The Cable TV Crisis, Brought to You By Netflix
Cable companies will have to change their business model in order to survive—why that’s good for you.
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They say it’s the golden age of television: Original programming has reached a level of quality, variety, and accessibility unmatched in TV history. Suddenly, it seems, networks care more about telling a story than plugging Subway. Acting is important. Writers are respected. Character development—who’da thunk?—is a thing. And with streaming video providers like Netflix and Hulu providing a venue for both films and “bingeable” original series like House of Cards and Arrested Development, the difference between film and television is starting to blur.
If we are indeed in a golden age, we have the major networks—and their willingness to take on bolder, more adventurous programming—to thank. Crucially, this renaissance is unfolding at the same time as a revolution in content delivery, and it has cable providers shaking in their boots.
“Cutting the cord,” as it’s known, is the trend of consumers cancelling their cable or satellite subscriptions in favor of online media. According to metrics service Nielsen, cord-cutters now account for more than 5 million homes in the U.S., up from about 2 million in 2007. This is an important trend, and while it may not spell doom for the cable networks (yet), it could force a change in the entertainment business model, and maybe even democratize programming.
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Consider the pilot—the foundational business model of TV programming. For decades, networks received pilots as a kind of sales pitch for a show. If a pilot didn’t hold promise for a long-lasting series, it would be canned. Decision-makers relied on accurate ratings to gauge a show’s potential. But now, TV ratings are becoming increasingly difficult to track, what with video on demand, DVR, Smart TV, and game consoles—not to mention streaming media.
Netflix, Hulu, Amazon Prime, and their ilk—aside from being cheaper alternatives to cable—are also innovative in their approach to content distribution: With shows like Arrested Development and Orange is the New Black, Netflix is investing in bulk series that can be “binge-watched” in one sitting. Amazon Prime, with the benefit of near limitless coffers, is crowdsourcing its content by pledging to create waves and waves of new content. Viewers will decide what stays and what goes through user ratings on a five-star scale. Hulu has launched original programming on its free web service in order to draw viewers. Even YouTube is jumping into the mix, thanks to a $100 million investment from Google that led to the creation of some 150 original channels.
Cable channels like AMC, FX, HBO, and Showtime—blessed though they are for sparking this golden age of television—seem a bit stuck in their ways by comparison. But there’s actually not a whole lot they can do, as they’re still beholden to the big cable companies that own them—companies like Viacom, Fox, Comcast, Disney, and Time Warner. You could liken these organizations to record companies and film studios, in that they own a massive trove of media that is becoming increasingly easy to pirate. And yet, they're doing nothing to stop it.
As the purveyor of some of the most critically acclaimed programs on TV, HBO is an important example of this inability, or unwillingness, to adapt. So far the company has clung to a model of requiring an HBO subscription (which, by default, includes cable) to access its streaming service, HBO Go. The company, which is owned by Time Warner, claims it is not in their economic interest to offer a direct streaming service, citing fears that cable providers would drop the network. Time Warner CEO Jeff Bewkes bluntly stated earlier this year, "We don’t think the target [streaming] market is sufficiently large to be attractive at this point."
This argument may hold water, but HBO isn't Netflix. There are plenty of HBO fans who would be willing to pay more than a Netflix subscription for streaming access to shows like Boardwalk Empire, Real Time, Game of Thrones, and The Newsroom—not to mention, movies and retired series like The Sopranos and The Wire.
Last year, a single-purpose website was launched with the not-so-subtle domain "TakeMyMoneyHBO.com." Receiving 163,673 visitors within the first 48 hours, the site does nothing but beg HBO to ditch their cable and satellite overlords in favor of direct streaming. One developer even queried site visitors and found, on average, they were willing to pay more than $12/month for a standalone HBO Go subscription. Of course, HBO balked.
Listen to the Pirates
Progress elsewhere has been equally tepid. Last month, Viacom reached a tentative deal with Sony to stream its networks—which include Comedy Central, MTV, and Nickelodeon—presumably on the forthcoming PlayStation 4. It's unlikely to be cheap, though. Sony will have to dish out mountains of cash to carry Viacom content. And what if Sony tries to strikes deals with other major outlets Fox and Disney (the latter of which owns ESPN)? The cable giants may still insist on bundling channels (because, you know, Country Music Television is essential, right?).
For cord-cutters, this is unlikely to compete with the $7.99/month charged by Netflix or Hulu. Furthermore, it does little to combat piracy, which has already sucked millions of dollars in revenue from HBO, Viacom, and other cable giants. Compared to average TV viewership, the most pirated TV shows from last year existed on premium networks—shows like Game of Thrones, Dexter, and Homeland. Dexter, which airs on Showtime, was watched by an estimated 2.8 million U.S. TV viewers, but was illegally downloaded some 3.9 million times, according to Torrent Freak. Game of Thrones was downloaded 4.3 million times. Despite all this, executives like HBO co-president Eric Kessler have maintained that cord-cutting is just a result of the weak economy.
Whether this recalcitrance stems from networks or their corporate owners, it ignores the inevitable, which is that streaming media is the future. And it assumes that those who pirate TV shows are nothing but criminals, unwilling to pay anything for access to content. That's the same mistake the music industry made before losing ground to savvy alternatives, first with iTunes, and now with Spotify and Pandora. At least for that industry, the trend showed fans were not inherently opposed to paying for media—they simply wanted a more convenient way to access it. Already, it's Netflix, Hulu, and Amazon who are providing that alternative—not HBO, Disney, Time Warner, or Comcast.
When asked about cutting the cord, cable subscribers almost always point to sports as the reason they’re not quite ready. According to Nielsen, viewers spend an average 20 percent of their TV time watching sports programming. Considering the live nature of sports, that figure points to a massive untapped market for streaming sports, but there isn't one—at least not for the cable giants.
Online services like Aereo allow subscribers to stream live, over-the-air television. If you’re more into lifehacking, you can build your own HD antenna and broadcast the same content for free. Furthermore, all of the major sports leagues (NFL, MLB, NBA, and NHL) have their own streaming services; they’ll cost you a pretty penny, but they’ll make cord-cutting that much easier for fans. While each of these services offer a way around cable's dominance over sports, sports programming truly is Big Cable’s Alamo.
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Online content is to cable what MP3s were to CDs. It’s frustrating to see this same thing happen over and over again when it comes to digital technology. It happened to the music industry, the film industry, the publishing industry, and now it’s happening to cable—and none of the heavyweights seem to recognize the patterns. They keep chugging away at the same doomed business model that defined the 20th century, ignoring the writing on the wall, refusing to innovate or adapt.
TV and display technology aren’t going anywhere—in fact, they’re thriving—but the way content is distributed is changing—and fast. What once constituted the realm of cinema is increasingly indistinguishable from what was once considered television.
This idea was the subject of a recent speech given by—surprise, surprise—Kevin Spacey, star of the Netflix original House of Cards, at the Guardian Edinburgh International Television Festival last month:
“I predict in the next decade or two, any differentiation between these platforms will fall away. Is 13 hours watched as one cinematic whole really any different from a film? Do we define film as something being two hours or less?”
And then, the most important takeaway for the TV executives in the audience:
“Through this new form of distribution, we have demonstrated that we have learned the lesson that the music industry didn’t learn: Give people what they want, when they want it, in the form they want it in, at a reasonable price, and they’ll more likely pay for it rather than steal it.”
Let’s see if they take the advice.