by Henry Blodget
June 3, 2012
In the first decade of the commercial Internet - the 1990s and early 2000s -
there were frequent murmurings that newspapers were screwed.
The digital audience didn't read newspapers, people pointed out. They
visited web sites. They read articles here and there. But they didn't put
the stack of articles, photos, and ads known as a "newspaper" on their
breakfast table and flip through the whole thing.
What's more, the digital audience stopped using newspapers as a reference
and source for commerce. They browsed on eBay and Craigslist instead of
reading classifieds. They got their movie news from movie sites. They got
real-estate listings from real-estate sites. They learned about "sales" and
other events from email and coupon sites. And so on.
In other words, the user behavior that had supported newspaper companies for
a century began to change.
But for almost a whole decade, the newspaper industry barely noticed.
Those who said that newspapers were screwed were
dismissed as clueless doom-mongers, at least by newspaper executives.
Then this happened:
And lots of newspaper companies went broke or
almost went broke.
And the stock of The New York Times Company, the
country's premiere newspaper, fell from $50 to $6. (See: "The
Incredible Shrinking New York Times")
In other words, newspapers were screwed. It just took a while for changing
user behavior to really hammer the business.
The same is almost certainly true for television.
In our household, as in many households, television consumption has changed
massively over the past decade, especially over the past 5 years.
We almost never watch television shows
when they are broadcast anymore (with the very notable exception of
We rarely watch shows with ads, even on
We watch a lot of TV and movie content,
but always on demand and almost never with ads (We're now so used to
watching shows via Netflix or iTunes or HBO that ads now seem like
We get our news from the Internet,
article by article, clip by clip. The only time we watch TV news
live is when there's a crisis or huge event happening somewhere.
(You still can't beat TV for that, but soon, news networks will also
We watch TV and movie content on 4
different screens, depending on which is convenient (TV, laptops,
If not for live sports, which are consumed by
exactly one member of our household (me), there is no way we would be paying
for cable TV or any other kind of traditional pay TV anymore.
And even as a sports fan, I'm starting to find
the fragmented multi-channel coverage of the few sports I watch - like
tennis (Grand Slams), baseball (Yankees), and football (Jets/Giants) - so
annoying that I may soon investigate just getting those via direct
In other words, in our household, and in many other households like ours,
the same thing has happened to the TV business that has happened to the
The user behavior that supported the
traditional all-in-one TV "packages" - networks and cable/satellite
distributors - has changed.
We still consume some TV content, but we consume
it when and where we want it, and we consume it deliberately: In other
words, we don't settle down in front of the TV and watch "what's on."
And, again with the exception of live sports,
we've gotten so used to watching shows and series without ads that ads now
seem extraordinarily intrusive and annoying.
Our kids see TV ads so rarely that they're
actually curious about and confused by them:
"What is that? A commercial?"
For now, our type of household may still be in
the minority, but we won't be for long.
And our type of household is the type of
household that many advertisers and TV networks want to reach. We're still
in "the demo" (24-55), and we're still buying a lot of stuff.
So, what are the key points of this shift in user behavior for the
traditional TV business?
"Networks" are completely meaningless. We don't know or care which network
owns the rights to a show or where it was broadcast. The only question
that's relevant is whether it's available on Netflix, Hulu, Amazon, or
This means that one of the key traditional
"businesses" of TV - the network - is obsolete.
The majority of what we pay our cable company is wasted. We get broadband
Internet from our cable company, and we use that constantly. But we also get
500 channels that we almost never watch, along with a couple (HBO, Tennis
Channel) that we pay extra for and do watch occasionally.
We rarely watch TV ads, and when we do, we're usually doing something else
at the same time - like typing. Also, the ads seem startlingly intrusive,
because we're not used to them.
More directly, what this means is this:
The vast majority of money TV
advertisers spend to reach our household (~$750 a year, ~$60/month)
is wasted, because we rarely watch TV content with ads, and, when we
do, we rarely watch the ads.
The vast majority of money we pay our
cable company for live TV (~$1,200 a year / ~$100/month) is wasted,
because we almost never watch live TV and we can get most of what we
want to watch from iTunes, Netflix, Hulu, and Amazon.
This user behavior has been changing for a
while, and, so far, it has had almost no impact on the TV business.
On the contrary, the networks and cable
companies are still fat and happy, and they're coining more and more money
every year. But remember what happened in the newspaper business.
When the Internet arrived, user behavior started to change. It took a decade
for this change in behavior to hit the business. But when it hit the
business, it hit it hard - and it destroyed it shockingly quickly.
And the same thing seems likely to happen to the TV business.
The only questions are:
When will it happen?
What will it do?
Let's take the second first.
What is the shift in user behavior likely to do to the TV business?
The traditional "network" model is likely to break down and be replaced with
far larger "libraries" of content and far more efficient content production,
acquisition, and distribution. Some of the content produced by networks will
still be consumed (and, therefore, produced), but the idea of getting
"affiliate fees" and selling advertising for each of dozens of branded
networks seems absurd.
This change is already occurring, of course:
Traditional networks are being replaced by Netflix, iTunes, and uber-networks
like "NBC Universal" and "Time Warner."
There is so much money in the network business
right now that, initially, this shift won't mean much.
Over time, however, it will.
Unprofitable networks will be merged
with profitable ones.
Unprofitable shows and overpaid talent
will be cut.
Overpaid managers will get fired.
Production costs, on aggregate, will
Sets, crews, newsgathering, etc. will be
The fat will get squeezed out of the system.
The cost of traditional pay TV will have to drop - users will have to get
more for less, or they'll stop paying for much at all. I might value the TV
content we get through our cable company at $20 a month - about 1/5th
of what we pay for it.
Eventually, as soon as I can figure out ways to
get the few sports I watch another way, we'll stop paying the $100.
Ultimately, the distinction between "TV" and other forms of video content
will disappear. We'll pay some distributors for bundles of that content,
we'll buy some of it directly, and we'll get some of it for free. But a lot
of the money that is currently being wasted by us and to reach us will be
spent much more efficiently.
Bottom line, as it has in newspapers, the TV business is going to have to
get radically more efficient. It won't disappear - newspapers haven't
disappeared - but the fat and happy days will have to end.
As for the other question, "when," the answer may be "now."
Cable TV ratings over the past year have dropped sharply, as
this chart from Citi shows.
recent survey from Nielsen, meanwhile,
included some startling statistics, including the following:
The percent of people worldwide who
watch TV at least once a month dropped from 90% to 83% over the past
The percentage of people who watch video
on a computer once a month - 84% - is now higher than the percentage
who watch TV.
Needless to say, a decade ago, newspaper
industry forecasters were not expecting newspaper advertising to do this:
Chart of the day
classified ads revenue 2000-2010, march 2011
Similarly, TV forecasters are not expecting TV
advertising or subscriptions to do that over the next 10 years. On the
contrary, they're expecting TV advertising to just keep going up.
But user behavior is changing fast.
And at some point, that's going to hammer the business.
Several readers asked me to respond to one of the main arguments against the
idea that the TV business will collapse, which is this: Cable operators will
just start charging more for broadband access to make up for whatever money
they lose from traditional pay TV.
It's certainly possible that cable operators will try to charge more for
broadband access, but this won't save the TV business.
A couple of reasons.
First, there's likely to be some solid
competition for broadband access, especially once wireless improves.
This should keep the monthly fees that cable operators can charge in
Secondly, ads are important to the TV
business. And as TV viewership declines (assuming the decline
continues), ad rates will eventually drop.
Remember that people are still reading
newspapers, or at least newspaper articles.
But the newspaper companies can't collect as
much in ad revenue as they did when they were the main point of information
access and therefore controlled classifieds, commerce, movie ads, and many
other sources of ad revenue. As immersion in the newspapers dropped, the
total ad dollars newspapers could generate from each reader dropped.
It will likely be the same for TV.
And there's no way that cable companies will keep paying affiliate fees to
networks that no one watches. At that point, those networks will just become
money pits. And the owner of those networks, whether cable company or
network company, won't keep shoveling money into the pits.
TV is not going to disappear, just the way newspapers haven't disappeared.
But it just defies common sense to think that
the huge change in user behavior over the past decade won't ultimately hurt
the TV business.