Gatekeeper Role Diminishes

Barriers to customer switching are considerably lower now than in the past, reducing the power gatekeepers have over their customers, and shifting the ways some control still can be exercised.

Set-top box interoperability is one way to reduce the power of video service vendor lock-in and make switching providers easier. In the past, control of the conditional access function provided by such set-tops was perceived to be a source of business advantage by cable operators.

All that has started to change with the advent of over-the-top video subscriptions, though, which require no dedicated set-top box, only use of an application which itself supplies the conditional access functions, and then an internet-connected TV or streaming stick.

As the number of global linear video subscriptions grows, shipments of set-top boxes set-top boxes are growing, though. But those boxes are less costly.

Moore’s Law and competition have helped reduce prices for set-top boxes. Service provider profit pressure requires them to get operating costs down, and that includes the cost of customer premises equipment. But it also is the case that set-tops play a smaller role in driving revenue than once was the case.

Set Top Box Price Forecast


source: Technology Futures

These days, revenue growth and profit margins are driven by internet access services, not subscription video or voice. So the value of the set-top also is diminished. That is not to say the box has little value. In fact, Comcast’s X1 boxes supply many functions that add value to the user experience, beyond allowing access to the programming.



source: Technology Futures

Not only have telcos, cable companies, internet service providers and satellite firms become less essential “gatekeepers,” but their roles in the ecosystem as distributors likewise wanes. In an internet ecosystem, once the internet access is in place, each app provider can function without a distributor in the value chain.

And that has business implications for former distributors as well as all app suppliers.

Over time, some distributors will become app providers, altering their roles in the value chain. Moves by Comcast, AT&T and others to become content producers and copyright owners provides a clear example. The role of Peacock owner (Comcast) or HBO Max (AT&T) comes not from the distributor role but from the app provider role.

Functionally, even traditional linear TV subscriptions have become apps. They might be owned by the firm that supplies the internet access, but since that product already can be purchased separately from the internet access, even linear video is functionally an application.

Note the change in distribution once a service evolves from linear to internet delivered: where the service footprint was bound by the franchise areas where a cable company, telco or ISP has access networks, the internet apps can be purchased by anyone with internet access in any country where the app is lawful.

HBO Max, in other words, can be purchased by customers who do not buy AT&T internet access or voice services or mobility services. One of the defining attributes of an internet app is that it can be sold or used anywhere internet access is available, and where the app is lawful.

So one obvious implication of any connectivity provider becoming an app provider is that the former geographic bonds are slipped. Voice and video providers using fixed networks need government permission to operate in specific areas, and are not allowed to operate outside those areas.

Over the top services and mobile operators can, in principle, operate nationwide, or internationally, if other governments permit it. In traditional parlance, that means operating outside the franchise area, not just inside the territory where permission to operate is granted.

To be sure, device interoperability is helpful in reducing switching behavior by customers. But other trends--especially the shift to internet delivery--are reducing barriers to switching behavior, in any case.