Fans of Roku and Amazon Fire might have been surprised when AT&T-owned HBO Max – the almighty channel featuring Game of Thrones and Southpark – would not be directly available to them (there is a workaround, albeit cumbersome). They might be shocked again upon realizing that Comcast-owned Peacock would likely be unavailable too. Roku and Amazon Fire reach 80 million households. Why would the media giants give up this reach if their objective is to reach as many subscribers as possible?
Their decisions appeared to be motivated by the fear of accelerating loss of cable subscribers. The rise of TV streaming and cord-cutting have caused the permanent loss of millions of cable subscribers. AT&T owns Time Warner Cable (now Spectrum) and Comcast owns cable assets under Xfinity. The cable business has historically been very profitable, producing north of 30% net margins. AT&T and Comcast are motivated to protect their cable business and stem the loss of subscribers by limiting streaming access to their most popular content.
However, the restrictions are akin to a shack in front of an enormous tidal wave. There is no way to prevent TV streaming from disrupting the cable industry (I argued in a previous article that cable was ripe for disruption). Hence little can be done to stop the outflow of cable subscribers. AT&T and Comcast are merely slowing down the inevitable with content restrictions and customer-hostile tactics, which would ironically accelerate the demise of the cable business in the long run by increasing the relative appeal of user-friendly streaming channels.
If it is impossible to stop customers from moving to streaming, it would be rational for AT&T and Comcast to position for and profit from streaming. Allowing Roku and Amazon Fire easy access to HBO Max and Peacock is a step in the right direction, yet is still insufficient to assure success in attracting and retaining subscribers. AT&T and Comcast are light-years behind streaming stalwarts like Netflix. Large content libraries, owned by the media giants, alone are not enough. The success of streaming champions (Netflix, Roku channel, Hulu etc) depend on both content and sophisticated technology. For example, Netflix has at least a decade lead in its recommendation engine technology that pairs users with content that they otherwise would not discover. The recommendation engine, named Cinematch, uses machine learning algorithms, so advanced and refined that it does not require users to rate content in order to recommend content (for more on this fascinating topic, read chapter 11 of this book). The Cinematch algorithm retains customers by facilitating discoveries of hidden gems. Therefore, it would be unwise for AT&T and Comcast to rely solely on large libraries of premium content for success in streaming. They would also have to consider matching the user experience and back-end technology of competitors. This is a formidable undertaking whose difficulty is compounded by constantly-improving competitors. Yet AT&T and Comcast are squandering precious time and resources over squabbles concerning content access.
Streaming is the future. Netflix is already worth more than AT&T and Comcast. Roku would eventually be recognized as the premier platform for streaming. The sooner that AT&T and Comcast position for streaming, the sooner they can start competing for a future that is increasingly likely to cast them aside.