Monday, January 7, 2013

Cord-Cutting Sinks In at Cable

TV services now grudgingly admit that cord-cutting is real — that cable and satellite TV subscriptions have gotten perhaps a bit too pricy for a middle-class U.S. household, when compared to the alternatives. It is not that the number of TV subscriptions is falling — yet. But it is not growing either, which means that the market penetration of pay TV is declining at the same rate that the population is growing. It is enough of a trend to worry the cable companies.

TV content providers are still in denial about the erosion of their audience, though, and continue to seek ever-increasing content fees that in the end are paid by TV subscribers. These are the subscribers who remain after others balk at the increasing prices. This clash of views within TV land makes for difficult negotiations, notably including the current shutdown of the National Hockey League. Insiders say the core issue there is U.S. TV revenue.

Over the next decade, TV content providers will not be able to spend enough to stay ahead of the increase in quality of the free and amateur video content available online. Spending more every year than the year before cannot be the answer. But it will probably take a series of spectacular bankruptcies in the TV business to persuade cable channels that they might have to change their business model.

It is not an easy transition ahead for TV content providers as they go from serving a captive audience, effectively glued to the sofa by the remote control, to chasing an audience on the go amid a world of alternatives. The chances of making that leap will be better for those who start early.