The fact that new technologies can decimate established industries is well known. Among the first casualties of the internet era were travel agencies. Since 1997, the number of travel agents in the US has declined by 44%, eliminating 80,000 jobs and $3.9 billion in wages. More recent victims have been providers of land line telephone services. Since 2001, nearly a quarter of US households have dropped their service, costing the phone companies over $15 billion a year in revenue.
The next industry in the technology crosshairs is cable TV (we’ll use ‘cable’ to include for cable, satellite, and FIOS). If the stakes already seemed high for travel and home phone services, consider that cable, with its $110 billion in revenue, is larger than both of them combined.
To some extent, trumpeting the death of cable is a bit like crying wolf. A quick Google search reveals plenty of articles over the last few years predicting cable’s decline. Meanwhile, the cable TV industry continues to not only survive, but thrive. In 2010, the share of US households with cable reached a record 91.2% up from just 85% in 2005.
However, this time, the death of cable is for real.
Recently, I was visiting my friend Rob in California. When we turned on his TV, I was surprised to find that he didn’t have cable (or satellite or any other pay TV service). Rob is not a Luddite, nor does he belong to the small group of people who just don’t watch TV. Instead, he watches an hour or two of TV a day over the Internet via a Mac he has connected to his TV set.
Today, Rob is at the front edge of what will soon become a major trend. He’s the TV equivalent of the person who in 2001 disconnected their land line to go with just a mobile phone. In 2001, going all mobile was pretty radical. But by 2005, the combination of increasing coverage and falling prices led to a tipping point.
In the cable TV world, bandwidth and content are the equivalent of coverage and price in the mobile world. The tipping point will come when home internet speeds become fast enough to reliably carry a TV signal and when enough [legal] content is available online that viewers can get the shows they want without having a cable subscription. That day is fast approaching.
The magic bandwidth number, where internet TV becomes feasible for large number of households, is a little north of 8 mega bits per second (mbps). At 8 mbps, a home internet connection can support the basic needs of the 30 million single-person households – delivering a standard definition program to a TV while allowing the viewer to simultaneously surf the web. As bandwidth speeds continue to increase, the number of households for whom internet TV becomes viable option will continue to grow. At 16 mbps, the 40 million two person households come into play and at 21 mbps, online HDTV becomes a reality.
Number of Households in Play by Home Bandwidth Speed
Today, home internet speeds in the US average 5.8 mbps and are increasing at about 18% per year. This puts the bandwidth tipping point around 3 years away.
Average Home Internet Speeds will Exceed 8 mbps in ~3 Years
Unlike bandwidth, there is no easy objective measure like mbps to judge when content will hit the tipping point, but we may already be close.
- Of the Top 25 rated TV shows from the week of October 9, 2011, 19 were available online for free (either on Hulu or the networks’ own sites) and the same holds true for many of the most popular basic cable shows.
- A subscription to Netflix streaming service or Hulu Plus, both priced at $7.99/month, a fraction of the cost of cable, makes thousands of movies and even more TV shows available, including back episodes.
19 of the Top 25 TV Shows are Available Online for Free within 1 Day of Airing
The primary holes in online content are major sports (NFL, MLB, NBA, etc.) and original premium cable shows, although you can buy previous seasons episodes of your HBO favorites on iTunes or get them on DVD via Netflix. Cable companies undoubtedly know how important sports and original premium content are to maintaining their subscriber base so we don’t expect these to be available online, even for a price, anytime soon.
Given the landscape, how will this all play out?
Over the next 3 years, expect a trickle of folks – mostly young, tech savvy, non-sports fans living alone – to drop cable in favor of Internet TV.
In 2014 or 2015, the first big wave will hit as the early internet TV adopters spread the word and average bandwidth speeds hit the 8 mbps mark.
Later in the decade, as the number of cable subscribers starts dropping, the fun will really begin. Holdouts like the NFL and the premium channels, seeing the writing on the wall, will find ways to start offering their content online. That, combined with bandwidth speeds approaching 20 mbps, will turn the trend into an avalanche.
So, when will you pay your last cable bill?