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Rumors of Cable’s Demise Are Greatly Exaggerated

Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

There’s a battle being waged these days and it has nothing to do with taxes or fiscal cliffs.  It’s one that you likely won’t hear much about, but one that’ll impact more than just your wallet.  It too is a battle for control, your remote control that is (and I’m not talking about the one you have with your spouse during football season). 

For years cable companies have enjoyed a natural monopoly due to the large fixed costs associated with providing service.  Sure, they’ve had competition in the broad sense when it came to your entertainment dollars as well as more directly through satellite TV providers.  For the most part though, if you wanted access to a variety of entertainment channels from your comfy couch you had no choice but to call the local cable company and wait until they found time to send someone out.

With such high barriers to entry these companies have been able to generate tons of cash over the years.  However, those traditional barriers have been weakened of late and some serious cracks are beginning to form.  The biggest of which is the rise of internet TV which fellow Foolish Blogger Robert Zimmerman thinks just might be the future of TV.

While I agree that internet TV is a large and looming threat, it’s still not yet perfected on the big screen.  Even as I’m always seeing my wife catch up on her favorite shows on her Apple (NASDAQ: AAPL) iPad it’s yet to replace our hefty Comcast (NASDAQ: CMCSA) bill.  To date the technology has yet to break through and offer a viable solution to replace the cable remote which controls our big screen and allow consumers to cut their cable cords en masse.

It’s not like no one is trying.  Google (NASDAQ: GOOG) and a vast array of partners have been working to get Google TV into the hands of consumers but have yet to find much success.  Even Apple has been trying to get into the living room with their Apple TV but they too have had limited success though rumors have it that they’ll one day launch an iTV.  Of the big tech companies the only one that’s really found their place in our living room is Microsoft (NASDAQ: MSFT) by way of their Xbox gaming system. 

The problem and one Bob addresses in his post is that content still is king which is what’s making all this talk of cord cutting easier said than done for most of us.  It’s one reason why most Comcast subscribers like me still cut checks instead of cords.  While the full effects have yet to take place, their acquisition of a 51% stake in NBCUniversal Media is a big first step toward controlling their access to content. 

Further, as part of my Comcast subscription I’m able to watch live TV and videos on demand from the very internet that’s supposed to be disrupting it.  They also own a partial stake in popular internet streaming service Hulu.  Comcast isn’t taking this treat lying down and they’re not the only one that’s realized that content still is king and that it is imperative to control their access. 

Canadian media conglomerate Rogers (NYSE: RCI) has taken content ownership to the next level.  Whereas Comcast owns the regional sports networks which broadcast into their customer’s homes, in the epitome of vertical integration Rogers not only owns the sports networks where their subscribers watch games but they own the sports teams and venues in which they play. 

Much has been said about how tightly Rogers actually controls the purse strings when it comes to those sports teams.  My beloved Blue Jays recently received a very long overdue infusion of both money and talent which not only will improve the product on the field, but should boost ticket and merchandise sales as well as ad sales when games are broadcast.  Not only that but it should boost usage of their Rogers Anyplace TV service where you can watch, among other things, live games on an assortment of devices including your Xbox (which is incidentally how I get my Jays fix though through another service provider).

Despite control of their content neither Comcast nor Rogers are putting an end to the cord cutting.  However, by adding content to their revenue pie they’re adding a revenue stream that can be monetized across all platforms.  This is placing other cable companies at a disadvantage as they not only face the same cord cutting pressures, but they’ll be joining me in cutting a check to Comcast and Rogers to access their content which they’re certain to demand a king’s ransom to access.

While internet TV and the lingering recession have certainly taken its toll on the subscriber counts at cable companies both Rogers and Comcast have made the right choice by securing their access to content by owning it directly.  Additionally, by enabling their customers to access their content anywhere they’re keeping up with the digital age.  If the tech giants ever do figure out how to win over control of that remote, they’ll still need access to content which Comcast and Rogers will be more than happy to supply.  Rumors of the demise of cable are greatly exaggerated, at least for Comcast and Rogers.


latimerburned owns shares of Apple and Rogers Communications (USA) and has the following options: Apple and Microsoft. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, Microsoft, and Rogers Communications (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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