U.S. pay TV subscribers fall for a second straight quarter

SNL Kagan is reporting that the number of pay TV subscribers in the U.S. has fallen for the second straight quarter, the first time that's happened since Kagan first started tracking the industry in 1980. Cable operators lost 741,000 cable-only subscribers, the largest quarterly loss for cable ever measured by SNL Kagan, while IPTV operators (primarily Verizon and AT&T) gained 476,000 subscribers. Together, satellite operators Dish and DirecTV gained 145,000 subscribers for the quarter. The net loss for all subscription television services was 119,000 subscribers.

Multichannel News points out one of the big reasons for cable's decline: When analog over-the-air broadcasts were phased out in the U.S., cable operators in particular offered very enticing offers to over-the-air households to get them to adopt cable. Those deals are expiring or have already expired, and former over-the-air television viewers are facing big increases in their cable rates. In addition, the price difference between the "basic cable" tier, which is closest to conventional over-the-air TV, and even the cheapest premium tier can be substantial. Multichannel News gives the example of a Comcast cable system that goes from $13.65/month for "lifeline" service to $62.60/month for its "Digital Starter" service.

IPTV and satellite operators have targeted price-sensitive cable subscribers with low-cost service and, in the case of IPTV, triple-play (video, high-speed Internet and telephone) packages priced below the "magic" $99/month number. That explains the gains by IPTV and satellite providers, but it doesn't explain the whole picture. Television Broadcast quotes SNL Kagan senior analyst Ian Olgeirson: "... it is becoming increasingly difficult to dismiss the impact of over-the-top [Internet] substitution on video subscriber performance, particularly after seeing declines during the period of the year that tends to produce the largest subscriber gains due to seasonal shifts back to television viewing and subscription packages."

Economic conditions may be driving the changes, but the changes are real, and they may not be temporary. Unless cable operators get a lot more competitive in how they price and package their services, they're going to be increasingly vulnerable to IPTV and satellite providers, as well as over-the-top Internet video.

Cable Networks 2.0 (or 3.0)

The cable network model that we all know, which was based on the broadcast television model that we all know, is this: A centralized organization acquires programming, schedules and distributes it to affiliates (broadcasters) or cable operators. The network produces some of its own programming (or most of it, if it's a news or sports channel), but it acts primarily as an aggregator, scheduler and dsitributor.

It was a wonderful model for 1925, or 1949, but it's completely obsolete today. It was based on the technical limitations of the dawn of the radio and television eras, limitations that no longer exist. It was effectively impossible to have a two-way conversation between media creators and consumers prior to the Internet and broadband speeds. Now, we've got the means for that two- (or N-) way dialog. The cost of production and distribution is a tiny fraction of what it was even thirty years ago, which was in turn far less expensive than what was being done in the 1960s. YouTube...well, you know all about YouTube, and Vimeo, and Dailymotion, and, and...

My point is that the one-way, centralized network model is obsolete. I don't believe that a new, one-way network will be successful. Future cable networks will have to bake an open, two-way model into their architecture from the very beginning. What does that mean?

It means that the network becomes more of a curator than an all-powerful programmer. It selects and makes available content from external producers, internal teams and viewer/producers (since viewers can now easily be their own producers). It also enables viewers to curate their own programming and make their own selections.

The production process will become far more distributed. Viewers with a few thousand dollars and a high degree of patience can create content that looks as good as anything seen on broadcast television or cable. Field production is simple; it's done thousands of times a day. Studios can be built and sent anywhere. A shipping container can be turned into a perfectly functional television studio. Put it on a fast-and-dirty foundation and you've got a permanent studio. If you want room for an audience, there are a lot of older movie theaters out there being underutilized or gathering dust. Extend the stage, put in LED and fluorescent lights to keep the heating load down, and voila, instant studio!

You may argue that this model has already been tried, at Current, and it hasn't worked very well: Current TV just laid off 80 staffers, shut down production on some shows, and is consolidating two Los Angeles facilities into one. However, the problem wasn't with the production model, it was with trying to fit that model into a conventional cable/broadcast channel. The most-watched shows on Current have been InfoMania and SuperNews: Fairly conventional (from a structural point of view) 30-minute productions that viewers can find easily and that are repeated many times during the week. The bulk of Current's airday has been taken up with brief, four-to-eight minute videos, many of which are submitted by viewers. The problem is that it's been impossible to know exactly what's going to be on when. If you happen to tune in when they're showing a video that's engaging, you're likely to stick around for a while, but if you don't like what you see when you first tune in, you're unlikely to wait around for something better.

The problem with Current TV is that it's programmed from the top down, just like any other cable network, even though viewers contribute a lot of content. Current also has a web presence that allows a more egalitarian approach to programming (in other words, watch what you want, when you want), but with serious limitations: Cable operators prohibit Current.com from running its on-air feed live, or from making programs available prior to their airdates.

That brings me to my last point: The cable network of the future will reside primarily on the Internet, not on cable. So long as the cable operators can dictate terms of when and where programming can be shown, no cable network can become a truly two-way operation. That's why Current is struggling, and why Hulu is only a shadow of what it could be.

In the future, the cable network will be equivalent to the "curated feed", but the open ecosystem will reside on the Internet.

Should You Get a DTV Converter Anyway?

It's impossible to watch television in the U.S. lately without seeing ads reminding viewers that analog transmissions will end on February 17, 2009 (except for low-power stations.) Like most viewers, I've ignored these messages, because I'm a cable subscriber, and over-the-air service is lousy in my area. However, there's potentially a good reason to get a coupon and buy a converter, if you have one or more sets with analog tuners: Over-the-air broadcasters will be able to multicast--send multiple subchannels of programming within a single digital channel. In my market, there are three stations that are already multicasting, and I receive their multicast channels on Comcast cable. However, there is no FCC rule that requires cable or satellite operators to multicast every channel put on the air by broadcasters.

In my market (San Francisco/San Jose), the subchannels of commercial broadcasters are being used for weather services and news rebroadcasts--nothing astounding. Nevertheless, broadcasters are being offered a plethora of programming to fill these new subchannels, and some of it might be interesting. In any event, if you've got some analog sets and you're not planning to toss them out anytime soon, you might consider getting some of them digital converter coupons, and then purchasing a converter box.

Related articles by Zemanta

• GAO report: DTV transition making progress... mostly
• Digital Switch: How to Set Up Your Converter Box

Returning from NAB

I'm now back in Silicon Valley, organizing my thoughts about the NAB conference that ends today. Here are a few thoughts to get started:

First, the final attendance count was 105,259, of which 28,310 came from outside the U.S. Press attendance was 1,296.

This year, the organizers expanded the charter of NAB to make it cover everything about content, but I think that the result is that the show is getting too diffuse. What had originally been a show focused on broadcasting now also covers filmmaking (from tiny independent films and documentaries to studio tentpoles,) podcasts (both audio and video,) Internet radio and streaming media, IPTV and more. NAB is probably still the foremost broadcasting, audio/video production and post-production show in the world, but the spectrum of topics and range of products available is getting too broad. Want a bag of three USB cables? You can find them on the show floor, along with products ranging up into the millions of dollars.

In the past, NAB tried to segregate products into physical areas. They still tried to do that this year, but odd products kept cropping up everywhere. There's simply too much demand for exhibit space to maintain any meaningful separation by function or application.

The reality is that the same product can be used for lots of things: A camera light can be used for a TV news interview, a video podcast, a short film or an epic. Almost any production or post-production tool has multiple applications. When a prosumer camcorder can be used for B-roll on a production that uses cameras costing hundreds of thousands of dollars, the walls that previously clearly separated applications start tumbling down.

So, should NAB continue to pursue its "come one, come all" approach to content? Lots of people like it, but I suspect that some of NAB's core membership, broadcasters, are grumbling that it's simply too hard to see, or even find, the products that are relevant to their businesses. The tent, so to speak, is getting uncomfortably large.