Can we embrace being the pipe yet?

Every couple months, someone pipes up with the honest proposal that service providers look for ways to stop trying to be a digital media company and look for the beauty of being a smart, optimized delivery system for content created and managed by others.

I am certain that I have heard every response to this, and I know that few CSPs are willing to resign themselves to this future. But it is a distinct possibility, and a significant opportunity.

Take Comcast: Down 38,000 pay TV subs in Q4. Cord-cutting is happening and it’s affecting those lucrative subs. However, in that same quarter, Comcast added a net of 318,000 high-speed internet customers. Comcast claims that it had over 1 million net customer adds for the 12th consecutive year.  (Here’s their Q4 report. PDF alert.) The company also added 380,000 Xfinity Mobile subs, according to the LA Times.

So there’s something to be said for facilitating access, generally. But Comcast isn’t stopping there.

Sleeping with the enemy

And it wasn’t that long ago that Comcast and Netflix had a relationship that could only be best described as adversarial. Their dispute over excessive traffic and accused throttling was settled through a “paid peering” agreement just over four years ago.

But by 2016, Comcast launched Netflix on its X1 platform, and a few days ago, it was announced that Comcast would begin bundling Netflix with new and existing Xfinity X1 packages.

“Netflix offers one of the most popular on demand services and is an important supplement to the content offering and value proposition of the X1 platform,” said Sam Schwartz, Comcast’s chief business development officer, in a statement. “Netflix is a great partner, and we are excited to offer its services to our customers in new ways that provide them with more choice, value and flexibility. The seamless integration of Netflix with the vast Xfinity entertainment library on X1 presents a unique and comprehensive experience for customers.”

Netflix already had relationships like this in place with CSPs like Suddenlink and Atlantic Broadband, but the scope and size of this deal suggests a thawing of the traditionally chilly relationships between service providers and OTT players.

But for those CSPs who aren’t ready to take on such an arrangement yet, there is middle ground to be found between the Sole Provider and the Humble Pipe.

If you can’t beat ‘em, join ‘em

If you believe that the relationship between CSPs and OTT providers is zero-sum—and that’s not an unreasonable position—then there’s no reason CSPs shouldn’t recognize that the business model that OTT players provide is valuable, and do everything they can to emulate it.

And that’s more or less what’s happening. Virtual Pay TV providers (vMPVDs, if you must. Ovum calls them SLINs—subscription linear) are gaining traction. We’re talking Sling, Hulu, YouTube TV, Playstation Vue and the aforementioned DirecTV Now. MoffettNathanson estimates that in Q3 2017, these virtual pay TV providers saw a net gain of 962,000 subs, not including free trial subscribers and adjusted to remove the impact of the major hurricanes during that quarter.

The wild thing is that, once that crop of subs is factored in, overall pay TV subscriptions saw an increase in a quarter that was very dismal for traditional providers. It was a meager increase—0.6% to be exact—but an increase nonetheless.