Updated: May 27, 2017
This narrative was the subject of the Weekly Narrative Video the week of May 22-26, 2017. You can see the video on YouTube here, and it’s also embedded at the bottom of this essay.
TV and video content is the single largest content category by far globally when it comes to revenue, and nowhere is this more true than in the US, where pay TV is far bigger in terms of subscribers and monthly spend than anywhere else in the world. Pay TV providers and channel owners are some of the biggest brands in content, and have considerable leverage when negotiating with other players in the market. And yet we’re starting to see signs of significant potential disruption in the TV market, with cord cutting accelerating, streaming services accounting for a greater share of video viewing, and growing alternatives to traditional consumption.
The cord cutting trend can be hard to see unless you zoom out and look at the complete picture – several cable companies have recently seen a return to growth in TV subscribers, and it would be tempting to see this as evidence that cord cutting is not really happening. But the reality is that there has been a swing in the balance of power between cable companies and their competitors, with the major telcos (AT&T and Verizon) taking their feet off the gas when it comes to wire-delivered TV services, and allowing cable companies to come back. Overall, the US pay TV industry is losing around 1.5 million pay TV subscribers per year to cord cutting, and that trend is accelerating. And of course that’s in the context of overall household growth in the US, so the penetration of households is falling even faster than the absolute number.
Even within the remaining base of a little over 90 million pay TV households, there has been a shift to smaller bundles, and there have been cuts in the lineups offered by some of the big players, with smaller, less popular networks dropped. Subscriber numbers for several big cable networks have fallen significantly over recent years, often by far more than the drop in the number of total US pay TV subscribers, as a result of the combined effects of cord cutting and cord shaving.
Within the context of pay TV, the other big shift has been a move from watching live, linear programming to watching DVR and on demand content, which tend to carry lower ad rates than live. Given the poor measurement of most non-live content and the fact that many broadcasters don’t get credit for all time-delayed viewing, this has squeezed ad revenues.
If there’s a savior in all this, it’s long been held that it’s sports programming, which is almost the only kind of programming that doesn’t lend itself to time shifting through DVR or VoD. However, in recent months even live viewing of NFL games has been falling, though it’s too early to tell whether this will be a permanent drop.
Despite all the challenges facing the traditional pay TV industry, alternatives continue to struggle to provide compelling offerings, because the traditional rights owners still hold many of the cards. Over-the-top streaming services like Sling TV, Playstation Vue, and DirecTV Now struggle to offer local broadcast channels nationally because of the complex ownership structures that surround broadcasting, while out of home and TV Everywhere authentication rights are often hard to come by. Most cord cutters are therefore left with a somewhat fragmented experience, having to cobble together streaming and antenna-based services or give up entirely on traditional TV and rely exclusively on Netflix and the like instead.
TV is definitely being disrupted by a variety of forces from both within and outside the industry, but that disruption is uneven and incomplete. Eventually, however – and I’m betting it’s not that far away now – we’ll reach a tipping point where the major content owners recognize that this is a train that can’t be stopped, and that they need to jump on board while they still can. At that point, things will start moving much more quickly and we’ll finally end up with offerings that are a much better fit for what people really want – their favorite content, when they want it, on the device they want it, preferably without advertising.