Numbers Show Consumers Are Not Cutting Cable In Favor Of Online Video

While there has been a lot of talk in our industry of consumers cutting their cable TV services in favor of online video content offerings, that's more myth than fact. Yes, some consumers who don't watch a lot of TV or only watch shows that are available over-the-air (OTA) or with a Netflix subscription may be canceling their cable. But for the vast majority of consumers, getting rid of cable TV is not an option, as the recent cable subscription numbers show.

Most of the people I hear talking about cable being dead or writing about it needing to be saved from extinction are those in the online video industry. Yes, I know of a few regular consumers not tied to the industry who have cancelled their cable TV service in the past few months. But they have done so to save money and not because online video can replace their TV viewing experience. If they can now get some of their programs online for free, great. But that's not the reason they are getting rid of cable all together. Most consumers don't watch only two or three channels and the vast majority of shows on cable channels are not online. Case in point, I have nearly fifty season passes on my TiVo. Of those fifty, more than half of them can't be found anywhere online. Cable TV is my only option.

Now I happen to watch a lot of TV and many of the shows I am watching are not on FOX or ABC. Many of the smaller cable channels have not started placing full episodes online. But even if they did, I would not cut my cable service so that I can watch shows on my MacBook by myself. Getting online video to the TV is still not an easy task and the viewing experience leaves a lot to be desired. Yes, you can use software like boxee with Apple TV or connect your computer to play online video on the big screen, but that's not the purpose the TV serves today. I didn't spend a lot of money a year ago to buy a large screen HDTV so that I could stream a poorly encoded video to the set. With all the new broadband enabled sets that will come out later this year the process will get better and the quality will improve over time. But that's not going to happen in any mass scale even in the next few years.

And even when that experience does get better, what about content like baseball that is not available online? I can't get the Mets games online when I am not traveling due to blackout restrictions; so online video is no help at all. Not all consumers have the same viewing habits and again, for those that don't really watch TV or only like a few shows, they may not need cable TV. But for the vast majority of us who do watch more than a few shows, or want to see shows in HD on a big screen, cable TV will continue to be our only option. Online content delivered over the Internet can never scale the way cable TV can. Imagine trying to watch the HDNet channel online. Never going to happen.

And more importantly, since when did our industry start thinking that the viewing experience on a computer is the same as the one on TV simply because the content is the same? That seems to be all you hear people say, the fact they can get the episode online instead. Ok great, but in what quality? Talk about the experience instead of just focusing on the content.

Earlier I mentioned the recent cable subscription numbers and in the fourth quarter of this year, the cable companies signed up more TV subscribers than they did for the same period last year. Craig Moffett, an analyst at Bernstein Research analyst said that in the fourth quarter AT&T, Verizon, Comcast, Charter, Time Warner and DirecTV signed up 441,000 subscribers. That's nearly 50,000 more than they signed up a year ago at the same time. Now how many of these are subscribers who are switching from one carrier to another is not known, but the point is the numbers are not going down.

As a FiOS customer, I love my service and think the price is fair. I
pay $95.99 for a 20Mbps connection, unlimited calling and a TV service
that has the best picture around, not to mention more HD channels than any other company. If I were to cut my TV service out of the triple play package, I'd save about
$30 a month, which is not a lot of money.

I'm sure I am going to get some comments on this post telling me that I'm too stuck on what's happening today and that as someone who is in the online video industry I should be looking to the future. The problem with that argument is that many want to say something is dead today, because of something that has yet to take place down the road. Trends are based off of things that actually take place in the present, not something that could take place years from now.

It's also important to remember that this entire industry imploded in 2001 because so many people were talking about the future. Many were so high on what might, could or should take place that most didn't set realistic expectations of what was taking place today. While it seemed like our industry died almost overnight, it didn't. The industry spent a long time proclaiming success with things like multicasting, content delivery via satellite or video to the handset, which never got adopted then, or eight years later. Remember the word convergence? That word was used in our industry more than any other to talk about the merging of the Internet and TV, yet eight years later, we are only just now starting to see some of that come to reality, in small numbers.

Don't get me wrong. I am excited to see what is taking place today with online video and the TV set today. Services like Netflix on the Xbox 360, the Roku device, broadband enabled TVs and Blu-ray players are all a step in the right direction. New content models will be created, new services will come online and online video will start being thought of as simply IP based video when more devices outside of the computer are enabled.

While everyone is excited with these new offerings, lets set expectations correctly and look to the future without forgetting what is taking place today. If we don’t and start to declare online video the winner and preach the death of cable TV, companies are only going to let down VCs and Wall Street when those expectations are not met with higher earnings, more profit or faster adoption.

  • Mike

    Excellent article, Dan.
    It’s worth noting that cable, or something of the like, will always have a place. In the future the user will have two streams of information coming into their home: A unicast (2 way) and a broadcast (1 way). Currently these are satisfied by Internet and Cable services respectively, however the distinction between their roles has blurred slightly (ie, cable on-demand services).
    Some people say internet video will replace cable service entirely, but there will always be demand for “live” information for which there needs to be a smarter means of mass distribution. For example, many people want to watch the Superbowl all at the exact same time and any delay is unacceptable. Pushing this through a unicast network (even with a very well designed CDN) would be absurd when there exists a much cheaper broadcast stream to tap into. It’s not just the Superbowl, there are countless situations when a large group of people all want the same information at precisely same time and this is the role of Cable (or however it will evolve)

  • Dan:
    As you correctly mention the experience of watching video through Cable Television is far superior to any of the online (by online I mean video to PC or to TV through Netflix/Roku box) experiments. Having said that, online video is disruptive and will happen in the next 5 to 7 years as bandwidths are getting bigger, compressions are getting better, and user navigation paradigms are getting simpler.

  • D

    I’m shocked the cable companies don’t say their OVERALL subscription numbers are going down…perhaps someone should do a real data gathering exercise and ask consumers directly.
    Clearly there is a shift in usage patterns – if nothing else people are paying more per hour of cable watched.

  • James

    I just returned from Japan where I saw several online offerings that more than rival the viewing experience of Comcast compressed HD here in the states. 8mbps streams of h.264 video looking very nice indeed. While a service like that can reach a good percentage of the Japanese, such would fail miserably here (sadly, your 20Mbps FIOS connection is something most of us can only dream about), so there is a real question of infrstructure that must be answered first (and will the cable companies eat their children eventually). And while I didn’t dive into the economics of the offerings, I suspect it’s not cheap with my understanding of Japanese CDN pricing being a bit north of the numbers we see here, at about 10 yen/GB.
    Possible and feasible are two different things I suppose.

  • Dan,
    The reason is that online video is not as easy to consume. That said, Hulu was just bumped off the Boxee platform just because Boxee makes viewing online video so easy on TVs.
    Once online video gets on the TV, it will be a lot harder for cable to continue.

  • TV Viewer

    I dont have cable, cancelled it 5 years ago. I get my TV OTA (HD), and supplement it with DVD movies from the local library, we’re not sports fans, and primarily watch network TV. It’s not for everyone, but it works for us. that said, I largely agree with this article, espcially where internet video is concerned.
    One often missed point, is that watching TV is often a shared experience (least for me and my family), sitting comfortably on the couch relaxing after work. Huddling over a laptop to watch choppy compressed video in a browser, well, it just aint the same. Not to mention the technical issues of patches, codec updates, viruses..etc (I dont want to reboot my TV darn it !)
    I work in a support role in technology, and the last thing I want to do at night when I get home to watch the evening news, is deal with technical issues just to watch TV. I just want to press the “on” switch and have it work and deliver good quality HD Video/Audio.
    Online video, while it may conquer these and other issues someday, is not there yet. barring an exponential increase in available bandwith – (5mb DSL or 7mb cable with 100 – 250gb caps is about all that’s available in my neighborhood) – I just dont see it happening for several years at best.