Online ‘videoquake’ shakes up TV industry

Online ‘videoquake’ shakes up TV industry


Aware that cord cutting presents a real risk, traditional TV networks and pay TV providers are planning for what some already believe is inevitable.

Research and consulting firm PricewaterhouseCoopers calls it a “videoquake.”

“Consumers are in control now,” said Matt Lieberman, director in PwC’s entertainment, media and communications practice. “There’s an expectation that they can access that content online and on mobile.”

Even in a year when the television industry got a court to shut down Aereo, a startup that retransmitted over-the-air signals online, research shows the trend toward cord cutting is accelerating, especially with young adults.

In PwC’s survey of 1,000 adults and in separate focus groups, cable TV subscriptions have dropped to 71 percent this year among people ages 18 to 24, down from 77 percent in 2013. And only 42 percent said they see themselves subscribing to cable TV in 10 years.

Millennials said their biggest gripe about cable is paying for channels they don’t want — 41 percent said they’d prefer a la carte menus of channels they choose individually.

“Many people in the younger generation don’t have the time, money or interest to have a traditional (pay TV) package,” said Lieberman. “In every younger focus group we have, they don’t have a traditional TV screen in their home or apartment.”

Cord cutters, and those who don’t bother to pay for TV in the first place, now find ample alternatives online.

One of the biggest beneficiaries is Netflix, the Los Gatos firm that started as a DVD-by-mail rental service, but now offers a wide selection of streaming TV and movies. Netflix, which calls itself an “Internet television network,” has 53 million subscribers.

Its success has CEO Reed Hastings predicting the end of standard over-the-air broadcast television.

“You know, the horse was good until we had the car,” Hastings said during an industry event in November. “The age of broadcast TV will probably last until 2030.”

And Netflix is already providing motivation for cord cutters. A study by management consulting company cg42 of Wilton, Conn., found that 73 percent of former cable TV subscribers now use Netflix. Other companies have benefited as well — 59 percent subscribed to Hulu Plus and 44 percent were members of Amazon Prime, which includes access to streaming video.

Not returning

Moreover, 77 percent of cord cutters said they have no intention to return to cable TV, especially if they are frustrated by cable’s nickel-and-dime charges and poor customer service, said cg42 managing partner Stephen Beck.

Cord cutters are reducing an average monthly cable bill of $114 to $46 by cutting back or eliminating TV and keeping Internet service, Beck said. That costs cable companies about $811 per year per customer.

“Multiply that across all of your subscribers and, oh boy, it has the potential to be a significant issue,” Beck said.

The trend particularly threatens Comcast and Time Warner Cable, which plan to merge. Beck said cord cutting puts $3.3 billion of Comcast’s revenue and $1.6 billion of Time Warner Cable’s revenue at risk.

So far, the majority of pay TV customers have stayed put, partly because they have few alternatives. But that’s changing.

This year, some of the biggest TV companies put plans in motion for their own “over-the-top” services. That’s an industry term for video delivered by stand-alone online alternatives to pay TV.

And over the top is also different than services like HBO Go, which let viewers watch shows streamed to their computers or mobile devices over the Internet or a home Wi-Fi network, yet still require them to log in with their pay TV accounts.

In October, CBS-TV introduced CBS All Access, a $5.99 per month online service that gives subscribers access to about 6,500 new and old network shows, plus live TV streams from 14 network-owned stations, including San Francisco’s KPIX. CBS All Access does not require a separate pay TV account.

CBS also plans a similar version for Showtime, its premium network, which is now available only to pay TV subscribers for an extra fee.

That announcement followed the lead of Showtime’s bigger rival, the Time Warner-owned HBO, which surprised the TV industry in October by announcing plans for a stand-alone online service in 2015.

HBO chairman and CEO Richard Plepler said his network is designed for the 10 million U.S. households that have high-speed Internet access, but no cable or satellite TV.

Meanwhile, Disney and satellite TV operator Dish Network signed a deal this year that would make Disney’s networks, which include ABC, ESPN and the Disney Channel, a big draw for Dish’s Internet TV plans. Rival DirecTV plans an Internet TV service called YaVeo for Spanish-speaking viewers.

NBC started a TV streaming service Dec. 16, although it’s not cord-free. Viewers still have to log in with a pay TV account, which figures, because Comcast is NBCUniversal’s parent.

Tough for sports fans

Although it’s unclear what shows will be available and how much the newer over-the-top services will cost, pay TV subscribers will still have one major barrier to completely cutting the cord: live sports.

Watching ballgames, as well as live entertainment events like the Oscars or the Grammys, isn’t the same experience when viewed later, like an episode of “CSI” or “The Big Bang Theory.” For one thing, its hard for viewers to avoid instant results because of social media.

So live sports online could be the linchpin that unravels pay TV, said analyst Joel Espelien, a senior analyst for the Diffusion Group, an industry research and advisory firm.

“Going into 2015, broadband sports is going to be a really big story,” he said.

Many major sports leagues do offer some form of online direct-to-fan subscription service, although they are generally restricted by blackout rules that prevent fans from watching local teams.

“But if you like out-of-market games, you can get great stuff right now,” Espelien said.

And during this year’s Major League Baseball playoffs, even games played by local teams were available online, although only if viewers provide their pay TV account.

What changed this year is that the TV industry was talking about live online sports, a discussion that “was totally absent in the conversation a year ago,” Espelien said. “Now it’s different. Every single sports league wants to offer (such a) service on its own, or are partnering with ESPN.”

This month, CBS chief Les Moonves told analysts that his network might add NFL games to CBS All Access, possibly for an extra fee and with a revenue sharing agreement with the NFL.

One sport is even paving the way for more online TV. HBO chose MLB Advanced Media, a digital technology company jointly owned by all 30 Major League Baseball teams, to provide the underlying technology for its over-the-top streaming service.

A game changer

HBO ditched its in-house streaming department in favor of MLB Advanced Media, which has already branched out from just baseball games to handle clients that include ESPN, wrestling’s WWE Network and airline Wi-Fi firm Row 44.

The wide availability of live online sports won’t happen overnight, partly because of blackout rules, Espelien said.

But that could change in a few years, especially if a recession forces pay TV subscribers to consider less-expensive alternatives.

“A funny thing happens when consumers are presented with choices,” Espelien said. “They tend to move away.”

The transformation is more than just about how viewers will get their TV in the future. Netflix and Amazon are challenging the established TV powers for Emmy and Golden Globe awards.

That’s causing traditional TV companies to step up their game, especially if they want to reach younger audiences.

“If you have a show right now that indexes really well with 50-year-old-and-up women, you’re in pretty OK shape,” Espelien said. “But if you try to make shows that you think are going to appeal to 22-year-olds, good luck with that.”

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