And the walls came tumbling down

December 11, 2009: 9:00 AM ET

Is the NBCU-Comcast deal really about a new business model for cable?

By Tom MacIsaac, CEO, ExtendMedia

MacIsaac predicts Comcast will use NBC to go over the top. Photo: ExtendMedia.

That cracking sound you hear is the walls of the clubby world of cable beginning to crumble. Everything in the media world -- ­ especially the world of media distribution --has changed as a result of Comcast (CMCSA) taking control of GE's (GE) NBCUniversal.

Many people think this is a deal to preserve the status quo -- that it is no different from News Corp.(NWS) controlling DirecTV or Time Warner's (TWX) ownership of Time Warner Cable (TWC).

As we all know, both of those deals failed to provide the heavily promised synergies between programming and distribution and have been since unwound. That being said, I believe there is a lot more to this story.

Comcast is among the major distributors with a clear long-term world view and digital savvy.  It sees that its core business faces a big challenge in the form of broadband-distributed premium content to the TV--so-called "over-the-top" video; it also understands that over-the-top video is inevitable and full-fledged deployments are on the horizon.

And while plenty of analysts believe consumers won't cut off their cable services -- they like the convenience and the linear programming -- even cable bulls recognize that a new generation of consumers may bypass cable subscriptions altogether in favor of an over-the-top approach. And so even though Comcast looks like it is trying to preserve its cable distribution primacy by acquiring NBCUs trove of content, the cable operator quietly is making moves that suggest to me that it plans to launch a national "over the top" services in the not-too-distant future.

Going national?

In 2006 Comcast bought the software infrastructure (thePlatform), and then they launched an aggressive IP network infrastructure initiative (Project Excalibur).

Now with the NBCU acquisition, they control a sufficient wealth of premium content that, when combined with web content, will be enough to launch a meaningful "over the top" consumer offering.

When they can't grow their traditional business (already the case -- telephone services have been powering their meager growth for the last few
years) they will have the all the ingredients to distribute video over broadband - in and outside Comcast's cable footprint - and it won't need anyone's permission.

The new growth driver will be a broadband distributed service to new geographic markets at a lower price point. At the outset it wouldn't have all the programming customers desire -- shows from ABC or CBS, for example -- but it would have enough content to drive eyeballs and attention away from subscription cable services.

Time Warner Cable, Cox, Cablevision, Charter: watch your backs and your precious subscriber bases.  It's a risky, potentially cannibalistic move for Comcast, but the alternative is that someone else (Apple, AT&T, Microsoft or Google) gets there first. Even so, it seems a sure bet that Comcast would be ready to be ready to respond very quickly and in a powerful way. In fact, think about Comcast's "On Demand Online" as a dry run for a national "over-the-top" offering.

Operators will unlock cable content for digital distribution, build out the distribution infrastructure, and condition users to access content on multiple devices. All that will be left to do will be to throw the business model switch to out-of-footprint subscription and build out a TV interface (the digital home problem will be solved in parallel via web-connected TVs, special-purpose low cost set-top boxes, etc.)

It's not just about responding to free ad-supported Web offerings like Hulu and Google's (GOOG) YouTube, but also to services that look more like pay TV, like iTunes, Netflix (NFLX), and Amazon (AMZN).  These new video services may have business models that are familiar -- subscription, VOD, etc. -- but they are unencumbered by geographic footprint.

Comcast's out-of-footprint over-the-top service is inevitability. The media world will be forever changed and the cozy club of non-competing cable operators will be a thing of the past.

MacIsaac is CEO of ExtendMedia, a Boston-based company whose technology enables content providers and distributors to create, deliver, manage & monetize online content offerings over many devices.

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