A Dimmer Future for Cable Operators

By April Taylor | More Articles
March 9, 2010 | Comments (2)

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The future doesn't look too bright for cable. Since the start of the year, two significant skirmishes between cable operators and content owners have angered customers and drawn media derision. First, News Corp (Nasdaq: NWS ) threatened to block Time Warner Cable's (NYSE: TWC ) transmission of its Fox station, with a detente occurring just ahead of a weekend filled with the top-tier college bowl games.

More recently, Disney (NYSE: DIS ) and Cablevision (NYSE: CVC ) engaged in a similar fight, leading to ABC's removal from Cablevision's lineup early Sunday morning. The station was flipped back on shortly after ABC's Academy Awards broadcast began later that same night.

While the companies involved did not reveal the details of how they settled the disputes -- or came to a temporary cease-fire, at least -- it appears that the cable companies gave up some ground, or some dollars, to the content owners in both cases.

With an ever-increasing expansion of distribution channels -- Netflix (Nasdaq: NFLX ) , Apple's (NYSE: AAPL ) iTunes store, and Hulu online, in addition to the FIOS offerings of traditional telecom competitors such as Verizon (NYSE: VZ ) , cable companies have seen their power over content distribution wane.

At the same time, consumers are increasingly turning to online venues for television content, making a pricey premium cable TV bundle less of a necessity. A recent study by Conference Board / TNS Compete reported that 25% of all U.S. households watched some TV online. Younger consumers aged 18-24 are watching more than five hours of video per month online, according to Nielsen. Neither of these trends is positive for cable operators.

Look for cable-operator-vs.-content-owner disputes to become more common, especially on the eve of major televised events best watched live. That said, don't look for NBC to be party to one of these spats, given its pending sale to Comcast.

If you had to invest in one cable company or one content provider, which company would it be? Leave your thoughts in the comments box below!

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Fool contributor April Taylor owns shares of Apple. Walt Disney is a Motley Fool Inside Value recommendation. Apple, Walt Disney, and Netflix are Motley Fool Stock Advisor choices. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.

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Report this Comment On March 09, 2010, at 12:02 PM, FoxValley2012 wrote:

"If you had to invest in one cable company or one content provider, which company would it be?"
Today, my answer is NetFlix. There really isn't anyone out there with the same offerings.
My hope, NetFlix is the future of all TV. I would be willing to purchase channels ala cart if I want. Streaming has to be the future for TV.
Report this Comment On March 09, 2010, at 4:39 PM, stan8331 wrote:

I think it's a foregone conclusion that in the long-term, cable will become an Internet access commodity. The Internet will free up content providers to control the distribution and marketing of their own product, either in conjunction with distributors like Netflix, in consortia they mutually join, or in some cases entirely on their own. The cable companies can try to put up roadblocks, but they'll only be delaying the inevitable.
There are things the cable companies could do to try to position themselves in a more competitive position for the future (as Netflix has done with streaming versus physical DVD's), but it will be very difficult for them to do those things because they won't want to let go of the fat margins they've historically received for content delivery.

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