Cable TV – Sword of Damocles pt. IX

Devices to hasten the demise

• Never one to miss a trick, both Amazon (see here) and TiVo (see here) are now offering set-top boxes that make combining streaming and OTA TV as easy and as fun as possible.
• This combined with a further loss of 1.1m cable TV subscribers in Q3 18 (MoffatNathanson) and rapid consolidation is a further sign that the cable TV companies are in real trouble.
• Most of these losses came from satellite but the trend is clearly away from paying one price for 100+ channels to a system of a la carte.
• Nowhere is this more clear than in the return to growth of over-the-air (OTA) broadcast TV which is supported by advertising.
• Instead of having a cable TV subscription, users are picking and choosing the streaming services they want for premium content and turning to OTA for the rest.
• Now that there are set-top boxes that combine these together, the experience should become easier which will further accelerate its adoption.
• Hence, the focus is moving away from distribution to content and broadband.
• This leaves the cable companies in a very difficult position because most of them have no content at all leaving them with only broadband which is also under threat from the possibility to use 5G for fixed wireless access in USA.
• On the content side, the days of cross-selling are ending with the studios increasingly selling their content direct to the consumer leaving the distributors out in the cold.
• This is why Comcast is buying Sky, why AT&T has bought Time Warner, why Disney bought 21^st Century Fox and why Netflix is spending billions on its own content.
• This substantially increases the risk of content as the cross-selling was originally designed to mitigate the financial risk of content which is notoriously hit and miss.
• Putting all of that risk back into the studios means that they have really big to ensure that there are enough hits to smooth out the losses from the misses.
• I think that this is a major reason for the consolidation going on in the content and content distribution industry and the result will be a few very big players with the smaller guys being quickly swallowed.
• The net result is that Amazon and TiVo are simply pouring fuel onto a fire that will force the cable TV companies out of business unless they act fast.
• Acquisition of content, the offering of 5G fixed wireless access and earning the love of their long-suffering customers would be a great place to start.