Cutting The Cable

August 16, 2011

Add cable and satellite TV to the list of old media that are getting hammered by the Internet. The nation’s six largest cable and satellite providers lost almost 600,000 subscribers in the second quarter of this year, the largest quarterly decline in history, according to Bloomberg News.

Some of the loss can be explained by the rotten economy, as households cancel cable and satellite service to save on their monthly bills. But analysts say there’s no question that a growing number of customers are switching to Web-based services like Netflix and Hulu.

The cable TV business has enjoyed a long stretch of uninterrupted growth. In the last decade alone, cable ad revenue more than doubled, from $12 billion to $25 billion, according to the National Cable & Telecommunications Association. Total revenue, including both advertising and subscriber fees, grew even faster: from $37 billion to $90 billion. So cable isn’t hurting as badly as print media – yet.

But the tipping point can come with stunning speed. The newspaper business had its best year ever in 2005, raking in $49 billion. Only five years later, half of that money had vanished, and newspapers everywhere responded with drastic cutbacks.

Just last week, I went by a Borders bookstore and a Blockbuster video store I used to patronize. Both stores were shuttered, their parent companies bankrupt. I can’t remember the last time I set foot in a record store – in fact, I couldn’t even tell you if there are any within 10 miles of where I live.

The rush to digital media is a boon to advertisers, who can target their spending more tightly and track the results more closely. But at this early stage of the digital revolution, I don’t think anyone has yet quantified what advertisers are potentially losing by missing out on a mass audience.

Selective targeting of consumers is a great thing, but it’s getting harder to develop a general, collective awareness of products. The music business is already seeing this dynamic at work; today’s top releases may sell only a tenth as many units as those of 20 years ago. Music fans can more easily find – and buy – the songs of their favorite artists online, but the potential for blockbuster hits has been reduced as the audience fragments.

That may not be a bad thing. There’s a truism in the marketing business that the best advertising comes from word of mouth. And what we’re seeing is a return to a word-of-mouth communications model, albeit a super-powerful version that can bring you word of mouth from people on the other side of the planet.

Right now, cable and satellite TV have mass acceptance and lots of money. Until recently, so did the newspaper business, and so did Blockbuster. The survival of the cable business will hinge on whether it can dodge the digital tsunami that has blindsided so many of its old-media brethren.

This is John Reinan’s weekly marketing column for MinnPost.com.