High Demand for Internet Means Rethinking the Cable TV Business Model

Surging demand for Internet access is causing Internet service providers to rethink their business models. Usage-based billing is on the cards, even though a previous attempt had failed due to customer protests. Netflix and Hulu have sparked a take-off in Internet demand, and this has caused Time Warner Cable (NYSE:TWC) and pay TV companies to consider imposing charges on customers with the most broadband appetite.

“As more video shifts to the Web, the cable operators will inevitably align their pricing models,” Craig Moffett, an analyst at Sanford C. Bernstein & Co., said in an interview. “With the right usage-based pricing plan, they can embrace the transition instead of resisting it.”

Peak TV viewing hours are now seeing a shift to Web usage what with Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and even HBO and Showtime airing online shows that also look good on mobile devices such as the iPads and Android tablets. As if this were not enough, cable operators are also facing competition from satellite services. Time Warner Cable, the second largest U.S. cable operator behind Comcast Corp. (NASDAQ:CMCSA), lost 126,000 pay-TV accounts in the third quarter.

“Cable’s best option is to find ways to profit from the online shift,” says Moffett. “If the companies were to lose all of their video customers, the revenue decline would be more than offset by lower programming fees and set-top box spending. In the end, it will be the best thing that ever happened to the cable industry.”