Enemy Lines3/26/2012 12:01 AM Eastern
The Internet, the greatest disruptive force in
media of our time, has decimated the music and publishing industries
but has left the pay TV business largely unscathed — so far.
Subscriber rolls of cable, satellite and telco TV providers have held
steady despite the rapid growth of streaming-video services from the
likes of Netflix and Amazon.com, plus a wealth of digital entertainment
options from iTunes, Walmart and others.
In the fourth quarter of 2011, pay TV providers added a net 300,000
subscribers — and premium networks HBO, Showtime,
Starz and Epix gained nearly 2.2 million in the
period, according to research firm SNL Kagan.
and millions of consumers choose to get TV content
through a broadband service instead of their traditional
provider, the industry may face a reckoning. Connected
video devices, including Apple’s new iPad with
its dazzling ultra-HD display, are blooming by the millions
and presenting an open field for new entrants.
Deep-pocketed challengers still see the multichannel video market,
which generates tens of billions in yearly subscription revenue,
as ripe for the picking.
Intel is mulling a “virtual MSO” service. Apple fans are hyperventilating
in anticipation of an advanced HDTV the tech giant is
said to be readying to launch this year, which could make it even
easier to watch over-the-top video. Google is plugging away on its
connected-TV strategy, in the belief that — eventually — the Internet
will become a significant source of video viewing.
While cord-cutting is not a rampant problem today, the pay TV industry’s
core multichannel bundle could reach a breaking point at which
enough consumers find enough value in alternative services to ditch
their high-priced cable or satellite bill, industry consultant Will Richmond,
editor and publisher of VideoNuze, said.
“I would argue it’s an inch below the surface,” he said. “Look at DVDs.
All it took was a couple of years of inexpensive rentals and BitTorrent
for that to crater.”
But the economic realities of today’s television industry present a
huge barrier standing in the way of that trend gathering strength.
Large media companies spend some $40 billion per year creating
content, according to Todd Juenger, senior analyst with Sanford Bernstein.
Programmers, including sports networks like ESPN and cable
mainstays like Viacom and Discovery Communications, are unwilling
to supply over-the-top distributors with their current programming because
that would disrupt their existing businesses. But they have happily
sold streaming rights to older seasons and catalog movie titles to
Netflix and Amazon. “Everybody wants to tell me that Apple is going
to disrupt the whole world as we know it,” Juenger said. “But it comes
back to the content guys. They have all the stuff people
want to see, and they’re under no obligation to make
that available to anyone.”
Meanwhile, pay TV providers are responding on
multiple trajectories. Operators have introduced lower-
priced video tiers. Comcast and Verizon are two incumbents
that have announced plans for Netflix-like
collections of on-demand, multiscreen video: If you
can’t beat ’em, join ’em.
On the most strategic front are TV Everywhere services, which are
intended to provide anytime, anywhere access to current content on
multiple devices — so customers don’t latch on to over-the-top services.
“The idea is to make it less compelling for a subscriber to even contemplate
dropping pay TV,” Juenger said, while also allowing networks
to justify rate hikes to the operators.
TV Everywhere has evolved in fits and starts, with some operators
and programmers more fully embracing the concept than others. Part of the reason there isn’t more urgency: The cord-cutting
threat has not hit a high pain threshold.
“It’s been three years since [Comcast CEO] Brian Roberts and [Time
Warner Inc. CEO] Jeff Bewkes linked arms” in their seminal TV Everywhere
pact, Richmond noted. “There’s some progress, but not a lot.”
In any case TV Everywhere doesn’t address a key underlying issue
— that the cost of the overall multichannel bundle continues to climb.
In Richmond’s view, over-the-top providers are bound to step in to fill
the gap if the TV industry doesn’t offer new forms of content packaging.
“I think multichannel bundling is a complete anachronism,” he said.
“A la carte is what the Internet has trained us to do.”