The Economist explains: Is Netflix killing cable television?

The Economist explains: Is Netflix killing cable television?

Aug 26th 2013, 23:50 by A.E.S.

NEXT MONTH the Emmys, the American television awards, could label a show that never appeared on a television channel as the year’s best drama. “House of Cards”, a series about political maneuvering starring the actor Kevin Spacey (pictured), is available only on Netflix, an online-video service. The show’s success highlights the maturation of video-streaming firms, and the threat they pose to traditional television. People can now watch television-quality shows, including “House of Cards”, only through Netflix, seemingly diminishing the need to pay for a cable subscription. Is Netflix killing cable television?Online video services have long been touted as destroyers of pay-television. Fewer people become willing to pay for cable, the thinking goes, when they can stream their favourite shows through Netflix and other online-video services, including Amazon and Hulu. Netflix and its peers are convenient: subscribers can watch programmes when they want, and can do so outside of the home on their mobile devices and tablets (so long as they have an internet connection), freeing them from their television set. These services are also cheaper: American cable subscribers pay around $80 for a subscription a month (not including broadband); Netflix costs around $10. Netflix now has around 30m members in America, and 38m globally.

Many predicted that Netflix would kill pay-television much like murders occur in popular cable dramas—suddenly, painfully and quickly. So far, however, pay television’s death has not occurred so speedily or dramatically. The main reason for this is that content-producers and pay-TV operators have been adept at making sure consumers cannot watch current episodes of their popular shows unless they pay for cable. In other words, they have not made the same mistake that newspapers did a decade ago, offering the same content online for free that they expect subscribers to pay for. Content-owners have restricted Netflix’s ability to buy rights to shows until after they have aired on television. And anyone wanting to watch live sports still needs a subscription, since Netflix has not bought expensive rights to sports. Netflix may have had success with “House of Cards”, but most hit dramas are still on traditional television.

In the short-term then Netflix has not come close to killing cable. Those who predicted a dramatic death are more likely to witness a prolonged decline. Craig Moffett, an analyst who covers the sector, reckons that around 900,000 households in America have cut the cord in the last year or started a new household without signing up for pay-TV. That is only around 1% of households that subscribe for cable television. But it is meaningful, because it will probably accelerate over time. “Cord nevers”, youngsters who start their own households without a subscription, and who may never get one, will continue to add to the number of cable defectors. So will ownership trends of “smart televisions” which are internet-connected: people may be more likely to opt out of paying for cable when they can easily stream Netflix in their living rooms.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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