Internet TV: Where the Puck Is Moving

Hypothesis: Cable TV subscribers are increasingly likely to “cut the cord” given the proliferation online video.

Is this notion the product of a feverish imagination? Cable industry analyst Bruce Leichtman, for one, believes the broadband-video threat is way overblown.

“There’s no evidence whatsoever of cord-cutting happening. People need to stop being cheerleaders and stop doing mother-in-law research and really analyze this,” he tells CDN’s Jeff Baumgartner.

But clearly, cable operators are worried enough that they’re trying to co-opt this trend. Comcast, Time Warner Cable, and Cox are working to secure Internet distribution rights to an expanded lineup of TV programming from NBCU, Viacom, Turner, Scripps, Discovery and others.

I don’t know if Time Warner Cable chairman and CEO Glenn Britt has discussed this topic with his mother-in-law (or anyone else’s). But Britt has repeatedly raised the prospect of Internet video eroding the pay-TV business.

“The reality is we are starting to see the beginnings of cord-cutting, where people, typically young people, are saying, ‘All I need is broadband, I don’t need video,’” Britt said on the MSO’s Feb. 4 earnings call. “So the impact of that potentially over time is to reduce the number of customers.”

A cynic might suggest Britt is playing up the Cassandra bit to gain leverage in carriage deals. He specifically denied this, though, on the same call: “I am not saying these things as a negotiating ploy. I am really saying them to predict that people will choose not to buy subscription video if they can get the same stuff for free. In other words, free wins. If we don’t have a customer then the programmers don’t get paid for the customer that we don’t have anymore.”

So who’s got the right read on this situation? I think the MSOs are right to be concerned. The question in my mind is how compelling their “on-demand online” Internet TV services will be when they’re ready to roll.

Today, sure, the number of people nixing their cable or satellite TV service because they can hit Hulu, TheDailyShow.com and iTunes is minuscule. Anecdotal evidence, however, suggests it’s a real trend, as documented by The Wall Street Journal, the L.A. Times, the Associated Press and, yeah, Multichannel News.

The cable companies need to anticipate quickly changing media-consumption behaviors. Note that Hulu wasn’t even officially open to the public 12 months ago. In December, it registered 24.6 million unique visitors and served 240.6 million video views (per comScore).

And to Britt’s point: Video distributors can’t count on wishful thinking that online-video viewing and direct-to-TV broadband content will never eat into their core product.