Wasn't Cable Supposed to Die?

The world is wireless and streaming TV providers like Netflix and Hulu are all the rage. Cable companies should be dying, right? Wrong.

In fact, an April 2014 study by the global research company, Strategy Analytics, predicts that Pay TV subscriptions in North America will increase to 142.6 million by 2019, from 128.5 million in 2013.

And that's all because a funny thing happened on the way to cable’s funeral. They became relevant. So relevant that in addition to more people signing up, gorilla-sized streaming services like Netflix have actually agreed to pay at least one cable company a fee for using their broadband Internet services.

Keep reading to learn more about pay-TV's future…

Is Cable a Good Deal? That Depends…

It’s a good question. After all, everyone complains about their cable bill being too high, yet subscriptions are expected to rise. And how many people do you know who don’t have cable?

Bruce B. Friend, president of Global Media & Entertainment with Vision Critical, an industry research and consulting company, says pay-TV is still alive because of the broad spectrum of quality entertainment that is efficiently delivered. With cable TV service,  you don’t have to subscribe to 10 different services, all with different providers, figure out the hardware needed, and be a total tech head. You call one number, a guy drops off a box, and viola, you’re entertained. You even get a remote.

However, some experts aren’t convinced of cable’s value.

“Based on a sample of one (me), I don't think cable is a good deal,” says Bob Shullman, a market researcher and head of the Shullman Research Center, which has conducted many studies on the subject of media. “To get access to the channels we want to watch (which really aren't many but include some sports channels and Showtime, HBO, etc), we have to subscribe to the most expensive package Cablevision offers in Connecticut,” he says.

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Pay-TV Subscriptions Expected to Get Even More Expensive

By 2015, the average cost for pay-TV is expected to reach $123 (from an average of $86 in 2011) according to the international industry research and consulting firm, NDP Group. And by 2020, they foresee us paying an average of $200 per month for our cable habit.

So, what gives for the projected price increase? Unfortunately, there are a lot of reasons, say experts.

One big, obvious one is that content providers charge cable companies fees just to offer their channels, then, the cable company passes that cost on to you, the subscriber. And here’s the rub, for many of the most expensive channels, you don’t have a choice of whether or not you want it, like you do with HBO or Cinemax.

For instance, ESPN charges cable companies a reported $5.54 per subscriber, according to SNL Kagen, an industry analyst firm. That cost drives your cable bill up whether you are a diehard sports fan or hate sports more than broccoli, says Russ Crupnick, a senior vice president and media industry analyst for NPD Group.

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As Pay-TV Subscriptions Rise, What are Provider Doing to Retain Customers?

With everyone talking about how they’re going to cut their cable cord, how are the cable companies still in business? In other words, how are they preventing us from just saying no?

One way is that hallmark of American salesmanship: Offering deals, says Shullman.

For instance, Comcast’s Starter with a Blast deal for new subscribers is typical. For $59.99 a month, subscribers get more than 80 channels and high speed Internet.  Over at Time Warner Cable, for $89.95 a month, new subscribers get TV and high speed internet, plus $100 Visa reward card.

Of course, these deals run out after a year or so, depending on the service provider. When they do, though, Shullman says deals can still be had. For instance, when his own cable service increased after the time elapsed on his initial promotional rate, he complained. And guess what? They capitulated and offered him a ‘deal’ for no increase. He advises people to contact their cable company if they’re unhappy; often, the result is in the subscriber’s favor.

Another way cable companies are combating cord-cutting is offering more options for viewing content wirelessly, on tablets and other portable screens, from anywhere in the house and sometimes outside it, says Shullman. It’s a move toward the next generation of cable subscribers, he says.

For example, Time Warner’s TWC TV is a free Smartphone and tablet app for subscribers to watch TV and movies wirelessly in their homes. Others, from Dish Network and DirecTV to AT&T U-verse and Cox have their own versions of wireless streaming.

“It's essential to the younger customers because they grew up with digital devices in their hands and a fixed location video screen is less important to them,” he says.

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Are Streaming Providers Like Netflix and Hulu a Threat to Cable?

No, say the experts. In fact, streaming providers may even be helping the cable companies. Don’t believe it? Recent developments tell the story.

First, consider that Netflix, Hulu, Amazon Instant Video, and other streaming services need their customers to have an Internet connection to use their service, says Friend. And now that Comcast has acquired Time Warner Cable (for $45 billion – hinting that cable is still pretty valuable), they are the high-speed Internet provider for nearly 40 percent Americans with Internet service, according to a February 2014 New York Times article. And that’s just one cable company.

Perhaps the bigger surprise, however, is the other news in that same article: Netflix will now pay Comcast a fee for the access they enjoy through the internet connection Comcast provides and which enables Netflix’s customers to stream content. This, says Shullman, is a perfect example of why cable is so necessary - for now - to streaming services: Cable often provides (i.e., controls) the internet connection customers need to stream the content.

But perhaps the bigger reason that streaming content is not considered a threat to cable, says Shullman, is tied to the type of content they can - and can’t - provide.

“Until [streaming providers] can find a way to get access to deliver the live sports content many Americans watch, the threat I believe is not as large as some pundits would have us believe,” says Shullman. Currently, the networks and cable TV companies have the licenses to broadcast these events, so it’s a non-starter for Netflix and other streaming sites.

Americans are also hooked on things like live news, reality TV, and premium channel shows from HBO and others that don’t hit streaming providers for several months to a year later, or are at such a premium that cable is a better deal. For instance, Amazon Instant Video charges per episode: so season three of Game of Thrones will run you $3.99 per HD episode, $38.99 for the entire season.

So, it appears that the Strategy Analytics report might be right: the number of subscriptions might be going up for the foreseeable future.

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