Maybe because it was drawing towards the close of August when the news seems to move more slowly, but last week was quite busy for stories questioning the very existence of the cable’s video service.  This is always a ripe topic for conversation but it’s worth taking a deeper look at some of last week’s stories to show that video is holding its own.

The week started off Monday morning with this article – “In the Living Room, Hooked on Pay TV” – by Matt Richtel and Brian Stelter in the New York Times.

The proliferation of Internet video has led to much talk of “cord-cutting” — a term that has come to mean canceling traditional pay TV and replacing it with programming from a grab bag of online sources.

But so far Americans are not doing this in any meaningful numbers. “Nor is there any evidence of it emerging in the near future,” said Bruce Leichtman, the president of Leichtman Research Group, which studies consumer media habits.

Good news for cable. But the next day, SNL Kagan reported that the 2Q numbers for paid TV subscriptions fell for the first time ever. Kagan attributes the downturn to the weak housing market and high unemployment (plus the loss of customers who had initially signed up during the DTV transition).

NewTeeVee reported this as “New Numbers Reveal: Cord Cutting Is Real,” despite including cautionary quotes from SNL Kagan analyst Mariam Rondeli. Then, NewTeeVee’s Ryan Lawler claimed “The Future of TV Is Not on Cable.” (There was also this disappointing NPR story.)

It’s important to look at these numbers in context:

• Second quarter subscriptions dip every year, as students go home from school and “snow birds” close up their winter homes.
• The Multichannel Video Programming Distributor (MVPD) market is quite mature and penetration is high. Most households that want multichannel video service have already subscribed.
• Some former over-the-air households, who had long held out on getting cable, took advantage of deals offered during the DTV transition of 2009 to become multichannel customers, but as those deals expired, they’ve cancelled. While looking like a group of disconnects, it’s more representative of people that resisted such services before and are now going back to their old ways.
• Total housing units were essentially stagnant for the previous five quarters (from Dec. ‘08 to March ‘10). Even so, over the last six quarters, the number of MVPD subscription additions (+2.1 million) have outpaced additions to housing units (+0.3 million) by 6.5 times. But a weak economy is having an effect. Even Karl Bode, in a post that said “Cord Cutters Are Very Real,” admitted that “it’s being driven primarily by the economy.”

A Merrill Lynch report on the 2Q numbers pointed out that the Netflix platform is growing (available on Xbox 360, PS3, Wii, and many Blu-ray players) and Hulu engagement is now up to 2.6 hours, but that Nielsen says that “American [households] are watching more TV than ever before,” up to eight hours a day (with that figure rising each year).

As if to put the icing on the cake, Wednesday brought a Bloomberg story that reported that Apple was looking to introduce 99-cent rentals of television shows. Some interpreted this as a threat to cable and the advent of true “à la carte.”

Jason Perlow at ZDNet ran some numbers to see if such a “pay as you go” approach makes financial sense (also see the analysis at GigaOM).

Previously, TechnoBuffalo noted that 99-cent rentals might not make much sense; last week, they pointed out that $40 per month for 70+ channels comes to less than $1 per channel.

So now Apple wants to charge you $1 per episode of any particular show?  Remember it’s a rental and if Bloomberg is correct, it’s only yours for 48 hours.  Pff.

Joe Flint notes some other causes of skepticism, including the critical point that “content providers need to make sure that their eagerness to embrace the future doesn’t undercut the present because if it does, there won’t be a future to embrace.” Robert McGarvey at Internet Evolution also said it might be a little too early to declare Apple’s victory.

It’s worth pointing out that 2Q reports also showed that cable took all of the net adds for broadband service. You have to connect to the Internet to get that streaming video. And Joel Johnson at Gizmodo answered the question “Why Are You Still Subscribing to Cable Television?” with some pretty good reasons to not cut the cord. Plus, some have noted that in tough economic times, cable can provide great entertainment value.

We’ll continue to see consumer have more choices for ways to enjoy video content both in and out of the home.  But it’s clear that cable’s video service is a viable choice for many.

I’ve written a number of times about so-called “cord-cutting” services in part to counter the charge that such offerings are necessarily “cable killers.” But I also keep looking into this issue because I’m genuinely interested in how the home video business is continuing to develop.

I don’t want to come across like I don’t think that over-the-top video services are great for consumers. I’m a consumer and I love ‘em. So, I wanted to point a few cool things you can see via online video.

Hulu is known primarily for its ability to catch up on the last few episodes of TV series, primarily from broadcast television. But did you know you can also watch movies?

If you like documentaries, there’s Dig!, a profile of the amusing friendship/rivalry between the bands The Brian Jonestown Massacre and The Dandy Warhols, and Big Rig, Doug Pray’s artful look at the world of long-haul truck drivers. If you enjoy Samurai cinema, check out the Zatoichi: The Blind Swordsman series (26 films were made from 1962 to 1989, plus a TV series); you can start with The Tale of Zatoichi. For comedy, revisit Mystery Science Theater 3000 or watch An American Werewolf in London for scary laughs.

If you do want to watch TV, you are strongly urged to check out the British series Spaced, with Simon Pegg and Nick Frost, plus director Edgar Wright, known from Shaun of the Dead; Jessica Hynes stars with Pegg and the two created the program. Hulu has all the episodes.

I’ve written many times about the assertion that Netflix is a perfect substitute for cable service, which doesn’t make sense. Netflix’s Watch Instantly feature is limited in its offerings, but it has a lot of excellent films tucked away in dark corners.

The Swedish version of The Girl with the Dragon Tattoo has recently become available and it’s a great adaptation of the popular book. If you like foreign movies, there’s also Costa-Gavras’ classic thriller Z, Jean Renoir’s 1939 film The Rules of the Game, the soon-to-be-remade vampire film Let the Right One In, and the gritty immigrant drama Entre Nos. For documentaries, there’s the Oscar-winning Man on Wire, The King of Kong (a hilarious look at competitive arcade gamers) and It Might Get Loud (a look at electric guitarists Jimmy Page, The Edge and Jack White).

For TV, you can catch up on all three seasons of Veronica Mars and all the seasons of Lost.

As for pure Internet content, I’ve been feeling really bad lately about not watching more of Felicia Day’s Web series The Guild, a comedy about online gamers, since the bits I’ve seen are so funny. On the other hand, I’ve become a regular viewer of Kevin Pollak’s Chat Show. Pollak has described his show as “Charlie Rose with a sense of humor” and that’s a good way to put it. As I said on my pop culture blog, it’s refreshing to see lengthy meaningful conversation. There are various ways to stream shows like these to your TV, such as through Xbox LIVE, PS3, TiVo, or the forthcoming Boxee Box.

With all these options, why still subscribe to cable? Well, I have an HD set and I like to watch hi-def programming, whether live or through VOD. Much as I enjoy streaming Netflix, the movies just aren’t as crisp and clear. This is also true of  the Internet content I watch on my TV.

With these cord-cutting options, my viewing choices are limited. I want to be able to watch news, when it happens, on the big screen. There are a number of cable programs I can’t get online. With my subscription to premium services, I get access to a lot of fairly recent theatrical films.

With my cable service, I’m also getting broadband, which enables me to get all this additional content. Even if I was inclined to “cut the cord,” I’d still need cable to get to the Internet.

With all these new services, I need additional equipment to connect the video to my television (For example, I stream Netflix through my Wii and I use a Bose SoundDock to connect my iPod to the TV). That’s fine, but what about my second TV upstairs?

Bottom line: I find the two to be complementary. They’re both useful, but my cable video service is still of value.

FINAL NOTE: I should point out that I’ve said before that any content producer needs to figure out how to recover productions costs and achieve profitability. I’ve also called attention to the news that Netflix (a distributor) is looking at having to spend more to get access to content and also noted that some video distributors have looked at moving from a free model to a subscription business. And I should note that if cable TV is a niche business, then Internet video is a super niche business.

There’s a really interesting discussion to be had about the future of delivering video to the home. Which technology makes the most sense? How will content companies make money in the future? How do we best address digital rights issues?

Instead, I usually read some “kill your cable” rhetoric.

So, that’s why I return to the topic of cord-cutting: Because everybody else keeps writing about it, often in an oddly hostile fashion.

CNET’s Marguerite Reardon started off an Ask Maggie column on cord-cutting this way:

If you are like me, you cringe every month when you pay your cable bill. And you dream of the day you can cut your cable cord and stop paying that monthly bill.

It’s not that I don’t like to watch TV. I do. But I can’t stand that I pay $140 a month to watch a handful of shows on five or six channels.

First, that $140 probably covers more than just standard programming . I pay about $180 a month to Comcast, which includes video, Internet and phone, including HD, a DVR, premium channels, and so on.

When a reader writes in how to watch video online, Reardon answers, “Good for you for cutting the cable cord!”

There are certainly people who choose not to subscribe to multichannel video services. Nothing wrong with that. But if you want to watch the programming – cable’s original shows, news, sports – then that’s how you get it.

Aaron Barnhart of TV Barn helpfully points out that, for all the complaining, people are continuing to subscribe to multichannel video service in growing numbers. But, counterintuitively, Reardon love to recommend that people unhappy with cable service should turn to cord-cutting – which doesn’t allow you to access all you can get from cable programming.

It would probably be along the lines of suggesting that people unhappy with cable should try reading a book. Did you know that libraries loan them out for free?

(more…)

We are now in the midst of a shift of how we consume video. When I was a kid, it was three broadcast networks and a handful of local independents. You had to watch TV shows at the time of their original broadcast.

Today, I watch Hulu and I stream Netflix, but I mostly watch cable TV, whether live, from my DVR or via VOD.

Some observers claim that a huge change is happening, with a significant number of consumers opting out of the current multichannel video system entirely (a trend called “cord-cutting”). If that’s true, we should see a drop in subscriptions demonstrating this exodus, but it just isn’t happening.

Big Scary Numbers

Recently, two surveys along these lines received a lot of coverage. And the word “surveys” is important, because these reports compile a small sampling of consumers’ past and probable future behavior,  as opposed to actually measuring consumer behavior over time.

The Yankee Group study claimed that, over the next year, one out of eight consumers planned to “cut off their pay TV services and use their PCs, gaming consoles and other connected devices to access video programming instead.” (Here’s a write-up from DSLReports and a post from one of the study’s authors.)

[EDITOR’S NOTE #1: It’s important to note that the Yankee study actually says that customers will cut or reduce their service, which is an important distinction. Trimming back by eliminating a DVR or cutting a premium service is not the same as canceling.]

The Convergence Consulting Group said in a report that cord-cutting was having an impact on multichannel video subscriptions.

[For 2008 and 2009] almost 800,000 US households had cut their TV subscriptions (to rely solely on Online, Netflix, OTA [over-the-air broadcast], etc). We forecast cord cutters will grow to 1.6 million households by year-end 2011.

Since there were 99.9 million multichannel video subscriptions at year-end 2009, this would be  less than one percentage point of the base, but this TechCrunch post from April 13th made it sound like a big deal.  Just this week, Daisy Whitney’s New Media Minute focused on the Yankee Group claims, as did this Denver Post article. From two weeks ago, here’s an NPR report that quotes the Convergence numbers.

[EDITOR’S NOTE #2: The Convergence report notes that 2 million subscribers were added in 2009 (up from 1.46M for '08) and they predict 1.8M additional subs for 2010 and 1.65M for 2011. By their own math, 2.6 million new subs - 0.6 million cutting the cord = 2.0 million net new MVPD subs.]

(By the way, this Retrevo Pulse Report made similar cord-cutting claims, but didn’t seem to get quite the same coverage as the Yankee and Convergence reports.)

Where Is the Subscriber Migration?

This certainly sounds ominous. “One in 8 to cancel this year!” “Cord-cutting to double over two-year period!” Run for the hills!

NCTA recently held its annual conference, The Cable Show. That week, SNL Kagan released a new report that said that “more people are paying for TV” (about 100 million to be specific). Comcast CEO Brian Roberts scoffed at the idea of a massive cord-cutting trend.

The month of May also brought us the Q1 financial reports from multichannel video providers. They must be feeling the pinch, right? Even a little bit?

Ten of the 12 largest video providers are public companies which represent more than 91 percent of the marketplace collectively reported that 591,000 MVPD subscriptions were added in Q1. Occupied households only increased by 139,000 during this period, so the bulk of the increase in subs occurred within existing households.

These figures fluctuate over the course of the year. For example, Q2 traditionally shows a dip, as students leave college for home and snowbirds cancel their temporary subscriptions. Looking at last year, SNL Kagan showed an increase of 1.8 million MVPD subscriptions in 2009. Kagan also said that 500,000 subscriptions were added in 2008 and nearly 2 million subscriptions were added in 2007.

If accurate, Yankee’s “1 in 8” prediction would mean that 12.5 million subscriptions would need to be canceled by next April (Although, this forecast includes service reductions, not just outright cancellations). If nothing else, I guess they’ll still be able to yell, “April Fools!”

One of the highlights of the SXSWi conference in Austin was the session “Pay TV vs. Internet – The Battle For Your TV,” featuring a no-holds-barred debate between Mark Cuban, Chairman and President of the programming service HDNet, and Avner Ronen, CEO & co-founder of Boxee. The two have sparred before on the topic whether “the Internet” is going to replace today’s existing television models and this clash was just as lively, punctuated early on by a fire alarm that emptied the room for a time.

Staci Kramer at PaidContent neatly sums up their positions:

…Cuban believes in subscription TV and sees Ronen… as representing free-only; Ronen believes TV over the internet is the present—and the future but a la carte. He’s not anti-pay per se—Boxee is working on a pay offering—but anti-establishment TV. Cuban doesn’t see an internet TV business model that works yet.

“How will content be paid for?” is a key question, and the Current Events blog notes that Cuban made strong points in this area:

Cuban pushed hard, arguing that other than a few big players, like Apple, you simply can’t get people to pay on a scale to make a solid business case for internet delivery of media. Ronen fired back with the question “What you are saying is that because you have lack of choice, you are going to win?” Cuban kept going back to the fact that Boxee can’t monetize their business, while Cuban won’t broadcast anything he can’t make a dollar on, and he has a point. Everyone wants to be able to pick and choose what they want to watch, but with the internet giving so much of it away for free, few are willing to pay.

At several points, Cuban argued that the Internet isn’t really set up for efficient delivery of video, but that cable’s infrastructure is. The Gearlog blog highlighted this point:

“But people are willing to pay for Internet video right now,” Ronan responded.  “They are paying for Netflix, they are paying for MLB, they are paying for a lot of things,” he said. “It isn’t about free or not free. It is about whether the Internet can deliver video and it can.”

How much video and how reliably it can be delivered is a different question. And that is where Cuban made his strongest points.  Having a few million users download programming a few times a week is one thing, but what about when it is tens of millions? The Internet simply wasn’t built to support that kind of delivery.

Ronen kept arguing that the old models are dying, that distribution via the Internet is the future, and that it is therefore foolish for content owners for Cuban to not make content available online. Cuban countered that no one is making significant money online and made it clear that he wasn’t going to give his content away for free. For example, Cuban joked, perhaps the producers of the show The Office should just give their program away for free and then tour the production as a play around the country.

Two colorful Cuban quotes:

• “The a la carte model is for morons.”
• “If you think that the Internet going to replace cable, you’re crazy.”

His larger point is that in an a la carte universe, content players have to include significant promotional expenses, because in a world of unlimited choices, you have to find a way to stand out. To an audience member who complained about “paying $100 a month to watch three shows,” Cuban responded, “In an a la carte world, you’re one of zillions. Marketing is expensive.”

But I think the key point of the whole discussion slipped by most of the audience, and I haven’t seen it reflected in the news coverage. An audience member asked how an Internet-based subscription service – one where the consumer contracts with a company, that then delivers video over the Internet for a fee – would differ from what we have now. Cuban said this was a good question. It is, because the answer is that it wouldn’t look different at all.

I went up afterwards to discuss this with Cuban and confirmed what I was thinking. Consumers don’t care how programming comes to their house, whether it’s over fiber or coax, by satellite or by IP transport. They turn on their TV and watch stuff. So, as long as the economics of producing content remain the same, and there’s no reason to think they won’t, then the technical means of getting programming into the home are immaterial.

Cuban said to an audience member after the session that many of the elements of Internet-based  content look just like digital cable: streaming content on demand, storage costs, capacity issues. As cable becomes increasingly digital, those similarities increase. And if those two worlds – Pay TV and the Internet – are alike in many ways, then it becomes even more important to look at the ways they are different.

Cuban thinks that cable’s subscription model works better for him financially. He also thinks that cable does a better job of delivering video, especially as hi-def becomes more prevalent.  Consumers aren’t going to care about the nuts-and-bolts of how it all works. As Cuban put it, “The future of television is… television.”

[NOTE: Photo above used by kind permission of Staci Kramer.]