The past decade has seen an explosion of new ways to watch TV shows and movies, challenging the old cable television model. But 90% of American households still pay up. And less than 5 million U.S. viewers rely solely on services such as Netflix (NFLX) and Hulu, according to the Convergence Consulting Group. But cable haters rejoice, there will be even more reasons to clip that cord over the next few years.
“We’re in a radically changing period – there are a lot of disruptors in the marketplace,” says industry veteran Kay Koplovitz, who headed USA networks in the 1980s and launched the Sci -Fi Channel (now Syfy) in the 1990s. Cable networks won’t be disappearing entirely — they still have too many shows people love, not to mention live sports and news. But the options for those who want to opt out are multiplying, she says.
More original fare
Pretty much since Tony Soprano first picked up his baseball bat on HBO, premium cable channels have dominated the market for critically acclaimed television shows. This year, Time Warner-owned (TWX) HBO nabbed 108 Emmy nominations for original series ranging from "Game of Thrones" to "Girls." The total topped that of any network and was more than old-school networks NBC and CBS (CBS) had combined. Want to watch HBO – even on the Internet? You still have to spring for cable.
But Web-only channels Netflix (NFLX), Hulu and others are increasingly following the HBO model and creating their own can't-miss shows. And they're off to a good start – Netflix grabbed 14 Emmy nominations for three of its original series. Netflix aims to have 20 originals over the next two years; up next is a cartoon based on the movie star snail "Turbo." CEO Reed Hastings says the service will expand to original comedy specials and documentaries, too. Hulu is about to debut Seth Meyers' cartoon of misfit superheroes, "The Awesomes", and has a spy comedy and documentary series on tap.
The streaming channels are able to develop their series informed by incredible amounts of data on what viewers like. Netflix’s "House of Cards" came together as the service was able to find a boatload of viewers who liked the original British series, movies starring actor Kevin Spacey and those made by director David Fincher.
“It’s the first show based on the collective wisdom of what people actually liked,” says New York University business school Professor Arun Sundararajan, who studies how digital technology affects society. Data-driven shows could be more compelling, though Sundararajan fears that, over time, the techniques might also lead to homogenization. "People are always looking for something different," he says.
Niche channels about everything
Tired of watching what everyone’s watching, a lot of young people are watching what nobody’s watching. Jenna Mourey, known as Jenna Marbles on YouTube, has more than 10 million subscribers to her personal video blog series focusing on beauty and relationship advice. Machinima grew out of a gaming-focused website, and its Youtube channel has almost 9 million subscribers. That's sending a strong signal to many other content providers.
Anthony Wood, CEO of the set-top box maker Roku, predicts a lot more homemade channels covering everything from tech gadgets and video gaming to cooking and food will proliferate. Some channels will aggregate small video bits, like a micro news service that plays one clip after another.
That’s not to say there’s no room on the Internet for somewhat more mainstream fare that’s closer to what cable channels provide today. Music video “channel” Vevo is available online, on phones and tablets and through Microsoft's (MSFT) Xbox or Roku. The ad-supported music station shot into the top 10 most watched Roku stations almost instantly after being added at the end of last year.
Boxes, dongles and doohickies
It seems like most cable boxes are stuck back in the dark ages, but Silicon Valley is working hard to build ever-better TV controllers for Web services.
Google (GOOG) got every would-be cord cutter drooling on Wednesday when it announced its new Chromecast dongle. The tiny, plastic device plugs into the back of a TV set through an HDMI port and connects to the Internet over Wifi. Users pick what they want to watch on a laptop, phone or tablet and the Chromecast pulls down the video to the television set. Initially, the dongle works directly with Youtube and a few other providers, though it can also connect with a browser to watch most other Web video.
Competitors such as Apple TV (AAPL), Roku and Microsoft’s Xbox are no doubt already revving their next versions to compete with Chromecast. Many are expected to copy the Chromecast model that allows viewers to search for content and select it using the touch screen of their phone or tablet while watching playback on a big TV screen.
Moving beyond pokes and taps, users will be able to control the upcoming Xbox One with voice and body gesture commands.
“We all have way too many remote controls, and [channel guides] can be very confusing,” says Kay Koplovitz. “I’d rather say ‘let me see what’s on the Discovery Channel,’ or ‘where can I find the Australian Open?’”
Ultra High Definition
New online TV boxes are also going to be adding fresh formats, like the next generation of super-detailed, more-colorful video called Ultra HD or 4K, for the almost 4,000 pixel width of its video picture. And those boxes and their Web services can switch over to the new format more easily than cable TV systems.
Still, Ultra HD is not quite ready for prime time. Ultra HD television sets shown at the Consumer Electronics show in January cost more than $5,000 and mainly came in giant sizes like a 110-inch model from Samsung (005930.KS). There’s also almost no content available yet even if you buy one of the enormous sets.
But like every prior generation, Ultra HD sets will get cheaper quickly. And many movies and some television shows are already being filmed with cameras that record detailed, Ultra HD-compatible video. Sony’s (SNE) new Ultra HD Media Player, which includes a 2-terabyte hard drive, comes with 10 movies preloaded in the new format, such as recent hit “The Amazing Spiderman” and older classic “The Bridge on the River Kwai.”
“Blu Ray will be the last ever format on shiny disks,” predicts Roku CEO Wood. ”Ultra HD is going to be streaming.”
And it sounds like Roku is getting ready to add support, too. “There’s no standard for streaming – there are just different formats,” Wood says. “And we support them all.”
Local channels, no cable
The development with the broadest appeal to potential cord cutters is also probably the one with the most limited reach, at least for now.
Aereo, a new Web video service backed by IAC (IACI) chairman Barry Diller, offers local TV channels and a DVR-like service for just $8 a month. To watch, viewers use a Web browser on their computer, an iPhone or iPad, or a Roku box connected to a television. Apple TV owners can also use their Apple mobile gadgets to beam Aereo shows to their sets. Android support is expected soon.
So far, Aereo is available in only three cities: New York, Boston and Atlanta. But the company has big plans to expand to another 20 markets, including Salt Lake City in August and Chicago in September.
But the broadcast industry, which collects billions of dollars for allowing cable networks to carry their local channels, says Aereo is violating their copyrights. A federal appeals court has ruled in Aereo’s favor, since the service sets up tiny antennas for each customer, technically grabbing the free over-the-air broadcasts just like a TV set. But broadcasters are sure to keep fighting in court.
“It’s definitely what consumers want,” says Accenture managing director Youssef Tuma. If they can’t get Aereo or a similar service, “at some point consumers will try to get what they want and that scares [the industry] about piracy.”
How touchy a subject is Aereo in the video business? Very. Roku owners who subscribe to Aereo get a special code to watch via their boxes but it’s not otherwise visible as an option. “We want to work with the industry to make sure they’re successful in the new world,” Wood says.
For cord cutters in at least three cities, it’s a dream come true.