Business & Money
By Rebecca Nelson May 09, 2013
It’s 4 a.m., and Cameron Anderson is already up for work. The 27-year-old manages a Starbucks in Wallingford, an enclave of hip families and artists on the north side of Seattle. Five days a week, she’s at the store at 4:30 a.m., getting it ready to open a half hour later. To get in a much-needed eight hours of sleep, she shoots for an 8 p.m. bedtime – which means she can’t watch Teen Mom 2 on MTV. But that’s not a problem.
“Online, I can go and pick and choose what I want,” she says. “I can still go to bed at 8 and watch all the shows I want.”
Like a growing number of her peers, cable doesn’t fit Anderson’s lifestyle. And it probably never will.
A November 2012 report from digital media analysis firm The Diffusion Group found that 13% of U.S. households who have broadband services don’t have pay-TV (cable, satellite or telco-TV), and of those, 2.6 million have never paid for traditional television. According to TDG, those “cord nevers,” as media analysts call them, are disproportionately millennial: 29% are between 18 and 24. A new generation is coming of age, and so is their collective distaste for cable.
Among cable networks and distributors, the prevailing ideology is that when people like Anderson settle down and find jobs with more normal hours, they’ll purchase cable subscriptions. Bernadette Aulestia, HBO’s senior vice president of domestic network distribution, says the premium cable network uses HBO GO, a companion video streaming service, to hook millennials on popular shows like Girls, Game of Thrones and Eastbound & Down while they have access to their parents’ subscriptions. When they grow up and settle into better-paying, 9-to-5 jobs, she says, they are more likely to add HBO to their cable packages. “When you think about what the next generation of consumers is for us, as they then graduate, household formation, then get the house, get the 40-inch screen and ultimately, decide on the types of services, that they’re going to subscribe to us,” Aulestia says. “The earlier you can expose customers to the content and get them vested, and part of the dialogue and the water cooler types of shows that we produce, the better.”
HBO is confident that this model will succeed. Maybe millennials can’t afford cable and HBO on top of it right now. As soon as they grow up and start making more money, though, cable companies are betting it will become a part of their lives just as it has for their parents (though in March, CEO Richard Plepler did concede that “maybe” HBO could partner with broadband services to offer HBO GO at a lower cost). The great programming that cable offers will keep millennials buying cable packages well into their adulthood, says Brian Dietz, spokesman for the National Cable and Telecommunications Association. “There’s not any sign that millions and millions of consumers are dropping their subscription video services.”
Michael Greeson, a founding partner at TDG who has done extensive research into television trends, doesn’t buy it. He expects that in the next five years, the number of millennials who have never paid for premium TV will only increase. “Now, the response of the operators is ‘Oh no, when they get their real job and start making money and start raising a family, they’ll go back to having pay-TV.’ Who says that’s a certainty, when the cost of a pay-TV subscription is going to be $160 a month, and at the same time, the number of options available online is going to increase manifest? You’re talking historically about what you’ve seen from young people, not about this new crop of young people who were raised in a world with computers and watching online video on a regular basis.”
In just a few months, Philip McDaniel, 25, is getting married. Amid hectic wedding plans, the Bend, Ore., based graphic designer sat down with his fiancé, Lizzie, to discuss merging bank accounts, where they’ll live and their future entertainment set-up. He has Netflix, and she has HuluPlus, so the couple decided they would use a gaming console to stream all of their content. McDaniel doesn’t envision they’ll ever have a need for cable, even when he and Lizzie start a family. Right now, McDaniel and his roommate, who works at a software company, have all of their streaming accounts hooked up to a PlayStation 3. Subsisting on Netflix and Hulu alone works just fine for him. “As far as TV goes, we just wouldn’t use it,” he says.
This is the iTunes generation, the people who grew up buying a few songs they liked for 99 cents a pop, not the entire $12.99 album. It’s illogical to them to buy an entire bundle of channels for just a handful of good shows. Cable subscriptions and digital video recorders are often cost prohibitive; finding television shows on the internet is second-nature, and $15 for a monthly Netflix subscription is a much better value than the $87 the average cable bill costs. An even more alluring option? Pirating just about anything online. Yes, it’s illegal, but online pirating services make it easy for millennials to find almost any form of entertainment, free of charge.
Project Free TV, a TV and movie streaming site, listed 16 links to watch the season three premiere of Game of Thrones. Sure, it takes a while to load, and it’s helpful to have some serious popup-blocking software to avoid a barrage of “hot girls ready to chat.” But when the other option is paying nearly $100 for cable, and $16 on top of that for an HBO subscription, streaming shows illegally is a compelling option. Millennials led the illegal mp3 downloading frenzy a few years ago, and TV providers have yet to develop many attractive alternaties like Spotify, which offers unlimited music streaming for as cheap as $4.99 a month, with a free, ad-supported version. A slew of companies are now trying to fill the void.
Netflix, Hulu, and to a lesser extent, Amazon Instant Video, dominate the television streaming market, but none is comprehensive. Hulu focuses on current shows, while Netflix streams movies and popular series no longer on TV, like the one-season wonder Freaks and Geeks and Aaron Sorkin’s political drama The West Wing. Hulu makes current-season shows available faster than Amazon and Netflix has far more content than the online retailer. Netflix subscribers rack up more than one billion hours of streaming each month, says Netflix Director of Corporate Communications Joris Evers. Not only will it unseat cable’s long-held dictatorship of home entertainment, he says, streaming will eventually eclipse “little shiny plastics discs” – DVDs. While 8 million people in the U.S. still subscribe to Netflix’s delivery service, DVDs will eventually join CDs - cast off in favor of cheaper and more convenient digital services - in garage sale bargain bins.
Streaming Netflix and Hulu works perfectly for McDaniel. That is, until basketball season comes around. “The only thing cable has going for it is sports,” McDaniel says. “I totally wish I could watch. I’m a big Blazers fan, and I can’t catch Blazer games.”
Cable sports is one of the main drivers of rising cable bills, ringing in at about half the average monthly bill. Live baseball, basketball and football games give cable companies an edge against streaming services that can offer just about everything else. It’s one of the few advantages they have left.
But for McDaniel, even Blazers games aren’t enough of an incentive to get cable. He isn’t always free to watch the games, and when he is, he can go to a sports bar with his friends. Paying for cable when he would only use it for sports, he says, “would be a waste.”
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Does this mean the end of cable? Only if cable companies aren’t willing to adapt. Millennials aren’t going to accept high costs, set schedules and out-of-date technology, says Greeson. They’re going to find alternatives.
As executive vice president at Barkley, an advertising agency that specializes in millennial marketing, Jeff Fromm may not know exactly what a replacement for cable might look like, but he knows what 18 – 32 year olds want from a new model. Millennials love to be involved, and share things with their peers – just look at the popularity of social networks such as Instagram and Facebook. “The big winners” in the post-cable world will be the those who “figure out how to make their content share-worthy, and how to let millennials participate,” he says.
Web-TV startups could be a part of that new entertainment landscape. NimbleTV records premium television subscribers’ shows remotely, letting them watch from anywhere, as long as it’s on an internet-connected HTML-5 compatible device. For anywhere from $1 a day to $80 a year, Aereo lets users stream basic broadcast television on computers, smartphones and iPads – “no cable required.” Though it’s currently only available in New York City, the company plans to launch nationwide this year.
“Cable is not a relevant decision anymore,” says Aereo founder and CEO Chet Kanojia. “Broadband is. Internet access is. [Millennials] are very comfortable consuming media online, and they just miss a few things of live television. And we can fulfill that need.”
Aereo is limited, though, while it faces ongoing litigation from broadcasters who claim copyright infringement. Because the startup uses thousands of tiny TV antennas to pick up broadcast signals and stream them online, it skirts the fees cable companies pay networks for the right to retransmit their broadcasts. And the networks don’t like that. In April, NewsCorp. threatened to remove Fox from basic broadcasting channels unless Aereo shuts down. A federal appeals court recently upheld a ruling against the parent companies of Fox, ABC, CBS and NBC allowing Aereo to continue offering its service without paying the networks.
For the immediate future, though, networks have the upper hand. Content creators – the channels that produce your favorite shows – don’t have much of an incentive to burn the cable companies that pay to carry their programming. Earlier this year, Intel’s TV à la carte plans ground to a halt when the software company faced resistance from content providers. “Nobody wants to be the first network to break off from this and set up a relationship with someone like Intel to distribute its content live to compete directly with cable and satellite operators,” Greeson says. “So the traditional business, despite all this new technology, is really hard to break into, even if you’ve got the solution.”
Even if Intel, NimbleTV and Aereo don’t succeed, they’re helping to create the future of media consumption. Streaming is still less popular than pay TV, but it is growing and here to stay. An entire generation of Americans is making sure of that.
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