The Rise of Cord Cutting and the Effect of the Convenience of Digitization. Can Object Storage Help?
The first half of my professional career was in the digital audio industry. I was lucky enough to license the MP3 codec in the mid-90s, then work on some very popular encoding/ripping/jukebox applications and download and streaming services until around 2005. This put me on the front lines of seeing how advancements in production, delivery, search, consumption and packaging all hit at the same time—radically shifting the business model of the Recording industry from a physical CD/Album-driven market to a digital download/service industry in less than a decade. Many point to Napster as the primary reason CD sales plummeted, and they, along with other P2P file-sharing apps, were a big part of the shift. But, the real driver was what digitization allowed the consumer to do—what I call the “convenience of digitization.”
In this case, the Recording Industry Association of America® (RIAA) and major labels tried to take a rather combative approach: suing consumers, making it difficult to get digital licenses for new services, trying to force cumbersome digital rights management and, overall, fighting the tide of digitization. That said, it is easy to understand why they did it. Their main product was being pirated at an astounding rate and the impact is still being felt. The Recording industry has not yet fully recovered as described in this great Digital Music News blog, but the rebound has started driven by digital distribution.
I see a lot of similarities between the Recording industry in early 2000 and what is happening to broadcasters, MSOs and cable providers today. The difference is that all are now aware of the convenience of digitization, and instead of fighting the tide, many are embracing it.
So, what do I mean by the convenience of digitization for the Recording industry and what do I see as the impact?
For the Recording industry, it meant the decline of the album and high CD margins driven by five factors:
- Production: A song could be transcoded at home (with the supporting metadata) to about a 3–5 MB file at CD quality and thousands could be stored on a few hundred dollar hard drive. Songs could also be replicated without loss in quality…forever.
- Delivery: A song could be downloaded in a few minutes and taken with you on an MP3 player. What used to fill up a room or wall in your house now fit in your pocket.
- Search: Users could search for and find specific songs quickly and eventually hear a few-second sample of them.
- Consumption: You could now listen to the music you wanted to wherever you were.
- Packaging: You could (eventually) download just the songs you wanted and now you can just pay a monthly fee for access to pretty much all music. I think this was the hardest pill to swallow for the music industry. Partly because of the insane markup on a CD vs BOM costs and partly because of the thought and artistry put into some albums.
For broadcasters, MSOs and cable providers, it means the rise of cord cutting and reduction in subscribers, following the same five factors:
- Production: Viewers aren’t really creating their own digitized files but they are shifting to online services and platforms like YouTube Red, Hulu and Netflix, and they are spending more time watching content produced and/or funded by independents.
- Delivery: Broadband is now common in most major markets at home or on a device. Quality is no longer constrained by a direct line and box. There are multiple ways in many markets to get Blu-ray-quality content streamed and 4K streaming is just around the corner.
- Consumption: You can now pop open your phone and stream content wherever you are. Plug-in your FireStick, Roku or access your Sling on a TV in your hotel.
- Search: Netflix and Amazon are getting pretty advanced here and offering sub-categories based on your viewing patterns. Cable providers are a little late to the game but coming out with their own recommendation approaches in major markets.
- Packaging: Most major networks have an app that can be enjoyed on-demand (but most still require a cable subscription).
So, what’s the impact? Myles Udland summarized it in his blog called “This is the Scariest Chart in the History of Cable TV.”
Subscribers are “falling off a cliff.” But where are they going? To services that embrace the convenience of digitization like Netflix, Amazon and Hulu as Udland details in this graph.
Just like consumers stopped buying CDs and albums in 2004, consumers are now canceling subscription packages for a very simple reason—they have more options that provide convenience in delivery, consumption, search and packaging.
Existing infrastructure is a big part of the issue. Enabling a Netflix and Hulu like service isn’t easy and requires optimization at just about every layer in the creation, production and delivery process. Where object storage fits into the shift to cord cutting is helping to manage the expectation of free storage and instant access for broadcasters, MSOs and cable companies as well as those in production. If you are interested in learning more, you can register for our upcoming webinar “Object Storage for M&E: Manage Expectation of Free Storage & Accessible Archives.”