Cable Television's Problems Hit Home At Time Warner

Last October, in this post, and earlier, in 2006, in this post, I have voiced my belief that, in the not too distant future, half of cable companies' revenues will be shorn, as their television packages begin to be disconnected.

In 2006, I wrote,

"I now wonder whether half of cable's revenues will go away as more consumers find and buy/view content directly on urls via their hi speed data facilities. With destination sites like Youtube, who will need a pre-packaged suite of programming content like Comcast currently has for TV, or is attempting for the internet? And then, we'll probably see cable and telephone company DSL-based content offerings compete each other's prices downward to retain some measure of revenue from these antiquated, pre-packaged content services.

Instead, we'llprobably buy a wireless box which takes the hi speed online signal, directs it with a handheld wireless controller, and displays url-based video on your in-home TV display."

And, in October, I added, in that post,

"It won't be surprising to me at all if we unplug from Comcast's television services within two years. I'll save about $600/year, which means the most expensive of the new wireless internet-to-television boxes will have a 6 month payback. Schumpeterian dynamics are quickly moving internet-based video content, that is not business news, into a competitively-advantaged position relative to packaged video content services offered by cable operators."

Well, two things have occurred to speed my prediction along.

First, Time Warner took a $35B charge yesterday for impairment of value in its cable properties. The company's new CEO, Jeff Bewkes, explained that, due to the company's equity price having been mercilessly hammered, it was forced to recognize the reduction of the economic value of its cable system assets.

The Wall Street Journal article reporting this pointedly noted that disintermediation via services like Hulu and iTunes were causing viewers to find alternative, cheaper, or even free sources of programming which used to be accessible only via paid cable television packages.

On a personal note, I can vouch for this. My daughters and I took a giant leap forward in this direction with the holiday season purchase of a TiVo HD DVR. With a wireless adapter, we now can stream Netflix on demand program content directly to our television.

Further, it's already affected my cable television subscription. Rather than consider upgrading to a more expensive package to receive Disney channels, I now have next-day access, for free, via Netflix. Netflix also offers a huge number of recent television programming, plus several thousand movie titles for on-demand streaming.

Because TiVo upgrades its boxes with software downloads, how long will it be before the service begins to offer direct streaming from various other internet-bases sites, including Hulu or individual cable channel-related sites?

Today, it's Disney that I'm not buying from Comcast. Tomorrow, who knows which channels will have also become redundant?

The second linked post, from last October, detailed how some younger video content consumers are dropping their cable television subscriptions, substituting them with set-top boxes streaming Netflix and/or other content to their televisions.

Time Warner's write down was an unexpected piece of additional evidence that this vision of the future disintermediation of cable content by internet-based content sites is approaching much faster than anyone believed even a year or two ago.

Chances are, it will accelerate from here.