New York, 11 Nov 2015
In 2009, Harvard fellow Doc Searls told Scientific American that television as we then knew it would be dead within five years. He missed the mark, but only just.
For nearly 70 years, television has been at the centre of mass entertainment. But significant growth in broadband distribution continued to emerge, a development that may finally mean the long-predicted end for traditional pay TV channels.
In fact, this year marked the first time in history that broadband subscribers surpassed cable subscribers.
Technological advances in personal digital devices and faster internet speeds have made it easier than ever before to transition from regular scheduled one-time-only video programming on pay TV channels, to anytime-anywhere on-demand internet entertainment.
Unbundling: an escalating trend
Macquarie Securities Research Analyst Amy Yong believes there is a rapidly escalating trend for traditional providers to “unbundle” their entertainment packages, signalling the level of pressure facing the cable sector.
Online video comprises more than 50 per cent of all internet traffic. Companies such as Netflix and Google’s YouTube service generate more than half of prime time online traffic, according to Yong.
Tellingly, sales of high speed data account for more than 60 percent of new monthly connections for industry behemoth CableOne, an American cable service company.
"Cable companies provide video, broadband and phone services, so in this cable triple play bundle there is a shift away from video to a reliance on broadband for revenue," Yong says.
It’s a move everyone in the sector is witnessing, as companies fight to create new, more appealing entertainment packages to stem the flow of falling subscriber numbers.
"You’re seeing the pay TV bundle, unbundle,” she explains. “You’re actually seeing a migration away from bigger bundles to skinnier bundles, and perhaps an extreme version of that would be à la carte."
Consumer behaviour driving change
Macquarie research suggests that Millennials are the driving force behind current unbundling trends.
"Consumer behaviour for this demographic is drastically different from other generations, with limited appetite for traditional cable and a preference for on demand/digital/binge viewing," the research concludes.
Average Millennial households are using about 480 GB of internet data a month and watch programs on everything from computer screens to iPads, phones and even gaming platforms like Playstation Vita.
"The fact that consumers are now able to watch so much TV via the internet or on digital platforms is enabling them to consume media in a very different way than they did five or 10 years ago," Yong says.
"On demand is time shifted," she explains.
"You can watch anything you want, any time you want, anywhere you want, on any device. The business model needs to evolve fast enough that you can grow with this kind of backdrop."
To take advantage of the move to broadband viewing and compete with hyper-successful newcomers like Sling TV, Apple TV and Sony Vue have recently announced launches for their streaming services.
The fact that consumers are now able to watch so much TV via the internet or on digital platforms is enabling them to consume media in a very different way than they did five or 10 years ago.
What this means for traditional television companies such as Discovery and AMC remains unclear, but it is clear that broadcasters may no longer have a viable revenue stream in distributing their content. Rather, they may do better transforming into feeders for popular content aggregators like Netflix and Amazon Prime TV service.
Premium scripted television content demand is still rising in the US. There are more than 20 distributors in America and hundreds of buyers looking for content, Yong says.
Where will cable companies end up?
Cable companies could come out on top. Their existing infrastructure and digital strategies mean they are better able to take market share on broadband sales, which provide a higher margin than video sales. Pay TV, on the other hand, is likely to have a shorter shelf life, says Yong.
Despite this, she says, no one really knows whether skinnier bundles and going direct to consumers via streaming options will be enough to counteract the decline in video subscribers.
"It’s a dangerous proposition because the dollars are simply not there yet," she says.
So how will traditional media companies stay viable, if their only option is to become content producers amid diminishing from network loyalty and scheduled broadcasting?
"No one knows how they are going to stay viable," says Yong. "Is this the death of pay TV? I think it is. But that’s been predicted for a number of years."