Cutting the Cord: On the Disruption of the Cable TV Industry

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Cable television is in the midst of a rapid sea change, facilitated by the increased proliferation of the internet-connected devices we all use. Gone are the nostalgic days of a family squished together on the living room couch watching a television program as it airs live.

In droves, consumers are cutting the cord on their cord-mangled cable boxes and switching to internet-enabled subscription services such as Netflix, Amazon Prime Video, and Hulu. Smart TVs and innovative “over the top” devices such as Sling TV, Apple TV, and Roku are also fostering a new and more customized platform for consumers to watch their favorite programs and films. What we watch, when we watch, and how we watch is all being transformed – both by the content creators and, interestingly enough, the cable companies themselves.

Why is the cable industry undergoing such disruptive change? For one, the number of cable subscribers in the United States is declining. 2016 is set to be the fourth consecutive year of net losses in total cable subscribers. Clearly, the cost of cable reached a breaking point. In 2015, the average monthly cost of a cable subscription totaled $99. According to Leichtman Research Group, which tracks the cost cable in the U.S., the average bill for cable increased 39% between 2011 and 2015. Naturally, when faced with rampant cost increases, consumers eventually revolt.

Cable industry operators would have done well to study their history to understand that no product or service is completely price inelastic. Known on Wall Street as Marlboro Friday, cigarette manufacturer stocks crashed on April 2, 1993, when Philip Morris announced a price cut for its Marlboro brand in a response to the emergence of lower-priced generic cigarette brands. This was preceded by years of dramatic price increases in Marlboro products, and it took years for the cigarette manufacturer stocks to recover. Now experiencing similar pains, the cable industry is pivoting to create lower-priced and more convenient service options for consumers.

Cable providers are ostensibly abandoning the classic cable subscription business model they themselves created. Sling TV, an app-based television service that streams live television content to your television over the internet, is owned by Dish Network. With Sling TV, Dish has created its own subscription product that may potentially cannibalize its cash cow, the classic cable subscription business.

AT&T is doing the same thing with its recently announced DIRECTV Now streaming service, which charges $35 a month for 100 channels. These platforms by Dish and AT&T are being brought to market in the hopes of hatching a new era of content delivery service to win back consumers who have ditched cable. Content providers such as Disney and HBO are also cognizant of the impact technology is having on traditional cable. HBO’s HBO Now and Disney’s recently announced ESPN streaming subscription service cut out the middle man – the cable provider – entirely, bringing their sports content direct to the consumer for a monthly fee.

As the reality of cable industry disruption takes hold, it is becoming harder to identify which companies are the cable distributors and which are the content providers. The lines are becoming blurred. Comcast purchased NBC Universal and AT&T is pursuing regulatory approval for its acquisition of Time Warner.

Who is poised to benefit from this major transformation in the cable industry? We, the consumer, will enjoy greater choice and flexibility in how we consume content – all at a lower cost. Sports leagues will also continue to see the value of their content increase as sport events are primarily viewed live. Just last year, 93 of the Top 100 most viewed live shows on television were sports events versus just 14 of the Top 100 in 2005.

Additionally, Netflix and Amazon have seen their subscriber totals balloon as consumers seek low-cost sources of television entertainment. Netflix has repelled the threat of its subscribers growing tired of its library of content by producing its own original television shows. The new Netflix show, The Crown, reportedly cost a jaw-dropping $130 million to produce. Yet, with a global subscriber count totaling 87 million, Netflix has the capital to invest in producing differentiated and high-quality content to justify its monthly fee.

Is the average American still watching more than 5 hours of television every day? They are certainly connected to their iPhones and iPad for hours and media companies realize that delivery to those devices is paramount to success.

It is a good time to be a consumer. The cable industry is working fervently to evolve its business model to deliver programming at a lower cost with more viewing options while content producers are investing more money than ever in creating well-scripted stories for us to enjoy when, where, and how we want to. The cable industry is rediscovering that content is the critical king (or queen) and the customer always wins.

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