In the Abelian sandpile, grains of sand are piled up on each other until the pile reaches a critical state, i.e. the point at which any subsequent grain can cause the entire structure to collapse. In this model, one tiny grain drop can cause a huge cascade out of all proportion to the original size of the disturbance because the sand pile had reached a dangerous threshold of latent instability.
Could something similar be happening to the pay TV industry? Can a drip-drip of news amount to the piling of sand on a structure that is about to, not collapse, but be fundamentally reorganized?
- Last week HBO’s chief executive Richard Plepler indicated that he saw a possible future in which HBO Go is disaggregated from a cable TV subscription and is instead bundled, for an extra $10 or $15 a month, with a broadband Internet subscription. Of course, Plepler hastened to insist that HBO “had the right model” at least for the time being, but the fact that he floated the idea at all when previously HBO execs had pooh-poohed the idea, seems significant.
- Also last week, the Wall Street Journal reported that Verizon was looking to tie the fees it pays to content holders based on how many people actually viewed their content. The idea, Verizon said, was to “stabilize retail prices” for consumers.
- In late February, Cablevision announced a lawsuit against Viacom for bundling MTV and Nickelodeon with small channels such as Palladia and TR3s and, in effect, forcing customers to pay for content they don’t watch. Cablevision’s competitors, including DirecTV, Time Warner Cable and Charter, reportedly “rallied behind Cablevision” when the suit was announced, according to the New York Times.
What stitches these announcements, these grains of sand, together is the growing universe of streaming video services. Just this week, it was rumored that the wildly popular music streaming service Spotify would be jumping into the video streaming market. Intel is reportedly close to unveiling its own virtual cable service. Oh, and YouTube now has one billion monthly visitors.
While these online alternatives haven’t led to a rash of cord cutting, they’re clearly creating a sense of, not panic per-se, but concern about the trajectory of consumer video consumption habits. Pay TV providers and content owners alike may not have hit upon a new formula for the streaming age, but it’s clear there’s a lot of movement afoot to find one.
As the HBO and Cablevision news indicates, there are two possible ways the sand pile can tip. First, content owners can cut out the pay TV provider middleman and stream directly to consumers over the Internet. But it’s a risky ploy, particularly if pay TV providers respond by dropping those channels and throttling consumer bandwidth. The second, and more plausible, scenario is a proliferation of more bundles. No pay TV provider wants to go fully a la carte, but competitive pressure from streaming services is likely to open the door to a greater diversity of channel groupings, including lower-priced tiers to sway would-be cord cutters.
Suffice it to say, the sand pile is teetering.