M+E Daily

By Paul Sweeting

The third-quarter numbers for pay-TV providers painted a grim picture of the industry. According to an estimate by Sanford Bernstein, the industry as a whole lost 127,000 video subscribers in the quarter, but that was net of 119,000 new Verizon FiOS subscribers, 198,000 new AT&T U-Verse customers and 67,000 new DirecTV subscribers. Traditional cable TV providers got hammered.

Time Warner Cable lost 140,000 video subs in the quarter, catching analysts by surprise, and sending its stock plummeting. Charter Communications, Cablevision, and Dish Network, collectively lost 102,000. Comcast, the largest cable MSO, lost 117,000 video subscribers in Q3.

“In the U.S. it’s mostly a zero-sum game,” DirecTV CFO Patrick Doyle said on a conference call with analysts Tuesday.

While cable providers have been able to make up some of their video losses by adding broadband subscribers, they are also beginning to look to what many regard as the source of their problems — the innovators in Silicon Valley who are disrupting their business — and deciding that if traditional cable operators can’t beat ’em, may they can join ’em.

The industry’s research arm, CableLabs, plans to open a new research center in the heart of Silicon Valley in 2013 in an effort to engage with technology companies instead of fighting them or ignoring them.  The industry needs to “get re-energized,” Cequel Communications CEO Jerald Kent told Reuters.  “Part of the message is this is not your grandmother’s cable business.”

The center will study cord-cutting and other trends related to consumer video habits, and will look to develop “co-innovation” labs with startups as well as leading research universities such as Stanford, to work on specific projects. CableLabs also hopes the center will allow the cable industry to develop a closer relationship with large technology companies pushing over-the-top video delivery and mobile video.

Will it work? Some analysts have their doubts, noting that cord-cutting is not fundamentally a question of technology but of cost and consumer convenience. But one area I think could prove fruitful is the integration of linear TV service with streaming set-top boxes.

The next generation of streaming set-tops and game consoles are likely to incorporate TV tuners, making them capable of functioning as cable or satellite boxes (or in the case of the new Boxee TV, receiving over-the-air broadcast channels). Up to now, pay-TV providers have been wary of allowing their services to be integrated with third-party set-tops that have their own user interfaces and in some cases their own payment relationships with consumers. But that wariness has done nothing to slow down the growth of over-the-top video, and some analysts see signs of its waning.

Speaking at the Digital Hollywood conference in Los Angeles last month, Wedbush analyst Michael Pachter speculated that the next version of Microsoft’s Xbox console, due in early 2014, will include a full TV tuner and will be able to communicate with “any piece of glass” in the home. “If you have 10 TV sets, you’ll be able to pull 10 signals and send them to any TV,” he said.

More critically, Pachter said he expects pay-TV providers to be far more open to integrating their service with Microsoft’s platform than in the past because the cost savings of not having to put their own advanced set-top box into homes would be substantial.

Co-opting over-the-top services and whatever other functionality is supported by a set-top — like gaming — into a single, seamless experience for their own subscription service could also help cable providers hold onto subscribers.

The new CableLabs research center may be where some of that starts to happen.