A psychodrama has played out all year involving Disney chief Bob Iger and Wall Street analysts. It concerns the future of the cable bundle on which consumers shell out $80 or $100 every month. Mr. Iger says the bundle is not going away soon, and-anyway-Disney can always sell its hugely profitable ESPN directly to consumers over the Internet.
Skeptical analysts say the cable bundle is fading fast, and Disney would never be able to replicate the revenues it gets from the bundle by peddling ESPN à la carte to subscribers.
This argument may play a role in Disney’s stock-market wobble since last summer, despite the Star Wars bonanza. It may be a subtext in the surprise departure of heir apparent Thomas Staggs, if the ESPN debate suddenly has Disney’s board rethinking what it needs from its next chief.
Yet there is reason to think Disney and its Wall Street antagonists are both wrong. An over-the-top ESPN would not be the money spinner Disney hopes, but the cable bundle isn’t going away. On the contrary, the cable bundle will be remade in the world that’s coming. The reason is a little-noticed technological-cum-strategic fork in the road known as IP Multicast.
Let’s rehearse: The Internet is still a “network of networks” delivering an infinite variety of services, but by volume it’s increasingly delivering TV.
Secondly, operators know a coming commercial imperative will be to give customers all their content on all their devices, everywhere, which means wirelessly. Third, on-demand (think Netflix ) may be the future of a great deal of TV, but live TV like sports, which millions watch simultaneously, will still constitute the lion’s share of TV’s value proposition.
Live TV is also the biggest challenge for the Internet: Everybody is watching at the same time; you can’t store local copies in advance. Live TV, if handled like on-demand TV, would clog up the Internet with duplicate streams for every viewer. A single so-so NFL matchup would buckle the Internet.
The solution? IP Multicast, which (belaying much jargon) allows an infinite number of devices to tune into what amounts to a single stream across much of the network.
Now here comes the billion-dollar question: Is it possible to implement IP Multicast across the entire Internet, so any content owner could address live content to millions of users simultaneously, without buffering, undue latency or chronic picture breakup?
Or, realistically, does it involve so much managerial heavy lifting that it will be implementable on a big scale only inside the networks of major cable and wireless providers?
We suspect the latter. In fact, it’s already unfolding this way in wireless, where the parallel technology is LTE-B (B for broadcast). If so, system operators won’t become dumb pipes, the connectivity-and-content bundle will survive, and ESPN could actually become more central than ever to a new bundle focused on live “event” programming.
OK, you may doubt this particular outcome, but the stock market’s friendly treatment of the cable industry lately suggests a growing awareness that distribution may not be quite as commoditizable as some suspect.
Of course, a little problem is the Obama administration’s net-neutrality crusade. Let’s face it, digital cable TV, as it now exists, would be deemed a net-neutrality violation if it didn’t already exist, because it’s sent over the same network that delivers unfiltered Web browsing.
The net neuts can’t very well ban a product that millions are used to getting, and which incidentally paid for much of the broadband rollout. But they can stop cable TV from evolving-the implicit drift of the Federal Communications Commission’s increasingly busy infringements on the business models of existing TV players.
At bottom, net neutrality has become a procrustean fetish. Like the computer itself, the Internet is an infinitely adaptable machine. Imposing net neutrality on the Internet is like saying the PC can only run browsing software; it no longer is allowed to host local software like Microsoft Word because, you know, that would be unfair to those offering similar services over the Web.
Frankly, this is crazy. Not only will it impede the emergence of services that the public actually wants, like live Internet TV as well as novel Internet of Things-type services. Unless such revenue opportunities are available, carriers won’t be shelling out for the next-generation wireless and wired networks we crave.
Happily, rescue may yet come from the D.C. Circuit Court of Appeals, currently hearing a case brought by big and small network providers. If we’re lucky and the court is brave, a decision any day now will sweep away the uncertainty the lame-duck Obama administration has brainlessly inflicted on one of the few American industries that continues to invest in new consumer services and vital infrastructure necessary for future productivity of the entire economy. Courtesy – The Wall Street Journal