Here’s a number that isn’t making life easier for Comcast (CMCSA), Time Warner Cable (TWC), or the rest of the pay TV industry: More than 40% of U.S. households under age 35 watch Internet video on their TVs at least once a month, according to research firm In-Stat.
That includes watching via game consoles, Web TV gadgets like the Roku box and Apple TV, and hooking up a laptop to the TV. Increasingly, it will include TVs with Web video built-in. Within five years, “the number of U.S. broadband households viewing Web-to-TV content will grow to 24 million,” In-Stat estimates.
That’s still a minority of the population, and it doesn’t mean that those people are no longer subscribing to cable. But it’s still scary. The idea that consumers can get good content to watch from free and cheap Web services like Hulu, Netflix, iTunes, Boxee, and MLB.TV — and watch it comfortably on their TV sets — is not good for cable companies.
So far, cable giants have said that they haven’t seen meaningful substitution from free Web video services. And indeed, pay TV subscribership increased last year. But if more content comes online for free, you can bet that more people will join us as ‘Hulu households’ instead of spending $80 a month on digital cable.
So what can the Comcasts of the world do?
First, they can improve their set-top box and on-demand services so that everything that’s free online can also be streamed on-demand for free.
If the digital cable box — already in your living room and already hooked up to a dedicated, managed pipe — can become the Web video hub in most households, then cable is viable for much longer. But given cable’s terrible track record with user interfaces and Hulu’s exclusive deals to stream full episodes from three networks for the next two years, that could be asking a lot.
Then they can pray that people will still think $50-80/month is a reasonable fee for live TV and a full on-demand library.
Second, they can keep pressuring their content providers — especially the good ones — to keep as much content offline as possible.
They can keep reminding them that cable subscriber fees generate overwhelmingly more revenue for everyone than Internet advertising. For instance, In-Stat thinks revenue from Web-to-TV streaming services will reach just $3 billion in 2013 — a tiny amount. For comparison, Comcast spent $6 billion on programming last year.
But keeping stuff offline encourages piracy, and will not work forever. Then they’ll need to figure something else out, like getting more revenue from their Internet subscribers.
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