Is cable becoming a victim of its own success? If the current flap over subscriber fees is any indication, it looks like we’re in for a series of battles between media companies and cable operators in the coming years.
But this isn’t about Internet and over-the-top video. It’s about that pesky upstart — cable television.
Okay, cable’s been around for more than three decades, but it’s a rising star, finally drawing an audience competitive (and sometimes superior to) the big four broadcast television networks.
The difference between what we call a “cable network” and “broadcast network” is business model. Broadcast networks have historically subsisted solely on the advertising that they sell. Meanwhile, in addition to advertising, cable networks have received a share of subscription revenues from the cable operators.
These two business models have been in equilibrium as long as the cable networks’ aggregate ratings (and therefore, advertising revenues) have lagged those of the solely-ad-supported broadcast networks.
But today, that balance has shifted, and cable television networks are more profitable as a result. Case in point: NBC Universal’s lagging broadcast property and desirable (especially to Comcast!) cable networks.
Newton’s Third Law comes to mind. For every action, there is an equal and opposite reaction.
The action = the ratings success of cable networks
The reaction = broadcast networks asking for subscription revenues.
And that’s just what’s happening in the battle between Time Warner Cable and News Corporation’s Fox television network. Fox is asking for aggregated subscription fees for a combination of broadcast and cable networks. This amounts to a subscription fee for broadcast television.
Now this may not seem like a big deal. But consumers buy multichannel video in a service bundle. And the only way to increase the subscription fees for one media company is to either (a) take those revenues from other media companies, or (b) for the cable operator to make less money (or to lose it altogether), or (c) for Pay TV service prices to grow.
It’s a zero-sum game, and cable networks are now facing the reality of their success. As long as they were smaller (in terms of aggregate ratings/audience) than broadcast networks, they could double dip. Now that their model is successful, the broadcast networks are asking for a similar deal — to finally get a piece of the pie.
This is a sign of things to come. If we factor Internet-delivered video into this trend, we can see Pay TV prices rising further as the audience goes further online.
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