Time-Warner and CBS Lead the Charge…in the Wrong Direction

It seems counterintuitive that Time-Warner cable and CBS haven’t made peace and returned the cable universe and America’s primetime viewing back to normal. It’s the last thing you’d think that a cable company would want to do: Give viewers the glimmer of what entertainment delights are available elsewhere. Worried talk of ‘cord cutters’, those viewers who cancel their cable/satellite subscriptions in favor of ‘over-the-top’ (OTT) or VOD content delivery, appears in the media trade papers every day. Case in point, Media Post, August 14:

“…the overall pay TV marketplace is contracting, with a net loss of 146,000 subscribers during the first half of the year. For the full year, IHS predicts the total number of U.S. pay TV subscribers will decline from 100.89 million in 2012 to 100.77 million in 2013. That suggests future growth for relatively new entrants like IPTV will increasingly come at the expense of the incumbents, cable and satellite.”

Fights like this just don’t seem like they’re going to contribute to maintaining the broadcast business model. With the advance of OTT and VOD technology, behemouths like T-W risk alienating the very customers who now have the very tools at their disposal to kick them to the curb.

So far about six percent of U.S. households have cut the cord, and close to sixty million Americans now get their TV for free off antennas. Millions more have completely dropped cable and satellite TV in favor of streaming-only fare over the Internet. A new study finds that minorities represent 41 percent of all households that rely on OTA antennas.

A new study released last week by GfK, a market research firm, found that 19.3 percent of all U.S. TV households get their TV from free OTA broadcasts. This means that 22.4 million households representing 59.7 million Americans get their TV for free, the market research firm estimated. One in five young households never bothered to get a TV subscription to begin with.

Yet with all this talk of cord-cutters, broadcast TV still have the advantage of live events which will continue to draw viewers to the screen. Or will it? Ben Elowitz, guest blogger at All Things Digital looks ahead and sees a massive realignment of the television ecosphere, a frighting vision (if you’re a cable or broadcast exec) and worth quoting at length:

When Netflix starts streaming live events, the results for incumbent industry players could be catastrophic, as it rips the rebar out of the dam holding back cord cutters. Consumer behavior has already begun tilting away from TV, and the fragmentation of TV audiences means we’re depending less and less on the major networks for our entertainment. The tipping point for the mass exodus will be the arrival of better alternatives for viewing live events.

If Netflix listens to its customers (something that cable companies seem to be categorically poor at doing), it will realize that Netflix Live would not only bring new “must-haves” to its offering, but could potentially convert tens of millions of unhappy cable customers into Netflix subscribers. It would also give Netflix the edge to charge more for added value down the road. After all, the economics of cable have proven one thing for certain: People are willing to pay more for more.

Reed Hastings recently told investors to expect a “redefinition and broadening of what Netflix is.” With its original programming, we’ve begun to see the power of adding exclusive original content to the package. The next big step will be live and unplugged.

Substitute ‘Netflix’ in those paragraphs with any of a number of other IPTV start-ups and you begin to see the future and how it may just be entirely different than TV as we know it today. Once viewers find functional (superior?) alternatives, they may be impossible to recapture. The music industry got hammered when consumers ditched over-priced CDs for the flexibility of individual MP4s (however technologically inferior they may be to audiophiles). The print industry is still reeling from the impact of digital on traditional distribution models. Now is the time for BOTH CBS and T-W to solve their problems quickly (and quietly) and get to work on repairing public perception and their customer experience. Get it done…or you may find the audience has already moved on.