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ESPN Is Finally Killing Cable. But Don't Celebrate Yet

Ezra Shaw/Getty Image Sports

On New Year’s Day, ESPN’s broadcast of the inaugural college football playoffs drew the highest rating in the history of cable television, with 28.3 million viewers. Just four days later, the same network likely signaled cable television’s demise, by signing on to Dish Network’s new streaming Sling TV service. Customers will be able to access ESPN and 11 other channels (CNN and the Food Network, e.g.) over the Internet at a flat rate of $20 a month, without having to order cable or even sign a contract.

Industry watchers have long awaited the “great unbundling” of television into an a la carte service delivered without a cable provider. ESPN’s move gives real momentum to cable cord-cutting, because the network dominates live sports, one of the only televised products that everyone prefers to watch in real time. The ripples from Sling TV’s announcement will move from cable throughout television production, advertising, broadband and even organized labor. Worldwide, entertainment represents the last bastion of American-dominated manufacturing. This move could disrupt the status quo as profoundly as the Model T.

Sports has been the great lifeline keeping traditional cable bundles in place. For all the hype, only a tiny number of television viewers—0.1 percent during the past year—actually has canceled pay TV and relied on subscription services. Among ESPN viewers, just 1.4 percent said they would cut the cord in the future, according to a study from last June. 

Sling TV could upend that delicate equilibrium. In addition to ESPN and its sister station ESPN2, the Sling TV package includes TNT and TBS, home to pro basketball and the NCAA college basketball March Madness tournament. Combine that with an antenna, for network telecasts—HD antennae sell for less than $40—and you have just about every major sporting event covered at one-quarter the price of the average cable package. Combine that with HBO or Showtime’s upcoming standalone services, and a streaming film site like Netflix, and many people will see no reason to pay a cable provider for 100 channels when they watch only 10. 

Sling TV may not kill cable all by itself. (You can stream it on only one device at a time, and it’ll be weirdly difficult to port it onto an actual TV monitor.) But it loudly signals the end of an old model. Cable providers such as Comcast, Verizon and Time Warner make a nice markup on every customer, but their success owes mainly to their local monopolies. Giving consumers the option to customize their range of programming destroys the thing keeping cable afloat. Dish Network, which owns Sling TV, is itself a satellite provider, one of cable’s only competitors. It has just 13 percent of the market locked up, and looks prepared to sacrifice some of its core business to break the cable monopoly.

Throwing the chess pieces in the air, so to speak, will trigger something approaching chaos. Consider first how these channels get on cable. 

In actuality only nine “networks,” run by conglomerates that own virtually all cable channels, operate in American television. Four networks—Disney, Turner, Scripps and A&E—will provide programming for Sling TV; the other five are NBCUniversal, Viacom/CBS, Fox, AMC Networks and Discovery Communications. They prop up their channels through bundling: They charge cable providers per-subscriber rates for coveted channels such as ESPN, and then insist that providers carry the sister stations as well.

An a la carte world will unravel the bundling scheme. (It’s been rumored that Disney has an out clause if too many people sign up for Sling TV, but I imagine it will be hard to reverse what they’ve set in motion). Similarly, niche stations within conglomerates and independent channels won’t be able to tout the same high carriage numbers (i.e., the number of potential viewers based on cable subscriptions) to advertisers. Many will lose support; some inevitably will not survive.

Meanwhile, media companies are experimenting with how to fit into the post-cable universe, from Hulu to Amazon Prime to Netflix. The ESPN move will act like a starting gun for these experiments, and channels will have only a couple of years to draw viewers. Expect a burst of new programming aimed at capturing market share, followed by a rapid dying off as consumers settle into patterns. Without bundling, it looks impossible to sustain the level of content pumped out today.

A lot of bad television will mercifully go dark. But a recession could loom for one of the more vibrant manufacturing industries—and one of the more fully unionized ones—in the United States. 

The advertising business should be equally nervous. It’s hard to know how a streaming product will get ratings, still the lifeblood for setting ad rates. A subscription model is less dependent on advertising in general; networks with enough subscribers might eschew advertisers altogether. The fact that the remaining metrics could be extremely precise—knowing the number of streams, how long viewers watched, their demographic statistics, etc.—could further threaten programming that doesn’t command a large audience. 

The Nielsen ratings model was always a convenient fiction—nobody thought too hard about the sample size, and everyone just agreed on the numbers. Moving to precise data about viewership will put a premium on playing to the broadest possible audience. A la carte television could be perversely detrimental to quality. Or maybe advertisers will altogether ditch the concept of short videos in between programming, to varying effects (advertorial, anyone?). 

The loss of their monopoly need not bankrupt cable providers. As Timothy B. Lee points out, the same companies dominate the broadband Internet space, and will remain a key gatekeeper between viewers and their streaming entertainment. But unbundling will raise the stakes in the looming fight over net neutrality. The Federal Communications Commission announced last week a final vote on its proposed broadband rules in February. It’s unclear whether FCC Chairman Tom Wheeler will stick with his old plan of allowing providers to charge for access to Internet “fast lanes,” or whether he will heed public sentiment (including from the president) and reclassify broadband as a common carrier service, forbidding any unequal treatment of content.

We do know the telecom industry just got more desperate to open additional revenue streams, thanks to the imminent dissolution of their cable TV monopoly. The new rules have morphed from an unfortunate damper on profits into an existential threat. You can expect telecoms to fight any constrictive FCC proposal that much harder, and lobby their Republican allies in Congress for protective legislation all the more. That may include the blackmail maneuver of refusing to upgrade broadband infrastructure. With more cable cords cut and viewers migrating to Internet streaming, the whole system could buckle. 

No one yet knows the consequences of the great cable unbundling. It could bring greater selection and quality at a lower cost. It could also crash Hollywood's economy, spawn even more sponsored content and see an oligopoly merely shifting its tollbooths from cable to the Internet. Yes, this is about TV. But it’s also about the profits of some of the biggest businesses in America. Policymakers need to pay attention to those who will suffer when the cord gets cut.