Another Dent In The Cord-Cutting Narrative

Pay TV Net Subscription Adds

Photo: Bernstein Research

Last week, rumours broke out that Hulu was soon going to require users to have a cable subscription in order to use the site.As it turns out, it was just that, a rumour. However, a source close to Hulu confirmed to TechCrunch that the company has been looking at “authentication” since 2009 and, while it is not imminent, it will happen one day. More likely, the source went on, content providers will soon start delaying new shows (“windowing”) by a month for non-cable subscribers, even if they are a Hulu Plus subscriber.

It amounts to another dent in the too-good-to-believe narrative of cord-cutting: millions of Americans have been liberated from under the thumb of the cable companies and have been delivered to the promised land of online video. Yet, pay TV subscriptions have been net-positive the past three years, albeit at a declining rate, but given market saturation that shouldn’t be a shocker either.

This narrative, though it weaves an undeniably appealing story, misidentifies the true power broker here. As we have stated before, cable has a de facto monopoly on distribution, and it will take the acquiescence of  content providers to break it. In case you were wondering where they currently stand on the issue, Hulu is a joint venture of NBCUniversal, News Corporation, and the Walt Disney Company.

If the cable companies’ bundled packaging model (i.e. the consumer pays a flat monthly rate for 100 channels) continues to be the the most profitable avenue for content providers, they can window any of the streaming sites, including Amazon and iTunes, out of relevance. Hulu looks a lot less appealing if you have to wait a month to discuss last night’s episode of Modern Family with your friends (unless you own a pair of spoiler-proof ear plugs).

It is little wonder that the would be usurpers are trying to imitate the HBO model, a mix of premium original programming and licensed on-demand content. Netflix is even in talks with the cable companies to get the service added as a premium option for cable subscribers.

As we have previously argued, the transformation of TV as we know would take a tech giant, presumably Google or Apple, to make content providers “an offer they couldn’t refuse.” With no Don Corleone figure lurking, and no mass disaffection with the current TV model evident, disrupting the cable companies will be a truly Sisyphean task.

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