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While I agree with the general thrust of the article, there is one fallacious argument here. Cringely argues that cable breaks even and money is made on the ne

by api 12y ago

While I agree with the general thrust of the article, there is one fallacious argument here. Cringely argues that cable breaks even and money is made on the net, but that's an artificial distinction. What if cable disappeared? Would they still make money if they had to pay for the upkeep of the network with only Internet fees? The desperation and risk of this game of chicken convinces me that the answer might be "not much." The loss of cable might very well be apocalyptic for these companies, at least from a shareholder value and quarterly growth point of view. What's happening is very clear to me: the ISPs are trying to either harm the Internet to defend cable or collect tolls on streaming to attempt to replace cable revenue. That's because cable is dying a slow death. This is all about saving cable. The fundamental problem is that cable ISPs have an economic conflict of interest. They are horse equipment vendors that got into the gas station business, but now the car is driving out the horse and their bread and butter is at stake.

Jtsummers 12y ago
> Would they still make money if they had to pay for the upkeep of the network with only Internet fees? In parts of the country, slower-speed copper, fast-download cable, and a few fiber networks are already built out. The cable distribution giants like Time Warner Cable and Comcast are already making a 97 percent margin on their “almost comically profitable” Internet services, according to Craig Moffet, an analyst at the Wall Street firm Bernstein Research. As Levin points out, “If you are making that kind of margin, it’s hard to improve it.” And most Americans have no choice but to deal with their local cable company. -- http://www.technologyreview.com/news/510176/when-will-the-rest-of-us-get-google-fiber/ http://www.technologyreview.com/news/510176/when-will-the-re... If that's accurate, I suspect that they could live without cable as we know it today and still make plenty of money. Working on finding out more numbers to see what the revenue breakdown is between cable and internet, though I wouldn't mind if someone else chimed in. EDIT: Found this [1] for Comcast. For 2012 and 2013 they've lost video customers, increased internet customers. Had growth in revenue for both categories, but a greater increase from internet (percentage and absolute). So the way things are heading, cable leaving would cost them a lot. However, they can probably make up for it elsewhere, and, ultimately, should be planning on cable TV going the way of the dodo regardless of the nearterm revenues and profits. It's not a viable longterm strategy, like SMS (while immensely profitable) for cell carriers, a good short term strategy but as content shifts to the generic data channels the specialized channels will fall into disuse. [1] http://files.shareholder.com/downloads/CMCSA/3182774232x0xS1193125-14-47522/1166691/filing.pdf http://files.shareholder.com/downloads/CMCSA/3182774232x0xS1... EDIT 2: Check out page 53 of the linked filing. Video revenue for 2013 was $20.5 billion. Programming costs were $9.1 billion. So the net, ignoring any other costs, right there is $10.4 billion. If the ISP side of the house is actually making 97% margins like the claim in the Technology Review article, then it is making almost as much as the video side of the house. At the current growth rates it'll surpass the video profit, but not revenue, sometime in the next few years. Their NBCUniversal acquisition may reduce their programming costs, I'm not sure of the legalities involved in that (their growth and acquisitions could put them afoul of anti-trust/monopoly laws and regulations).
- danielweber 12y ago
  "97% profit margin" is a self-doubting figure. As soon as you hear it you should know that someone is trying to sell you something. It's like deciding Microsoft's profit margin based on the cost to physically acquire CD-ROMs.
  - Jtsummers 12y ago
    Alright, perhaps I shouldn't have quoted that, but let's continue with the 2 edits of my post where I found real figures on revenue and costs. Video revenue is (in absolute terms) higher than internet revenue. Video revenue growth is slower than internet revenue growth. Video customer growth is actually shrinkage, they're losing customers (hundreds of thousands each year). Internet customer growth is actually growth (over one million each year). The primary video cost (programming) is approaching 50% of video revenue, and it's growing at a pace that has literally equaled or exceeded video revenue growth for each annual period in the linked document. So, making an assumption here that's likely untrue, if we consider that the other costs are distributed equally between the two (marketing, tech support, physical support, etc) then the internet service is approaching parity with the video service, and will exceed it in several more years as the higher profit business component. I suppose if someone else has more time to dig through this document or other insight from being in the industry they could chime in with which has the greater costs once programming is removed from the equation.
    - danielweber 12y ago
      The problem is that you can't model the ISP portion as something with fixed costs to build and then small marginal costs of moving bits around. Building it out is the primary cost to the ISP portion and we, the customers, rightly demand they keep on doing it. They have to always keep on building more capacity. You can't say "okay, now they have stopped building capacity, it's all rent-seeking from here." The actual electrical cost to move the bits back and forth is nil. It's making sure that half the people in the neighborhood can use Netflix at 7pm two years from tomorrow that requires them to spend money today.
zanny 12y ago
The problem with your later analogy is that there was minimal gating to opening a gas station if the local tack vendor started trying to extort the local populace to maintain a dying business model. That is why, usually, capitalism works in these situations - if the status quo is exploiting its customers, you can create a competitor because there is profit between the extortion and the break even. With ISPs, or any general infrastructure, it is a hugely inefficient usage of resources to duplicate the work - good analogies would be how dumb it would be to have multiple sewer systems, with only one attached to the house at a time, or multiple voltages of electric lines where only your choice electric company is hooked up. Fundamentally, it is that all and any future goods that require transport to the home over infrastructure need to be public services, and the maintainers be common carriers. Because creating the pipes (the water, the subway, the electric, the networking) are all prohibitively expensive to try to compete in, require deep intervention of states (which rarely doesn't result in market dilution) and are naturally a common good because unused bandwidth - in roads, in power line voltage, in pipe flow - are wasted potential, and duplicating the effort and having all the lost potential as a result can be, and is devastating to economies.
- api 12y ago
  You're referring to the concept of a natural monopoly, which is problematic for anarchist and libertarian versions of capitalism. There are certain markets that inherently favor monopoly for physical constraint reasons. Utilities are the classic example.
- danielweber 12y ago
  Having multiple water pipes would be silly because of their massive size and the need to tear up the street. But I don't see the same problem with stringing multiple wires to the same house. Especially if you want to keep on increasing capacity, which we do.
vinceguidry 12y ago
What makes you think of desperation and "a game of chicken"? What's really at stake here? Looks to me like only something ISPs have already learned to live not having, customer approval. Far as I can tell, there's not much more they can lose here until the business landscape changes, and it's a toss up as to whether this sort of brinksmanship is going to drive changes in that landscape or not.
wtmcc 12y ago
Internet service is a much higher margin business than television. I don’t see why Big Cable should want to stay in it, at this rate. 81% of the money TWC takes in video subscription fees they spend on video programming from Viacom, EPSN, HBO, etc. [1] 3% of the money TWC takes in broadband subscription fees they spend on high-speed data. [2] These figures do not include infrastructure investments ($3.2 billion in 2013). [3] [1] (4,782m+772m)/6,825m = .81. (http://ir.timewarnercable.com/files/doc_financials/Annual%20Reports/twc%20ar%202013.pdf http://ir.timewarnercable.com/files/doc_financials/Annual%20...) [2] 175m/5,822m = .03. (Ibid) [3] 3,198m. (Ibid)
hga 12y ago
And Verizon, with it's pretty big FiOS buildout, and AT&T with their more limited U-verse buildout. Both are now halted except for contractual requirements, but they also offer "cable" service, and AT&T is rather nasty in protecting it, caps of 150 GiB per month if you have plain ADSL---even if AT&T is not providing U-verse in your city---and 250 GiB for U-verse customers, $10/each additional 50 GiB. Verizon occasionally hints they might do caps, but haven't yet to my knowledge (I'm an AT&T customer so I don't follow them closely).

by api 12y ago

Jtsummers 12y ago

> Would they still make money if they had to pay for the upkeep of the network with only Internet fees? In parts of the country, slower-speed copper, fast-download cable, and a few fiber networks are already built out. The cable distribution giants like Time Warner Cable and Comcast are already making a 97 percent margin on their “almost comically profitable” Internet services, according to Craig Moffet, an analyst at the Wall Street firm Bernstein Research. As Levin points out, “If you are making that kind of margin, it’s hard to improve it.” And most Americans have no choice but to deal with their local cable company. -- http://www.technologyreview.com/news/510176/when-will-the-rest-of-us-get-google-fiber/ http://www.technologyreview.com/news/510176/when-will-the-re... If that's accurate, I suspect that they could live without cable as we know it today and still make plenty of money. Working on finding out more numbers to see what the revenue breakdown is between cable and internet, though I wouldn't mind if someone else chimed in. EDIT: Found this [1] for Comcast. For 2012 and 2013 they've lost video customers, increased internet customers. Had growth in revenue for both categories, but a greater increase from internet (percentage and absolute). So the way things are heading, cable leaving would cost them a lot. However, they can probably make up for it elsewhere, and, ultimately, should be planning on cable TV going the way of the dodo regardless of the nearterm revenues and profits. It's not a viable longterm strategy, like SMS (while immensely profitable) for cell carriers, a good short term strategy but as content shifts to the generic data channels the specialized channels will fall into disuse. [1] http://files.shareholder.com/downloads/CMCSA/3182774232x0xS1193125-14-47522/1166691/filing.pdf http://files.shareholder.com/downloads/CMCSA/3182774232x0xS1... EDIT 2: Check out page 53 of the linked filing. Video revenue for 2013 was $20.5 billion. Programming costs were $9.1 billion. So the net, ignoring any other costs, right there is $10.4 billion. If the ISP side of the house is actually making 97% margins like the claim in the Technology Review article, then it is making almost as much as the video side of the house. At the current growth rates it'll surpass the video profit, but not revenue, sometime in the next few years. Their NBCUniversal acquisition may reduce their programming costs, I'm not sure of the legalities involved in that (their growth and acquisitions could put them afoul of anti-trust/monopoly laws and regulations).

danielweber 12y ago
"97% profit margin" is a self-doubting figure. As soon as you hear it you should know that someone is trying to sell you something. It's like deciding Microsoft's profit margin based on the cost to physically acquire CD-ROMs.
- Jtsummers 12y ago
  Alright, perhaps I shouldn't have quoted that, but let's continue with the 2 edits of my post where I found real figures on revenue and costs. Video revenue is (in absolute terms) higher than internet revenue. Video revenue growth is slower than internet revenue growth. Video customer growth is actually shrinkage, they're losing customers (hundreds of thousands each year). Internet customer growth is actually growth (over one million each year). The primary video cost (programming) is approaching 50% of video revenue, and it's growing at a pace that has literally equaled or exceeded video revenue growth for each annual period in the linked document. So, making an assumption here that's likely untrue, if we consider that the other costs are distributed equally between the two (marketing, tech support, physical support, etc) then the internet service is approaching parity with the video service, and will exceed it in several more years as the higher profit business component. I suppose if someone else has more time to dig through this document or other insight from being in the industry they could chime in with which has the greater costs once programming is removed from the equation.
  - danielweber 12y ago
    The problem is that you can't model the ISP portion as something with fixed costs to build and then small marginal costs of moving bits around. Building it out is the primary cost to the ISP portion and we, the customers, rightly demand they keep on doing it. They have to always keep on building more capacity. You can't say "okay, now they have stopped building capacity, it's all rent-seeking from here." The actual electrical cost to move the bits back and forth is nil. It's making sure that half the people in the neighborhood can use Netflix at 7pm two years from tomorrow that requires them to spend money today.

zanny 12y ago

The problem with your later analogy is that there was minimal gating to opening a gas station if the local tack vendor started trying to extort the local populace to maintain a dying business model. That is why, usually, capitalism works in these situations - if the status quo is exploiting its customers, you can create a competitor because there is profit between the extortion and the break even. With ISPs, or any general infrastructure, it is a hugely inefficient usage of resources to duplicate the work - good analogies would be how dumb it would be to have multiple sewer systems, with only one attached to the house at a time, or multiple voltages of electric lines where only your choice electric company is hooked up. Fundamentally, it is that all and any future goods that require transport to the home over infrastructure need to be public services, and the maintainers be common carriers. Because creating the pipes (the water, the subway, the electric, the networking) are all prohibitively expensive to try to compete in, require deep intervention of states (which rarely doesn't result in market dilution) and are naturally a common good because unused bandwidth - in roads, in power line voltage, in pipe flow - are wasted potential, and duplicating the effort and having all the lost potential as a result can be, and is devastating to economies.

api 12y ago
You're referring to the concept of a natural monopoly, which is problematic for anarchist and libertarian versions of capitalism. There are certain markets that inherently favor monopoly for physical constraint reasons. Utilities are the classic example.
danielweber 12y ago
Having multiple water pipes would be silly because of their massive size and the need to tear up the street. But I don't see the same problem with stringing multiple wires to the same house. Especially if you want to keep on increasing capacity, which we do.

vinceguidry 12y ago

What makes you think of desperation and "a game of chicken"? What's really at stake here? Looks to me like only something ISPs have already learned to live not having, customer approval. Far as I can tell, there's not much more they can lose here until the business landscape changes, and it's a toss up as to whether this sort of brinksmanship is going to drive changes in that landscape or not.

wtmcc 12y ago

Internet service is a much higher margin business than television. I don’t see why Big Cable should want to stay in it, at this rate. 81% of the money TWC takes in video subscription fees they spend on video programming from Viacom, EPSN, HBO, etc. [1] 3% of the money TWC takes in broadband subscription fees they spend on high-speed data. [2] These figures do not include infrastructure investments ($3.2 billion in 2013). [3] [1] (4,782m+772m)/6,825m = .81. (http://ir.timewarnercable.com/files/doc_financials/Annual%20Reports/twc%20ar%202013.pdf http://ir.timewarnercable.com/files/doc_financials/Annual%20...) [2] 175m/5,822m = .03. (Ibid) [3] 3,198m. (Ibid)

hga 12y ago

And Verizon, with it's pretty big FiOS buildout, and AT&T with their more limited U-verse buildout. Both are now halted except for contractual requirements, but they also offer "cable" service, and AT&T is rather nasty in protecting it, caps of 150 GiB per month if you have plain ADSL---even if AT&T is not providing U-verse in your city---and 250 GiB for U-verse customers, $10/each additional 50 GiB. Verizon occasionally hints they might do caps, but haven't yet to my knowledge (I'm an AT&T customer so I don't follow them closely).