A Blog by Jonathan Low


Jan 24, 2020

The Reason Traditional Cable TV May Be Entering Its Final Death Spiral

Competition from programmers trying to monetize their content via direct-to-consumer streaming generates additional pressure to raise rates that will further exacerbate already accelerating cable cutting. JL

Karl Bode reports in Tech Dirt:

In 2010 there were 105 million subscribers of cable TV. That dropped to 83 million by the (end) of 2019. "Cable TV has entered what economists call a death spiral. Most programming contracts are for 3 – 5 years. It has to strike new contracts that will trigger prices even higher. Cable faces growing pressure from broadcasters, who offer programming direct to consumer via their own streaming platforms. As cable companies keep raising rates they lose more customers. They will compensate by raising rates even higher. Within a short number of years, cable TV will cost more than most homes are willing to pay."
For the better part of the decade, even Wall Street stock jocks have acknowledged that the current pay TV ecosystem simply isn't sustainable. Broadcasters continue to demand higher and higher rates for the same programming, driving up costs for consumers. Those consumers are then fleeing to the exits in record numbers; either migrating to new streaming video alternatives or over the air antennas. Many executives' response to the problem? Mindlessly double down on most of the behaviors that brought them here, namely, mindless consolidation and price hikes.
Most cable and broadcast executives seem to believe they can just nurse this dying cash cow until retirement, at which point it's somebody else's problem. But the problem itself remains, and analysts like Doug Dawson quite correctly note that 2020 may be the year the entire fracas finally starts to unravel and the real "death spiral" truly begins:

"As a whole, traditional cable TV has probably now entered what economists call a death spiral. Most programming contracts are for 3 – 5 years and the cable TV companies already know of the big programming cost increases coming for the next few years. As cable companies keep raising rates they will lose more customers. The programmers will likely try to compensate by raising their rates even higher, and within a short number of years, cable TV will cost more than what most homes are willing to pay."
AT&T, for example, has already been losing customers hand over fist, and things are about to get worse. Despite having spent hundreds of billions on DirecTV and Time Warner mergers with an eye on dominating the TV sector, AT&T began 2020 with 15% fewer TV subscribers than it started with in 2019.
It now has to strike new contracts with a large number of programmers that will collectively trigger prices to soar even higher. At the same time, companies like AT&T now face growing competitive pressure from broadcasters themselves, who are all rushing to offer their programming direct to consumer via their own streaming platforms. Meanwhile, AT&T's saddled with so much debt from its mindless mega-mergers, the company has been forced to drive up consumer costs to even try and maintain equilibrium. Again, you can probably see how this entire mess isn't sustainable.
As Dawson notes, the need for quarter over quarter improvements has trapped both cable providers and broadcasters (often one and the same) between a rock and a hard place:

"It’s no longer good enough for corporations to make money, they are expected to increase bottom line quarter after quarter, year after year. We’ve only been talking about cord cutting for a few years, but the industry has been declining for over a decade. In 2010 there were nearly 105 million subscribers of traditional cable TV, and that number dropped to just over 83 million by the third quarter of 2019. It’s easy to think of cord cutting as a recent phenomenon, but the industry has been quietly bleeding customers for years. Sadly, the programmers are still denying the reality that they exist in a dying industry and are likely to continue to raise rates like Fox just did."
Of course while many see streaming improving things, the same problems still exist. Programmers still demand their pound of flesh (aka more money for the same content), so they're slowly driving up the cost of streaming services as well, driving even more viewers (especially younger) to platforms like YouTube or TikTok where production costs are negligible. In turn, cable providers who are starting to lose money on traditional TV are either leaving the TV business or just abusing their monopoly over broadband to jack up the costs of basic connectivity.
It's a mess, and if the cycle of dysfunction continues unabated, people might even start reading books again.


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