For decades, cable television dominated the home-entertainment scene, with a wide variety of video content you couldn't get anywhere else. Now, though, the rise of Internet-based entertainment options has led millions to cut the cord, putting cable TV increasingly under pressure to justify its high costs.
If cable wants to survive, it clearly has to make some changes. To shed some light on what the future could bring, we asked three Motley Fool analysts to share their views on what the cable industry has to do in order to make cable TV great again.
Dan Kline: In order for cable to remain relevant, it has to offer consumers the ability to buy channels on an a la carte basis. Even if the pay television providers still make bundles the most attractive, they need to give subscribers the ability to pick and choose exactly which channels they want. That will almost certainly cost more on a per-channel basis, but it's a customer-friendly move that could begin to change consumer perception.
This move would not come without major consequences. If you stop forcing consumers to buy channels in bundles, then some networks won't have enough subscribers to remain viable. That sounds awful, and it's a move that companies including Comcast (NASDAQ:CMCSA) -- which owns a number of cable channels -- have resisted.
But the market is going that way anyway. Netflix (NASDAQ:NFLX) and HBO's streaming service are essentially an opportunity for customers to pick those products on an a la carte basis. Those services (and several others) make cord-cutting attractive, but the cord-cutters may still be sacrificing content they enjoy.
True a la carte cable would fix that. It may not produce the same revenue that the current system does, but it would keep would-be cord-cutters at least partially in the fold. Imagine the family that may have left cable behind staying with a package of family-oriented channels to keep the kids happy -- or the parents opting for some favorite sports and entertainment choices.
The cable industry has ridden its current bundled model as far as it can go. Sticking entirely with it will result in a slow, but accelerating decline, much like the music business. Making the change to a la carte will bring about some short-term pain, but it's a sacrifice needed to save the entire system.
Adam Levy: Most pay-TV providers offer something they call "TV Everywhere," but usually the majority of shows are confined to subscribers' home networks. A few cable companies such as Comcast even offer cloud-based DVR systems that can stream recordings to Internet-connected devices, but those too are confined to the in-home network. One of the biggest advantages of over-the-top services like Netflix is that subscribers can watch the content anywhere with an Internet connection.If cable companies want to offer true TV Everywhere, there are two options: they can negotiate streaming rights with the media companies, or can they can battle them in court. Streaming within a private network can be considered a use of private non-commercial time-shifting, in accordance with the Betamax case decided in 1984. Streaming outside the home, however, isn't explicitly covered by that decision.
There are companies filling the market for consumers looking to stream television outside the home, regardless of the risks involved. Sling Media offers the ability to stream a live TV feed from your home to any device. TiVo's (NASDAQ:TIVO) Roamio lets users stream their recordings as well. In fact, TiVo bought the trademark and customer list of Aereo, which was shut down after the Supreme Court determined its operations constituted a public performance of copyrighted work.That decision makes streaming recordings from a cloud-based DVR over the public Internet a bit dubious, even if it involves private cloud storage. Nonetheless, the Aereo decision explicitly states that it shouldn't affect cloud-based DVR systems from pay-TV providers. The ability to stream recordings and live TV outside of the home would enable cable companies to increase their prices and keep more subscribers, but it will come at a cost.
Dan Caplinger: When cable television first came out, its biggest appeal was that it offered a commercial-free viewing experience. That allowed programs to be longer, and watching without interruptions justified the added cost of cable compared to free TV. Over time, though, cable networks decided that they could have their cake and eat it too, adding commercials and watering down that experience by adopting business models that more closely resembled their free-TV counterparts.
It's true that with DVRs and other technology, avoiding commercials has gotten easier. Nevertheless, one huge appeal of streaming video is that you can watch shows without the commercial interruptions that plague cable programming, with the video service becoming more of a content delivery intermediary than an ad-supported source of programming in its own right.
Given the billions of dollars of advertising at stake, it's unlikely that cable networks will ever have the foresight to make such a dramatic shift to try to appeal to their customer base. Yet if cable television were to embrace its new role and move away from the outdated business strategy that annoys its customers and has led so many to pull the plug, the industry might avoid the short-sighted consequences of their actions and stem the tide of departing subscribers.
Adam Levy has no position in any stocks mentioned. Dan Caplinger has no position in any stocks mentioned. Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.