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Why the Internet is pounding cable and satellite TV

Analysts say there's no question that a growing number of customers are switching to Web-based services like Netflix and Hulu.
REUTERS/Mike Blake
Analysts say there's no question that a growing number of customers are switching to Web-based services like Netflix and Hulu.

Add cable and satellite TV to the list of old media that are getting hammered by the Internet. The nation’s six largest cable and satellite providers lost almost 600,000 subscribers in the second quarter of this year, the largest quarterly decline in history, according to Bloomberg News.

Some of the loss can be explained by the rotten economy, as households cancel cable and satellite service to save on their monthly bills. But analysts say there’s no question that a growing number of customers are switching to Web-based services like Netflix and Hulu.

The cable TV business has enjoyed a long stretch of uninterrupted growth. In the last decade alone, cable ad revenue more than doubled, from $12 billion to $25 billion, according to the National Cable & Telecommunications Association. Total revenue, including both advertising and subscriber fees, grew even faster: from $37 billion to $90 billion. So cable isn’t hurting as badly as print media — yet.

But the tipping point can come with stunning speed. The newspaper business had its best year ever in 2005, raking in $49 billion. Only five years later, half of that money had vanished, and newspapers everywhere responded with drastic cutbacks.

Just last week, I went by a Borders bookstore and a Blockbuster video store I used to patronize. Both stores were shuttered, their parent companies bankrupt. I can’t remember the last time I set foot in a record store — in fact, I couldn’t even tell you if there are any within 10 miles of where I live.

The rush to digital media is a boon to advertisers, who can target their spending more tightly and track the results more closely. But at this early stage of the digital revolution, I don’t think anyone has yet quantified what advertisers are potentially losing by missing out on a mass audience.

Selective targeting of consumers is a great thing, but it’s getting harder to develop a general, collective awareness of products. The music business is already seeing this dynamic at work; today’s top releases may sell only a tenth as many units as those of 20 years ago. Music fans can more easily find — and buy — the songs of their favorite artists online, but the potential for blockbuster hits has been reduced as the audience fragments.

That may not be a bad thing. There’s a truism in the marketing business that the best advertising comes from word of mouth. And what we’re seeing is a return to a word-of-mouth communications model, albeit a super-powerful version that can bring you word of mouth from people on the other side of the planet.

Right now, cable and satellite TV have mass acceptance and lots of money. Until recently, so did the newspaper business, and so did Blockbuster.The survival of the cable business will hinge on whether it can dodge the digital tsunami that has blindsided so many of its old-media brethren.

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Comments (8)

I keep basic-basic cable with Comcast just because Internet plus local channels costs the same as Internet alone.

I used to subscribe to the full digital package, but a few years ago, I realized that I didn't turn on the TV for days at a time, so spending so much money on 100+ channels, most of which I didn't watch, and many of which had strayed from their original missions (A&E, Bravo, TLC) to become mind candy for idiots, seemed like the textbook definition of a waste of money.

The only channels that I miss are Turner Classic Movies, one of the few channels that has stuck to its original mission, and the Weather Channel. I wonder if the cable companies would be doing better if they allowed a la carte pricing, as is possible in many other countries: so much for five non-basic channels of your choice, so much for ten non-basic channels of your choice, etc.

When worthwhile programs are shown on other cable stations, they almost always turn up on Netflix or Hulu a short time later, and in the case of Netflix, without commercials.

The notion that the internet is a friendly forum for advertising is curious to me. With adblock software, many folks don't ever see an ad.

Cable Bills are way too high.... I cut the cord last year and have been watching TV online with the TVDevo website and Redbox.
TVDevo for TV shows and Live TV, and Redbox for movies.

Karen, I know that a la carte pricing has been a topic of discussion in the industry for a number of years now. My recollection is that the cable industry has successfully fought off attempts to adopt that model. But as this New Yorker piece from a year ago suggests, a la carte pricing might not save consumers money -- because if everyone wants to watch HGTV, for example, then the price of HGTV (and other popular channels) might go up to the point where you'd be paying as much as you already pay when it's bundled with the other 100 channels.

http://www.newyorker.com/talk/financial/2010/01/25/100125ta_talk_surowiecki

John, you're definitely missing out not going to record stores in Minneapolis. It's a great record store town. In Minneapolis alone we have Electric Fetus, Roadrunner, Treehouse, Yeti, Hymie's, Shuga, and the co-op on 38th and Bloomington. Check 'em out. The Fetus, especially, is awesome simply for the knowledgeable staff and super-fair prices.

Jason is right about the music shops. You're missing a lot by not patronizing them.

Though I've never understood the attraction of the Fetus. The selection is horrible. Say what you will about them, but Cheapo/Applause has stuff you can't find anywhere else. This is also true for many of the places Jason listed.

I thought I saw that Hymie's was closed last time I went by there. Are they still going?

Thanks, guys -- appreciate the dope on record stores. I should have thought of the Fetus and Treehouse. (Formerly the legendary Oarfolkjokeopus -- so you know I was paying attention at some point.)

When I moved out of my parents' house 3 years ago, I got my first apartment. Just as I chose to forgo a landline, I ditched cable TV for similar reasons. Both are outdated compared to their digital counterparts and make you pay an arm and a leg for things you don't need. What do I need 10 different versions of ESPN for? I don't watch sports. Why would I choose to watch TV, which has more commercials than shows, when I could choose a less annoying option? When I looked into how much cable would cost, the three cheapest options (not even very cheap) lacked the channels I'd actually want, like HBO and Showtime. No thanks. I'll continue to use iTunes and Hulu (Netflix is out because they just inflated their prices, I'd prefer not to encourage them).
A lot of my friends are doing the same thing. We don't want to have to pay to be advertised to. It's a stupid business model that won't work now that there are other options. If the industry doesn't figure that out and change, they're on the same sinking ship as Blockbuster.