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Wednesday, May 04, 2011

Could Cable Companies End Up As Apps?

There is a lot of talk nowadays about the slight but significant drop in television buying and whether or not that augurs badly for the future of television and, ancillary to that, the cable industry as a whole. Add to the mix that beyond this recent 2.2 percentage point drop in the number of American households owning TV sets, Cinemax and HBO shed 1.6 million subscribers last year. While it is hard to imagine that the ultimate destiny of a purveyor of quality content like HBO -- a premium cable network with 28.6 million subscribers in the second quarter of 2010 -- is to become an app, that's exactly what Reed Hastings would have us believe. From Technology Review:

"Today the CEO of Netflix said something kind of crazy and probably true. On the smart TVs and set-top boxes of the future, he said 'Your cable provider will be an app.'

Here's why that matters: History has taught us that at the moment at which the means of distribution are separated from the content they distribute, old monopolies break down, assumptions are thrown out the window, revenues tank, giant companies crash and burn and from their ashes are born entirely new ones.

We all know what happened when the internet replaced the newspaper as the primary source for written news -- and just as importantly, the many forms of advertising that used to accompany it. Now news-gathering outlets realize that the fourth estate had always been subsidized, and the failure to find an alternate source of subsidy means that the contraction in that industry has been profound.

The same thing is about to happen to cable networks. "

NetFlix, we cannot fail to note, recently announced that it has 23 million U.S. subscribers. But Hastings asserts that he is not competing against cable TV. That having been said, it is not so much of an insult as it might have been in the recent past to be viewed wholly as an app, considering that mobile app stores will bring in $3.8 billion in revenues and shows no signs of slowing. "Combined revenue for the four stores in 2011 will rise from $2.1 billion in 2010 and from $830.6 million in 2009," says a new report by IHS iSuppli. "Application store revenues were first tracked in 2008 in a market worth just $206.01 million, with the Apple App Store the only viable presence at that time. Total download revenue from games and other applications are projected to continue rising in the next few years, jumping to $5.6 billion in 2012, $6.9 billion in 2013 and $8.3 billion in 2014."

Further, the available data somewhat appears to support the argument that cable, at least for now, is moving in a thoroughly app-y direction. Of late, HBO has been pushing their Go app, which allows subscribers access to over 1,400 movies on demand as well as the channel's original content through the App Store and Android Market. And last week's Time Warner earnings call revealed that its app was downloaded an amazing 360,000 times during its first month of its availability. The reviews thus far have been good, so much so that CNet's Scott Stein actually posted a "Dear HBO" letter, asking the cable network to make it so that he could use their iOS app without going through that whole lame cable thing:

I actually want to pay for HBO shows. Unfortunately, I'm essentially locked out unless I go back to the whole tiered system of pay cable. iTunes sells episodes of HBO shows, but not of currently running seasons. So, I don't watch at all. You're trying to be an incentive to make me come back to the cable fold, but I'm not biting.
At some point, if the monthly subscription were high enough, and you got me to sign up, maybe someday down the road I'd realize I'd be better off signing up for cable again, much like David Katzmaier realized when he experimented with cutting the cable cord. I just ask that you at least give me the opportunity to pay you and find out for myself. Let me pay for an expensive a la carte hamburger and realize I should have ordered the complete prix fixe lunch instead. See, I'm not going back to cable. And I can't buy current seasons per episode anywhere. Which means you've lost my money completely. I don't want to be a TV snob, but you leave me no choice.

Which brings us round about back to the decline-of-TV numbers. Still, if Time Warner were to do actually something along the lines suggested above, it might arguably speed up the demise of television and cable boxes.

And it is not just Time Warner, which has 70 channels available, among the pay TV players going app-y. Subscribers -- at least for now -- appear to quite like streaming cable. As GigaOm noted last week, Cablevision's Optimum app passed 50,000 downloads in less than a week from the App Store, while Comcast's XFinity app, which has been out for only about six months, has been downloaded 1.5 million times.

Will cable companies end up as apps? It is way to early in the game to tell, but a strong argument could be made that it is in fact happening now.

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