Darwin Would Have Been Wrong About Pay TV

When you think about evolution, some images come to mind.  Perhaps the picture of man’s evolution from a Neanderthal into a human over millennia pops to mind.

Often, technology evolves the same way….think – large brick-sized cellphones of the 80s evolving into slim iPhones today.  But, sometimes, technology gets disrupted by a completely new business model.  This is likely the fate of Pay-TV.

While the incumbent cable companies continue to spend billions of dollars yearly and engage in a bloody fist-fight with telco or satellite players to win back the very subscriber they lost months earlier, a completely orthogonal attack is quickly taking shape from the OTT players.

Why is there Complacency Among the Incumbents? 

Cable is an oligopoly that has essentially not really changed in decades.  Cable TV first started in the 1940s as Community Antenna Television (CATV) solved a problem for homes in remote locations far and away form the over-the-air broadcast transmitters that provided the television signals of the day.  Setting up large, community antennas and retransmitting the signals on coaxial cables, solved the problem.

Cable, like all technology, evolved to what we know today. After years of development, we have fiber optics and enjoying television programming at it’s best.  Yes, there has been evolution, but in shades of grey.  The set-top box is still at the core of their offerings.  What is missing is the realization that consumers are not looking for just a utility service, but an experience of entertainment.  It’s the demand side that will begin the shape things from here.

What’s Coming?

In fact, demand is always the ultimate driver once there is choice.  As with other sectors, seismic disruptions from trends like mobility, big-data and software are around the corner.  It is a playbook that the incumbents have not learned, but one that is embedded in the DNA of the new players.  Yes, traditional Pay-TV models are evolving, but instead of taking decades, the next phase of change will likely happen in 2-3 years.  And yes, the incumbents will scramble to shift their investment, but they will likely struggle to change the product; they may offer up one-dimensional experiences like an extension of your home TV, call it TV Everywhere and declare victory.

A new class of competitors is emerging, including the likes of Google, Amazon, Netflix, as well as the end-point makers like Samsung and LG, plus a wide raft of smaller new companies, and collectively these will drive a fundamental and rapid disruption of the delivery of TV.  Most likely, this competitive assault using a very different business model will dis-intermediate much of the advantage of incumbency, and fundamentally change the economics of a complacent industry ripe for disruption.

Offering consumers a taste of what’s really possible will permanently change consumer preferences and expectations.  For just a few examples: a la carte programming vs. forced bundles, or mobile solutions vs. tethered cable TV, or intuitive interfaces vs. the ignominious TV guide.  Moreover, monetization will be through models that are hard or impossible for the regulated MSOs to practically or legally emulate — use of unleashed big data, micro-segmented consumer behavioral analysis, targeted advertising, and most importantly, worldwide ubiquitous availability.  Yes, you may still watch the Super Bowl on the big screen at home, but no longer will we be glued to the big screen TV connected to a cable box for entertainment, but have live video when and where we want it, maybe even on Google Glass.

Yes Darwin had the right idea and set-top boxes have evolved over the last 75 years.  But horse-driven buggies don’t easily change into vehicles for space flight, and that is the order-of-magnitude evolution that will likely take just a few years to happen in this industry, which will bring huge benefits for consumers.