The Internet has changed our world in unbelievable ways. 30 years ago, it’s easy to see why people thought phone books, travel agencies, encyclopedias, and department stores were here to stay. They were ubiquitous parts of our every day lives, so necessary that it was hard to imagine life without them. Nobody at that time could have predicted that text and images on a computer screen could replace those experiences, yet here we are in 2014, and all of those resources are now always just a click away. For consumers, it’s been a boon, but for the people in those businesses it hasn’t been so great. Once booming industries are now shells of their former selves, billions of dollars of value destroyed in the process.
It would be foolish to think that the same things couldn’t happen in this day and age. In fact, investors today are truly blessed. Unlike in the 1980s when no one could have imagined the impacts the Internet would have on all of commerce, we can easily see where the trends are going, and have a pretty clear view of what the next giant to fall will be. One needs only look at the numbers to understand. Pay TV subscribers are down. Yet pay TV providers remain extremely profitable. There’s only one logical explanation for that: as cable companies lose subscribers, they raise prices on the rest, squeezing more money from a smaller and smaller customer base. While that might seem like a great short term solution, it really only serves to exacerbate the problem.
Everything you need to know about the unsustainability of the pay TV industry, you learned in economics 101. As the price of a good increases, the quantity demanded decreases. If the problem facing the pay TV industry is the loss of subscribers, raising prices will further decrease the quantity of the product demanded, or in other words, lead to more subscriber losses. Then the cycle repeats. Anyone who had economics in high school can see that this process only leads in one direction. If the price continues to go up and the number of subscribers continues to go down, eventually there’s not going to be anyone left who still pays for cable TV. Though the cable companies will have major problems on their hands long before they get down to their very last subscribers. Unfortunately there are no signs of any efforts to avert this fate, meaning both consumers and investors would be wise to abandon ship while they still can.
Fortunately the Internet made alternatives to traditional pay TV plentiful and accessible. Consumers have figured that out, and embraced them. While pay TV loses subscribers, online alternatives have been enjoying a golden age. About half of all households in the US subscribe to some sort of subscription video service, while Netflix, YouTube, and Hulu are household names. Much content is available online absolutely free, while the higher quality offerings from subscription services are still far cheaper than cable. For less than half of the average cable bill, you can subscribe to multiple services, each providing a massive library of content that you could watch 24/7 and not run out of. The web has quality as well as quantity, according to KPMG, a research firm that reports that often upwards of 90% of top movies and TV shows are available online.
There’s never been a worse time for the cable TV business, and likewise there’s never been a better time for web-delivered media. Subscribers and investors alike should be prepared for the demise of the current cable business model, but while it’s easy to see the end of cable on the horizon, seeing what comes next is more of a challenge. As any investor will tell you, the best way to prepare for uncertainty is to diversify. And when it comes to entertainment, FreeCast Inc’s Rabbit TV is the definition of diversity, since it pulls media from sources all across the internet. Because of that, we don’t have a dog in the fight; we do well when other services do well, and so do our customers.