For Cable TV, the Mayans were four years off

Earlier this year, I wrote in "The Graph":

There’s a falling line indicating the amount of money studios and networks estimate they’ll make by continuing to stick with the distribution channels they have now; there’s a rising line indicating the amount of money they estimate they could make by embracing the Internet wholeheartedly.

My mockup graph showed those two lines crossing in mid-2015, but that wasn’t an actual prediction—it was just a depiction of, well, a graph. As it turns out, I don’t think I was far off the mark, however accidentally. Two other news stories—one widely-reported from yesterday about Disney and Netflix:

Netflix Inc. has acquired exclusive U.S. rights to movies from Walt Disney Studios in a deal that catapults the Internet video-on-demand service into direct competition with pay TV giants such as HBO and Showtime. The three-year agreement takes effect in 2016…

One thing that not all the stories emphasized enough is the word exclusive. Disney, Pixar, Marvel Studios, and Lucasfilm movies won’t show up on Starz or HBO or Showtime for their pay channel debuts. They’ll show up on Netflix.

The other piece is an interesting NYT column from NPR’s “Planet Money” guy, Adam Davidson, about why cable television networks are able to afford to produce great shows. As you probably know, cable channels charge the cable operators to carry them—which is in large part why cable is only sold in “packages” rather than letting you just get the channels you want: charging you for a bunch of channels you don’t want is the only way a lot of channels—including the ones you do want—get revenues. AMC, the channel behind “The Walking Dead” and “Mad Men,” charges operators about 40¢ a month per subscriber, whether or not they care about AMC. This weird model makes the cable industry insanely profitable.1 Yet…

…the cable industry is dying—albeit very, very slowly. [Anaylst] Erik Brannon notes that while few people choose to drop their service, young people aren’t getting hooked up in the first place. When people in their 20s move out of their parents’ house or dorm room, they are less likely to get into the habit of paying for cable. With their subscriber base slowly dwindling, cable companies are forced to make up the loss by charging an ever-smaller audience ever-higher rates. As such, Brannon says he thinks that cable bills will eventualy become so high that significant numbers of subscribers will decide to drop the service altogether. He estimates that this should happen sometime after 2016. At that point, the model may collapse altogether.

Disney—possibly due to their association with Apple through Pixar—has often been faster to embrace new business models than their competitors. But I’m betting they won’t be the only company to make a deal like this, and I think we’re beginning to see when the two lines on the graph cross.

  1. Which, it’s worth noting, for decades it wasn’t. Entering the market is horrifically expensive due to infrastructure costs; local cable companies were often granted monopolies because it was the only way for them to make a profit. 

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