Must Pay TV

Capsule:  All hail the financial wisdom of Comcast's NBCU acquisition. Its investor-friendly structure is being celebrated by Barron's and UBS this week with enough elan to deliver a nice fat bump in equity value to the Christmas stockings of the American media investor.  This has been a poor year for media stocks, less out of turbulence than boredom.  Comcast NBCU comes at a good time, enticing investors with the possibility that this combined management team and asset family may get it right. More good news: Sprint is rising from the ashes of the wireless telephony wars on a tide of 3G and 4G business plans and products, including Skiff, a collaboration with Hearst Publishing to build the multimedia storefront of the future for the reading public.  Are we finally seeing enough new media business models to support a rising and profitable revenue tide?


The Business Insider
Advertising Age
Barron's on Sprint
Barron's on Comcast NBCU
The FT on Bloomberg




The Mall of America is a commerce wonder 15 minutes outside Minneapolis/St. Paul, including over 500 stores, amusement park rides and enough surrounding hotels and restaurants to make it a vacation destination.  Unfortunately, today's retail, travel and vacation sales are all soft enough to make the Mall of America into America's retail museum.  Would that this biggest of big boxes had a virtual identity that could expand and contract according to the country's retail spending capacity.  In contrast, e-commerce on a cable-powered broadband and TV platform suggests a new retail model that should move sustainably with the times.


Comcast may be in line to become a profitable virtual mall developer with its announced NBCU expansion.  While the headlines feast on the cash flow growth prospects of NBCU's cable networks, Comcast's cable systems may have a new media role to play in building its commercial future. 


What if profit and product growth turn out to be as sure for Comcast as understanding how to combine old and new media through a familiar money-making formula?  Comcast's giant stature as a cable MSO has come from a keen understanding of television's ability to expand and contract based on its interlocking free and paid content layers.  Broadcasting networks and stations like those owned by NBCU compose the free TV layer.  On top, there are at least two paid cable layers--one for basic, ad-supported cable channels and "free" VOD and one for premium networks and paid VOD.  


When the economy and advertising revenue are strong, the broadcast TV layer and the two paid basic and premium cable TV layers are interchangeable, mostly because they're all delivered to most Americans via a paid cable platform.  When the economy and advertising rates weaken, the "free" broadcast television layer feels the worst financial effects, but cable's subscription revenue--supporting its original TV products and its re-syndicated TV series and movies through both cable networks and VOD--continues to grow.


Comcast NBCU will soon be in a uniquely favorable position to augment its financial prospects by creating a third pay cable TV layer programmed through its ample content assets and advertising scale; and, based on its broadband distribution networks.  The broadband pay TV layer can include access to hundreds of basic and premium TV programs, interactive ads, hit movies and "longtail" entertainments and communal viewing-sharing-buying experiences produced and distributed through the "cloud."  Bloomberg Media's extraordinary growth and profitability depends on a collection of products both traditional and unique, now being managed to make Bloomberg's content the most expansive collection of news programming in the world.  Comcast and its distribution brethren will need a new broadband pay cable TV layer to facilitate Bloomberg as it expands, as well as other similarly inspired profit-driving media producers.


In a more profitably distributed media world than today's, the "cloud" will come to mean a collection of several flexible closed communications systems that bring the best of the internet into a quality-of-service-controlled and commerce-enabled environment. These flexible closed systems will operate much like today's wired cable systems, with common wireless and mobile authentication, powering customer choice, retail opportunity and commercial product growth.


Today's cable broadband infrastructure will require capacity upgrades and server-based infrastructure augmentation to create a new high capacity interactive pay TV layer.  But the technology upgrades necessary to build and operate this important new broadband commerce engine can be iterative, gradual and capital-efficient.  


As more TV choices and interchangeable targeted advertising become available on the broadband pay TV layer, the best network operators will be able to move customer orders, authentication, playback and payment systems onto efficient servers with familiar replicable commerce front-ends.  They will also be able to leave costly set-top boxes and DVR's in transition for the most basic of services, while broadband pay TV is operated from inside the distribution network powering a range of personally-selected modems, routers, PC's, screens, MAC's, personal storage and wired and wireless playback systems.  


Most importantly, these new systems will facilitate new pricing and payment plans of greater value to the consumer and higher aggregated profit potential--including more profitable versions of traditional cable products now limited by their release timing, lack of porting, personalization and billing flexibility and device constraints.


Much of the reporting on why Comcast NBCU makes sense is leaving an important part of the future revenue basis for this transaction--the development of this new pay TV broadband distribution and product layer--out of the story.  Maybe, with the economy slowly awakening from its two-year slumber, financial and media reporters lack confidence in technology. Maybe the media lacks confidence in its own product development flexibility. Maybe advertising rates have fallen so far inside today's Grand Canyon of multimedia inventory that a revenue recovery looks unlikely.


Sprint's determined re-entry into the land of the wireless living is a reminder of how long it can take to execute on a forward-thinking plan.  Post-Nextel merger, Sprint had a lot of work to do re-rationalizing its financial structure and its consumer product strategy.  Sprint's confidence in its ability to operate a superior wireless commerce network was formed during its most challenging years.  Sprint was the first nearly flawless "whispernet" operator powering Amazon's Kindle.  


Now the Kindle facilitates automatic book purchasing through AT&T; and, Sprint has moved to support Skiff in partnership with Hearst publications and a number of attractive wireless device manufacturers.  If they're successful, Sprint and Hearst will take on Amazon with a notable assortment of book, magazine and newspaper content partners looking for a new commerce marketplace with equitable returns.


As it builds the wireless products hooked into its broadband pay TV layer, Comcast might finally and fully rationalize its own wireless network partnerships.  Comcast's broadband pay TV layer will likely include commerce capabilities for all of its customers over time, first at home and quickly after via wireless networks and devices from anywhere customers choose.  


The nation's biggest MSO has the core network attributes, the technology partnerships, the scale and the paid customer relationships to build a new "must see TV" service that takes the best of NBCU into a new media dimension.  Comcast might even bolster the advertising business enough to support the revenue engine powering the broadcast networks and stations at the heart of the NBC brand. Most likely, the merger's magic will be worked on the cable level, strongly supported by a reinvention of Comcast's distribution networks as well as its glittering NBCU content.