Cord Cutting: You know it’s all about UX, ’bout UX. No savings.

Even though it’s only April, it’s already clear 2015 will be looked back on as the year cord cutting (replacing cable TV with internet streaming) started going mainstream. HBO is finally allowing non-cable customers to stream HBO content without requiring a cable subscription. Apple is expected to launch a TV streaming service later this year. Existing internet streaming services like Netflix, Amazon Instant Video, Sling TV, Hulu are all growing rapidly. Netflix alone already accounts for a third of all US internet traffic. Just this week Verizon got so aggressive in how they unbundled ESPN they’re getting sued for breach of contract. Not a move a company like Verizon would have attempted even a few years ago.

Of course, many people continue to believe cord cutting will allow them to selectively pay a la carte for only those channels they watch, and from this unbundling save some money. This is wrong but makes a certain kind of sense. Most households only watch 17 channels out of the hundreds they get in their cable bundle. This number, only 17 watched channels, has remained remarkably stable over time. The problem is each household watches a different 17 channels. So the money coming in from the cable bundle cross-subsidizes all that content. Ben Thompson notes “Cable TV is socialism that works“, pithily capturing the underlying economics. There is some nuance here, in that sports drives most of the bundle cost. See for example this article by Derek Thompson, or my post for more details. But the big picture remains simple enough. Unbundling and cord cutting will shift costs around somewhat, but it’s certainly not going to save you a ton of money.

In fact the “unbundling will save me lots of money” argument is even weaker than it first appears. Let me quote the excellent Megan McArdle on the “Great Truth About Cable Bundling“:

Here’s the truth: You don’t want your cable to be unbundled. You just want to pay less for it.

Seriously, guys, you like bundling. You know how I know this? You seek it out in your consumer products. You want your hotel to give you free Wi-Fi and you don’t want it to charge you by the towel. Many of you go on all-inclusive vacations and cruises. You buy mobile-phone contracts to get a “free” phone rather than pay by the minute. You are constantly — and I mean constantly — complaining that your health insurance is not more comprehensive, even though this would just mean you’d pay more for the insurance. And I won’t even get started on your agonized wails when airlines started charging you to check a bag and stopped providing a “free” plate of congealed mystery meat. You buy books and subscribe to magazines rather than pay by the article or the chapter. You love bundles. What you hate is the size of your cable bill.

Speak it.

But this begs the question. Why are people so excited about cord cutting if it won’t save them money, and all their content still comes in a (lightly repackaged) bundle? It’s puzzling. Let’s try a searching my twitter feed for “Comcast” to see if this sheds some light on things.

http://twitter.com/mattyglesias/status/576810043384971265

Ah! The Comcast cable TV monopoly is so hated people will line up to switch even if it won’t save them money. Or unbundle. But it’s bigger than that. Not only does Comcast customer service suck. The entire edifice of modern cable TV is a usability nightmare, layering 60 years of cruft on to an originally simple user experience – turning a dial across a handful of channels to pick what you want to watch. Now we have multiple HDMI input TVs. DVD players. Cable TV boxes. HD channels that don’t get used because people default to selecting the lower numbered poor resolution channels. Home theater. Internet connectivity. Surprise software upgrades. Gaming gear. To paraphrase, it is a truth universally acknowledged that a single man in possession of a remote control must be in want of at least two more just to turn his TV on. And in many households that single person is the only individual in the household who knows the secret combination of buttons. We’ve all seen it. A group of people ready to watch a show gets stopped in their tracks so they can call the household guru over to get the sound to work and/or switch modes on the system. After 60 years, TV should be mature tech. Instead it’s user experience (UX) madness. TV desperately needs a rethink based on the usability of modern tech.

Which naturally leads us to Meghan Trainor below.

The lyrics for this earworm of a song are of course “I’m all ’bout that bass, ’bout that bass, no treble.” Hence my title for this piece on cord cutting: “It’s all about U-X, ’bout U-X. No savings.”

It’s clear by now where the urgently needed new tech usability will come from – the user interface of the smartphone ecosystem. And we won’t just get usability, we’ll likely get a market that mirrors the structure of the mobile market. From a post last year:

Apple TV disrupting game consoles is at least widely discussed. In contrast I can’t recall anyone making the broader claim that TV streaming pucks will directly replicate the smartphone ecosystem, with the same app model and market structure (Apple premium/Android everything else). Though I’m sure some people are thinking and writing about it. The internet is a big place.

By leveraging the app store and app interaction model used by mobile phones, TV streaming pucks like Apple TV have a huge leg up in terms of adoption and learning curve. They are a natural fit to enabling smartphone control of your TV. If you can use a phone, you can use Apple TV. And of course the smartphone ecosystem itself is increasingly leveraging voice interaction, which will allow voice search and commands for finding and playing shows. And I’m not alone in believing UX is the key driver for cord cutting. See this 2013 piece by Ben Bajarin. We’re not quite there yet as streaming is still fairly clunky, with loading and fast forward issues compared to a DVR like Tivo. But 2015 is clearly a turning point. And what can no longer remain in doubt is 60 years of bolted on cruft will have to go to create a simplified experience.

Winners and Losers

Netflix is obviously a winner in the new world of streaming TV. And not just because of content. Netflix has built the tech infrastructure to stream shows reliably, and created a user interface people can understand. For example I am a list maker, and like to keep a curated list of what to watch next. I’ve noticed Netflix has gone back and forth with various product versions on making their “my list” feature more or less prominent. Sometimes it’s hard to find. That’s because most people are not list makers, and just want to browse to find the show. The point here is exposing a list seems easy, but like all design, doing it right is extremely hard. Different people want conflicting things. Should you drop an entire season of shows all at once like Daredevil? Or release them an episode at a time like Game of Thrones? By having a direct connection to the end customer, and having sufficient content to create their own content bundle, Netflix is ready to keep pace with innovation in user experience. For example I’ve long wanted social media chat integrated into watching shows, particularly for sports. If that takes off, I expect Netflix has the culture and tech capacity keep up.

Contrast that with HBO, which decided to leverage MLB Advanced Media to stream their new offering rather than using their home grown system. HBO tech capability is lacking compared to their superb content. Plus HBO does not have a culture for dealing directly with customers or creating simple user interfaces. But a good analogy to HBO in TV is the New York Times in newspapers. Both institutions have such great content that even with missteps during tech disruption they should muddle through. ESPN is another monster that will do fine.

On the other hand, smaller channels like AMC will likely get folded into other internet TV providers and bundles. Content has to be part of a bundle, and those not big enough to stand alone will have to become content creators only. While there will be many many niche streaming video products, I expect the total number of service providers with mainstream content won’t be that large. People say they want a la carte, but they don’t. They want to pick amongst a handful of bundles. And then subscribe to those that match their needs.

Also losing out, many of the 500 channels currently available on cable TV will (thankfully) go away. That weak content will get burned away in the new slimmer bundles that are coming. But don’t worry about Comcast. They’ll do fine. All of their growth is in their other monopoly, broadband internet access. And as streaming takes off, they’ll leverage their broadband monopoly to be more successful than ever. And they’ll continue to benefit from what you might call the AOL effect. AOL is still has over 2 million people paying them $20 a month for internet access.  Once people sign up for a subscription service, especially if they don’t understand how the internet works or what their options are, they just keep paying. So expect a large demographic of older people to continue paying for the cable bundle even after streaming becomes far superior. And those profitable laggards will no doubt get charged a lot by Comcast.

Finally, there will be some areas that lag. The most obvious is local sports. The rights are held in complex and quirky local contracts, each of which will have to be renegotiated for the new era. This is a bit of a bummer. But hopefully once the shift really kicks in over the next year or two, those will come along and we can all start enjoying a greatly improved experience watching TV.