U.S. Pay TV operators lost a net aggregate of 380,000 subscribers in the second quarter, according to data compiled by IHS iSuppli. The sharp decline, which followed two quarters in which subscriber losses appeared to be stabilizing, inevitably rekindled talk of cord cutting and its close cousin, the rise of a la carte cable.
Yet for all that talk, there’s little evidence that cord cutting, to whatever extent it is truly happening, has loosened the grip of the networks or cable operators on the TV business. If anything, as I discuss in my quarterly wrap-up at GigaOM Pro (subscription required) those companies tightened their grip.
Cord cutting gets harder, not easier
The leading case in point is Hulu, which quickly became a victim of its own success: The more viewers Hulu attracted, the more content it acquired, and the more disruptive it seemed to the networks’ traditional dual-revenue stream business model, particularly as broadcasters pushed more aggressively for retransmission fees from cable and satellite providers. As a result, its network parents began to rein in their own creation.
Even as its owners solicited bids for Hulu, they were also taking steps to make it a less-disruptive force in the business, and thus a less attractive takeover target. Fox (s NFLX) led the way in July, moving to shift same-season episodes of its shows behind an authentication wall (or Hulu Plus paywall), and forcing Hulu to increase the ad load in Fox episodes. NBC’s owner, Comcast, (s CMCSA) indicated it would like to do the same, but was barred from following Fox’s lead under the conditions imposed on the Comcast-NBC merger unless and until ABC (s DIS) also went along.
The well-poisoning seems to have worked. With second-round bids due in early October, speculation was rife that no deal would happen because the bids were coming in too low — an outcome that probably suits Fox and Comcast just fine. After all, it’s better to keep a crippled Hulu close to home than risk it becoming too disruptively successful in someone else’s hands.
Netflix, another frequently cited enabler of cord cutting (a crown Netflix itself refuses to claim), has also been a victim of second thoughts by the networks. Earlier this year, Showtime (s CBS) decided not to renew its streaming deal with Netflix for the network’s original series. In October, Showtime plans to launch its own TV Everywhere portal that will make its original series available online only from behind the safety of an authentication wall.
The technical challenge
Efforts to mount a technological challenge to the status quo have likewise been met with extremely limited success so far. Google (s GOOG) sought to wrest control of the TV navigation layer from service providers by putting search at the center of Google TV, but that effort ended in failure after the networks blocked Google from indexing their content online. A new version of Google TV will be rolled out in 2012, but it remains to be seen whether such an effort can succeed without the cooperation of the networks.
Apple (s AAPL) has made a “hobby” of trying to disrupt the TV business for the past few years, but so far has had to settle for offering a limited-purpose set-top box for streaming iTunes and Netflix content. Apple is now trying to integrate Apple TV into its iCloud platform, but that, too, will require the cooperation of the networks, who do not wish to see their current business disrupted.
Apple could have an ace up its sleeve, however. If iPads and other mobile devices were to become a widely preferred platform for acquiring and navigating video content that could easily be synced with and displayed on a TV screen, that might give Apple a wedge to get between the incumbent service providers and viewers. Its platform might then also become a means to deliver highly targeted advertising to individual viewers. That might provide online program providers with a sufficiently robust revenue stream to compete with existing pay-TV providers for access to the most desirable content.
That’s a long way off, however. For now, the TV business remains a tough nut for outsiders to crack.
For more thoughts on video in the third quarter of 2011, please see the full quarterly wrap-up at GigaOM Pro (subscription required).