Content is King Again

My monthly bill for Internet and TV was over $140 a month when I finally told Comcast to pack sand. So far, the biggest drawback is that I have to go to a local establishment to watch Ravens and Orioles games. 

Come to think of it, that’s not a drawback at all. I get to enjoy a variety of adult beverages, and I’ve become a much more social person. I’m happier, too, now that I don’t have that lingering hatred for Comcast weighing on my psyche…

More and more Americans are “cutting the cord” — that is, dropping pay TV for on-demand services like Netflix, Hulu, or Amazon. In fact, more on-demand services like these have started in 2015 than in the past decade combined. 

People are ditching Comcast and other entrenched, monopolistic cable companies so fast that cable ratings have been declining around 10% for over a year. And analysts are starting to downgrade media companies. Goldman Sachs recently downgraded Viacom and lowered its price target for Time Warner. 

And you may be aware that Disney has been getting pressure from its flagship franchise, ESPN. ESPN is a cornerstone of the whole cable TV experience. It’s the most expensive channel on cable and the one that most viewers say they can’t live without. I mean, it’s got Monday Night Football… 

But here’s the thing: Comcast’s decision to be a hated company and yet keep a stranglehold on American TV viewership was brilliant. Really, I mean that. It takes guts and true insight to realize that TV delivery isn’t a business where you need to be loved. Then you can divert the money from customer service and technical training/service to lawyers and lobbyists who will protect your monopoly.

Comcast’s acquisition of NBC Universal was equally brilliant. It also proved the old adage that content is king. It’s just not enough to be a provider, to own the platform. The Telecommunications Act of 1996 proved that all good monopolies must eventually die. And buying out NBC was Comcast’s way of acknowledging that its business was going to change.

The King is Dead, Long Live the King

You may recall that it was the Telecommunications Act of 1996 that broke up the Bell monopoly and paved the way for the Internet to flourish. That Act opened up the “last mile” of copper into the home to competition.

Of course, the various regional Bells would be compensated, but they could no longer keep other companies from offering service over “their” network. 

It is high time for a similar ruling on the Comcasts of the world. Comcast’s last mile of cable into the home needs to be opened up to competition. Other companies need to be able to offer services over the cable networks. 

And in fact, Comcast should be asking for it — or at least fighting it less. And the FCC ought to push it just to prove that it isn’t completely in bed with the cable TV industry. 

Allowing other companies access to cable networks would solidify cable against all other technologies. Satellite TV would be dealt a deathblow if you could get alternative sources of Internet and TV over cable networks. DISH and DirecTV would be relegated to the rural areas where cable can’t go.

And Verizon could stop laying new fiber for FIOS immediately.

Surprisingly, opening up cable networks would help the cell phone industry, too. Because it’s so easy to put your phone on Wi-Fi mode, roughly half of all cell phone traffic now moves across cable networks. Seems to me that opening up the cable networks would encourage partnerships between cable, content, and cell phone companies that would be a win-win for everyone.

Still, the biggest beneficiaries of opening cable networks would be us, the consumers, and the content providers like Time Warner, Viacom, HBO, and Disney. 

The balance of power is already shifting back to the content providers. After years of having just one delivery platform — cable — the content providers have multiple channels to get to the viewer. And cable is getting marginalized.

The Shifting Balance of Power 

Right now, Disney is a prime example of the shifting balance of power. The problems with its flagship ESPN are pretty well known. With roughly 10% of viewers having cut the cord with cable, ESPN isn’t making as much money. So Disney is firing people and cutting content.

And it’s because viewers have options from the various on-demand streaming services, as mentioned before. In other words, viewers aren’t the only ones cutting the cord. In addition to deals with cable providers, HBO has its own streaming service. You can get network content via Hulu. You can get the MLB network for your baseball games.

Comcast could, and should, solidify its position by opening its network to lower-cost streaming services.

But more importantly, from an investment perspective, you should be looking at the content providers for opportunity. Because they are the ones that will have better prospects for leveraging their position across the various platforms.

Take Disney and its new Star Wars movies coming out. It already has a deal with Netflix to deliver these movies through that service. And you know you’ll have pay per view options for Star Wars on cable. HBO will probably offer it at some point, too. 

The danger for cable is this: What if Disney decides to offer its own streaming service for $10 a month? You’d get ESPN, A&E, Disney channel, plus all the Disney movies from Pixar, Marvel, and Lucasfilm. 

This is a huge threat to cable. And the sooner they acknowledge it, the better — for them and for us, the consumer.

Until next time,

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.