There’s a seismic shift in televised entertainment, one so big it’s impossible to miss. People are watching less and less TV, or at least TV administered through a cable box and displayed onto a large HD screen. As appetites shift and convenience trumps content, people have begun looking at their cable subscriptions as ancillary. While internet — which was finally declared a utility late last year — has become extremely important, its bundled cousin has fallen by the wayside.
The chart here, courtesy of the suddenly click-baiting Wall Street Journal, tells us what advertising and media executives already know – younger people aren’t watching “traditional” TV. They’re still watching content, but it’s rarely live and rarely on an actual television set. Television networks make their money by selling commercial time, with the most-watched shows generating the most advertising revenue because advertisers want their products to be seen by the most people. This is why a 30 second commercial sets a company back more than $3 million.
But if people aren’t watching TV, advertisers won’t pay to display their products on TV. And if that happens, networks are going to run out of money. So they’ve looked at ways of monetizing the content people are actually watching. This is why YouTube has those ads before most videos and podcasts are usually sponsored by at least one company.
This is also why sports are one of the last bastions of advertising dollars. People rarely watch sports on delay or even days later because the result will likely be spoiled by the time they tune in. Live audiences are almost forced into watching commercials — turn the channel and you may miss the key play in the game. Television networks know this, but so do professional sports teams, which own the regional broadcast rights to their games and have the power to sell them for whatever they can get. This is why Time Warner paid more than $7 billion (yes, billion with a B) to air 25 years of Los Angeles Dodgers games two years ago. That deal, arguably a disaster, still guarantees that the Dodgers can spend $280 million on player salaries annually with the money they’re getting from Time Warner alone and still break even. To put that in perspective, the team itself was sold for “only” $2 billion in 2012.
Changing viewing habits threaten to eventually eliminate those types of deals, potentially bringing down the cable bundle altogether. Networks have begun preparing for this, releasing stand-alone apps that bring their content to tablets, phones and computers. Want to watch last night’s The Daily Show? There’s an app for that. Want to watch a Yankees vs. Red Sox game? There’s an app for that (provided you live outside both New York and Boston, and the game isn’t broadcast nationally, and you have a paid subscription, but still). Want to watch Vince Vaughn’s eyes slowly die onscreen in True Detective? There’s an app for that.
Right now, all of these apps have some kind of restriction, whether it’s monetary, location or time. Professional sports leagues require a large monetary investment and even then can be subject to blackouts. Free apps, such as Comedy Central’s, post shows the following day and still have advertisements. For apps such as HBO NOW or Netflix that charge a monthly subscription, there’s the bang-for-your-buck fear. If there’s not enough content — in terms of quality, quantity or both — people will cancel their subscriptions. If AMC functioned like HBO and they suddenly lost The Walking Dead, would the company go under within a year?
Acquiring and creating this level of content costs a substantial amount of money, which means that those monthly fees need to be adequately high. Netflix has already openly talked about raising subscriber fees and others may feel the need to as well. While sports leagues like the current model a lot, league executives know that they’ll likely have to remove their trusted blackout policies. Opening such a door would lead to increased consumer revenue, but would piss off TV providers and network owners, some of which own teams themselves (hello, conflict of interest!).
The irony is that on a granular level, consumer tastes won’t really change that much. Yes, the platforms for content are rapidly shifting, but people who want to watch a lot of TV will end up subscribing to HBO, Netflix, maybe a couple of basic TV and basic cable apps (which will look a lot like CBS’s app) and maybe ESPN. Together, those apps might run upwards of $100 and would only provide the bare minimum acceptable to that individual. If they want more, they’ll likely wish an internet bundle existed.
Obviously, the shift in content and its platforms will be unpredictable, but advertisers will certainly find their a way to connect with their target audiences. The leaders of TV were those that got there first (NBC, CBS, ABC, FOX) and those that built the most passionate audience (ESPN, Fox News). It seems likely that if the internet were ever to look like television does today, those same types of leaders would be best positioned to rule. If we want bundled content, Google and Facebook will likely figure out a way to provide it for us. It’ll be the same story just with different people pulling the strings and connecting the tubes.