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Cable companies doomed by digital? Not so fast

Coax TV Cable
Image used with permission by copyright holder

Most people have a long list of things they’d rather not deal with — and many people would put cable companies near the top. Yet, thanks to local utility monopolies and the paucity of over-air broadcast service in many areas of the United States, cable companies occupy center stage in many Americans’ lives. Sure, satellite operators have offered alternatives for years, but as broadband has become more ubiquitous in the United States, many consumers are opting to cut their cable service and get their movies, video, and other entertainment via the Internet.

Recent financial results from the nation’s two largest cable operators — Comcast and Time Warner — bear that out. Comcast lost 165,000 video subscribers in the last quarter alone, while Time Warner Cable lost 128,000 in the same period. This doesn’t mean things are bleak for cable companies: They’ve been able to offer new services, packages, programming options, and (of course) service bundles like broadband and voice service that have enabled the companies to significantly increase the amount of money the earn from each subscriber every month, on average. And cable companies are reaping the benefits of the broadband revolution: they’re typically gaining more in broadband subscribers than they’re losing in video subscribers.

But can cable companies’ original business — video programming — survive in an age where consumers increasingly expect on-demand, streaming video?

How bad is it?

Just taking a look at the top two cable operators in the U.S.—Comcast and Time Warner Cable—the trend for cable video services seems clear, at least in terms of subscriber growth. In the last nine quarters, Comcast has lost a little over 1.5 million cable subscribers, while Time Warner has lost a little over 960,000.

Comcast Time Warner video subscriber losses
Image used with permission by copyright holder

There hasn’t been a single quarter in the last two years where the companies have added video subscribers, although they both manage to post significant lower subscriber loss in their first quarters of the year.

Losing in the neighborhood of a million to a million and a half customers in the space of two years might seem like a serious threat to a company’s core business, but it’s important to put those numbers in a little bit of perspective. Comcast’s loss of 1.5 million video subscribers amounts to 6.7 percent of its total current video subscriber base of 22.36 million. For Time Warner, the proportions are a little more significant, approaching 8 percent of its current 12.07 million subscribers.

Considering the size of both companies’ operations, neither loss of subscribers over the space of two years constitutes a business emergency. If those rates remain unchanged, the companies have until 2025 or 2027 until their cable video operations drop to half the size they are today.

The video subscribers losses are even less concerning, when paired with the growth in cable broadband subscribers the companies have experienced over the same period:

Comcast Time Warner broadband subscriber gains
Image used with permission by copyright holder

Today, Time Warner Cable says it has almost 9.8 million high-speed data subscribers, and Comcast boasts about 17.8 million. Those figures mean the companies expanded their broadband subscriber bases by 0.9 to 1.4 percent, respectively, in the most recent quarter alone.

These figures omit subscribers and revenues from the companies various business services, as well as residential voice services, but the overall trend seems clear: Consumers are increasingly looking to cable operators as broadband providers, while fewer are looking to the companies for video service.

Why drop cable TV?

The most obvious reason for consumers to drop cable TV is the growth of broadband services. As more and more video content becomes available for rental, purchase, and streaming via the Internet, even avid TV and movie fans have less reason to subscribe to cable TV or premium cable channels. Although the selection of material available from the likes of Hulu, Netflix, Amazon Prime, and services like CinemaNow is paltry compared to a real video library or the sum of all content available via DVD, it actually compares very favorably to the amount of material available at any given time from a cable TV operator, even throwing multiple versions of premium channels into the mix. Sure, television operators (particularly broadcast networks) still have first dibs on airing television shows, but if customers are willing to wait a week or two — or perhaps be a season behind — online television offerings often hold up well to programming from cable television. For customers content with online video offerings, dropping traditional cable television service and keeping broadband often represents a cash savings, even when adding up costs of online services and loss of discounts from bundling multiple services together from a cable company.

As more consumers embrace smartphones, they’re also often embracing charges for mobile broadband services—meaning they’re paying for broadband to their home and their phone, both of which may be capable of meeting many video needs. As any smartphone owner can attest, data service isn’t exactly cheap: a typical voice and data plan has a monthly price tag in the same range as premiere cable programming packages—and more than double typical monthly charges for basic cable services. (Plus a two-year commitment or a hefty termination fee.) As consumers decide they love their smartphones and look to curtail household costs, they may decide cable television is expendable—particularly if they can get reasonable broadcast reception.

As broadband becomes more ubiquitous—particularly with the widespread introduction of 4G mobile broadband services—a growing number of consumers may find that cable television is something they can live without.

cable-TV-shutterstockWhy keep cable TV?

If online video stores and streaming video services can meet so many users’ video needs, why aren’t more people canceling cable TV service?

Cable and satellite TV operators still have a few aces up their sleeves. First, in markets were over-the-air broadcast television is limited, unreliable, or almost non-existent, pay-TV operators remain about the only game in town. The ability to exploit publicly-sanctioned service monopolies will continue to serve cable companies well for years to come.

Cable operators also have two significant content advantages over most online video services:

  • first-run original content from both broadcast and cable networks (think everything from American Idol to Dexter);
  • real-time access to live events programming, including news and sports

First-run original content remains important for cable operators. Although DVRs have put a big dent in so-called “event television,” there are still millions of people who thrive on water-cooler discussions of their favorite shows—or, these days, liveblogging, Twitter, and Facebook. These fans don’t want to be weeks (or seasons) behind everybody else: They want to see new, original programming as soon as it’s available. Some online services offer access to some programming shortly after it airs. For instance, some current shows are available via Hulu, iTunes, and Amazon Prime with a day or perhaps a week of airing. That’s simply not good enough for serious fans. They want their shows ASAP.

Speaking of serious fans, sports coverage is another area where pay TV retains a significant advantage over online offerings, combining the immediacy of a real-time event with a wide slate of programming. Many sports organizations have stepped into the online world with subscription-based online offerings with mixed results — although MLB.TV has had success converting hardcore baseball fans over to its subscription streaming service. Cable and satellite pay-TV options are still a solid deal for everyday sports fans, particularly if they follow multiple sports (baseball, football, basketball, auto racing, golf…) throughout the year, or enjoy sports a little outside the American mainstream (soccer—aka football—tennis, cricket, rugby, Formula One…or caber tossing). Thanks to channel bundling from content providers, even standard cable packages commonly carry half a dozen sports channels. Although they’re often subject to local blackouts, so are streaming services. Satellite packages usually have even more sports offerings.

Although more people than ever are getting their news from online sources, and social networks like Twitter and Facebook unquestionable play a growing role in disseminating breaking news. However, recent surveys (here’s an example) find Americans still prefer curated news sources rather than social networks for to keep up with breaking news. A recent Mediabistro/Poll Position survey found over 57 percent of Americans turn to television as their source for breaking news. For access to real-time coverage — particularly of local events and breaking events like the death of Osama bin Laden or the BP oil spill in the Gulf of Mexico — many Americans still turn to TV.

Stay tuned…

The upshot seems to be that Americans will continue to slowly turn away from traditional pay TV services and opt to get their entertainment via broadband. The trend will likely accelerate as broadband and streaming offerings cut into pay-TV’s advantage in first-run and real-time content like original programming, news, and sports. After all, even Netflix and Hulu are starting to get into the business of producing original content, hoping to hook customers who can’t wait for the next episode.

However, the day is coming when the idea of a “cable company” will fade away behind the concept of “broadband provider.” If things keep going at the current rates, both Comcast and Time Warner are on pace to have more broadband subscribers than cable subscribers by the end of 2015. However, the companies will still be in the content distribution business rather than merely supplying Internet access: Video subscribers will still generate more revenue than the companies’ Internet business for some time to come.

Image courtesy: 1125089601/Shutterstock

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Geoff Duncan
Former Digital Trends Contributor
Geoff Duncan writes, programs, edits, plays music, and delights in making software misbehave. He's probably the only member…
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