Netflix and Hulu aren't disrupting cable TV

I’ve already discussed why unbundling cable won’t actually unbundle cable.  Now, I’d like to discuss how simply moving shows from cable and satellite TV operators to streaming services such as Netflix and Hulu isn’t disrupting the cable TV industry.  A few cable networks may go out of business, but the industry won’t truly be disrupted, and consumers may or may not end up better off than they are today.  What should be much more worrisome for the incumbents in the industry is highly relevant, short-form, (semi) professional content delivered to users on the devices they choose through a superior user interface. Clay Christensen’s theory of disruption states:

'a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors'

This is typically accomplished with lower cost structures and/or alternative business models that are dismissed by incumbents at first, but move up-market until they are ‘good enough’.  Moving distribution of music albums to the internet did not disrupt the industry - piracy, the fall of the album, and the rise of the single did.  I believe the same thing will play out with television.  Presently, Netflix, Hulu+, and Amazon Prime are large bundles of professionally produced long-form content sold for a monthly subscription fee.  This is essentially the same model the cable TV industry uses, with the important distinction of focusing on live/first-run vs on-demand archived content.

The movie studios and TV networks and their production arms still produce the vast majority of content available on the streaming services.  Furthermore, other than the original content the streaming services produce, everything in their libraries is made available first elsewhere.  Several companies have tried, but none have been able to strike content deals to deliver a cable TV package over the internet other than cable companies themselves, and a product still hasn't been brought to market.  Although some content, investment dollars, and creative talent are moving to streaming services, this is clearly not disrupting the industry.

Even if more content is distributed first over the internet, much of it will still be produced and financed by the traditional players, and it will likely be sold to consumers as part of a large subscription bundle. This may lessen the need for TV channels that primarily air reruns of popular shows or old movies, but again isn't disruptive to the industry.

Consumers may actually be worse off in some ways during this transition.  Imagine having to continue paying a cable TV bill to watch live sports, the news, and some high-budget shows, while also subscribing to one or more streaming services for their original/exclusive content and on-demand library.  In some ways, this is already happening.  Hopefully, the streaming services do a better job of making their content available on all devices without complicated authentication procedures and time windows, and that makes up for the increased cost.

In the unlikely scenario that everything is shifted to the internet and delivery through cable/satellite completely goes away, the industry is just swapping one service provider for another.  The structure remains mostly the same, just delivered through different cables in the ground. The TV networks and studios would finance and produce shows, then likely sell them as a bundle to the video providers, and consumers pay Comcast online or Netflix instead of Comcast cable.*  This situation has the potential to be much worse for consumers.  Internet delivery could enable a single company to have a monopoly, or a situation could arise where every TV network wants their own subscription service (just like in the early days of online music where every record label wanted to operate their own store).  Hopefully, things would play out like they ultimately did with music and there would be multiple providers with mostly the same content, but the streaming industry isn't going down that path right now.

What does have the potential to disrupt the incumbents in the industry are platforms like YouTube and their huge base of content creators.  There is so much free ad-supported content available on-demand, some of which is very well done.  I already subscribe to several amateur or short-form YouTube channels related to my favorite sports teams and hobbies.  Now, an entire generation of people are growing up with the tools to create entertaining content in their pockets.  It will be interesting to see how storytelling, reporting, and entertainment evolve on these platforms in the future.  The biggest challenge may be content discovery, not the type of quality of content being produced.

However, this doesn’t mean there is no need for professional long-form content.  I have no desire to watch an NFL game streamed over the internet from someone’s shaky smartphone camera, nor do I want to watch breaking news coverage from bystanders with a camcorder and microphone.  Even in today’s world of free blogs there is still a need and a market for publications like the New York Times and Wall St Journal.

It will be interesting to see how all of this evolves, and what type of content will end up on what platform.  I’m not looking forward to a world where I need to subscribe to four different bundles to access all of the content I want.  However, I don’t want a single company to rule everything and slow the pace of innovation either.  I think there will be a long transition phase before all of the dust settles and the major players emerge.

*One dynamic that has the potential to change which I haven't touched on is advertising.  Will content delivered over the internet have typical advertising breaks?  Will it only be for live programs or pre/post-roll?  Will some platforms have advertising, while others will be subscription-only?  This will be very interesting to monitor.