There are some things one has to do...

Yard work. Changing the oil in one's car. Laundry. Dishes. Other chores. It isn't the point of life, but it underpins life. Unfortunately, video services are something like that. Service providers must go there. But the payback isn't going to be there, if all one is looking at is "new revenues." In fact, the business case has to rest on a combination of sources, including churn reduction, operating cost savings and strategic positioning.

Executives never like to admit it, but a primary rationale for fiber to customer and other broadband upgrades is simply to hang on to the customers and revenue streams one already has. Beyond that, there's the trading of market share with the cable companies: you'll take some of mine but I'll take some of yours. And then lots of other contributors to the revenue ledger, but nothing like a killer app. Rather, a longish tail of niche services, features and revenue streams.

As important as entertainment video is going to be for wireline and wireless service providers, it also is important to remember that it is going to be a low-to-no margin business, in some cases. So don't be seduced by significant average revenue per unit boosts from video services. That's helpful, to be sure, but is going to come at a fearful cost.

The reason is simple enough. Any gross revenue obviously will have to be split with content owners and distributors. In the cable TV industry, larger operators have enjoyed 40 percent margins for basic cable, up to 20 percent for premium services such as Home Box Office, and perhaps 10 percent for pay-per-view fare, on average.

Few telcos likely won't do that well, just as few smaller and independent cable operators are able to. And the general rule is that the more targeted a video offer becomes, the more the margin shrinks. Note the progression from the highest-viewed cable fare to the least viewed. Margins progressively drop as viewership drops and technology intensity increases.

While it is interesting that Apple is considering a retail price for new releases of about $15 (and negotiations apparently aren't finished), it doesn't appear that Apple's wholesale price will be much below $14. So Apple's "gross" on each new release sold is just about $1. That's helpful, but not by itself a compelling business proposition.

Then there's Wal-Mart, which sells something in excess of $6 billion worth of DVDs every year, making it a sizable player in the prerecorded video business, if not strictly in the on-demand business. Up to this point Wal-Mart's wholesale price for new releases has been something on the order of $17 a disc. So compare that $17 with the price of the most-recent new release you've purchased and you'll get some idea of Wal-Mart's margin. And, oh by the way, that might be a negative number, since Wal-Mart essentially merchandises new release DVD sales as a lure to get shoppers into a store.

So this is going to be a whole lot of work and a whole lot of capital for pretty slim actual revenue gains, once the content owners get their cut. Which is one of the reasons we also argue service providers shouldn't take their eyes off the voice and data ball, which is where most of the actual margin, not to mention gross revenue, is going to come from for the foreseeable future.