Pay television companies are reporting subscriber losses, and one reason is that Internet-based systems are starting to make a dent. But if subscribers want the shows, "cutting the cord" to the cable company may not be as simple as it sounds -- thus keeping cable companies around a little longer.
The fundamental problem is that writers, actors, camera operators, and producers all cost money. Television networks and stations need to get their revenue from either advertising or license and retransmission fees, or both.
Cable operators charge subscribers and pass some of that revenue on to the networks. The recent battle News Corp.'s
Some stations, such as HBO, get all their revenue from subscribers, which is one reason they cost much more per channel than others -- most premium channels are a few dollars in addition to a basic subscription rate. While the basic rates include dozens, and sometimes hundreds, of channels, basic cable networks have advertising.
Widespread adoption of the "over the top" devices, such as Roku, which allow one to stream content directly to the television without a cable box, would severely damage the cable operators, says Larry Gerbrandt, principal at Media Valuation Partners. While the cable operators could provide just Internet service, that would mean they were not paying the television networks -- the content providers.
Although the cable stations could run ads online as well as they do on current systems, Internet ads garner much less in revenue. That means less for programming. "There's a reason the big networks do a lot of reality TV," Gerbrandt said. "It's a lot cheaper." Advertising revenue hasn't kept up, in part because of the fragmentation of audiences and channels.
Monetizing Internet-delivered content is also the reason that Hulu -- owned by News Corp., Disney
Not everyone is convinced that the cable companies will be in trouble; Sam Rosen, analyst at ABI Research, says one thing that keeps them relatively safe is their Internet services, though it would be a much more competitive environment.
Another space for programming -- and the advertising or subscriber revenue that goes with it -- is live content, such as sporting events. Roku, Google's
Rosen says the real effect of the availability of the "boxes" is that younger people delay getting their first cable subscription, rather than driving them from it completely.
Cable companies are taking steps to offer some channels over the Internet -- Time Warner
Time Warner sees its base of subscribers in two groups. One is people who are traveling and want to watch what they might at home. Then there are those who are at a home with multiple screens that they want to use without having to have a TV in every room.
James Dix, a media analyst at Wedbush Securities, notes that his firm has seen some "cord cutting" -- but it isn't yet a mass phenomenon. One reason is that the cable companies and networks need each other.
A cable company, he notes, is less likely to say it doesn't carry something, and is unlikely to try to press a network by becoming a "pipe" for Internet service and refusing to pay the retransmission fees.
The likely outcome, he says, is that the streaming devices would negatively affect the cable operators, but those operators deliver an audience to the stations. The stations and networks -- the content providers -- may decide that the Internet isn't lucrative enough, especially compared with the fees paid by cable operators, and cease delivering content that way. "They were putting Comedy Central on Hulu," he said. "Then they took it off."
Another factor, Dix says, is that most consumers still buy the "package" of stations plus Internet or phone service. His research shows that a la carte buying of channels isn't widespread. While people are willing to drop a basic cable station to save money, that doesn't mean they don't like the packages.
International Business Times, The Global Business News Leader
See a stock in this story you'd like to follow? Add it to My Watchlist, which will find all of our Foolish analysis on it.
Disney and Google are Motley Fool Inside Value choices. Google is a Motley Fool Rule Breakers selection. Apple, Disney, and Netflix are Motley Fool Stock Advisor recommendations. The Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.