Once upon a time, TV night involved a family of five, gathered in front of their console TV, watching their favorite show in rapt silence. Nowadays, TV nights look quite different, with the five members of that same family sitting in different rooms of the house, watching different programs on their iPads, smart phones, flat-screen TVs and laptop. And as TV's modes of distribution continue to change, the TV industry will have to keep scrambling.
Cutting the Cord
In TV's glory days there were three major networks—if you missed the Beatles on The Ed Sullivan Show, you'd rely on friends and neighbors to tell you the world had just changed. Today, we can record shows, find them online and go on Twitter or Facebook to share our opinions about them. Viewers have more choices than ever before, and audiences for individual programs are dwindling, while the number of North Americans who are ditching cable is rising precipitously. In 2014, 8.2% of the pay-TV subscribers surveyed by TiVo subsidiary Digitalsmiths said that they'd canceled their service (an increase of 1.3% over the previous year). At the same time, 45.2% of subscribers said that they'd decreased the number of cable or satellite TV service that they were paying for—a practice known as "cord shaving."
Major media companies are responding to these changes by merging. Comcast Corporation's (CMCSA) failed in its attempt to buy Time Warner Cable (TWC), but the recent AT&T Inc. (T) acquisition of DirecTV (DTV) points to the ways that telecom companies and cable providers are adapting to changing needs. The challenges these companies face are formidable. According to analysts, pay-TV providers saw their worst three-month period from April to June 2015, losing more than 600,000 subscribers. At the same time, customer satisfaction with information services (including subscription TV) have dropped 3.4%, to an American Consumer Satisfaction Index (ACSI) score of 68.8 (on a scale of 0 to 100); it's the lowest level we've seen in seven years. According to the ACSI, customer satisfaction with subscription TV service declined even more, tying Internet service providers (ISPs) at 63 for the worst score out of the 43 industries the index covers.
Over-the-top (OTT) technology, which provides content to viewers through broadband connections, is also upending traditional models. Third-party site like Netflix, Inc. (NFLX), Amazon.com, Inc., (AMZN) and Hulu let viewers watch what they want, whenever they want, for a fraction of the cost of most cable subscriptions. It’s no wonder that people are moving to OTT at a rapid clip, and original shows on these streaming channels—offerings like House of Cards, Orange Is the New Black and The Mindy Project (which jumped to Hulu when Fox canceled the series)—are only getting better.
The ability to watch shows on our iPhones and Smart TVs gives viewers a newfound sense of autonomy. Apple Inc. (AAPL) has already teamed with HBO to show the cable network’s shows on Apple TV, which cuts out the middleman and lets viewers curate their own TV packages—as of January 2015, Apple had sold 25 million Apple TVs. Dish Network Corporation's (DISH) Sling TV and Sony Corporation’s (SNE) Playstation Vue haven’t been quite as successful, but they point to the same trend and explain the industry's need to adapt to alternate modes of viewing.
The TV business has weathered major disruptions already, from cable and VCRs to DVD and streaming video. Despite everything, it is still thriving. But now, more than ever, companies need to change to meet rapidly evolving demands. When broadcast TV was king, programmers made money via advertising and syndication. Big shows had to appeal to broad audiences. Stories had to contain discreet narratives so that each, individual episode could serve as a stand-alone, syndication-friendly unit. Cable made it possible for niche programs to find a home. And now, with streaming platforms like Netflix and Hulu, characters and plot lines are becoming much more complex.
Event-driven programming—like Syfy’s wildly successful Sharknado series or that old industry standby, the blockbuster boxing match—still causes viewers to stick with their cable subscriptions. But could Americans really get by without Monday Night Football? Perhaps they won't have to, now that the National Football League (NFL) has announced that Yahoo Inc. (YHOO) would be its “exclusive partner to deliver the first-ever live stream of an NFL game to a global audience across devices and for free.” This October, a Buffalo Bills and Jacksonville Jaguars game will not be appearing on national TV. (It will still air in each team’s home market). Instead, the game will stream (with ads), all over the world, and anyone with an Internet connection will be able to watch it for free. In the near future, we might be going online to watch the Super Bowl, and not just Super Bowl ads.
The Bottom Line
As more and more customers cut the cable cord and log onto online streaming platforms, the TV industry we've known will change. In the future, television executives will worry more and more about niche bundling, autonomy and the quality of their individual offerings. Traditional revenue streams will shift as well and companies like Netflix—which are already seeing profits from subscriptions rather than ads—are expected to lead the way.