How Premium Channels Are Keeping Cable Alive

Make no mistake about it. “Cable cutting” is here to stay. The act of shedding the burdensome bill for cable television service has caught on. In many homes, people have chosen to kick the old cable boxes out the door. Many users now prefer to watch streaming content, piped in over broadband Internet connections.

The advantage to the cable cutter is that money is only paid out for content that is actually wanted. Without a cable package users don't have to pay for over a hundred channels that will hardly ever be watched. It's a true à la carte arrangement: pay for what is consumed.

Recognizing this trend, Amazon released a new product last week. The Amazon Fire TV is a “set top” device that competes directly with other devices like  Apple TV and Roku. Such devices allow users to access the streaming content of services like Netflix and Hulu Plus at costs far less than the typical cable bill — which currently averages around $128 per month.

Streaming content is big business. It was reported last year that the number of Netflix subscribers surpassed the number of cable televisions subscribers in the United States.

But why isn’t everyone switching? If realizing a huge monthly savings is as close as a minimal investment in a set top box that costs less than $100, why haven’t all the cable companies folded?

The answer is that the cable companies hold the trump card of premium channels.

The one thing that makes any cable cutter reluctant to abandon the cable bill is the availability of the programming offered on many of cable’s premium channels like HBO and Showtime. While users can often pay iTunes or Amazon for access to shows like AMC’s “Walking Dead” and watch them the day after they air, programs like HBO’s “Game of Thrones” are more difficult to access.

That’s because HBO keeps a tight grip on access to those shows. Since HBO does not receive money from advertising, it relies on the money from contracts with cable providers like Comcast for revenue. That money, in turn, provides for the huge production budget of complex dramas like “Boardwalk Empire.” That relationship means that HBO and the cable companies both have an interest in making the programming less available to the cable cutter, who isn’t putting cash into that revenue stream. Cable cutters, then, are forced to wait until a new season is released on DVD before they are able to view the coveted programming.

Those who have an  Apple TV, Roku, or a new Amazon Fire TV would prefer to pay a flat monthly fee for access to HBO or Showtime or any other premium channel. By doing so, they would still be realizing a savings over having the costly cable subscription, but they would be getting streaming, on-demand access to their favorite shows. Basically the same type of service they already enjoy with Netflix or Hulu.

Although HBO and other premium channels have released products like HBO GO — an on-demand service for set top boxes that still requires a cable subscription to use — they have been slow to answer the demand for stand-alone service.

It’s a difficult thing for cable cutters to understand. In 2012, a web designer named Jake Caputo created a web site called “Take My Money HBO,” on which users were encouraged to tell HBO just how much they would pay for direct access. The site had over 160,000 visitors in its first 48 hours. That wasn’t enough to convince HBO.

Any premium channel would be making a huge gamble by stepping away from the contract money. Although users are convinced that HBO could make it without Comcast, HBO still seems reticent to accept that.

It is much more likely that the pressure for HBO to go it alone will come from the cable companies but less directly. As cable bills continue to rise more people will go the way of the cable cutter. Suddenly cable companies won’t be as willing to pay HBO the huge amounts for the programming. That will force HBO to finally accept direct access or at the very least a different business model.

All of that speculation is not to say that that is what the parties involved want to happen. Indeed, if history is any indicator, HBO and cable companies would love things to stay just as they are. But the world of media consumption these days is an “innovate or die” kind of world.

In an effort to stay relevant, and to keep HBO, Comcast began offering stand-alone HBO service to broadband Internet subscribers. That was the biggest nod by a cable company to the demands of the cable cutter yet.

More innovative, or perhaps just a sign of things to come, though, was Dish Network’s agreement with Disney earlier this year. The terms of that agreement will allow Disney programming — which includes ESPN and ABC — to be viewed on an yet-to-be released Internet-based streaming TV service.

The inclusion of sports, with ESPN, in that deal was important. Sports have traditionally been another reason people hang on to the cable subscription. Such an all-encompassing deal will likely serve as a foundation for more deals between Dish and other companies. And while the deal did not change the landscape of television viewing with the stroke of a pen, it is a significant step forward for those who would like get their TV over the Internet.

The deal was recognition by the two companies that they needed each other to survive. But it was also recognition that what was needed was going to be different than in the past.

And that is what will most likely happen with the premium channels and the cable companies. As cable cutter numbers continue to grow, indirect pressure will be put on HBO to negotiate a different deal with the likes of Comcast.

Comcast may manage to keep its hooks in HBO for offers like the previously referenced stand-alone package. But the renegotiation of the relationship between premium channels and the cable companies will be another step closer to the dream of the cable cutter. And that is to pay only for what they want to watch, avoiding the costly cable bill.

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