Last week, Mashable’s Jason Abbruzzese wrote that “big cable has just been dealt a big — and maybe mortal — blow” by the FCC’s decision to move forward with rule changes that will allow consumers to use third-party devices to access cable and satellite content (think Roku, Apple TV, Amazon Fire, etc.) instead of being restricted to set-top boxes provided by their MPVD providers.
It is true that people are shelling out a lot of money.
“U.S. consumers spend a whopping $20 billion a year to lease these devices,” wrote FCC chairman Tom Wheeler in an op-ed piece for Re/Code. “Today, 99% of pay-TV customers lease set-top boxes from their cable, satellite or telco providers. Pay-TV subscribers spend an average of $231 a year to rent these boxes, because there are few meaningful alternatives.”
But Abbruzzese’s apocalyptic take on the situation is more than a tad too hyperbolic. While set-top box rental fees contribute to the bottom lines of cable providers, the MVPDs themselves have been pushing to bring their offerings to other devices.
Exploding Plastic Inevitable
According to a Pew Research Center study released in December, 19% of adults ages 18 to 29 have become cord-cutters, while another 16% are cord-nevers who have managed to survive without ever paying for an old fashioned cable or satellite subscription TV package. With the rapidly growing popularity of streaming services, those numbers will only trend upward in the years to come.
People want their content where they want it, when they want it. The MVPDs know it and they’re scrambling to provide it to their customers with services such as Dish’s Sling TV.
The FCC is taking away the MVPDs control of the situation, as well as some cash in the short-term. But it’s really just making them adopt policies the consumer is going to force upon them in the coming years. By making MVPDs rip off the band-aid and get on with it, the FCC is probably doing them a favor in the long-term.
Remember When We Couldn’t Own Phones?
The scenario is reminiscent of the breakup of Bell System in 1983, which ended AT&T’s monopoly on the phone business in the U.S. Prior to that, people did not own their own phones, they leased them from the phone company. Even if they purchased a phone in a store, they still had to pay Ma Bell a rental fee.
The break-up of the Bell System monopoly didn’t kill the phone business, although parent company AT&T was eventually acquired by one of its own spin-offs, SBC Communications, which adopted its name and branding. As predicted, the de-monopolization brought increased competition from companies such as Verizon (formerly Bell Atlantic) and Sprint. But it was not all upside. While the Bell break-up led to a drastic reduction in long distance rates, it also resulted in increases in local rates that outpaced inflation.
That glass half-empty/half-full scenario is likely to play out with the MVPDs as the move away from the set-top box.
In November, Time Warner Cable debuted a trial program in New York that allows its customers to eliminate the cable box and instead stream through the company’s app on Roku, iOS, Android, Amazon Fire tablet, Xbox 360, Xbox One and Samsung Smart TVs. But while it might represent a leap forward in convenience, it’s not necessarily cheaper. For instance, Time Warner’s 70-channel package is $10 a month more expensive than it is with the cable box.
Don’t Cry for the Cablers
In many ways, the telecom companies are ahead of the curve. AT&T, Comcast and Verizon have all invested heavily in mobile-first content and platforms. It’s possible we may soon think of them the way we once thought of ABC, CBS and NBC.
In the meantime, traditional cable stalwart ESPN is rapidly losing viewers, which is in turn dragging down the stock price of parent company Walt Disney (also owner of ABC).
As Peter Guber, co-founder and CEO of Mandalay Entertainment and prominent new media investor (NextVR, Jukin Media, etc.), is fond of saying, “The railroad industry made a big mistake in the 1930s when it saw itself as being in the train business instead of the transportation business.” The TV business should be mindful not to make a similar mistake.