We’ve all read the stories. Former cable and satellite viewers who now live exclusively in a world of Netflix, Amazon Prime and whatever other content can be found on the internet. I’ve always been amazed by how these articles ignore the most important element of cord cutting and the one that actually launched today’s OTT services: over-the-air television.
During the run-up to the digital transition back in 2009, flat screen high definition sets were suddenly the rage. The increase in clarity was startling, but larger flat-screen TV’s were also expensive.
Financing an HD was a significant cash drain. Add to that the monthly cost of a cell phone and high-speed internet, both seen as essential to life, and there wasn’t much money left to pay the high price of cable. Being technocrats by nature, many early adopters naturally plugged in an antenna to see what happened. The results were startling. Dozens of free channels with an uncompressed picture clarity better than anything seen on cable.
Not only were the uncompressed over-the-air pictures better, but NBC and CBS both had also elected to broadcast in full 1080. That meant sporting events, especially football, were more vivid and real than anything delivered by wire. ABC and FOX had elected to broadcast in 720, still an excellent picture.
But what, you might ask, about ESPN. Can a typical sports fan live without ESPN? That’s where the internet came into play. I actually asked this question to quite a few advocates of over-the-air during those days. I often got evasive answers such as “There are ways…”
As I’m sure you recall, 2009 was also a notable year because the country was mired in the Great Recession. Prior to that time, cable and satellite had seemed recession-proof, so viewers would probably have continued to pay escalating frees except for one thing: their children introduced them to over-the-air television. Those children put up the antennas and programmed their parent’s sets. They also set up internet connections.
Into this environment, stepped Netflix. Netflix not only expanded the programming universe, but it also offered content on-demand, all for around $10 a month. Why would people who were dropping cable not sign up?
Estimates vary, but some claim 20% of viewers eventually chose over-the-air television, often combined with over-the-top services. Not all found it to be a completely satisfying solution. The loss of DVR and favorite cable channels eventually brought some viewers back to cable or satellite, though they usually kept over-the-top.
None of this meant viewers were happy with the high cost of cable and satellite. The desire for ala carte channels had always been strong, but providers had always refused, knowing unbundling channels would lead to lower profits. Enter the cable light OTT services.
OTT’s alternative to cable didn’t just come on the scene, over the past 24 months it has exploded. For less than $50 a month, viewers get most of their favorite cable channels, along with a virtual DVR. Services such as YouTubeTV make a compelling case for lower cost. So much so that among the new providers is DirecTV Now, which competes directly with DirecTV’s own satellite service.
OTT will continue to hurt cable but will not kill it. Unbundling services and setting up new systems is not easy. Plus, consumers are savvy enough to know the cost of OTT cable will eventually go up.
Why is all of this good for television stations? Because like cable and satellite, the new OTT services also pay retransmission fees. The actual process is a little different, but the end result is the same. Stations get paid.
Does that mean young people are now rushing to add OTT cable? Some are, but many of the ones I’ve spoken with tell me they are hardcore and will not go back. They love the free over-the-air experience. Plus, the price of Netflix’s 4K service just went up, and who can live without that?
Hank Price is a veteran media executive, educator and author. He is a frequent speaker to television industry groups about the future of media. He currently serves as Director of Leadership Development for the School of Journalism and New Media at Ole Miss. During a 30-year career as a television general manager, Priced specialized in turnarounds, leading television stations for Hearst, CBS and Gannett. During this time, he became known for turning traditional businesses into multi-platform brands. Simultaneously, he spent 15 years as senior director of Northwestern University’s Media Management Center, teaching in both the domestic and international executive education programs. Price is the author of Leading Local Television (BPP, 2018) and co-author of Managing Today’s News Media: Audience First (Sage, 2015) a management textbook.
