Just as cord cutting has entered the mainstream, we may be seeing the end of cheap alternatives to cable. The promise of inexpensive TV, whether live or on demand, has taken the streaming industry beyond the early adopter phase. 69% of Americans have at least one streaming subscription and 21% of Americans identify themselves as cord cutters. The golden age of cord cutting seemed to be here.
Yet that economic appeal for the consumer is in direct conflict with the economics of television. Something will have to give — and it won’t be the media industry.
Content Never Gets Cheaper
The biggest cost in television distribution is the content itself. Virtual Multichannel Video Programming Distributors (vMVPDs), the services that stream live TV, must pay carriage fees to the cable channels and rebroadcast fees to the broadcast networks. Streaming Video On Demand services are in a similar position when it comes to licensing content for their catalogs. Large media companies control most of the TV channels and production studios, giving them control over any negotiations. Last year, we saw some early skirmishes between media producers and streaming distributors.
Blackouts on DISH and Sling TV
In mid-2018, DISH Networks announced that Univision had pulled its Spanish-language channels from the satellite TV provider as well as from its vMVPD service Sling TV. Four months later, AT&T had pulled HBO and Cinemax from the satellite and streaming service. DISH Networks investor reports over the course of 2018 and 2019 mapped the damage. DISH lost hundreds of thousands of satellite subscribers. Sling TV, which had grown by 91,000 subscribers in the first quarter of 2018, only eked out an anemic 7,000 increase in subscribers in the first quarter of 2019.
When Univision returned to DISH and Sling TV in March after a nine-month blackout, Univision CEO Vince Sadusky’s remarks were telling. “We are pleased to have reached an agreement with DISH that recognizes the value of our top-rated networks and stations,” Sadusky said. You don’t have to read between the lines to see that Univision got their money.
Meanwhile, DISH and Sling TV subscribers still can’t use their subscriptions to watch HBO.
Netflix Becomes More Original
2018 was also the year we learned Disney would no work with Netflix. As Disney executives unveiled more details about its upcoming SVOD service, Disney+, the extent of the impact on Netflix became clear. None of the movies Disney releases in 2019 will ever appear on Netflix. And as licensing deals expire, Netflix subscribers will see more and more Disney productions disappear.
Disney CEO Bob Iger told investors that if you are “looking for Star Wars movies that launched in 2019 or original Star Wars series, you will find that [on Disney+]. And as rights become available or as we’re able to negotiate for rights to bring back, you’ll see them on the service.”
This isn’t the first time Netflix lost large chunks of its streaming library. Netflix and Starz inked a deal in 2008 that made more than 12,000 titles from Starz’s film catalog available on the streaming service. At the time, Starz president Bill Myers praised Netflix as “an innovative leader in the home video space” and added that Starz was “delighted to offer their customers our unique and robust collection of movies,”
Four years later, the tone changed. As Starz executed a “strategy to protect the premium nature of our brand,” it removed all of its content from Netflix.
The potential loss of the Starz catalog was one of the driving forces behind Netflix’s strategy for producing original content. Better to be your own media company than depend on others for content. However, that’s not a cheap option. From 2017 through 2019, Netflix will spend more than $35 billion on content development.
Streaming Infrastructure Isn’t Cheap
Streaming services don’t have to build the physical infrastructure to get content to their customers. By relying on their customers’ existing internet connections, vMVPDs and SVODs can undercut companies that must maintain physical cable lines and satellite fleets.
But that doesn’t mean streaming is cheap. In many ways, maintaining a streaming service is much more complex than maintaining a cable service. Cable companies’ infrastructure is much more monolithic and predictable. Streaming services, on the other hand, face a completely heterogeneous landscape of devices, apps, home WiFi networks and local internet connections. All of this variety creates headaches for streaming services that must meet high customer expectations.
Interrupting this broadcast
People don’t like having their TV shows interrupted — especially when that TV show is a major football game or other live events. Streaming services have to invest enormous sums to ensure they keep their streams consistent.
In the case of rebuffering, video streams into an app slower than the video plays and forces the app to pause while it catches up. A study by internet infrastructure company Akamai found that rebuffering has a significant impact on viewers’ willingness to keep watching.
“When rebuffering is less than 0.5, 90% of sessions are completed…. As soon as you hit 1% you see the rate drop down to 50%” an industry executive told Akamai.
The financial impact on streaming services extends beyond customer dissatisfaction. Akamai estimated that each abandonment due to rebuffering costs as much as $85,500 in lost advertising revenue.
Even worse are the complete failures that occur when millions of people stream the same video at the same time. This isn’t as much of an issue for SVODs as streaming gets spread out across all of the titles in the services’ catalogs. But for vMVPDs, live streams of big events like the Super Bowl have to be perfect. “This is a binary experience for consumers,” the Leichtman Research Group’s Bruce Leichtman, told Forbes, “it either works or it doesn’t work.”
Unfortunately, vMVPDs still haven’t got it right. A glitch interrupted the Super Bowl for people streaming to Roku devices and some Hulu with Live TV customers missed the end of the game.
Our Streaming Prices Are Going Up
Even if streaming video is a cheaper operation than cable, none of the costs associated with it are going down. The streaming companies can’t ease up on their infrastructure spending and they can’t afford to lose the content race. Yet cord cutters still expect $10-$16 subscription rates for SVODs and $40-$50 rates for vMVPDs. That expectation won’t survive. Let’s face it, price increases are going to be a fact of life just like it was in the days of cable.