The Great Cable Unbundling Has Begun

Some days connecting dots happens before your very eyes, in your email inbox no less.

This morning, a mere 2 days after HBO’s blockbuster HBONow announcement, it seems that the careful construct of the past 2 decades where cable operators assembled programming/channel bundles for ever increasing prices is experiencing some tremors.

Here are the stories that popped up in the span of a single hour this morning, with comments:

Nielsen: Viewing On Smartphones & Online Jumped Double Digits In One Year

a growing portion of the audience is moving to full digital viewing, even though the aggregate number remains small: “Time spent watching content on the Internet rose a strapping 38.5% in Q4 ’14 over Q4 ’13 to 10:29 hours even with the number of those who watch video online slipping by 4.2% to 146 million.”

Les Moonves: Showtime Will Soon Launch A Direct-To-Consumer Streaming Service

Les Moonves on His Secure Place Among Changing TV Bundles: ‘You Can’t Live Without CBS’

HBO’s Pepsi to its Coca-Cola, Showtime, is not standing by. Moonves: “Clearly, the bundle is changing,” Moonves said Wednesday at the Deutsche Bank 2015 Media, Internet & Telecom Conference, citing Charlie Ergen’s new Sling TV as an example of things to come.

“The days of the 500-channel universe are over,” the network’s president and chief executive officer continued. “People are going to be slicing it and dicing it.” Asked when Showtime would be available OTT, Moonves replied: “in the not-too-distant future.” My take is that means before next Christmas, maybe earlier.

AwesomenessTV, DreamworksTV Team With Verizon on Over-the-Top Channels

In the integrated cable/telco/content owner paradigm Verizon is the anomaly. Comcast was able to transform itself from a regional cable company with 1M subs in 1988 to the #1 cable MSO with more than 22M subs and a global content footprint with NBCUniversal. Verizon’s deal with AwesomenessTV and Dreamworks demonstrates that they want to be contenders in the fight for the best content.

HBO NOW’s Standalone Service — Cable and Content Companies Face the Watershed: Content providers need to move fast since cable companies are starting to push back against networks that are not delivering the audience

There is an ongoing tussle between the content owners and the cable operators, we’ve all seen the showdowns pitting Time Warner against CBS over fees but these fistfights happen more frequently with the smaller cable companies. They don’t want to pay excessive carriage fees and have been playing hardball with the content owners. The money quote: “After CBS and HBO, who will be next to go over-the-top? “I think it’s going to sift out,” said an HBO executive. “There’s a lot of services that are not profitable that cable operators are carrying. They don’t want all the services. They’re going to say they don’t want to pay for all these things.” As this executive put it: “I don’t know if these channels can survive in broadband universe by charging $2 a month.”

This is where the entire entertainment business is going to feel tremors: the so-called golden age of television, where high-quality dramas with big-name stars seem to pop up every week could be at risk. This golden age, where episodes cost between $2 to $5M an episode, can only work if the broadcasters/content owners collect enough fees from the cable operators. These fees are baked into the bundles but consumers have become lukewarm to them, partially for $ reasons as the costs have only gone up, and because they want control ie à la carte. The interesting twist is that the demise of the cable bundles is going to be replaced by piecemeal subscriptions: $14.99 for HBONow, $x for Showtime, $x for AMC, etc..

This leads me to a few hunches:

1. there’s a space opening up for telcos like Verizon and at&t to build digital mini-bundles whereby they can package OTT digital channels for ease of billing and possibly to curtail costs to the consumer
2. that same space could be filled by shrewd operators such as Sony whose Crackle service is going into original programming, or new entrants such as Alibaba
3. the time for content owners to sell is NOW. The Dolans are counting their winnings with the success of AMC and are surely looking at their options, suitors ranging from Vivendi to Lionsgate to…. Alibaba.