Wall Street’s Advice for Cable Operators

One analyst has some doubts over just how big a hardship increasing cable bills are to consumers. “All those consumers who are whining about how they can’t pay more money are paying for Netflix and Hulu,” Needham & Co’s Laura Martin told attendees at NCTC and ACA’s Independent Show this week.

There has been no “leakage” in revenue in the TV ecosystem, meaning those Netflix and Hulu subs are generally taking the services in addition to their pay TV packages, she said. “They just want a cheaper price for your $200 bundle” as opposed to dropping things from that package, Martin said.

However, UBS’ John Hodulik said pay TV did decline a tiny bit last year in subs even though the housing market was relatively strong. “I do think there’s an issue,” he said. “Programming margins are getting squeezed… How does it end? I’m not sure it does. If you did see a breakdown and one to two million subscribers leave the market, then things would have to change.” In the meantime, programmers are in the “best of times,” jacking up prices for MVPDs and selling more content to OTT services.

Martin did tell the mostly operator crowd to give some acknowledgment to programmers. “This is the only industry to date that has been able to fight the onslaught of digital,” she said, crediting content owners for smartly holding back content from the Internet and strategically windowing content for OTT that’s not the same content available on pay TV.

“Everyone underestimates how collaborative you are,” she said, encouraging operators to think more holistically about video and Internet. She thinks the next big thing for TV will be real-time interactivity (voting people off the island in real-time, etc). “It requires your double bundle. And it will bring people back to live TV,” she said.

At the same time, Martin warned that alternative platforms are developing, particularly when it comes to short-form video. Viewing of video outside the home has experienced triple-digit growth, primarily due to video 3 minutes or shorter. With big companies such as Disney stepping up to buy Maker Studios, there’s more interest and short-form video is getting longer. Keep in mind a sitcom is only about 20 minutes sans commercials. “Keep an eye on this,” she said.

While Martin also suggested that Google, Apple and other Silicon Valley companies could be cable’s enemy, Evercore’s Naveen Nataraj said he didn’t quite see them as an enemy. “The biggest lesson from this is they throw sh– against the wall and hope it sticks,” while cable has historically said ‘let’s wait until the next set-top box upgrade’ to roll something out. He encouraged operators to throw more stuff up against the wall. “Who knows what’s going to be popular?” he said.