Cord Cutting: The Death of Cable and Satellite explained

cable-tvIf you have been living under a rock the past 5 years, you probably haven’t noticed the far reaching changes in the communications and broadcast industries. For those of you who don’t care, I’m sure you have noticed your “um-limited” cell phone plan is no more and your cable/satellite TV bill never seems to stop increasing – but why? All of this is happening because of traditional media companies are being forced [all-be-it poorly] to deal with the evolution of technology and society while still maintaining a healthy bottom line for shareholders.

Yesterday

NBC, ABC and CBS were all formed in infancy of television in the 20’s, 30’s and 40’s (respectively) and are considered by most to be the pioneers of broadcast media. As the idea of television and the adoption of [somewhat] affordable televisions flourished in the 50’s and 60’s so did the content (programming) which gave people a choice of what to watch. Fast forward to the 70’s-80’s and the expansion of satellite communications, cable companies were born began offering a dozen or so channels all provided by broadcasters and television networks dedicated to providing unique content to win viewership.

The 90’s were [by far] the most influential years in broadcasting and telecommunications because of the telecommunications act of 1996; it seemed like everywhere you looked, people were ditching tradition communications methods and laying fiber. Soon enough, towns, states, countries and continents were interconnected with ultra high speed fiber optic cables with massive carrying capacity (bandwidth). Evolution and innovation soon led to cable companies abandoning high-cost satellite communications and using low-cost fiber optic communications; with this came the [almost overnight] addition of dozens (if not hundreds) of cable channels and ability for the cable companies to offer more services and thus higher prices. Along side of the TV medium, telecommunications evolved from analog to digital and communications began to travel over the same fiber optic cables as TV, giving the telecom sector greater capacity, lower costs and a much healthier bottom line.

With the new millennium, came a nasty bubble called “the tech sector” — A sector of business devoted to technology (which included new media and telecommunications) and the race to get funding for all of these great start-ups that projected gazillions of dollars in profits because “they were innovators”. Innovations which were reactionary over the short-term, not evolutionary and vetted for success over the long term. Cable/satellite, telecommunications operators and content providers have always played everything safe and had no significant need to rapidly innovate because their transmission medium was very cost effective and healthy for the bottom line. After the decimation of the entire tech sector – post bubble, the only companies left unscathed were the less risky and larger companies with healthy cash flow.

Lessons learned from the tech sector disaster taught venture capitalists and companies across all sectors to be more strategic with their endeavors and look at things from a longer-term, evolutionary perspective – a very good lesson learned. Where companies will begin to fail is when they try to retard/stop the continual evolution of technology over the long-term; the only person this hurts is the consumer. Over the past few years, news headlines reading “[insert random cable company/satellite operator] in a fight over carriage fees” or “[insert random cellular provider] charging astronomical overages” or “[insert random ISP] initiating metered billing” have become more and more common. Every one of these scenarios is not evolutionary, it is reactionary to companies falling significantly behind where technology has gone the past few years… If you strip off all of the marketing rhetoric, the end result is higher prices/fees and greater profitability.

The Technology

In all fairness, if a company innovates and introduces something NEW (not just re-branded garbage) they should be able to charge and make a profit. Every content provider (cable, satellite, network and broadcast) either provides or receives a digital version of content (usually) over fiber optic communications lines. On the other side of the sector, telecommunications providers use the same fiber optic lines to interconnect telephone and data networks at the speed of light with very minimal cost per concurrent call or per mb of data.

Yes, fiber optics have a fixed capacity (let me finish techies) – Originally, Fiber optic communications had a capacity of 1gb/sec, but with the innovation of equipment manufacturers, we have been able to use the EXACT SAME piece of fiber optic cable and turn 1gb/sec into 10gb/sec, into 40gb/sec and now we’re seeing 100gb/sec on the same cable – the only change is a piece of equipment on either end of the cable. In-turn, the cost per mb versus the carrying capacity becomes cheaper and cheaper as technology evolves, essentially giving both cable/satellite/content and telecommunications providers higher and higher profit margins.

The Business Model

Cable/Satellite providers are simply a distribution point for the people who create the content (either network or broadcast programming). Twice a year, every year you can expect a rate increase unless you’re in a long-term contract with them (which – let’s face it, you’re in a contract with them, like it or not). This has been the industry “norm” for as long as I can remember… I could safely estimate that a typical family writes a check to the cable/satellite provider for (around) $90/month. Yes, you get a HUGE selection of [mostly] pointless channels, along with east coast and west coast feeds coupled with channels in a language you may not speak, because “this is the norm”… The evolution of television and the technology behind it is shifting away from a “tune in every Monday at 8:00pm ET” to an “I’ll watch it on the internet when I get around to it”

The very thought of being able to watch content instantly any time of day or night via any standard broadband connection erodes at the very foundation of the entire broadcast industry; in a way – transforming it from “broadcast” (or controller) to “on demand” (or not controlled). Cable/Satellite providers pay huge fees to the content providers to carry their programming and get into pissing matches every time someone wants to raise rates – essentially ending in blacked out programming (cough, DirecTV) and ultimately pissing off consumers.

One the other side of the industry, the major telecommunications operators are mostly owned in-part by a parent company which has a broadcast model (ie: AT&T Wireless vs AT&T U-Verse, Verizon Wireless vs Verizon Communications/FIOS, NBC Universal vs Comcast, etc). Collusion is one way to put it – While technically “not” the same entities, they are close enough to look out for each other and strategize how to extort extra fees for “re-branded garbage” not innovating and evolving.

Where things get really shady is the fact that the telecommunications companies are already seeing a shift into people using data for everything… VOIP, streaming video content, and teleconferencing – all things which utilize large amounts of data (which used to be unlimited). To protect the broadcast industry, the telecommunications companies are artificially placing caps on the amount of data you can use in a single month and charging astronomical overages which vary drastically between companies. Why? It’s simple, they know that traditional media is a dying business model and the evolution to an on-demand environment means that any profitability for the parent company will have to come from the data (internet) side of things, which (as previously stated) is getting cheaper with every innovation and evolution in fiber optic and wireless communications – so why are we paying extra to use data that is costing them less?

I will give special mention to two innovators [in my opinion] that have been pioneers in the evolution to an on-demand environment:

Netflix is one of the largest and longest running streaming-content providers on the internet. While their content [in the past] has usually consisted of obscure “B” movies you’d end up watching if the content on broadcast/network TV sucked, they have (very recently) focused on more TV shows versus movies – creating a very easy and cheap way to access great shows (past and [somewhat] current).

Apple (sigh) has the money and size to shake up the cable/satellite industry and turn it into what we want it to become. Look at their AppleTV platform – cheap, extremely easy to use and I can get a season pass of my favorite TV show for roughly $40 and watch the newest episodes.

Tomorrow

If movies serve as any predictor, by October 21, 2015 I should have a hoverboard and a flying car than can take me “Back to the Future”. In reality, the continual evolution of broadcast and telecommunications is inevitable and is moving towards an on-demand only model but adoption is being slowed because of low cap/high overage business models from telecommunications providers, specifically designed to make an on-demand only model not financially feasible for the typical consumer.

Cord cutters

My name is Sean Brown, I am what the internet considers a “cord cutter” and what the cable/satellite industry considers “a myth” – I do not subscribe to Cable/Satellite and my internet access is un-metered and provided by my building (included in the lease at no extra cost). I subscribe to NetFlix and happily pay my $8/month and catch up on back episodes of TV shows I missed and yes, still watch obscured “B” movies at times… I use my AppleTV and subscribe to 3-4 season passes and watch the content I want to watch, when I want to watch it.