Maybe it’s time to stop calling them “cable TV” companies. “Connectivity is our No. 1 product now; it is no longer video,” Cablevision CEO Jim Dolan told an investor gathering today. “That is a significant change to our model.”
It isn’t just because his Long Island-based company now has more broadband subscribers than TV ones. “We expect a reduction in the big bundle offering,” he said in an interview with Guggenheim Partners Executive Chairman Alan Schwartz — who’s a director at Dolan-controlled AMC Networks and Madison Square Garden Co, where he chairs the compensation committee. “That is going to have an impact on programmers. How much of an impact? My personal guess is 20 to 25% over the next five years.”
The all-or-nothing pay TV bundle will crumble with the defections, encouraged by programmers’ own streaming services including HBO Now and CBS All Access. And that could lead to a massive shake out. Strong channels with popular and original programming will thrive. But “if you’re a channel that is not highly viewed, that is extremely niche, you’re going to have a hard time because you’ve been taking advantage of the ecosystem where you’re part of the bundle and you’re a little piece.”
Cable companies should be fine, though., “The video product has lost a lot of [profit] margin,” Dolan says. “Our data product outpaces video 7-to-1 in our company.”
Like other cable operators, Cablevision has big outlays for cable set top boxes and labor costs. In addition, “the programming costs are significant and rising the quickest.” Since he faces direct competition in half of his markets — mostly from Verizon’s FiOS and AT&T’s U-verse — “your ability to raise prices is limited.”
The change in focus from video to broadband has emboldened Cablevision to market services directly to potential TV cord cutters. In April it startled the cable industry by introducing a $39.95 a month service that combines Internet service with a digital antenna to pick up free, over-the-air broadcast signals.
“It’s very responsive to a customer when price becomes an issue,” Dolan says. “Now our discussion with the customer who says the rent is too damn high is that it’s not priced too high — it’s how much you want to use…The onus moves away from the bad cable company to ‘Oh, I get to decide how much I want to spend.’ That’s a real different dynamic with the customer.”
Cablevision also has led the charge to market WiFi-based phone services. “WiFi is a superior connection to a cell connection. More data runs through a WiFi connection.” The company can handle calls at more than 100,000 hot spots as well as routers in customers’ homes.
Schwartz did not ask about Cablevision’s prospects if Charter completes its acquisition of Time Warner Cable. The stock value for Dolan’s company has shot up 28% since late April as investors wonder whether it’s in line for a deal to consolidate cable and broadband services in the New York City area. Last month Dolan openly invited a transaction.