(TV) Pay TV: The Pay TV apocalypse continues

It's no secret that we're the golden age of television but its also no state secret that cable and satellite Pay TV providers have been taking a pounding for years which has culminated this week with the worst quarter in the history of the industry with Pay TV providers losing a whopping 762,00 subscribers. 

Why Pay TV providers are losing subscribers at a record rate isn't rocket science with the combination of skyrocketing price hikes, an increasingly unpopular business model, and better digital alternatives offering by SVOD services such as Netflix, Amazon and Hulu, it was only a matter of time before quarters like this become the new normal.

What's worse is that Pay TV providers are in no position to do much about it as they contend with soaring programming costs largely fuelled by the increasing value of sports content. Pay TV providers have for years passed  this cost onto customers without much to sweeten the deal which has seen an customer cut their cords at record rates for the best part of  a decade.  

It's always concerning when an industry can't keep its customers and even more so when can't attract new ones but the pay TV industry recent bloodletting has shown that can't do either which is why an already mature market is now showing signs of atrophy.

The decision to pay lengthy and expensive premiums for sports TV rights has cost Pay TV providers dearly but rationale behind pay TV's bet on live sport made sense as live sport events such as the Super Bowl or march madness have proved to be the most reliable content for getting bums on sofas across the land at the same time but as the last NFL regular season proved, sports content is showing signs of losing its lustre. The 7% dip in regular season viewing and a drop in Super Bowl viewership for the second year running saw many executives clamouring for answers to why NFL ratings dropped from a highly divisive presidential edition to Colin Kaepernick's stance (or lack thereof) during the national anthem. 

However, despite the complicated and varying factors that negatively affected NFL viewership during both regular and postseason games, the fact remains that pay TV's costly bet on sports programming is starting to unravel and it's unclear whether last year was a blip or a start of a very grave trend.  

Despite their recent struggles, Pay TV providers aren't sitting on their hands and idly watching their industry crumble before their eyes with  pay TV operators increasing their digital footprint with skinny bundles and even SVOD offerings that appeal to cord cutters and cord nevers who enjoy the power of watching TV where, how, and when they want to. 

However, Pay TV providers fight in keeping and attracting new customers is taking a turn for the worse with Amazon and Facebook picking up live sports content deals. This development should scare the life out of pay TV executives everywhere as While Amazon's deal in particular involves the ecommerce giant airing much maligned Thursday night games, should Amazon attract large audiences for Thursday night NFL matchups or at least larger viewership number than their cable counterparts. It could see live sport content providers hosting more of their content with online partners. 

This would be a disaster for Pay TV providers and networks as they'll have to outspend deep pocketed behemoths for live sports content when the cost for live sports TV rights are already high. Pay TV providers will be forced to pass even more costs onto a customer base already looking for a reason to jump ship.  

However, what should keep pay TV executives up at night is that whether Amazon or Facebook attract large audiences for NFL or MLS games or not is what they'll learn about sports viewers. The reason why both Facebook and Amazon have largely pulled away from their direct competitors and send shivers down the spine of executives everywhere when they so much as hint about entering their market is because both companies are become very good at using data from their users to provide a more personalized service to the point they know their customers better inside out, literally. 

It's why both companies have abnormally high customer retention rates and never have trouble attracting new users as their ability to implicitly meet the needs of their users through data keeps current users hooked with new features and services which in turn provides Amazon and Facebook new opportunities to learn even more about their users habits. 

What all this means is should Amazon and Facebook deliver impressive viewership numbers, Pay TV will have a hard time getting those customers back. This alone will put a steak through the hearts of Pay TV providers everywhere who will continue to lose customers, spend and lose millions trying to get them back and surrender their future customer base to SVOD services. 

In sum, there has been much talk about the future of Television but now the chatter should cease as the future is here and it's going to be brutal.

(The Big Disrupt) The Long Slow Death of Internet Privacy

What do you do online? No, really. What do you do? In addition to the glut of social media we consume, we store and share files, access our banks, fill out forms, buy furniture, and make fun of politicians we don’t like. The reasons for these activities are manifold, but two of the big ones are privacy and anonymity.

Well, the United States just voted to repeal a law that protects that online privacy and anonymity.

If you have not read George Orwell’s book ‘1984’, you may want to pick up a copy so you can brush up on what our future will be like. To sum it up, the government controls everything and is always watching. Even the smallest things are recorded. You can be arrested for ‘thought crime’ which is writing, saying, or alluding to something that the government doesn’t like. Then the whole avalanche of your other transgressions falls upon you as you are shipped off, never to be seen again. But, hey! It’s good for profits right?

Major communication corporations like Comcast, AT&T, and Verizon are strong proponents of this action because it means they will be able to use any data they have about you freely (BBC). Get ready for more targeted advertising, folks.

“Today Congress proved once again that they care more about the wishes of the corporations that fund their campaigns than they do about the safety and security of their constituents,” said Evan Greer, campaign director from rights group Fight for the Future (FFTF).

Think of this change as allowing your mail or parcel carrier to snoop through your letters and packages in order to figure out what junk mail to send you (WIRED). Or on a deeper level, allowing the government to do the same thing in order to accomplish whatever secret ends they have in mind. All it takes is for one nation to set a precedent in order for others to think it’s okay. It’s the whole idea of your child whining and saying “Billy did it, why can’t I?” There isn’t much sense to the argument, but it gets many ideas pushed through a governing body in the interest of ‘fairness’.

The point here is that citizens, who are supposed to be cared for by their government, are being pushed aside in the interest of profit. It’s easy for major corporations with plenty of money to play off of the rampant fear many governments have regarding terrorism by giving the government what it wants and getting the profit boost they so desire in the process. Why fix the system if it isn’t broken? Let’s keep our internet free and neutral, the way it always has been.

(The Big Disrupt) Pay TV: Who'd Be A Pay TV Provider?

The last few years have not been good to be a pay TV provider with the whole industry losing subscribers and the goodwill of the one they have left because the industry’s notoriously bad customer service but the future looks even worse when you look closely.

The whole Pay TV industry is chasing two groups of TV consumers, cord cutters and cord nevers, who have chosen to either abandon or avoid entirely the cable bundle to sign up with over the top (OTT) services like Hulu and Netflix who offer a large library of content at cheaper prices than their Pay TV counterparts. This trend sends chills through Pay TV executive’s spines as cord cutters and cord nevers are their future customer base and find themselves having to compete with popular and well-established OTT services in the open marketplace to get them back.

This puts Pay TV providers in the unenviable position of having to negotiate a fine line where they have make sure their own OTT services don’t cannibalize their pay TV subscribers like other OTT services are.  However, this problem is nothing compared to the quagmire that Pay TV providers face: entering their industry’s number one growth market knowing that they’ll lose money or make significantly less than they make now. Pay TV providers, like any other company in any other industry, strive to make a return on dollars spent and thanks to low OTT APRU (Annual Revenue Per User), Pay TV providers over the next few years are going to find it really difficult to pull it off.

However, Pay TV providers will continue to make money from their large pay TV subscribers bases and Pay TV executives are well aware that they’ll see significantly lower subs and revenue in the OTT market and see it as a way to reach consumers they lost or never had. What Pay TV executives would be really be concerned about is the industry wide subscriber loss which saw Pay TV providers as a whole lose 550,000 subs in a quarter and the large retransmission fees they have to cough up to keep popular broadcast and cable networks in their cable bundles.

Pay TV providers hate paying these large transmission fees with every fiber of their being as it affects their ability to compete effectively and feel extorted to the point they’ve actively lobbied government officials to address the issue. It looks like their lobbying efforts paid off with FCC Chairman Tom Wheeler looking at removing exclusivity laws on the books that gives broadcast and cable networks an ungodly amount of leverage over Pay TV Providers, particularly at the local level. This will likely lead to an epic battle between the cable and broadcasting lobbies that will last months or most likely years as both sides are unlikely to back down even in defeat.

Retransmission fees makes up for a huge chunk of most broadcast and cable network’s revenue and would put a lot of downward pressure on their business for obvious reasons if they lose this battle as they won’t be able to command the same fees they do now by a long shot. Broadcasters may have ready themselves for the tough road ahead as pay TV providers have a winning argument and a FCC Chairman who would probably make the same argument if he was still head of NCTA (National Cable and Television Association).

However, looking at the numbers provided by SNL Kagan, it looks like Pay TV providers are targeting low hanging fruit as in 2015, premium and basic cable networks accounted for $37.9 billion of retransmission fees Pay TV providers had to cough up while broadcasters accounted for only $6.3 billion[1]. While retrans fees pay TV providers had to pay broadcasters saw more growth over the last decade than fees paid to cable networks, Pay TV providers are projected to pay just shy of $1o billion more in 2018 than they do now  to cable networks as opposed to the $2.3 billion they’ll pay Broadcasters in the same period[2].

The obvious answer to the problem would be for pay TV companies to keep the cable networks in check but that’s easier said than done when cable networks produce many of the commercial and critically acclaimed shows on television, period. This gives premium and basic cable channels such as HBO and AMC a lot of bargaining power as they produce commercially successful shows like The Walking Dead and Game of Thrones Pay TV providers can’t afford to lose out on.  Popular cable networks like HBO have buffered their already powerful bargaining position as they can explore other ways to distribute their in demand content to those who already subscribe to their cable channel (HBO Go) and those who don’t in partnership with other content distributors (HBO launching OTT service HBO Now in partnership with Apple).

However, in exploring new ways to distribute their content such as OTT and TV everywhere, cable networks are subject to same problem of low ARPU and thus lower revenues in general. However, network executives, much like their Pay TV counterparts, see these new distribution models as a way to reach cord cutters and cord nevers.

In sum, all this puts pay TV providers in an unenviable position which provokes the question who would be pay TV Provider indeed.

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[1] B. Fung, 2015, The FCC could soon give more power to cable companies. Here’s how, https://www.washingtonpost.com/news/the-switch/wp/2015/08/13/the-fcc-is-moving-to-end-tv-blackouts-once-and-for-all-heres-how/

[2][2] Ibid