Now that premium cable television channel HBO and broadcaster CBS have decided to sell their programs via the Internet, the TV business will never be the same. And yet, it probably won't be all that different.
Today's cable systems bundle popular channels along with hundreds of barely-watched networks. But if the industry imitates HBO and CBS, consumers could one day buy access only to the networks they want to watch. It's a popular idea; a 2013 survey by research firm PricewaterhouseCoopers found 44 percent of American consumers would like to get their TV "a la carte."
But purchasing channels one at a time would probably be more expensive than today's bundled offerings, and more confusing, with separate billing and program listings for each channel. Industry analysts believe that most consumers will stick with traditional cable networks, or with new Internet-based systems that will deliver bundled TV offerings over broadband connections.
One hundred million customers in the US purchase multichannel subscriptions from cable or satellite systems, according to the research firm SNL Kagan. The number dropped slightly for the first time in 2013, the firm said. But cord-cutters aren't the issue for programming creators like HBO and CBS.
The action is centered around the five million US households with broadband Internet who don't watch traditional TV at all, whether cable, satellite, or free 0ver-the-air broadcasts, and another five million who get video from broadband and over-the-air, but don't subscribe to cable or satellite TV.
"We're not seeing a lot of people canceling subscriptions," said Colin Dixon, an analyst for nScreen Media in Sunnyvale, Calif. "What we're seeing is a lot of people, especially young people, not signing up in the first place."
CBS alone plans to charge $6 per month for its Internet service, which for now doesn't include the network's most popular programming — live National Football League games.
"It's a very expensive alternative," said Laura Martin, a senior entertainment analyst for Needham & Co. in Los Angeles. HBO hasn't announced a price yet, but Dixon expects it will be pricey—"something like $20 or $25 a month."
If Dixon is right, that's around $30 for just two TV channels. If other networks adopt the same strategy, they'd surely charge rates similar to the "carriage fees" they receive from the cable companies. For instance, Fox News charges about $1 per subscriber per month for its shows, while the most costly network on basic cable, sports channel ESPN, charges about $6.
Add in broadcasters NBC, ABC and Fox, and a host of other major cable networks --CNN, Comedy Central, the Disney Channel and many more -- and paying by the channel will add up quickly.
Just as important, it wouldn't be easy. Each new online TV service would mean a separate account and a separate bill; viewers would have to log onto each network separately, just as many people now bounce among Netflix, Amazon Prime, and Hulu Plus. There would also be no simple, centralized program directory, such as that provided by the cable company.
"The consumer doesn't really want to have 48 different content relationships," said James McQuivey, media analyst at Forrester Research Inc. in Cambridge. "Eventually, someone will find a way to become an aggregator of all the video you want to consume, just like the cable companies," he said.
And for most viewers that aggregator will remain their local cable companies. But those cable companies may face competition from another angle altogether — "virtual" cable companies that package multiple channels and deliver them through the consumer's broadband Internet service.
So instead of buying cable from, say, Comcast Corp., a customer would merely buy Comcast's high-speed Internet service, but get the shows pumped to his home over the Internet from the third-party provider.
A virtual cable network could include a viewing guide to let users easily sort through dozens of channels, just like today's cable systems. The virtual network operators will still have to pay carriage fees to the TV networks to deliver their programs. But because they will be using existing Internet connections, they won't have to spend billions on a video networks to reach their customers. So their overall operating costs could be significantly lower than traditional cable companies.
nScreen Media's Dixon estimates that a virtual cable company might charge consumers 20 percent less than today's cable services.
Sony Corp., and satellite TV provider Dish Network, have announced plans to offer such virtual services. Sony has struck a deal with Viacom Inc., the owner of MTV, Comedy Central, and Nickelodeon, to carry its channels on the service. Dish has made a similar deal with the Walt Disney Co., and A+E Networks. Both companies hope to start testing their services before year's end. The potential cost savings are so attractive that Verizon Communications, which runs the FiOS cable TV service in 16 states, will launch a virtual cable service of its own next year.
Even cable companies could get into the virtual TV business by selling just the video service to regions where they do not have broadband networks installed. It would be a way to offset a troubling trend in their business: stagnant sales of cable TV service. Comcast, for example, reported losing 81,000 cable subscribers in the third quarter of 2014; its broadband or Internet subscriptions, meanwhile, grew by 315,000.
"We're seeing a lot of cable companies who have more broadband subscribers than video subscribers," said Tony Lenoir, a cable TV analyst at SNL Kagan in Monterey, Calif. Comcast's giant rival Time Warner Cable already has crossed this tipping point, and Comcast is rapidly approaching it.
As more American households go broadband-only, we'll probably see many more TV channels opting for Internet distribution. Even so, most consumers will probably buy them the old-fashioned way, bundled up with dozens of less-attractive offerings. And don't be surprised if Comcast, Verizon, or Time Warner is still the name on the bill.