According to reports published on Tuesday, Comcast Corp. (NASDAQ: CMCSA) will launch a streaming video service later this year to include “The Tonight Show” and “Saturday Night Live” for a monthly cost in the range of $2.50 to $3.50. The streaming service will be offered through Comcast’s NBCUniversal division.
While this is not exactly the same as firing all your cable distributors, it is about as close as a major corporation is likely to come to cannibalizing its (lucrative and near monopolistic) existing business to take a chance on an entirely new way of doing business that is clearly far less lucrative and nowhere near a monopoly.
A report from Nielsen last month noted that the 21.7 million young adults in the 18- to 34-year-old demographic watched TV in 2011 shriveled by 20% to 17.8 million at the end of January 2015. The median age of the TV audience hit 50 this year, above the 18- to 49-year-old demographic that drives the $80 billion TV advertising market, according to the New York Post.
Even if the young adults have a cable subscription, they are not using it and that means it is much easier to dispense with. If the demographic isn’t watching TV, ad rates for the networks and the local channels goes down.
Nielsen’s famous paper-and-pencil diaries took some heat on Tuesday in a new white paper from the American Association of Advertising Agencies calling on Nielsen to fix problems with the diaries that are the basis for billions of dollars of local ad buys.
Nielsen is also under fire for not measuring viewer numbers accurately because the company’s ratings do not count viewers who watch video on smartphones, tablets or other devices.
NBC is trying to appeal to the 18- to 34 year-olds who have never had a cable subscription or have dropped the subscription if they had it. But what if everybody does it?
CBS Corp. (NYSE: CBS) has already announced a streaming service that will cost around $6 a month. So have Nickelodeon and HBO and others. Add all of them up and how much does a subscriber actually save?
That is not the kicker though. Here is what really matters: a broadband connection is a necessity to the young adult demographic, and in fact to nearly everyone. A pay-TV subscription may not be. A 2014 study by Pew Research found that 53% of Americans would find it “very hard” to give up Internet access, compared with about 35% who would find it “very hard” to dump their pay-TV subscriptions.
What NBC and Comcast are trying to figure out is how much people will pay for streaming video and whether the simplicity of a single pay-TV subscription adds more value for customers than it subtracts. Does Comcast dare cannibalize its business? The fact is that if NBC and Comcast do not cannibalize their business, another company will be glad to do so.