The Big Story

The TV biz can't defy gravity for much longer

Another 25 million households will cut the cord over the next five years, and major media companies are starting to accept the idea that some of TV's legacy business models won't survive this massive shift. That's the gist of a recent CNBC story that has been the talk of the town among tech and media executives.

The article was also a perfect tee-up for our TV's Tipping Point event yesterday, which featured CBS News Digital EVP & GM Christy Tanner, Cinedigm Networks President Erick Opeka, Tubi founder and CEO Farhad Massoudi and Wurl CEO Sean Doherty. You can watch a recording of the entire panel on YouTube, but here are a few highlights of what these digital media insiders had to say about this moment of transition for TV:

• Traditional pay TV is doomed. "It's all over for cable," Doherty said. "Even Nielsen is saying that 25% of television viewing time is now streaming. Samsung is saying that if you're a smart TV owner, over 50% of viewing time is streaming. That's a problem for the cable networks. They have to follow the audience."
• Things may unfold even faster than CNBC predicted. "I think that five-year time span may be wishful thinking," Opeka said. "The major broadcast conglomerates are in a very difficult position where they're having to increase programing rate carriage fees while providing less content and reaching fewer users for advertisers," he continued. "In essence, they're Wile E. Coyote, off the cliff, hanging there. And you can't defy gravity forever."
• There's only so much room for subscription services. "A lot of these subscription services will not survive," Massoudi predicted. "The ROI simply isn't there for everyone. A lot of these subscription businesses are overinvested in and will ultimately cease to exist."
• Ad-supported video is getting a bad rap. "There is a narrative that ads are not the future of media," Tanner said. "Many people writing about this space are working for outlets that are ad-supported, [and] are desperately trying to transition to a subscription model. It sort of makes ad-supported seem weak, when there's still obviously so much money flowing into the marketplace. Those dollars have to go somewhere."
• There may be a lot less money on the table in the future. "All of us are in streaming, [but] we recognize that cable is a much better business," Massoudi said. "If that's declining, and [media companies] are aggressively losing money on launching streaming services that are not projected to make profit years into the future, how is that going to play out?"
• Get ready for cable channels to shutter or get sold. "Some of the lowest-rated channels […] will be shut down. Some of them are already being wound down," Opeka said. Others may get sold off, he predicted: "I think this is a perfect scenario for private equity to come in. These are the kinds of assets that they love to write down."

Overheard

"It's no wonder that people are fleeing big cable in droves, and they are shifting to streaming." T-Mobile CEO Mike Sievert, introducing the company's new TVision pay TV service.

"T-Mobile TVision offers [a] mishmash of channels at so-so prices." NScreen Media analyst Colin Dixon about Sievert's new "uncarrier" TV service.

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Get ready for AV1

When Roku unveiled its latest streaming devices last month, it also dropped a hint at things to come for the industry: Roku Ultra, the company's new $100 flagship device, is the first major streaming player to support the new AV1 codec, which offers significant performance improvements over existing video compression technologies. Chances are, it won't stay the only such device for long, as a number of companies are getting ready to adopt AV1 in the coming months.

Codecs are a bit like the plumbing of online video. The individual compression technologies are largely invisible to consumers, but make a big difference to service providers, device makers and network operators.

Industry insiders care about codecs for two reasons:

• Efficiency. Streaming video is a massive bandwidth hog. Even marginal improvements can make a big difference, especially when consumers are on slow or overloaded home broadband connections. AV1 is between 30% and 50% more efficient than the ubiquitous H.264 codec, meaning that streaming services can deliver better-looking videos at significantly lower data rates.
• Cost. Using commercial codecs has long come with significant licensing costs. AV1 on the other hand has been developed as an open, royalty-free codec, and is being backed by industry heavyweights including Apple, Amazon, Google, Hulu, Netflix, Facebook and Mozilla. Apple's participation in particular is notable, as the company wasn't on board for previous royalty-free codec efforts.

YouTube, Netflix and Facebook all began streaming a small portion of their content in AV1 to a subset of Android phones in recent months, but living room adoption has thus far been hampered by the lack of devices capable of decoding these streams. Google's new Chromecast with Google TV, for instance, can't play AV1 streams yet, and Amazon's 2020 Fire TV sticks, as well as the company's Echo Show displays, also don't know what to do with AV1.

However, all of this is poised to change quickly:

• Major silicon vendors have begun to incorporate AV1 decoding into their chips, and an increasing number of smart TVs are starting to support the codec. The latest Fire TV sets sold under the Toshiba and Insignia brands for instance already play AV1 content, and many of the TV sets to be announced in early 2021 are expected to be compatible as well.
• Netflix is already working on enabling AV1 for smart TVs, and will likely open the spigot once those new TVs start to ship.
• Google will require Android TV device makers to support AV1 on new products starting April 2021, according to a source familiar with the company's plans.

Experts tell me that AV1 could also make it easier to stream low-latency video for interactive applications, including cloud gaming and video chats. But the biggest benefit still lies in the associated bandwidth savings. U.S. home broadband, and even in-home Wi-Fi networks, remain major bottlenecks, as the pandemic has proven over the past couple of months.

The situation is even more dire in emerging markets like India, where many consumers have been using mobile hot spots in lieu of traditional home broadband. To be successful in these environments, streaming services have to be extremely mindful of data consumption — and codecs like AV1 can be a godsend for Netflix and the likes.

Fast Forward

On Protocol: Netflix is experimenting with audio-only playback. The service is testing whether its subscribers may want to just listen to their favorite shows, potentially pitting it against podcasts and audiobooks.

YouTube is running out of videos to show political ads against. Premium swing state ad inventory is especially sought-after, Bloomberg reports.

Also on Protocol: T-Mobile has a new TV service, but the company hasn't always made the best choices when it comes to streaming video. Remember that big partnership with Quibi?

Apple is building yet another HomePod. Smaller AirPods Pro earbuds are reportedly also in the works.

Sam Smith teamed up with Spotify for an AR experience. The promotion is a first for Spotify, but likely won't get a whole lot of users, as you need two phones to unlock it.

Another Protocol story: Netflix has 400 times as many movies as Apple TV+. Quantity doesn't equal quality, but the differences between the major streaming services are striking.

Foursquare is doing audio AR now. The location data platform is sending AirPods users audio recommendations about select businesses and points of interest. The company is calling it "an experiment."

Audible is becoming a podcast aggregator. Amazon's ebook service is adding 100,000 podcasts for free. Also worth noting: There are apparently 100,000 podcasts in this world.

Auf Wiedersehen

With just a few days left until Election Day, I often have to remind myself that the results won't be affected by the number of times I reload the 538 forecast. So maybe we should all take some cues from our kids to distract ourselves in times like these.

My 9-year-old, for example, has been keeping herself busy with puzzles during the pandemic. First, 500 pieces, then 1,000. Then someone gave her a puzzle consisting of 245 pieces that are all completely black, and all look the same to me — and she somehow solved it, too! Now, she has moved on to a Rubik's Cube, which was inspired by us watching Netflix's "Speed Cubers" documentary — a film that is as heartwarming as it is geeky. Give it a try, even if you are not a big puzzler. I promise, it beats reloading election forecasts.