LongHaul Posted September 10, 2014 Share Posted September 10, 2014 I view TV content distribution as a commodity so the lowest cost distributor should win over the long run. One key metric to consider is content cost as a percent of revenue for 2013. Cable NETFLIX US STREAMING Content 45% 67% What this means is that Netflix US Streaming is delivering far more content per dollar of sales than Cable because it is a more efficient model. However, Netflix at ~$8 per month is at a far lower price point than Cable. Netflix’s total costs and profit is ~$2.70 per month per user for delivering its content. Below I look at the economics of a Virtual Cable Co – which I think would be similar to a Netflix streaming for a Cable channel content offering. The estimated cost of a Virtual Cable company to provide a similar cable bundle. Existing Cable Co Virtual Cable Difference Revenue per sub per month $70 $36 -49% Content Cost 32 32 Other Costs and profit 38 4 That means that a Virtual Cable company could offer consumers a price point of about half off the existing cable company. Essentially, I think the existing distribution of TV content over cable/Satellite is massively disadvantaged vs a Virtual Cable offering. There are other issues that I didn’t discuss like scale advantages in content – these are real but I think even a smaller player could provide a much cheaper Virtual cable price point than the largest player. Content availability. I think this is partly an issue. Some agreements may prohibit some content from being delivered to a Virtual Cable company. But the Satellite providers had this issue and ultimately overcame it. I have also read that content players are ready to do over the top (virtual cable). Recent article about Dish’s plans to offer a virtual cable plan for ~$30 per month per news reports. http://money.cnn.com/2014/08/06/media/dish-network/ Unbundling could also happen but I just looked at providing the current bundled cable channels using virtual cable. Link to comment Share on other sites More sharing options...
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