Subscription TV Is Dying; Long Live Web TV!

Last Updated Aug 25, 2010 10:29 AM EDT

During the second quarter of 2010, for the first time ever, the subscription TV industry actually lost customers. So far no one is willing to attribute this drop to the growth of online viewing, but regardless of the root cause, the downturn certainly highlights a growing market for cheap, web TV alternatives, like Apple's (APPL) 99-cent a la carte show rentals.

The data on subscription TV's dismal quarter comes from the research firm SNL Kagan, with cable emerging as the real victim. While satellite and telcos added customers, the cable industry lost 711,000 subscribers, resulting in a net loss of 216,000 customers across the entire industry.

A poll conducted by the New York Times found that only 15% of people in the U.S. have considered replacing their traditional TV service with internet video. But it also noted that this percentage increased significantly among respondents under the age of 45. When you consider that less than 40% of viewers under the age of 24 even watch prime time TV anymore, it become clear what direction the consumer is moving.

There are two big obstacles to the success of internet enabled TV: complexity and content. Few people want to struggle syncing their computer with their television. Web TV's lack of premium programming like HBO and live sports makes it an even harder sell.

The next wave of web TV, especially the offerings from Apple and Google (GOOG), seeks to address these problems. Both companies are offering simple set top boxes that strive to make connecting web TV a snap. Google is even partnering with Sony (SNE) to produce TV sets that are Web enabled right off the shelf.

More importantly, their is a growing menu of a la carte cable offerings for web enabled TVs. The California startup Sezmi, for example, sells a set top box that gives users local TV channels, DVR, on demand movies and internet video for just $5 a month. For $20 a month Sezmi adds in a package of cable channels like Nickelodeon, Bravo and Comedy Central. Either option is significantly cheaper than traditional cable or satellite providers.

In explaining the historic loss for the pay TV industry this quarter, SNL Kagan analyst Mariam Rondeli looked to the broader economy. "We believe economic factors such as low housing formation and a high unemployment rate contributed to subscriber declines in the second quarter," she said.

But with a long, slow recovery predicted, those factors may remain in place for a while. That presents a huge opportunity for web TV to finally start winning over cautious couch potatoes with cheaper, more flexible services. The news that Apple is close to securing 99-cent rental deals for shows from News Corp and Walt Disney indicates that major players are thinking along those same lines.


  • Ben Popper

    Ben Popper writes at the intersection of culture and technology. His work has been published in the NY Times, Washington Post, Fast Company, Rolling Stone, The Atlantic and many others. He lives at