Business Columns & Blogs

Bill Virgin: Cord shaving may be what TV industries prefer to cord-cutting trend

Readers, would you like to learn a new term today? It’s one that you may have already been aware of, but it’s a new one for your columnist who has been reading a lot lately on the subject of cable television and how consumers will be receiving video content.

You’re likely aware of the term “cord cutting” and the concept behind it – that TV viewers are dropping cable TV service entirely, relying instead on online, on-demand services.

But have you heard of “cord shaving?”

The term surfaced publicly in a big way earlier this month courtesy of a Wall Street Journal story on cord shaving. It’s an idea that most cable-TV customers can wrap their heads around – instead of ditching cable service entirely, consumers are opting for less-expensive bundles that offer fewer channels.

It’s a straightforward calculation on their part: Why spend so much money every month on channels they get little out of, or have no interest in at all? They may lose a handful of programs or channels they watch, but depending on how the bundles are configured they can retain most of what they want and save, well, a bundle. For the stuff they lose, they can do without or find alternative sources (Netflix, YouTube, Hulu, Apple, Amazon, the networks themselves).

Cord cutting has huge financial implications for the video industry. Lost customers means lost revenue no longer available to pay for programming, and once gone those customers are not likely to come back.

Cord shaving has an upside, comparatively speaking, for cable companies in that they haven’t lost the customers for good and some money is still coming in. But the financial ramifications could wind up being nearly as disruptive, depending on how much customers shave their bills, and how much the cable operators have to shell out in the way of incentives and breaks to keep those customers from defecting entirely (some have learned how to game the system to keep the incentives coming).

Cord shaving is for real. A Tacoma Public Utilities representative says Click has seen a trend of choosing lower-priced options with fewer channels.

And it fits in with several other recent news items about the reshaping of the TV industry (do we need a new name for it, given that people are watching on computers and handheld devices?).

CBS is launching an online subscription video service that will include a live stream of its programming and archives of current and older shows. It costs $5.99 a month. HBO will launch next year a standalone (i.e., not tied to a cable or satellite company) online service. Pricing hasn’t been announced yet.

Skeptics have argued that cord-cutting is overblown as a threat to the cable industry. Add together what customers might pay for various individual services and it quickly comes to more than what they’re shelling out for a cable bundle – or so the argument goes. That might be true for voracious consumers of TV. But consumers doing an objective appraisal of their own viewing habits might conclude that they’re paying for stuff they don’t want (the overabundance of capacity is evident just in over-the-air channels, as evidenced by the proliferation of infomercials and reruns of shows you didn’t care about when they were new).

Like, to cite a specific example, sports, which brings us to one more recent news item: The NBA has signed a nine-year, $24 billion contract with two networks.

Here’s how we tie it all together. Everyone has a lot at stake in the outcome of these changes, starting with you the viewing public. Contracts like the one the NBA just signed are going to drive up programming costs, and thus cable rates. Whether you care at all about the NBA (and in this region, in the absence of a local team, it’s really a minor sport), you’ll be paying more – or you now have added reason to shave or cut the cord.

If you’re a Tacoma taxpayer or utility customer, that adds to your stake in the outcome, since the financial well being of Click, indeed its future viability, depends on how much it winds up paying for programming that customers no longer want to spend for.

The networks, sports leagues, movie studios and program/content developers all have a big interest in how this works out. If there’s less money coming in from viewers, there’s less money to be spent on lavish TV contracts, or players, or all the people involved in producing shows.

Most of all, the cable operators have a huge interest in the outcome. Getting squeezed by lower customer revenue and higher content costs is neither comfortable not sustainable for the long run.

Again, skeptics of the cord-cutting, cord-shaving phenomena argue that cable companies will still make money from the shift to online services, since they already own the high-capacity pipe to deliver the content to homes. If you shift from cable to online, they’ll just sell you more of the latter – and charge accordingly.

Maybe that’s how it will work out, but the truth is it’s still very early and no one knows for sure what’s ahead. What is much more certain is that these trends are real and meaningful and need to be taken seriously.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

  Comments