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.