Forget 'Cord-Cutters' -- the Future Is About 'Cord-Compromisers'

NEW YORK (TheStreet) -- Forget cord-cutting -- it's all about "cord-compromising" for the content consumers of the future. 

More people are getting content directly from networks like CBS (CBS), Disney (DIS) and Time Warner's (TWX) HBO and leaving cable companies out of the picture. According to a report from investment bank Evercore ISI, which tracks the industry, for the first time ever, the pay TV vertical lost a net number of subscribers in the U.S. in the first three months of a year, with cable losing the most (105,000), satellite losing 74,000 with other TV providers adding 143,000. This isn't a sea change, at least not yet. According to MoffettNathanson analyst Craig Moffett, the industry is shrinking at a 0.5% annual rate, with a net loss of 31,000 customers in the first quarter. 

So, the phenomenon of consumers moving away from getting their entertainment from cable television to online video called is happening, if only slowly. If what consumers really want is to get rid of bulky cable packages in favor of just what they want to watch, why isn't it happening faster? 

Today, viewers can create their own channel lineup by cobbling together digital subscriptions and accessing free content. But once they've added up the subscription costs and factored in broadband access charges, many find they aren't saving much over a basic cable subscription, if anything at all. That dilemma is unlikely to be resolved anytime soon. And the crux of it is they still don't have access to all the content they want, especially sports.

Traditional operators are responding by offering customizable packages. But with a look at the newest services of this type on the block -- Dish Network's (DISH) Sling TV and Verizon's (VZ) Custom TV -- we quickly find out that their entry-level prices are right in line with today's entry level cable bundles, generally in the $75-range. So, you get sports and only pay for what you want, but the costs are still high. 

The sports side of it might some day change. It's possible that someday sports leagues will offer content directly to consumers -- the NFL will stream an upcoming game between the Buffalo Bills and Jacksonville Jaguars to test the waters next season. But the NFL is locked up in long-term contracts with broadcasters until 2022, and many other leagues have arrangements with TV networks that will prevent direct-to-consumer sales for years to come. 

What will consumers do?

Instead of cutting the cord altogether and missing the live programming that they can't do without, consumers will become cord-compromisers and will gravitate toward the new services cable companies are starting to offer to stem the cord cutter tide and they will supplement those services with select digital subscription. These mini-bundles typically comprise 10 to 12 channels that can be viewed on any screen at an attractive price point. The ability to view content on multiple screens is the key to cultivating a millennial customer base, and companies are designing mini-bundles to target specific consumer groups, including sports fans (to the chagrin of ESPN, which is fighting Verizon on its recent move).

As the streaming revolution unfolds, it's important to remember that it's not just content delivery methods that are changing. Viewing habits are changing, too, and so is the way content is cultivated, produced and distributed. One sea change in viewing habits is that younger viewers happily consume content across multiple screens, watching Vines (TWTR) and YouTube (GOOGL) videos on smartphones and tablets -- sometimes while sitting in front of a TV that is broadcasting a network series. These viewers represent the future, which is why cable companies are building cross-screen viewing capabilities into their mini-bundle strategies.

On the new content creation side, the streaming revolution is driving the growth of companies like Maker Studios, the short-form video leader that is YouTube's largest content network with 11 billion monthly views and more than 650 million subscribers. The traditional network content creation model is cost-intensive, requiring investment in pilot development and promos, so smaller studios are exploring new ways of cultivating next-generation hits. Companies like Amazon (AMZN), Netflix (NFLX) and Yahoo (YHOO) are exploring new distribution models as well, working more directly with producers to create new streaming hits like "Transparent," "House of Cards" and "Unbreakable Kimmy Schmidt."

One significant factor that allows content owners to accommodate increasing demand for live streaming, publishing and distribution across multiple screens is a new generation of live and on-demand video management, analytics, syndication and tracking solutions that enable efficient monetization. With partners that provide the ability to stitch and seamlessly deliver individualized content -- including ads -- and business logic functions that enable mobile content delivery that conforms with distribution rules, major broadcasters can now meet rising demand for content profitably.

No one really knows how these trends will ultimately change the way content is produced, distributed, consumed and monetized, but we can count on seeing more innovation as it all unfolds. One thing we do know is that the internet can handle the traffic -- YouTube and Netflix streaming video already comprises about half of all Web traffic, and despite the hiccups individual distributors encounter when live-streaming popular events, the technology has been successfully tested at scale during mega-events such as World Cup broadcasts. As observers of the streaming revolution, we'll all just have to stay tuned to find out how it ends.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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