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Cable Technology Feature Article

April 15, 2014

FCC Chairman Wheeler Warns Legacy TV Industry of Online Providers

By Michael Guta, TMCnet Contributing Writer

At the recent NAB (National Association of Broadcasters) show in Las Vegas, FCC (News - Alert) Chairman Tom Wheeler said the broadcast industry has reached an inflection point in which licensees "can move from being the disrupted to the disruptor." The chairman further stated service providers such as Netflix and others have in essence forced cable companies to redefine themselves into telecommunication companies instead of video transmitters. Those comments have been validated by a new report from TDG titled "2020 Vision – Video Viewing Forecasts by Age and Service, 2013-2020," in which it revealed the use of legacy video sources are going to decline by 25 percent through 2020 as online service providers continue to capture larger market shares.

Legacy TV viewing can generally be described as broadcast TV and cable where the broadcasters and service providers control when the viewer watches a particular show or event. With online service providers the viewer is no longer a slave to his or her TV, and mobile devices such as smartphones and tablets gives them the freedom to watch what they want when they want.

This has forced cable companies to start providing new services in order to address this market and they have been relatively successful. On air broadcasters such as ABC, CBS and NBC on the other hand are facing a new set of challenges from Aereo and FilmOn, two companies that rebroadcast network television online without paying the broadcasters any fees.

This has led to a lawsuit, and litigation between the national broadcasters and Aereo is heading to the Supreme Court; on April 22 the Justices are set to hear the case and determine whether Aereo will go on or die.

In an interview on Bloomberg (News - Alert) TV, Barry Diller, one of the biggest investors in Aereo, said losing the case would mean the end of Aereo. On the other hand if it wins, the broadcasting landscape will forever be changed because cable and satellite operators will start creating supplemental Aereo sidecar services, saving them $3 billion in annual retransmission fees.

Without these fees the broadcasters will have to change how they operate and one approach they have been contemplating is to stop broadcasting over the air and becoming cable networks. This will also kill Aereo because it will not be able to receive the signals for free; the question is will the broadcasters go to the cable model.

No matter how the video we consume is broadcasted or who is broadcasting it, the way we view it is no longer the same. The TDG report says by 2020 legacy TV will decline from the 90 percent it enjoys today to only two thirds, with online video sources controlling the rest.

"By 2020, legacy TV viewing will decline by more than 25 percent from current viewing levels. This decline is being driven less by a flood of new online content and the availability of more screens, and more by evolution of the ‘Big 4’ and the impact they will have on consumer video viewing,” according to Joel Espelien, TDG Senior Advisor and author of the new report.

The Big 4 are not the traditional broadcasters or cable companies, but Amazon, Apple, Google (News - Alert), and Microsoft, companies that have cash cows for generating revenue from other segments of their organization. This allows them to challenge the video market and force TV operators to look at these four and the online world as the inevitable future they have to deal with.

The fact TV is in decline is no longer disputed, Morgan Stanley analyst Benjamin Swinburne reported there has been a slow decline in old-fashioned broadcast and cable TV resulting in a 50 percent collapse in ratings since 2002. As TV becomes an application that can be accessed virtually anywhere and on any device, how are traditional media companies going to evolve in order to remain relevant and capitalize on the opportunities that will come their way? That remains to be seen. 

Edited by Rory J. Thompson

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