Let’s start this week with a little history lesson. You probably haven’t heard of Willie Sutton. According to Wikipedia, William Francis “Willie” Sutton, Jr. (June 30, 1901 – November 2, 1980) was a prolific American bank robber. During his forty-year criminal career he stole an estimated $2 million, and eventually spent more than half of his adult life in prison.
There is a famous quote attributed to Sutton (he swore he never said it) who reputedly replied to a reporter’s inquiry as to why he robbed banks by saying “because that’s where the money is.” I’ve always remembered that because it’s a great way to stay focused when shiny new business options emerge.
One shiny new option these days is the plethora of Over The Top video services. You have probably heard about the one forthcoming from Apple, and HBO, CBS, Sony and others are already in the marketplace. The short version of why these things exist is so one can cut the cable cord, freeing oneself from the “bundle” of unwanted but paid for TV networks. If I’m a cable TV provider – most of whom are also internet service providers – I’d welcome these services with open arms and some of them are. Cablevision, for one, is offering the new HBO Now online service to its internet customers, even though the service could persuade more people to drop their cable TV packages.
Keeping the Sutton Rule in mind, where the money lies is in providing high-speed bandwidth at a reasonable price. It costs the ISP pennies per gigabyte. Charging a customer $50 a month for something that costs you maybe a tenth of that is a pretty good business. Compare it with providing cable TV where you’re charging a little more but your margins are much smaller due to having to pay most of the networks you provide a monthly fee per customer. You still pay ESPN $8 a month for each of those grandmas with cable who never tune it in.
I’m assuming for a moment that the customer service and install/repair costs are a wash. You’re going to have those techs and phone banks no matter which service you support. The real question in my mind is when will some cable company get out of the TV business and go ISP only. Will that kill the content providers? Nope. One could argue they will come out ahead too since many of them receive far less on a per user basis from the cable guys than they might charge direct to the consumer albeit to a smaller but more engaged base.
The interesting times keep coming, don’t they?