Cable Networks Will Be Last Old Media to Face Digital Destruction

Even the cable networks that are today’s multi-revenue stream darlings are destined for the same “digital destruction” as advertising-supported broadcast television, newspapers and other traditional media. It’s just a matter of time.

That likely scenario from former News Corp. president and COO Peter Chernin, represents the final blow to media conglomerates. which currently rely on their cable networks for at least 60 percent of their profits.

Whether niche cable programming can survive and thrive in a streaming on-demand video world “is the single biggest question facing the media industry,” Chernin said Wednesday during a roundtable discussion USC Annenberg School for Communications.

“At some point, it (cable) is vulnerable to the same disaggregation as everything else,” he said.

Chernin should know. Before leaving News this summer after 14 years to start his own content company, he partnered with NBC Universal to launch Hulu.com, a streaming online advertising-supported web site for mostly broadcast TV programs and some films. Despite its success, Hulu is expected to adopt a fee-based service to generate additional revenues in a digital marketplace where consumers generally can find what they want and access it on any device.

As Internet-connected TVs and streaming online video proliferate over the next several years, consumers will resist paying for cable and other content they can find online for free or individually pay for on demand. Such digital options will undercut cable’s existing business model.

Time Warner and Comcast, the two largest cable operators and owners of major cable program networks , are scrambling to get ahead of the curve by offering subscribers “TV Everywhere.” The new service — which is just getting underway — allows subscribers to access their favorite cable content on all other devices since it is not yet streamed online.

It sounds a lot like the old gatekeeper approach to media that cannot prevail in a ubiquitous digital marketplace.

One factor that could hasten cable’s fall is federally mandated a la carte pricing, according to Gordon Crawford, managing director of The Capital Group and a veteran media investor who also participated in the roundtable discussion on media’s future. Allowing consumers to pay for only the programs they want to view could mean the demise of two-thirds of niche cable channels that are otherwise assured revenues through existing bulk carriage agreements anchored by the universally popular likes of ESPN and CNN, Crawford said..

“The days you could protect those non-consumer friendly business models are gone,” Chernin quipped. His investment advice to others: Stay out of the US and western Europe, and away from broadcast, newspapers and traditional media.”