Netflix or Hulu won’t win the streaming wars. Your cable company will.

Author: Todd VanDerWerff   Source: VOX

The cable companies are going to win the battle of the cord cutters. In, say, 20 years, if you want to watch TV (or a TV-like product), the odds strike me as really good that you’ll be paying up to a Comcast (which owns NBC-Universal, an investor in Vox Media) or a Time-Warner or whatever cable company has a monopoly in your local market.

The reason for this is simple: Cord-cutting is rapidly becoming an expensive proposition, especially if you want the amount of content most TV viewers are accustomed to. And that problem is only going to get worse in the years to come.

The key to keeping costs under control is going to require bundling. And do you know any companies that are really good at bundling? Yeah, that’s right.

Streaming companies are squeezed between two economic realities

Bloodline is one of the first Netflix shows to be canceled.
Netflix

Streaming industry watchdog blog Exstreamist recently revealed that Netflix’s number of films and TV shows has been cut in half since 2012 — going from about 11,000 series to 5,302. In and of itself, this isn’t really cause for alarm. Netflix has stepped up its production of original content, seemingly largely to compensate for the loss of all of those titles in its library. It also has a major deal with Disney that will siphon a bunch of the entertainment giant’s products into the Netflix library.

But the fact remains that Netflix is increasingly caught between two major forces. On the one hand, it’s chasing down a number of global subscribers that will eventually prove finite. On the other hand, the amount of money it can actually spend on acquiring and producing TV shows and movies will only go so far.

Because Netflix doesn’t actually own most of its hit TV shows (at least not yet), it overpays for most of them to make them Netflix exclusive for the foreseeable future. But that drives its production costs up and up and up. Thus, for instance, it recently had to cancel its Emmy-winning drama Bloodline after its upcoming third season, seemingly because it just cost too much.

The same is not as true of Netflix’s chief competitors — Amazon Prime and Hulu — which still continue to add titles (so far as I can tell — getting exact counts is an inexact science). But both of those are in the midst of growth phases and will eventually reach the same wall Netflix is rapidly approaching. (Hulu, at least, is owned by Fox, NBC, and ABC, which provide it with a constant stream of new TV reruns.)

For a long time, the studios that actually own TV shows and movies didn’t think streaming rights to them were worth very much money. Thus, Netflix and Hulu (effectively the only two games in town) could scoop up rights packages on the cheap.

But as streaming becomes, increasingly, one of the best ways for those studios to wring money out of their projects (money that previously would have come from TV syndication deals or DVD sales), studios are able to charge more and more for even their less prized items.

Thus, a Netflix will pay top dollar to land, say, The Blacklist, and to produce its own shows. But once it’s through spending that money, it’s reliant on the stuff it can scoop up as cheaply as possible, a category that often includes all of those strange indie films you’ll find if you browse Netflix’s library long enough.

Thus, most streaming services’ libraries are top-heavy. There are a few projects you’ll really, really want to check out, but the deeper you go, the less there is.

And there are even bigger reasons for streaming services to fret about the future.

Cord cutting just keeps getting more expensive

Stephen Colbert’s Late Show is only available to stream on CBS All Access.
CBS

Recently, Gizmodo ran the numbers and concluded that if you subscribed to every streaming service collecting most of the TV shows and movies you’d likely want to see (and thus excluding niche services like horror-centric Shudder or anime-centric Crunchyroll or etc., etc., etc.), your monthly bill would be more expensive than an average cable bill on its cheapest tier.

Now, the common response to this is that cord cutting’s chief advantage is that it allows viewers to pick and choose the services they do or don’t want — something one doesn’t get with a cable package (where cable companies collect the most popular channels, then toss in other ones you might have no need for but which they have available).

And, yes, that’s an advantage when it comes to those niche services. If you’re a major horror fan, a subscription to Shudder makes sense, and if you’re not, it doesn’t.

But this doesn’t really work for the major streaming services, which aspire to build big audiences by offering something for everyone. Netflix, Hulu, and Amazon are especially focused on this goal, but even the pay cable services’ streaming offshoots — HBO Now and similar services from Starz and Showtime — aim for this.

And this isn’t going to stop. CBS, the one major network without a stake in Hulu, has started its own subscription streaming service (CBS All Access), and numerous cable channels have versions of their own streaming services, which you can access with a cable subscription but will likely become pure subscription services at some point. (FX Now is a good example, as is ESPN’s streaming app.)

And I haven’t even mentioned Warner Brothers, the biggest unaffiliated player in the streaming game — and a company that tends to make its weight felt when it enters various home entertainment arenas. At present, the studio licenses its shows and movies piecemeal, but its parent company, Time Warner, bought a 10 percent stake in Hulu, which suggests the two may have a cozier relationship going forward.

So one of two things is going to happen: More and more of these deals will be made with the established players, thus driving subscription fees up steadily; or there will be a further proliferation of new streaming services. Both of these will ultimately drive consumers to spend more and more — and I haven’t even touched on by far the most expensive rights packages out there, those for live sports.

And these exclusivity rights make multiple subscriptions not just likely but probably inevitable. If you’re a Walking Dead fan, you’ve got the original program on Netflix, but spinoff Fear the Walking Dead on Hulu. Or if you like the very similar LA-based dramedies Love, Casual, and Transparent, you’ve got to subscribe to three different streaming services (Netflix, Hulu, and Amazon, respectively).

And let me remind you: This is only going to keep splintering. Prices are only going to keep going up. You’re never going to be able to get one-stop shopping for all of those movies and TV shows unless you’re willing to, say, pay for episodes a la carte on a digital download service like iTunes.

Cable companies have a couple of big advantages when it comes to bundling

Ted Sarandos, Chief Content Officer for Netflix, speaks at the Television Critics Association summer press tour in 2015.

So far, this is all taken place in a cord cutting universe that mostly consists of people who are savvy about this sort of technology and know which services offer which programs. But as the cord-cutting trend continues, we’ll see more and more people who don’t have that information readily at their disposal. These casual viewers aren’t going to want to spend a lot of time researching the catalogs of various streaming services.

So there’s going to be a lot of demand for some form of bundling — of an option to subscribe to a bunch of streaming services, both mainstream and niche together — in packages that will be slightly more affordable than ordering each service a la carte. And when it comes to bundling, the cable companies know it better than anybody else.

Something that’s not widely understood is that your cable bill is so high not because of the cable companies themselves (which serve as largely ineffectual middlemen) but because of those various rights packages I mentioned earlier.

Indeed, very nearly the entirety of the television industry is built on the backs of live sports rights packages, and when it comes to, say, the NFL, the league can more or less name its price.

Still, cable companies have a big advantage that will allow them to hold the line on content price hikes more effectively than standalone streaming services over the long run.

In any negotiation, the party with fewer alternatives tends to be in a weaker bargaining position. That means that when a studio with a popular television program is negotiating with an online streaming service, the studio has all the leverage. The studio has plenty of streaming services to choose from, whereas the streaming service knows that losing access to one of its biggest hits will also mean losing subscribers.

Cable companies, by contrast, have two big advantages that reinforce each other. One is that they’ve already assembled huge bundles that include most of the content customers want, making it less likely that customers will cancel their cable subscriptions over the loss of one bit or programming. Also, the fact that cable companies are negotiating over whether to renew contracts with content companies — rather than sign new ones — makes it a lot easier for cable companies to paint content companies as greedy villains if negotiations break down over price demands.

Cable companies’ second advantage is even more important: the fact that cable companies have geographically segregated service territories makes it a lot harder for content providers to play one cable company off against another.

If a major media company walks away from the table with Comcast, they’re going to lose a lot of customers in Comcast-dominated cities like Philadelphia, Denver, and Atlanta. They can’t go to other cable companies like Time Warner or Charter to reach those same customers. They just lose out on a lot of revenue.

Of course, cable companies do compete with telephone and satellite TV companies. But cable companies’ bargaining power is strengthened by the fact that many subscribers also rely on their cable companies for internet and phone service. Even if they’re annoyed about the loss of a beloved television show, many will conclude that it’s too much of a hassle to switch their other services or give up their triple-play discounts.

In short, the very things customers hate about cable companies — their size, geographic concentration, and lack of alternatives — have a silver lining: it gives them more leverage in negotiations against content providers. And in the long run, they’ll likely be able to use that leverage to wring better deals out of Hollywood and the major sports leagues than pure-streaming services like Netflix and Hulu can manage.

The future of TV looks a lot like its present

Hulu is doing pretty well for itself with shows like Casual. But don’t expect it to suddenly become the sole provider of content.

The odds seem good to me that we are in a transition from the traditional TV universe — where what you watch is tied to a specific network and specific time slot — to more of an on-demand one, which takes some of the best innovations of Netflix (all episodes available at once, watch whenever you want, etc.), but filters them out to TV as a whole.

But a future where, say, Netflix is the content provider, instead of one of a handful of big ones, with lots and lots of smaller ones nipping at its heels, seems increasingly unlikely.

More likely is that Netflix joins the HBOs and CBSes and Hulus of the world as a series of titans, with numerous niche services filling in the gaps in those services’ catalogs.

Instead of subscribing to all of these services piecemeal, you’ll probably pay for an all-in-one streaming bundle, complete with a set-top box that will enable you to search through all of their inventories for exactly what you want. You’ll have access to all of the bigwigs, then choose various subscription tiers for how many niche services you want. Just like your current cable subscription.

The future of TV, in other words, looks a lot like the present of TV — and your friendly local cable company will probably still be bringing it to you, no matter how much you might groan to hear that