I wrote this post for the Vodpod blog a year or so ago, and thought I would repost here as it ties into a number of trends and themes on the blog.
Are people cutting the cord (i.e., getting rid of their cable or satellite TV)?
With Apple TV, Google TV, Boxee (the Boxee box is launching this week) and Netflix streaming coming to a huge array of devices, including most importantly the Wii and Xbox and PS3, the challenge to the traditional television business is now present and very real.
But that threat isn’t about people cutting the cord. Instead, we’re adding a cord — to the Internet.
The television business in the U.S. has been one of the one of the most profitable walled gardens, and one with the highest walls. Historically, it’s been difficult to get video programming on to your TV that wasn’t supplied by a cable network or television broadcaster or movie studio.
With our new Internet cord, though, we can get instant, on-demand access to programming on our TVs from places like YouTube, Vimeo, blip.tv and 1000s of other sites. The popularity of Netflix streaming — which, by some now figure accounts for 20% of all downstream traffic during the 8-10PM prime time window despite the massive limitations of their library — gives us a taste of what’s to come. On the Internet, we have 10,000,000s of clips to choose from. And that’s coming to a TV near you.
The history of cable television shows how this is likely to play out. As new programming sources are added, the amount of time we spent watching television goes up but the share owned by incumbents goes down. The amount of time we spent watching the traditional broadcast networks plunged as hundreds of new channels were added to cable networks. As we begin to watch more programming from the Internet, with it’s almost infinite supply of programming, cable and broadcast television companies have much to fear. (Graphic Source: tvbythenumbers).
For most American households, the television provides a hard-to-resist gravitational pull once we get home from work (source: Nielsen Webinar). Television viewership surges during the “prime time” hours (whereas usage of the web typically peaks in the afternoon, when people are still at work).
As it becomes as easy to watch YouTube as ABC on our televisions, what we watch during prime time will change. And this presents a huge threat to traditional broadcast and cable television, given prime time viewing accounts for 50% or more of total revenues from advertising for many cable and broadcast networks.
Arguing about “cutting the cord” misses point. That may, or may not, happen. But we’re definitely going to be adding a cord as we plug in our Apple TVs and Google TVs. And that will change things forever.