The Myth of TV Disruption

I, along with many other people, cannot wait until the day TV is disrupted. It continually shocks me that the single worst piece of technology I have in my house is my cable TV box. I’ve played out scenario after scenario about how TV gets disrupted and still I land in the same place. It is much farther out than any of us want. This realization was further confirmed this week as I was at a conference and got to spend time chatting with the heads of digital media for ABC, CBS, Fox, WB, as well as the VP of Dish Networks. Suffice to say, if I was going to get a handle on if or when the disruption of the cable operator business would come, there was no better group to speak with than these executives. The subject on my mind was the possibility of un-bundling network content from the cable subscription.

HBO recently announced they will take HBO direct to consumers in 2015. Previously, to get access to HBO content you had to be a subscriber of a qualified cable service. HBO will now let consumers subscribe directly to them should they choose. News headlines position this move as a focus on cord cutters and it certainly is. However, the feasibility of cutting the cord remains an option for only a small number of consumers, not the masses.

Similarly CBS is getting in the a-la-carte game but offers significant restrictions in the service. What gets missed most often is how costly contract rights are as well as the production costs of proprietary shows. When you add all these up, the economics for a network to offer a-la-carte options don’t add up. The VP of digital from ABC told me if they were to offer just ESPN and ESPN network shows as a subscription they would charge upwards of $40 a month and, in some cases, $60 for all access. But the real kicker for me in this conversation was the contract rights for sports.

Every major sporting league has just finished wrapping up new contract rights for live events. As the media execs explained to me, those deals are now secured by the major networks for the next decade and longer. Meaning, the networks can offer all the a-la-carte services they want at whatever prices they want but their offering will not include live sports. Hopefully, I don’t need to convince anyone how important live televised sports are in the United States. Cut the cord and you don’t get live NFL, MLB, NHL, NBA, Tennis, Futbol/Soccer, NASCAR — nothing. This will be true for at least the next ten years if not longer.

When you think about how many channels you get and how much you pay for your bundle, your cost per channel is no more than a few dollars per channel and for many customers it is a lot less. When you consider a subscription to only a small handful of networks’ a-la-carte offerings would likely end up costing you the same amount you pay for hundreds of channels today, it becomes clear that cord cutting is actually not the best value. Sure, a small few can pay “less” if all they watch is a handful of shows but that is not representative of the mass market US cable subscriber.

As I look at the market today, and speak with execs in media companies, it becomes clear we are nowhere near having the cable companies disrupted. Should a tech company like Apple or Google or Amazon want to embark on such a task, their only option would be to buy the networks or a cable/satellite company. Which seems unlikely. I have no doubt smart set-top boxes will evolve and a small few customers will be happy cutting the cord. Anecdotally, I don’t know a single person who has cut the cord who hasn’t gone back, largely because of sports.

Another point that came out, was how the smaller networks would be crushed if unbundling became the norm. How would they be discovered? Discovery, Animal Planet, and the many niche networks would have a hard time in an unbundled world.

Unfortunately for now, the disruption of the TV market remains a myth.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

12 thoughts on “The Myth of TV Disruption”

  1. On visits to the US I see that sports is much more integrated into your society than we have in the UK. I think “cord cutting” could happen in the UK but everyone here gets basic TV via an antenna (20+ channels including 4 in HD) for nothing, other than the legally required TV licence (an annual fee). Cable and Satellite are “premium top up”, on top of the licence, options for those who want top end sports (premier League football/soccer), movies and premium entertainment. So I don’t think a technology company could disrupt here either.

    1. I am both amazed and appalled at the balkanised entertainment system in the
      US. Wtf happened to free to air? Murdoch has been trying to do the same thing here and I’m terrified that he is beginning to succeed. With over 20 FTA channels showing sport, news and entertainment (60ish including the bizarro shopping channels), a couple of multi tuner dvrs provide far more than I could wish to watch, when I want to watch. Anything I miss or is unavailable can usually be found on iTunes, but at $3.49 per TV ep, it’s not cheap.

  2. “Anecdotally, I don’t know a single person who has cut the cord who hasn’t gone back, largely because of sports.”

    Obviously you don’t know people like me, who don’t watch any sports.

  3. Isn’t disruption happening from outside ? People spending more time on their phones and tablets, and less time on TV ?

  4. There was a lot of bold talk about cord cutting (“I’m not giving those —-ing —-ards another dollar!”) but the stats show it’s a small percentage of the population. Will it ever be more? Maybe but I have a feeling that when it happens, the networks will be ready.

    There are 2 dominant rules in this:
    (1) The networks not only create the content, they control it rigidly.
    (2) The public is hungry for content and the networks know it. Content is KING, above all else.

    1. It boils down to sports and proximity for a decent enough antenna. If you aren’t interested in a lot of sports, then a good antenna in the right location and a decent, multi-tuner OTA DVR will get you all the content you could want. I have a computer connected to my TV with two HDHomerun dual tuners and EyeTV.

      For cable only content (like Walking Dead) then iTunes/Amazon Prime or other such services fill in the rest. My wife loves Hulu. After that there is binge watching previous seasons of shows. If you are in this position (like I am) you will come out infinitely cheaper ditching cable. But like Ben points out, I am part of a minority.

      Content is king and right now TV shows can do no wrong. There is a lot of good content out there. No doubt OTA and OTT is actually increasing competition for decent programming. There _are_ so many options for receiving content, just because someone may show low in a particular time slot, doesn’t mean people aren’t watching.

      But we love our live sports. Well, I don’t. But most of the US does.


  5. I watch sports and I don’t have a cable subscription. The NE Patriots are on local over the air channels. I can get the Red Sox by playing some games with a VPN and using the MLB site. Bruins and Celtics are less important to me. but I could probably find a way to get them online if was motivated. I also watch some college sports. I would pay ESPN the standard $8/month for al a carte but it isn’t worth more than that for me.

    It took a lot of searching to find an indoor antenna that got all local channels reliably but I found one. I now get better screen quality than I ever got from Comcast. I have a DVR program that runs on a desktop computer that records in HD which I then compress down to MP4 to watch when I want. This meets my needs for non-live events.

    I was willing to pay a nominal fee to Comcast for local TV channels to avoid the hassle of an antenna and did for years but last winter they decided to encrypt even the local HD channels making their service useless to me. I have no useable way to hook up a converter box to my computer based DVR.

    I’m looking forward to HBO’s entry but I’m skeptical that they will really allow equivalent access for non cable subscribers. Other than that, I pay Netflix for their online streaming. I occasionally will use RedBox if a movie I want to see is available. I have no problem paying for services but I won’t overpay for services that don’t meet my needs. The requirement for a cable box is just out of the question.

    It probably helps that I’m just west of Boston and I get something like 20 channels over the air but there is no chance I will ever go back to subscribing to a cable TV service as long as it is so restrictive. If they would do IP based cable TV, I would definitely consider it.

    1. After the Atlanta Braves ditched the only local TV station that carried any games (even then only 1/3) and went cable only, I ditched the Braves. Plus they are moving outside the city, but that’s another story. I figure it is safe to be a Cubs fan. No high expectations to be dashed.


  6. Ben – you’re mostly right, however, Google owns a “cable franchise”, so it could very well do something here.

  7. These laments always remind me of a crack addict complaining about his dealer: yes, the product is iffy and the deals rapacious. Why don’t you just quit?

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