Cord Cutting/Shaving Discussion

Cord cutting or cord shaving is when consumers drops their paid video service and purchase a broadband-only service from their local access SP, telco or cable. In the U.S., numerous estimates show more than 300,000 subscribers switched to broadband only in 2Q14. This is significantly lower than previous quarters. Yet it is still significant. SPs need to monitor this trend to see of it is in fact slowing or grow.

The economic impact of cord cutting has reverberations throughout the ecosystem. For the SP it merely shifts revenue and margin to the broadband business. For the ecosystem, revenues and margins are shifted to the OTT player such as Netflix and adversely affect the traditional “upstream” value chain including channels, for example, ESPN, TV and movie producers and advertisers.

This trend is impacted by consumer viewing habits. The younger generations are more mobile and are less likely to spend limited discretionary dollars on a large-screen TV and also to pay for a subscription video service. Video subscriptions are also impacted by macro economic trends. Broadband has become the last service to be eliminated.

Tomorrow's "real cord cutting" refers to consumers who completely stop all services from a wired service provider and go completely wireless. We have seen the prequel with the elimination of a "home phone." This next-generation cord cutting has consumers relying on their 4G/LTE/5G service for all broadband applications. This can be accomplished by simply turning their smart phone into a Wi-Fi access point when in their home. The economic impacts of next-generation real cord cutting are severe. The fixed access service providers not only lose all service revenues but also lose customers entirely. This will be particularly painful for cable MSOs that lack integrated wireless services.

As 4G/LTE and eventually 5G deployments expand and as more small cells get deployed the average bandwidth per device will increase substantially. Slowing down real cord cutting will be the price of mobile data plans and data CAPS, which will eliminate the intended savings in the first place. Service providers with wireless assets will be in a strong position to succeed in this future scenario. Other, such as cable MSOs, will need to address their pricing plans, which are driving customers away in the first place. They can also compete with unique content, primarily "sports and wars," (for example, live programming) and push for better quality video, such as emerging 4K technologies.  

To discuss this please email me at gwhelan@acgresearch.net 

Cloud (Network) PVR Discussion

After a delay due to legal review, which was settled favorably to the SPs’ network, DVR/PVRs (N-PVR) are being deployed in earnest by all SPs. N-PVRs are becoming mainstream: In addition to improving the consumers’ experiences they also offer numerous business values to the SP. N-PVRs are also a great step toward virtualization and the move to everything on demand. Simply put, an N-PVR is a DVR that resides in the cloud. When a viewer stores a program, instead of it being stored on a hard disk drive located inside the set-top box, the program (or metadata) is stored on a server or CDN cache located in the service provider’s network.

N-PVRs benefit both the service provider and the consumer. Service providers benefit substantially on both CAPEX and OPEX. Service providers have a love-hate relationship with the set-top box. They love them because they provide a managed service enablement platform in each home, yet they hate them because they account for about 50% of total CAPEX. Interesting to note is providers argue they are part of the network when it is convenient and argue that they are CPE when it is not. The latter is because of regulator ambiguity of TITLE VI in the U.S.

By eliminating the hard drive from every set-top the cost of the box is reduced, directly impacting CAPEX. Hard drives, being mechanical devices, will fail. The elimination of the drive thus increases the reliability of the box and reduces angry customer support calls and truck rolls. This directly impacts OPEX. Without a hard drive the set-top box will consume less energy, supporting the SPs’ goal of meeting the voluntary energy reduction agreement the industry and the U.S. Department of Energy (Note, not the FCC) signed in early 2014.

N-PVRs store consumer “save” programming in the cloud. This simplifies whole home DVR and video everywhere service offerings. With N-PVR all consumer playback originates in the network and not the primary set-top box. Although newer homes have coax cable widely installed throughout the home the bulk of homes do not. All in-home technology deployments are challenging to the SP because of the high variability in both the housing stock and in consumer sophistication. With the N-PVR all video streams are delivered from the network as “just another” channel.

N-PVRs benefit the move to TV everywhere or TV to all devices. In the home consumers watch TV programming on all of their devices. Because Wi-Fi is the common fabric connecting every device, N-PVR based video programming can be sent via the broadband connection and over the Wi-Fi network to all devices. Thus, consumers can view stored programming on all their devices, and the SP does not have to contend with home networking issues.

The N-PVR takes this concept out of the home as well. Consumers can view stored program from anywhere on any device with a broadband connect. This also applies to the delivery of programming on smart phones via 4G/LTE connections. In each of these cases, the stored SP programming is treated as over-the-top (OTT) and facing the same challenges pure OTT suppliers face such as quality of service and data usages. Equally, they can benefit from the innovation in the OTT marketplace.

This everywhere DVR experience also presents a new revenue opportunity to the SP. Targeted advertising and local ad insertion take on new meaning. For example, if a Boston-based consumer is watching a stored program from San Francisco, why show the ad Boston-based car dealership? Similarly, with smart phone location-based services being widely deployed, the SP can insert a targeted ad based on the user’s real-time location.

As illustrated, N-PVRs not only offer consumers a better video experience, they offer the SP real business value: reduction of both CAPEX and OPEX and creation of new revenue generating opportunities. Properly deployed, the N-PVR infrastructure will create the foundation for everything on demand and the move to virtual set-top boxes. Given these factors, SPs should deploy N-PVRs aggressively with the caveat that they must take a long-term strategic approach of viewing N-PVRs as the first application of the platform and not the only application. 

To discuss this please contact me at gwhelan@acgresearch.net