Online Streaming Services Are Threatening to Take Down the Bloated Cable Model | Adweek
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After Streaming Kills Cable, Where Will the Content Come From?

Mutually assured survival

Illustration: Lincoln Agnew

To echo a familiar refrain, consumers are mad as hell and not about to take it from cable companies anymore! Networks are dinosaurs who think the big asteroid in the sky called Netflix is their god, but it’s coming to kill them all! The next Walking Dead is already on YouTube!

But here’s the reality: Netflix is not going to kill cable. Nor is Amazon Prime. Nor is the mythical Apple TV. Because if they do, they will essentially be sawing off the limb on which they have built their businesses: content funded by the very cable model against which they offer an alluring alternative. And wow, is it ever funded—programming is expensive, as you may have heard.

Cord cutting may be on the rise, but it’s nowhere near the level of an existential threat to the cable industry, despite the hype. Nielsen’s fourth-quarter cross-platform report counted more than 5 million “zero-TV” households in 2012, up from just over 2 million as recently as 2007. Those are small numbers given the 110 million TV household universe.

That said, cable operators (or MVPDs, for multichannel video programming distributors) and the networks they carry are dragging each other kicking and screaming toward the rich seam of multiplatform video distribution that Netflix and Amazon are already mining as fast as they can. To be sure, there’s a new economic model for content coming, but it’s big enough to allow all parties to survive, perhaps even thrive.

Here’s how: The linear programmer’s dream for Netflix and its ilk has always been that it becomes a back end—a kind of syndication market for cable programming, which until now has simply vanished into the ether after nominal DVD sales. That would enable programmers to keep their precious dual-revenue stream model (advertising and subscriber fees) with this third additive option, too.

If, as the doomsayers predict, consumers abandon cable en masse, the ecosystem will become so damaged that high-profile programming becomes impossible to fund. And no company with a stake in the entertainment business wants to contemplate that kind of disaster.

A MUTUAL NEED
There are no ratings numbers for Netflix, but its relationship with cable is definitely symbiotic. “New viewers are finding [our] shows on a digital service, catching up on prior seasons and then tuning into AMC for new seasons in greater numbers, many for the first time,” Josh Sapan, president and CEO of AMC Networks, told investors last May after the net’s flagship shows The Walking Dead and Mad Men each saw huge ratings gains in the wake of the decision to stream previous seasons on Netflix. Presumably, that means Netflix viewers would be pretty upset if they couldn’t watch Walking Dead a season late, too.

The feeling of mutual need is reciprocal. Netflix CEO Reed Hastings last week tipped his hat to the industry on which his business is feeding. Though Hastings calls the linear TV model “ripe for replacement” in an 11-page manifesto, even he doesn’t think Netflix will be the only game in town. “TV Everywhere will provide a smooth economic transition for existing networks,” he predicts. “The same consumer who today finds it worthwhile to pay for a linear TV package will likely pay for a ‘linear plus apps’ package.”

Hastings, too, agrees that the trouble with traditional MVPDs is lack of convenience, and other networks have demonstrated their agreement with that thesis while pointedly stepping on Netflix’s toes.

FX announced at its upfront this year the rollout of FXNow, a complementary authenticated digital service à la HBO GO that includes a section called Movie Bin. The catch: FX has negotiated exclusive windows on its movie content. So while it will certainly be happy to provide episodes of Archer to Netflix, it will also be taking away, for example, Thor from its digital rival. (Windowing wars were a huge deal when HBO was in its ascendancy and competitors like Starz were trying to challenge it; they appear to be on track for a return engagement.)

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