While operators say they're moving away from proprietary leased set-tops toward a paradigm of app-based IP-only delivery, there's a very good reason to suspect that they will maintain a sizable base of leased CPE in the coming decade.
Indeed, seemingly lost in the discussion about the FCC's plan to unlock the set-top to third-party companies like Google is what will happen to programmatic, addressable and other forms of advanced advertising — revenue opportunities which operators are just beginning to exploit with their robust networks of leased set-tops.
So how will the plan impact a pay-TV revenue stream that's just starting to yield results?
"It's a little too early to tell," said Lindsay Fordham, director of product marketing for Rocket Fuel. The five-year-old, New York-based advanced advertising company has been working with Dish Network (NASDAQ: DISH) since last fall to monetize nearly 14 million pay-TV set-tops through programatic advertising.
"Dish has created a really interesting platform," Fordham notes, luring digital-native brands like premium whiskey-maker Glenfiddich, which never advertised its pricey scotch on television before. Just as it is on digital platforms, Dish's network of advanced Hopper set-tops allows it to identify households with combined incomes of $150,000 a year and above, distilling a targeted base to which a premium brand like Glenfiddich can deliver impressions.
"Programatic allows brands to have more control where their ads get served, and who sees them," Fordham said. Having more operators involved would lead to more advertisers entering the programmatic TV marketplace, Fordham said. "And the more advertisers you have bidding, the more valuable your inventory becomes."
Other pay-TV operators like Cablevision (NYSE: CVC) have made inroads with addressable advertising. And the Wall Street Journal reported that AT&T (NYSE: T) is launching into programmatic advertising, too. Both Dish and Rocket Fuel would like to see the industry migrate to full-fledged automated (i.e. programmatic) ad exchanges.
The combined programmatic TV marketplace will be worth around $2 billion in 2016, Fordham said.
Now that's just the kind of thing Google (NASDAQ: GOOG) would want to get its hands on, right?
Speaking to the Washington Post last month, Milo Medin, VP of access services at Google, wouldn't talk about how Google might use data in a pay-TV set-top device. The company doesn't currently have a device that works in the pay-TV ecosystem, so the point is moot, he said.
Google's advocacy of the FCC's reform agenday, he added, "has not been with a specific product in mind.
For her part, Fordham said that whatever affects Dish, also impacts Rocket Fuel. But should the FCC go through with its plan to open pay-TV set-tops to companies like Google, she acknowledged that it could allow companies like Rocket Fuel to reach consumers through an open-standards protocol, "sort of how mobile evolved around the app ecosystem."
Meanwhile, Charter Communications (NASDAQ: CHTR) President and CEO Tom Rutledge is loath to chastise the FCC too harshly during a time when his company's proposed mergers hang in the regulatory balance. But he's not so sure content owners are going to like a new TV advertising paradigm controlled by Google, either.
"If I were a content company, I would be extremely worried about [the FCC's proposal]," he said earlier this week at a Morgan Stanley conference. "At its core, it further separates content from ownership." --Daniel