A Fresh Look at the Cable TV Business

LeVarBack in the 1970s, most Americans thought television would be free forever. There weren’t many channels—just CBS, NBC, ABC, PBS, and a few independents—but that seemed sufficient—so the audience looked forward to the addition of even one additional channel to watch reruns, baseball games, or old black-and-white movies. At that time, cable television was a sluggish industry for four reasons: (1) there was no wired infrastructure, no way to connect most households  to a local cable television system; (2) the principal value of cable was improved broadcast reception, which was an issue for a relatively small number of viewers; (3) cable systems mostly served small cities and towns, so the economics of scale were absent; (4) apart from the few low-budget, hyper-local cable channels (“local origination”), there were almost no cable-only television channels, and no economic model to support the idea; and (5) almost nobody was willing to pay to watch television.

It took about twenty years, but by 1998, there were 171 cable networks, and today, there are nearly 1,000. In 1998, there were nearly 70 million households paying a monthly fee to a cable television system operator. How much? Nowadays, that’s not a figure to calculate because internet services and cable subscriptions are bundled, but if that number is $500 per year x even 50 million households (assume severe cord-cutting), that’s $25,000,000,000 per year—$25 billion, plus advertising and other services that brings the industry closer to the $40-50 billion mark. That’s several times larger than our U.S. automobile industry, several times the size of our retail industry, and about the size of our energy industry.

This will not last forever. In fact, it’s changing very quickly because cable can no longer protect the near-monopoly that it constructed for itself in the 20th century. The problem is Google, the problem is Apple, the problem is the cable industry itself that has grown fat and happy by collecting those monthly fees. The cable industry did not, could not, or didn’t bother to protect its essential territory: the TV screen. Sure, it controls the DVR, but that’s not enough. With every HBO Now, every YouTube video watched on an iPhone, the traditional cable industry is cut out of the equation.

At the recent INTX conference (no longer called “The Cable Show” or the “NCTA” for National Cable Television Association) earlier this month, the emphasis was not on program services (though there were small booths from large cable network operations like NBC Universal and Disney), but on hardware that combines the cable and internet viewing experience into a single set-top box. If you want to watch HBO, or ESPN, or YouTube, it’s all in one place. And often, that box is made by TiVO (which still sells DVRs, but was aced out of that sector by the cable operators).

If you’ve been waiting for a decent YouTube search interface on your TV set, it’s coming, thanks to cable. And if you’re liking the idea of TV Anywhere—watch the program on your TV, then switch to your tablet—that’s the new iteration of cable, too.

Mostly, cable has successfully pivoted. On the surface, we think of the cable industry as the provider of television channels, and now, some VOD services, and we pay a monthly fee for those services. But that’s not the way cable operators see the future. In order to survive, they must control your screen, and that means, they must control your internet service because internet services are becoming wireless, and that will, in time, eliminate the need for the physical cables that defined the industry a half-century ago.

When all of this got started, the cable operators walked a path laden with gold. They would enter a small city, perhaps Fort Wayne, Indiana, and make all sorts of ridiculous promises to local government officials (building schools, swimming pools, new government buildings, senior centers, and so on), and sometimes ease the way with skanky business practices and celebrity appearances (famous Warner Bros. movie stars visit the city, kiss the Mayor, and dazzle the locals so that its cable division could sweep up the local rights—the franchise—to build the local cable television system). Now, things are different. It’s not the people of River City who must be won over. It’s the blaze of battle against some of the world’s wealthiest companies, and they possess a technology advantage far beyond the reach of most cable operators. So: if they cannot compete against Google or Apple, they do the next best things: they buy their competitors (Time-Warner Cable was just sold), and they attempt to control the content (Comcast owns not only NBC Universal but now Dreamworks Animation, too).

We’ve seen this play before. Gigantic companies buy the entertainment companies, and then, those companies fall into the hands of the finance people who make decisions that drive the creative community to smaller, more entrepreneurial companies.

So where does that leave you and me? Paying $1,ooo-2,ooo per year for combined cable and internet services, with a voice-controlled remote control and some artificial intelligence to recommend programs we might enjoy. We’ll watch John Oliver tell us everything that’s wrong, and we’ll do our best to forget that he’s employed by a $30 billion company, one of the few that controls what we watch, what we see and what we know.

And so, we complete the circle. There are far better toys in our house than there were in the 1970s, but our viewing choices are still controlled by a small number of big companies. The only real difference: those big companies are much, much richer than they were fifty years ago. Meanwhile, we’re still kicking back for 30 or 40 hours a week devoting our free time to the less-than-satisfying hobby of watching television programs and commercials.

BTW: The man in the picture is LeVar Burton who starred in ABC’s original version of ROOTS in 1977, and is now co-executive producer of a new version which debts on several cable networks in this month, around the world.




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