Sunday, December 20, 2015

The Cable Apocalypse

We've been talking about this since the dawn of the public internet back in the mid-90s and it appears it is finally here: People (households) are finally dropping pay TV (cabled) subscriptions.

How fast are consumers "cutting the cord"? Fast. It's going to take a while for it to completely die off (if ever) but it is clear that within this particular industry, cable has finally seen her day. She'll now spend her time attempting to mitigate the damage in the coming years.

GM was the face of the slowly dying American auto industry between the mid-60s through the 90s and now ESPN is emerging in that role for cable. Looking at the information in the table below you can see how it is warranted. Between ESPN and ESPN2 the "worldwide leader" has lost around 14 million subscribers from a couple years ago. More than any of the other top 5 networks.

[Figures in millions, sorted by most subscribers in 2015 to least]
NFL Network56,55062,09372,46472,20369,03222.07%-4.74%
MLB Network67,22069,81171,02669,88266,564-0.98%-6.28%
ESPN Classic32,64831,21930,82627,01224,917-23.68%-19.17%
Source: Sports Business Journal, October 26-November 1, 2015

Some of that they can't control. Channel bundling is the lifeblood of cable providers and the ESPN has seen their channels moved to the more premium packages. The exact reasons for that are locked away at the highest levels, but one can make educated guesses on why that might be.

You can tell from the figures above the whole model is shrinking at an accelerated rate year to year. It's possible it will level off with the bottom rising (like FS2 and NBCSN) and top falling but I expect that is years away.

From my view, it comes down to self-preservation within the cable industry. ESPN is expensive and is almost exclusively sports programming. Not everyone likes sports, shockingly. And even if they do, they don't necessarily need a 24-hour sport channel and would happily get news from the web or occasionally watch a NFL game on free TV or a NBA game in-between their favorite non-sports shows on TBS or TNT.

Cable will be hemorrhaging subscribers over the next five years. Winners and losers will be decided by who best figures out how to drive customers to internet subscriptions. HBO appears to be the first from traditional cable to figure it out but there will be others here soon as people trim down their packages.

ESPN3 or Watch ESPN has been around for some time now, but it is anchored to a traditional cable subscription for use. It was only this year that ESPN has decided to unbundle and allow a standalone service via Sling TV. Very limited and right now that comes at a premium price. Unfortunately, for ESPN, their quality has been poor for a number of years.

I don't expect people to pay a large monthly fee for any sports channel, let alone one that has stagnated for a decade in terms of quality. They didn't see the writing on the wall when they lost talents like Dan Patrick, Keith Olbermann and Rich Eisen (and more recently Colin Cowherd) yet continued to pay record amounts for programming.

The losers here will be channels. Content providers. "Cable" will live on as an internet provider, no question. I'm not sure they are concerned about that model, at the moment.

Last item here to note is that Total Pay TV in US households has dropped -3.89% over the last five years with an acceleration... -4.54% over the last three, while at the same time total US households has increased by +1.48% in last five and +0.52 in three. What that means is the % of cable in homes is dropping very quickly.

Hold on to something.

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