The nation’s cable giants such as Time Warner (News - Alert) and Comcast are busy right now. They’re busy trying to push ahead with the largest merger in cable television history. Should federal regulators approve the deal – and it’s far from obvious that they will – the $45 billion all-stock deal would create the largest cable company and Internet services provider in the country.
The cable companies seem more content to merge than to discuss the large elephant in their boardrooms. This elephant is comprised of millions of Americans who are sick of ever-escalating costs for pay television that buys them a whole lot of infomercials and channels they don’t watch. This elephant is also present in the boardrooms of the satellite television providers such as DirectTV and Dish Network. Its name is “Internet television.”
A study from Digital TV Research has estimated that there will be more than 759 million televisions connected to the Internet worldwide by 2018, more than double 2013's number. Americans are cutting the cord in record numbers when it comes to pay television, much in the same way young people are sloughing off landline telephones in favor of mobile devices.
Tired of high prices, poor quality and a lack of anything substantial to watch, Americans are using streaming devices and Internet connected televisions to customize their television viewing experience and keep their costs down. By paying for an Internet connection and subscriptions to streaming content providers such as Netflix, Hulu (News - Alert) and Amazon Prime, TV watchers can view precisely what they want for a fraction of the monthly cost of cable or satellite television.
A recent report by BI Intelligence examines the connected television marketplace in detail. While the majority of Americans who watch Internet-based content through their televisions through devices such as Google Chromecast or Apple (News - Alert) TV, the report says that these devices will likely fall by the wayside as the prices of Internet enabled televisions come down.
The trend is beginning to hurt cable and satellite providers. Time Warner lost 215,000 subscribers in the fourth quarter of 2013 alone, bringing its total 2013 losses to 825,000, up from 530,000 in 2012. A report by MoffettNathanson estimates that 2013 will go down as the worst year on record for the pay-television industry in terms of customer retention.
It seems that unless the cable and satellite companies begin to change their business practices – for starters, as many as 20 minutes of commercials per television viewing hour -- they will continue to lose customers. Many of them are desperately trying to hold onto defectors by offering short-term discounts, but this won’t stanch the wound forever. As long as consumers have a better and cheaper option, they will continue to abandon the cable and satellite providers in droves.