The Road to Cable and Satellite TV's Future is Paved with Questions
Are cable and satellite TV firms in danger of “disintermediation?”
In economics, “disintermediation” refers to “the removal of intermediaries in the supply chain” — which some critics believe could be cable programming’s fate, as more and more users watch their favorite shows directly online, bypassing the cable and satellite TV companies. Indeed, how these companies will cope in today’s Web-centric market “is the single biggest question facing the media industry,” remarked former News Corp. President and COO Peter Chernin, at the USC Annenberg School for Communications’ roundtable discussion last Fall.
The End? Maybe, But Not Yet
For now, however, cable companies appear to be in good shape. According to a September 2009 report by marketing and media research firm Nielsen, time spent watching TV is up four minutes from the prior TV season, and up 20 percent from 10 years ago — partly because of the increased choice in cable and broadcast content.
And as El Segundo-based satellite TV company DirecTV has shown, it’s still possible for non-broadcast firms to maintain subscriber growth. DirecTV reported 136,000 new U.S. subscribers for the 3rd quarter of 2009, bringing its total base to 18.4 million, with the average monthly revenue per subscriber rising 2.1 percent, says Dow Jones NewsWires.
Cable and satellite companies may still have to watch their backs, however. As video content grows online, so does the online audience. Research firm comScore reports that Web-viewing again reached record-breaking levels this past September, with 168 million users in the U.S. watching videos via Web-based services like YouTube and Hulu.
What’s more, the proliferation of products and services that support the “online viewing” model may continue to threaten cable’s role — such as Internet-ready HDTVs and Blu-ray players, Internet “set-top boxes” like Apple TV and Boxee, “video- and Web-ready” game consoles like XBox 360 and Playstation 3, and pay-per-download/subscription-based services like Amazon on Demand, Netflix, or Apple’s planned iTunes TV.
Salvation = Content Control?
So what can cable operators do to protect their programming revenues and remain relevant? One strategy, it seems, is to take “control” of how their content is accessed online. Time Warner and Comcast, for example, have partnered on an initiative to make their cable programming available online for free — but only to their own paying cable subscribers. Called “TV Everywhere” for Time Warner and “On Demand Online” for Comcast, the initiative is expected to launch by the first part of 2010.
And as we have written about in a previous post on the Comcast-NBCU merger, when Comcast completes its deal to a 51 percent stake in media and entertainment firm NBC Universal, this could give Comcast an even bigger say on how and when TV shows are distributed online — which, incidentally, could also raise anti-trust concerns. "Comcast/NBC would control so much important content that it could charge competitors more for its programs," writes Free Press, an independent advocacy group for media reform.
As for the Bottomline?
For now, there are still more questions than answers as cable firms and other players in the media chain find their footing in the changing digital landscape. Since producing and distributing content costs money if users watch shows online for free, how can cable operators recoup costs of licensed and distributed content, and turn a profit? Will advertising dollars be enough, or will companies like Time Warner/Comcast eventually resort to charging consumers even more for their cable subscriptions, to subsidize their “free” online content? Will content providers, like Disney, for example, break away from cable firms and make their content available on services like Apple’s planned iTunes TV? If yes, who will go first? And from a technical standpoint, can the Internet really handle the huge need for increased bandwidth that will occur if there is a potential mass migration of viewers from TV to online?
