There is a sense out there in the policy world that Netflix represents some kind of mortal threat to the cable industry. I thought so, too, in the early days of the service. More recently, however, Reed Hastings, CEO of Netflix, has clarified his ambitions. “We don’t and can’t compete on breadth” with cable companies and tech companies. “For us to be hugely successful we have to be a focused passion brand. Starbucks, not 7-Eleven.”
Hastings, in short, doesn’t want to compete with cable; he wants to become a channel on cable and compete with HBO, hence his many deals of late to get Netflix on cable set-top boxes in Canada, the U.S., and abroad. This outcome jives with the fact that while Netflix has penetrated half of Canadian households, the decline in cable subscriptions in North America has been slight. Cable and Netflix compliment one another more than they compete with one another.
Long live cable, then? Not so fast. In the course of denying ambitions to become a cable company, Hastings listed the companies he believes are leading competitors in the cable space: Comcast, Sky, Amazon, Apple, Microsoft, Sony, and Google. Only one of those, Comcast, is a conventional cable company. Sky is a dominant European satellite and broadband provider. Sony makes devices, and wants to control the viewing experience through its smart TV interface (and doesn’t seem to be making much progress). That leaves the other four -- Microsoft, Apple, Google, and Amazon -- massive global tech companies that do hardware, software, and e-commerce.
These last four represent the true existential threats to cable, and they are coming on harder and faster than most people think.
At its core, cable is a residential business: it is a direct media pipe into your home, and the centrepiece of the media experience in your home. Cable companies have been expert at bundling cable subscriptions with other high-demand residential services, like land-lines and broadband internet. It’s long been a good, lucrative business, bundling up the home. But now cable’s grip on residential is being challenged by the above four tech companies.
Microsoft’s Xbox console does a lot more than play video games. It is also a browser, an e-commerce engine, and a video-on-demand service (it supports Amazon Video, BBC iPlayer, Comedy Central, ESPN, FX, Netflix, Pandora, Skype, YouTube, among dozens of other apps). It is a multi-faceted rival to your cable box.
Apple TV is another console, or digital media player. It permits all manner of video streaming, including Netflix, Hulu, YouTube, and major networks (ABC, NBC, CBS). It supports NFL, NBA, and NHL sports apps, Apple music, the iCloud photo library, and all manner of games. You can order a pizza using the Papa John’s app, or you can speak to Siri and have her do it for you.
You’ve probably seen advertisements recently for Google Home, a small device that looks like the counter-top air filter your aunt kept beside her ashtray. You can talk to it and it will play music or video for you, give you traffic updates, stock market quotes, and real-time weather. If you want, it will wake you up in the morning, remind you of your flight time, tell you the best route to the airport, and adjust the heat in your home while you’re away. Seven colours, $99.
And then there is Amazon, the scariest of the challengers from a cable perspective (or, at least, my estimation of the cable perspective). Most Canadians don’t know much about Amazon beyond it’s shopping service because the company has been slow to take the Canadian market seriously. Amazon’s Kindle, for instance, has taken forever to get here. That is starting to change.
Amazon Echo is now selling a home device, or smart speaker, like Google Home, with many of the same home automation, personal management, and entertainment features. Shaped like a hockey puck, you can use it to control other devices in your home, including your TV or computer, by voice command. In some cities you can use it to order same day meals and groceries delivered by Amazon, while searching for a movie to stream and sending a taxi for someone to join you.
Amazon Prime video, which comes free with your $99 annual Prime subscription, is hugely ambitious, like everything else Amazon. It has a big library of old stuff and an impressive catalogue of original stuff, as well as an abundance of first-run television: its “streaming partners” include such cable channels as Starz, Showtime, AMC, and A&E. It has just closed a deal to offer HBO Now as yet another channel in this “virtual cable service.” All of the content can be played on computers, tablets, smart phones, kindles, gaming consoles, and smart television sets.
If that doesn’t sound like a serious threat to cable, consider this: Amazon, according to yesterday’s Wall Street Journal, is out shopping for premium sports content. It has held talks with the NBA, MLB, NFL and MLS for live game rights. It has been investigating more niche options from surfing leagues to lacrosse. A lot of these rights are already taken, but all of them will sooner or later come up for renewal, and when they do it seems entirely likely that some combination of Amazon (and Google, Microsoft and Apple) will likely be among the bidders.
(Only a small part of Amazon Prime video is available in Canada. Just days ago, Amazon opened its original content to Canadians (got to Amazon.com not Amazon.ca). You can’t watch the channels or the back catalogue. That will change in time.)
When asked about the future of their industry, cable people often point to two lines of defence. One is the bundle: if you have one important home service from your cable company, you’re likely to take others, and with a bundle of services your loyalty is more or less assured. The other defence is live events, a category that includes awards shows, some reality TV, and particularly sports, all of which are firmly in the domain of cable TV. These moats give cable people comfort but there are now enormous armies camped on the other side of them. Cable’s bundle of audio, video, home phone, and broadband is facing an onslaught from a bundle of audio, video, shopping, and household management services. The Amazon Prime bundle includes shopping and delivery discounts as well as its audio, video, and book content for the $99 a year fee, and it is promoted relentlessly on Amazon’s main shopping site.
How long does this assault on cable take? It took Netflix about seven years to establish its streaming service as a member of the average North American household. It may take seven to ten years for a company like Amazon to do the same, perhaps less if the FCC were to force cable companies in the US to make their content available on apps that would sit on Apple TV, an Xbox, Google Home, or the Amazon puck. (The FCC is actively considering such a move, and if the FCC jumps, Canada would probably follow.)
So that’s what seems to be happening. I’ll talk about the implications for consumers (good), content-makers (mixed), and regulators (bad) in a subsequent post.