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Cable MSOs Weigh Risks, Rewards of IP

Kagan Research reports that with Internet protocol (IP) TV fast becoming a mass medium, cable TV systems face a conundrum: their cable modems providing broadband access are a fast-growing, important business segment but potentially could undermine the basic cable TV bundle � their biggest cash cow.

Consumers can use cable broadband to receive TV channels directly from channel owners via IP TV, thus eliminating cable operators that traditionally are fee-collecting middlemen between consumers and channel owners. Cable operators refer to IP TV as "over-the-top video," conjuring the vision of it cascading down a waterfall of all kinds of data flowing from cable modems. IP TV is a classic "disruptive" medium for conventional TV media.

Some cable operators have already pushed aside fears of internal cannibalizing to instead focus on fending off outside broadband competitors. Cable VOD provides a major weapon against bandwidth constrained DTH, and Web-derived over-the-top IP video can further augment VOD.

According to Kagan, standard cable TV service is still the largest component of residential cable's overall revenue at 49 percent in 2005, while cable modems are second with an 18 percent slice of total revenue (other segments include expanded basic tiers, premium movie channels, IP voice, DVRs, etc). Cable modems have been a fast growing-segment, jumping from just $102 million in residential cable revenue in 1998 to $13.9 billion forecast this year.

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