Comcast COO Steve Burke on the future of the TV industry
Just because consumers are increasingly tuning into Hulu, YouTube and other online video sites, doesn't mean the traditional cable TV business is dead. That's the view of Comcast Chief Operating Officer Steve Burke who was in Bellevue today talking to the media and employees about where the country's largest cable company is headed. Burke sat down with TechFlash today for a 25-minute interview that covered everything from Twitter to Clearwire to why a-la-carte pricing for television won't work.
What is the role of a traditional cable company given the new media landscape?
"I will speak for our company, although I think a lot of cable companies have the same type of mix of business. Right now, almost half of our business is not television. It is Internet ... and phone and business services and things other than television. But the half that is television, what is interesting is despite the fact that consumption of video on the Internet is growing at a rate as fast as any consumer adoption curves we've ever seen, people are not disconnecting their cable....
(Streaming) video on the Internet is not a substitute for -- it is is really complementary -- to what you get on cable. That means if you want ESPN you need cable. If you want to see a game, if you want to see hit shows or you want to subscribe to HBO, you really need cable. Our view is: If you say, 'Is the Internet friend or foe?' The Internet is friend. First of all, we have 16 million people who go on the Internet every day through our broadband connection... and you need that broadband connection to get high-quality video.
We and the programmers are going to want to make sure that the cable programming that people pay for when they get basic TV service doesn't go completely on the Internet, so there is still a reason to subscribe to cable."
So you see a world where people will be watching video both online and via cable TV?
"Yes. If you look at our house, we have kids who love watching 'The Office' or 'Saturday Night Live' on Hulu. Other kids who like to use Fancast, which is our broadband video service to watch their favorite shows. And all of this is going on and then in the main room their is a big screen television set and we are watching 'American Idol' or something else on television. And I think that's going to continue."
Doesn't Fancast undercut the traditional cable TV service?
"It depends. If you believe that there is going to be more and more video on the Internet -- as we do -- people will be spending more and more time consuming video on the Internet. But a lot of their favorite programming is paid for by affiliate fees that cable companies and satellite companies pay to the traditional content companies, whether it is USA or TBS or ESPN or Nickelodeon or Discovery. Those content companies are going to make sure that people keep paying cable companies and cable companies keep paying them.
I think there is going to be a lot of content that you can really only get through your cable company, and obviously there will be people who don't get cable. There are a lot of people right now that don't get cable or satellite. But, really when you think about it, if you are paying $2 for a service that a typical family uses five or six hours a day, relative to all of the other things...."
On the effects of the economy:
"As the economy has gotten worse and worse, very few people are disconnecting their cable television service. Far more people are cutting the cord on their phone service. The telephone companies are losing about 10 percent of their phone customers every year, and about half of those go to the cable companies and half of the people say they can live with a wireless phone."
Why doesn't Comcast go to an a-la-carte pricing model?
"The easiest answer is that the programmers wouldn't let us. If you are ESPN and you have all of those football games and all of that greats sports content, you want to be in every home and you want to get paid for being in every home. So there has been a big debate about a-la-carte and flexibility. The fact of the matter is the business model we have all grown up with assumes that you get broad distribution....
This model of having a broad basket of products has really worked and has caused niche channels like Home and Garden or the Golf Channel or other channels -- that may live on half a rating point or a rating point -- to really thrive. If a-la-carte consumption came along, then all of a sudden those channels were only viewed by 10 or 20 million people, they couldn't make it. Programmers have demanded that cable companies and satellite companies carry all of their channels for all of their customers."
Do you see it headed toward a-la-carte with the verticalization of the Internet?
"I don't. I think the broadcasters and content companies couldn't survive doing it. As a cable company, since we are so increasingly dependent on high-speed Internet and telephone for our growth, it might not be a bad thing for us. But for the content companies, it would be a terrible thing. They wouldn't do it. And they would do whatever they could to avoid it."
Could Comcast split into two companies around its content business and its high-speed Internet business?
"I think it would be very tough to do that.... Let's say a person has all three products -- video, voice and data. Which of the three products would pay for maintenance, which would pay for traffic. It would also be harder to sell all three products together, which maybe 20 percent of our customers now take all three products. And so, that is a way for us to provide really good value to our customers. It is not something we have thought of."
What about wireless broadband? You took a $600 million write down on your Clearwire investment last quarter. Are you satisfied with that investment?
"Well, we are so far. We would like to get going and start rolling Clearwire out and start bringing it to more of our markets. If you look at the world, I think the two things that are pretty certain is that the world is going digital ... and the other thing is that a portion of the consumption is going to be wireless. We think a big portion will still be through a wire. We think five or 10 years from now when you go home and watch television you are going to have a really big screen with really, really high-quality high-def -- maybe 3D. And you are going to want a wire to bring you that service. And you are also going to want a wire to bring you really, really fast Internet when you are at home.
But when you are out of the home, you are going to want to get your data experience and your phone experience and sometimes your video experience out of the home. So we are going to need a wireless component to our offering, and Clearwire is a way to do that. We are looking forward to rolling it out and given it to our customers...
Has it been slower to ramp up than you had hoped?
"A little bit slower. And it is a challenge in these credit markets, which I think is reflected in the speed of the roll out... But I think we will get there eventually, and when we do it will be a great product and something our customers will want."
Would Comcast consider buying Charter Communications or other companies in this downturn?
"Charter is a great company and their big problem was that they borrowed too much money at a time when it was just a different world... Their operating performance is actually just fine. We have 24 million subscribers, we are plenty big and we are not waking up every morning and looking at ways to get bigger. What we are looking for is ways to get more new products to the existing customers that we have, to improve our reliability and service and introduce new and innovate things. We are not as much on an acquisition focus as we were. Ten years ago, we had four million video customers, six years ago we had eight million and then we did the transaction with AT&T Broadband that brought us to over 20 (million) and we've done some other ones. We are not really looking at acquisitions as our primary means of growth right now."
What about increasing the number of HDTV channels in Seattle?
"We actually have a lot of high-def channels in Seattle.... But we want to get to 100 high-def channels (in some parts of the market this year).... Right now, about two thirds of our capacity is currently devoted to analog TV channels. We are going to convert those analog channels to digital and when you convert to digital you get a lot more capacity. You can put 15 digital channels in one analog spot."
What have you learned from using Twitter and other social media tools to respond to customer complaints?
"It is an interesting question. We have 24 million customers, and even when you do things right 99.9 percent of the time, when you have 24 million customers, you get a lot of phone calls and lot of repair issues and things you need to do. One of the things we noticed was these social media sites like Twitter were places where people would go and they would tell their friends what they thought was good or bad about a particular company.
So, we hired a group of people who do nothing all day long but go into blogs. And their primary mission is to go in and figure out if someone is unhappy with their service and if there is anything we can do to fix it and rectify the problems. We've been doing it now about 18 months and it has been fantastic."
On lessons from that:
"When you contact somebody and you admit that you made a mistake and then you fix the mistake, they become some of your biggest supporters. We took the lead and we are ahead of a lot of companies in America doing it.... I think it is a fact that that's the way that people are communicating now, and I think if you want to serve your customers you have to go to where they are."
"I think cable companies traditionally have gottten a wrap -- and some of its justified -- for doing what they do one-sized-fits-all and not being responsive to customers about complaints. And we have never liked to think of ourselves that way, but the fact of the matter is at times we are that way. This is a way to really connect one-on-one with people in a really intimate way. So, it has been a big success."
Can cable keep up with consumer's appetite for bandwidth and compete with Verizon's FIOS?
"We can deliver as much bandwidth as FIOS can, and the key is having that fiber in the network all of the way to node. And we just keep devoting more channels to it, so we can really keep up. And we blow away DSL."
Do you hit a ceiling with cable?
"No, you can split nodes and the architecture is designed to keep going with the capacity."
On DSL versus cable:
"What we are finding now is something like 65 percent of all of our new high-speed Internet customers are people who were DSL customers that are shifting to cable for their Internet consumption. We like to say that DSL is the new dial up."
There's the perception with Comcast pricing that if I complain I might get my rate reduced or if I threaten to leave I may get it reduced. How are you addressing that in this economy?
"Obviously, the economy is in terrible shape and a lot of people are experiencing situations where they literally can't pay their cable bill. And when that happens, we are trying to put people into economy tiers... We try to put people in the right packages and not have people in the wrong package. If someone is calling up and obviously trying to play a game or something, it is pretty obvious. But we think most people are the doing the best they can, and when they call in and say 'Look, I just lost my job' we try to put them in the package that is affordable to them given their circumstances."
What about reducing prices for certain customers?
"We haven't raised our Internet price ever since we launched it. And actually the speed has gone from 1.5 Mbps all the way up to 12 Mbps, and we haven't changed the price. And the same thing is true on our phone service. Our video product is a little different because our biggest cost is the programmers, and our programming costs keep going up every year. So, we and DirectTV and Verizon and Qwest and anybody who is in the television business pass on those costs to our customers. And unfortunately those costs go up and our prices go up."
Editor's Note: Thanks to the TechFlash readers who submitted questions. Sorry I couldn't get to every one, though the Comcast folks were impressed with the high-level of reader questions.
