Talk to me when you get ESPN

Wow, so Comcast reports one of its best quarters ever, and some in the investment community have decided it's time to short the company. Cody Willard on RealMoney.com argued in a brief titled "Control is Dead" One why "broadcast is about to become a dying business model":

• YouTube and BoomRevolution.com are "ruining" the broadcaster's ability to bundle 100,000 hours of programming per month that the television operators are "forcing" upon viewers;
• There is no way for the television operators and their centrally-controlled programming to compete with the "over-the-top" offerings.

Well, credit the author for sticking his neck out on an opinion. And, there are certainly dynamics in today's digital lifestyle (television audience fragmentation, declines in up-front ad sales the last few years, some data that shows certain consumers trading TV time for PC time, etc.) that are definitely worth watching if you're an incument television operator. And, companies like Verizon and Comcast are spending lots of money right now in the pursuit of more robust networks and stronger growth in both customers and spending per subscriber. Wall Street hasn't taken kindly to this kind of spending, definitely over the short-term.

Since we're not financial analysts, our take on what is happening in today's television world is defninitely longer-term than next quarter's earnings. Not only do today's incumbent television operators need to invest in their capabilities to deliver outstanding basic services to their customers, but they have shown in the last couple of years a stronger willingness to experiment with additional offerings, even dabbling in "over-the-top" convergence and more open platforms for content mobility, sharing, and flexibility.

Where we really disagree with the "Control is Dead" commentary is the notion that seems to be automatically applied that today's consumer will drop their existing television provider simply because "lots of content" exists on the greater Internet. Oh, there's plenty of video on the Internet, but there are lots of challenges to the notion that consumers are automatically going to look to a Web portal or a content aggregator for all of their video needs and drop a Comcast or Verizon altogether.

• As much as people are supposedly chomping at the bit to ditch their over-controlling television provider, I don't buy it. I think that consumers appreciate the fact that a television operator provides them not only 200 channels of programming, but 200 well-organized and easy-to-find channels. In studies we've conducted on what features are most-important to digital television subscribers, the EPG is third only behind more channels and better picture quality and sound.
• Related to this point, there's a reason why much attention is being paid to firms like Blinkx, TVEyes, and others. The world of Internet video is right now very messy, and there doesn't exist an optimized way for viewers to find and organize all of the different content that they'd like to view.
• Here's a biggie: amid all of the user-generated clips of Coke bottles blowing up and people lip-synching to their favorite song, what legitimate Web portal has bundled together the rights for such TV stalwarts as ESPN, CNN, Fox News, The History Channel, The Food Network, and all of the channels that viewers really want to see? Long-tail content is fun and can be interesting and quite relevant to many niches of people, but we'd argue that having the rights to 40-50 base channels are an absolute must for a video programmer.
• There's still no assured way of getting the content to the TV. The home network and media adapter challenge is one that is slowly being solved (and it involves lots of help from companies in video encoding, DRM, networking, and middleware). It's not a simple solution, given all of the different video codecs and formats that exist on the Wild West of the Internet. And, for all of the wonderful high-definition televisions that are going to be purchased ahead of the Super Bowl on Sunday, what percentage of the video content on the Internet will play well on those screens?

There is no question that today's television incumbents face some enormous challenges in addressing the changing entertainment requirements of their customers. If they don't execute the transition from pure "walled garden" programming options, and allow room (both in their networks and in how their set-tops decode and receive alternative programming), their fit in the digital lifestyle of 2010 will become less relevant than it is today. However, we see them making the moves today, and we fully expect that tomorrow's television offerings will be markedly different in terms of the flexibility and freedom that subscribers have to search out and find alternative entertainment content.

Again, we are not investment analysts and we don't make stock recommendations. However, given what I've written about today, we think that some exciting developments are going to occur within the framework of the managed delivery of content and applications to end-users and subscribers. We're following companies in many different areas of this space, including those that are helping incumbents integrate third-party content into their existing services, manage and opitmize their networks for even more channel options, provide better search tools, more relevantly target advertising, transcode the wild west of video, and place micropayment solutions in place in the existing BSS systems.

By the way, "Mad Money Cramer" put a "buy" on Comcast yesterday. Just goes to show you that there's plenty of room for opinion in this space!