Thursday, August 27, 2015

The Death of Cable and Satellite TV?

For decades, subscriber TV services such as cable and satellite had a simple business model. They created "packages" of bundled local and subscriber-only TV stations. The entry level was the version of "basic" TV with on-air local stations and a variety of other subscriber-only stations like CNN, CNBC, USA, and TBS.  But, "basic" never included all the stations you and others might really want to watch.  The same with other more premium packages. As a result, you were forced to buy the next higher package in order to fulfill your desired entertainment experience.

As a result, the Nielson reports that the cable/satellite subscriber pays for an average of 189 channels.  Now, here's the kicker.  Nielson also found that the average subscriber only regularly watches 17 channels, and for that privilege, they pay approximately $64 a month.  Satellite subscribers pay even more. For example, the average DirecTV bill is $107 a month.  On top of that, you still get bombarded with constant commercial interruptions.

Starting in 2007, the rise in cable/satellite subscribers began to slow. In the first quarter of 2007, year-over-year growth peaked at 2.7%.  By the second quarter of 2011, it actually went negative.  This year, subscriber declines are accelerating with a negative five-tenths of a percent growth in the first quarter; and, a negative seven-tenths of a percent in quarter two.  Tenths-of-a-percent might not seem like a lot, until you consider the fact that this is a compounding of declines.

Even so, cable/satellite companies keep raising prices at rates that far exceed wage growth in America.  Last year, real wages -- wages after inflation -- only grew by six-tenths of a percent. Yet, early in this year, DirecTV nailed its customers with an average 5.7% increase in prices. This stupidity in pricing increases ignores the fact that, by doing so, subscribers are forced to seek other choices.  Today, viewers have many more optioms to choose from when they cut the cable cord or rip the dish off the roof.

For less than a third of the cost of DirecTV, people can sign up for these three services -- Netflix, Hulu Plus, and Amazon Prime -- and use an antenna for local stations and probably get 90% of the programming they're interested in.  What they won't get is access to live news services and sports.  But, for that there are options. In addition, they can rent DVD movies from the ubiquitously-located RedBox at a cost that is at least a third of what satellite/cable companies will charge for their video on demand.

But, the ability to cut the cord doesn't stop there.  Take for example SlingTV.  Accessible on devices like Roku, your smart TV or, as an app on your smart phone or tablet, SlingTV provides access to ESPN, Espn2, AMC, the Food Network, A&E, History Channel, TNT, CNN, Lifetime, The Cartoon Network, IFC, and so much more.  For just $20/month you currently can get 23 cable channels; and in addition, you can add packages for HBO, sports, kids, lifestyle, and Spanish language programming. (note: SlingTV doesn't allow multiple simultaneous access using a single account number.). There are also services like USTVNow which might have an even more desirable lineup of 25 channels for $29/month.  In 2016, Apple is expected to introduce its own AppleTV with an expected 25 channel lineup.  Currently, a less than $100 on-time Roku set-top box offers over 3,000 channels for your viewing pleasure. 99.9% free of charge.

The bottom line is that the business model of cable/satellite has been broken by the Internet.  To survive, they will have to make changes; with either ala carte services or smaller, user-tailored, low cost packages.  I also think its just a matter of time that popular cable networks go it alone by offering Internet access at a cost of $2 to $5 a month, and provide their own advertising for additional revenue.  Premium HBO service is now available without cable or satellite with its $14.95/month HBO Now service.  All you need is the internet and a supported device.

Right now, America is standing at the precipice of extraordinary choices in television viewing; both for cost and viewing options.  Say "bye-bye" to cable and satellite! 


Chart: Decline in Cable/Satellite Subscribers:

Why Your Cable Bill Is Going Up Again in 2015 -- Sports:

Changing Channels: Americans only view 17 channels despite a record number to choose from:

On average, Americans get 189 cable TV channels and only watch 17:



Apple Said to Delay TV Service to 2016 as Negotiations Stall:

HBO Now:


Hulu Plus Channels:

Instant Watcher: Netflix and Amazon Movie and TV Content and Ratings for over 50,000 offerings: 

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