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How The Cable Industry Is Going To Completely Implode In The Next Ten Years

By / 02.27.12

The music industry isn’t dead, by any means. What it is, however, is irreversibly altered by technology. As we’ve discussed before, they saw the train coming, thought it would just stop on a dime for them, and instead it flattened them. And we’re starting to see the same thing happen to cable.

Currently, this is how cable works: every channel charges a cable operator a retransmission fee, the cable operator passes that fee onto you and charges extra, and channels are bundled together so, even if nobody’s watching, that channel can still sell advertising. Everybody makes money, everybody’s happy.

Everybody, that is, except the consumer.

Cable prices rise an average of 5% a year. Inevitably, they’re going to hit a tipping point where consumers decide what they pay isn’t worth what they get. And cable and satellite are starting to hit theirs: the industry began losing customers last year. It’s true the number has slowed, and cable isn’t seeing enormous losses to cord-cutters yet.

But we’re seeing a repeat of the music industry here: it’s not a question of “if,” but “when.” Here’s what’s going to happen in the next decade, in a two step process.

First, cable loses its death grip on the pipes.

Cable operators have an exclusive monopoly in areas where they first laid cabling; this is so we could get more fiber in more places faster, but it also created some serious problems. This gives cable operators disproportionate control over the Internet; they own the physical cables, after all. So currently, cable’s plan if all else fails is to just choke your Internet video streaming and hope Netflix runs out of money before the court case gets too far.

Unfortunately for cable, there are a lot of ways they lose that grip. The most basic is the government decides that, yeah, they’ve paid for that cable they laid in the ’80s and it’s time for some actual free market dynamics to kick in. It could be through massive wireless network routers that use television spectrum to let everyone get on the Internet across the country. Google and Apple could use those laws against them and build an entirely net set of cables, like Google is actually doing, right now, in Kansas City, that lock out cable operators entirely.

It’s not exactly obscure or weird to say Internet access, especially wireless Internet access, will get cheaper, faster, and more pervasive. But the key point here is that there are systems that evolve, entirely outside the cable industry, that can offer streaming video.

Secondly, cable finds its price ceiling, and refuses to start cutting prices.

It begins losing subscribers, both to the streaming services like Netflix, Hulu, and Amazon Prime, and to customers deciding to just resort to OTA signals: the reason most people still pay for cable is live sports and broadcast network shows like “American Idol.”

This puts the smaller networks in a bind: fewer subscribers means fewer retransmission fees and less advertising. In the short term, this means more of their original programming finds its way to Netflix, Amazon and Hulu and does so faster (a process we’re already starting to see). In the long term, it means many of them migrate to a streaming service entirely, bringing their fans with them.

This kicks in the death spiral.

Cable offers less and less for an unappealing price, as networks abandon it. Eventually, prices do come down for cable television, but by that point, cable is facing competitors that are cheaper, nimbler, easier to use, and offer more flexibility.

This isn’t to say cable operators will die. They won’t. They’ve got too much fiber, too many customers, and too many other companies invested in them to die completely. But it’s difficult to see how cable companies are going to compete when they don’t have a monopoly to fall back on. They shouldn’t get too comfortable: the days of customers just accepting price increases are numbered, and the number is lower than they think.

(Image via RBerteig on Flickr)


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