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Cord Cutting Continues
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For the first several decades of its existence, television was free. There wasn't much on TV and you had to watch a bunch of irrelevant ads; but it was free. Then some clever marketers convinced us that if they added channels through cable lines or a satellite feed, we should pay more for the content. Ah yes. Pay TV has had it great for a long time. At last count I have over 300 channels and my bill is about $125 a month, which I hear is really not that bad, comparatively-speaking. Luckily, this model is unacceptable to an increasing number of people, as the cancellation of Pay TV services (aka "cord cutting") continues unabated. Last quarter alone, over one million subscribers decided to unsubscribe and unfriend Pay TV. This is getting bad.

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Not to be deterred by changes in the marketing environment, traditional Pay TV providers have moved some operations to the internet offering smaller, lower-priced, more customizable bundles and streaming services. Sling TV and Hulu come to mind. But the efforts have not been enough to turn things around, with satellite providers being hit the hardest due to the high cost of bundling TV and Internet satellite services. Cable and broadband providers have an advantage here since demand for lower cost internet connections is still healthy, but they too are affected by the nearly 10 million homes that have cut the cord since 2010. With these numbers poised to increase, what can traditional Pay TV providers do that they have not already done?

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Slimmer bundle sales are growing, which is good news for Pay TV, and one must remember that content is content and that the internet is simply a newer media, not really all that different from TV. It's all just audio and video as far as I can tell, and so there is no reason to think that the marketers who have dominated for years won't be able to figure out the internet eventually. Yet traditional Pay TV companies are going to have to change their business models as television and the internet continue to converge into one vast medium. Soon internet and TV will be seamless and the viewing masses will enjoy paid content from a variety of "channels" on both TV and the web. It's already happening.

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But free content will always be of relatively low quality, or it will require a king's ransom paid by the consumer in the form of having to view lots of ads and a great deal of invasive behavioral tracking and targeting. The good stuff is expensive to produce, will be in increasingly higher demand, and thus will require some form of financial recompense on the part of the consumer, albeit not at the price of $125/month to access channels that no one wants to watch. The future will most likely involve lots of bundled content options offered by a large number of providers (on both TV and the internet), and this won't be as profitable as it has been in the past.

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Indeed creating exclusive content will become even more important across the board as an increasing number of retailers (who have exclusive store brands) as well as branded product manufacturers (who like to open outlet stores) embrace vertical integration strategies. Such practices give marketers more supply chain power and better opportunities to control costs and prices. Simply being a "channel" for other people's content (Comcast) might not be a successful formula in this new paradigm.

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The likeliest scenario is that Pay TV providers will continue to form lucrative alliances with internet companies and will continue making major efforts to expand its reach beyond the box. The big players will rapidly find ways to monetize these efforts, albeit in the face of new competitors like Amazon, Netflix, YouTube, and so many others. Most will survive, but their operations will be leaner and consumer prices will be far lower than they are now.

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Eventually there will be less junk out there, as content again becomes more streamlined following this period of media fragmentation. I believe that most consumers will pay a reasonable price for content they want rather than trying to get it for free or settling for lesser content. We have done it before and we can do it again. The industry just has to play a lot of catch-up. Indeed if these events continue to unfold as I believe they will, it's certainly good news for consumers who are tired of the status quo.

 

Discussion: Do you think Pay TV will die out? What prescriptions do you have for the major players to adjust to the new content consumption paradigm?