“Cable television subscriptions will experience noticeable percentage declines in the next three to five years.”

Last week it was announced that for the first time in history paid television subscriptions dropped 216,000 with cable taking the greatest hit.

The conventional wisdom of course is that this is due to the bad economic conditions of today.  Of course that is a factor, but the times have been bad for the past two years.  The new dynamic is what I touched upon in last year’s column; that the video viewing marketplace is fundamentally changing, that disintermediation is entering the living room with televisions with internet connectivity and that people have become increasingly comfortable with alternative screens.  In addition, people have come to accept paying for what they watch.  The cable television model is based upon having people pay for all the channels they don’t watch.  Why would people who willingly pay for what they watch any longer except paying for channels they don’t watch?

Of course, a decline of 216,000 subscribers is nowhere near a “noticeable percentage decline”, but I believe that this first ever downturn will be looked back upon as the early indicator of the trend I forecast last year.  As for the rest of that forecast from last years’ column:

“This decline will only be slowed if they [cable operators] accept unbundling and price per channel. This will cause a variety ...]]> Last November, I wrote a column here about the future of cable television.  In that column from last November I forecast:

“Cable television subscriptions will experience noticeable percentage declines in the next three to five years.”

Last week it was announced that for the first time in history paid television subscriptions dropped 216,000 with cable taking the greatest hit.

The conventional wisdom of course is that this is due to the bad economic conditions of today.  Of course that is a factor, but the times have been bad for the past two years.  The new dynamic is what I touched upon in last year’s column; that the video viewing marketplace is fundamentally changing, that disintermediation is entering the living room with televisions with internet connectivity and that people have become increasingly comfortable with alternative screens.  In addition, people have come to accept paying for what they watch.  The cable television model is based upon having people pay for all the channels they don’t watch.  Why would people who willingly pay for what they watch any longer except paying for channels they don’t watch?

Of course, a decline of 216,000 subscribers is nowhere near a “noticeable percentage decline”, but I believe that this first ever downturn will be looked back upon as the early indicator of the trend I forecast last year.  As for the rest of that forecast from last years’ column:

“This decline will only be slowed if they [cable operators] accept unbundling and price per channel. This will cause a variety of cascading problems for all those reliant upon cable television distribution.”

This part of the forecast will take a few years to become fully realized.

In conclusion, there might be an occasional uptick in cable television subscriptions ahead, but the long term trend of declining subscriptions has just begun.

The Big Three auto companies had an insular culture that didn’t pay attention to outside forces.  They only focused on the fact that they could make $1,500-2,000 profit per SUV and pick-up trucks, so they just kept making them hoping – not thinking that is for sure – it would all continue.  We know where that led.

Conde Nast took pride in its’ high level extravagant culture.  Bright and shiny and expensive always worked in the past, so hey, we’ll be ok in the future.   Whoops! It looks like we have to shut down some new and iconic titles as they are no longer viable businesses.

Business Week, one of the iconic business publications of the last half century was sold for $5 million.  Sounds like what was a good revenue week three years ago.  Who bought them?  The well diversified, global, multi-media, multi-revenue stream Bloomberg.  Just think about an on-line and video, global weekly news and feature product called Business Week, served up on consoles and ...]]> To many, the absolute collapse of the magazine industry in 2009 may seem stunning.  What is stunning to me is that the industry didn’t see it coming and take steps to avert this collapse.  Once again, another industry can only see a year ahead and thinks that a down year – 2008 – would be followed by a flat or up year. Historically in the advertising business that has been the career experience of the senior executives, so why not look to the past for reassurance?

The Big Three auto companies had an insular culture that didn’t pay attention to outside forces.  They only focused on the fact that they could make $1,500-2,000 profit per SUV and pick-up trucks, so they just kept making them hoping – not thinking that is for sure – it would all continue.  We know where that led.

Conde Nast took pride in its’ high level extravagant culture.  Bright and shiny and expensive always worked in the past, so hey, we’ll be ok in the future.   Whoops! It looks like we have to shut down some new and iconic titles as they are no longer viable businesses.

Business Week, one of the iconic business publications of the last half century was sold for $5 million.  Sounds like what was a good revenue week three years ago.  Who bought them?  The well diversified, global, multi-media, multi-revenue stream Bloomberg.  Just think about an on-line and video, global weekly news and feature product called Business Week, served up on consoles and computers around the world.

The Land of OZ is the reality, Kansas is gone.

It has been more than a year since I first wrote that the current recession would be a reorganizational recession for the media and advertising industry.  I forecast that it would last for at least two years and that when the single digit “recovery” occurred, many familiar faces would be gone.

In the current Shift Age Trend Report [see end of this column for how to get a free download of this Volume 1] I wrote:

“The current ‘reorganizational recession’ continues to eviscerate media properties with many magazines, newspapers and even radio and TV stations closing their doors. “

and

“The media and advertising businesses of the 20th century are disintegrating and dissolving in this recession. The 21st century versions of both are soon to be formed. That is why this is a historic, reorganizational advertising recession.”

That is an easy metaphor to understand what is going on.  There was the 20^th century media business and there will be the 21^st century media business.  The people who have been running the media companies that thrived in the 20^th century did not see that the new century is and will be different.  They clearly didn’t see the end of the Information Age and the beginning of the Shift Age.  Why is it called the Shift Age?  Because everything is in a state of shift

In this same Trend Report, I wrote:

“We are in an age of great transformation. It is often not enough just to “reengineer”,“search for excellence” or try to be “good to great”.  Those terms are either motivational or mechanical. We are not only moving into new century, we are moving into a new age. The Shift Age is and will be a time of greattransformation. This means that many companies, to succeed, grow and prosper inthe 21st century, must under go a transformation to face forward in this new age.”

The top executives running all media companies need to realize that if they are not in a state of transformation, they may not survive.

To the publishers of magazines that have ceased to exist I ask the question:

Dorothy knew she was no longer in Kansas, why didn’t you?

[To obtain a free download of Volume 1 of the Shift Age Trend Report, quoted above, please go to the pass word protected web site: www.theshiftagetrendreport.com and type in Username: DavidHoule and Password: ShiftAge [no space, case sensitive].  In the top of the download is a promotional code allowing readers of this column to get a $50 subscription discount.]

We have all lived through a lifetime of technology changing the media and content landscape.  Satellites allowed cable television and later satellite television to erode and then eviscerate the traditional broadcast network business model.  Then the analog to digital transition eliminated the physicality of the product in the music industry.  Then the universal, immediate and free availability of news and information on the Internet has pushed news magazines and newspapers to the edge of the abyss.

It is now cable television’s turn to face the disintermediating power of the Internet and technology.  This is a trend I have forecast for the past two years.

Cable television has long had a strangle hold on the American household as it has been the “last 30 feet” of connectivity into the home.  Owning this connection has allowed cable television MSOs and operators to control a great deal of the media access to the home and, in many cases such as customer service and pricing, act as a monopoly.  First was the connectivity to the world of cable television.  This was followed by ...]]>

We have all lived through a lifetime of technology changing the media and content landscape.  Satellites allowed cable television and later satellite television to erode and then eviscerate the traditional broadcast network business model.  Then the analog to digital transition eliminated the physicality of the product in the music industry.  Then the universal, immediate and free availability of news and information on the Internet has pushed news magazines and newspapers to the edge of the abyss.

It is now cable television’s turn to face the disintermediating power of the Internet and technology.  This is a trend I have forecast for the past two years.

Cable television has long had a strangle hold on the American household as it has been the “last 30 feet” of connectivity into the home.  Owning this connection has allowed cable television MSOs and operators to control a great deal of the media access to the home and, in many cases such as customer service and pricing, act as a monopoly.  First was the connectivity to the world of cable television.  This was followed by high speed internet connections and then land line phones.  This created the “triple play” of cable.

Two of these three are now going to decline. There are more cellular only homes than land line only homes and the number of land line homes is decreasing.  The big news is that the cable television connection is now not only threatened but will start to decline in total numbers.  The one, vital and secure business is the high speed Internet connection.

This first became apparent to me last August.  My son, having just returned to his off campus apartment for his senior year of college called me up one evening to say that he had just saved me $60 a month.  After thanking him I asked how.  He said that when the cable company came to connect his cable television and high speed internet connection he had them just connect the latter.  He said that it was his senior year, that he would be writing a lot of papers and would be doing a lot of reading.  He went on to say that when he had the TV on, it was usually for games or DVDs.  He decided that any TV shows he wanted to watch he could do so on his laptop via the Internet – and on demand when he wanted to watch. [In addition, being in his early twenties, he only had need for his cell phone]  Look to the young to see the future.

This got me to do some research.  I found that one percent of households used high speed internet connections to watch TV programming only on computer.  As most TV networks cable and broadcast, upload their content to web sites, this is not difficult to do.  Granted, six months ago it was only one percent, but at some point in time cable had a one percent penetration, one percent of people who listen to music downloaded it from the Internet and one percent of the population had cell phones.  Add on to this the fact that since last fall, practically every household is making dramatic cuts in spending and the direction is clear.

In addition to this trend, there are going to be some technological breakthroughs that will disintermediate the living room.  What I mean by this is that in 2009 and 2010, companies will introduce technologies that will make connecting the Internet to the big flat screen TV in the living room a very easy thing to do.  When the entire video inventory of the Internet is available on the TV screen and there is easy navigation via remote control, many households will simply not subscribe to the traditional cable TV service and the expensive hardware that comes with it.  Everything will be available on demand, including movies and all content that the viewer wants to save can be stored on a hard drive.

Cable TV companies will be the first to feel this pain as their primary revenue stream will shrink.  Raising prices will only accelerate the trend, so that will not be a long term option.  The cable networks will suffer revenue decline as subscription revenue falls.  This will ultimately be replaced to a degree when the coming technologies will allow highly targeted, interactive advertising with resultant higher CPMs  for  viewing on-line – now on big flat screen TVs –  to be better monetized than it is currently.

When viewed from the highest level, this is just a continuation of the devaluation of distribution channels.  People view content and do not particularly care how they receive it as long as it is of good quality and available on demand when they want it.

2009 will be the year that the cable TV bill will begin to be viewed as a discretionary rather than a necessary expenditure.

The bookends for these 12 years of explosive financial growth are the Atlanta Olympics in 1996 and the Beijing Olympics of 2008.  The Atlanta Olympics were the first post-cold war Olympics and, being held in the U.S. created a huge marketing platform.  The Beijing Olympics was the coming out party for the most populous country in the world and gave  recognition to China as a major player on the world’s geopolitical and financial stages.

In 1996 cable television had become a dominant media force in the U.S.  ESPN, and all of its networks, was beginning to take its’ place as the behemoth of sports television.  Regional sports networks, TBS and TNT soon joined the party and it seemed that sports were everywhere on TV.  The broadcast networks and all of these cable entities competed for the rights of all major sports.  The fees paid to the NFL, MLB, the NBA, and the college football conferences exploded.  This led to dramatically increased player salaries, advertising rates and, for the consumer, rapidly increasing cable bills.  Of course it also led to much lower ratings as nothing was special any more.  Even though Monday Night Football on ...]]> We are coming to an end of the greatest financial age of sports in history.  The twelve years between 1996 and 2008 were years when the money around sports exploded beyond any precedent era.  This also means that, going forward, the economics around sports in general will decline, at least for the next 5-8 years if not longer.

The bookends for these 12 years of explosive financial growth are the Atlanta Olympics in 1996 and the Beijing Olympics of 2008.  The Atlanta Olympics were the first post-cold war Olympics and, being held in the U.S. created a huge marketing platform.  The Beijing Olympics was the coming out party for the most populous country in the world and gave  recognition to China as a major player on the world’s geopolitical and financial stages.

In 1996 cable television had become a dominant media force in the U.S.  ESPN, and all of its networks, was beginning to take its’ place as the behemoth of sports television.  Regional sports networks, TBS and TNT soon joined the party and it seemed that sports were everywhere on TV.  The broadcast networks and all of these cable entities competed for the rights of all major sports.  The fees paid to the NFL, MLB, the NBA, and the college football conferences exploded.  This led to dramatically increased player salaries, advertising rates and, for the consumer, rapidly increasing cable bills.  Of course it also led to much lower ratings as nothing was special any more.  Even though Monday Night Football on ESPN/ABC is a consistent ratings winner this year the ratings are half what they were in 1996.

The professional sports leagues, conferences and governing agencies of sports had better start saving some of those huge rights fees for the rainy days ahead.  Vast sums of money were paid by media outlets in recent years for multi-year contracts.  Since those deals were done, there has been a uniform decline in ratings for most marquee events such as the World Series, the NBA play-offs, and most bowl games.  These ratings decline come at a horrible time for the networks as the end of 2008, all of 2009 and perhaps 2010 will be years of recession in the advertising business.  Here they are with huge fees and production costs to cover, yet they have less audience to sell to fewer advertisers willing to pay.  Think back on all the big sporting events you have watched on TV and think of the advertisers who paid for exclusive sponsorships.  Let’s see, car companies, beer companies, financial institutions and airlines.  Anybody know what’s going on in those industries?

In the years ahead, the story about rights fees will be that for the first time in recent memory they will decline.  If they can no longer be covered by advertising and cable subscription rates and the ‘halo’ effect of marquee sporting events no longer exists, networks will ask for decreases or will walk away from the table.  The leagues will come down in price, and the trickle down effect of lowered franchise values, lowered player salaries, shorter term contracts and on-going lowered ratings will occur.

Take a look at what has happened since the Beijing Olympics and you can see the direction this is going.  NBC admits that even after producing hundreds, even thousands of hours of programming for the Olympics over multiple channels and the Internet they lost money.  Certainly the appeal of Beijing is greater than Vancouver, London and that place with the funny name in Russia.  The NBA cuts staff.  Two of the most stories franchises in sports history, the NY Yankees and the Dallas Cowboys can’t sell naming rights to their stadiums, due primarily to vastly overpricing them.

Off the playing fields and networks the drumbeat of news points to a lower financial participation in sports at all levels.  The global economy has collapsed.  Millions more of Americans will lose their jobs.  Corporations, after firing thousands of people, will not want to display corporate indulgence with skyboxes and named stadiums.  In households across America and around the world, thrift has become both a necessity and cool.  This is going to be the wall that sports franchises will run into when they try to continue their always upward pricing on season’s tickets and even individual tickets.  Some boats will sail, but there is no longer a rising tide.  When the cost of a big HD flat screen TV that will last for years is the same as taking a family of four to four games, the decision will become clear.  There is deflation going on in the consumer sector so how can sports entities think they are immune?

Here are some short term predictions to confirm this trend.  Outside the top four or five bowl games, tickets will be given away and stadiums will be half full.  There will only be tight camera angles on the field and no blimp shots to show how empty the stands are.  There will be lay-offs at the league and team levels.  There will be discount pricing of tickets the day of a game in most sports.  The credit crunch and severe recession will keep stadiums from being built.  Newspapers, whose sports pages had a symbiotic, promotional relationship with local sports teams, will be going out of business weekly.

Longer term, over the course of the next 3-5 years, there will be developments unheard of for sports fans.  The salaries of star players will come down dramatically.  There may be a two tier salary structure where one or two superstars continue to get well paid, but the back up quarterback or the forward on the bench will make much less.  Sports franchises will decline in value as rights fees and attendance decline.  Ticket prices will no longer go up every year and, when the ‘day of’ discounts are factored in, they will actually decline.

None of this is bad, just a directional change in the finance of sports.  As excess has been drained from many industries through the disintermediating affect of the Internet, the ruthless scale economies of the global economy and the current economic collapse so will excess be drained from sports.  Remember these years 1996-2008; they will be looked back upon as the golden financial days of Sport.

The election of Barack Obama, predicted by this observer over a year ago, is the political manifestation of this transition to the Shift Age.  In just one week, there has been a palpable shift in America.  On several deeply significant levels there is the beginning of a sense of something new taking root across the country.  The immediate point, made universally by all observers, and most poignantly represented by the tears streaming down the face of Jesse Jackson- who witnessed Dr. King’s death – in Grant Park on election night, was that a black man has just been elected President. [As someone who attended Dr. King's funeral, and actually marched part of the way to the cemetery with Bobby Kennedy and for whom Dr. King was a great hero, I too wept at this triumph begun more than 40 years ago in the South] Maybe, just maybe America, after more than two centuries of racial trauma is beginning to move on as we move into this new century and this new Age.  That in ...]]> We are now in the transition from the Information Age to the Shift Age.  In recent columns I have positioned the recent financial melt down and global economic collapse as the beginning of a painful transitional restructuring between ages.  Just as the 1970s with all its stagflation and unprecedented turmoil was the transitional period between the Industrial Age and the Information Age, so is this time a transitional period between the Information Age and the Shift Age.

The election of Barack Obama, predicted by this observer over a year ago, is the political manifestation of this transition to the Shift Age.  In just one week, there has been a palpable shift in America.  On several deeply significant levels there is the beginning of a sense of something new taking root across the country.  The immediate point, made universally by all observers, and most poignantly represented by the tears streaming down the face of Jesse Jackson- who witnessed Dr. King’s death – in Grant Park on election night, was that a black man has just been elected President. [As someone who attended Dr. King's funeral, and actually marched part of the way to the cemetery with Bobby Kennedy and for whom Dr. King was a great hero, I too wept at this triumph begun more than 40 years ago in the South] Maybe, just maybe America, after more than two centuries of racial trauma is beginning to move on as we move into this new century and this new Age.  That in itself is a major shift, and it amplifies the sense of change felt around the country and around the world, but is just part of what is going on.

Making the assumption that President Elect Obama and his team bring the intelligence, focus, discipline and cultural and technological insight evidenced in the campaign to the actual governance of the country there are several major shifts that are underway.

I predict that the 2008 election begins a major shift in the political and governmental landscape of America and that this shift will last into the 2020s.  This election is like the ones of 1932 and 1980.  The election of FDR in 1932, amidst a similar economic disaster, initiated a fundamental shift in the definition of both the U.S. government and the Democratic Party.  This shift lasted for 20 years until the election of Eisenhower, who won because of the waging of an unpopular war [Note to all future Presidents:  WWII will be the last war that will ever be called popular or necessary.].  The 1932 election initiated governmental policies that became amplified through the 1960s.  Only after the 1970s transition from the Industrial Age to the Information Age did this era come to an end with the 1980 election of Ronald Reagan.  Reagan used the bad economy and failed welfare state legacy of the New Deal to initiate the conservative arc of government and politics that have lasted until last week.

We are now entering a 15-20 years long progressive, globally oriented, technologically driven political and government landscape that will create an entirely new America.  The terms of the last century no longer apply.  Only by speaking historically can one use the term Liberal or Conservative with any sense of meaning.  New definitions will emerge.  Jettison past definitions as that is what they are.  In addition, I sense that the institutions called the Democratic and Republican Parties are about to undergo a transformation.   They feel out of date as functioning entities.

The Obama campaign was one of the most successful campaigns in American history.  A fundamental part of that success was the way it understood and used the Internet.  This example will transform presidential politics forever.  It rendered the political party to secondary status.  When a candidate has a direct, immediate and personal relationship with  more than 3 million citizens on a daily basis it does not need a political party to get the message out.  In an article I wrote more than two years ago I discussed the disintermediation of the political party in America.    I will reprint that article here in its’ entirety as upon rereading it I am struck by how some of it so accurately predicted the 2008 Obama campaign.

So as we move into the Shift Age, we are about to witness a shift in American politics and government that will, in 2025 be looked back on as the beginning of a new definition of the promise of America.  Look backward at your peril, hold onto the past at the certainty of being obsolete.  To once again use a favorite quote:

“We must be the parents of our future rather than the offspring of our past.”