It makes sense that cable companies, the gatekeepers of the U.S. television business, are adjusting to meet the new needs of television consumers. They’re not doing it simply by prepping streaming video options of their own to combat Netflix (NASDAQ:NFLX) style services. Time Warner (NYSE:TWX), for instance, has gone to great lengths to provide streaming video services to its customers
But that hasn’t staunched the flow of lost subscribers to Time Warner’s cable video services. TWX lost 400,000 video subscribers in 2010, and it lost 128,000 more during the quarter that ended in September. But even as it’s losing paying television viewers to web-based competitors, Time Warner is making up for those losses by providing those same customers with the Internet access to view streaming video. Time Warner might not be selling the television content itself anymore, but it’s still the gatekeeper.
Time Warner gained 97,000 broadband-only subscribers to its cable Internet service during the third quarter. It also gained 89,000 customers for high-speed data — Time Warner’s more expensive, faster version of its Internet service — during the same period. These consumers are predominantly users upgrading from DSL (digital subscriber line) Internet service, and they are upgrading because they need access to faster access to large data transfers such as — you guessed it — streaming video.
But in the long run, isn’t it bad for Time Warner to lose all those cable subscribers? Not necessarily. As GigaOM‘s Ryan Lawler pointed out in August, the company’s broadband Internet business has yielded significantly higher margins over the past three years than its cable TV business has. TWX doesn’t have to share broadband profits with content providers like News Corp. (NASDAQ:NWS) and Viacom (NYSE:VIA), unlike its cable TV business. If it can continue getting more subscribers to ante up for its high-speed service, promising access to those content providers via the web, Time Warner could — eventually — do away with its cable business entirely.
Time Warner won’t do away with cable television service tomorrow, but during the coming years, consumers should expect streaming television to become a larger and larger part of how the company sells its broadband Internet service. The key will be convincing those aforementioned content partners (and, in turn, their advertising partners) that the audience is on the Web, not watching cable television.
Time Warner has come into conflict with TV networks in the past year in trying to develop its own streaming options. The company released an iPad app letting its cable TV subscribers stream certain content via Apple‘s (NASDAQ:AAPL) tablet, and News Corp, Viacom and Discover Communications (NASDAQ:DISCA) forced them to remove their channels from the app immediately.
Time Warner will continue to come into conflict over shared revenues if it tries to directly transform its cable television business into a streaming television business. If its business model is based on merely providing high-speed access to all those content providers’ own streaming options, however, then it’s possible those conflicts can be avoided.
Streaming video is the future of television. Netflix might recently have seen its business descend into madness and despair — i.e., more than 800,000 lost subscribers and a share price hair cut of about 75% in three months — but that doesn’t mean the company’s streaming business model doesn’t represent the chief mode of delivery for television in the coming years.
Need proof? Research group Sandvine found that Netflix streaming uses up nearly 33% of U.S. bandwidth during peak Internet usage hours. Simply put: Streaming video is what U.S. consumers do on the Internet. Cable companies will survive the shift not by switching to streaming business models of their own, but by redefining how they monetize all their cable pipelines.