Interviews with Digital Media Thought Leaders
How Cord-Cutting Will Happen
Podcast Audio | Posted by Phil Leigh on July 15, 2010
Most anyone having more than six months experience with a computer-to-TV connection to get unlimited Internet access at the television realizes that cord-cutting is inevitable. It is not a question of “if”, but merely of “when”. But for businesses that must adapt the more important question is how it will happen. Once that process is understood, inevitability is hard to deny and constructive planning can begin.
Download audio of narrative for iPod, iPad, and iPhone here.
For the uninitiated, “cord-cutting” refers to a consumer’s decision to discontinue a television subscription service and replace it with various Internet activities on the TV screen. Generally Cable operators, media companies, and conventional industry researchers dismiss the possibility. For example, earlier this year one prominent industry analyst labeled it an “urban myth” because TV subscriber numbers continued to climb.
But he misses the key point. Although the number of CATV and Satellite subscribers is indeed increasing, so also is the number of consumers getting Internet access on those TVs. Thus, undeniably the two media platforms are increasingly competing with one another on the same screen. The true myth — whether urban or otherwise — is that Internet video is limited to the small screens of computers, or the tiny ones of smartphones.
Unlike the Cable and Satellite industries there is no central association compiling statistics on Internet-to-TV connections. However, since there’s been a rapid proliferation of ways to do it, the growth rate is certainly far ahead of the single digit rates of conventional television subscriber growth. Examples of proliferating techniques include computers, video game consoles, Netflix, Amazon-Video-on-Demand, appliances such as TiVo, and new models of connected TVs. Even iPhones and iPods can be attached to TVs with $50 cables thereby enabling users to watch videos stored on those units via the television.
Admittedly, aside from a computer most such devices presently only provide a “Walled Garden” on Internet content. But after a time of experiencing only selective access, viewers will regard a “Walled Garden” as indistinguishable from a “Walled Prison”. Architects of such gardens will surprisingly discover they unintentionally motivated consumers to seek ways to explore beyond the boundaries.
As the percentage of Internet connected TVs inexorably grows, the amount of time consumers spend on the Internet through television screens also increases. Initially, they may spend only 5% (or less) of their TV-screen time on the Net and won’t “cut the cord”. But if the Internet share should rise to around 80% with signs of continued growth, many will discontinue TV service. A number of factors suggest that it will indeed rise to such a level.
First, once television and the Internet compete for attention on the same screen, the Internet’s versatility and interactivity become decisive advantages. For example, consumer Internet-on-TV activities will extend well beyond merely watching TV shows and movies. They’ll include multi-player video games, online social networking, online shopping, and general Web surfing.
Second, advertisers will prefer that the shows they sponsor be on the Internet instead of conventional television for three reasons. One is that consumers will be able to click-through on ads to purchase merchandise or otherwise complete a call to action. A second reason is the superior addressability of behaviorally-targeted ads enabled by the Net. Finally, advertising can be held accountable so that sponsors need only pay for ads that get clicked-on. Balkanization of CATV and Satellite technical standards implies that only the Internet is likely to satisfactorily provide all such features.
Third, consumers will also prefer that video programming migrate to the Net. One reason is that recorded programs can be viewed at anytime without having to remember to “TiVo” them. (Ultimately even live programming may be better on the Net since viewers could be empowered to choose from one of many cameras.) A second factor is that content is searchable with battle-tested engines such as Google. Yet another factor is that consumers can find Long-Tail content on the Net that is unavailable on TV. Already YouTube’s cultural programming is superior to TV while educational programming is also often better on the Net. Finally, when ads successfully address a genuine interest consumers can spontaneously purchase the associated merchandise online.
Fourth, once advertising agencies learn how to create and target ads that get watched, they too will prefer the Internet. One reason is that they will be able to command premium rates for ads that get clicked-on much like popular Google AdWords cost more than less popular ones. A second benefit is that they will be able to collect a bounty when consumers who click-through such ads also purchase the merchandise online or complete a call to action.
Finally, consider by analogy the experience of the landline telephone industry. When we first started using cell phones, most of us over age forty gave no thought to discontinuing landline service. But as cell phones became more convenient and reliable, many of us dropped the landlines. The key point is that for a time subscriber numbers for both types continued to grow. But ultimately the older technology was eclipsed because of the superior versatility of the newer one.
Categories: Podcast Audio
Tags: Amazon.com, Apple, CATV, cord-cutters, cord-cutting, Future-of-Television, Internet-video, Satellite-TV
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Phil,
It seems that the traditional pay-TV service providers are currently not too concerned about cord-cutting. Howe they’re troubled by the service downgrade phenomenon — where subscribers terminate premium channel subscriptions and use only basic tier service with Netflix instant streaming.
Moreover, iSuppli reports that broadband service providers are already planning to handicap the growth of OTT video by implementing data caps on all home broadband access. So, to be clear, the reason that U.S. pay-TV providers dismiss the threat of OTT video is because they will contain its growth with data caps on all Internet access services.
iSuppi may be correct in assuming that Cable and Telco ISPs will throttle or price bandwidth in such a way as to strangle broadband Internet applications in the cradle. However, the assumption may prove invalid for three reasons.
First, it will be damaging to the competitive position of the U. S. economy. We cannot have a twentieth-century Internet and expect to be an economic leader in the twenty-first century. Thus, self-serving manipulative attempts by the CATV and Telco industries to retard progress will meet with growing opposition and ultimately government action to break their stranglehold.
Second, Cable and Telco companies may well ultimately conclude that their best strategy is to divest the television service business and focus on ISP business. The profit margins are much higher in the ISP area because there is no cost for content. In contrast, the CATV and Telcos are getting increasingly annoyed at the escalating carriage fees that program providers want.
Third, when consumers merely connect their computers to their TVs any attempt by the Cable and Telco ISPs to limit bandwidth will be interpreted as a self-serving action designed to protect yesterday’s businesses. This will swing public opinion toward government action to increase ISP competition or regulate rates.