Cable TV – Sword of Damocles pt. VII

Cable cedes users to a combination of streaming and OTA.

• The usage of digital antennas to receive over-the-air broadcast TV is continuing to rise in yet another sign that the cable TV subscription is facing an existential threat.
• The latest research from Parks Associates (see here) has found that the penetration of digital antennas has increased to 20% from 16% two years ago.
• The rebirth of this old technology is almost certainly due to the high cost of a cable TV subscription and the availability of premium content vis streaming.
• Over the last 5 years, I have been very negative on the outlook for broadcast (OTA and cable) as I have viewed the convenience and lower cost of on-demand viewing as a much better proposition for users (see here and here).
• However, while this prediction has been largely accurate, what I failed to take into account was the fact the OTA is free (ad-supported) which I think is largely what lies behind its renaissance.
• The average US Cable TV subscription in 2018 is now over $100 per month (see here) for which a large number of channels and fast internet access come as a prepaid package.
• However, in reality, most users watch only a few of those channels meaning that it if they could subscribe to those channels individually, they would be in a position to save a lot of money.
• This is now becoming a reality as some of the most prized content now belongs to the streaming companies as well as other content creators making their content available as a subscription through the Internet.
• The most obvious response has been the well-documented cord cutting by US households which looks set to accelerate unless the cable TV industry takes immediate and drastic action.
• I think that the one thing that is preventing the steady cord cutting from becoming a deluge is internet access as 56% of subscribers say the only reason they continue to subscribe is to get access to fast and reliable internet.
• This is why I think that 5G could represent an existential threat for the cable TV companies (see here).
• While 5G is a technology in waiting, the OTT data indicates that users are steadily switching off cable and replacing it with a combination of premium streaming services and OTA TV.
• This allows the user to have access to a wide range of channels representing almost all the content he was watching on cable at a much lower price.
• Consequently, while commentators are cautious on the outlook for TV advertising revenues in 2018 and beyond, I think that they could easily witness a recovery having been stalled for some time.
• This gives OTA a reprieve but I still think it needs to act to prevent itself from becoming obsolete in the long-term.
• The obvious move is to make the entire selection of channels available on a single, free, ad-supported streaming service.
• That way the valuable spectrum can be re-farmed for a more economically productive use and OTA can ensure that it has a place in the future of the media industry.
• If it is really sharp, OTA will also seek ways to make its offering available in emerging markets which are highly price sensitive and willing to consume advertising in lieu of paying a subscription.
• I still think cable TV is going the way of the Dodo but OTA looks like it has been given some time to reinvent itself

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