The following article originally appeared in PBS Media Shift.
It’s become popular to declare the imminent demise of pay television. Whether at the hands of Google/YouTube, or as a product of cord-cutting, there’s usually a sense of righteous indignation embedded in the arguments, something like: Cable and satellite companies have been ripping off consumers for decades … and now their days are numbered.
It’s a visceral, sexy view. But there’s not much evidence to support it. And the physics of media distribution argue in the other direction. Let’s go through five of these theories.
1. CORD CUTTING WILL DESTROY CABLE
This is the popular argument with the most merit: that the high price of cable, the availability of online video, and the rise of the millennials will ravage cable/satellite subscriptions. And there has, in fact, been as much as a 5 million decline in paying U.S. TV households (out of a total of around 110 million U.S. TV households), according to data from NPD Group and others.
Here’s the rub: These losses are primarily tied to the housing market. When people lose their homes, or move back with their parents, cable loses one more sub. So far, the majority of cable/sat losses are tied to this kind of housing decline: Fewer occupied homes mean fewer folks paying for television. There may be a decline in the number of twenty-somethings who will pay, but so far, there’s not much hard evidence of it.
2. NETFLIX WILL DESTROY CABLE
Netflix famously surpassed Comcast this summer as the largest subscription service in theU.S. Shortly thereafter, the stock plummeted by around 70 percent. A major cause was the customer outrage that flared when Netflix split its DVD and streaming services into two different products discussed further here and here), increasing the price to customers significantly.
But partially, the crash occurred as markets started to understand that Netflix is at big media’s mercy — not the other way around. See, Netflix must license everything it has from the big media companies, which control the ownership of that content. If you’re in the widget business, who has the upper hand: the store selling widgets at retail, or the folks who make all the widgets? Big media still makes all the widgets.
For example, Comcast’s acquisition of NBCUniversal gave it control of a massive inventory of shows and movies, including NBC, CNBC, MSNBC, Bravo Networks,USA Networks, Syfy, Telemudo, E!, Style Network, G4, the Golf Channel and Versus — plus, Universal Pictures and its motion picture distribution assets such as Imagine, Illumination, Mandalay, etc. What does Netlfix control? A few original series, such as Kevin Spacey’s “House of Cards.” For everything else, it’s a buyer who can be spurned.
This happened recently, when premium cable outlet Starz elected not to renew its deal with Netflix. And a new threat emerged just this week, as Comcast upped the ante by launching its own Xfinity Streampix service, which competes with Netlfix directly.
Just yesterday, Netflix CEO Reed Hastings underscored this, conceding that for Netflix,licensing shows from cable networks is getting more difficult. He also said that in the future, Netflix may look more like another cable network than a cable competitor… and could even be offered as part of a cable package.
3. TABLETS WILL DESTROY CABLE
The growth of the iPad, and of tablets generally, has been nothing short of astounding. The trajectory of the tablet has outstripped the sales of virtually every other consumer electronics platform. And as those devices have proliferated, so has video consumption via tablet and mobile: up 22 percent quarter over quarter, with all signs of accelerating.
Unlike the music business, however, the TV business has been working as quickly as it can to keep its customers on the ranch. Video via tablet is being aggressively monetized by TV distributors and rights holders — via Hulu (monetized by advertising) and Hulu Plus (subscription and advertising). “Authentication” services (described below) also solve this problem. Another under-recognized fact: Hulu is part of the big media family; it’s owned by Comcast, News Corp.s and Disney — which is why it receives rights to so much content.
So, whether you’re watching on a tablet, online or on TV, distributors are working hard to keep you subscribed.
4. ONLINE VIDEO WILL DESTROY CABLE
As in the case of tablets, Big TV is dealing with online video via a process called “authentication.” The term refers to a process by which cable/sat are forcefully inserted into the online process.
A great example of authentication is the HBO GO service. From here, viewers can watch almost everything in the entire HBO catalog (all episodes of “The Sopranos,” “Entourage,” “True Blood,” etc.) for free — as long as they are paying cable customers.
To log onto the service, you enter your subscriber information from DirecTV, Comcast, Time Warner Cable or other service provider. The system then “authenticates” your subscription, by pinging the billing system of that provider. If you pay the big guys for HBO, you’re in. If you don’t, you’re out. The authentication system is another way that Big TV can maintain its hold in the digital age.
5. YOUTUBE WILL DESTROY CABLE
YouTube is a social juggernaut. Google now reports one hour of YouTube uploads per second. Culturally, it has revolutionized the nature of video. Economically, not so much: there are oceans between the economics of TV and those of YouTube. Only 3 billion of the approximately 28 billion streams that YouTube serves per week generate revenue — about 10 percent.
This is compounded by the massive inequality in content volume. A 42- to 44-minute TV hour is loaded with 12 to 14 30-second commercials. A typical 2- to 3-minute YouTube clip can hold one. So a piece of one-hour television inventory supports at 12-14 minutes of paid advertising, while a YouTube clip will support 30 seconds at best. That’s a 24:1 economic advantage for TV.
And if you’re producing content for YouTube, don’t count on TV money; a fraction of YouTube creators are making a living at it.
BONUS ROUND: SOCIAL MEDIA WILL DESTROY CABLE
There’s also a sense that social media will drive a decline in TV viewing. But recent successes in social for big events like the Grammys, the Super Bowl and MTV’s VMAs indicate that networks are beginning to harness the power of social to keep viewers tuning in. Expect to see more “second screen” apps that play along with television, and work hard to keep consumers watching. A great example is TBS’ new Conan tablet app, promoted by Conan himself here.
THE EMPIRE STRIKES BACK
Cable networks are the most profitable assets in the media business, generating billions in recurring subscription revenue per month. It’s that subscription revenue that pays most of the freight for the great shows that people love enough to search for — whether “Mad Men,” “Top Chef” or “Battlestar Galactica.” The companies that own the networks — including Comcast, News Corp., Disney and Viacom — have had plenty of time to learn from the mistakes of other businesses. With the help of the tablet, authentication services and services like Hulu, they seem to be turning the tide.