Cable Companies Confront Post-Cable Future
September 20, 2023
The biggest stories over the past few years have been the rise (and often quick fall) of first-party direct-to-consumer streaming services. For years, cable providers and big media companies alike have shrugged off massive sub losses, both profiting too much to risk upsetting the apple cart of those very lucrative relationships. Traditional has long looked like a sinking ship, but only in the past few years have the networks gotten serious about building their own lifeboats. So far that’s been the dominant story, all that content triumphantly breaking out of the cable bundle with direct-to-consumer offerings.
The skeptics of that plan have thus far come out on top, and those new streaming services have largely struggled to gain traction. But independent of their success, the industry has passed a point of no return. Now that those streaming services have been built, to the tune of billions of dollars, abandoning them to return to the still-sinking ship of cable and satellite distribution is no longer an option.
The media industry is now at a crossroads, and now we’re seeing the first signs of the cable companies planning for the brave new world they’re being thrust into.
Battle Lines Redrawn
The challenge facing the TV industry for much of the last decade was simple: SVOD services like Netflix were cannibalizing profits from the TV industry. Reed Hastings’ licensing deal check once looked like easy money, as its popularity exploded, the networks realized that every dollar they were making from a VOD licensing deal, they were losing from fees as cord-cutting accelerated.
Netflix was the Frankenstein they’d created, but their solution to the problem has fundamentally redrawn the battle lines, rather than dealing a blow against the original SVOD players. Now the big media companies, with their own direct-to-consumer offerings, are themselves competing with cable and satellite distribution for the same customers.
Where the interests of both the content creators and the traditional TV distributors once aligned, they are now in conflict, and the media industry only now seems to be waking up to that fact. The more serious a company like Disney gets about promoting a direct-to-consumer service like Disney+, the bigger threat to the cable bundle it becomes.
Now that sunk costs are driving the big networks to get serious about pushing people to their streaming offerings, they’re increasingly betting against their own pay-TV relationships.
This is causing those cable companies to begin planning for the next era. Will they merely become “dumb pipes” for internet, or can they transform into TV distributors of the future, bundling over-the-top products at favorable rates?
Kicking Off a New Era
While carriage disputes and resulting channel blackouts are nothing new, the consensus seems to be that the recent battle between Disney and Charter Communications (which operates under the cable brand Spectrum) was something different.
In the old days, the content provider had all the leverage. A blackout of ESPN put all the heat on the cable company, and losing a must-have channel was often enough impetus to cancel service and turn to a satellite TV provider who still carried it.
This rippled throughout the media industry. The big media companies never had a reason to restrain production costs because they knew they could always pass them on in their contracts with the cable and satellite providers. That in turn drove up retrans fees for each channel, which inevitably led to the skyrocketing cable bills that we’ve all come to expect.
What’s different this time? Charter sees the new era coming, and that’s changed their calculations. They can’t let Disney jack up their rates, and thus the cost of their video service to their own customers, while they simultaneously offer standalone Disney and ESPN streaming products. The more of these direct-to-consumer alternatives are out in the market, the weaker the cable companies’ hands will be in these disputes. So this is where Charter decided to draw a line in the sand.
While most of Charter’s revenue comes from providing internet service, they seem to be making a play to escape the “dumb pipe” future. A primary demand from Disney was the rights to distribute their streaming products at a discount to their own consumers. This allows them to get an easy cut of the revenue from any of their own customers who cut the cord and opt for streaming alternatives.
This time, Disney found itself in a tough spot. A cut of streaming revenue is the last thing Disney wanted to give up as they and other networks struggle to make their expensive streaming ventures profitable. But the fees they collect from Charter far exceed what they make from Disney+ and Hulu. Losing access to the nation’s second largest cable company’s subscribers long-term would have been a massive top-line hit. Most of their content costs, especially TV rights, are fixed costs that they’ve either already paid or will be on the hook for regardless.
Now that this fight has concluded, the entire cable TV industry may be looking at a new precedent. Every cable and satellite company will likely seek the same thing from every media company, and deploy the same tactics to get what they want. For Disney on the other hand, this proved not to be the moment when they could leave cable TV behind and focus entirely on their own direct-to-consumer distribution.
Where the Future Has Already Arrived
Cable giants like Charter and Comcast have been trying to stave off the post cable future. To see what that future looks like, the smaller and less powerful TV providers across the nation hold a clue. Small regional telcos and rural ISPs have already confronted these problems. They’ve always held much less leverage in retrans negotiations, and for many of them, it hasn’t made sense to continue providing video service at all. Some merely direct their subscribers to a virtual provider like YouTube TV, earning a commission in the process.
For those that continue to offer pay-TV, it’s a tremendous burden, contributing significantly to the customer service and technical workload but adding almost nothing to the bottom line.
Now, amazingly, the second largest cable company in the nation seems to have reached the same crossroads. How close did Charter come to saying “to hell with the cable TV business” as so many small bandwidth providers have? Walking away from Disney, with its channels having served as pillars of pay-TV bundles for a generation, would have been a big step in that direction.
It’s also an approach pioneered by the small telcos, and those same telcos have an opportunity to learn from what Charter is doing. Rather than just rid themselves of the video headache all together, Charter still sees an opportunity profit, even from over-the-top video.
While Charter has the size and leverage to try and squeeze a favorable distribution deal out of Disney and others, smaller ISPs don’t have to settle for whatever affiliate commission YouTube TV is offering them. FreeCast Home is a low-cost solution that gives them an opportunity to generate revenue while offering their customers an improved experience that’s more flexible and comprehensive than merely pointing them towards a vMVPD.
FreeCast, by representing a large user base consisting of agreements with bandwidth providers, the hospitality industry, multi-family housing, and direct-to-consumer sales, would also benefit from greater leverage and negotiating power when approaching content providers.
We’ve reached the moment FreeCast has been building towards for years: cable TV distribution doesn’t make sense anymore. It’s not the best solution for the consumer, and now it’s not even benefiting the companies that provide the service. FreeCast is the distribution technology built for a world that’s web-first, but where each content provider has a competing product that’s not part of an all-encompassing bundle.
