The Death of Cable – On Life Support

Cable providers leverage Internet access to slow the loss of customers.

Stock photo of a man cutting a cable cord.

Telecoms are increasingly offering slimmer channel packages to compete for a growing number of cord cutters, who opt for streaming services like Netflix in lieu of cable TV.

 Telecoms and cable providers like Comcast are expanding online video services hoping to catch up with their growing on demand alternatives like Netflix, but it will take more than these efforts to appease customers ready to sever their cable subscriptions.

Budget-conscious customers are avoiding expensive cable-TV bundles and instead opting for less-expensive a la carte access offered by Web-based services like Hulu and Netflix. Subscriptions to traditional multichannel providers dipped steadily from 101.9 million customers in 2012 to 101.3 million so far in 2015, according to the market research firm SNL Kagan.


Should Consumers Be Allowed to Unbundle Their Cable Packages?

Now, the major cable providers are getting into the a la carte game. Comcast announced its Stream service on Monday, offering its customers what it calls “a skinny bundle” of channels including HBO via streaming video. It will launch first in Boston at the end of the summer, and then in Chicago and Seattle before becoming available everywhere in Comcast’s coverage area in 2016.

The service has some drawbacks: It will only be available on the subscriber’s home wireless network and won’t be accessible over public WiFi or via a set-top box like Amazon Fire TV or Apple TV. Stream also will cost an additional $15 per month on top of a Comcast Xfinity Internet subscription — Hulu costs $7.99 per month and Neflix is $8.99.


Chart showing the financial statements of cable companies affected by cord-cutting.


During an earnings call on Wednesday Netflix CEO Reed Hastings said Comcast Stream was “a potential threat,” like other efforts from multichannel providers that will keep his company pressured to innovate. Netflix on Tuesday reported that its membership rose to 65.5 million in the latest quarter, up from 50.5 million during the same period in 2014. The company is expanding in overseas markets, but its U.S. membership grew to 42.3 million, up from 36.2​ million a year earlier.

 “We can all compete for consumer affection.” Hastings said of Comcast’s new offering.

But while Stream may put pressure on Netflix, it will not be enough to stop the migration of Comcast customers to less expensive, more convenient Web-based services, says Steve Beck, managing partner of management consultant firm cg42. Poor customer service and feeling forced to purchase channels they don’t want as part of a subscription has led 53 percent of Comcast customers to call themselves frustrated, according to a survey conducted by cg42. That frustration will likely lead 3 percent of Comcast customers to abandon cable subscriptions during 2015, cg42 projects.

“When you take a provider like Comcast, which has the highest vulnerability with customer retention in their category, what is the likelihood that customers want to give them an extra $15 per month?” Beck asks. “When 73 percent of customers of major cable providers believe they are predatory in their practices and take advantage of customers, those companies are starting from a pretty bad spot.”


Graphic showing the streaming alternatives used by cord cutters.


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Comcast and Time Warner Cable still dominate the U.S. market, but the two companies cited rising competition from online video services as a motivation behind their attempted merger. Regulators rejected the bid in April out of fear that it would limit options for consumers that wanted to switch to a different service; according to cg42, a lack of alternate providers is already a major reason why customers don’t switch to another cable service or abandon their subscriptions entirely. ​Hillary Clinton, front runner for the Democratic presidential nomination, on Monday called for “a greater diversity of providers so consumers have more choice,” during a speech in New York City.

Cable firms will lose that dominance if sites like Netflix and emerging Internet providers like Google Fiber offer the same broad list of TV channels sold through cable subscriptions, says Greg Ireland, research manager for multi-screen video at International Data Corporation market research firm.

“For consumers interested in the widest possible variety of content or specific channels not available from over the top services, traditional pay TV is still the clear choice,” Ireland says. “If Netflix offers subscriptions to the same breadth of linear channels that an incumbent pay TV provider offers, then those incumbents may feel more heat.”

Cable is an appealing option for those seeking broad choices, but that medium is no longer the only place to see original programming. Yahoo, Microsoft and Amazon are copying Hulu and Netflix by producing exclusive shows available only through their sites. Cable providers are losing the exclusive offerings that enticed people to buy bundles, including ESPN, which is partnering with online video services planned by Verizon, Spotify and Dish’s Sling TV.

“Pay TV providers increasingly think of themselves as broadband providers and in some cases their number of broadband customers exceed their number of TV customers,” Ireland points out. “Consumers that have already cut the cord or never had a pay TV cord aren’t as interested in getting over the top services from a traditional pay TV provider.”

 

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