The long-awaited collapse of the cable bundle took much longer than everyone expected, and now looks set to happen all at once.
At least that's been one of the leitmotifs this earnings cycle, as one media executive after another has talked about spinning off or getting rid of its declining cable networks (with Comcast-NBCUniversal actually becoming the first mover). However, at the same time, the race is on to rebuild the package. The market is being flooded with a range of “all-in-one” pay-TV subscriptions and entertainment packages like Comcast's StreamSaver or sports packages like Venu. But while these packages promise to save a few dollars a month, unless the advertising model changes radically, the economics of these new packages will never add up to what the original package offered – and that's bad news for consumers.
For starters, premium streaming packages can't contain the same amount of advertising as a cable service. And they shouldn't. A decade ago, when more than 100 million homes still subscribed to linear television, networks began filling their programming with more and more ads. Grabbing additional dollars would ultimately be one of the death blows for the cable bundle. As 10 minutes of advertising per hour turned into 15 minutes and then 20 minutes, television went from taking up people's time and attention to taking away their time and attention. The heavy advertising load has had a toxic effect on the TV ecosystem. This has alienated viewers, especially younger viewers who have fled to streaming content that is increasingly ad-free.
A lighter ad load during streaming seems to make viewing more bearable, yet the ad experience could be worse. As Mike Shields recently noted, all too often, in many ad-supported streaming environments, “viewers see the same ad over and over again, or are interrupted mid-show or video with a jarring ad break.” This is because network and cable television are designed with commercial breaks in mind. Commercial breaks were programmed at a frequency that did not pose a major problem, as people were accustomed to flipping channels, keeping this behavior in mind in the television ecosystem.
In the intervening years, the advertising industry has withdrawn from television, with many brands shifting their spending to “performance” marketing on digital platforms. Today, nearly half of the trillion dollars spent in the global advertising market goes to Alphabet, Meta, and Amazon, while digital spending continues to rise. No amount of advertising on streaming platforms will recover dollars migrating to the digital world.
Cable bundles, for all their faults, have a bad reputation today. Creating great content is an expensive, long-term investment. For networks, bundling this content provides economic security and an insurance policy against creative risk-taking, making it easier to take the kind of big fluctuations that lead to great TV. In the golden age of cable, the package gave television networks a very lucrative and stable revenue source, including affiliate fees, rebroadcasts and advertising, which in some cases were bundled with broadband and cell phone services. All that money ensured a strong creative ecosystem that gave rise to some of the greatest television series in history The soprano to Very bad.
One of the long-standing complaints about the “just one bill” cable service model is that you end up subsidizing channels you don't want. But the simplicity and ease of getting everything in one package made it a generally acceptable trade-off. Ten years ago, the debate was “why you should shut up and love your cable package.” This argument basically breaks down into this: everything is a package, it's just a matter of its size. You're comfortable paying for the whole thing because the totality of the choices makes it worth it.
Today much of the best media still comes to us as a package. Spotify is a bundle. The New York Times is a bundle (half of its subscribers also pay for a bundle of sports, cooking, games or Wirecutter). Even Netflix now resembles the same model it set out to change, complete with live sporting events and advertising. “Programming for such a large and engaged audience, with so much variety and great quality, is difficult,” the company wrote in its most recent letter to investors. “That's why streaming services that lack the breadth of our content are increasingly looking to consolidate their offerings.”
The golden age of streaming has produced amazing content, but at a huge financial cost to media companies. In their attempt to win in the streaming business, they broke the economics that had ensured their business in the first place. Now, the industry will have to adapt to the new normal.
For the new normal to be economically sustainable, streamers need to do a better job of optimizing viewers' time and attention. This means less, better and more affordable advertising. This means new ad currencies that accurately measure engagement across platforms. This means real innovation in advertising, from bold new formats to more adventurous brand storytelling to more effective use of AI for personalized and local advertising. This means rebuilding the “package” in a new form, which is the holy grail for even the biggest platforms. Everyone, from Alphabet to Apple to Amazon, wants to be the definitive guide to the world of entertainment options. The winner will offer viewers a fair value exchange to keep them coming back, and will improve discovery of the widest range of entertainment. But the road from here to there faces some major hurdles, and will have a significant cost to the entertainment industry and consumers for the foreseeable future.
Founder and multi-time media director Joe Marchese is co-founder and general partner of venture capital fund Human Ventures.
Jonathan Bing is a communications executive who has held senior positions at Netflix, Vice, and Fox.
