Cablevision Viacom Lawsuit: Signals End Of Traditional Cable Model

Last month, Cablevision sued Viacom in New York's Federal court for forcing the cable company to buy and distribute unpopular channels like Palladia along with popular channels like Comedy Central. I suspect this article alone may increase the number of people who have even heard of Palladia, a high-definition MTV spin-off, by a significant margin (you're welcome, Palladia). Verizon is also trying to negotiate unbundled contracts with media companies for its fiber optic service. Consumers should cheer the cable companies' coming around on unbundling, as it will lower prices and speed the move towards more innovative forms of content delivery.

The cable companies themselves have long been fans of bundled packages despite the efforts of government regulators and consumer advocates, but now media companies are the last holdouts. Cable companies are beginning to face up to the reality that the old business model won't work forever. Time Warner and DirecTV have said they support Cablevision's suit.

On average, most TV viewers stick to five to 10 channels, but may receive nearly a thousand, a far cry from 1992 when Bruce Springsteen sung "57 Channels (And Nothin' On)".

In the past decade, cable bills have tripled to over $70 on average, so it's no wonder that since 2007, the number of households that get their TV solely from the internet have more than doubled, standing at five million today.

In the last quarter of 2012 alone, Netflix added five million customers. Netflix now has more than five million more subscribers than the nation's largest cable network, Comcast.

As high-speed internet access penetrates more of the country, and streaming services gain more content, those numbers will surely rise further. Young people in particular are fans of watching TV online.

Media companies like Viacom argue that bundling allows them to take risks on content, and that niche content will die out if it's not protected in bundles. This argument doesn't hold up to much scrutiny, however.

TV has seen a renaissance of high-quality, innovative programming since the dawn of the "novelistic" show, and there's no reason that unbundling will halt that progress. Most of the channels protected by bundling are unpopular for a reason: they are not sources of quality or innovation. 

Furthermore, the media companies are too attached to protecting their old model to realize the advantages of the new one. In 2007, Viacom sued YouTube for $1 billion over copyright infringement. Google, which now owns YouTube, won the case in 2010, though Viacom is appealing. A group of New York media companies sued Aereo, which takes broadcast TV from the airwaves for free and converts it to an online stream, but they lost too. In the interview Aereo's CEO suggested that consumers will eventually pay one or two dollars per month for the TV they really want.

The media companies should herald the coming of unbundling as a good thing. For one, consumers are more likely to pay a reasonable price for shows they like than skip paying at all to pirate shows.

Perhaps more importantly, unbundled content is more aligned with the new paradigm of internet streaming of individual shows. The internet has lead to an explosion of niche content creation, so despite Viacom's cries about protecting niche content, unbundling will probably be great for those with eccentric tastes.

The media companies only need look to their rival Netflix to see a better model and perhaps a business partner. Netflix has recently gotten into the original content game after upending traditional content delivery methods. Their model of releasing all the episodes in a season at once reflects how young people like to watch TV. This greatly expands the possibilities for more novelistic, high quality shows. This is where the future of TV lies, and unbundling increases the market for individual shows like this.

Watching online allows for greater social interaction around niche content, too. It's hard to find a friend at the office to geek out with about the latest episode of "Kite-making: Nebraska," but online it's easy!

In the end, big media conglomerates may still try to interpet these changes as their death knell, but they would be foolish to do so. I see no reason why Netflix's professional original content model cannot coexist with YouTube's amateur channels. The industry may have to downsize, but it's hard to argue that it's not bloated. (Sorry, Palladia).

The future of media necessarily lies in innovation, and the longer media companies hold out against their partners in cable, the more ground they cede to internet start-ups.

What do you think? What is the future of cable and TV?

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