Some 70 years ago, the economist Joseph Schumpeter introduced the notion of “creative destruction” to explain the role of technological innovation in capitalism. Over the last decade, digital disruption has wrought havoc on the publishing industry (i.e., magazines, newspapers and books) as well as records and broadcast TV. Now, it is upsetting the cable TV apple cart.
A recent Wall Street Journal article noted that the audience for 11 of the top 15 most-watched cable channels, including Nickelodeon, TNT and FX, is falling. Reuters reported that a Citigroup analyst, Jason Bazinet, found: “Beginning late last year we began to notice that the aggregate cable network ratings were falling. And, as the months progressed, the magnitude of the decline kept getting larger.”
Viewer erosion is one factor contributing to cable’s woes. As reported by the NCTA, the industry’s trade association, over the last decade, basic subscribers have declined by over 13 percent, to 58 million in 2011 from 66.9 million in 2001. This has contributed to the slowing of advertising dollars. In 2011, video services accounted for 58 percent of the industry’s revenue whereas in 2001 it made up 78 percent. Most illuminating, the NCTA reports that the rapid growth of broadband Internet and phone subscriptions have made up the industry’s revenue shortfall; over the 2001-2011 decade, cable Internet subscribers have jumped nearly 7-fold, to 47.3 million from 7.3 million. Such is the power of digital disruption.
Leichtman Research, a market research firm, recently reported that 38 percent of U.S. households now have at least one TV connected to the Internet; this is up from 24 percent in 2010, a nearly 60 percent increase in just two years. While Leichtman doesn’t project how this scenario will play out over the next five years or so, the handwriting is clearly on the wall.
There are two alternative ways to distribute video over the Internet. One is known as IPTV (Internet Protocol TV) and includes managed video services delivered in a secure manner over a closed or private Internet Service Provider (ISP) network like that offered by a telco (e.g., AT&T) or cable operator (e.g., Comcast). OTT (Over-the-Top) refers to an open or unmanaged video data stream that rides “over the top” of an ISP’s network. Assuming one has the right TV-Internet converter box, a viewer can access Netflix’s archive, Hulu TV programs, Apple TV’s selections, Amazon Prime’s collection and Google’s web TV supermarket.
In an effort to blunt subscribers abandoning conventional cable, Comcast’s IPTV service, Xfinity, has partnered with Microsoft’s Xbox 360 to enable TV programming access via its game console. The service is free to Comcast subscribers who can now access traditionally OTT streaming video services like Netflix, Hulu and HBO GO. More important, a subscriber’s Xfinity digital downloads to the Xbox don’t count against a subscriber’s 250 GB monthly data cap.
The cable wars are just heating up.
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David Rosen is a writer and business-development consultant. He is author of the indie classic, Off-Hollywood: The Making & Marketing of Independent Films (Grove), originally commissioned by the Sundance Institute and the Independent Feature Project. He can be reached at firstname.lastname@example.org. For more information, check out www.DavidRosenWrites.com and www.DavidRosenConsultants.com.