These days, every technology that introduces even the smallest wrinkle into an existing marketplace or business model is quick to declare itself “disruptive.” Most turn out to be interruptive, at best, some not even that. But if you’re an existing player in the MVPD ecosystem—or even a potential one—you should be preparing for radical change in the very near future. 5G is coming, it’s coming fast, and it’s going to leave bodies scattered in its wake. Just two or three years from now, cable giants are going to look back at the current cable-cutting trend as “the good old days.”
5G is a big, disruptive technology that promises several things. It boasts super-low latency, facilitating delivery in near-real time, and it provides enormous capacity, which enables broadcasters to push a tremendous amount of content through the pipeline. What’s most important—and potentially disruptive—about 5G, however, is the fact that it’s over-the-air technology.
PITCH AND CATCH
5G’s premise is a pitch-and-catch ecosystem built around microtowers and tiny receptor chips. The chips can be embedded in virtually any device—an OEM TV, a stick or a whole-house router. 5G is an ideal platform to deliver video services, linear or on-demand, because it can push tremendous amounts of content in all kinds of formats, including hi-def and 4K TV. Users can have an independent device that receives those services without having to go through an intermediary modem or MVPD network architecture. Since the device can be anywhere, it eliminates the need for a big pipe coming into the home, as well as the bandwidth issues that constrict legacy ecosystems.
That’s going to be a major problem for cable companies saddled with sunken costs in fiber, network and last-mile infrastructure. They’re faced with the spectre of legions of customers dumping $200-a-month cable bundles in favor of new 5G-enabled services that will probably be in the $60-$80 range, including content and transport.
But 5G will also create tremendous opportunities. The big winners will be mobile carriers, like T-Mobile and Verizon; content companies, which will no longer be constrained by access to cable companies’ bandwidth; consumers, who are likely to have greater access to more and better content at lower cost; and marketers, who will be able to make their messaging more relevant and personalized, and pursue new sources of revenue. ARPU (average revenue per user) is still going to sit on a combination of subscription, advertising and micropayments, but ratios are going to change, and whole new lines of ARPU are going to emerge.
The companies that control existing wireless towers are in the best position to capitalize on 5G’s promise. They are already in the business of putting up towers and distributing services through the wireless infrastructure, so they have deep expertise in this area. It’s worth noting that all the bandwidth delivered in the U.S. comes through fiber optic networks, and those networks were massively overbuilt and underutilized. Every year the transport algorithms and delivery pitch and catch endpoints make the fiber more efficient. They have a tremendous amount of excess capacity that can be used to deliver content to cell towers for broadcast using 5G technology.
It’s likely that some of the wireless carriers will jump into the 5G market with new services of their own. Their costs of operation are going to be extraordinarily low, although some of them will be hobbled by their legacy video services. New companies creating 5G devices and existing content companies like Netflix and Hulu can piggyback on the excess capacity by wholesaling it from wireless carriers.
THE ‘LAST MILE’ HAS GOTTEN LONGER
As 5G penetration expands rapidly over the next two to three years, the economic picture for the companies that own the fiber to the main towers and for those who own the sites where microtowers will be installed remains strong. Where it blows up is in the so-called last mile (it’s actually more than a mile now), where 5G wireless delivery eliminates a massive amount of cost and makes it easy for content companies to go over the top of MVPDs.
The table has also been set for lobbying (by AT&T and Verizon) and a change in regulations that almost eliminate barriers to put up microtowers. This can be thought of like eminent domain on buildings without obstructions from state, local and municipalities.
Other aspects of the 5G value equation include the vast amount of proprietary first-person data it will make available to marketers and the acceleration effect it will have on the growth of television-based commerce (t-commerce). Those factors will play major roles in the evolution of new ARPU models. Traditional mass market retailers and food delivery services will be able to provide new opportunities to their customers by creating their own ecosystems enabling immediate activity. Imagine a cooking show featuring a famous chef making a great meal where viewers can have the recipe and ingredients sent to their homes, so they can make it themselves that same night. Symbiotic experiences like that have the potential to magnify customer engagement and create new sources of ARPU.
Advanced services will thrive in the 5G ecosystem. Providers will be able to make the content they serve more relevant, personalized and interactive to their viewers. Marketers can dynamically associate ads that are extremely relevant to the content being served at the specific moment when the viewer’s interest is at its peak (finally, there are ad solutions for binge watchers). Closed attribution capabilities will also enable entirely new types of sponsorship opportunities, supporting two-way communication with customers and providing immediate transaction opportunities. Ultimately, the potential that 5G offers to greatly improve messaging relevancy and personalization could reduce marketers’ total cost of advertising.
The radical disruption that 5G will bring to the MVPD ecosystem is not something on the far-off horizon. We will see 5G products and services being introduced and markets being activated before the end of 2019—in fact, expect a flurry of announcements in the second and third quarters of 2019. Full 5G saturation may still be a couple of years off, but it’s coming fast. The technology exists, the standards have been approved and you can bet that the big companies most likely to be affected by it—for better or worse—are working hard to figure out what they need to do.
David Rudnick is the chief technology officer and co-founder of Connekt.
