At this point, it’s clear the television industry is in for some significant disruption in the years to come. Advertising revenue streams are under threat as spending shifts to other platforms, cord-cutting at last seems to be taking off in earnest and new alternatives to traditional Pay TV services finally seem to be getting off the ground. However, even though it feels like we’re on the cusp of this disruptive phase, it’s still enormously difficult to know how fast and how completely this transformation will take hold. In order to figure that out, I’d argue there are four big questions, the answers to which will determine exactly how this disruption plays.
How substitutable is one set of content for another?
The single biggest question in my mind is how substitutable one set of content is for another. Essentially, this question comes down to whether people have to watch a specific set of content or whether they just need to be able to watch a set of content that meets certain criteria. In other words, do you, as an individual viewer, have to be able to watch Game of Thrones or your NBA team or Sesame Street? Or would you be perfectly fine with watching Orange is the New Black, Monday Night Football, or Daniel Tiger’s Neighborhood? Do you have to have an HBO subscription and the ESPN channels, or would Netflix and/or Amazon Prime video meet your needs?
The answer, of course, is different for everyone. There certainly are viewers for whom specific content is essential and any alternative to traditional pay TV that doesn’t offer their favorite shows isn’t going to cut it. We usually talk about this in the context of live sports, as that’s easily the biggest and most lucrative category of this unmissable content. But there are surely also millions who are addicted to daytime soap operas, reality TV shows on TLC, or whose children can’t live without new episodes of their favorite cartoons.
Disruption and transition are going to happen most slowly for these groups, if they happen at all. But for those who just need good enough content and aren’t picky about specific shows or channels, the increasing diversity of alternatives to traditional pay TV makes that transition much easier. From the perspective of predicting disruption then, the key secondary questions are: first, how big are these two groups, and second, what is the bundle of content that satisfies the needs of those without specific requirements? What we’re seeing at the moment is not just Amazon and Netflix building out their rosters of exclusive content with original programming, but also HBO broadening the range of content it is able to show as a standalone offering, with the purchase of the rights to new episodes of Sesame Street.
How much of behavior is age-based vs. cohort-based?
The second big question is how much of the new behavior we’re seeing, among younger viewers in particular, is driven by age and life stage versus being characteristic of new cohorts which will work their way through the demographics largely unchanged. The popularity of YouTube, Vine, YouNow, Snapchat, and a variety of other non-traditional, short-form video content among young users is either going to be enormously disruptive as this works its way into adulthood and more significant spending power, or its disruptive impact will entirely disappear as this group eventually hits all the same life milestones as its predecessors and becomes more conservative and traditional in their viewing habits. As these teenagers become college students and then start their first jobs, get married, start having kids, will their behavior be driven more by these things or by the habits they picked up in their youth? My guess is we’ll see a mix of the two – yes, these cohorts will retain some of their preference for non-traditional formats as they get older, but I suspect we’ll also see a significant shift toward longer-form, professionally produced content as they mature. As such, these new content formats and sources will continue to be very relevant for certain age groups but they’re unlikely to have much disruptive impact in later life stages, and most importantly in those life stages where these groups become more important and attractive to advertisers and paid subscription services.
How badly do people want to stick it to their pay TV provider?
One of the most important questions for would-be disrupters such as Sony, DISH (with Sling TV), and Apple is, to what extent they have to offer something truly different from the traditional pay TV providers and to what extent they just need to offer any alternative to them. The cable industry in particular has such poor customer satisfaction ratings it’s possible at least some users will jump at the first alternative to the traditional package even if it means paying roughly the same amount for more or less the same service, just to avoid having to deal with the cable company. Poor customer satisfaction ratings are one of the biggest single points of weakness for the traditional pay TV industry: as long as these companies only competed with each other, the bar was very low. But once other companies with much better customer experiences and satisfaction scores come along as direct competitors, things will change rapidly. If these companies offer dramatically better customer experiences, especially if they offer really groundbreaking new features or bundles, there’s a huge threat here to the traditional providers.
How much do people value the simplicity of what they already know?
As a counterpoint to that last question, though, it’s worth asking, to what extent apathy and laziness drive behavior in this space. I’m always struck by the resilience of two sets of customers in related fields: AOL’s dial-up customers, and Netflix’s DVD-by-mail subscribers. Both sets of customers are declining over time, but neither as fast as you’d imagine. To be sure, at least some of these customers get real value out of their subscriptions, but I’d bet many are sticking with what they have either because they can’t be bothered to cancel or because they don’t want to make the effort to find an alternative. For all the disadvantages of the current pay TV model, from over-bundling to high prices to being nickel-and-dimed over equipment fees, the traditional way has one huge advantage: it’s enormously simple. One (fairly) predictable monthly fee, the ability to watch hundreds of channels of live or recorded programming for later viewing, without having to switch boxes, connect a computer to the TV, or get frustrated about buffering. Almost any other model seems more complicated – worrying about which channels or individual shows are and aren’t included, concerns about device compatibility, switching inputs on the TV, wondering how you’ll get customer support if something stops working, and so on.
Replacing the cable package today often requires an awkward mix of several elements which is far less simple and which, as a result, many people won’t countenance. If we get to the point that alternative services really do replicate the simplicity of the cable package, the potential for change will increase but, even then, many people will stick with the devil they know.
The biggest question of all
Aside from these four questions about viewers and their behavior, there’s one question that’s at least as important the pay TV industry needs to ask itself: what will you do to deal with these threats? Though parts of the industry do finally seem to be coming to terms with the changes that are coming, there’s still an awful lot of denial and spin going on. Neither, however, will protect the industry from disruption or preserve current business models. Adaptation is the key and, though various barriers and hurdles need to be broken down and overcome before real change can happen, players in the industry should be using that time to begin to adapt rather than postponing the inevitable.