Biggest Threat to Pay-TV

Content is being streamed on tablets and other PDAs more often. An article from RCRWireless.com cited a study by Nielson that reported 5 million homes are without a Pay-TV subscription (5% market share). A critical distinction in the study is that these 5 million homes own TVs, but use them primarily for DVR services and streaming in one form or another.

The advent of different ways to access content is something that has threatened the TV Networks for a few years. RCRWireless reported that Disney's ABC Network is launching an app for users to stream live content programming to their mobile device. The app would require a subscription to cable or satellite TV service. The goal? Win back the advertising dollars that are being lost to the Internet. The move by Disney could be the beginning of a trend that other networks will have to face as the demand for live content grows. CBS and the Turner Networks have attempted the live stream for their annual broadcasting of the NCAA March Madness Tournament, but users are forced to pay after 4 hours of free live streaming. In some instances, a user has to wait some time before the content is available for streaming, and only some of their content is available. This makes sense for the networks because they want to incentivize viewers watching the content when it is happening, and not relying only on the stream. Disney would be the first company to allow live streaming for all their content according to RCRWireless.

Right now, the app stores are filled with different ways to stream or access some content (not necessarily live), and the advertising dollars are generated in the way traditional TV has been set up, by running ads before, during, and after the content is streamed. Slowly, the market is becoming more accepting of streaming and as evidenced by Disney, Networks are going to look to embrace the change rather than fight against it.

In thinking about this shift, I'm forced to ask the question, "Do consumers simply want the convenience of TV on-the-go or are they looking to get free content?" Understanding this attitude seems to be a fundamental question that TV cable and satellite providers need to ask themselves. It would be a shift in business strategy on both sides of the question. If consumers want the convenience of being able to watch live programming wherever they are, then the business model they currently have in place doesn't need to change much. What Disney's ABC Network is doing is fine. Push out a mobile app that allows you to stream live content, and they can still reap the benefits of satellite and network TV revenue as they always have. However, if consumers are looking for free or cheaper content, the business model may need to shift to rely heavily on advertising dollars.

If the market is looking for this free or cheaper content, antennas and other hardware that allow over-the-air streaming will be a big problem for Cable and Satellite providers. According to an article by Gigaom.com, Charter TV, a Digital Cable Service provider rejected an advertisement by Antennas Direct. Here is the rejected advertisement from Antenna Direct:

Antenna Direct's Receiver

The advertisement was meant to educate customers on the benefits of switching from paid service to being able to access content via over-the-air streams. The article argues that interest in online streaming sites like Hulu and Netflix have grown demand for over-the-air TV service. This market is clearly in the growth stages as the market is becoming more and more educated of alternatives to Cable and Satellite services. It is clear why Charter TV rejected the advertisement. An all out marketing campaign and product development in this space could spell big trouble for Cable and Satellite. Networks have an allegiance to revenue, not their Cable and Satellite distributors. As market demand shifts, Networks can do what Disney has done and give their customers access to their live content via mobile apps. If products like Antenna Direct continue to develop like they are (Boxee's cloud DVR and Aereo's TV Streaming service), market adoption of such services becomes easier for consumers. Switching costs are less of a factor if the product consumers are switching to are one-time fees that give access to the same content as Cable and Satellite.

An article posted by videonuze.com showed an advertisement for Best Buy for hardware to help stream TV content.

It's targeting a specific market of non sports fans and cost-cutters, but the overall market won't be responding to these ads for a while. However, if these services market correctly and provide the right services while successfully cutting out the Cable and Satellite providers and start negotiating their own deals with the Antenna Direct's, Boxee's, and Aereo's of the world, it's hard to see how Cable and Satellite could withstand that onslaught in their current business model.

Shawn

Sources: http://gigaom.com/2013/03/28/antennas-direct-vs-charter/

http://www.rcrwireless.com/article/20130319/devices/as-tablets-encourage-cord-cutting-tv-networks-fight-back/

http://www.videonuze.com/article/best-buy-circular-ad-highlights-cord-cutting-content-package