Tuesday, September 7, 2010

Cable firms should have learned from porn

A post from technology blog TechVibes yesterday about Apple, Netflix and porn caught my eye and got me thinking. In the blog's analysis, the launch of the new Apple TV device, which features downloadable TV shows and movies from Netflix, might not have much effect on cable TV services, mainly because the online services don't offer porn.

If you missed it, Apple last week announced a revamped version of its Apple TV set-top box, which is a tiny little device that fits into the palm of your hand, and which enables video downloads that you can then watch on your TV. Unlike the previous version, the new Apple TV has no storage, which means you can't buy content and save it, you just rent it. The new device also connects to Netflix, the popular service that provides access to video content for a monthly subscription.

As TechVibes points out, this is direct competition for the on-demand services offered by cable companies (in Canada, that means the likes of Shaw and Rogers). But, given Apple's firm anti-porn stance and Netflix's general aversion to porn, the cable guys might not have much to worry about, the blog says.

That's probably not the case, though. While porn used to be a major driving force behind pay-per-view and digital on-demand television (it's covered in Sex, Bombs and Burgers), it is becoming decidedly less so as more and more people get their smut on the internet - and for free. At least one estimate suggests people are getting up to 80% to 90% of their porn from the internet for free.

That's an astonishing amount and it's probably a bit high, but it does illustrate the point that the internet is a very strong alternative to pay-per-view porn on cable. Cable companies have been notoriously averse to admitting how much of their revenue actually comes from porn, but given the rise of free and the decline in every other part of the business, it's a safe bet that it's accounting for less every year. That's why I can't imagine that access to adult content is a good reason for anyone to hang on to their cable subscription.

The reason why the average, non-porn-obsessed person should care about this is the same reason why the same said person should buy my book (shameless plug, I know): porn is always at the technological and economic vanguard because it is the one piece of content that people really want, so it is a good indicator of things that will eventually come to the mainstream.

If the above estimate is correct and porn consumers are getting 80% to 90% of their content for free, it will only be a short while before that's the case with the mainstream. BitTorrent, YouTube and Hulu are all contributing. Anecdotally, I know many, many people who have in recent years cancelled their cable and satellite subscriptions and are getting all of their entertainment from a mix of legal and illegal sources.

Strangely, cable companies are fighting this encroachment of free in exactly the wrong way: they're raising prices, which is exactly the way to spur people toward that 80% threshold even faster.

Clearly, the cable industry has learned nothing from porn. It's been a while since I've had cable so I don't know the exact prices, but I seem to remember that porn flick rentals were considerably more expensive than regular movies. These high prices are exactly what drove people to getting their smut for free online.

Now, the same thing is happening with regular television shows. The last straw for me came a year ago with yet another price hike. I called my satellite provider to complain and the service agent told me that I wouldn't get a cheaper price from the rival cable company. The agent seemed pretty taken aback when I told him that cable was no longer their main competitor; the internet was!

The terminal velocity is building and cable providers are getting dangerously close to seeing mass cancellations. The New York Times recently tried to pour cold water on this "cord-cutting" trend but the newspaper's own survey found that young people are strongly considering getting rid of their traditional TV subscription. Why? As one industry analyst puts it: "The idea that $80 a month is OK for basic cable is dangerous."


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