Cable Executives Weigh Benefits, Costs of Multi-Screen Service

"People do leave the iPad on,” Zelesko said. Although he declined to disclose any early viewership numbers, “by and large, our stable users use it a lot,” he said. Time Warner, which launched the iPad app last spring, now streams 140 linear channels to device users despite protests and threatened lawsuits from several major programmers about copyright violations and plans to increase the number of channels over time.

On the downside, Zelesko said the proliferation of such new video display devices as the iPad will lead to more bandwidth consumption in the home, higher costs to support each subscriber and numerous video transcoding and formatting headaches, at least in the short term. “The real challenge here is that we find ourselves coding to all these different ecosystems,” he said. “Right now we have a Noah’s Ark of formats.”

Steve Necessary, vice president-video product development and management for Cox Communications, expressed other multi-screen video worries. He said he’s concerned about the impact that such new display devices as the iPad could have on subscriber home networks and cable bandwidth costs: “For the moment, that’s the great unknown."

It’s still tough to gauge the financial benefits of bringing cable services to new video platforms, said Necessary, Zelesko, and Gregg Grigaitis, vice president-advanced technology for Suddenlink Communications. Although they believe multi-screen service should cut customer churn and reduce subscriber acquisition costs, the potential benefits are difficult to prove right now. “It is ultimately a very thorny issue,” Necessary said. “At the moment, we don’t factor those into our business plan.” But the cable executives believe that the promised benefits of multi-screen video will be real. Besides churn reduction, Zelesko argued that cable operators will gain market momentum from offering new video services to customers on all their devices. “The whole notion of being considered an innovative carrier has its own capital,” he said. “We need to defend our position as [content] aggregator.”

The extra costs of delivering multi-screen service to subscribers are certainly becoming clearer. In the near term, Necessary said various factors, ranging from bigger bandwidth and transcoding requirements to additional customer support training and provisions for new closed captioning technologies, are driving up the incremental cost of each new downloaded application. Zelesko, Necessary and Grigaitis debated whether it makes more sense for cable operators to transcode the video from QAM to IP in the subscriber’s home or in the cable operator’s network. Grigaitis said Suddenlink believes it will be much more economically feasible to transcode content in the home using new IP-enabled video gateways. But Necessary argued that in the longer term, it comes down to where subscribers will actually consume the new video services. If video usage shifts substantially outside the home, he said, then a network transcoding approach might make the most sense. Zelesko said the question is probably not an either/or proposition -- cable providers will most likely adopt a hybrid system of transcoding video that changes with the economics and subscriber device use.

Over the past couple of years, Zelesko said cable operators have begun speeding up their launches of new video services and applications to compete better. Although they face numerous unknowns in doing so, he urged cable operators to continue accelerating their product development and introduction cycles so they can adapt quickly to rapid customer feedback and market shifts. “We need to talk about moving away from set-top release cycles,” Zelesko said. “Instead of a few product cycles a year, we're moving into a world of new cycles in months or even weeks. It takes a fair amount of courage to launch in that world.” He said that’s how Time Warner Cable has handled its iPad app launch and will continue to develop that product in the market.

The cable officials said they have learned that customers definitely want access to their content everywhere and don’t care how they get it. But they disagreed over whether cable operators should provide access to the same cable content on competitive devices and services, potentially undercutting their own on-demand offerings. For instance, they disagreed over whether to allow subscribers to access the HBO Go app on Roku. Comcast, Time Warner Cable and DirecTV have blocked the app, but other pay TV providers have permitted it. Grigaitis said Suddenlink allows its subscribers to access the app because it’s what they want. Necessary agreed, saying the long-term gain is worth the short-term pain. “We get paid to distribute content,” he said. “Branding folks may not like it so much, but I'm here to please my customers.”