How YouTube Could Eat Cable (Maybe, In the Future)

While talking about YouTube in my Social Media for the Workplace class, a student asked if YouTube would someday eat cable. I decided to answer this intriguing question by nabbing Ben Thompson of Stratechery‘s art style and (implicitly) some of his ideas on aggregation/disaggregation. I ended up with this:

The results of an impromptu lecture on YouTube and cable.

To explain what the board says: It used to be that all of the channels (upper left boxes) were collected in one bundle by the cable company and then delivered to the user. The cable company got money, the channels got money. If the user didn’t want a specific channel (box with star), doesn’t matter. You get those channels you don’t want along with the ones you do.

Now there’s some unbundling happening, with unbundlers like Sling. However, Sling really just serves up smaller bundles; users can pick the bundle they want, and perhaps get fewer channels they don’t want. Sling gets money, channels get money, you’re still stuck getting a channel or channels that you don’t want in order to get the ones you do (which is the arrow pointing at the top box in the bottom left diagram).

Now, anyone can set up their own streaming service (I picked Amazon Web Services as a stand-in for “set up your own streaming service”), and people are doing that–Disney, ESPN, BritBox, among others. They’ve cut out the middle man and can charge whatever they want. The reason I don’t expect that these channels will get re-collected back into one bundle is that no one wants to re-pay the middle man, after having just cut the middle man out.

However, maybe a third party comes along and creates some sort of user experience that includes all of your subscriptions in one place; you’d need to charge on top of the cost of the subscriptions individually, because you wouldn’t very easily be able to convince the companies to take a hit on their prices (aka pay the middle man) to do this. (The numbers next to the streaming services are real/theoretical subscription prices , the numbers on top are theoretical profit cuts if a middle man were reinserted. The +8 is the theoretical cost of this middle-man without cost cuts to the streaming services, bringing the 22 dollars to 30 a month. The 27 is a stray number that didn’t get developed.)

But the grail is still the ability to actually subscribe to any channel that you want, when you want it. I listed the various channels that I want: Fox (particularly the regional channels), ESPN, TNT, and TBS to watch my Oklahoma City Thunder and NBC Sports for the Olympics). I can’t subscribe to those individually yet.

I told students that YouTube offers this possibility in the future of truly a la carte channels. It will not be done through YouTube TV, which is basically cable. Instead, YouTube has a chance to be a haven for channels when the great cable unbundling happens: the moment when cable’s bundling strategy is no longer profit-making for the company and cable starts to take apart or entirely disintegrate their bundling strategy. (I am not a cable/over the top journalist and thus have no idea when this will happen, but it seems like it will happen at some point.)

When the great cable unbundling occurs someday, some channels that were surviving financially by receiving payments from the cable distributors for being bundled will disappear entirely. Some will be unbundled and left to fend for themselves as independent TV stations or cable add-ons (like HBO or Starz). Some will turn into independent subscription services. But, I imagine that some will become YouTube channels. If YouTube can offer monetization channels that are free from capriciousness (a big if), then moving a whole niche TV channel from cable to a YouTube channel might make sense.

And, if YouTube positions itself correctly, I suspect that some subscription services that start to falter (as some inevitably will, once we reach peak subscription and people won’t pay for the X channel on subscription) will see YouTube as a good option.

All of this is presaged on YouTube figuring out how not to be capricious with its ad(pocalypse) policy, which is by no means guaranteed. But there’s definitely a way that YouTube eats cable, someday. Maybe not, but maybe so.

I really enjoyed the mini-lecture but don’t see it happening again for a while, so I thought I’d post it here.