The Next Big Thing: Free TV

Emerging firms with names like Crackle, Free TV, Spreety and Hulu are changing the way we watch television. They are offering television programs online for viewing at no cost. This development threatens the business models of the $84 billion cable, satellite and telephone company television access industry.

Some industry watchers are dismissing the impact because the numbers of viewers remain minuscule. According to Convergence Consulting Group, last year 800,000 households unplugged their cable or other provider's service and decided to use online services to watch television programs. It is a tiny number when compared to the estimated 101 million subscribers who watch "regular" television.

However, it may signal a coming tidal wave as viewers opt out of their current provider and flee to the Internet. At the end of 2011, some analysts expect the number of customers who unplug their provider will double to 1.6 million viewers. But those numbers don't tell the whole story. An estimated 17 percent of today's television audience views at least one program of a full-length TV show every week. As those viewers become come accustomed to getting their television online, more will join the growing ranks of those who unplug their provider.

So what is driving this development? Here is a partial list of reasons:

1. People view the PC as a more personal way of watching video than a television. For one thing, the content is always available on line whenever they want. If you don't have a DVR, you may miss a program and never be able to see it. Also, laptop PC's can be carried wherever you want to watch a program. Viewers aren't tethered to their hard-wired television. In addition, the content can be viewed on a host of other devices, including their cell phones. This portability issue is growing in importance, especially among younger viewers.

2. PC's have improved video capabilities, which is helping to change viewing habits. Screens are near HDTV quality. Sound quality has improved significantly. The real game-changer will be the recently introduced IPad. It offers 720p resolution, which produces a picture that is stunning. The IPad increases portability for viewers who prefer online television over the cable, satellite and telephone solution. The device will fuel more content providers to offer programming online that can be easily downloaded on the IPad. It's coming and sooner than most think.

3. There are more tools online to help viewers navigate the bucket-load of content that exists on "regular" television. You can take online content and move it around to your cell phone, media player or other device. A growing number of search engines are available on the Internet to allow users to find episodes and programming content for delivery. While cable, satellite and telephone companies offer some search capabilities, the solutions pale when compared to what's available on the Internet. What good is 500 channels if you can't find what you want? People get discouraged and reduce their channel packages, which means lost revenue for the providers.

4. Television providers' revenue model is outdated and will lead to its downfall. Cable, satellite and telephone companies push bundles of programming. The more packages, the higher the revenue from subscribers. These same firms have staunchly opposed a la carte pricing. It is not in their economic interest to let subscribers choose only the programs they want to view. The reason is simple: the providers want to spread the cost of content across as a large a base of subscribers as possible. Great for the providers, but not so popular with subscribers. This is one reason why many are fleeing to free television. These viewers can get only the shows they watch and nothing else. Unless the big providers address this issue, their subscriber base will continue to erode.

If the giant television providers choose to fight the wave, instead of riding it, they will drown in their own greed. Those providers who move first to address this online growth will win. Check out what has happened in the music and book industries. They fought "free" online content and lost millions in the process before changing their pricing models. Will television providers choose the same path?

My guess is that most providers will fight rather than change. By doing so, they risk ceding the market to the Internet.