Recently, Internet streaming services have begun gaining traction over traditional TV service providers. With Netflix’s recent expansion into TV, and soon to be movies, is the traditional model of network television even relevant anymore?
People want access to their content and they’re going to take the path of least resistance to get to it. Bong Joon-Ho’s “Snowpiercer” made a historically unprecedented move this year by releasing his film online at the same time it was released in theatres and did so with spectacular results. It grossed nearly 11 million dollars domestically, two-thirds of which came from online sales.
This isn’t an isolated event either. In 2011, comedian Louis CK released his new special by himself on his website for $5 and made $1 million in the first eight days. That might not sound like a lot, but he did this with virtually no overhead expenses from things like distribution or marketing.
This is a massive paradigm shift for the entertainment industry. People are now realizing that they don’t need to go through the traditional channels to get their content to the consumer and as a result the consumer has better access to their content, sans commercials, and they’re paying a lot less for it.
In 2013, the LA Times reported that cable service providers had one of their worst years ever retaining customers. With a net loss of 113,000 subscribers, the decline was way worse than anything they had experienced the previous year. However, the strangest thing about all of this is that despite the loss of customers, their total revenue has actually been on the rise. In other words, in order to compensate for loss of customers these cable service providers have been charging their remaining customers a higher rate than ever before.
So, it’s no coincidence that the American Customer Service Index (ACSI) published a press release about how cable/internet service providers like Comcast and Time Warner have plummeted in their customer satisfaction rating.
“Over-the-top video services, like Netflix and Hulu, threaten subscription TV providers and also put pressure on ISP network infrastructure,” said Claes Fornell, the chairman and founder of the ASCI, in the release. “Customers question the value proposition of both, as consumers pay for more than they need in terms of subscription TV and get less than they want in terms of Internet speeds and reliability.”
However, cable/internet service providers aren’t taking this new threat lying down. They’ve actually begun throttling their data speeds in effort to discourage traffic to sites like Netflix.
David Young, the Vice President of Verizon, responded to the allegations in a blog post and attempted to make the case that these streaming services are to blame for their slowdowns. According to him, their infrastructure is just unable to handle the amount of congestion these streaming services providers supply.
Mark Taylor, the Vice President of Content at Level 3 Communications, isn’t buying that argument.
“…this congestion [could be fixed] in about five minutes simply by connecting up more 10Gbps ports on those routers. Simple. Something we’ve been asking Verizon to do for many, many months, and something other providers regularly do in similar circumstances,” Taylor wrote in his blog. “But Verizon has refused… even though these cards are very cheap, just a few thousand dollars for each 10 Gbps card which could support 5,000 streams or more.”
What this means is, in effort to avoid cannibalizing themselves and cutting down the competition between cable TV and the internet, these ISPs have let their infrastructure degrade so they could conveniently blame the consumers for their supposed “heavy data usage.”
This has become the prime justification for what these ISP’s call “internet fast lanes” which is really a poorly veiled attempt to capitalize on an emergent new market by attempting to institutionalize extortion. These are the death throes of a dying industry.