A new report by The Diffusion Group (TDG) predicts that the traditional pay TV industry will shrink 26% by 2030. As a result, traditional television will reach only 60% of households — compared to the 81% currently served today. The report notes that the biggest reason, you’ll be shocked to learn, is the rise in more flexible, less expensive streaming video alternatives. Over the next twelve years, the report predicts that “virtual pay TV” (read: alternative streaming) services will increase their market share from a current level of 4% to around 14%.
Given the rate of growth we’ve already seen from the likes of DirecTV Now, Sling TV, and other options, that could be an under-estimate. “TDG said early on that the future of TV was an app. unfortunately, most incumbent MVPDs weren’t taking notes,” TDG analyst Joel Espelien said in a statement. “The question is no longer if the future of TV is an app, but how quickly and economically incumbents can adapt to this truth and transition to an all-broadband app-based live multi-channel system.”
Not only were incumbent cable TV providers not “taking notes”; many were repeatedly either pretending the slow rise of cord cutting wasn’t important (the idea that these were users’ cable ops didn’t want was a common refrain) or that it wasn’t happening at all. They seemed to have conflated the slow but steady pace of the phenomenon with its importance.
Granted this doesn’t mean traditional TV providers are in all that much trouble. Especially during an era where they’ve convinced regulators to turn a blind eye to their growing broadband monopolies and the problems with mindless M&A’s and vertical integration.
Many cable providers simply now have to do the unthinkable when it comes to the TV services they offer: actually start competing on price. Of course cable companies have long known the day when TV profit margins tightened would come. That’s why they’ve been rushing to expand arbitrary and unnecessary caps and overage fees on broadband — which let them both hamstring streaming competitors (zero rating), while cashing in on the shift away from their TV services.
The best data we have suggests that cord-cutting — ditching cable TV for streaming services — is happening faster than anyone foresaw. But in case you were uncertain about cable TV’s future demise, more research is here from the Pew Research Centre to really stick the knife in. A new survey suggests that young American adults, aged 18-29, are disproportionally using streaming services rather than cable TV to watch programs. Even if older generations are keeping cable TV alive for now, the writing’s on the wall.
According to Pew’s survey, 61% of those in the 18-to-29 age bracket say the primary way they watch TV is on streaming services. That number is just 31% for cable. Using an Analog antenna isn’t in fashion among the youths, as just 5% of people surveyed used a digital antenna as their primary way of getting TV.
Reed Hastings, CEO at Netflix, is not the first to suggest that ‘broadcasting’ – the conventional transmission of linear TV via terrestrial, cable or satellite signals – is on its way out. Hastings has frequently repeated his view that broadcasting will be dead by 2030.
At the same time, many in the ‘Western’ world happily enjoy and endorse the sort of online, on-demand access to Netflix and its rivals. A report from RBC Capital’s equity team says that Netflix usage is up almost 50 per cent this year, and the video specialist is now making an aggressive shift into new nations for the service and expands the sort of success it has enjoyed in markets such as Brazil.
Richard Lindsay-Davies, chief executive at the UK’s Digital Television Group, was also something of a sceptic. Asked whether the economics of an all-IP transmissions system could be made to work, and whether ‘broadcast’ would die, Davies stressed that the viewer had to be put first. He questioned whether data or bandwidth usage caps would be scrapped, let alone whether 5G would serve complete nations.
Future of cable TV
A new report hit recently that makes some bold claims about the future of cable TV. The Diffusion Group (TDG) estimates that by 2030, the “traditional” pay TV market — think cable and satellite TV — will have shrunk by 26%, leaving only 60% of households subscribing to traditional pay TV.
That’s undoubtedly a big drop from the 81% of households that get traditional pay TV today. But if analysts really think that cable and satellite will still make up two-thirds of the market for pay TV in 13 years’ time, they’ve got another thing coming. The winds of change are blowing for the cable TV industry, and it’s all happening a lot faster than anyone thought. Over a million households ditched cable TV in the space of just three months earlier this year. That trend isn’t going to slow down: it’s going to accelerate massively.
Under a best-case scenario for existing cable and satellite providers, distribution is going to change to streaming services (like DirecTV Now), at the very least. The existing cable infrastructure is, in its own way, complicated and expensive. Cable companies have to reserve a portion of their cable bandwidth just for TV services. Cable boxes have to be distributed to homeowners, and technicians have to run a physical wire to everywhere you want to watch cable. It’s also inflexible: introducing new technologies like 4K, HDR, or new sound codec requires a lot of work, and changes to industry standards.
Now, running a streaming service isn’t the easiest thing in the world — just look at the problems DirecTV Now faced at launch — but even right now, you can argue that it’s more economical for cable companies to have a streaming package, rather than maintain a cable infrastructure. If you can make that argument right now, there’s no way that an outdated system will survive as the most common way to watch TV in 13 years from now.
Want an analogy? Just look at what’s happening to voice. Wireless companies are moving away from the traditional cellular phone call technology to Voice over LTE, which offers better quality calls, and means that cell companies don’t have to spend money and resources propping up an outdated and inferior system.
So from a purely technological standpoint, cable TV as a way of consuming your pay TV package seems doomed. But pay TV bundles as a concept are also being challenged. The traditional model — which sees cable companies negotiating with the major rights holders to offer customers one single package of channels — seems increasingly uncertain. The rise of Netflix and Amazon’s own original content has diminished the power of the cable company’s distribution, and major rights holders like Disney are now looking at offering their own streaming services, rather than make customers go through a pay TV provider.
The logical conclusion to all this is customers buying individual channels or content directly from the company that owns the rights, then using a set-top device (like Apple TV or Chromecast) to stream on demand. That’s terrible news for the existing pay TV industry, which would see its role as the distribution middle-man completely eliminated. It would also drive pay TV subscription rates down close to zero, not the 60% TDG estimates. Predicting the future is hard; putting precise numbers on industry subscriptions in 2030 isn’t a job that I envy. But assuming that the current slow decline of cable will just continue is downright naive.
Its phobia, not true
The year 2030 is huge days away, but it feels as though it holds some mythical milestone in store, as though that will finally be the year that, say, the TV industry collapses in on itself like the dying star so many observers insist it is. Well, not quite. While it’s true that traditional subscriber and pay TV revenue growth will have essentially stalled by the start of the next decade, that doesn’t mean there’s no more money to be made in television. Rather, it just means that more companies will be making more of it.
At least, that’s according to the latest edition of the forward-looking Global Entertainment and Media Outlook report from PricewaterhouseCoopers. According to the report, the worlds of online video and TV will ultimately converge, as traditional media companies finally figure out how to wring extra money from internet-only viewers and newer streaming players like Netflix reach their full potential.
Of course, video streamers, including subscription services like Netflix and ad-supported sites like YouTube, will grow their revenues at a much faster rate than regular TV. Subscription-only online video services in the United States — Netflix and the like — will be raking in $10.4 billion a year by 2020, according to the PwC report, up from $6.4 billion in 2015, a solid increase of about 10 percent a year. The amount spent on mobile video advertising is, unsurprisingly, about to explode — we’re talking a whopping 30 percent, from $3.5 billion in 2015 to $13.3 billion in 2020. The amount of money made from cable TV, meanwhile, is set to grow at only about 0.25 percent a year. Still, pay TV companies will generate more than $102 billion a year in revenue by 2020, nearly 10 times the revenue of subscription video services.
And traditional TV players are also making a healthy amount of money from online video, including mobile video advertising — long gone are the days in which networks and studios jealously hoarded their shows from the internet. Networks and studios will be making around $5.3 billion a year just from online video advertising by 2020, according to the PwC report.
Again, all this TV money doesn’t mean cable and satellite companies will suddenly see hordes of Americans signing up for pay TV again: PwC predicts a general decline in cable subscribers, even as those companies look to squeeze more dollars out of the customers who remain, which accounts for that slight increase in total revenue. It’s the arrival of internet-delivered TV that’ll keep the lights from flickering too much.