Video Streaming: Cutting the Cable TV Cord

Millions of Americans satisfy their television addiction by subscribing to video services from providers such as cable and satellite companies as well as broadband firms Verizon and AT & T.  However, alternative technology and a glacial shift in viewing habits threatens these firms' business models.

The broadcast subscription business was built on selling consumers bloated packages, which included dozens or even hundreds of channels for a hefty monthly fee.  Many consumers wanted just a few premium channels, but the providers refused to sell their services on an a la carte basis.

If you wanted ESPN or HBO, you had to sign up for scores of other lesser-known channels that were bundled with those premium services.  This benefited providers because it allowed them to charge higher fees and enabled them to offer programming that might appeal to only a handful of viewers.

That business model is under threat from a host of video streaming companies, including Netflix, Hulu, Amazon, Roku and You Tube. There is a hodgepodge of other streaming web services with names like Crackle.com, Ifilm.com, Open-Video.org, UStream. tv, and Videosift.com.

Streaming media has be around since the 1990's.  Back then video files were stored on websites for downloading to consumers.  Dial-up Internet speeds and slow computers made the viewing experience less than ideal.  Videos were choppy, often pixilated and blurry.

Today technology has drastically improved the consumer experience. Video files stored on servers, essentially giant computers, are dispatched in a continuous steam over lightning-fast broadband in a compressed format.  The signals zip to devices equipped with decoders to convert data to video.

Consumers watch the videos in real time on an array of devices, ranging from televisions, to mobile phones, computers, tablets and media players.  Many of these gadgets are equipped to handle high definition streaming, further enhancing the viewing.      

These nascent services are offered to consumers for as little as $9 a month, a bargain compared to the average cable bill, forecast to be $123 monthly in 2015.   Internet video service Netflix has grabbed the largest share of the streaming market with more than 31 million subscribers in the U.S. alone.

For a lot less than cable or satellite charges, viewers have instant access to movies, television channels, old television shows, sports and a host of other broadcast fare.  Netflix is leading the way in creating original television series for its viewers and others are toying with the idea.

In 2007, the media research firm Nielsen found that only two million households in the U.S. had no television.  Six years later, Nielsen counted more than five million homes without televisions.  That doesn't mean people in those homes aren't watching video on a device other than a television.

These cord-cutters skew younger.  Most are in their 20's and 30's and they have little interest in traditional television, often citing cost as a factor for not signing up for cable or satellite service.  As a result, cable and satellite companies are losing hundreds of thousands of customers each year.

In a single quarter last year, traditional cable, satellite and broadband communications firms suffered a loss of 687,000 video subscribers.  The previous 12 months marked the worst subscriber turnover in the industry's history.  Cable subscribers dipped below 40 million for the first time in decades.

These deep pocketed traditional video providers are slowly adapting to the swiftly changing market dynamics.  Dish Satellite recently announced a new streaming service called Sling TV, offering ESPN, TBS, Food Network, HGTV and Cartoon Network starting at $20 a month.

Others are following Dish's lead.  CBS has unveiled plans for a streaming service for $6 monthly, which offers current and older CBS shows.  HBO and Showtime are in the early stages of rolling out subscription streaming services.

Increasingly, content providers such as CBS are realizing they can make more money by dealing directly with consumers rather than relying on cable, satellite and broadband communications firms to deliver their programming.  The old business model has been turned on its head.

Many in the industry still cling to the axiom that streaming video can't scale at cable television quality and therefore will never replace traditional TV.  This conventional wisdom reminds one of the same experts who predicted consumers would never unhook their fixed line telephone for cellular service.

Today about 40 percent of Americans rely exclusively on mobile phones instead of landlines for their voice and data communications service, according to a study by the Center for Technology Innovation at Brookings.

It is only a matter of time before video streaming will become the preferred choice for watching video programming.  Unless today's providers change their business models, these firms will continue to lose customers and revenues, a death spiral that will end their dominance and turn them into dinosaurs.