I got a lot of flack when I suggested in May that a network like AMC may be in a good position to unbundle from cable, and charge consumers for a Netflix-style service that would be available to anyone, even cord cutters. Many smart people said that it would never happen, and that any such move would drive cable networks out of business.
Fast forward five months, and it looks like the question isn’t so much if, but when: Over the last few days, cable networks and broadcasters have made a massive commitment to new online distribution models. First, [company]HBO[/company] said that it will sell an online-only service in 2015. Then [company]CBS[/company] followed by actually launching such a service the very next day. Just hours later, a [company]Univision[/company] executive committed to talking the channel to cord cutters as well. And earlier this month, the [company]NBA[/company] announced that it reached a deal with [company]ESPN[/company] to show live games outside of the cable pay gates.
The great unbundling has begun, and even close industry observers were taken by surprise. So why is everyone suddenly getting ready to unbundle? Here are three theories:
It’s all about leverage
One of the theories that you are hearing a lot since the trifecta of unbundling announcements hit this week is that it isn’t actually about the consumer at all, but about the never-ending negotiations tango between networks and TV service operators. RBC Capital Markets and others argued Friday that CBS may just want the $6 price for its online service out there so it can go to TV operators and ask for more money as well.
It’s a compelling argument, and it wouldn’t be the first time that a consumer service or feature was used as bargaining chips in these negotiations. [company]Dish[/company] for example built a monster of a DVR, capable of recording any primetime show on any broadcast network without consumers actively scheduling any of these recordings and then automatically skipping over all of the commercials. But when Dish’s renewed its contract with [company]Disney[/company], it agreed to curtail the automatic ad skipping in exchange for online rights to Disney’s content.
However, there is also some fallacy in that argument. That’s because CBS and other networks really only achieve any leverage if their services actually gain some traction. Getting $6 a month from close to no one still doesn’t prove that you should get more than $2 a month per head from an operator with 20 million customers. But if CBS does sign up a lot of users, it will inevitably invite the scorn from operators, which are only willing to pay more if they get exclusive windows for their own TV Everywhere products.
It’s because TV Everywhere failed
Which brings us to another theory: Networks like CBS have all invested a lot of money into TV Everywhere products, which let consumers catch up on shows as long as they have a pay TV subscription. TV Everywhere has been riddled with problems since the beginning, leaving many customers frustrated as they scramble to find their cable password before a big game begins.
To their credit, networks and their technology providers have been making some progress on making TV Everywhere easier to use, but it’s still far from being a mainstream product. At the beginning of the year, only 17 percent of consumers even knew what TV Everywhere was.
There are some exceptions, with HBO Go most notably being one of them. The cable network’s authenticated catch-up service has become a household name, at least for more tech-savvy users looking to get the latest episode of Game of Thrones or True Blood. Ironically, many of these users aren’t actually HBO subscribers, but instead borrow their passwords from friends and family members. HBO hasn’t cracked down on this practice in any meaningful way, but anyone within the industry is well aware of it — and I’d bet that it was one of the factors that convinced HBO executives to start charging for internet-only access.
There’s something bigger going on
TV Everywhere may have struggled to get traction, but there is no denying that consumers are moving towards online services, and a lot faster than many had predicted. For years, the mantra of many in the industry has been that the American household watches five hours of regular TV a day, but little to no online video, and that mainstream consumers simply weren’t cutting the cord, now or ever.
However, in late 2014, it’s becoming increasingly clear that consumer behavior is massively shifting:
- [company]Netflix[/company] now has more than 37 million subscribers in the U.S., and those subscribers watch an average of 90 minutes of programming from the streaming service every single day.
- 47 percent of all U.S. households subscribe to Netflix, Amazon Prime Instant, Hulu, or a combination of these services.
- Among 18-24 year-olds, the numbers are even higher: 61 percent of them subscribe to at least one online video service, 49 percent subscribe to Netflix.
- 49 percent of all households have a TV connected to the internet.
- 34 percent of consumers watch online videos every day.
- Vizio’s CTO Matt McRae told me some time ago that his company is seeing indications of a tipping point, in which consumers are watching more online services than traditional TV during some weeks.
All of this may not led to consumers collectively deciding to drop cable tomorrow, but it is pointing towards a world where online services are simply more attractive, and more used, than traditional networks. TV executives aren’t blind to these changes, and this past week, we have seen some of them start to react.
