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.