Death of Cable

When I was younger, my family and I used to get together and watch television all of the time. However, times are changing, and it appears that in the near future, traditional cable television as we know it will become obsolete. The CEO of Netflix stated that “Linear TV has been on an amazing 50-year run. Internet TV is starting to grow. Clearly over the next 20 years Internet TV is going to replace linear TV…Internet TV is the way that people will consume video in the future.” TV viewership among all age groups peaked in 2010, and has been decreasing ever since. It’s pretty hard to fathom something like this, but that is definitely how the industry is trending, and there are numerous factors that are causing this to happen.

One of the main reasons as to why cable is dying is due to pressure that it is facing from smartphones. According to Nielsen, “Smartphones are winning and traditional television is losing, especially when it comes to viewers in the most desirable 18 to 34 demographic.” The use of smartphones, tablets, and TV-connected devices such as streaming boxes or game consoles increased by more than 25% for this demographic in May 2015. This equates to around 8.5 million more people. In that same demographic, TV viewership fell by 10%

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There is also the fact that there are now many more competitors that cable has to face. Netflix, Inc. (NFLX), Amazon.com, Inc. (AMZN), Sling TV, Crackle, and Sony Corporation (SNE) provide streaming content, replacing the set-top box/TV combination as the only way to view entertainment. In the case of Netflix, one in three households in the US has a Netflix subscription, bringing the total subscribers to around 40 million in the US and 60 million worldwide. This equates to approximately 10 billion hours of content . Furthermore, the average Netflix subscriber streams movies and programs for two hours a day. The average TV viewer sits in front of a screen for 5 hours a day, so if you look on the surface, that might not seem like a huge dent. However, one has to consider the fact that on Netflix, users are watching all of their on one network (Netflix). In contrast, TV viewers are dividing their 5 hours across every single television network. If Netflix were its own independent US domestic broadcast network, a firm called BTIG research estimated that it would be the second biggest network in America. In addition, all of these streaming services are seeing growth, while cable providers are not:

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In addition, the cost of cable has been rising rapidly over the years. Between 1995 and 2005 cable bills increased three times faster than inflation. This trend is clearly one that simply cannot be sustained. The average cable bill would only be $35 per month, as opposed to $99.10 per month, had pay TV prices tracked with inflation during the past two decades.
Additionally, if one looks at data they can obtain from the FCC, they would see that the average price for basic expanded cable service was $22.35 in 1995, and in 2014, it had risen to $66.61 — an inflation rate of 5.9%. The U.S. inflation rate averaged 2.3% during that time. Couple this with the fact that many cable companies require consumers to pay for a host of channels that they do not have interest in. Why would you pay upwards of $100 per month for channels that you do not even utilize? This outdated cable model has become usurped by a plethora of streaming options that give you want to watch.

Cable companies have tried to keep up with the way the industry is moving by providing slimmed down cable packages. For example, Verizon and Comcast began marketing what have come to be known as “skinny TV” packages. These packages offer a slimmed-down list of channels for a far lower price. Verizon’s version, called Custom TV, starts at $55 a month, and comes with 58 channels. While these are much cheaper options, they are still more expensive than something like Netflix, which costs only $8 per month. You also might still be paying for channels that you don’t need. Streaming services give users much more control over what you are paying to watch.

In addition, a lot of media companies who own content that the public loves, such as HBO and ESPN, understand the fact that consumers are becoming less willing to pay for multiple channels that they don’t watch, and would much rather only pay for programs that entertain them. This has resulted in even more streaming options, such as HBO Go, giving watchers yet another reason to not pay for cable. All of these factors have resulted in a trend that cable providers should definitely be afraid of.

 

9 comments

  1. cattybradley · ·

    Great post – a very relevant topic. I think even outside the “most desirable demographic,” the number of people switching to watching TV on their smart phones and tablets is so high. My parents watch mostly on their iPads. Additionally, your point about the rising cost of cable subscriptions is so true. The cost increases can’t continue, especially with the influx of alternative options that come with a fraction of the price tag.

  2. kdphilippi18 · ·

    Interesting post. I think we are all familiar with this topic, but you did a good job outlining the specific stats that support it. I was especially shocked by the rapidly raising costs of TV – knowing that it should only be $35 versus $99! I would agree with your points that linear TV is expensive and includes a large number of channels we don’t watch. Although there are alternative options that different TV providers are offering – like the slim down package you mentioned, I still think the problem lies with how we now digest TV. Because of streaming services, many prefer to binge watch or choose the pace at which we watch shows. Having this flexibility is huge and as long as TV networks don’t operate on this model, I feel like they will continue to decline and eventually go out of business.

  3. polmankevin · ·

    Great post – this topic fits really well with the blog that I just wrote on ‘The Golden Age of Television’. I totally agree with your main points in this post. TV is headed toward the internet. The streaming quality and content offerings on the internet have improved dramatically in the past 5 years. One of the things that have kept me reliant on traditional cable subscriptions are the limited viewing experience of sports. Mainly, key sporting events like the World Series or the NBA playoffs. However, in recent years cable providers have done a good job of bringing this content online. Granted you need a cable subscription to access this content online, it is still accessible. I think cable providers will continue to evolve their online streaming offerings. The battle will then center around the finite amount of content and the numerous players fighting for it. However, if cable providers aggressively transition online, they will also need to adjust their prices. I think they spiked their prices to adjust for less subscribers, but the market price of internet streaming services is much lower than their current price point.

  4. finkbecca · ·

    Nice post. It definitely seems obvious that we are switching from the traditional TV set to streaming what we want, when we want on the web. My hope is that individual channels will start to create their own streaming platforms (like HBO has). But, it would be cool if local sports channels would do this because blackouts make it so that if you don’t have cable, you can’t even purchase the NBA League Pass to watch local teams. I think this is the direction cable channels are headed, but I’m not sure how long it will take to get there.

  5. Great post and I EXACTLY identify with all the trends you described… pretty accurate on timing too. I have always been an avid TV watcher; majority of the time I was plopped in from of the TV as a kid and could not be pealed away. Around high school, my TV watching got more extreme as I watched 13 different series in real-time or TiVo-ed them, which I needed cable for. Now, I think the last time I used cable may have been high school (DW, I watched the debate, but just on twitter instead). Needless to say, it is not that I don’t watch TV anymore, I do watch less cause BC keeps me way too busy, but I have substituted the channel I use to streaming on both Hulu and Netflix. My parents have considered canceling our cable subscription because family accounts on these platforms and being able to use them where ever seems smarter and cheaper. What an accurate post Ike! Awesome content and stats!

  6. emilypetroni14 · ·

    Not sure about anyone else, but where my favorite shows are dictates what services I opt int to. I watch a few Netflix originals, so of course I have Netflix. Game of thrones is on HBO, so I subscribe to HBO Now. Hulu is great, but the shows I watch aren’t available until the next day, so that’s when cable comes in handy. I do find it interesting that the hard shows to find are all on stations owned by Comcast, e.g. NBC and Bravo. Bravo shows in their current season are difficult to find other than on Comcast on Demand…I have a feeling they do this on purpose so that viewers hooked into the Real Housewives franchise are forced to keep their Comcast cable subscription. Original content is really what is giving each outlet the upper hand.

  7. daniellep2153 · ·

    Great Post! I know I personally don’t watch nearly as much cable as I used to and a big part of that is due to my iPhone and the apps listed above. When my roommates and I were deciding whether to get cable, we decided to get the slimmed down package because we could watch anything we wanted on Netflix or Hulu. With the amount of streaming increasing, cable companies will have to find some way to survive as more video streaming services are developed.

  8. Nice post! This really caught my eye given the news today about AT&T/DirecTV’s entrance into the online streaming market. They are offering a service that offers 100+ cable channels for just $35. Clearly cable companies needs to adapt or see their business continue to erode.

    https://www.wired.com/2016/10/att-will-undercut-cable-tv-35-internet-streaming-service/

  9. Nice post. The catch is that when I tried to sign up for just internet with Comcast, it was actually cheaper to get Internet + cable than just Internet alone.

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