Credit: BostonGlobe.com
Cable industry insiders are openly painting a dark picture of cable's future.
Time Warner (TWX)CEO Jeff Bewkes made comments in September that are telling of how cable is evolving. Bewkes said until recently it didn't make sense for the company's HBO network to pursue an Internet-only option outside of a cable subscription, but the opportunity now "is quite a bit bigger."
The difference now is users are ditching cable. The number of U.S. households cutting the cord rose 49% from 2010 to 2013, according to Experian Marketing Services.
This trend isn't likely to slow and the following three reasons suggest cable's decline is already here.
1. Major sports content barriers are falling
ESPN is the most expensive cable channel offered by cable providers. The network charges cable companies nearly $6 per month per subscriber since viewers place a premium on sports content. The lack of streaming sports content is perhaps the reason cable's gravestone has not been officially carved. The shift is already taking place, though.
ESPN and the NBA agreed in October to a landmark partnership allowing the sports broadcaster to stream games to users without a cable subscription. This is one of many deals this year with leading sports leagues.
While ESPN's Internet-only service includes mostly out of market games rather than the marquee events broadcast through its traditional channel, ESPN's small step forward demonstrates how content providers envision the existing cable model changing by forcing out the cable middleman.
2. Apple just hinted about changing the existing cable model
The iMaker might seem like an odd party to include in the argument for cable's demise, as the company's only entry into the space is its oft-ignored Apple TV. But Apple (AAPL -1.22%) has far greater ambitions.
In a September interview, Apple's CEO Tim Cook opined on cable's lost ways:
TV is one of those things that is stuck back in the 70s. Think about all the things that have changed ... and TV almost feels like you're rewinding the clock, the interface is terrible. It's awful.
Cook said during the same interview that Apple has a "great interest" in TV. His comments make clear that Apple wants to reshape traditional cable.
It's likely not a question of if for Apple, but when. "When" occurs when cable companies are no longer the center of the industry model. Prior comments from industry insiders and moves by sports content providers suggest "when" is already here.
3. The government moves to cut out cable companies
History has shown that private industry tends to innovate and government reactively regulates -- think the 2008 financial crisis. By the time governments sound off, the damage, many times, has already been done.
In October, Federal Communications Commission Chairman Tom Wheeler circulated a proposal to adopt rules allowing Internet-based operators to be designated as multichannel video programming distributors, or MVPDs -- the same classification cable companies possess.
For those not steeped in MVPD knowledge, this is a watershed moment for Internet-based operators. If passed, it would usher in increased competition and more options for consumers. Cable channels such as ESPN or ABC could even designate themselves as MVPDs and stream direct to consumers by circumventing cable companies completely.
Yes, cable is not completely dead today. But major companies such as Netflix and over the top options are leading the charge online to reshape the cable business model. With the rapid pace of this change, cable's best days are numbered.
Even the slow-moving government sees the writing on the wall.
