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%
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:
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.