Cable companies are still worried about drops in revenue that may come as the economic pinch encourages subscribers to cut out premium TV services. That may be why, despite consumer backlash, they've made recent moves to adopt bandwidth caps and metered usage plans. But they may be getting another revenue option, as the Obama administration is backing Cablevision's attempts to sell a networked DVR service to its customers.
For the most part, it seems that current customers aren't cutting their cables, but there may be fewer new customers out there. At Sanford Bernstein's 25th Annual Strategic Decisions Conference in New York, Comcast CEO Brian Roberts expressed concern over a higher than normal drop in subscriber growth in the second quarter of this year. "It's still a scary time," Roberts said. "We're really not seeing a surging of disconnects. We're just not seeing a surging of orders."
Time Warner Cable CEO Glenn Britt echoed these sentiments. He noted that there is a definite population of customers ditching cable TV, though it is happening in a "very minute, hard-to-measure way." His real concern is with the increasing amount of content available for Internet streaming. "I have just made a simple observation that if, at an extreme, you could get all of the programming you get over cable for free on the Internet, over time people will stop buying... a video offering of cable or satellite or telco, and just buy broadband," he said during the conference.
That's a pretty striking admission: cable companies are afraid that their Internet offerings are starting to compete with their media offerings. Which may explain why they're so excited about capping usage despite customer outcry.
After the bandwidth cap debacle Time Warner Cable found itself embroiled in recently, the company decided to shelve its proposed bandwidth capping tests. Nevertheless, the company has recently modified its terms of service to be more amenable to future bandwidth caps. Specifically, the new terms allow TWC to either throttle access or move a user to a higher-priced tier, monitor a customer's bandwidth usage patterns, and use "network management tools as it determines appropriate... to ensure compliance with its Terms of Use and to ensure that its service operates efficiently."
When we took a look at recent quarterly results for ISPs, we noted that results from cable companies, including Time Warner Cable, didn't support the notion that bandwidth caps were necessary to fund future network upgrades or ensure that cable companies can remain profitable. But cable companies certainly want to experiment with options beyond simple flat-rate pricing. "I still think some notion of you-use-less-and-pay-less, use-more-and-pay-more, will ultimately be what happens," said Britt during the conference.
If the cable companies are desperate for additional sources of revenue, though, they got some good news this week. Cablevision has been experimenting with one money-generating concept that has been a long time coming: the remote storage DVR. The RS-DVR uses centralized storage that's accessed from a standard set-top box instead of dedicated DVR set-top box with local storage.
The widespread use of these devices has long been contested by content providers, and even other cable companies. However, the US Solicitor General has urged the Supreme Court to refuse the appeal of the prior ruling, meaning Cablevision has a significant ally in its fight to roll the service out over the objections of content owners. Cablevision believes the centralized storage will reduce the barriers to entry for customers and reduce the service and support needed for traditional DVRs. The fact that it can charge for the use of the service can't hurt matters, either.
Addressing consumer needs with "out of the box" thinking like that behind Cablevision's RS-DVR is probably a better path to increasing revenue than arbitrary bandwidth caps. Ultimately, metered pricing may be handled in a way that's fair to customers, but it isn't guaranteed to magically raise revenues—especially if the relative minority of high data users begin cutting down to keep their bill under control. And there's the very real possibility it will send the industry's customers looking for alternatives.
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