Pundits asking whether the new Kindle Fire will be an “iPad killer” are way off the mark. It’s a killer alright, but the victim is not who you think it is. “We don’t think of the Kindle Fire as a tablet. We think of it as a service,” says Amazon CEO Jeff Bezos.
And the main competing service in his sights is cable TV.
The Fire, of course, is not the only killer gunning for cable. Amazon’s streaming video service is available on dozens of TV-connected devices, including TiVos and Roku boxes. So is Netflix, which although it has stumbled a bit recently, is clearly positioning itself as a streaming alternative to cable. And of course let’s not forget Apple, with not just its iTunes movie and TV offerings, but also Netflix on all its devices, including the Apple TV.
Cable operators are feeling the heat. Comcast and Time Warner, the two largest operators, have reportedly lost 1.2 million cable TV subscribers in the 12 months ending June 30. Many of these are said to be “cord cutters” who prefer the flexibility of online video, such as Amazon Instant Video, which lets them choose a la carte what they want to watch whenever and wherever they want.
Yet cable prices continue to rise. One reason is the climbing cost of programming itself. Cable companies (like Cox or Charter) pay programmers (like Disney or Discovery) to carry their networks, and in turn they charge consumers. Programmers have been hiking prices for their content, often as a result of access to sports content. ESPN, for example, recently signed a $15 billion, eight-year TV rights deal with the NFL, a 73% increase from their last agreement. That’s one reason why the sports network is the most expensive channel to operators, at about $4 per subscriber. Yet the more prices go up, and the more choices like Amazon and Netflix are available, the more we can expect viewers to cut the cord.
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According to Reuters, this is why cable operators are reportedly working on a plan to make programmers unbundle their content. To compete with the online services, some cable companies would like to offer expensive channels like ESPN as premium a la carte channels much as they do with HBO. The programmers, however, don’t sell their channels separately. If a cable operator wants to carry the Disney Channel or ABC Family, they also have to take Disney-owned ESPN.
It’s unclear how cable operators plan to change programmers’ minds. One obvious way would be to get the government to force them to. At least one cable provider has already suggested this to the FCC. That would be an unfortunate and shortsighted turn of events that could lead to higher prices and fewer choices for the customers who stick around.
There’s another strategy open to cable companies, though: Go “a la carte,” but in a completely different way. Netflix streaming accounts for a whopping 30% of Internet traffic in North America, and as consumers continue to move online to consume video, they will demand more and more bandwidth.
That should be music to cable companies’ ears because it’s their pipes consumers will be using to access that programming. Rather than place bandwidth caps as they have been doing, they could meter usage and let consumers choose how much they want to use.
However this ends, the good news is that consumers are likely to come out on top. Remember what your video choices were in 2001? There certainly was no Kindle Fire with Amazon Instant Streaming, but there was also no YouTube, Hulu, Netflix, iTunes, Xbox Live, or Roku. Even TiVo was just beginning to reach the market. We either watched what was on TV or we drove down to the video rental store.
Consumer choice, one way or another, is here to stay.