The great unbundling: cable TV as we know it is dying

Over the last two weeks, Verizon and Disney have been having a public spat about the future of cable television. Verizon wants to offer its customers a selection of slim cable bundles with its FIOS service. Disney says it violates their contract, specifically splitting off ESPN and ESPN 2 into a separate sports package. Verizon knows that, regardless of what the actual contract says, publicizing this offering is an easy win, so long as Disney takes the blame for not letting it happen. The bigger picture here is that the basic business model of cable, where consumers buy a giant bundle of channels, most of which they will never watch, suddenly seems on the verge of extinction. The rise of new options from Netflix, Amazon, Sling, Sony, and perhaps Apple in the near future has forced Verizon, typically not a company that rocks the boat, to acknowledge that consumers are coming to expect a new reality.

The problem was that the cash cow of cable TV was too good for the big-name brands like HBO and ESPN to endanger by breaking away, and that meant the oversized bundle of lesser channels was also here to stay. As it turned out, the tide had already turned, we just didn’t know it yet. 2013 turned out to be a historic inflection point, the first full year in which the pay-TV industry lost subscribers. The losses widened in 2014. TV viewing, as measured by Nielsen, has been dropping at around 10 percent a quarter, a ratings plunge that has advertisers terrified. Not only was the number of pay-TV subscribers falling, but the customers that stuck around were buying much slimmer bundles. The end result was that ESPN, the top dog of cable, reached fewer homes by the end of 2014 than it did in 2010. This was enough motivation for the companies to finally take the plunge and start experimenting with streaming-only options.