Is Cable Hanging By a Thread

We're talking more about the business side, right right, because this is a really rapidly developing industry and and a lot of it's kind of freaking out right now. Yeah, because of the changes that have gone on in in the way that people are consuming content with greater broadband access. And actually before before we got started too far into this, we we did want to mention that, yes, How Stuff Works is owned by Discovery Corporation, which is a cable

co intent provider. Yeah, it's a company that owns several cable channels. So, uh that that is a good point. That's something that we definitely need to get out of the way. And now it's out of the way. In the beginning, there was broadcast TV, and it was okay, So broadcast TV. Yeah, we're talking about you know, you had you had stations that could broadcast over the air

as in there they are broadcasting radio waves. They would have a transmission antenna that would shoot out broadcast waves of TV, and you would have your little reception antenna, your little rabbit ears and you would have to tell your your your kid brother, no, no, it's still just snow.

Turn it to the left, No, my left, not your left, until you could finally be able to watch all in the family or something so um the weird dated references that I don't even get anyway, the idea was that you would send this all through radio signals, but it did mean that, you know, you had a lot of different factors that could impact the quality or even the ability to receive television. It was pretty limited in power

and scope. Yeah, you had a certain number of stations that you could receive, and they were all regionally based. You know. There weren't really any national channels other than stuff that could be rebroadcast from one from one tower

to another. And um and and really, I mean, the thing about the electromagnetic spectrum is that it's not infinite I mean it's it's you know, it's pretty wide, but there's only so many radio channels that you can broadcast on right exactly, And it's different in different countries, like in the United States. If you look at the spectrum from a transmission standpoint, you'll see that there are entire bandwidths that are set aside specifically for things like television broadcast,

radio broadcast, and then there's a whole bunch of government ones. Anyway, you know, you have to play within that and you can't play within the same space that someone else is playing with within that area, or else you get a

signal confusion. So h There were other problems with this approach, and one of them was that people who lived in remote areas often could not receive any sort of television programming, which can be a problem if you want to use TV to communicate something widely, or you just want to try and reach as many potential customers. If you are someone who's creating ads on this television platform. U So,

what could you do? While in nineteen which this actually surprised me that was this early n you actually had a few companies begin to experiment with delivering broadcast channels with cable. They were using the instead of using it as a broadcast radio signal, they were putting these signals through copper wires essentially. And this was just a few small communities out in Oregon, Arkansas and Pennsylvania. Yeah, Pennsylvania I think might have even been the very first one.

So you start seeing this experiment. Now, in this case, it's really the broadcast channels that are being put over the cable. It's not like suddenly everybody had HBO right right now, know, um, And you know that television production to begin with was very small at this point, and it was not twenty four hours of content. It was just a few shows that would air at peak times. And uh yeah, we're talking like the same source stuff you would be able to see if you had an

antenna and could pick up the local stations. So nothing beyond that. In nineteen sixty we started to see cable began to enter major metropolitan area markets. So now it's no longer just a tool to get television out to remote areas. Now it's an alternative to broadcast TV, but it's still at this point was mostly covered carrying the

local area networks. It wasn't like again, there weren't like these big national UH companies that spread from coast to coast right It in fact wouldn't be until an entire decade later in nineteen seventy that the first UH cable programming networks would begin to launch. Right now, this is where we start seeing. We have the big broadcast companies still like ABC, NBCCB, Yes those were those were well established.

But this is when we start seeing the smaller cable companies that were independent of these big broadcast companies become an actual thing and be able to get a national reach. Now before, if you were to create your own channel, you would have to be able to muscle in on that broadcast spectrum we were talking about. UH. This way you could suddenly have lots more bandwidth to play with and you could create, you know, your crazy wacky channel company.

And a lot of people tried it, and so nine two, one of the biggest ones debuted that would be HBO. There was no UM and it's a it was a subsidiary still is of of Time now it's Time Warner, but it's just Time Incorporated. Yep. And they purchased it might sel familiar what they would do. They would purchase rights to recent movies, and they would also purchase the right the broadcast rights to sporting events, and that was how they made their name. Back in nineteen seventy two, Uh,

nineteen seventy six saw another interesting development in cable. That was when TBS became a superstation. TBS ends for Turner Broadcast Station and uh after Ted Turner, who is, Hey, he's a neighbor of ours here in Atlanta. I mean not not a direct neighbor. I mean he doesn't live in my neighborhood. No, no, no, he could own my neighborhood. Several times over. His restaurant is right down the street from where I live, one of them, Ted's Montana Grill. Anyway, Um, Turner,

he had this idea. He had this station that he had he was producing that was mainly for the Atlanta area, the Turner Broadcast Station, and he thought, well, with cable, I could turn this local station into a national station. I could distribute this local programming across the entire United States. And this was the first time anyone had had tried this, and it was a big success. Turner had had seen great success with the Turner Broadcast Station and many other

channels followed suit. In fact, I remember as a kid growing up being completely flabbergasted that we were getting a station out of Chicago and it was Chicago programming and everything was an hour off. And also I remember being very confused about that. As a child, I had never seen Bozo the Clown until we got that channel. And then I became a big fan of the Grand Prize Game. Uh so lots of stations started experimenting with that. By

cable television had exploded. In fact, that's right about when my family got cable TV would have been nineteen eighty UM, and dozens and dozens of channels began to join this, this new revolution in entertainment and and delivery. So this is when you started getting things like m MTV. First video on MTV, of course, video Killed the Radio Star by the Buggles, um, and then um after let's go forward in a full decade. Cable through this decade does

really really well. Ah yeah, seven percent of households in the US are subscribed to some kind of cable video service. Yeah yeah. And keep in mind that when we're talking about cable here will also later be talking about things like satellite television. Uh, cable almost becomes like a just kind of a general term meaning right right, it's a weirdly antiquated in some ways. Uh yeah, umbrella term I

think for for media. At this point, we're going to be using it mostly as shorthand meaning both cable and satellite when we get toward the discussion of cord cutting, just because saying cable and satellite over and over it gets a little tedious. Yeah, it would make our episode even longer. Yeah, and we heard your cries people two thousand one, actually mostly I hear our producer cry. In two thousand one, the average pay TV cable monthly bill

in the United States was forty dollars sots. Yeah, we'll get into why that sounds lovely and a little bit. For those of you who actually are in charge of your cable bill, you already know why forty dollars a month sounds lovely. Uh. From two thousand and eight through two thousand eleven, this is a period that I wanted to talk about because, according to the Convergence Consulting Group, around two point six five million people in the United

States dropped cable TV entirely. They just they stopped subscribing. They canceled their subscriptions, meaning that they also didn't go to satellite. They got rid of any sort of provider from that side. And we call this cutting the chord. Chord cutting where you're you're no longer getting your entertainment through these channels or these platforms is so confusing. The terminology here, by the way, is pretty tough because a lot of the words we want to use mean multiple

multiple things. But anyway, the idea is that they go mainly either to the Internet for all their entertainment, or they don't know, go outside or something. I don't understand these people, honestly, But two point six five million people and now that might sound like a lot, but you're talking about lots and lots and lots of customers. Now. According to Nielsen, one point five million customers dropped multi

channel subscriptions in twenty eleven alone. So if you think two thousand and eight to two thousand eleven, two point six five million of them dropped cable. If two thousand eleven one point five million of them did, that means more than half of that number dropped in twenty eleven, which could possibly mean we're seeing a trend that is

on a very rapid climb right right. According to the Wall Street Journal, um was the peak of cable subscription cable subscribers actual the United States, and since since then it has been in in even more steep decline than this initial period of broadband affecting things right, right, And we should point out that if you look at the numbers, if you look at the full numbers of cable subscription, which is tough to do, by the way, you have to rely on a lot of different consulting groups doing

their own work, because uh, it's it's not easy to get all these numbers and make them meaningful. But in general, it looks like satellite has had modest growth, and by modest I mean like one point six percent growth, cable has suffered a minor decline like three point one percent, and Internet provided TV or Internet I p t V. I should say UH has had a significant increase at for over a two year period. But while that sounds big,

the numbers themselves are actually small. It's it's big growth, but it's like a small group of users into a slightly less small group of users, right, So if you if you go from five people to ten people, that's huge growth. That's right. But if another company loses five customers when it has millions, like they're like, what, I did not notice that buzzing little sound in my ear? So anyway, complicated issue. We'll get more into that in

the second half. Now, in at that peak of able subscription, when we're seeing all this stuff happen, the average pay TV cable monthly bill is now eighty six dollars per month. So in two thousand one it was forty, it's eighty six. So and to be fair, there has been a pretty steep inflation rate over that period of time. Yeah, yeah, yeah, it's not it's not just that the prices doubled or

more than doubled. It's also inflation which caused caused however, that's that's I mean, it's you know, the inflation rates certainly didn't go up that much, right, that was still a pretty pretty sharp And two thousand and twelve, the National Cable and Telecommunications Association estimated that there fifty seven point nine million customers for cable video and forty six point four million for digital video, So cord cutters are

about two point five percent of the entire TV viewing population, So two and a half a percent of your population decides to stop using the product. That's not that big a number in the grand scheme of things, or it's not that big of a person synage, I should say. But another survey found that nine of cable company customers had canceled service within the that previous year. So nine percent of the people they surveyed said that they had canceled their service. So so again the numbers are are

kind of squiggly and complicated. In twelve, New York Times reported that there had been about a three percent per year decline and cable subscriptions for a while, right, And you know, some of that might mean that it's not just people canceling, but we'll we'll explain that in the second half. So twenty thirteen, that's this year we're recording this.

In August two thousand thirteen, um Nielsen reported that in its fourth quarter two thousand twelve cross Platform report that there were more than five million households in the United States that fit its zero TV definition, which that definition meant that the households got entertainment not through television but through computers, smartphones, and tablets, and that in two thousand seven it was sorts of two million, so more than

doubled within six years. Now. We should also point out that this is kind of a weird definition to say zero TV and that they only get their their their entertainment through computers, smartphones, and tablets, because there are lots of different solutions out there, set top boxes, for example, that are not getting cable or satellite. They're getting Internet content, but they are streaming television. Yeah, they're streaming to a television set. So I don't know if the zero TV

definition takes into account those people. See I'm one of those people. I have, like you know, I have an Xbox three six which pulls in content. I've got a PlayStation three which pulls in content. I've got a Chrome cast that pulls in content. I've got Roku that pulls in content. Um, I got a lot of these devices, right, So,

but I do watch the content on the television. So I don't know that, you know, if that definition doesn't uh, if I don't fall under the zero TV definition, there may be even more people than we're in this report that do not get their content through a cable or satellite provider. Other than they're the ones who provide the actual pipes that get the data there or tubes if you prefer, since that's what the and in two thousand fifteen, and I think, I know you're thinking, wait, whoa what

two thousand fifteen, But it's not even yet there. There is an estimate, Yes, there's a prediction. The mp D group estimates that the average pay TV cable bill in two thousand fifteen will be and prepare yourselves for some sticker shock, a hundred and twenty three dollars per month. That's average, meaning that they're gonna be other packages out there that are going to be significantly more than that, and some that will be less than that three bucks

per month. Yeah, so that's our timeline. But we've got a full discussion about cord cutting coming up, and before we do that, let's take a quick break to our sponsor. Okay, so we've covered kind of the timeline of cable and

what's going on with this chord cutting trend. We should stress again this trend, if it is in fact a trend, is still in its earliest days, and in fact, there are a lot of factors that complicate the decision to just cut the chord, and it all will depend upon the individuals preferences like what what do they like to watch? Because some things, if you like certain things, you know, you need to have cable, you know, certain sporting events. That's a big one. Sports is like the biggest one

because sports companies have very complicated television deals. And anyone who's tried to follow sports and has also looked at cutting the cable or cutting the chord has found out that this can get pretty complicated. Yeah. I've had a few, um international football fans who who soccer fans for US folks, um that that you have to gote like like, well, I can't I can't do this because this, Yeah, because then I can't see anything or you know, I I

am a casual baseball fan. But the way that baseball agreements work on television and cable means that if I were to go with an online solution, like I I subscribe to Major League Baseball and get get games through there, there's still some agreements that say that if a game was to be shown in my local area, it cannot be shown on the internet, which means that if I don't have that access, then I don't see that game.

So clearly sports is one of those things that if you're a big sports fan, there are really very few options that will satisfy you entirely. Not that there aren't options out there. There are a lot of them. They're just not gonna necessarily meet your needs. So let's talk more about this whole cord cutting cable subscription problem. So cable subscription growth has kind of wobbled, like we had said, it dips a couple of times, it's kind of held

steady more less in about totally. If you're talking about pay TV subscriptions, not just cable, but pay TV subscriptions across all the providers are about a hundred point eight million customers. But the number of occupied households grew. Yeah, so you get one point to five million more households, but the actual subscription numbers stay steady. This tells you

a couple of things. It tells you there's some combination of new households that are not subscribing to cable, or if all one point to five million people are subscribing to cable, that means you lost one point to five million existing customers because your numbers stayed the same. So there's some and there's it's more likely a combination right, there's some people who just said I don't need it, so I'm never going to get it, and there's some people who are like, I want it, and then some

existing customers saying I am not doing this anymore. So the with the numbers staying steady, that's you know, everyone wants to see growth when they're in a business. They want growth year over year, and they want that rate of growth to grow in turned. So, now, according to the Multi Media Research Group, there are about eighty four point five million pay TV subscribers in the United States in and cable accounts for forty eight point seven of

that number. Satellite was another forty point four percent, and then you have I p t V, which was ten pot nine. Now, like we said, out of all of those three, ib TV had the biggest amount of growth,

but it was also the smallest number of customers. Right, So really, you know, a significant growth for ip TV would be insignificant for cable or satellite, is what we're saying, because just because of the numbers game and boy aren't percentages fun And we don't really know a lot about people who just don't ever subscribe to cable, Like there there's a generation now that's entering into their first living away from home. That ver so the millennia alls and younger. Yeah. Yeah.

Charlie Organ, who's the chairman co founder of the Dish Network. At UM the Dive into Media conference, which is a big executive kind of thing that happens every year, was talking about, um, you know, the fact that that college kids don't subscribe to cable packages when they're in college because they've got broadband at school and cable is expensive, and then they're getting out into maybe the workforce or maybe they're having trouble and they're continue and that they're

just never going to buy it. He joked, there's a reason that tobacco companies giveaway free cigarettes at colleges. Wow, what a great joke. Boy. I sure wish I had said something like that to be recorded for all time on the internet. He said sarcastically. Um, yeah, so we don't really know how many people don't subscribe, because I mean, these these are numbers that don't tend to get counted in surveys. Yet again, it's difficult to record something not happening.

But if it does mean that there are more and more people who are never becoming so subscribers either to cable or IPTV or SATURDAYLA or whatever, and they're just relying on other services, things like the streaming services will talk about in our companion piece, or just you know,

anything that they can get online. If if that's a growing trend, that's bad news for providers, all right, especially because over this period of time, broadband subscriptions, you know, people who are who are purchasing plans to get broadband into their home are on the rise. Yeah. Yeah, the

cable television portion of it is in decline. So there is some worry within the cable industry, particularly in the cable providers and satellite providers, that what they are going to end up being will be don't what they call dumb pipes, meaning that they'll just they'll just provide that connection that Internet connections, So you'll still subscribe to have the Internet connection, you'll still subscribe for a monthly plan on that. But that would be what the cable companies

could turn into. If you're looking well into the future and assuming that these trends are one reel and two going to continue, which by the way, is still really early, and there are a lot of things that cable companies can do to either address this issue or at least make it last longer. Huh. And we'll talk about a little bit of that, but uh, we don't know what's how it's going to turn out. So I know a lot of people kind of have this foregone conclusion that

cable companies are are on the way out. It's just

a matter of time. People for the past four years have been saying it is the end of television as we know it, and that gets complicated, I mean, because when you're talking about this whole system going away, it changes everything about the entertainment industry and the television industry and the way that all of these contracts are drawn up and where the money goes and who gets how much of it right, and whether or not we ever get another awesome, well produced television series or if everything

has to become something on the cheap because suddenly the money that would be going into the system and providing the ability to produce this content suddenly goes away. Um, So let's talk a little bit about where this, this whole, this whole process comes from, Like what is going on with cable, What is going on with the content that comes to you the viewer when you turn on your television, and what is it that's driving the changes for people to make these choices to cut the cord. Now, Uh,

let's talk about the different groups involved. First of all, when you're talking about television show, like a specific show, Um, I don't know, I'll pick Supernatural because I haven't talked about it in like fourteen or fifteen episodes. So Supernatural, You've got the company that actually makes the show, the content creators, all right, they have entered into a deal with a particular channel, whatever channel it is that runs Supernatural, which I honestly don't know because I get it on.

I think it's the c W. Yeah, so the c W. So you've got the the show that then has the relationship with the c W. C W is paying essentially to have this show on its channel. Then you've got the cable company. So in this case, i'll talk about Comcast. It is a service provider, Yeah, it is. It is what sends the tubes into your home. Right, So Comcast says, hey, I want to have the c W as part of my my library of channels. Yeah, the package of channels

that I offer my subscribers. And so then uh, the cable provider will pay a certain amount of carriage fees usually is what we call this, to carry that channel into its package. And then you've got the actual customer, the person on the other end who's paying a subscription to have access to all of this. Where this gets really complicated is when you start talking about big, big

companies that own lots and lots of channels. So for example, Viacom owns many different channels, MTV Nickelodeon, MTV two, MTV seventeen, or or Disney's entire ABC, ESPN, Disney channels. So you've got these different giant companies that own multiple channels, and what they'll do is they'll do something called bundling where they bundle these channels together in a single package and say when the cable company comes up to them and say to Disney, for example, and says, hey, Disney, we

want ESPN. We have to have ESPN in our package because otherwise no one's going to buy it, Disney can say, all right, but you also have to take ABC Family, and you have to take Disney Channel, and you have to you have to pay for all those or you

don't get ESPN. They all get bundled together. So this sort of arrangement allows big, big companies to do things like not only get money for channels that might be a hard sell otherwise, which which can be great for the content creators at the end of the day, and it could be great for the audience too, and maybe that there's a very small audience that tunes into that channel, but they may find the programming on that channel to

be exactly what they want. Or if you ever hit that station randomly in the nine two channels they have to have, you might find something new that you like exactly. So it's not we're not saying that the channels that are generally speaking, you know that that perform at a lower rate, are necessarily worse. They're not. They're not. There's nothing about that that makes them better or worse than

any other channel. It's just popularity. It is an individual decision which becomes a non individual decision because of the

way that these cable companies are bundling these packages. Right, So you've got these big bundles, and so a cable company, a cable provider, not the not the mega corporations that own all the channels, but a company like Comcast takes a look and says, well, you know, I'll go ahead and pay for this big bundle of channels because I want this one or two channels that are really popular

for my subscribers. I'll pass the cost onto the subscribers, so that will help determine how much the monthly bill is. And then you, as a subscriber to get your monthly bill. And you think, I don't even watch half these channels, or even of these channels, I never watch any of them. Why am I paying for all these channels? Well, the reason you're paying is because these mega companies that own multiple channels are saying this is the only way we're

gonna play. So that's a complicated business side of the cable industry. Now we'll talk about reasons why people want to cut chords. Part of it. We've just addressed this idea of I don't want to pay for that. Why don't I just pay for the things I like? Why don't you create a cable plan where I can pick specifically which channels I like, and I will pay that.

And if you make the bill so that it makes sense compared to how many channels I want, like you might say I want one local Channel, I want Comedy Central, I want Sci Fi, and I want h Discovery And then you're like, those are the channels I want and that's it. Well, then you know you would expect the bill to be different than if you were to get a big package with five channels. The problem is, because of this bundle deal, there's no incentive really for the

big company needs to do this. I mean it would mean that it would mean that other channels would suffer. And like we said, there are there's plenty of good programming out there that you just might not be interested in. It's just not your thing. But if they are not bundled with the big channels, that they might fail and they might not be able to to fund the creation

of these programs, right. And then if you're talking about a drop in the amount of revenue that goes to the channels themselves, the people who are funding the creation of this content, then you don't have money to produce the content, right exactly. So it's really complicated. You can't just say let's go ala carte, because if we were to try that, let's say that tomorrow everyone decided that a la carte is the way to go, you would rapidly see a lot of shows die off or at

least have their production values cut severely. It would it would be an extinction level event in the industry. It would be a huge shake up. It would be crazy. But yeah, it would be tough. I mean it would be as as a consumer, that's the thing that sounds like it makes the most sense to me, right as a consumer. As a consumer, you can totally see the benefit to you from from the side of I get

what I pay for. From the creative incorporate standpoint, of course, I understand why they why they want to, you know, continue creating what they're creating. Right. And another another reason a lot of people are looking at cord cutting is

this concept of time shifting. Now, time shifting is something it means that you're watching a program when you want to as opposed to win the program airs right, right, The DVR is becoming a you know, big enough storage capacity wise not in size um and uh well yeah, I mean like and be cheap enough. Right. This the start with the VCR obviously, but then the DVR made it much easier and now has incorporated into a lot of cable companies and satellite companies equipment where you can

have DVRs as part of the actual cable box. But beyond that, there are now services out there where you can get access to more than just the last episode or the last three episodes you might be able to get assuming that you remembered to hit record and that nothing wiggy happen VR and etcetera, etcetera. With these other services, you can see the last like five seasons of a show. And it's that kind of freedom that also gets people saying, why do I need to have a cable subscription if

I have access to all of this now? The answer to that, I would argue, is that you want access to the most recent material, which is not always possible online. And uh, if you are a bunch around a bunch of chatter boxes like I am all the time, something's gonna get spoiled. And seriously, people, you have to wait until Tuesday morning before you can talk about breaking bad because I watched that episode the day after it airs,

all right, that's just me? Okay. So anyway, the time shift and the the idea of this ala carta the two big things that a lot of people really really want. They also want accessibility across multiple devices. That's the other big thing. Sure, sure, because you're not always you're not always in front of your television. You want to be able to watch it on your laptop or on your iPad or etcetera. Right, Right, So, getting back to that whole bundling thing, not everybody is a big fan of that,

including some of the cable providers. For example, Cable Vision filed a lawsuit against Viacom because Cable Vision was objecting to being forced to pay for channels that very few subscribers ever watched, but they were being forced to pay for for them because Viacom said, if you want MTV and Nickelodeon, then you also have to take all these other channels. And uh so Cable Vision has filed a lawsuit. That lawsuit is still that was filed in early that's

that's not been resolved yet as the recording of this podcast. So, uh yeah, this is something that we're still starting to see unravel even within the industry itself, beyond just the consumer level, where you've got customers saying I'm tired of having this experience of paying for stuff I don't use. So you know, we've we've kind of wrapped up that's

that's sort of where we are today industry. Yeah. So, like I said, there there are certain things in the cable industry that I certainly find very frustrating as a consumer. I don't necessarily think that all cable companies are trying something really innovative. A lot of them are just kind of attempting to force the way things were into a new, a new world, and it doesn't It's it's like trying to fit a square a square peg in a round hole.

But that being said, I know that there are a lot of companies out there that are looking into different ways of creating content and distributing content, some of which are creating, you know, backing some of the streaming services, but a lot of individual channels will also um air their shows online streaming on you know, like like MTV site has a lot of MTV s shows right right, and and you know, again, as a consumer, that can get a little frustrating because I know a lot of

consumers just want to be able to go to one place and get all the stuff that they want. I don't think that world is ever going to be not a near future, yeah, it's all I think it's always going to be that you're going to have to pick and choose which services you subscribe to in order to get specific tie of material. There's gonna be a lot of overlap, but there's also gonna be some some areas outside that ven diagram that you are not gonna be

able to access unless you subscribe to multiple services. So that wraps up this discussion. Guys, let us know what you think. Are you big cable people? What do you enjoy? Tell us we're curious to know, and if you have any suggestions for future episodes of tech Stuff, let's know

that too. You can drop us the line on our email, our addresses, let's see it's a tech stuff at Discovery dot com, right fantastic, Or you can drop us a line on Facebook or Twitter or handles tech Stuff H. S. W. Lauren and I will talk to you again really soon for more on this and thousands of other topics that has staff works dot com