Amidst the clamor over Comcast’s potential takeover of Time Warner Cable looms a larger, underlying question: what does the future hold for cable providers in an era where more and more Americans are cutting the cord in favor of streaming services like Netflix, Hulu or Amazon Prime?
New research from PricewaterhouseCoopers suggests that cable providers will need to adapt to the rapidly growing trend towards streaming services and Internet-connected television in order to remain relevant. Luckily for them, most cable companies are also Internet providers; if Comcast were to succeed in its takeover, the company would provide Internet for about 40 percent of Americans, according to a recent Reuters update.
Regardless of the merger’s outcome, one thing seems abundantly clear: the Internet is poised to overtake cable television as the main vehicle through which Americans consume content. Research firm eMarketer estimates that people were already spending more time per day with digital media than with television media in 2013, and the gap is expected to widen as television consumption declines in favor of digital media consumption.
According to recent reports, there are a number of reasons for the trend away from cable; here are three of major factors.
3. Consolidation: Americans are turning to the Internet for more interesting, unique content.
Comcast’s deal with Time Warner is one among many similar, previous deals towards consolidation. In fact, while there may still be plenty of channels on television, 6 media giants now contribute 70 percent of the content on television; so if it always seems as though there’s nothing fresh on television… well, there isn’t.
As a result, consumers looking for something different, or unique, often turn to the Internet to find content that’s out of the ordinary. Amateur content, like the videos posted on YouTube, are a great example (and becoming big business), as are shows such as Orange is the New Black or House of Cards, popular shows which were produced by Netflix.
“The world of traditional media consumption is under increasing from digital, and consumers face an ever-expanding array of content choices. Such rapid change creates major challenges and opportunities for industry leaders,” PwC reports, adding that “the room for significant organic growth [for these companies] is limited, and this is why you are seeing these industry players turn to consolidation.”
Despite the stagnation in the traditional market, PwC reports that “the U.S. remains the largest, most valuable territory in the world for filmed entertainment,” and further, the study notes that the U.S.’s role as the biggest market for entertainment and film will be primarily because of (rather than in spite of) services like Netflix and Hulu.
2. Cultural Shift: We’re changing the way we watch television
“Binge consumption:” it’s a term that gets thrown around a lot when you’re talking about the media and entertainment industry. Binge consumption refers to the trend towards watching at least 2-3 episodes of one TV show in a single sitting, as opposed to waiting for each new episode to be aired on cable television.
Netflix was perhaps one of the first services to recognize and provide for this change: when Arrested Development debuted on the streaming service, the entire season was released at once. Similarly, Orange is the New Black, House of Cards, and other Netflix shows are all released in the same way, as opposed to staggering the release of the show episode by episode.
The internet and streaming services offer viewers seemingly endless opportunities for binge watching that cable companies simply don’t, and so, as binge watching becomes more popular than more traditional episode-by-episode viewing, so do consumer’s preference for streaming services over cable channels.
This cultural shift is also a huge boon for marketers: PwC’s research suggests that by 2018, internet advertising will be poised to overtake TV as the largest advertising segment. Already, PwC notes, advertising revenue is outpacing consumer revenue in the migration to digital. Importantly, marketers also love that it’s easier to more accurately target online viewers; advertisers find that, on the internet, unlike cable television, they are able to deliver ads that are relevant, responsive and easily measurable.
Binge watching, as Wired magazine quips, may well be the “crack of the couch potato,” but recent statistics also suggest that the practice is becoming increasingly more common: according to Harris Interactive, which conducted a study on behalf of Netflix, 61 percent of Americans binge-watch TV shows on a regular basis.
It’s also true there is something pretty satisfying about binge watching: Mary H.K. Choi of Wired, who wrote a column in praise the practice, notes that you’re better able to immerse yourself in the world of the show when you binge watch. “You’re mimicking the main character’s experience, because they’re not getting breaks from their lives, and you’re not either,” says Daniel Zelman, creator of Damages, who spoke with Wired. “Their problems become your problems.”
1. Young people don’t want to pay for TV.
One of the biggest challenges facing cable companies these days is the younger generation of viewers who grew up with the internet and already regularly use it as a primary source of news and entertainment. These viewers are more likely to become “cord cutters,” and are often dissuaded by the cost of cable packages; they see the internet as more of a priority in their day-to-day lives than cable.
The trend away from cable and is projected to increase over the next few years and already statistics indicate that many Americans households (even those which still pay for cable) regularly stream content using the internet. According to Consumer Affairs, 48 percent of adult Americans and 67 percent of young adults watch streaming or downloaded content during a typical week.”
Further, it’s already estimated that around “7.6 million U.S. homes today are considered ‘cord-cutters,’ up from 5.1 million homes in 2010, a relative increase of 44 percent.” And, according to the research, “consumers who subscribe to Netflix and Hulu are the most likely to be cord cutters,” per Consumer Affairs.
Cost seems to play a big role in the decision to cut the cord, too. The high cost of cable and television subscription packages has encouraged some families to switch to lower-cost “over the top” options, such as Hulu, Netflix and Amazon Prime, while a younger generation of viewers simply isn’t signing up for cable when they move out of their parent’s homes, according to the Los Angeles Times.
The statistics seems to concur; cable companies are expected to witness a decline in their customer base from 54.3 million homes at the end of 2013 to 53.9 million homes by the end of 2013, the LA Times reports, while the biggest growth is expected to come from these “over the top” streaming services.