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.