NEW YORK — Over-the-top video providers are the “minor leagues,” Time Warner Cable executive Peter Stern told an audience at an industry conference last week, adding that online video companies like Netflix and YouTube act more as feeders to managed content distributors than as competitors.
“Cable and telcos are the majors,” Stern said at the SNL Kagan Multichannel Summit here last week. “There is too much content out there for everyone to be in the majors.”
Stern, executive vice president and chief strategy officer, people and corporate development at the No. 2 U.S. cable provider, added that the so-called minor league players are characterized by low-quality video and a dearth of compelling programming choices.
“To most people, it’s just a feeder for the majors,” Stern said, adding that providers like Netflix and YouTube belong within the cable ecosystem. “It’s a matter of time before they realize that the security of the cable industry is the best place for services like that.”
While Time Warner Cable has been aggressive in its TV Everywhere strategy — for instance, virtually every linear channel on Time Warner Cable’s New York City system is available through the authenticated service — Stern said there are no plans to expand its reach.
Cable’s true value lies in the “inextricable bundle of networks, programming and customer service,” Stern said, adding that outside of the footprint, the monetization potential is much lower. However, if those economics were to change, the cable giant would reconsider.
Stern added that TWC’s initial focus for TV Everywhere had been on linear channels, because that’s where 90% of the viewing is. Next on the TV Everywhere agenda will be enabling video on demand functions for the service.
“We’re following the puck,” Stern said.
As the entire industry keeps losing basiccable subscribers, Stern said that the growth areas continue to be high-speed data service — TWC added 85,000 Internet customers in the third quarter — and business services. Commercial services revenue grew 27.4% in the third quarter and has grown 20% or more for 10 consecutive quarters. Stern said that it could eventually grow to roughly the size of its residential business, “if we do it right.”
The potential for growth is there — TWC’s plant currently passes just 53% of the businesses in its footprint and currently has between 5% and 10% market share. Stern estimated that businesses in TWC’s footprint will spend about $2 billion in total on telecom services this year.
On another Kagan panel, Atlantic Broadband CEO Ed Holleran said revenue from commercial services has grown at a 28% annual clip for the past five years and accounts for about 35% of Atlantic’s total cash flow. Coupled with continued growth in high-speed data services, Holleran said that mid-to-high single digit revenue and cash-flow growth is sustainable for the foreseeable future.
One drawback remains in the continued escalation of programming costs, though. Programmers raising their rates by double digits in the current economic environment is “unconscionable,” Holleran said, adding that it is getting harder for operators to pass off those costs on to consumers.
“I just think they live in a different world if they think they can do that and they’re not going to bump up against the physics of the pocketbooks of consumers,” Holleran said.