Editorial Cutting the cable cord is a young trend going in the right direction

This week I bought a Roku. Late to the party? Yes, but not as late as you might suppose. Roku has sold about 2.5 million streaming media boxes since the product launched in 2008. Approximately 1.5 million of those units moved in 2011, indicating an acceleration of demand. Coincidentally, those numbers roughly represent the cord-cutting movement: Reportedly, 2.65 million cable subscribers ditched their service between 2008 and 2011, with about 1.5 million of those defections happening in 2011.

While cable cord-cutting is a trend, the movement is occurring in the context of customer inertia. About 100 million customers subscribe to cable, satellite, and other pay-TV providers (e.g. AT&T's U-Verse). The problematic value proposition of cutting the cord will probably keep massive inaction in place for the short term, but cannot, I believe, withstand long-term marketplace demands.

Editorial Cutting the cable cord is a young trend going in the right direction

Two primary consumer demands are gaining strength as years tick by. The first is a requirement to timeshift at will. The VCR's legality was challenged, and eventually affirmed thanks to Mr. Rogers, on the basis of timeshifting as a user value. DVRs made it a lot easier to time-displace scheduled broadcasts. Since cable and satellite companies provide DVR functions in their coaxial boxes, you can say that the pay-TV industry has endorsed the customer's privilege of going off the schedule grid. But that solution provides only episodic comfort. The DVR is not helpful, for example, if you want to watch four previous seasons of Mad Men before the fifth season starts.

The hostility to selling service by channel is based in institutional co-dependencies.

The second emergent consumer requirement is à la carte programming purchases. This one is huge because nearly everyone is wasting money to some extent when cable companies subsidize their expensive providers (ESPN being the costliest) by selling broad tiers of unwatched channels to households. In the digital space we see other examples of tiered pricing, as when paying for unused minutes in a cellphone plan. But extra minutes can be regarded as insurance against unforeseen communication needs. Selling 400 channels when the buyer mostly wants MythBusters, Letterman, and nature shows (admittedly an odd combination) is a failure to meet demand by over-supplying it.

The hostility to selling service by channel is based in institutional co-dependencies. A sporting event is fed through the cable box by two main intermediaries, the channel and the cable provider, both positioned between the content owner (e.g. the New York Yankees) and the viewer. Escalating costs from each link in the chain land on the viewer's cable bill, the average size of which is projected to reach $200 in eight years. Cable companies might seem to be the villains in tiered packaging, but part of the cause lies with their providers -- and conflicts between the two can lead to consumer-screwing public licensing battles.

Editorial Cutting the cable cord is a young trend going in the right directionCutting loose from this bloat is tempting, feasible, but not without disappointment. Assuming a free-thinking viewer wants to stay legal, and stay in front of the TV screen, the mainstay programming options are Netflix, Hulu (Plus), Amazon (Prime), and iTunes. This realm is infested with provider irregularities, too. For example, Hulu is available on Roku, but not on Boxee. YouTube is widely distributed to media streaming boxes, but not to Roku. Multiple intermediaries create uneven match-ups between those four programmers and the main box builders (Roku, Boxee, Apple TV, Google TV).

Considering the ultimate source of programming -- the media owners and their investment in the huge cable / satellite audience -- it's not surprising that Netflix and Hulu have gotten discouragingly worse over time. Netflix lost Starz. Hulu Plus is partly a gambit to charge for mobility, insofar as the entire Hulu platform is unavailable to tablet users unless they are Plus subscribers. Worse still, Plus actually eliminates some programs that are freely available in basic Hulu. The TV show Burn Notice is an example, as I discovered to my sorrow when setting up Roku. In some cases, Hulu Plus is Hulu Minus.

The most alarming rumble from Hulu is the reported news / rumor that the service will institute a de facto paywall to authenticate cable users -- nobody else admitted. If true, this would be the same ploy used by NBC in its Olympics livestream coverage. The model would be a devastating smack-down of the cord-cutting movement. Alternative TV venues are no longer alternatives if you have to drag a gigantic cable-TV membership behind you. And Hulu, for one, needs to get one hell of a lot better than it is now to justify that membership badge.

There is another troubling wrinkle to all this, which is that many millions of cable TV subscribers get their internet from the same company as their TV. So while you might ditch the TV service to save money, nothing would stop the cable provider from recapturing some of that lost income by charging more on the internet side.

Editorial Cutting the cable cord is a young trend going in the right direction

Cable companies are not losing sleep. But they should be having bad dreams. I might be an idealist, but I have to believe there is a limit to how much stress you can load onto basic market values before a consumer-hostile model crashes through them and shatters. There is, for starters, a breaking point to inflating cable bills beyond which a critical mass of users will bolt. Second is the lousy proposition of tiered pricing and content bundling -- a fundamental promise of an honest market is that the buyer pays for only what he wants to buy. Third is the coercive herding of users into one content delivery path, reinforced by the rumored cable authentication model.

Cable companies are not losing sleep. But they should be having bad dreams.

The music industry's lack of resilience during the MP3 revolution illustrated stress fracture points. Record labels tried to enforce the single-path model -- CD purchases, in that case. That wasn't à la carte enough for the playlist generation, so albums were, to an extent, exploded by single track sales. Then music ownership was redefined by subscription plans (a little bit) and social music platforms (a lot).

The music and pay-TV industries have vastly different products, usage scenarios, legacy audience behaviors, and levels of inertia. But music consumers proved that technology disruption can empower ways of breaking the status quo like grass cracking apart a concrete sidewalk. The cable cord-cutting movement is not yet a rampage, but it is a trend, and it is growing like irrepressible shoots of grass.


Brad Hill is the VP, Audience Development at AOL. He is the former Director and General Manager of Weblogs, Inc.