Today's Wall Street Journal featured a very interesting piece on a report by Cable Televsion Laboratories, the industry's research & development unit. In the report, the lab offered a scenario in which heavy future consumer usage of video on the internet could require substantial new upgrade investments by cable companies.
By contrast, Verizon's $20B fiber network was portrayed as capable of servicing this potential future demand.
After reading the entire article, I have to say that I would bet on something in the direction of the scenario requiring the upgrade investments. This is because so many major cable system executives went on record as being supremely confident that either consumer habits aren't going to change very much, or that they have sufficient current capacity to handle future online behavior.
Such overconfidence in technological businesses has an unfortunate habit of becoming, in retrospect, hubris. The music and film businesses have underappreciated the ability of the internet to change their business model. Broadcast networks have also been taken by surprise by the rapid growth of online video viewing. Booksellers have been affected by the likes of Amazon, even though the latter has not really made all that much profit with its own endeavor.
According to the WSJ piece, Cable Labs last affected the cable industry in the late 1990s with its reserach leading to digital on-demand services, leading to a $60B upgrade.
I don't personally care about this issue for purposes of investing in individual cable equities, or even, for that matter, Verizon. Rather, I just think that anytime an entire technology sector's senior ranks believe they have a firm grasp of consumer behavior, it's time to expect something different.
My recent posts concerning YouTube, Time Warner and broadcast networks suggests that technology in these areas can, simply by its existence, radically alter consumer behavior in unanticipated ways. In fact, the last linked post discusses Comcast's efforts to lock up substantial video licenses going forward. Thus, on one hand, they are investing in the future of online video content, but, on the other, they believe their capacity investments will handle the future as is.
I think a change in consumer habits will happen again with high-speed online usage of video content in the next few years. Anytime so many tech execs get comfortable believing in their ability to forecast consumer behaviors, it's a good bet that those behaviors are heading in another direction.
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