The future of television was meant to have arrived by around now, in a bloodbath worthy of the most gore-flecked scenes from “Game of Thrones.” The high cost of cable TV in America, combined with dire customer service and the rise of appealing on-demand streaming services as inexpensive substitutes, would drive millions to “cut the cord” with their cable providers. Customers would receive their TV over the internet, and pay far less for it.
So, at least, many in the industry thought. Instead, the death of old TV has been a slow bleed. American households have started to hack away at the cable cord, but the attrition rate is only about 1 percent a year. Television viewership is in decline, especially among younger viewers coveted by advertisers. Yet media firms are still raking it in, because ad rates have gone up, and the price of cable TV continues to rise every year. The use of Netflix and other streaming services has exploded — half of American households now subscribe to at least one — but usually as add-ons, not substitutes. Overall, Americans are paying more than ever for TV.
This cannot last for much longer. The fat, pricey cable bundle of 200 channels is fast becoming antiquated as slimmer streaming options emerge. Two tech giants, Amazon and YouTube (owned by Google), as well as Hulu, which is jointly owned by Disney, Fox and NBC Universal, are negotiating to offer live TV over the internet by the end of the year or early next year. They would offer America’s major broadcast networks and many popular sports and entertainment channels, at a price that would cut the typical monthly bill almost in half, to $40 or $50.
That threatens to upend what was, and still is, the best business model in media history. The media conglomerates delivered a package of something for everyone — at first, at a reasonable price. The audience kept on growing along with the number of channels, which was good for advertisers, for studios that produced shows, and for sports leagues that sold broadcast rights. Cable operators and networks enjoyed gross margins of 30 percent to 60 percent and merrily pushed new gear, such as digital video recorders, and still more channels toward their loyal customers.
They are becoming less loyal. The pace of cord-cutting has not been as fast as many expected, but it has begun to quicken. The number of people leaving cable each year outnumbers those joining, and has done so since 2013. For a while the losses were modest, at just over half a million households in total in 2013 and 2014, out of 101 million subscribers. Last year, however, traditional pay TV suddenly lost 1.1 million subscribers. Many switched to an early internet “skinny bundle” from Sling TV, a new product from Dish Network, a satellite-TV provider. Investors panicked. When Bob Iger, chief executive of Disney, acknowledged last August that people were severing the cord even with ESPN, a sports network and the firm’s most profitable media property, a media rout ensued. Since then, shares in Disney and Fox have fallen by almost 20 percent.
Those that do chop the cord seldom ever come back, joining the ranks of millennials who avoid signing up in the first place. They are lost to the world of subscription video-on-demand.
To stanch this flow, cable operators can offer “triple play” packages that combine broadband, TV and phone service, which gives them a pricing advantage. They can also rely on older Americans. Older viewers watch more television than any other group, they watch more of it than they used to, and more are tuning in; and they are not going anywhere. Internet services may also blunder as they go into TV-streaming. An internet service from HBO, owned by Time Warner, recently suffered a blackout just as a much-anticipated episode of its “Game of Thrones” was about to begin, enraging customers.
But over time the changes threaten to cripple several actors that now live off the big bundle: large media companies with weak programming; small independent channels that have benefited from being part of the “long tail”; and satellite operators, who have little to sell but TV. The winners and survivors will be media companies that provide the most “must-see” TV and the fewest unwanted channels. Coveted content will still be king. Cable firms can still earn their keep selling broadband internet and, perhaps, streaming services.
The clearest winners will be consumers.
The fact that more TV viewers have not switched channel to a better model is mainly the result of two factors. The first is that customers are still addicted to live TV, especially sports. The second is that customers have lacked reliable, cheaper options until now.