I have a friend from college who is a muckity muck for the sports division of a major television network. His thing is ratings and market research. Want to know the overnights on the Giants/Panthers game in the five major DMAs across the country? He'd shoot those numbers to you off the top of his head. And though general network programming isn't strictly his bailiwick, he's interested in it because it does affect his job a little.
And so last week he noted my interest in some quotes he had from analyst Laura Martin at Needham & Company. Needham does market analysis across many areas for serious, institutional investors. My buddy forwarded me the full report she did, and it is utterly fascinating...and utterly frightening at once.
The frightening part is premised on my own view--and perhaps you share it--that we're in the middle of a glorious golden age of television and I hate to see it end. Never before have we as consumers had so many choices available to us at such ridiculously cheap costs. Regular basic cable--channels like FX, AMC, and TNT especially--are full of original programming that is expensive to produce. Beyond that, platforms like Netflix, Hulu, and Amazon Prime provide other outlets at reasonable price to consumers and offer expensive, high quality programming as well.
Additionally, the rise of high speed digital internet has made it possible for consumers to engage in the rising popularity of what we call cord cutting. People cancel their cable packages and instead subscribe ala carte to pay channels (HBO Now, Showtime) and go with Netflix and Hulu. Go ahead and add to that Netflix's laissez-faire attitude about VPNs and DNS services like Unblock, and there's never, ever been a better time in history to be a home consumer of video product.
Laura Martin's report is scary then because it basically says "This can't possibly last." Here's some key numbers:
Linear TV (that is, over-the-air networks and basic cable) earns .30 for every hour of programming they create.
Netflix shows earn about .11 to .18 for every hour they show, per person.
Youtube and other ad-supported platforms? .03 per hour...and falling because of the prevalence of ad-blocking software and apps.
The problems are twofold. The first is that there's incredible downward pressure on "linear television" right now, due to cord cutting. How bad? This bad: the market caps for the seven biggest network media providers (CBS, NBCU, Disney/ABC, Fox, Viacom, Scripps, Time Warner) fell $57 billion dollars from July of 2015 to December of 2015. Five months. $57b in market cap lost. That's a holy shit number and time frame.
The bigger problem is that services like Netflix and DVRs have "retrained" American consumers. We've stopped watching commercials. We don't expect them. During its entire run, Netflix showed Parks & Recreation, just one season behind. People actually waited to watch the show that way, or experienced it for the first time binge-watching on Netflix with no commercials. AMC is in the same place with its shows like Mad Men, Hell On Wheels, Walking Dead, etc.
So what's the problem? Those content providers are essentially all but giving away their original content, their most valuable asset. As more and more of us consumers cut cords, less and less revenue flows to the people who write the paychecks to the production company that makes Walking Dead. Thus, the pressure mounts on those providers to either jack up price expectations on new contracts with digital platforms (Netflix, Hulu) or simply avoid those platforms altogether. It also means that the days of networks providing full content on their own websites is probably numbered. Seems more and more likely that these networks are going to have to paywall those content offerings to stay viable.
So....whew. That's the preamble.
My question is: what does it look like when this house of cards comes down? Is it a platform or content provider going dark? Is it a "channel" going to a completely altered format? (You know what makes shitloads of money still on regular ol' linear TV? WWE, that's what. Imagine TNT and USA Network going all WWE and UCF, all the time.) Is it the complete vanishing of domestic television from Hulu and Netflix (which is already starting to happen, quite honestly)?
I honestly don't know how we'll know or when we'll realize that the bubble's burst. I just know that it's coming, if it isn't already here. Interested in hearing from you all.