The End Is (Finally) Here For Cable TV — What Comes Next?
How the cookie crumbles for cable TV as we knew it, and the budding forces trying to put the TV bundle back together
It has been quite a month in the land of cable TV. Following ten days of tense negotiations over carriage fees and ESPN content, Disney reached an agreement with Charter (owner of Spectrum and the second-largest cable provider in the United States) on Sep. 11, ending a prolonged blackout of Disney-owned cable channels for Spectrum customers; Industry analysts were quick to point out the deal’s significance as an inflection point for the cable TV industry, due to the concessions that Disney had to make, including dropping some of its lesser-watched cable channels from the carriage agreement.
A week later, Warner Bros. Discovery (WBD) announced a new premium sports tier for Max, further diluting cable TV’s exclusivity over live sports content and eroding the cable TV bundle. Then on Friday morning, Amazon announced it will start serving ads to all existing Prime Video users in early 2024; users wishing to avoid ads must pay for a new ad-free tier that costs $3 more per month. This move essentially transforms Prime Video into an ad-supported service by default, which is set to unlock a huge amount of new streaming ad inventory for brands.
Taken together, these recent developments laid bare a heightened conflict between the content providers and distributors that has simmered beneath the surface for years. Amid accelerating rates of cord-cutting, as U.S. cable providers collectively lost 2.3 million customers, an all-time worst record, in the first quarter of 2023, live sports content has long been the lynchpin that held together the cable TV bundle and deterred many from switching to a streaming-only TV diet.
Now that streaming services, faced with their own increasingly pronounced issues over profitability and churn rates, are starting to chase ad-supported sports content as a potential solution, it would seem that this said conflict is ripe for escalation.
As the cable bundle gradually disintegrates, a new aggregator will likely emerge, thanks to the persistent consumer demand for a user-friendly, unified interface for content discovery and access, and make a new content bundle out of the wreckage of the streaming wars. Which company will get to be that new aggregator for TV content, however, is far from certain.
Stuck in the Unbundling Era
The TV landscape was forever altered when Netflix sounded the battle horn for the “streaming wars” era; now that we are decidedly in a “post-war” era for video content, the TV bundle is still holding on by a thread. Cable companies will fight to keep their tried-and-true business model, as demonstrated by Charter, but their days as the aggregators in the video content value chain are numbered.
Every industry disruption starts with shifts in consumer behavior. As more consumers cut the cord and switch to streaming services, cable providers like Charter and Comcast are losing subscribers and revenue. This is putting pressure on cable providers to negotiate lower carriage fees with media companies.
On the surface, the latest Disney-Charter agreement is seen as a win-win for both parties. Disney got the higher carriage fees it was seeking, and Charter was able to keep popular channels like ESPN on its lineup, but also trimmed off a total of eight Disney-owned cable channels from its cable bundle. Going forward, cable providers are likely to become more selective about the channels they carry, which, in turn, could make the cable TV bundle less bloated and more affordable. And Disney still gets to benefit from the scale of the cable carriers to reach the non-cord-cutting households.
Yet, in the long run, this agreement feels more like a temporary band-aid for the cable industry, especially when the larger competitive landscape for video content is taken into account. Not every owner of popular streaming services is encumbered by cable TV assets like Disney is. The likes of Netflix, Amazon, and Apple have far less incentive to negotiate a similar deal with the cable carriers, given that they were never in the cable TV business to begin with. As these digital-native content owners start to bid for more sports content and incorporate it into their direct-to-consumer streaming services, cable carriers will increasingly lose their leverage in the long-term negotiation with content providers. While the carriers may not lose access to sports content entirely, they are losing out on the exclusivity that cable TV used to enjoy.
Case in point, WBD announced that it is launching an add-on tier for Max to boost the sports offering on its beleaguered streaming service. The new Bleacher Report Sports tier will cost $10 per month on top of any Max subscription ($10 ad-supported, $16 ad-free or $20 premium tier). It will launch soon in the U.S. on October 5, and, as an extended free trial to drum up interest, will be made free to Max subscribers for nearly 5 months, until March 1, 2024. Coverage include access to games from the NBA, the MLB, the NHL and the NCAA “March Madness” tournament.
As Sean NcNulty sums it up in the Ankler newsletter, this WBD announcement means that the cable TV bundle has lost exclusivity on a whole slate of major-league sports content, including:
- Monday Night Football
- A major weekly MLB games package, and half of the MLB Playoffs
- The 3/4ths of NCAA March Madness cable TV still had
- Half of the NBA & NHL seasons, and many playoff games
While that still leaves some sports content exclusive for cable TV, overall, the cable TV bundle, held together by live sports, is officially coming apart.
Sowing the Seed of Re-bundling
As the unbundling of cable TV starts in earnest, it is fascinating to observe the forces already vying to rebundle TV content.
An often overlooked part of why linear cable TV stuck around for so long, besides the sports lynchpin, is the laid-back, user-friendly viewing experience that many TV viewers over the age of 30 have long been accustomed to. Contrast to the widespread confusion over “where to stream what” and the endless scrolling down a streaming service to find something worth watching — both of which are symptoms of the content abundance in the Peak TV era — cable TV promises an easy-to-navigate programming grid and appointment TV. Although some streaming services have tried to replicate live channels, consumer expectations of on-demand, non-linear consumption have stuck.
This need for ease of content discovery and access is particularly pronounced when it comes to live sports content. No one wants to spend ten minutes trying to figure out which streaming service is showing the game they want to watch, especially if it’s on a service they currently don’t subscribe to. The cable TV bundle promised wholesale access, but the move to streaming has broken that promise.
Interestingly, the Disney-Charter agreement also allows Charter to offer the ad-supported tier of Disney+ to its Spectrum pay-TV subscribers. Spectrum’s customers will also receive ESPN when the sports network begins offering its flagship channel as a streaming service. As analyst Ben Thompson points out:
Disney has been forced to give up its attempt at double-dipping: no longer can the company get paid by Charter for channels and charge subscribers directly for what is generally the same general entertainment content.
(….)
It’s obvious, of course, that a stronger bundle is better for Disney’s existing cable channels, particularly ESPN; what should also be clear is that a stronger bundle is better for Disney’s streaming services as well, and now Disney is committed to building exactly that alongside of Charter, and inevitably over the next several years, every other pay-TV provider… Charter did [Disney] the tremendous favor of forcing it to give up an unsustainable double-dipping strategy and take a step into a future of re-bundling.
The new type of hybrid bundle deal that combines traditional channels with streaming services provides a new path forward for the TV business. This, of course, would be welcomed by consumers as well, as they will no longer have to separately pay for the same content on cable and streaming services.
But could cable carriers like Charter successfully transform the cable TV bundle by re-bundling ad-supported streaming services into its offering? While legacy content owners like Disney and WBD have the incentives to participate in this type of cable bundle 2.0, the same cannot be said for the tech companies. Yes, if the ad-supported tier of Netflix continues to encounter scaling issues, then Netflix may consider joining. But for Amazon and Apple, both companies have no discernable incentives to allow Prime Video and Apple TV+ to be bundled with linear TV and give up control over the customer relationship, for both companies have been vying to replace the cable carriers as the new TV aggregator.
In Search of a New Aggregator
Cable carriers have long benefited from being the aggregators in the TV business, offering bundle deals that at one time 90% of households subscribed to. They became aggregators because content providers had no other way of reaching consumers, which, of course, is no longer true thanks to the rise of streaming. Yet, frustrating for consumers, the move towards streaming fragmented the distribution and made everything harder to find. It seems like a no-brainer that a new aggregator would be needed to deliver an easier and more seamless user experience, especially in terms of content discovery and access.
Of course, the tech companies have long tried to become the new aggregators. Apple, Amazon, Google, and Roku all currently pursue a similar “Channels’’ strategy that leverages the interface of their respective streaming hardware devices (or embedded into connected TV sets) to offer a streamlined way for viewers to subscribe to various streaming services, and take a cut from those subscriptions. Yet, this strategy has not been complete, given that the market leader Netflix refused to be commodified by other companies’ TV interface, and the fact that live sports content is still largely missing from OTT streaming.
Interestingly, of all the contenders, Google is gradually emerging as the company that may be best positioned to rebundle TV, merging cable TV and on-demand streaming into a hybrid bundle via YouTube TV. While Android TV currently has a smaller market share than Roku in terms of CTV operating system, the presence of YouTube TV makes it far more entrenched in the TV ecosystem than its competitors, none of which has a live TV service.
Last December, Google made a big move and forked over a hefty $14 billion to steal NFL Sunday Ticket away from DirecTV in a seven-year deal aimed at strengthening YouTube TV’s Primetime Channels aggregation service. Similar to the way that Fox used the NFL games to cement itself as one of the big-four broadcasters in the mid-90s, Google is betting on the NFL’s enormous fan base to remake YouTube TV, and the results have been quite positive so far. During Q2 of 2023, when cable TV lost over 1.7 million subscribers, YouTube TV was the only live TV service to add subscribers, passing 6 million subscribers in total. Even the NFL shared that its Sunday Ticket now has more subscribers on YouTube this year than it did on DirecTV last year.
Moreover, YouTube also revamped the sports viewing experience by adding interactive features such as chat, highlights, and YouTube Shorts to enhance its NFL Sunday Ticket content. In particular, YouTube TV’s multiview feature, which allows fans to simultaneously livestream any four NFL games on a single screen, received strong reviews from users. The bandwidth and tech stack required to pull off this multiview feature is something that traditional cable carriers simply do not have.
If YouTube is already synonymous with digital video, then this move towards bundling big-ticket sports content on top of its service spells serious ambition for Google to replace the cable carriers and become the new middle-man for all TV content, live or streaming. Google search is the OG aggregator service of the internet. Considering how much Google’s search ad business is being challenged by the rise of generative AI, it certainly makes strategic sense for the company to potentially carve out a new aggregation position in the ever-shifting media landscape.
In conclusion, the future of TV, and video content by extension is still a very fluid space, as multiple parties vie for the position of the aggregator and/or re-bundler of TV content. Even though a lot has happened over the past decade, we’re only at the beginning of a prolonged unraveling of TV’s business model. Different content providers are still trying out different ways to avoid getting swallowed up by big tech and losing direct customer relationships.
NBCUniversal recently struck a deal to place exclusive Peacock sports content in restaurants and bars, as it tries to squeeze out more revenue from its OTT sports content deals. Meanwhile, Nexstar Media, which controls 200 local TV broadcast stations in the US, is a rumored contender to buy ABC from Disney, potentially giving the house of mouse a way out of the broadcast TV business.
At the end of the day, the only ways to make money, as Jim Barksdale famously put it, are bundling and unbundling. The pure linear cable TV bundles are officially dead this week, but the future of hybrid TV bundles has never been more alive.
