"The glory days of DVD."
That's how David Fannon, Vice President of Screen Media Ventures and former A&E exec, describes the middle of the 2000s. The glory days: when a company could buy the rights to a B-movie, contract someone to create enticing cover art, and sell the DVD to big box stores for a 1,000 percent markup. "We would make them for under a buck," Fannon says. "Sell them to Wal-Mart for $11, and then they’d sell them for $19.99. The amount of money that was generated by these DVDs... it was ridiculous."
In 2008, the recession hit, people no longer felt the need to splurge $20 on movies they'd never heard of, and Fannon had to find a new revenue stream. He had to think strategically to keep himself and his company afloat. The "glory days" were over.
Something very similar is happening to the cable television industry right now, only unlike the DVD resale market, where the glory days lasted but a handful of years, cable TV has enjoyed decades of prominence. While its complete dominance of our living rooms has given executives plenty of time to change course and prepare for the future, it has also given them billions of dollars worth of reasons to remain steadfast in the current model, despite the fact that the current model doesn't at all mesh with today's technology or modern consumers' pricing expectations. Cable is cable, and if you want live sports, Internet access, and the feeling of closeness to your fellow Twitter users, you'll pay the $200+ a month for channels and landlines you don't need.
Obviously this battle between consumers and Big Cable's outdated business model is going to end at some point. When David Fannon saw the DVD tide turning, he launched a free video streaming site called PopcornFlix.com. Fannon may have been a seasoned executive with A&E Television Networks, but even he knew that in order for PopcornFlix to be successful, it needed to be available via mobile, Roku, Xbox, Samsung TVs, Panasonic TVs... basically any device with a screen. Yet the cable giants remain reluctant to this type of strategic pivot, opting instead to continue on their war path regardless of what happens in the market. "You got eight bucks here and 12 bucks there," Fannon explains. "Then you got a cable bill and phone bill and it's like 'Are you effing kidding me?'"
Which is why Fannon feels the cable companies will eventually crumble: Their lack of willingness to change or innovate will spell their doom. A decent number of us—15-20 percent, depending on your source—have already clipped the figurative umbilical attachment to our cable companies and now use the Internet for TV. And, according to David, this is only the beginning. Here are five reasons why the Screen Media VP sees cable cutting overtaking cable television in the coming years:
"I look at my bills—and I've been working and have attained a certain level in my life—I can’t imagine what it's like for young people who are just starting out and can’t afford this. I mean, you got eight bucks here and 12 bucks there, then you got a cable bill and phone bill and it’s like, 'Are you effing kidding me?' I think the New York Times had some kind of analysis that a lot of people spend $400 a month for their phone and TV."
No à la Carte Channels:
"I have fought that fight at A&E. Everybody needs to be on the basic model and with that they may have shot themselves in the foot. It took too long for [à la carte pricing] but that is coming. That's going to save cord-cutting because people are going to say, 'How many channels do I have?' That message will be received and soon the cable companies are going to find a way to do [a la carte pricing] because that will keep them around for a little while longer.
"A&E has such a good group but how many people are going to pay for HGTV? How many people are going to pay for Food Network? People aren’t going to pay for Syfy. My wife will pay for Bravo; I wouldn’t. You may not. Who knows? It’ll be interesting but I believe that the à la carte programming will soon come alive."
The Continuation of Net Neutrality:
"I just think it’ll be a friggin revolution [if Net Neutrality ends]. The cable companies control the pipe into the house right now. Now, how they price the web, how they price the Internet to the consumer, is going to be really interesting. I think we're going to have to pay a little bit more for it. However, I’m still going to have that pipe into the home. I don't need cable. The Internet has taken over our lives and access to the Internet is going to be, I believe, looked at as an entitlement. It’s our God given right to have this access because everything is going through it. I mean, our homes are programmed through the Internet now."
Too Many Alternatives:
"How all these cable companies are still making money, I don’t know. The interesting thing is that you can get broadcast television. Cut the cord! You can still get the old rabbit ear TVs. The digital antennas aren't bad. With the new digital antennas, if you’ve got good placement and good TV, each broadcaster has several channels within its spectrum.
"We [PopcornFlix] have over 1,500 films. Hulu decided they loved this ad-supported model but they were losing content to [competitors] and they wanted them to pay more money for the content, so they went with a subscription model: Hulu Plus. Netflix is subscription. Amazon Prime is subscription. HBO needs to get more credit since they were Netflix long before Netflix. PopcornFlix went from the web to mobile phones and tablets. Then we built for Roku, Samsung, Panasonic, Sanyo, we are also on Xbox, we are building for Xbox One and Bravia TV’s and we are going to build for PlayStation as well. We launched a site on the web and on mobile devices all throughout the world in every territory. There are options."
The Migration of Sports:
"I don’t need cable. And it’s funny we don’t have cable here in the office. We turned off of Time Warner a couple of years ago, it was ridiculous. I didn’t miss one World Cup game. We had it through Xbox and ESPN. I can watch Wimbledon at my desk. I can watch the NCAA basketball tournament. I don’t miss it and it’s funny.
"We have the goal [of buying the rights to live sports] and Netflix has gotta be looking to do that right now. I've had conversations with Xbox and PlayStation and they want live events right now. PopcornFlix took on MMA and fighting with a company called Hard Knocks out of Canada. It didn’t work. It’s still up on the site but it didn’t work. It’s not as good as UFC. But the interest was there and there was real interest from Sony and from Xbox about live events. So everybody is already looking at this, and at the end of the day, who is going to get the most eyeballs? You look at the cable universe and they are talking 100 million eyeballs. Well, how many of those eyeballs have the Internet? Most of them. The NFL is going to take the rights and start doing its own streaming. They are going to ad-support it and they are going to make the money. Why are they going to give it to the broadcaster? I mean, how many people don’t have the Internet and can’t get it? The problem then is going to become someone like me to a certain degree. All of a sudden the individual consumer doesn't have cable and it’s not set up in a nice neat package for them.
"People are going to try [cord cutting], and it’s gonna be a bit of an avalanche."