As TV Viewers Rebundle, Can Cable Companies Mount A Comeback?

OTT video is booming, still. But expect growth to moderate over the next five years, according to consultancy PwC’s latest annual Global Entertainment & Media Outlook.

The explosion in new services and delivery platforms has created headaches for consumers and competitors alike. Consumers want new kinds of service bundles that simplify their life and their billing. That’s why PwC’s report suggests there may be room for the long-declining cable TV industry to become, of all things, a problem solver.

“Our insights and forecasts suggest evolved packages that center around a broader definition of entertainment are in the future,” PwC’s C.J. Bangah wrote in an email interview from the Cannes Lions conference. “How we get from where we are today to that future is still being written. The pace at which new pricing models and packages are delivered are likely going to correlate to a few factors, including the broader economic environment.”

That prospect is built around a base of broadband internet connectivity into the home that provides a financial keystone for cable’s evolving businesses. Already, major cable providers such as Comcast have substantially more broadband customers than MVPD subscribers.

“By 2026, cable distribution is expected to be nearly synonymous with broadband double-play, meaning that for many of these households there will be little difference between a cable and an effective IPTV home,” the report says.

It doesn’t mean traditional cable companies are returning to their former, nearly untouchable, position at the top of the entertainment mountain. But even with cord-cutting, cable remains in 63% of American homes. Continued cord-cutting expected to slow, according to PwC.

Even here, of course, there’s more competition coming. Telcos such as Verizon’s FIOS. Broadcasters rolling out over-the-air ATSC 3.0-based digital services. Wireless carriers building out the “fixed wireless” offerings on their 5G networks. But the cable companies wired into millions of U.S. homes have a distinct early advantage in those battles.

Importantly, cable providers’ broadband pivot has given them a durable beachhead relationship with consumers to sell what the report calls a minimalist “TV lite” bundle. That starts with subscribers who want access to live sports, 24-hour news services and other premium content that’s still not fully accessible through online apps. But those TV lite bundles can provide a base amount of lean-back entertainment, news and sports on which customers can rely.

“This is important because it allows cable to weather the storm of cable-cutting and cord-trimming as users move to more stand-alone TV providers,” the PwC report says. “Retaining these now lower-paying subs means that as the re-bundling of third-party services occurs, cable TV will be able to recoup these losses. Additionally, this strategy preserves the ability for cable to cater to premium subscribers who are using more expensive services like access to sports content.”

But the future is not just offering legacy bundles to a fading following, and trying to upsell the “whales” among them for more expensive packages. It also means integrating the multiplying number of OTT services into those bundles in a way that simplifies life for customers vexed by too many programming options, too many bills, and too many logins.

As TVRev’s Alan Wolk has long suggested would happen, PwC expects many consumers to embrace providers – not just cable companies – that can provide simplified bundles of just the services they want, both legacy and newer OTT outlets.

Re-aggregation is “increasingly likely,” because consumer unhappiness with the challenges of navigating between so many streaming services “takes its toll on the performance of all of them. In order to grow revenue across all of these competing companies, it is necessary for a neutral aggregator to play the role of the consumer gatekeeper.”

Perhaps most importantly, the cable companies (and anyone else wanting this role) have to figure a way through one of the great complications of an OTT world, consistently and quickly finding shows you want to watch, wherever they’re available. That puts an emphasis on smarter interfaces to surface the right shows (and ads), plus search functions that actually work across all the available services you have.

The report also suggests a burgeoning opportunity to provide households with easy on-screen access to cloud-based game services, like Apple’s Arcade service and Amazon’s recently launched Luna service. Both require only a cellphone or Bluetooth controller to navigate, with most compute cycles handled in the cloud through a broadband connection.

Figuring out the online component is going to be vital for what’s left of the still-lucrative legacy cable and broadcast business in coming years, the report suggests.

Over the next five years, PwC projects North America will drop from 44% of global share to 33%, as cable continues to grow in some overseas territories. Cable in the U.S. is expected to lose another 4.5 million subs over the next five years, though at a decreasing rate, especially if it’s able to evolve into new opportunities.

Advertising on traditional TV outlets is expected to remain flat, growing just 0.75% over the next five years, according to PwC projections. This growth is almost solely driven by ads on the online apps and websites owned by broadcasters. That slice of the sector is expected to grow from $4.3 billion in 2017 to almost $10.4 billion by 2026, suggesting there’s room even for legacy companies to grab a nice piece of the online pie.

“Online advertising was able to benefit both from shifting audiences and a more-flexible and adaptable approach to the ads that could be run,” the report says.

Bangah acknowledged that making the transition to a new kind of service provider won’t be easy for cable companies, especially those which haven’t fully made the transition to IP-based distribution systems.

“There is no clear market-dominant winner for the future of entertainment and media,” Bangah writes. “We see fault lines and innovation opportunities across most segments, and while for traditional TV players there are strengths they can use to help protect and drive market share – there are also very strong headwinds they must compete against.”