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How The Collapse Of The Cable Business Model Will Bring A New Era Of Television

2015 August 26
by Greg Satell

Ever since the commercial Internet emerged, content has been at the center.  Bill Gates, quite famously, declared that content is king and called it the “killer app” of the Internet age.  Inspired, media executives and internet entrepreneurs alike sought to marry content and distribution to create the perfect business model.

The problem is, as I’ve noted before, that content is crap. Nobody walks out of a great movie and says, “Wow! That was some great content.”  Nobody listens to content on their way to work in the morning.  We never call anything that’s any good “content,” the term is a mere fantasy in the minds of business planners.

That, in essence, is why despite the predictions of digital pundits, the TV remains a great business.  Through a series of disruptions—cable, DVD and now streaming video—programing continues to evolve.  Now, with the cable business model starting to unravel, we can expect an explosion of creative energy that will usher in a new golden age of TV.

The Unraveling Of The Cable Business Model

At one time, TV was a fairly simple business.  There were a limited amount of networks (three in the US, less elsewhere) which could reach a truly massive audience.  That transformed entertainment into a big, powerful industry, with a handful of executives deciding what families would watch every night.

The arrival of cable TV was a major disruption.  Offering better signal reception and expanded viewing choices, it not only fragmented audiences, but also introduced a new center of power.  Now it was the cable operators who controlled distribution, deciding which channels they would carry and where those channels would be placed in the lineup.

Strangely, as Michael Wolff points out in Television Is the New Television, the traditional TV companies profited from the shift.  Rather than relying solely on advertising, they now had access to fees from cable operators and, because the cable companies had near monopoly pricing power, those fees could be substantial, amounting to about $45 for each subscriber.

Today, TV is undergoing a new transformation.  Powered by broadband Internet, the industry is now able to bypass cable operators altogether and sell direct to the consumer through OTT (over the top) packages.  The impact on the business is already becoming clear, especially in the case of ESPN, as fees from cable operators start to dwindle.

But what’s really interesting is how the upheaval will transform the programming itself, bringing us shows that are far more complex and interesting than anything we’ve seen before.

The Business Model Is The Message

Marshall McLuhan, in his classic Understanding Media, famously argued that the medium is the message.  What he meant was that when Gutenberg invented the printing press, he allowed information to spread, but transformed how we experience it.  He also predicted that the rise of electronic media would have a similar effect, making way for a global village.

It’s a powerful idea and one that was taken further by Steven Johnson in Everything Bad is Good for You.  Johnson pointed out that as the business of TV evolved, so did programming. In effect, he argued that as new revenue streams emerged, they altered the calculus of media executives and, in turn, what we watched.  In other words, the business model is the message.

For example, when broadcast TV dominated, channels earned money on mass advertising and syndication, so hit shows had to appeal to broad audiences and stories had to be contained within a single narrative.  The rise of cable, in turn, made niche programming viable, while the rise of DVD sales and repeat viewing allowed for more complex storytelling.

If you think back to old favorites like Kojak and Dragnet, they had limited characters and a single storyline.  Viewers could just jump right in and watch.  Compare that to hit shows today, like The Sopranos and Game Of Thrones, where there are dozens of characters, multiple storylines in each episode and some of the threads continue for years.

Blowing Up Old Models, Creating New Ones

Clearly, we are entering a new age of television and it is coming fast.  Video streaming, which used to be a quirky mix of offbeat videos and short clips of regular shows shared on mobile devices, is rapidly moving to the big screen in the form of streaming apps, fully supported by major media companies.

Keith Zubchevich, Chief Strategy Officer of Conviva, a company that develops technology solutions to optimize viewing experience for video streaming, told me that “One of the things that I’m amazed at is how fast programmers like HBO, CBS and Showtime are moving ahead of their own plans.”  It’s a totally new paradigm and nobody’s quite sure what it will bring.

Todd VanDerWerff, a culture editor at Vox, recently wrote that “binge-watching fundamentally changes the basic unit of cinematic storytelling” from the episode or film to the season.  Scott Rosenbaum, a writer and producer, feels that the emphasis on ever smaller audiences allows for more extensive character development and backstory.

Jen Hoelzer, a writer and consultant who has worked on HBO’s Veep, says that “It’s not that one format is going dominate at the expense of others, but that we have expanding options to tell and experience stories. It’s exciting from a creative point of view.  Instead of figuring out how to fit a story in a specific format you can’t tell it how it was meant to be told.”

“It’s becoming a new golden age for writers,” she continues.  “So many more outlets to sell stories and to tell different kinds of stories.”  It is that increasing diversity of storytelling, marketed to an increasing diversity of audiences, that is making this new era of TV far more interesting and exciting than anything that has come before.

The New Gatekeepers

After beating out House of Cards for the best drama Emmy, Breaking Bad showrunner Vince Gilligan, credited Netflix for its success.  He said:


“I think Netflix kept us on the air. Not only are we standing up here (with the Emmy), I don’t think our show would have even lasted beyond season two. … It’s a new era in television, and we’ve been very fortunate to reap the benefits.”


The offbeat show had not had a successful first season, but did attract a cult following.  In an earlier era, an audience that small wouldn’t have been viable, but in the age of Netflix, the avid fanbase convinced friends to binge-watch the show.  They got hooked too and persuaded others to do the same.  Before you knew it, Breaking Bad was a hit.

In today’s world, that’s how disruption happens and not just in Hollywood.  A small, but enthusiastic group of people can not only share a passion, but advocate for it through their social networks and draw others in.  Before you know it a cascade begins to ensue.  Nobody wants to be the only one in their office or Facebook group who is left out of the conversation.

The new world of streaming TV will magnify this process.  In the old broadcast and syndication model, someone could latch on to a new series that they missed at launch, but would usually jump in somewhere in the middle.  Now, they can start from the beginning, internalize the back story, get hooked and rave about it to their friends.

It is those small, passionate groups that are emerging as the new gatekeepers and, as Rosenbaum points out, they thrive on authenticity, rather than market research.  That’s why hit shows today look so different than in previous generations.  Rather than simple, broad appeal, it is complexity, backstory and character development that rule the day.

This is creating a shift in power from marketing driven studio executives to showrunners and writers— those formerly dismissed as “content creators” to be acquired, distributed and leveraged.  Gone are the days when there iss a clear formula to follow.  The next big hit will not be found in a particular genre or format, but lays dormant in the next big passion waiting to be awakened.

– Greg

4 Responses leave one →
  1. August 27, 2015

    The premise that “the collapse of the cable model will bring a new era of television” pre-supposes the notion that the cable model will indeed collapse. No one can predict that with any certainty. While cord shaving is occurring and while more and more programming is moving on-line, it is naive to think that the MSO’s like Comcast, Time Warner and others are not adjusting their historic models accordingly. In fact, looking closely at those two companies public records show a growth in their digital products and their interactive connections with consumer homes. It is more likely that the traditional cable model will morph into an on-line model delivering the content. “Collapse” is a big headline and while the future may indeed be one where consumers have free choice to “ala carte” their video choices, the collapse of the model will more likely be an “adjustment” as we’ve been witnessing over the last 24-36 months.

  2. August 27, 2015

    Hi Jon,

    While I agree that cable operators are adjusting their business models they are doing so because their traditional business model has begun to collapse. And the issue isn’t just cord cutting, but the threat of cord cutting, as well as premium channels like HBO and Showtime going over the top which is affecting pricing power. So while I agree that the cable business won’t disappear overnight, some serious adjustments will need to be made to preserve profitability.

    – Greg

  3. August 30, 2015

    Thanks Greg, but like another post I am not convinced of a “collapse” in the cable system. More likely is a major shift on the content provider side. Everyone still needs access and that cable is already there ready to put broadband data and most any kind of program linear of SVOD in peoples’ homes. What is clear is that the current cable content structure is one of high priced programming channels balanced by low cost channels to make a bundle that appears palatable. With low cost alternatives such as Netflix upsetting the value optics to a rising number of consumers we see the beginning of low cost bundles mated with other services to create more choice. Will this end up as ala carte? Perhaps and perhaps not. The rumors of Apple’s service and that of DISH now may give us some insight.
    Into this new market comes Amazon, Netflix, Hulu and others who in order to differentiate have found original programming as a method to stand out. However, just like other content some will be popular and some not, often without regard to its purported “quality”. As long as marketers have need and reason to support the production and distribution of this original content this will be a great time for creators, but then again it is doubtful we will see many consumers who sign up for all of this. As these new alignments scale it is unclear how many of these new series and shows will thrive.
    So, it seems more like this is an opening for content creators to stand out from the established markets as they alter. How all of this content is discovered, curated and distributed is still to be seen and like TV, then cable this too will have strong effect on what comes in a newly aligned system.
    Considering that time watching is still only going up, and that the large TV remains the preferred viewing platform we may be surprised indeed by what happens.

  4. September 2, 2015


    Sorry for the late reply.

    I agree that there will be no collapse of the cable system. They have billions of dollars worth of critical infrastructure on their books. However, it seems clear to me that there is a very rapid collapse of the business model that they have relied on for the past few decades. The arrival of viable OTT platforms is breaking down the established fabric of the industry incredibly fast (read the article in the ESPN link).

    This doesn’t only apply to Amazon, Netflix and Hulu, but also (and this is the real change), HBO, Showtime, CBS and Sling, which are less like augmentations and more like direct competitors to traditional cable TV. As I hear it, these OTT services are doing very well and will encourage more programmers to do the same. Once cable providers lose their status as gatekeepers (and that has already happened to some extent) the business model is no longer viable.

    I don’t, however, believe that the cable industry will collapse. In fact, it might even do better. Ever since the showdown with CBS, cable companies bargaining power has been severely curtailed and the margins in cable TV, so I’m told, are not that great. Broadband service might very well be a better business. They can also use their technology and service assets to enter new businesses (as Comcast has done with home security).

    So like all disruptions, this one will create new opportunities. Some firms will do better than others, but I don’t think it will break cleanly across traditional industry lines. Netflix, for example, might find that it is hindered by increased competition, while some cable firms might find that they do much better in an OTT world.

    – Greg

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