Reports of Cable’s Death from Netflix are Wildly Exaggerated

Ryann Rasmussen | Mar 20, 2014

Over the course of the past decade, streaming video has taken the place of downloading and file sharing as the chief perceived online threat to established media concerns. As the most visible and successful video streaming service, Netflix inherits many of the fears that were once attached to pirating sites. In short, the fear that users will abandon “package” subscription services for “a la carte” consumption of video, ultimately leading to the “death of cable TV.”

Of course, there’s a big difference between pirated sites and legal, legitimate viewing. One of the first great victories of Netflix was in transforming the perception of digital consumption; although “streaming” still implies “stealing” to some industry associations, a Netflix user isn’t likely to feel any liability or stigma. Illegal filesharing and streaming didn’t kill the movie or music industries. In fact, not only do revenues continue to reach all-time highs, but studies continue to conclude that the overall effect has been positive for both industries. The recent industry concern over Aereo ironically confirms how little the broadcasters have to fear from alternative viewing methods. They’re making more money, not least because the “threat” motivated a procrastinated embrace of digital distribution innovation.

Cord Cutting

TV is harder to quantify than the film or music industries; without box-office receipts and album sales, we’re left with comparisons of advertising and subscription revenue statistics. Complicating this picture are countless reports of “changing consumer viewing habits,” the most pertinent being the supposed “cord-cutting” epidemic. So has the biggest year ever for Netflix been at the expense of the cable and satellite providers?

While it’s undeniably true that more people than ever are streaming, time shifting and place shifting video, the actual statistics for cord-cutters make the trend less of a threat and more of an isolated phenomenon. The biggest year yet for cord-cutters still shows single-digit percentages, and closer examination of survey responses show that less than one percent of people who expressed intent to cut the cord followed through.

Threatening Production

Shows like “House of Cards” and “Orange is the New Black” showed that Netflix wasn’t just interested in providing a distribution service for other people’s content, but also in producing original shows in the same league as TV’s finest. The political drama garnered rave reviews, widespread viewers, and plenty of speculative hyperbole about the ‘fall of the cable empire.

The ongoing adversarial relationship between HBO and Netflix was inflamed when Netflix announced higher U.S. subscriber numbers than HBO. Reports of the announcement were careful to point out that HBO still beat Netflix with over three times as many worldwide subscribers, but HBO took the challenge seriously enough to release an unprecedented revenue report, one that showed HBO bringing in about $1.8 billion, compared to the $228 million that Netflix made.

Provider Privilege

It’s tricky to talk about cable as a service provider versus cable as a content producer. Time Warner, HBO’s parent company, is both. Netflix, on the other hand, lacks any sort of control over the delivery infrastructure, a fact made plain by the company’s recent negotiations with service providers, including Time Warner. Whether Netflix gets on the cable lineup or not, many people will still be getting it through a cable company.

The cable companies have their own anti-Netflix secret weapon, by the name of TV Everywhere. The service meets the Netflix challenge of providing “everywhere” viewing across a range of devices, but maintains the channel subscription model for required authentication. Unsurprisingly, Time Warner leads TV Everywhere evangelism, but industry heavy-hitters like Comcast, FOX, ESPN, Disney and Turner are also solid supporters.

Netflix has a major (some say “overwhelming”) financial burden. In addition to the company’s own operating costs and money set aside for original content production, the core business model depends on paying for the content that it redistributes, and the infrastructure to deliver it, and in both cases, the money is going right to the company’s main competitors. The increasing success of TV Everywhere transforms the equation from “Netflix vs HBO” into something more like “Netflix vs Almost Everyone Else.” And Netflix knows it; the company’s responses to TV Everywhere have been much less combative and much more focused on ‘coexistence.’

Nobody knows how the long-term will play out. By 2020, cable and satellite providers could be relegated to a mere service role (most of them have become ISPs already) and consumers could have metered Internet and a la carte channel subscriptions (something that HBO, for one, has strongly resisted despite widespread demand). We could come to think of our big HDTVs the same way we’re starting to think about our desktop PCs — on the way out, maybe still useful for some things, but no longer required or convenient for the experience.

For the time being, however, claiming that Netflix is a threat to cable is like claiming that Tesla is a threat to the auto industry. Does its success inspire innovation? Definitely. Will it take a more permanent place alongside the top names in the industry? Maybe, but only just maybe, and not in the near future. Will it kill the industry and drive the top names out of business? Ha. In the words of House of Cards’ Frank Underwood, “there’s no better way to overpower a trickle of doubt than with a flood of naked truth.”

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