Friday, July 10, 2015

Cable Networks Hurt By Cord Cutting

Consumers are shaving down their cable tiers or dropping their cable service altogether.  And today's Wall Street Journal shares how the leak in the dam is showing a measurable loss in basic subscriptions across a number of the most popular cable channels.  As the graph below shows, over the last 4 years, subscription levels have dropped 4-11%, with some of the more expensive networks, including ESPN, facing the larger losses. 

As cable networks are paid a monthly license fee on basic subs, each drop gets multiplied month after month, year after year, causing larger and larger losses.  For ESPN, it means dropping some talent, rethinking studio moves, and finding further cost efficiencies.  Given the rising costs of license fees that cable nets charge, further losses will be felt, For some networks the higher fees, coupled with lower subs, can create a revenue plateau.  But over time, sub drop increases will over take any license fee increase to result in a total revenue loss.  And fee increases will only drive a larger number of drops.  Nets are in fact killing the golden goose, slowly and methodically, with annual increases. 

Networks that have seen this trend are already embracing streaming as a means to recapture customers lost through cord cutting.  HBO Now is a perfect example of embracing new distribution platforms.  Others are also following in those footsteps.  When we look at this snapshot again in a couple years, it will become more evident that the speed of cord shaving and cord cutting  has quickened.  That is the trend we are facing. 

What is Television?

Ask a 60 something to define what television is and they will likely point to their living room TV screen with the cable box hovering above or below it as an example of it.  Ask a 10 year old and the likely answer could be their smartphone or tablet.  The simple definition of television may refer to the transmission of sight and sound to a screen with that transmission enabled by an antenna or wire.  Another may refer strictly speaking to the box itself that turns on and off and is capable of displaying multiple channels of content. 

But it seems that with the rise of digital and wireless technology, both the traditional transmission of content and the screen it displays on has changed dramatically in the past decade.  Channels are no longer just linear or even on-demand, they are streamed to devices of any shape or size.  And the content itself is no longer just long-form or short-form, but starting to contain more interactive elements.  The water cooler has been replaced by social media apps like Twitter and Snapchat and others.  And we no longer have to wait a week to see the next episode of a particularly intense show; rather, we can binge the entire season or seasons whenever and wherever we choose to watch. 

The television is no longer tethered to the living room or kitchen or bedroom.  It can follow us to the bathroom or the park or to Starbucks if we choose.  And so we measure viewing of this content across all these screens of television with same day, +3, +7, streams, on-demand views, and whatever measurement captures who is watching a piece of content for a length of time.  And that content can appear on what we traditionally saw to be TV, on a linear channel airing at a particular day and time to on-demand viewing from our cable box to seasons worth of episodes on a subscription service.

Television, the distribution and content displayed, is monetized like never before.  With cable bills and downloads, streaming subscriptions and commercials, native sponsorships, display ads and overlays.  Today's concept of television is much broader than 50 years ago, or even just 10 years ago.  But no matter the screen we use, large or small, and no matter the location of the screen, living room or smartphone, and no matter the time we watch, pre-set or at our discretion, it is all television. And what will tomorrow's television look like?  I look forward to finding out.