During a year in which streaming to the home broke new records it seems cable operators have found a way to come out on top. Counterintuitively, some cable operators have actually expanded their margins with a broadband-first strategy, even as cord-cutting accelerated.
“On the surface, cord cutting seems like a major headwind for cable operators, as conventional wisdom suggests that when a service bundle begins to fracture, voluntary churn increases,” said Jeff Johnston, lead communications economist with CoBank. “But in reality, this was not necessarily the case, particularly for operators that saw this trend coming and successfully implemented a broadband-first strategy.”
Denver-headquartered CoBank is at first glance the unlikely author of a report on video streaming. It bills itself as a $159 billion cooperative bank serving mainly farmers and ranchers across rural America. It also provides financial services to communications providers in all 50 states – and that’s where cable cos come in.
Several indicators suggest the connected TV phenomenon could rocket even further this year, which should help improve margins for cable operators who embrace this trend, according to its new Knowledge Exchange report.
Major media companies have started to prioritize their streaming services. Warner Bros. is now simultaneously releasing movies in theaters and on its streaming service HBO Max, and Disney has reorganized its business around producing and distributing streaming content.
Disney Plus has amassed over 100 million subscribers and expects that number to grow to 230 million-260 million by 2024. Apple TV Plus also saw tremendous growth in 2020 as did AT&T’s HBO Max and Comcast’s Peacock service.
“Broadband margins are healthy, and consumers need a reliable high-speed data connection to watch streaming video. Many operators have been able to successfully thread the needle between cord cutting and growing margins.”
On the broadband side, Comcast announced that it experienced two years’ worth of network traffic growth in just four months. And despite the increase in video conferencing applications like Zoom, video streaming drove the lion’s share of the increase in traffic.
According to CoBank, these trends represent opportunities for broadband providers.
“Video margins are thin at best for small rural operators, which means they should embrace a broadband-first model,” it advises. “Broadband margins are healthy, and consumers need a reliable high-speed data connection to watch streaming video. Many operators have been able to successfully thread the needle between cord cutting and growing margins.”
One of them is Cable One, quoted in the report. With its residential video revenues in decline, its residential broadband revenues have increased 17% per year since 2015.
“Smaller rural operators should pay close attention to how Cable One deemphasized its video service and adopted a broadband-first strategy. By doing so, it was able to leverage the strength of its network and retain a high percentage of broadband customers.”
It’s a tricky business operation to manage and it remains to be seen if cable cos can amass monthly broadband subscribers at a faster rate and at the same level of margin than they are shedding households paying for annual subs. Certainly, not all will survive.
