Virginia’s governor gets into a regional spat over Metro and the Silver Line. The D.C. Council advances one of the nation’s most generous paid leave policies. And a longtime Maryland state senator decides he won't retire amid a fight for his seat.
For decades, cable providers have relied on a “bundled” subscription model: to receive premium stations like ESPN or HBO, consumers had to purchase a package of less-popular stations. But many believe that model is showing signs of cracking. Many younger viewers are watching online via Netflix or Hulu. And the Canadian government recently made news by moving toward an “a la carte” model, which would allow customers to receive just the stations they want. We explore the future of TV, and the whether new technology is disrupting the cable model.
- Brad Adgate Director of Research, Horizon Media
- Matt Wood Policy Director, Free Press
- Cecilia Kang Washington Post Technology Reporter
- Adam Thierer Senior Research Fellow, Technology Policy Program, the Mercatus Center at George Mason University
MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. It's "Tech Tuesday." Last year, the average American TV household received 180 cable channels, but they only watched about 18 of them. You do the math. Does that seem like a good deal? Cable companies have built their economic model around bundled packages.
MR. KOJO NNAMDIMost Americans pay about 80 dollars a month for a grab bag of stations, some of which they highly value. Most of which, they never watch. But the bundling model might be showing signs of cracking. For years, tech savvy viewers have been cutting the cord, ditching their cable bill in favor of streaming options like Netflix and Hulu, even plain old Youtube. And last month, a Canadian government official announced that his country would take on bundling head on, by allowing viewers to pick and choose the stations they want to pay for.
MR. KOJO NNAMDIThis "Tech Tuesday," we're exploring why our cable bill seems so high, and whether new technology and new viewer habits are prime to disrupt old models. Joining us, in studio, to talk about this, is Matt Wood. He is Policy Director at Free Press. Matt Wood, thank you for joining us.
MR. MATT WOODThanks so much.
NNAMDIAlso with us is Brad Adgate. He is Director of Research at Horizon Media. He joins us from Argot Studios in New York City. Brad Adgate, thank you for joining us.
MR. BRAD ADGATEHey, thank you.
NNAMDIIn our Washington studios, Cecilia King, Washington Post Technology Reporter. Cecilia, good to see you again.
MS. CECILIA KANGThank you.
NNAMDIAnd also in studio with us is Adam Thierer, Senior Research Fellow at the Technology Policy Program at the Mercatus Center at George Mason University. Adam Thierer, thank you for joining us.
MR. ADAM THIERERGood to be back.
NNAMDIYou can join this "Tech Tuesday" conversation. Just give us a call. 800-433-8850. You can send email to firstname.lastname@example.org or you can send us a tweet a kojoshow using the hashtag techtuesday. Cecilia, there's news about this, or news in this general area today. Talk about what Senator Jay Rockefeller of West Virginia is planning to do.
KANGKojo, as we speak, right now, Senator Rockefeller has just introduced a bill. It is called the Consumer Choice And Online Video Act. Essentially, what he is trying to do is to create an environment where online video providers will be treated very similarly to how cable television providers are treated, from a regulatory point of view. And from a consumers point of view, this could mean that, assuming that this bill goes through, that consumers will be able to get whatever sort of programming they want.
KANGOr a wider selection of programming that's available on broadcast on cable, and that they have difficulty getting today. But that regulators will help insure that they do get that sort of option and choice and library and catalogue that they can provide to their customers.
NNAMDISo that it means those people who have, oh, problems getting live sports broadcasts or HBO online streaming may be able to do so with this legislation.
KANGAbsolutely. There are two main points with this legislation. The first being that it would make sure that the Federal Communications Commission is sort of more of a clear cop on the beat to make sure that online video providers aren't treated unfairly by cable companies or broadcast companies that may want to withhold great programming or popular programming from them. The second thing it would do is it would insure that, or it would basically make an online video provider, say a Netflix or Aereo or some of these new, very interesting platforms that have grown quite a bit recently, in recent years.
KANGThey'll treat them very similarly to cable and broadcast television providers. And specifically, it would insure that if you want to watch that baseball game on your local broadcast, that these platforms, these internet platforms will be able to send that to you. To your device or your computer or whatever have you, over the internet. And pay the retransmission fees, the sort of fees that cable companies do to local broadcasters.
NNAMDIObviously, there's a big "if" involved here. This is a bill at this point.
NNAMDINot a law. I wonder whether you think this bill has a good chance of passage, Matt, or whether it's dead on arrival. Adam, what do you think? Starting with you, Matt.
WOODWell, considering that we just came out of the shutdown, I don't know if any bill has a good chance of passage in this day and age in Washington. I think it's an interesting idea. It's something that we're all just learning about, kind of, in real time here, right now. It's an idea that's been kicked around by others. It's not simply a Senator Rockefeller creation, although this particular version of it may be.
WOODBut Senator McCain, in fact, introduced a bill back in May, also looking to increase viewing options and choices for cable subscribers and Anna Eshoo, on the House side, has not introduced formally, but at least floated legislation to do similar things. Try to get people more choices among their broadcast and cable operators. And as Cecilia said, this bill could, if it passed, and that's still a very big if, give people a chance to watch things online more readily, but, of course, the online providers would still have to negotiate for carriage.
WOODOr at least, as she said, be treated like a cable operator that has a clearer path to getting that content. Doesn't necessarily mean that things will right away show up on every single device you have.
NNAMDIHow big is this if, Adam Thierer, if this bill passes?
THIERERWell, I think it is a big if. I think politicians have a long history of wanting to meddle in America's media marketplace. That's not surprising. And so, having more bills a session is going to continue. I don't know if any will pass. But before we move forward on that debate, I think it's important we take one step back and ask ourselves about the media environment that we were growing up in, Kojo, in the past.
THIERERWhich was an environment where we only had a couple of radio stations, maybe two or three television stations, a local newspaper. If we were lucky, a few other media outlets. We lived, if you will, in a world of information scarcity, or even information poverty. By contrast today, we've got it pretty good. We live in a world of information abundance and almost information overload. In fact, so much choice that we sometimes complain about all these choices.
THIERERSo isn't it great that we have that dilemma on our hands, and we're sitting here debating, you know, how it is we get exactly what we want when we have hundreds and hundreds of channels and then all the millions of different types of websites and online choices to choose from. So we've got a pretty good situation here. We shouldn't lose sight of that.
NNAMDIThe question before us is should we be lauding our good fortune or complaining about how much we're having to pay for it. 800-433-8850 is the number to call. Are you a cord cutter? Is it possible to get your fix with Hulu and Netflix and Youtube alone? Give us a call. 800-433-8850. At my home, I have cable. I have On Demand through my cable company. I've got Netflix streaming. I've got HBO Go, which I can watch on my computer or my tablet or my Apple TV. In short, I have more ways than I care to count to watch a given show at any moment in my living room.
NNAMDIBut all that content comes at a pretty steep price that I pay through the nose for. So I'd like to start with a simple question, picking up on the point that Adam has been making, is this the best of times, Matt, or the worst of times?
WOODWell, we have a lot of choices, but the question is, who's offering those choices and just how real is that choice? You mentioned On Demand for cable, for example, so that's something that the cable operators often sell you as free. They say it's free. I say that that's kind of like saying that the food on the airplane is free. As long as you're willing to pay a few hundred dollars per month or a few hundred dollars for that ticket, then yes, you get some perks. But it is all tied back to that cable subscription.
WOODAnd our question is why do people have to subscribe to the traditional cable TV package in order to get that online content, especially when you have over the top options, as we sometimes call them. Over the top is Hulu, is Netflix, is somebody who doesn't own the wires that bring that content to your house, but still is able to provide you with video content, often at lower rates, oftentimes in different configurations and different bundles than what you're getting from your cable operator.
NNAMDIAnd to you, Cecilia. Best of times or worst of times?
KANGWell, I would say depends. If you are one of these cord cutters that you mentioned, these people who have cut the -- decided to give away or stop using their video service over cable, then I would say this is a better time than it was a year ago. There are more options out there. But it's interesting, Kojo, how you mention all these options that you have, that actually aren't even part of the cable universe. The Apple TV, all these things, and you were saying you're paying through the nose, and you're not using it all, as well.
KANGSo, you know, consumer demand and consumer expectations are really driving so much of what's happening in the business market. And it's really changing. And, in fact, the market and consumers are moving on their own. Netflix's subscriber base continues to grow. It's at 40 million. The cable video market is declining. Comcast's number of subscribers declined by 120,000, last quarter, to 21 million. So, Netflix is even bigger than Comcast, the biggest cable operator.
KANGSo, as far as, you know, where consumers are driving things, or how the companies are driving things, and where Washington and regulatory decisions drive things, it seems like, in many ways, the market is moving already forward in different ways. And from a cord cutter's perspective, there's much more choice, even than a year ago, without regulation.
NNAMDIThe market is moving, but Brad Adgate, we'd like to know in which direction the consumer is moving inside this market. What direction does the consumer seem to be going in when presented with this variety of choices?
ADGATEWell, I think it really comes down to what your demographic is. You know, the younger folks are the ones that are more likely to cut the cord. They do it for economic reasons. You know, TV penetration last year was the lowest it's been since 1970. But I think if you want to see which way it's going, I think it's going mobile. At the ABC Up Front presentation last May, they came out with a watch ABC app that's gonna allow you to watch content on iPads or Tablets and mobile devices.
ADGATEAnd so, you know, content is moving outside the home faster than ever, and we're gonna be able to watch, in the not too distant future, if not already, the ability to watch your local news or to watch your favorite TV shows while on the road.
NNAMDIBut the fact that you found an interesting statistic about the number of channels we receive versus the number of channels we actually watch. I mentioned that earlier. We only really watch about 10 percent of the channels in our bundle, and that seems to be shrinking, but does bundling, Brad, nurture smaller, niche voices? Or does it simply mean that I get channels like FXX or FXXX that I never really asked for?
ADGATEWell, you know, it's been bundled by the big media companies who have leverage. You know, Disney has ESPN, and they can go and start a cable network, like say Fusion last month with Univision. And they can just say, look, if you want ESPN or Disney, we're gonna want you to take Fusion. So, they do have some negotiating leverage. You know, it was interesting, earlier this year, Time Warner Cable said we're dropping Ovation.
ADGATEAnd one of the reasons that they were able to do that is Ovation is not a part of one of the big media conglomerates out there, like a Comcast or Disney or Fox. So, it does -- it's not necessarily a level playing field. I think that the big media companies have been very aggressive in acquiring cable networks. It's not really watched by FCC like say, station ownership is, and I think, in many ways, that's what's giving them leverage in negotiating with these MVPDs, which pass along the cost to viewers.
NNAMDIIf you have called, and many of you already have, stay on the line. We will get to your calls. The number is 800-433-8850, but if the lines are tied up, shoot us an email to email@example.com. Adam Thierer?
THIERERIt's important to realize that bundling's been a part of almost every type of media business model going back over a century. I mean, this is what made newspapers great. They bundled together a lot of diverse content and provided it to us, whether it was local affair, sports, other types of community programming, other types of information about your local community. Same goes for radio. I mean, NPR bundles together a lot of different types of programming and provides it to the listeners, whether they necessarily want it or not.
THIERERI may be getting your show, Kojo, and I love it, but I don't get to disentangle that from say Car Talk, or Wait Wait, Don't Tell Me. I get it all as part of a bundle. And so what cable does, cable television, is it brings together all these wonderful different diverse channels. And sure, maybe we're all only watching 18 at one time, but they're a different 18, and we have the choices between various types of minority programming, foreign language programming, sports programming, current affairs, you name it.
THIERERThese smaller niche programs and channels would not exist unless they were bundled alongside of stronger programs that help cross subsidize all that wonderful diversity we see on cable today. And that's why I think it's really more the golden age of television than others believe.
NNAMDIOn to the telephones, now. We go to Andrew in Alexandria, Virginia. Andrew, you're on the air. Go ahead, please.
ANDREWYes, hi. I'm wondering if there's any thought about how deep people really understand issues, given all the informational sources, sound bites, everything else. I listen to C-SPAN and some of this, you really get discussions, and WAMU. You get discussions that at least there's more information packed by, a lot of the times, experts. But I'm just wondering, in general, all these informational sources, how deep do people really know issues? Thanks.
NNAMDIWell, I don't think we're discussing the information economy, at this point. It is a conversation that we have had before. Because a lot of people do not watch these shows for information. They watch them for their entertainment value. So, that information conversation, Andrew, is one we're gonna have to have at another time. But the conversation we're having today is the conversation about choice in television media that we now have available to us. That's the conversation we're inviting you to join.
NNAMDIThis week, the global internet phenomena report came out with an interesting statistic about web traffic, that estimates that half of all downstream internet traffic on any given day in this country comes from two sources. Youtube and Netflix. I'm gonna ask each one of you, what does that tell you?
THIERERYeah, I think this is a powerful story, the fact that Netflix and Youtube equal over half of all our online broadband consumption on broadband networks. And the other names in there, Apple iTunes, Amazon video, Facebook, so on and so forth. What's interesting about this is that none of these are affiliated with these major cable or satellite operators. So this reflects the fact that you have independent options, distribution options and choices, to get all this wonderful new media content.
THIERERIncreasingly, especially among younger audiences, you're seeing people flock to that. My kids walk around watching most of their shows on their phones or tablets, through those other alternative types of platforms. So the good news here, Kojo, is we have choices. We have options. A la carte and unbundling is happening naturally without the force of law.
NNAMDIWhat does it mean to you, Brad Adgate?
ADGATEWell, it just points out this is a very nascent industry, and I think as this industry matures, I think it'll start to flatten out and be as competitive as what television has become now, where, you know, it's a much more level playing field. And there will be more players in there. I mean, right now, online video is a four billion dollar advertising revenue industry, and I think, you know, all indications are this is gonna grow and there'll be more players, and I don't think it will be dominated by just two.
KANGWell, it is a pretty phenomenal statistic. Half of all internet traffic, and a lot of that is on mobile, as well. This is not just fixed wire broadband traffic. And the question is, right now, there's not so much consumption of this kind of video that it really effects your pocketbook too much more. The question is, when people start consuming higher bandwidth intensive video that's HD, and they hit, they run up against data caps, both on wireless and wire line.
KANGAnd whether their providers of these services begin charging more. And then it may not feel quite as golden.
NNAMDIAnd, your turn, Matt.
WOODOh, sure. You have a lot of people to feed here, don't you? I would just say, to Adam's point, yes, a lot of these things are coming through from different sources, but your cable bill is not going down because of it. So, what we see is this continued bundling, and so cable companies are, in fact, more profitable today, even though their ratings for these cable channels are going down.
NNAMDIThat's a question I'd like to get to, but first we have to get to a break. So if you have called, stay on the line. We can get to you after the break is over. You can call now at 800-433-8850. Shoot us a tweet at kojoshow using the hashtag techtuesday or email to firstname.lastname@example.org. It's "Tech Tuesday." I'm Kojo Nnamdi.
NNAMDIWelcome back to this "Tech Tuesday" conversation that might be about disrupting the cable TV model. We're talking with Adam Thierer, Senior Research Fellow at the Technology Policy Program at the Mercatus Center at George Mason University. Matt Wood is the Policy Director at Free Press. Cecilia Kang is Washington Post Technology Reporter, and Brad Adgate is Director of Research with Horizon Media. He joins us from Argot Studios in New York.
NNAMDIKyle in Washington, D.C. I think Kyle, you have the next question that I was planning on raising, so go ahead, Kyle. You're on the air. Go ahead, please.
KYLEHi Kojo. First off, thanks for taking my call. I enjoy your guys' show. So, I appreciate that. I'm in the process of determining if I wanna cut my cable cord. And part of the reason is of all the fees that come with cable, like your cable box. So, you have one cable box. You get charged a monthly fee per cable box. So in my household, I have two cable boxes. Five dollars a month. I know it doesn't seem like much, but why can't they offer a onetime fee where I buy it outright verses all these monthly charges that add up over time in the years. You know, I mean, for me, it just, economically makes sense to get rid of it.
NNAMDIKyle, thank you very much for your call. Cecilia, Kyle is raising what I was about to raise. From a consumer perspective, it seems as if things only go in one direction price wise with cable, and that is up. Right now, the average American family spends about 80 dollars on cable, either on its own or as part of a bundle. I saw one estimate that projected it would be 200 dollars by 2020 if this trend line continues. But the cable industry itself is in the midst of an internal conflict between companies that make content and companies that distribute it. Why is all of this important?
KANGWell, it's important because I think, well, most recently, because of the disputes between the companies that make the content, the companies that distribute them. Consumers are getting a little fed up. They're feeling like they're getting caught in the middle of your cable subscriber to, for example, Time Warner Cable, and you're caught up in the recent CBS dispute over fees. You're feeling, why in the world, when I'm a cable subscriber paying for what I thought I was gonna get on TV, which is CBS programming, am I seeing blackouts?
KANGSo consumers are, at this point, sort of feeling like, well, they're hitting this wall where they feel like, yes, the cable bill is going up, and there are all these, as the caller just mentioned, fees that feel hidden. And maybe even are hidden. And they're seeing an increasing number of options that are outside the cable universe, as we described. If you just have an internet connection, and you pay a subscriber fee to whatever service that might be, for much less than what cable's offering, maybe I can get by without watching my live sports, or just go to the local bar and watch the games that I wanna watch.
KANGThese are the kinds of ways that people are sort of hacking their sort of TV experience, if you will. And consumers, as they feel a little bit more empowered, and they see that there are more options out there, they're changing their behavior. And I do think that, as you mentioned, Kojo, that importantly, this dispute between the broadcast media companies and the cable distributors and the satellite distributors over the fees that they negotiate between each other to display these shows, has become something that should be remain -- that consumers feel should remain in business disputes, and not affect them.
KANGBut they've been feeling it for too long, and too often.
NNAMDIBrad Adgate, is that what's driving the demographic that you mentioned earlier? Younger people who are the ones who seem to be cutting the cord more than anyone else. The fact that they probably have less disposable income than the rest of the population.
ADGATEYeah, no, that's absolutely the point. And that's what's critical is that's the one who advertisers want to reach, so if they're not watching television, where are you gonna reach them, and how are you gonna reach them? And, so I think, you know, that's a very important point made is it is demographic. These ones are -- tend to not be affluent, they live alone. They tend to be 18 to 24, the college market. I think, last year, Nielsen said 78 percent of them had a TV set. That's actually risen this year to 85 percent.
ADGATESo, it is getting, it is rebounding a little bit, and that could be, you know, for economic reasons. But, you know, they are watching content, and whether they're watching it on mobile devices or whether they're watching it at their friend's house or family's house. You know, they are watching video content. They just don't necessarily have a television set in their house that's operational.
THIERERYeah, quick point on the price issue. You know, there's a well known phrase in the field of economics that there's no such thing as a free lunch. The reality is is that high quality content programming is gonna cost money, and the buck has to stop somewhere. And that’s why, when you have a bundled package of programming, it gets spread across many different types of content, and consumers pay more over time. But the quality adjusted price of the overall package is actually pretty good when you consider the fact that we've got this golden age of programming, whether it's the Mad Men or the Walking Dead shows.
THIERERAnd things like that. Or the Game of Thrones. And you get to choose now. Because we have these other options, you can, if you want, go for different packages. You can go and do this through the website, you can go to a CBS website or an HBO website. You can deal with them. You can download these things through Amazon or Apple. You can buy the discs of the complete season. You can watch them with ads against them. You choose. You have all of these different options, but at the end of the day, there is going to be some form of payment for that high quality content.
NNAMDIAnd I think, though, that price, the caller, Kyle raised the issue of paying for things like boxes and fees from the cable company that a lot of people don't quite understand how that is calculated and can't figure out why that is being passed on to us when we're already paying the fee for the bundle.
THIERERSmall part on the boxes. The boxes are also security measure. There's worry of signal theft, of theft of intellectual property. The box is largely there as a security blanket for the cable and satellite companies to make sure that you can't pirate that signal. In the future, that security will be built in, it will be integrated into cable and satellite systems over time.
NNAMDIWell, Matt, last month, Canada's Interior Minister, James Moore surprised a lot of television viewers when he announced that his government would mandate that cable providers provide consumers with a non bundled product. How would that work? Why does Canada get to go a la carte?
WOODI don't know if they get to go for any particular reason other than that they've been a little bit more willing to take on the cable industry, and I think it was two years ago when their regulatory body started encouraging cable and satellite providers to start offering more choices and more different types of bundles.
NNAMDIEncouraging as in prodding.
WOODProdding gently. Ever so gently, like any regulator would. I would just say that they are able to go more quickly, perhaps, because they have fewer entrenched interests fighting against it here. I mean, there are so many points that we're discussing here and covering. We talk about, in the future, having security for the cable operators built into the box. Well, let's go back to the future. That's actually a regulation from 1998, that for the past 15 years, has not really been implemented very well.
WOODAnd that's largely because, once again, just like we have in this context, we have cable operators fighting the implementation of that regulation. So, some regulations are pro consumer, and open up the market to more choices, and some haven't worked very well. And you can ask whether that's because the regulation was a bad idea or if because it's been fought and undermined by the cable industry. I would just say, quickly, that having more choices on all the different platforms, Cecilia raised a really good point, which is that often times, all these over the top broadband offerings are coming to you through the same wire.
WOODThere's a lot of control baked in here. And what we've seen is cable companies profits, as I mentioned before the break, continuing to rise, and even per channel revenues continuing to rise, even when no one is watching them. So often times, the cable company will say, well, you get so many more channels today. I like to compare that to saying, look at all the value we make you buy. You know, you're getting more channels, but if you're not watching them, why are we required to pay for them instead of just buying the ones that we want and letting the market be more transparent on all these different types of fees that the caller was talking about.
NNAMDIWill the US follow suit? It is my understanding both John McCain and somebody named Matt Wood would like us to.
WOODAnd more importantly than the Anne Eshoo and Richard Blumenthal join with Senator McCain, we go back to what we said about the Rockefeller bill at the top. Will anything pass in this Congress, let alone any sort of measure that has the slightest hint of controversy, or the slightest bit of entrenched opposition in one industry or another? I think it's a tough slog, but it's something worth discussing, as we're doing here today, and especially on Capitol Hill.
NNAMDIOn to Justin in Baltimore, Maryland. Justin, your turn. Go ahead, please.
JUSTINHi, thank you for taking my call. I am a cord cutter, which I've also heard called hipster cable. But my question is, is that, you know, when I go to the cable company, and I live in Baltimore city, where my only option is Comcast, the cost for cable, I'm sorry, for internet alone, in order to watch Netflix, in order to watch some of the online streaming content, the internet alone is almost as much as some of the basic cable internet packages. And, so, for me, I cut the cord to save money, yet here I am having to pay a lot just for internet alone. And I find that frustrating to have not a lot of options, and to have to pay a high cost for internet. Thank you.
NNAMDICare to respond to that? First, you, Adam Thierer.
THIERERWell, we do have more options these days in the form of wireless providers who are providing 4G networks and other types of Wi-Fi networks they're developing. Certainly more competition would be great. We need to get it in certain areas more than others, but at the end of the day, this is not stopping people from cutting the cord and moving to these alternative platforms when they want them.
KANGI would say that from readers, and I get a lot of reader responses, that's probably the number one complaint. I wish I had more options. I just don't feel -- I feel like I'm captive to one or two providers locally. And I would say that many people would say that 4G really can't compare to -- the LG experience can't really compare to what it's like to have, you know, 50 megs on fixed wires. So, the experience is quite different. So, competition is a big part of this going forward and how people feel about what -- how good their experience can be, and whether they really can cut the cord, if you will.
KANGIn a way where their viewing experience will be as enjoyable as it would to have cable TV.
NNAMDIWell, there are some people who feel that in certain areas, there is not enough competition. I'm trying to find the caller who was making that point, but I can't seem to find -- oh, it's Brian in Eldersburg, Maryland. Brian, you're on the air. Go ahead, please.
BRIANOh, hi Kojo. Thanks for taking my call. My point was, had to do with, I guess, sports content. And I would gladly be a cord cutter, cable cutter. But the one thing that holds me back is not having the ability to watch Baltimore Ravens on TV. So, I maintain cable, just the cheapest, most basic network channel package that Comcast has to offer, which I think is still about 20 or 30 dollars a month. Pretty frustrating, but one of the guests on the panel was making the point that a lot of the shows now, you can watch by going directly to their website.
BRIANCBS or ABC. It's infuriating to me that the NFL doesn't have type of an option for, you know, pay a certain amount of money and get your, whatever team you want, get to watch all their games online streaming as you want it. Or pay a certain amount of money per game to watch. I don't understand why the NFL doesn't offer something like that.
NNAMDIBrad Adgate, care to comment on that?
ADGATEYeah, well, I think they're looking towards that. Right now, Direct TV has this package of getting all the games, and they pay the NFL a billion dollars a year, and that contract expires at the end of next year, 2014. And it's kind of like a loss leader for Direct TV. I don't think they necessarily make money on it, but it gives them something unique from their competitors, and the NFL is looking towards streaming of those games, and so you'll be able to watch games online instead of through a satellite provider or MVPD.
ADGATESo, that's something to look at. I mean, the NFL has about ten billion dollars in revenue this year, and they have a goal of 25 billion by 2027, so they're looking for ways to get revenue and some of these big digital companies like a Google or a Microsoft might be able to afford more than a billion dollars a year to offer that to subscribers.
THIERERYeah, brief point. Brad's got it right there, and I think you're gonna see more experimentation in this regard. Look what CBS has been doing recently with March Madness. You can watch almost all those March Madness games, I think, in fact, you can watch every one of them through the CBS portal. And you have to watch a lot of ads, that's the price of admission, but you at least are not paying, and you don't have to have a cable subscription.
NNAMDIBrad, you mentioned earlier about the demographic that is driving a lot of that change, but talk a little bit about how that's been playing out with series like, oh, "Scandal," or "Breaking Bad."
ADGATEOh, wow. Yeah, "Breaking Bad" is a show that started out really slowly. I think its first season, it got about a million and a half viewers. It would have been canceled by any broadcast network, but AMC was in experimental mode. They just had rolled out "Mad Men" the year before. In 2011, they put it on Netflix along with "The Walking Dead," and the median age went from 45 to 37 in two years, which is extraordinary. And the audience tripled from two years when it went on Netflix.
ADGATEAnd obviously, people caught up with this and started binge viewing, and it's a serialized show. And, of course, you know the finale in the end of September did 10.3 million viewers, which was the most watched cable series finale since "The Sopranos" in June of 2007.
NNAMDISimilar phenomenon with "Scandal," right?
ADGATEYeah, well "Scandal's" a little different in a sense that it's a social media that's driving that, not necessarily Netflix. It was a show, again, that insiders might say, after the first year, ABC said, you know, the show's on the bubble. It may be renewed. It may not be renewed. Maybe they have better shows in development. But they noticed that there was a lot of comments being fueled on social media. You know, it has star power with Kerry Washington. Oprah was talking it up when she had her talk show back then.
ADGATESo, you know, ABC decided to renew it and this year, their audience is up over 60 percent from this time last year in 18-49, the money demo. So, you know, this has become a bonafide top ten hit for them, and, you know, it's just another way of how television is getting viewers by using different platforms or different areas to build viewership.
NNAMDICecilia, early adopters and tech savvy consumers have always found a way to get these shows and content that has been walled off, even if they have had to use, well, shall we say, less than legal means. But it seems like today we have a number of new gadgets and tools that make it easier to get this content off the web or out of the airwaves and on to your TV. Tell us about Aereo.
KANGSo Aereo -- that's very true, first of all, Kojo. And I wanted to just say one thing about the legal means. The statistic that you raised on YouTube and Netflix traffic being half of all broadband traffic, that comes from a company called -- a research firm called Sandvine. And they said, concurrently, the amount of file sharing, illegal fire sharing, has actually gone down as well.
KANGSo that's -- it's interesting how people have more legal means. So Aereo -- moving on to Aereo, Aereo is a company -- very controversial, being fought in courts by broadcasters, saying that they're lifting the signals of their television shows from local stations -- this is what the broadcasters say -- some broadcasters say -- illegally through their own network of antennas that just pick up the signals of the shows off the public airwaves.
KANGAereo say that, through copyright law, their interpretation of it, that this is completely legal. And what this essentially enables a consumer to do is to watch anything they want on broadcast tape TV over the internet, over their mobile device, a laptop or what have you, and have the ability to also record and save and watch when they want. So it really creates that sort of on-demand cable experience for broadcast TV on the internet through this particular system Aereo.
NNAMDIBack to the telephones, here is Brian in Alexandria, Va. Brian, you're on the air. Go ahead, please.
BRIANHi, Kojo, so many topics I'd love to touch on. I'm a computer student at Mason, so proud to hear one of my own here. But the point I was making is that, as this technology is changing and people seem so intent on embracing the tradition in holding onto that instead of embracing the technology changes, it seems to be more harmful. As we were just saying, illegal downloading is decreasing as content becomes more available.
BRIANFor example, I will -- I buy every season of "The Walking Dead" because it is available. But HBO's "Game of Thrones" is not available to me. However, I will find a way to find it, whether or not -- or watch it, whether or not it's legal or not.
NNAMDICare to comment on that, Adam Thierer?
THIERERWell, obviously the more that these media companies can make their content available in some easy-to-download, easy-to-access fashion, the better off they're probably going to do in the long run. And certainly this has been a problem for HBO with a lot of its content. But there must be a method to the madness, and they still are making some money on it one way or another. So it's just a matter of evolving business models to make it work.
NNAMDIMatt Wood, is this a lesson learned from the music industry?
WOODI think so. I think that the film and TV industry has been a little bit smarter about it. But I would just say to the caller that the people holding on to the past tend to be the people still making money off of the past. And so the previous caller talked about having to pay more for broadband alone than he's paying for TV. This is where we're seeing these kinds of, you know, cross subsidies, these kinds of wonky features built in to the markets where the TV operators are not willing to give up their old revenue streams until they find a way to take over and grasp on to the new ones.
WOODAnd so people are getting more choices in more different places. I think we have to look at also what they're paying for that privilege and just how often they're able to get those choices and how long they're forced to wait. Some of these programs are windowed -- is a term that maybe a lot of people don't know but that the industry sees as a very important -- you know, you can see it today on cable, but you can see it tomorrow on Netflix. Or maybe it's next week or next month.
WOODSome programs have this very long shelf life, and they'll survive that kind of windowing, like live sports being the primary example. So there's lots of different ways that the people who hold the contracts and hold the connection to the individual customer can control just when people get access to those things.
NNAMDIGot to take a short break. If you've called, stay on the line. We'll try to get to your calls. Or you can shoot us an email to email@example.com. If you'd like to talk about whether you are a cord-cutter or not, 800-433-8850. I'm Kojo Nnamdi.
NNAMDIWelcome back. It's Tech Tuesday. We're talking about how streaming may be disrupting the cable TV model with Cecilia Kang, Washington Post technology reporter, Brad Adgate, director of research with Horizon Media, Matt Wood, policy director at Free Press, and Adam Thierer, senior research fellow with the Technology Policy Program and the Mercatus Center at George Mason University.
NNAMDIYou can also call us at 800-433-8850. For years, DVR technology and streaming services siphoned viewers away from cable companies and their advertisers. Now the cable companies are pushing back. With Video On Demand, they're trying to capture those viewers they lost by offering ways within their own service to time-shift and watch On Demand. Brad Adgate, this is actually a huge battleground between content distributors and creators. So when I log on to Video On Demand, who is it that's giving me what I ask for?
ADGATEThat's a great question. I think that's been one of the -- what's been holding it up. Actually, more homes have Video On Demand than have a DVR. It's about 60 percent of the country have VOD available to them. And it's about 49 percent now have DVRs. And I think really it's a combination of the MVPD. It's the network and the studio. And I think that they had to figure out, you know, where the dollars are going to go.
ADGATEAnd I think we're seeing more and more of this being available this year. And if you watch it, if you watch a VOD show, within three days, you're going to get the same ads that you would see watching it on a linear telecast. And you can't fast forward...
NNAMDIThey won't allow you to fast forward, huh?
ADGATEYou can't -- yeah, the fast forward's been disengaged, unlike a DVR. So obviously the advertisers love that. It's part of their currency that Nielsen will pick up under its advertising window of C3 ratings or watching commercials within three days of the telecast. After that, there's something that they're experimenting called dynamic ad insertion, which is something that's going to be based on your viewing profile or based on what you watch, what type of ads that you might be more interested in based on what you're watching.
ADGATEAnd that's kind of in an experimental stage, and that's not part of C3. But, you know, there's some talk about the networks wanting to expand DVR playback to count as part of the currency going out seven days, which is not for every advertiser. But it's something that's been in discussion lately.
NNAMDIWhat's an MVPD?
ADGATEOh, MVPD is a multichannel video programming distributor, so it's a cable operator, a satellite company, or a telco.
NNAMDIWe got an email from Dorothy in Alexandria who says, "I'm not a digital native, and I'm confused about what I need to be able to watch online content providers on my regular TVs. Do I have to have Wi-Fi? Do my TVs need to be fairly late model?" Matt Wood.
WOODWell, that goes back to that set-top box question that we were talking about before. There are lots of different options. I think sometimes in this space as well, people are confused by all the different options. Whatever technology you use, you could use something like an integrated set-top box. Google has these, other companies like Roku and not really everyday household names, companies that offer these integrated packages that allow you watch online and over-the-air content at the same on your TV.
WOODWe want to make sure that, once you get that plugged in -- can't really help you much there unfortunately. But once you have that access, you actually have ability to watch things from different platforms without being charged exorbitant fees for watching on one channel rather than the other one.
NNAMDIDoes Dorothy need Wi-Fi in order to be able to do this?
WOODI don't think so, no. She probably needs some time of connection between the cable box and her internet connection, but it's usually the same wire.
THIERERBut maybe not. The reality is Dorothy might be able to use her phone and a streaming device, such as Apple TV or Google Chromecast, to get the kind of things she's interested in and shoot them right to her television. She might be able to get a television that has smart TV capabilities.
THIERERShe might be able to use her son or daughter's Xbox system the way that I use mine to do all of my VOD. I don't do any VOD through my cable or satellite provider. I use an Xbox 360 to watch all my movies and content. Now, I do need to have a cable subscription -- or an internet subscription for that. But for those other things I mentioned, I don't.
NNAMDIOn to Susan in St. Leonard, Md. Susan, you are on the air. Go ahead, please.
SUSANWow. Just listening to -- I'm more confused now than when I first called.
NNAMDIThat was not our intention.
SUSANI know. I'm sure. Basically, what -- cable is a monopoly down here in St. Leonard. And I'm sort of hoping that some time we can make our own bundles maybe of only 10 channels. That would be so simple. And then maybe we can learn about all the other stuff, interesting things that you all are talking about.
NNAMDISo you want the a la carte model, only the channels that you watch.
SUSANAbsolutely, yes. Yes.
ADGATEKojo, can we ask Susan what her channels would be because it would be interesting to know if they'd still exist.
NNAMDIGood question, yes. Yes.
SUSANYes. What our channels would be would be the PBS channels. I have to admit that I love the movie channel -- the old movies.
SUSANIt would be maybe a couple -- one sports channel, just one. I don't care what game is on, football something. That kind of thing, and a network channel and a news channel. That's it.
NNAMDIAre there other people in your household?
SUSANYes. There is my husband standing right here shaking his head.
THIERERHe wants more than one sports channel.
ADGATEThe point, Kojo, is she might not be able to get all of those if we have unbundling and a la carte because maybe they wouldn't survive. Some of them certainly would, but the problem in a la carte is, again, not all of us want the exact same 10 to 18 channels. We want different channels. The diversity of the dial that we enjoy today is based upon the fact that it's one big bundle.
NNAMDIHere's Cecilia Kang.
KANGWell, I would say, though, that the experience that you're looking for is maybe a little bit closer -- we're getting a little bit closer to that in that some of the cable companies are responding to the consumer interest in having what they would call slimmer bundles and maybe customized according to what are some of the most popular packages. Like, if you're really into sports, they might go heavy on a few sports channels and offer a few other things. And if you're really into the old classic movies, they'll do what you want.
KANGBut -- and also, you know, an interesting example of how the industry's moving in that direction is Comcast recently announced a promotion, trying to get new internet customers but also throwing a little bit of their video offering as well called Comcast Internet Plus, which is offered nationally. And it's much cheaper than the bigger -- the full video offering.
KANGBut it's really anchored in the broadband internet offering and includes a few basic channels as well as HBO. And HBO is one of the -- HBO and sports, frankly, are sort of like golden assets that really are, in many ways, keeping people in the cable package. And so if you just -- for those people who just want to get HBO and, you know, a few basic channels and broadband, this could be an option.
KANGTime Warner Cable said that they might be also interested in doing slimmer a la carte options -- not full a la carte, but slimmer bundles, I should say. So the industry is -- and maybe I'm being too optimistic -- but is slowly inching towards what you're hoping for.
NNAMDIWhat's to stop the industry from saying, if you want a la carte and you'll only want 20 channels, obviously you crave those channels, hey, $10 per month each.
THIERERYeah, they could.
ADGATEI think they'll do that.
THIERERWell, and I think, too, that -- I mean, what you see sometimes is the cable industry saying, if we did that, we'd have to charge you more. Heavens to Betsy, the last thing a cable operator wants to do is charge you more money, right? I think that the proof is too much there in the fact that the cable operators have held on to this older version. And I think the question is, do we have the illusion of choice? Or do we have actual choice?
THIERERThere's something of an inherent contradiction in saying, there's all of these choices out there online, all these different platforms you can watch it on, all these different devices. And yet if the cable operator can't cross subsidize and make you pay more for the channel bundle you're getting, those will all disappear. So there's this choice given to us by the cable companies. And we only get what they want us to watch. Or can we actually have a choice across the entire internet ecosystem.
NNAMDIBrad Adgate, what would happen if people were somehow able to pay for, say, ESPN alone?
ADGATEI think ESPN would charge a lot, a lot more. If you're doing a la carte, ESPN charges $5.54 a month. And some of these deals they have going forward are going to be over $6 or $7 a month, which means ESPN will get upwards of about seven, $8 billion in revenue just from subscriber fees. You know, if you're a huge sports fan and you love it, would you pay the $8 that you would pay Netflix?
ADGATEChances are you probably would. And, you know, maybe 30 percent of the country or one-third of the country says, I don't need ESPN, I'm never going to watch it. If they charge $8 a month for those who would, they would still come ahead in this. And the other part of this is the regional sports networks. Eighty-four percent of all watching sports comes from your local regional sports networks, and they charge almost as much as ESPN, you know, because you want to watch your local team.
ADGATEYou're going to want to watch, you know, the Washington Nationals or the Washington Wizards or what have you. And, you know, you take those away, and there's a huge outcry. So they generally get upwards of 3 to $4 a home a month, and usually owned by Comcast or FOX. And that's another part of that's driving up a lot of these sub fees is, you know, sports. But it's not just ESPN.
NNAMDIAdam, you're a free market kind of guy, someone who believes that top-down government rules don't tend to work out so well for regulated industries. But when one looks at the telecommunication space in the cable companies, I don't see companies that are trying to compete necessarily on a level playing field. What I see are very large companies that are clearly trying to influence government policy and that critics believe are using their influence to prevent the markets from actually working.
THIERERWell, if they're effective in using influence in this town, maybe that's 'cause there's too many rules that there are there to influence. I mean, the reality is is we started this show by saying there are so many layers of regulation covering America's video marketplace that one has to wonder what would happen if we started to peel back those a little bit. And so before we add another layer to this, we ought to appreciate the fact that we are here today, swimming in this ocean of information and entertainment options which is pretty good world to be in.
THIERERWhat if we actually maybe deregulated this a little bit, actually took some of these rules away and see what happens first before we add another layer trying to make it better?
NNAMDIMatt Wood, when the telecommunications sector was deregulated in the 1990s, I think 1996, proponents said it would lead to better services, increased competition, and lower prices. It seems like we do have better services and some competition. But was deregulation a good idea?
WOODWell, I think it's hard to answer that question without looking at what happened on that path. There were certain tradeoffs that were supposed to be made. So in exchange for deregulation, companies were supposed to get into each other's territories and compete against each other more fiercely. And we were supposed to have more companies coming in to the marketplace.
WOODA lot of those tradeoffs were dismantled in a series of court cases after the turn of the century. So we haven't really had the payoff entirely that we were promised for that deregulation. And one place we see that is in the cable industry where there were some deregulatory steps taken then for a brief period, from 1992 to 1996. Cable prices did actually flatten out, but ever since that deregulation kicked back in, we've seen that same old climb of cable prices rising faster than inflation.
NNAMDIAs in the case of Rick in Reston, Va., Rick, you only have about 25 seconds.
RICKI'll make it real quick, Kojo. My yearly cost for my cable connection and TV is $2,433 -- cents.
NNAMDISo you're paying more than $200 a month?
RICKThat is correct. And it's $187.96 for my Triple Play movie package, high def and internet security, and then the taxes kick in and push it over $200 a month.
NNAMDIWell, thank you very much for your call. And on that note, we have to end. You can see where this may be headed in the future. Cecilia Kang is Washington Post technology reporter. Brad Adgate is director of research with Horizon Media. Matt Wood is policy director at Free Press. And Adam Thierer is senior research fellow at the Technology Policy Program at the Mercatus Center at George Mason University. Thank you all for joining us. And thank you all for listening. I'm Kojo Nnamdi.
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