Can the Cable Industry Save Itself?

Sometimes an industry seemingly is incapable of saving itself. Some might say the video entertainment business could be among them. The issue is less the long term future, where consumers increasingly have the ability to buy what they want, item by item, and more the intermediate period, where rising costs might encourage quite a few consumers to stop buying.

To be sure, it is hard to see much material impact from “video cord cutting” so far.

Though some would say there is clear evidence of “cord shaving,” where customers drop premium services even while keeping “basic” video services, most “hard numbers” (subscriber counts, for example) suggest that abandonment fo video services remains a potential threat, but is not a clear present danger.

But even cable operators know that costs are rising at dangerous rates, and will make the product less attractive. Speaking about the problem of sports programming costs that threaten to undermine consumer appetite for the video entertainment product, Liberty Media CEO John Malone said it “might be time for the Federal Communications Commission or Congress to step in.”

“The only way it is going to change in the short run is for government to intervene,” Malone said.

If you know anything about Dr. Malone, you know what a truly astonishing statement that is.

Lots of observers think video subscription costs, and especially sports network costs, are out of control.

But when a legendary industry executive and notable opponent of government regulation says something like that, you know something profoundly important is going on.

Malone is warning that the business faces big trouble, and might not be able to save itself without direct intervention by regulators or Congress to restrain programming costs. Of course, it also should be noted that Malone calls for regulators to restrain programmers, not distributors.

But Liberty Media has stakes in both programming and distribution, so the observation is not the sort of “help my business, and hurt the other guy’s business” talk one often hears in troubled industries.

Of course, over the longer term, Malone seems to agree that the business will be changed, in any case.

"People will watch and pay for what they want, it is kind of inevitable," he said. In essence, that could undermine much of the business model for subscription video services. It remains possible that today’s video entertainment suppliers remain key distributors, but perhaps more along the lines of Netflix.

But whether those changes will be good for all distributors or programming suppliers is the issue. A reasonable person would argue that programmers will not be able to charge as much as they can at present, if users are able to buy what they want, and only what they want.

Nor, one might argue, will distributors make as much money, either. If consumers can buy direct, and save money, they will.

Some distributors, ranging from Time Warner Cable to Dish Network have made efforts recently to begin dropping networks, moves intended to send signals to programmers that the days of ever-climbing programming costs are coming to an end. 

Even the head of the major U.S. cable trade industry association says there is a growing threat of regulator intervention if the industry cannot restrain price inflation.

One wonders whether the industry can save itself.