Bloomberg News

Cable Operators Fight Online Competition by Mimicking the Web

June 18, 2011

June 18 (Bloomberg) -- U.S. cable companies are trying to stem video customer losses by embracing one of the things that’s pulling them away: the Internet.

The National Cable & Telecommunications Association’s annual show, which wrapped up Thursday in Chicago, showcased services including Internet-connected set-top boxes and personalized viewing guides. Comcast Corp., the largest cable operator, capped the conference with a demonstration of its Xcalibur guide that integrates social media into the TV.

Following Comcast’s lead, companies including Time Warner Cable Inc. and Cox Communications Inc. plan to tweak interfaces and offer interactive services to retain subscribers who spend more time using smartphones and Internet-connected devices. The industry lost about 2 million basic video subscribers last year and continued shedding customers in the first quarter, as it faces competition from online alternatives like Netflix Inc. and Hulu LLC.

“We know we need to get better, and we’re working on it,” Pat Esser, president of Atlanta-based Cox, said in an interview. “Our video interface does not meet the needs of our customers.”

Personalizing the viewing guide is a boon for advertisers, who can eventually utilize Internet provider data to offer tailored commercials to cable customers, according to Thomas Eagan, an analyst at Collins Stewart LLC in New York.

Using Facebook

Comcast Chief Executive Officer Brian Roberts stressed the need for personalization on a TV interface. The company’s Xcalibur service allows customers to “like” shows through Facebook and offer suggestions based on their friends’ recommendations. Users can also watch TV in a way that closely resembles how they watch video on a smartphone or tablet computer.

Philadelphia-based Comcast has begun testing the service in Augusta, Georgia, and plans to introduce it in all of its markets next year, according to Jennifer Khoury, a spokeswoman.

Set-top boxes with Internet connectivity will potentially allow cable operators to deliver streamed video, from companies such as Netflix and Hulu, to subscribers. Consumers may not be able to experience the full Internet on their TVs before content providers and cable operators reach agreements over rights, according to Paul Sweeney, an analyst at Bloomberg Industries.

Studios and networks may want more money from distributors showing their Internet content on a TV screen, and providers may ask for a larger slice of the rights to pay for the extra bandwidth it takes to deliver HD content.

Video Infrastructure

“I don’t expect to see cable operators giving customers full access to Hulu,” said James Ratcliffe, an analyst at Barclays Capital Inc., referring to the online streaming service controlled by three of the biggest U.S. broadcasters. “There’s an existing video infrastructure for the cable operators that works well. You wouldn’t build that from scratch if you were starting over again, but given it’s in place, replacing it with an all-IP based delivery to the set-top box doesn’t make a lot of sense until you need to do so.”

--Editors: James Callan, Peter Elstrom

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


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