“Cable TV is dying.” This is a phrase that those familiar with the television industry have seen in headlines far too often. It’s no surprise, considering the media fixation on subscriber loss and general distaste for the cable providers among the public, who if they haven’t already cut the cord, love the idea of doing so. But one question that isn’t asked as often is how we got to this point. Sure, the internet has come along, and with it services like Netflix, but who would have thought that an online video-on-demand service consisting primarily of movies would compete with the cable channels we’ve been watching on the tube for decades? The two could easily co-exist, indicating that there’s more to this story than some would have you believe.
The truth is that consumers did not wake up one morning and collectively decide that the whole concept of pay-TV was suddenly untenable. What was untenable was the high price of cable TV. For years, cable price hikes have outpaced inflation, and meanwhile household incomes have dropped during the recession and stayed flat during the recovery. As the poor economy pinched family budgets, many began to question the value of their cable TV bundle, and often paying over $1000 a year for hundreds of channels, most of which are seldom if ever watched. The real root of the problem in the pay-TV business is price.
So why does the price of cable keep climbing, despite a weak economy? That question goes back to the content producers. Regardless of economic conditions, they enjoy monopoly-like power when it comes to offering their content to aggregators like the cable companies. Television is a big part of American culture. Every day at the workplace water cooler, you can be almost sure that the conversations taking place revolver around the previous night’s TV shows. Americans want to see what’s popular on TV. Every few years when network contracts are up, cable companies and the media giants enter into high stakes negotiations that threaten to black out channels for millions of viewers. The content makers know that in order to be successful, the cable companies need to have what they’re selling, so they can effectively charge whatever they want for it, and the cable companies have to pay up. They always do, and that higher price simply gets passed on to subscribers.
The cable companies were once able to make nice profits for themselves by playing the middle man, but that added a layer of insulation between customers and content makers. Since customers were not paying directly for the content they watched on TV, they simply expected it to be there because they paid their monthly cable bill. Similarly, the content makers didn’t feel any of the economic impacts that normally hit a company when it raises prices, so they began to think they could get whatever they wanted out of the cable providers. Having gone from being the middle man to being caught in the middle, the poor health of cable TV industry is not too surprising. Since the economics of cable TV no longer make sense, a market correction is imminent.
What will that correction look like? At first glance Netflix, Amazon, Apple, and others may appear to be the likely heroes in this story, but understanding the underlying problem, isn’t it only a matter of time before the same problems befall them? As OTT become more popular, and cable TV continues to decline, the content makers will surely see where the money is and begin playing hardball with the streaming services. If the price of Netflix starts to rise as regularly as cable bills do, outpacing inflation year after year, it won’t be long before the service faces cord-cutters of its own. And when the TV networks and movie studios see their profits falter, you can be sure that they’ll start driving a much harder bargain, seeking to make Netflix into their new cash cow. That’s why the price of content is out of control, and the real reason why the price of cable is too.
For a sustainable future of television, direct-to-consumer options need to be a part of the equation. That’s the only way that content companies like Disney will learn what customers are actually willing to pay for ESPN. That’s the only way they’ll learn, the way the cable companies have, that consumers won’t be forced to subsidize a dozen channels that they don’t want just to get one or two that they do. A la carte content will also play a role. Customers have shown willingness to pay for high quality content, and while it will take some getting used to, paying a few bucks per episode of a handful of shows still ends up being much cheaper than the average cable bill.
FreeCast Inc already makes the future envisioned above possible today. Rabbit TV is essentially the cable TV of the future. As an online media guide, the service directs users to content at its source online, where it can usually be watched for free, or if not, purchased a la carte for much less than the cost of cable. The content creator keeps all of their advertising, subscription, and purchase/rental revenue, so that game of cost-shifting from company to company and then to subscriber does not occur, making Rabbit TV cost a mere $10 a year. FreeCast delivers value to its customers, and that’s what current cable customers are clamoring for right now. As the TV industry moves towards the business model that FreeCast already employs, no company is better positioned for the coming disruptive innovations in television.