The Internet Highway is the Future for Profits in Distribution

Photo Courtesy of the Associated Press

Previously this author wrote about Bundling to Change the Future. This article is about how distribution is still queen and wearing the pants in the form of the carrier that provides the digital broadband internet highway to distribute content. 

According to CNBC, “Broadband is a higher-margin business than TV, which has become a near-term net loser for new bundlers of programming.” 

In the entertainment, media, and sports industry, there have been two recent simultaneous changes.  The first is with bundling where streamers are becoming like the traditional cable providers bundling their services with other service providers versus cable providers bundling individual networks or television shows.  The second is that internet broadband carriers have purchased content providers and/or created streaming platforms to distribute content using their own broadband internet services.  The end result is that these larger companies are hedging their bets by having two revenue streams, with one (the broadband internet services) proving to be more profitable over television programming or bundling.   

This is nothing new of course.  Companies have always looked for ways to adapt, change, and increase profits.  What is interesting and what will be interesting going forward is whether regulation will eventually cut-off the digital relationship between broadband providers and streaming platforms and specifically the act of the broad-banders buying the content distributions (e.g., AT&T-Time Warner—to date it has been allowed and is a sign of the changing industry, economy, and consumer needs).  One thing the United States Justice Department and the courts have always frowned upon is the big guys buying up the little guys or competitors to remove competition using anti-competitive activity to control the marketplace.  To date, the mergers have not been challenged successfully.   

In this economy, however, where consumers are cancelling their bundles and cable television in general, Phoenix, Arizona-based Cable One might be the model of the future.  The company’s leadership has stated clearly that, what now seems logical and common sense in hindsight, people are not cancelling their internet when they cancel their cable television so an investment in broadband internet services would be wise. 

Most of the changes in content distribution today comes down to economics.  It is cheaper and easier to sell a digital broadband internet highway in the age of a free marketplace free of net neutrality regulations when compared to creating the content to be distributed.  Moreover, where a company owns both the content and the internet highway, all the better for their bottom-line as the company controls content, costs, and access.   

In some sense, the packaging of talent in the agency business has taken a similar model in distribution where the internet carriers have packaged content distributors together.  The future model, at least for smaller companies unable to purchase content providers, might be to provide and invest in the thing that carries that content, the internet, because until the internet is replaced it is how all of us receive the content we watch.  As gas runs the car, so the internet runs the content. 

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