Two Hammer blows against the cable television industry were struck last month when giants HBO and CBS announced that they in 2015 will begin offering monthly online subscriptions to all their content. They are the first two major channels to make the complete shift, though most channels offer online time-shifted or supplemental content before.
These announcements, many pundits have declared, will open the floodgates for television channels to go directly to consumers without cable or satellite delivery.
The success of Netflix as monthly online service, coupled with Netflix getting into the content creation business with shows like House Of Cards, has pushed big media giants like HBO to decide to jump ship from cable television and go out on their own.
The stakes in this battle of disruption are enormous. Comcast and Time Warner Cable, the two largest cable providers, are worth more than $250 billion. They make money by providing tiers of television service for cable television, Internet and home phone service. HBO, for example, is usually offered as a premium channel for around $10 a month.
HBO is betting that over time they can trade their $1.5 billion in revenue from cable television systems from 30 million subscribers for two or three times that amount in direct subscriptions to the 110 million US cable households.
The CBS online service has one big carve-out: NFL games carried by CBS stations will be blacked out. The NFL announced an eight year extension of their online deal with satellite service DirectTV worth more than $1.5 billion a year to the league. So for the time being the biggest sports giant will remain on the sidelines.
All sports—especially the NFL—are critical to any channel, due to their popularity, and their real-time delivery that ensures television commercials will be watched and not fast-forwarded as with DVRs.
The media companies are especially concerned about two groups of customers. The first is “cord-cutters,” people who reach the point where they cut their cable television subscription because they can get all the content they want from online streaming services like Netflix, Hulu, You Tube, Amazon and iTunes.
The other group is “cord-nevers,” people who never have subscribed to cable television and won’t start now that more content is being brought direct online.
55% of US households with broadband Internet have at least one streaming online channel. New flat panel televisions often come with WiFi capability and Netflix or Amazon built into their remotes. As more televisions with WiFi are delivered into the market, the audience for unbundled online channels grows.
As MIT’s Nicholas Negroponte observed 20 years ago, “anything that can be digital will be digital.”