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The Future Of TV Is Here. Can Cable Survive?

2015 June 10
by Greg Satell

For a long time, TV was a fairly sleepy business.  You had three major networks in the US—less elsewhere—acting as gatekeepers.  They chose their programming lineup each year, which attracted a certain amount of audience that could be transformed into a certain amount of money.

Cable clouded the picture somewhat, adding subscription revenues to the mix, fragmenting audiences and giving rise to pay channels like HBO and Showtime, yet the change wasn’t drastic.  You still had those who developed programs and those who distributed them, along with a few players that could do both.

Yet as I wrote two years ago, we’re entering a new age of TV where distribution is being devalued and completely new models for programming are beginning to evolve.  Now, we’re approaching a tipping point where what we used to call “TV” is morphing into something else entirely. Cable providers, if they are to survive, will have to innovate their business models.

The Transformation Of Access

The family television used to be the centerpiece of every living room and whoever held “the clicker” ruled the roost.  Yet today, “TV” the appliance is being decoupled from “TV” as a form of entertainment.  Now, every screen in the house—traditional sets, tablets and mobile phones—can access top notch programming.

As for the TV appliance itself, it is also being transformed.  Every major manufacturer now offers “smart TV’s” that can access the Internet directly and a host of streaming devices, such as Roku, Amazon Fire and Apple TV, just to name a few, transform any set into what’s effectively a very large tablet computer.

That makes the traditional cable box somewhat of an anachronism.  We don’t actually need it, at least technically speaking, to access programming.  Cable boxes today mainly serve to perpetuate cable companies’ role as gatekeepers through their agreements with broadcasters. That’s simply not a sustainable business model.

The New Economics Of TV

Traditionally, the TV business has been built on two revenue streams: advertising and subscription.  Premium channels, like HBO and Showtime, are able to thrive on subscription models alone.  Most, however, work on a hybrid model.  They sell advertising and receive fees from cable providers in return for allowing them to carry programming.

Until recently, cable companies held a lot of leverage because, unlike broadcasters, they had a direct financial relationship with the consumer.  They could decide to pay a programmer more or less, give them access to a coveted spot on the cable box, or bury them deep in the back of the lineup.  Broadcasters, whether they liked it or not, had to play ball.

Yet that model is already breaking down.  Consider the case of Netflix, whose streaming service blends original programing with feature films and documentaries, much like HBO. However, although Netflix charges less, the company earns roughly the same per subscriber because it does not have to pay fees to cable providers.

Clearly, that’s no recipe for success, as HBO recently acknowledged with its launch of HBO Now, a service that allows consumers to access the pay channel directly—on any device— without a cable subscription.  So consumers get the programming they want and the company gets to keep all of the subscription revenues.

Everybody wins.  Except, of course, the cable companies.  And HBO’s new service is just the tip of the iceberg.

The New Programming Models

I recently discontinued my cable service and am already amazed how little I’m missing. Some of the best shows are actually Netflix and HBO originals, which I don’t need a cable subscription for.  I can catch most of the rest with Hulu Plus and a digital antenna.  Some broadcasters, like Bloomberg TV, already offer a live stream through their apps.

I’ve also noticed new programming business models starting to emerge.  Companies like Red Bull and GoPro have their own channels that are essentially an extension of their marketing activities.  Amazon Prime, which has a large video library and some fantastic original programming—Woody Allen has agreed to produce a series—can be seen in the same light.

And there’s more to come.  Yahoo recently announced that they have acquired the digital rights to stream a NFL game this year.  Google, which owns YouTube and has two steaming devices on the market, Chromecast and Nexus Player, has already rolled out its Google Fiber service in five cities, with more on the way.

Cutting the cable certainly isn’t ideal.  Many of the programming networks require me to enter an activation code tied to a cable subscription, integration is far from seamless and I miss the ability to channel surf a bit, but considering I’ll save about $600 a year, the trade-offs seem more than worth it.

The Cloud Disruption

What has struck me most about cutting out my cable service is that what few barriers remain aren’t economical or technological—broadcasters are perfectly able to serve ads and charge subscriptions in streaming video—but tied to agreements with cable providers.  The truth is that, beyond infrastructure, cable companies are providing little, if any value.

Take a step back and forget that we’re talking about entertainment for a moment and it becomes clear that TV programming is going through a similar transformation as every other software business.  In effect, it is moving from installed solutions to the cloud.  There is, in fact, no reason that we need cable boxes anymore.

As I’ve noted before, the cloud might very well be the most disruptive technology ever because it compels legacy players to change their business models, including pricing strategies, sales channels and even their basic technology.   And that appears to be exactly what’s happening in the cable business.

Sling TV already offers cable like service in the cloud for about $20 per month.  Charter Communications, which recently acquired Time Warner, has a similar capability.  For broadcasters to convert to full streaming, all they would have to do is turn off the access code requirements in their apps.  The technology is already here.

That doesn’t mean the cable companies themselves are dead.  They still have valuable infrastructure and have begun to offer new services like home security.  However, the cable business, as we have come to know it, will soon be a thing of the past.

– Greg

8 Responses leave one →
  1. June 15, 2015

    I love the prospect of being able to ditch my TV cable boxes. However, how should a person who is not technologically savvy (myself) go about finding someone, or a company/provider, to switch them to the service(s) they want/need when they finally cut the “cable”? That is the biggest obstacle for me….how to determine the best option(s) going forward, and how to set up this new system so that it works for someone who is technically disabled, as it were. Any hints from some experts out there?

    [Reply]

    Greg Reply:

    That’s a great question Kay. I’m not an expert by any stretch, but I do have some experience I can share.

    First of all, you don’t need to be very technically adept to set things up. If you can set up a DVD player and sign into a wifi connection, you shouldn’t have a problem.

    The first thing to do is get a streaming device. I’ve tried Google Chromecast, Apple TV and Amazon Fire TV. So far Amazon Fire has been the best, especially if you have a Prime account, although I’ve heard that Roku 3 is even better. Both have voice control, which is amazingly helpful. Apperently, Roku 3 let’s you search a variety of apps simultaneously, so if you don’t remember which app a TV show or movie is on, you can save some time and effort.

    Apple TV is good as well, but you can only stream Amazon prime from a mobile device—no app available. Chromecast can be a bit sketchy and only allows streaming from a mobile device. No remote or on-screen interface. The difference in price is not all that great. Chromecast is $35 and a top of the line Roku 3 is about $90, so it’s probably best to get something on the high end. It’s a drop in the bucket compared to what you save from cutting cable.

    It’s also a good idea to get a digital antenna so that you can view network TV, live events, etc. The only thing here is that you need to know what range you need. However, if you put your zip code into http://antennaweb.org/ it will tell you exactly what you need.

    You also want to choose which subscriptions you want. Netflix is great for movies and past seasons of TV shows, plus their original programing is great. Hulu Plus offers most shows 24 hours after airing (except CBS, unfortunately). It also has a lot of great classic shows. Sling TV has some good cable programming, like ESPN, TNT, etc. HBO NOW gives you the same programming as regular HBO, plus a bit more I think. All of them allow for a free trial period, so it’s worth checking them out. Sling also offers discounts on streaming devices if you sign up for 3 months in advance.

    So the main thing is that you need to adapt to a different way of watching TV. You have to actually choose what you want to watch and can’t just surf channels. There are also some things that you lose, like watching CBS on demand. They have an app, but it doesn’t work very well. I can’t figure it out.

    Anyway, it’s still early days. Things will only get better.

    [Reply]

  2. July 1, 2015

    I have no doubt this trend will only accelerate.

    However, I will continue my dinosaur ways: I want the local news, national network shows (preferably drama, police procedurals, and science fiction), NFL, Food Network, The Travel Channel, as well as HBO, STARZ and the other premium cable networks.

    For me, it’s all about choice – specifically the choice that cable providers offer me.

    [Reply]

    Greg Reply:

    I think a lot of people feel like you do Barry. However, the point I was making is that now you can get all of the programming you mentioned without a cable subscription (ESPN, Food Network and Travel Channel through Sling, HBO through HBO Now, STARZ through Hulu) and still save a lot of money.

    I’m going to expand on this topic in a future post, but one fairly simple strategy that you can use to benefit from cloud based TV without taking the time to create a new setup is to simply call your cable provider every few months and ask for a promotion. The cable companies are fully aware of how the economics are changing and will most likely give you a better deal.

    As for me, I’ve found that my viewing options have actually expanded since I cut the cable. I also think it’s fun discovering a new way of watching TV. But I understand why most people don’t want to bother. So if that’s how you feel, call your cable company and demand a better price!

    – Greg

    [Reply]

  3. homer permalink
    July 6, 2015

    Everything’s well and good, but no mention is made that you need a fast wifi to efffect all of the cable cutting. Where can I get a reasonable price for a 50Mb/sec wifi?

    [Reply]

    Greg Reply:

    Most premium Internet packages will suffice. I certainly haven’t had any problems and, with Google fiber expanding, I expect it will become even less of a problem in the future.

    – Greg

    [Reply]

  4. Colin permalink
    July 6, 2015

    I would love to be able to cut the cord but the fact that I watch professional sports will keep me tethered for the foreseeable future.

    I watch the Atlanta Braves and Atlanta Hawks. Because I live in their broadcast territory, I can’t use the online streams of MLB.tv or NBA League Pass. I can stream any other team if I buy the package, but I get blacked out of my local teams.

    It’s a step in the right direction that I could now get Sling TV to be able to get national channels like ESPN or TNT and watch games that way. But most of the games I want are on regional sports networks that I can only get through cable or satellite.

    [Reply]

    Greg Reply:

    Yes, I’ve heard that from others. It differs by region. In any case, things have really began to loosen up lately, so hopefully those packages will be available on the cloud too before long.

    – Greg

    [Reply]

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