Of all the posts we’ve made, the one from last November, The Death of Cable – Coming in 2016, generated the most discussion by far. There were quite a few supporters of the post including people who had already dropped their cable subscription to stream TV. There were also quite a few skeptics; people who thought cable companies would find ways to fight back and hold on to their subscriber base.
Since our post, the Cable companies have begun hitting back much harder – which might validate our thesis that the Cable companies are in trouble or might validate the skeptics’ view that Cable companies will find a way to prevail.
So where do things stand? Is the death of Cable still coming in 2016 or will the Cable companies be able to successfully fight back?
To start, without a change in trajectory, the Death of Cable is coming. In 2011, the share of cable households fell from 84.1% to 83.2% and much of this decline can be traced back to Cord-cutters, people who go rid of cable in favor of streaming. To be sure, the number of Cord-cutters is still small, 2% to 3% of households, but it is growing. 22.8% more people cut the cord in 2011 than 2010. This growth has moved the industry one step closer to the tipping point.
Another sure sign of the pending Death of Cable is the reaction of the Cable companies. Cable companies know that they have to stop cord-cutting before it hits the tipping point or it will be too late; there will be no way to stop it. To that end, we’ve observed 3 strategies the Cable companies are deploying to halt cord-cutting in its tracks.
- Bundle Pricing: Cable companies are bundling TV and Internet service in a way that minimizes the incremental cost of TV. Verizon has pursued this approach most aggressively. In Boston, its internet service on its own costs $74.99. But, adding 210 channels of TV, including a DVR, costs just $30 more.
- Data Caps: Cable companies have begun experimenting with data caps on internet service. In Tucson, Comcast is trialing a 300 GB cap on internet service, enough to watch about 7.5 hours of TV a day in standard definition. That may seem like a lot, but spread it across multiple TVs in a house, count each high def hour as two hours, and include leaving on the TV as background noise and the cap doesn’t go very far.
- Content Exclusivity: Cable companies are working hard to make sure that premium content like the NFL and HBO are available just to their subscribers and are not available via streaming services.
So will these strategies work? Maybe.
The basic pitch of the Cable companies to consumers can be summarized as follows: [With bundled pricing and data caps], “Cable costs just a little more than internet service on its own and for that, you get lots of great content you can’t get anywhere else.”
It’s a compelling message, but it wouldn’t take much for the entire strategy to fall apart. All it takes is one provider in each area to come in with a low priced stand alone intenet service to undercut the “cable costs just a little more” value proposition. In Boston, while Verizon charges $74.99 for internet service, RCN only charges $49.95, which nearly doubles the incremental price of cable from $30.00 to $55.00.
Cable companies face similar risks on the content side. If just one of the big dogs like the NFL or HBO made their content available on streaming services, it would be a crippling blow. Or, they could be undermined by thousands of little cuts such as NetFlix’s upcoming exclusive offering of new Arrested Development episodes. While Arrested Development on its own may cause only a small number of people to cut the cord, many Arrested Developments could do real damage.
Finally, if the market doesn’t undermine Cable’s strategy it on its own, the government might. As part of Comcast’s acquisition of NBC, the Justice Department is monitoring whether the company is adequately making content available online and while much has been made of corporate influence in Congress, politicians know that people care a lot about the size of their cable bill.
So in the end, while the Cable companies might win, all else equal, I wouldn’t want to be a cable company.