Streaming TV Is the Future, Although Some Are Clinging to the Past

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Marketing + Advertising

9 min readMar 1, 2016

One of the first TV commercials, a 10-second ad for Bulova timepieces, aired on July 1, 1941, during a Major League Baseball broadcast. The Bulova blurb, which can be viewed on YouTube, is really no different from any sponsorship voice-over you are likely to hear on commercial television these days — 75 years later.

Not much changed with commercial television for the better part of a century, even with the advent of pay cable in the 1970s. Pay cable didn’t kill the major broadcast networks, as some predicted at the time. But a revolution started about three or so years ago that will change everything going forward.

What if Netflix is the Amazon of the entertainment industry?

Netflix initiated the revolution, although it is likely that the revolution it is fomenting now is not the revolution its founder, Reed Hastings, thought he was starting. Netflix launched in 1997 as a DVD-by-mail rental service that abolished late fees. But by 2013 it had morphed into a streaming powerhouse offering formidable original programming that could be accessed on multiple Internet-connected devices without a cable box or a commitment to pay for a lot of unwanted additional channels (aka a “bundle”).

Other services — Hulu Plus and Amazon Prime Instant Video, Netflix’s two biggest competitors — have followed suit. HBO, which vowed for years it would never offer any programming that wasn’t tied to a cable or satellite provider, launched a stand-alone streaming service called HBO NOW in the spring of 2015.

Make a Bundle, Lose a Bundle

Hatred of the cable TV bundle among customers has been so strong and unanimous for so long that it’s easy to forget how popular bundles once were. According to Wall Street Journal writer Joe Flint, the cable TV bundle was born because it was not technologically or logistically possible in the 1970s and 1980s to customize programming packages for individual subscribers. The first basic-cable bundles were almost as cheap as a Netflix subscription is now. “The typical cable bill was around $15 a month and popular channels included ESPN, TBS, USA and CNN,” Flint wrote. But channels (and fees) proliferated.

According to a Nielsen report, the average cable-wired U.S. home in 2014 received 189 TV channels, despite the fact that the average consumer consistently watched only 17. In 2015, the average cable bill hit $99, according to Aaron Pressman at Yahoo! Finance.

“Consumption of live television has dropped to 51 percent in the past seven years.”

Consumers pay for every channel in a bundle, whether or not they watch them. Cable bills have soared because media companies charge cable providers for programming, and cable providers pass those charges on to customers. More channels mean more fees and higher bills. Customers have clamored for more a la carte options for years, but media companies and cable providers have had little incentive to provide them.

Until now, that is. Streaming services are providing unprecedented incentive.

Some pundits believe unbundling the bundle is a bad idea. Megan McArdle of Bloomberg View wrote that bundling is how nonsubscription networks fund high-quality programming like Mad Men. McArdle also theorized that consumers who only pay for the channels they want will end up paying as much, if not more, in the end because each unbundled channel would have to raise rates to compensate for the eradication of the bundle.

But Jared Newman pointed out on the TechHive website that most basic-cable channels make little effort to create programming of high artistic quality. Netflix gets no funding from the cable-bundling strategy, yet its original programming is almost uniformly excellent. One inarguably damning aspect of cable TV bundling, according to Newman, is that it doesn’t exist to fulfill the needs of the consumer. “With its ever-rising fees, unfair equipment-rental costs, and terrible customer service,” he wrote, “this bundle isn’t meant to serve the subscriber. Rather, it’s built to feed a never-ending cycle of increasing prices for the same exact service you got the year before.” Bundling has only lived this long, Newman asserted, because there haven’t been any other options.

The Power of Choice

One of the biggest ways streaming services have revolutionized TV watching is choice. Since commercial TV began 75 years ago, networks have decided when programming airs and how many times it’s repeated (if at all). Even after cable and satellite providers began offering their subscribers the option of digitally recording shows, those subscribers were still at the mercy of network schedules and finite storage. Despite minor tweaks, the major broadcast networks and cable channels still more or less follow the same programming philosophy they have for decades: They unveil their biggest new shows in the fall and dole out one episode per week.

Netflix upended that longstanding practice by releasing entire seasons of shows all at once. Netflix gives its subscribers the freedom to choose when they watch programming, how much of it they watch at a sitting, and how many times they want to rewatch. Netflix didn’t invent binge-watching (the term was coined to describe the practice of watching a succession of TV shows on DVD), but it certainly brought the practice into the mainstream.

Binge (Watching) Benefits

Binge-watching is quite the phenomenon these days, but at least one network exec thinks it’s all a passing fancy. At the Television Critics Association’s winter press tour in January, Alan Wurtzel, president of research and media development at NBCUniversal, cited evidence suggesting that viewers just aren’t that committed to binge-watching. According to data compiled by Symphony Advanced Media, viewers of on-demand shows “return to their old viewing habits by the third week,” Adweek’s Jason Lynch quoted Wurtzel as saying during the tour.

Blockbuster Video unwittingly committed suicide with its unwillingness to innovate.

By “old viewing habits,” Wurtzel presumably meant “waiting patiently for the next episode.” It is not known what he meant by “third week.” Third week of what, exactly? Or should I ask, third week after what? “[By then],” Wurtzel said, “people are watching TV the way that God intended. The impact goes away.”

One can’t help but wonder if Wurtzel’s quote will one day become as notorious as that of radio pioneer Mary Somerville, who in 1948 said, “Television won’t last. It’s a flash in the pan.”

Wurtzel attempted to compare “ratings” for Netflix shows (which technically haven’t been measured) to ratings for certain network shows, even though the purpose of measuring TV audiences is to help media companies and brands decide how to spend advertising dollars. Netflix is advertising-free.

While it may be true that Netflix currently doesn’t pose much of an immediate threat to the bottom lines of the major broadcast networks, is it therefore safe to assume that this will always be the case? Wurtzel’s cavalier attitude is eerily reminiscent of that exhibited by execs at another company that faced a challenge from Netflix in the early 21st century. That company was Blockbuster Video. It went out of business. Blockbuster Video unwittingly committed suicide with its unwillingness to innovate.

It’s So Crazy, It Just Might Work

“On paper, Mr. Hastings’s plan to take on the traditional TV industry has long sounded slightly nutty,” wrote Farhad Manjoo in the New York Times. Yet almost everything Netflix has done so far has worked.

“Well, here’s a scarier proposition for you and your fellow media executives to ponder while roasting marshmallows by the fire at [the World Economic Forum at] Davos next week,” Manjoo wrote in mid-January. “What if Netflix is the Amazon of the entertainment industry — the embodiment of a slow, expensive, high-risk effort to consume the entirety of your business?”

Hastings initially launched Netflix to capitalize on consumers’ frustration with the late fees charged on rental DVDs by brick-and-mortar video stores. And with the streaming service, wrote Ken Auletta in the New Yorker, Hastings “has succeeded, in large part, by taking advantage of what he calls viewers’ ‘managed dissatisfaction’ with traditional television: each hour of programming is crammed with about twenty minutes of commercials and promotional messages for other shows. … Viewers are happy to pay a set fee, now eight dollars a month, in order to watch, uninterrupted, their choice of films or shows, whenever they want, on whatever device they want.”

Despite Netflix’s success, broadcast television has shown little sign of relinquishing the interruptive advertising model that has been in place since former NBC president Sylvester Laflin “Pat” Weaver Jr. devised it in the early 1950s.

Hulu Minus

Hulu Plus, which was launched as a Netflix competitor by NBC-Comcast, Fox, and Disney-ABC, has traditionally featured interruptive advertising despite also charging a monthly fee. In the fall of 2015, Hulu execs launched an ostensibly ad-free service that costs $4 more per month than Netflix. Except it’s not ad-free. “A few shows on the ad-free service,” wrote David Lieberman for Deadline, “will have a 15-second pre-roll ad and a 30-second post roll.” A relatively expensive ad-free service with ads. Sounds like a sure thing.

Of course, NBC-Comcast, Fox, and Disney-ABC don’t really want to offer a legitimately ad-free service, because they don’t want anyone getting the idea that programming should come without traditional advertising. “They have a lot to lose if viewers become accustomed to watching shows commercial-free,” Lieberman wrote, “especially if they also like online alternatives enough to cut the cord with cable or satellite TV.”

NBC-Comcast, Fox, and Disney-ABC may be trying to put a genie back in a bottle.

While Wurtzel was insisting that everyone’s TV-watching habits haven’t changed, he shared data that showed the opposite is true. According to Jacob Klein at Exstreamist, Wurtzel revealed that the consumption of live television has dropped to 51 percent in the past seven years, down from 81 percent in 2008. Meaning 49 percent of people are finding alternatives to watching shows when they air.

The data also found that “non-live television consumption was most often utilized by younger audiences,” Klein wrote. “In other words, the younger you are, the more likely it is you would never bother to tune in at 8 p.m. to watch your favorite shows live on NBC; you’re far more likely to turn to a service like Hulu or watch the show through your cable provider’s on-demand functionality.” If roughly half of TV watchers are not watching the shows when they air, are they still “watching TV the way that God intended”?

Off the Beaten Path

In a white paper looking ahead to the future of television (PDF), Cisco Internet Business Solutions Group predicted that the concept of channels “as the means of accessing programming” will become increasingly less relevant to consumers of content.

Brands and networks will no longer be able to ensure that ads placed in specific episodes will have sufficient audience reach

“Brands and networks will no longer be able to ensure that ads placed in specific episodes will have sufficient audience reach,” wrote white-paper authors Scott Puopolo and Leszek Izdebski. “This behavioral shift will force advertisers to focus on new forms of addressable advertising.” Despite these imminent transitions, very little has changed in traditional advertising models, the Cisco duo noted: “This reluctance may have resulted from the belief that it’s expensive and risky to change too much, too quickly in the advertising world.” They added that branded entertainment, high-quality branded stories, targeted ads (sending relevant content to a selected audience), and integrated advertising are all ways that TV advertising will be delivered in the future.

“This new ecosystem will create new roles and exciting new opportunities within the advertising and entertainment value chain,” Puopolo and Izdebski concluded. “The possibilities are thought-provoking and stimulating, and hold the promise of dramatically transforming the TV advertising landscape and redefining the capabilities required to succeed (as well as the players who will dominate).”

Steve Penhollow
Freelance Contributor
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