Disruption in TV viewing began with the VCR whereby consumers did not have to watch TV live and could record the programs for later viewing. Since then, we have come a long way to possibly the next major disruption – one does not need cable or satellite subscription to watch TV programs. Popularly known as cutting the cord, this phenomenon is sweeping the nation and the world with the likes of Netflix, Amazon, Hulu and more recently Google all leading the way to a whole new world of TV viewing.
With every program that was available via an “all you can eat” $125 bill from the local cable or satellite company, now available for just $7.99 – $19.99, consumers are quickly switching en masse to the new ways of watching TV over wireless networks. More importantly, this method also provides the consumer to view programs on various other devices such as smartphones and tablets and not be restricted to the TV alone.
With Netflix and Amazon not only restricting themselves to content delivery but also developing new programming content, the entire ecosystem of the entertainment industry is in jeopardy. Die hard cable TV viewers argue that NFL and other sports programming will remain in the realm of cable and satellite TV and that justifies the $125 monthly bill. Netflix announced earlier this week that it plans to spend $6 billion dollars in 2016 to acquire or develop more content while Amazon and Facebook are going after Indian Cricket League and other sports streaming rights to boost their sports programming. If any of these companies can pay top dollar for NFL or NBA streaming rights when they come up for renewal, the game is over for the cable companies and entertainment studios.
In an interesting twist, even as AT&T and Time Warner are exploring a merger to fend off further erosion of their customer base, AT&T announced that it is going to be emulating the wireless network model and provide all its programming via DirecTV Now service starting next year albeit at a higher price – ~$50.
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At Future Wealth, we invest in ideas that people can believe in and associate with, for the long term. When was the last time you bought a CD? In a few years, you will be asking yourself “Why did I keep writing $100+ monthly checks to the cable company?” Yes, many of the companies – Netflix, Amazon mentioned above are expensive on a valuation basis but that’s largely because they are investing heavily on growing the business. On the other hand, the cable and satellite companies are a dying breed and despite their dominant position in the past, they have simply not adapted with the rapid changes in technology and try as they might, they will likely follow the VCR and the CD into oblivion.