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The Death of Cable TV?

- By Stepan Lavrouk

A new report from Deloitte suggests streaming services may be taking even more market share from cable television than previously thought. In its Digital Media Trend Summary, the consultancy firm found that 69% of households subscribe to at least one streaming service, compared to 65% who said they subscribe to traditional pay-TV. The annual survey, now in its 13th edition, has never before recorded a higher percentage of respondents with streaming than with cable.


A changing industry

This marks a further step in the direction of a more fragmented market for digital media. In contrast with earlier years, when a household would typically subscribe to one expensive pay-TV package that offered most of the content available, consumers are now increasingly opting for a piecemeal collection of cheaper streaming services. The survey reports that consumers subscribe to an average of three paid video streaming services.

A key reason why streaming services like Netflix (NFLX), Hulu and Amazon's (AMZN) Amazon Prime are muscling in on cable's lunch (other than lower price points) is the expanding range of original content they are able to provide. By producing their own high-quality shows, streaming services have differentiated themselves from the traditional pay-TV model in a very significant way. The Deloitte survey goes on to say that:


"In 2018, 57 percent of paid streaming video users said they subscribed to access original content. This number is even higher among millennials, at 71 percent. Streaming services understand this, and that's one reason they're spending billions to produce award-winning entertainment. In 2018, Netflix tied cable network Home Box Office (HBO) for the most Emmy Awards (23) after topping the list for the number of Emmy nominations (112)--a first for a streaming service. Streaming services also surpassed broadcast networks for the number of scripted TV programs last year."



The role of ads

The majority of consumers recognize that advertising is an important part of a TV network's business model and are willing to watch them up to a certain point. In particular, consumers are more willing to watch ads if the content they are receiving is free. For example, on a service like Google's (GOOG) Youtube. Moreover, some paid streaming services, like Netflix, do not have any third-party advertising.

In fact, this provides streaming services with another advantage over pay-TV. Approximately 75% of respondents to the Deloitte survey said there are too many ads on traditional pay-TV and that the ads are too long:


"Consumers feel that 8 minutes of ads per hour is the right amount, and say they quit watching after 16 minutes. Yet, pay-TV typically features between 16 and 20 minutes of ads per hour This amount is truly unacceptable to some consumers; they opt out. In addition, 77 percent report that ads on pay-TV should be shorter--less than 10 seconds--and 82 percent say there is too much repetition in the ads they view".



Summary

Streaming services are clearly the future of digital media and will continue to erode the market share of cable companies. The current free-for-all may be short-lived, however.. It is entirely plausible the future of the industry is a handful of services that consolidate the smaller players and become to the 21st century what the cable companies were in the late 20th century. For instance, Disney (DIS), which, of course, has an enormous catalog of original content, is launching its own streaming service and is pulling content from its competitors. Do not be surprised if it dethrones the current streaming kings.

Disclosure: The author owns no stocks mentioned.

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This article first appeared on GuruFocus.