Consumers Win as Internet TV Gains HBO, CBS
The future of television got a bit clearer this week, as Netflix stumbled and rivals rumbled. But for cord-cutting consumers, the news was almost all good.
Netflix saw its subscriber growth slow after it hiked prices by $1 a month. The company’s shares tanked, losing almost one-quarter of their value in two days, as investors fretted about future growth.
Meanwhile, CBS launched a brand new Internet TV service, including access to its library of thousands of old shows, for $5.99 a month. And Time Warner’s HBO unit said it, too, would offer an Internet plan based on its popular HBO GO app, but with the pricing and launch date to be determined.
The pricing crunch at Netflix should deter the company from raising prices much more, while the new competition offers consumers even more content at the click of a mouse. And analysts say other big content companies like Viacom and Walt Disney may follow.
Even if consumers have to shell out $6 to $12 a month for each, they’ll have far greater choice over which online “channels” to buy and will likely spend less than they do for monthly cable bundles that often top $100 a month. A Wall Street Journal story today warned that consumers — particularly households consisting of viewers with lots of different preferences — could end up paying more with an unbundled setup, but without a credible explanation beyond the high cost of sports rights. And consumers would have the choice to drop any services that got too expensive.
It was just four months ago, when the Supreme Court shot down online service Aereo, that the dream of enjoying television and movies without a costly cable bill seemed farther away than ever. Now cord-cutters’ options are suddenly multiplying. The CBS offering even includes live feeds of local affiliated stations in more than a dozen major markets.
Sports fans may be the only TV watchers left behind in the current craze to go online. Netflix Chief Content Officer Ted Sarandos said earlier this week that his company has no interest in sports programming right now. CBS had to leave sports, particularly NFL games, out of its new service because of rights issues, leading to the depressing FAQ entry: “Why can’t I see anything on my live stream right now?”
One of the biggest questions is whether cable providers will prosper or wither as more content moves online.
Cable operators like Comcast, Time Warner Cable and Cablevision Systems make most of their money from subscription fees and advertising. Both revenue sources depend on convincing customers to sign up for ever-bigger bundles of channels.
But cable operators also find themselves at the mercy of programming providers (TV networks and movie studios) and sports leagues seeking higher and higher licensing fees. Even local broadcasters, who have a legal right to demand carriage fees, have been agitating for more dollars.
All those fees eat into cable TV profit margins. Wholesale programming costs are projected to rise by 36 percent over the next four years, while consumer cable bills increase only 12 percent, according to estimates from SNL Kagan.
And many viewers are already cutting the cord, even if the total number of cable subscribers has barely budged. New households, especially young people, simply aren’t signing up for cable. Among adults under 35, 13 percent said they had dropped cable, and 11 percent said they never had it in the first place, according to a comScore survey of people with broadband done in August. Among people 55 and up, 90 percent have stuck with cable.
Fortunately for the cable operators, however, they are also the top providers of broadband Internet service. That high-margin business doesn’t rely on paying programmers any fees. And lately, the cable companies have even been able to squeeze fees out of big Internet video sites like Netflix. Regulators are examining the deals, so that revenue stream may not last.
But don’t shed a tear for cable operators. They will probably do just fine in the new digital TV era.
