouTube, which in 2012 launched 100 premium channels featuring original entertainment content, will continue to offer exclusive and original short and long form content for consumers to view.

— R. Thomas Umstead

REGULATION

Courtroom Dramas

Cable operators have had a cable friendly run at the Federal Communications Commission of late, from its decision to allow scrambling of the digital tier to its sunsett ing of the dual-carriage mandate — with the notable exception of the Tennis Channel’s program-access complaint against Comcast.

It hasn’t hurt that, in both cases, the moves also advance the FCC’s goals of moving toward a broadband future. But in 2013, look for much of the early action to come from the courthouse.

All eyes will be on the oral argument in the Verizon Wireless/ MetroPCS challenge to the FCC’s Open Internet order, which is expected to come sometime in the first quarter in the U.S. Court of Appeals for the D.C. Circuit. If the FCC loses, which even some Open Internet Order advocates suggest could be the case, the agency will have to decide whether or not to use the fallback position of classifying Internet access as a Title II telecom service subject to mandatory access.

The D.C. Circuit has scheduled Feb. 25 for oral argument in Comcast’s challenge to the FCC’s decision that it had discriminated against Tennis Channel by carrying NBC Sports Network (then called Versus) and Golf Channel on more widely viewed tiers. According to knowledgeable court watchers, Comcast’s fortunes were buoyed by the three judges chosen to hear the appeal. Two of the three were described by multiple sources familiar with the court as conservative and anti-regulatory. “They will be receptive to Comcast’s arguments, including its First Amendment claims,” one att orney said.

The Supreme Court has taken up state regulators’ challenge to the FCCs tower-siting rules — a case which challenges not the rules themselves, but whether the FCC has the power to define its own authority. One FCC source said they thought the D.C. Circuit might even wait to render its decision on network neutrality until the Supreme Court decides this case, but one veteran cable attorney didn’t think the D.C. Circuit would hold off.

The FCC could take some action at reforming contributions to the Universal Service Fund, including whether to continue to apply what the incumbent carriers say are duplicative, copper wire-era regulations on an increasingly Internet-protocol world.

—John Eggerton

SPORTS

More Players on the Field

Fox Sports 1: Although not officially declared, most observers expect Fox will launch a general-interest national sports service in August/September by converting the 81 million-home Speed Channel to what has been dubbed as Fox Sports 1.

Fox has secured variety of rights to UFC and college football that will help stock the service, while recent pacts with MLB and NASCAR have language affording Fox the ability to move some of that product onto another service.

Given its arsenal, there can probably be no true national competitor to the behemoth that is ESPN, but Fox’s push into 81 million homes changes the dynamic for NBC Sports Network and the burgeoning CBS Sports Network. Being No. 2 here wouldn’t be such a bad thing from the perspectives of profile and profit.

Big East: Will 2013 be the time when the beleaguered Big East Conference finally scores its TV rights deals? Or will the conference implode? The Big East has brought in FBS schools from well beyond its original footprint as other members have set plans to defect. Now, the seven Catholic, non-football-playing schools are making noise about their future, which could include joining the Atlantic 10. Since this is the last of major collegiate conference whose TV rights have not been locked up long-term, there is also signifi cant interest from the ESPN, NBCU and CBS camps. Big East commissioner Mike Aresco, the former CBS executive, has a full plate trying to keep some semblance of the conference intact while trying to ring up a rights increase.

Regional: All eyes are on Los Angeles, where incumbent Fox Sports Prime Ticket is looking to keep the Los Angeles Dodgers in its lineup through a rights/equity deal that reportedly could be valued as high $7 billion. Time Warner Cable, which wrested Los Angeles Lakers rights from Prime Ticket to start a pair of RSNs around the famed NBA franchise, is also in discussions with the ball club, whose media rights expire after the 2013 season. Insiders expect this to be resolved either way within the next few weeks.

Meanwhile Fox Sports, which has agreed to buy 49% of YES Network for some $1.5 billion, is also nearing a deal for SportsTime Ohio, the cable home of the Cleveland Indians.

— Mike Reynolds

TECHNOLOGY

Dawn of the Virtual MSO?

The concept of a completely Internet-delivered subscription TV service has bounced around for the last few years. Next year, with broadband widely adopted across the country and as subscription TV bills continue to climb, several industry watchers expect such a virtual MSO to finally appear in the U.S.

“I predict we will see at least one ‘virtual’ service provider — the separation of physical distribution and content aggregation — launch in 2013,” SNL Kagan analyst Ian Olgeirson said.

The first virtual pay TV service will be launched by either an existing operator “or another (well funded) entity that is not currently in the pay TV business,” Bruce Eisen, formerly Dish Network’s vice president of online content development and strategy and now an independent consultant, said.

Those rumored to be scoping out this frontier include Apple, Intel, Microsoft and Dish. Eisen declined to speculate who’s in the virtual MSO running — but said it would have to be a company with deep pockets.

Cable Steps Toward IP Video

North American cable operators will take the first big steps in the migration from QAM (quadrature amplitude modulation) video to IPTV, analysts predict. That will include deployment of hybrid media gateways, which bridge the two worlds.

“We’re watching for increased activity in the shift toward supporting more IP video in the cable industry, to include increased support for IP-based multiscreen video,” Multimedia Research Group senior analyst Mike Paxton said “This will be a big long-term trend, and 2013 will be a key year.”

The shift to IP-video gateways also will let MSOs deliver multiscreen services “while also reducing the [customer premises equipment] cap ex per home,” Infonetics Research analyst Jeff Heynen said.

Bigger Bandwidth Bite

Here’s a really safe bet: Internet-network usage will continue to surge through 2013, as online video options proliferate and connected TVs, tablets and other devices continue their forward march.

Cisco Systems forecasts that IP traffic, largely driven by video, will grow at a 29% compound annual growth rate from 2011 to 2016 for fixed-line networks.

As part of re-engineering their headends to handle the rising tide, cable operators will begin adopting equipment geared around CableLabs’ Converged Cable Access Platform, which is designed to reduce headend space requirements and deliver any mix of data and video services across the RF spectrum. Vendors sketched out their CCAP blueprints this fall, with trials and deployments anticipated starting next year.

Also in 2013, CableLabs expects to publish the initial DOCSIS 3.1 specification, designed to deliver unprecedented bandwidth (upwards of 10 Gigabits per second downstream) and cut the cost per byte for broadband services. The exact scope and complexity of 3.1, though, will determine how quickly operators can use it.

— Todd Spangler

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