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TWC CEO: SVOD Ignores Infrastructure Costs

13 Jun, 2012 By: Erik Gruenwedel

Glenn Britt favors maintaining bundled channel packages, albeit with tweaks for lower-income demographics

Time Warner Cable CEO Glenn Britt denounced industry scuttlebutt suggesting cable and satellite TV operators are increasingly at risk to subscription video-on-demand services and the specter of content producers going direct to consumers.

Speaking earlier this month at the Sanford Bernstein investor conference in New York, Britt said that at time of stagnant household TV growth cable operators have to maximize revenue opportunities per subscriber instead of fishing for nonexistent customers in new markets.

He said ongoing quarterly video subscriber declines reflect a mature market that continues to be a “great cash business” for the industry — including studios and media companies — that in theory should stabilize in the near term.

Britt said the average household watches about 400 hours of TV a month — a tally he said is skewed by age and socioeconomic demographics. With the average monthly cable bill about $90 and projected to rise incrementally during the next five years, Britt said efforts are being made to offer lower-priced bundles to select lower-income demographics.

“Lower-income people watch a lot more TV than higher-income people,” Britt said.

The CEO said the dynamics of the multichannel video program distribution business include burgeoning content rights fees (notably in sports), which must be considered when rejiggering monthly cable bundles to differing demos.

“We’re hard at work on that,” Britt said. “Again it cuts against entertainment economics, but I think having people pay something is better than not having them pay anything.”

He echoed sentiments made in another presentation by Tim Rutledge, CEO of Charter Communications, that enabling media companies to deliver content directly to consumers would be a fiscal disaster throughout the industry. Britt said the direct response mindset made popular through over-the-top services such as Netflix, Hulu and Amazon Prime ignore the fiscal reality of content creation costs and the infrastructure required to deliver content to consumers.

He said the current entertainment ecosystem features a labyrinth of middlemen (including cable and satellite TV) who diminish the cost of content creation and distribution through release windows.

“Whoever has a business formula where they can get some revenue, they use that to buy a certain set of rights,” Britt said. “And whoever is ultimately making the programming, assembles all those streams of money and hope they mitigate the risk of making the programming. This formula we have is enormously successful.”

The CEO said a la carte content production “defies the logic” of the entertainment business. He said such a scenario would result in fewer movies and TV shows being made.

“If bundling is so bad, why do 90% of the cable households buy something they don’t have to?” Britt said. “The people who watch most of the TV like this product. It has a lot more strength than people think.”

Britt said the laborious rollout of TV Everywhere is largely due to rights issues with content holders than technological issues (“This isn’t rocket science,” he quipped). He said TWC might incorporate transactional VOD into TV Everywhere, but the underlying premise allowing authenticated subscribers unfettered access to programming anywhere 24/7 remains the same.

The CEO said he is an advocate in “dimension consumption,” whereby broadband subscribers pay according to their content data streamed and or downloaded. Britt said having a premium-priced unlimited tier would remain.

He said the perception surrounding VOD services charging $8 monthly for unlimited content access ignores creative and technological costs, among others.

“The reality is that we, and our competitors, have the costs of maintaining this infrastructure. And right now those costs are still there,” Britt said.

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