Technology changes, always.
Frisch’s third law
Cable and satellite TV began to replace broadcast television over 30 years ago. Internet video will replace cable and satellite TV, soon and in much less time.
What is a cable company president to do?
If I ran the cable company, I would make a lot more money than I do. I would also be thinking, “How do I shift from the historical value-added content model to the utility-pipe model of the future, without having my revenue and profits sharply decline?”
Cable has two advantages that are not eroded by changes in content distribution. They have very fat pipes and typically only one or two competitors for their customers.
Cable companies make money from subscriber fees for TV, equipment rental fees, Internet service and telephone service. They may be paid carriage fees by some cable channels. They also sell advertising on some cable channels. The latter two revenue streams are under attack as content rapidly moves to the Internet.
Have you ever watched a show like CSI or The Office on the Internet? You can if you have broadband. Cable gets no income from this type of content. Advertising dollars go directly to the content producers and there is no way for the cable company to insert their own advertising. Pay-video on the Internet will happen, just as HBO came to cable in the 1970s. Viewers will shift their video dollars from premium cable channels to premium video websites. Traditional TV viewers will decline as Internet video-on-demand (VOD) increases. Cable networks, like TNT, Fox News, and A&E, are likely to wither and die as viewers move elsewhere. The current economic climate accelerates this trend.
This leaves subscriber fees as the primary revenue, perhaps the sole source in the future. Most cable companies offer three services for which they charge: cable TV, Internet hosting, and telephone service. Historically, the majority of their subscriber revenue is from cable TV. Over the last decade, Internet hosting and telephone services have grown to be perhaps half the monthly bill. Yet landline telephones, whether old-style or VoIP are in decline.
Is TV programming in the toilet?
The value of traditional TV series content is eroding. Programs on cable TV seem to be reruns of reruns and old movies, except for sports and reality shows. In 1956, a free broadcast television series had 39 original episodes. Today most TV series produce about half that number. A premium channel, like HBO, often airs shows with as little as six episodes per year, and the show may only last one or two seasons. Further devaluing the series content are lengthy hiatuses, such as Lost or 24 recently had. The cost for less-and-less new content on cable keeps going up.
Why do we keep paying or has the future arrived?
There is a lot of chatter on blogs and forums about people canceling their cable TV subscriptions, going Internet-only. They watch sites such as CBS.com or Hulu.com. They subscribe to Netflix and use its streaming VOD service. They buy shows from Amazon’s VOD or Apple’s iTunes stores. And they save money.
I have a computer hooked to my HDTV specifically for these things. I use it more and more frequently. I really do not need my cable box or the service. What I do need is unlimited broadband.
Money talks, or is it greed?
Cable companies have figured this out and many are now capping your monthly bandwidth in order to forestall this shift. Time Warner Cable has been the most aggressive. They announced that they would provide unlimited Internet service for $150/month. Their CEO is not crazy but his rollout is ham-handed at best. Congress is considering legislation to outlaw caps. Someday soon, the cable companies may have no other revenue source.
We do not need cable companies for TV or telephone. We can employ our internet connection for telephone, using services such as Skype, Vonage or MagicJack, augmented by a cell phone. Google Voice, a reconfigured and rebranded GrandCentral, points the way toward future communications services. It does not require your cable company.
Figuring out how to transition from cable’s multi-service, premium-pricing model to being a utility provider, like an electric company, is a difficult thing. They will have to change their revenue model. They have little competition or regulation so their solution will be to gouge their customers, us. And they will get away with it.
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