On Tuesday, Chris tried to explain the “media convergence” that is becoming more of a reality everyday, a daunting task to say the least. Chris described the scenario made possible now by Apple’s video iPod: downloading a television show through your computer at work (over lunch) to watch on your TV at home (over dinner).

Two things have become clear to me:

  1. Downloading television content on-demand to watch wherever/whenever you want is awesome.
  2. Consumers should be prepared to be confused.


The days of knowing where to go for your television service (or internet or phone service) are long gone. Here is a brief list of just some of the recent developments to ponder:

  • Get phone service through your cable company.
  • Get cell phone service over your wireless internet. [1]
  • Get television service through your phone company. [2]
  • Get internet service through your power company! [3]

Get your video on-demand, in-demand, through iTunes, through bitTorrent. Yahoo! wants to provide video. Google wants to. Microsoft wants to. Hell, who doesn’t want to sell you television content.

Confused yet?

There was a time when I had 3 choices if I wanted to watch something: on television, on DVD, or at the movies. No more.

What does this mean? More importantly, how can we make money on this?

Dealing with Change
First off, I have to admit that I’m exaggerating a bit with the confusion stuff. Things aren’t so simple for us now. Television is one of my “3 choices” above, but currently television broadcasts can enter my home via cable, satellite, or radio waves. And each TV option comes with its own benefits, limitations, and cost.

Also, while things are sure to get more complicated in the years to come, consumers are going to find a way to sift through the myriad options our future holds. People will generally do one of two things:

1. Consumers will choose whatever is best.

People buy DVDs because they are obviously better than VHS tapes (the last hold out was the ability to record to videotapes and that has been replaced by DVRs, recordable DVDs, and video on-demand). Similarly, savvy consumers buy their internet service from whichever company offers the best price performance and features in their neighborhood. The same thing goes for wireless cell phone carriers.

2. Consumers will stick with what they got.

So-called savvy consumers are going to buy services from the best company. Well, there are a lot of non-savvy consumers out their as well. Non-savvy consumers are basically inert. They will keep the service they’ve “always had” unless acted upon by an outside source. Outside sources can come in the form of a friend’s suggestion or a great deal they see advertised… on TV.

Show me the Money
It’s easy to get excited these days about television, internet, and phone service providers because they are all expanding into new markets. At the same time however, other companies are expanding into their own markets. The money is just being shuffled around. It’s as hard to figure out who is going to win this battle as it is to figure out how you’re going to watch CSI in two years.

Let’s think again about how consumers are going to deal with this change. If the two points I make above are accurate, who stands to gain from this media convergence fiasco? Should we be investing in phone companies (Verizon and AT&T) or cable companies (Comcast and Time Warner)? My feeling right now is to go with the cable companies, specifically Comcast.

Why Comcast?
Remember, the players in this newly converged service provider market are basically shuffling their money around with each other. Cable companies will take market share from telecoms. Telecoms will take market share from cable companies. You need to either get frustrated and find a more obvious investment OR make a bet on which of these companies is going to come out on top.

Many analysts think that it will be easier for cable companies to move into the phone industry than it will be for telecoms to enter the television industry. I think this makes sense. People are used to changing their phone service while changing your television provider is a relatively recent phenomenon that hasn’t caught on as quickly. There are also more technical challenges facing the phone-to-tv direction than the tv-to-phone direction. [4]

Consolidation of the cable providers is also going to help them compete against the telecoms and satellite companies. Approval is pending for Comcast and Time Warner’s joint acquisition of Adelphia Communications Corp. A merger of Comcast, Time Warner, and Adelphia would create one company with a lot of weight to push around. [5]

That’s my two cents so far. This is a pretty controversial space; so I’m excited to hear some comments on this.

[1] Technology Promises To Link Wireline, Wireless Networks by Roger Cheng
[2] Cavalier Telephone now Offers Television Service by Jeffrey Kelley
[3] Plug and Play by David S. Bennahum
[4] Rumble in the Triple Play Jungle by Marguerite Reardon
[5] Comcast Forms Partnership For Bundled Services by Dan Wright

That’s interesting that you pick Comcast over Verizon. Over the last few years phone companies have been converting their entire backnetworks over to fiber with IP switching. Some cable providers have also switched to fiber, and all basically run some kind of IP network.

I personally, though, would choose Verizon because of the value of the shares right now. They’re tremendously undervalued, with a Price/Earning (P/E) ratio of 10, when the industry is at 18!

Additionally, with a cellular network already in place I think they’re better positioned to capitalize on future bundling deals than Comcast… something you mentioned. With Fios, they’re building a core competancy in TV broadcasting as well… I can’t imagine this is any more difficult for a phone company than a cable company providing phone service.

Financially, Verizon is in good shape with earnings over $1.75 billion for the last 6 quarter, and a strong balance sheet with debt to equity ratio of only 23%, which is very low. They’ve dropped from 42 to 31 this year, and I think with their new services bundles and enhancements to their cell network, Verizon will be strong player in the coming 5 years.

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