Michael Fries

This interview originally appeared in the MIPTV 2010 issue of World Screen.

 

Liberty Global is the largest cable company outside the U.S., with operations in Chile, Europe and Australia, reaching some 15.2 million video subscribers, 6.7 million broadband Internet subscribers and 5.2 million voice subscribers. As Mike Fries explains, constantly innovating is the key to keeping existing customers and attracting new ones.

 

WS: How important are on-demand services for a cable company?

FRIES: Consumers are increasingly de­manding random access to content—we all know that. Cable-TV operators have responded and video on demand is a tremendous application. Today we have launched it in many of our markets and we are still rolling it out in others. The number one issue for rolling out VOD is not technology—it’s content. We have to continue to gain access to on-demand content as cable operators in the U.S. have. Comcast has some 10,000 hours of content. We might have in certain of our markets 1,000 hours. So we have to continue to improve the availability of content on demand.

 

I would say the most important piece of the on-demand puzzle for us is our relationships with broadcasters around Europe. As you may know, broadcasters in Europe command on average between 60 percent and 80 percent of viewership, whereas in the U.S broadcast networks get about 40 percent. So broadcasters are extremely important partners of ours and I really believe we’re approaching the tipping point where broadcasters in our core markets realize the benefits of an on-demand cable-TV platform for their content. Number one, we protect their content. When you put your TV online you obviously take a risk as to whether or not your content is protected. Number two, we are able to pay our programming partners, whereas when you put your content online it’s free and the advertising is spotty. Number three, we are able to put the content in an environment where it is very easy for consumers to watch it. Catch-up TV is one of the killer apps on our digital platforms. It’s a revenue generator for us and it’s a revenue generator for the broadcasters. And it allows them to expand their audience and show their viewers that they are innovating as well. On-demand is very important for us and will continue to be a big focus.

 

WS: As viewers can increasingly find programming they want online, what challenges does this present the cable industry?

FRIES: It’s more an opportunity than a challenge, to be honest with you. TV viewership is actually stable or increasing in most markets today. People are watching more television, not less. There is no question that the frequency of online video is increasing, but in reality the vast majority of that time is spent snacking on 2- to 3-minute videos. It appears that is not necessarily taking away from the experience consumers are having with traditional television today. So the opportunity we have as an industry is to create a seamless integration for consumers on the television set. If you look at what we are doing with our next generation set-top box, we are creating an entirely new user interface that will allow consumers to not only network their content within their home, but seamlessly integrate web content, on-demand content, recorded content and live content and to do that on the TV screen in their living room. Secondly, cable operators are spending a fair amount of time creating what in the U.S. is called the TV Everywhere concept, where if you subscribe to cable you’ll be able to view your favorite content online for free.

 

WS: Authentication?

FRIES: Exactly, and that has great merit and potential in my opinion. One of the reasons that I’m convinced of the benefits of TV Everywhere is that consumer groups in the U.S. are up in arms. They are very concerned that this new approach to television online will somehow stifle innovation among start-ups and other over-the-top providers, which tells me one thing: it’s going to work. The arguments that they are making are silly and shortsighted. Here you have cable-TV operators willing to provide innovative features to consumers for free. How can that be bad for consumers? In fact, this new application in my view could do to online video what the cable and satellite industries did to TiVo, essentially embed the functionality in their offering and by doing so give consumers a great experience that they don’t need to search for anywhere else.

 

WS: There are two trends in television today. On one hand, young adults tend to be unwilling to pay for cable TV because they are so used to finding what they want online. And on the other hand, HD TV sets are completely transforming the viewing experience. Where is the industry going and will it be able to get young adults to pay?

FRIES: That is a very interesting point and you have positioned the question appropriately. It is to some extent not generational but demographic and by that I mean young adults generally aren’t paying for the large- screen HD sets; often they are not in an economic position to do that. And it’s my view that once they do get to the point that they have a living room and a family and invest in a large-screen HD set, they will want a quality of service that exceeds anything that can be achieved online. So from our perspective we’re in the quality-of-service business, meaning that we are going to provide folks with a 100-megabit broadband speed, with massive amounts of HD content, with an amazing user interface, and we are going to allow them to benefit from those services on their couch in front of their 50-inch flat screen. That’s where we have to keep focused. That doesn’t mean we won’t continue to look at the online video environment. We will create seamless integration between these two platforms, but fundamentally when you invest in that TV set, you want a great quality of service.

 

The second point is that Europe is much more fragmented than the U.S., so there are for sure similar trends occurring in Europe with respect to online video and consumer behavior. There are also similar trends in Europe with respect to HD sets and so I think while it’s still fragmented, it’s headed in the same direction. That doesn’t frighten us, that actually has us excited about this business.

 

WS: What offerings are driving the businesses in your various territories?

FRIES: The part of our business that is the most critical to us today probably falls into two key areas. To begin with, since we are in 14 different markets, we have varying levels of digital-TV penetration. Everywhere we operate we are trying to convert our customers to digital video and that generally requires an investment on our part and it also usually results in reasonably good increases in revenues from customers. So getting digital television into the homes of our consumers is critical. And once we get the digital-TV box in the house, we then can, of course, up-sell things like DVRs, HD services and VOD. The second most important part of our product offering is clearly broadband. The cable TV industry, as much as any industry, has delivered the web 2.0 to consumers and now we are in a whole new world of service and applications. But we are offering across nearly all of our European markets 100+-megabit broadband speeds and we are probably a little bit farther ahead than most operators. We have invested substantially in new technologies that allow us to provide faster speeds and we are finding that consumers are absolutely craving them. And where we are offering these products we are stealing back market share from incumbents and we are getting great revenues from consumers. So digital TV and broadband are the core growth engines for our business and that is where we are focused.

 

WS: Looking ahead 12 to 24 months, what challenges and opportunities do you see for Liberty Global?

FRIES: When it comes to our products and our services, we’ve got a pretty good handle on where we are going. Our opportunities lie in two products. The first is digital television and there are more than 10 million homes that are still getting only 30 channels of TV from us. We have a great opportunity to bring these consumers into the digital television environment. We also have a great opportunity to continue to roll out 100-megabit broadband speed and change the definition of broadband in our core markets. DSL is not broadband anymore. Our ability to change that and regain the high ground in our markets is critical.

 

I’d say the challenges to some extent are external because we are always focused on the regulatory environments we operate in and making sure that regulators understand the importance of infrastructure-based competition. It’s very easy and convenient for a regulator to say, “Well, you’re big so you have to share.” First of all, we’re not that big, and to get to where we are we had to invest millions of dollars. Without a return on that investment we are not going to continue investing, and that’s not good for consumers or application providers or content providers or anyone else. The second point in that context is making sure that our regulators understand that it’s the incumbent telcos in our markets that truly throw their weight around. Whether it’s in their mobile business or fixed-line business or broadband business, they are anywhere from 10 to 20 times larger than the average cable-TV company. So the idea that we need regulation is a bit far- fetched when you consider the size and scale and scope of the incumbent telcos who are national in reach and monopolistic, at least in some cases, in behavior.

 

And the last point is we get concerned, to some extent, about irrational competition. When start-up operators attack our market with pricing that is not supportable on any economic basis, they have the potential of disrupting investment and innovation. We worry about that in some of our Eastern European markets, but fundamentally our long-term view is that these sorts of competitors don’t last and fortunately we have the balance sheet and the strategy to outlast those sorts of events.