Cable subscribers cut cord due to Internet TV, economy

Last year, six of eight cable operators in the second quarter suffered their worst subscriber losses ever. In that quarter, they lost a record 711,000 subscribers. Since then, things have gotten steadily worse.

This past summer alone, a lot has happened to challenge cable TV’s business model and make turning off cable even easier for subscribers. Google unveiled its Google TV platform less than a month ago. Almost immediately, ABC, CBS and NBC blocked their programs from Google’s new platform. MTV, Fox and HBO are still available, but that could change. Google’s Internet vision is a good one, however, and it will be hard for traditional TV to keep up its fight and prevent usage of the new technology.

Last week, Apple’s Steve Jobs said his company has already sold 250,000 Apple TVs, a new box that allows users to customize only the program services and channels they want to watch. Netflix, which offers online movie viewing at low prices, keeps growing. Last week it was announced that 20 percent of Internet traffic during peak times in the United States is coming from Netflix. Roku’s new set-up box, being offered as an alternative to cable, is growing fast, and Boxee announced that its new Boxee Box will ship next month.

These alternatives are being introduced amid a sour economy as cable prices continue to rise. A J.D. Power and Associates survey released recently said consumers are less satisfied with monthly cable TV bills, and subscribers are more likely to feel ripped off than telco or satellite TV customers.

In this environment, all traditional TV businesses are fighting to maintain their business models. Ad Age summarized the reason the networks are fighting Google: “The networks aren’t blocking Google TV because it’s Google. They are blocking Google TV because it is putting a Web TV show, with Web TV show economics, on a TV, which would be incredibly disruptive to their business,” Ad Age reported.

Revenue per viewer-minute is much less on the Internet versus broadcast. This could change as more ads appear on the Internet and they become more targeted and interactive. But, as of today, the prices are much lower.

One of the biggest problems for the cable industry is its high cost. One study has reported that growing programming costs, as reflected in the News Corp-Cablevision retransmission dispute, was the biggest reason one in eight TV viewers said they would eliminate or scale back their cable, satellite or other pay-TV service in 2010.

The cable industry has resisted a la carte pricing, which allows customers to pick and choose which channels they watch and pay for. Cable networks make part of their money from subscription fees paid by customers to the cable operators and then to the networks. It’s been said that smaller operators could go out of business under such a pricing plan.

Yet, devices like Apple TV allow subscribers to build just the channels they want through a series of applications. This allows just the kind of a la carte use customers want and will pay for, but it’s a hard model for cable to copy.