Viewers are watching more and more TV online. They pay their broadband bills. The Internet giants have set up huge data centers and bought bandwidth on a mega-normous scale. They are prepared to provide more video online. But the cost of online video advertising is nothing compared to TV advertising. Time spent viewing online video went up 13% in December.

While all this is happening, cable companies do not seem to loosen their grips on the TV viewer; forcing them with annual rate hikes and making them use unusable cable boxes.


The economics of cable companies
On average, cable companies make $1200 + advertising revenue per customer per year. They use this money to buy content from the likes of NBC, Viacom, etc.

Take Time Warner Cable, the cable behemoth, for example. As per its 2009 SEC filing, TWC made about $2.7 billion off cable TV subscriptions, compared to $145 million from advertising.

Out of this, TWC spent roughly $1 billion on buying content. Often, you hear about cable companies complaining about their infrastructure spending. Well. TWC spent only $33 million on high-speed data.
Google spends more than one data center alone. More on that below.


The economics of online video content
We have talked about the big data centers and the fat data pipes. What about earnings?
Google makes about $40/user/year from advertising. Hulu, the online TV site from a consortium of TV content producing companies will not make more than that on its online TV shows.

More than anything, Internet users are known for 1. Stealing content and 2. Making systems to deal with online ads. There is even a browser blocker for adsense ads. Who says they won't come up with a solution for 'cleaning' video content of ads? All in all, advertising, which seems to be the only source of online video income, will not be more than a fraction of what cable companies makes from subscriptions and advertising combined.

The experience of cable TV viewing
Frequent ad breaks, copycat and bland channels, set top boxes that are hard to use, no easy way to know exactly what is playing on what channel, a complex array of cable providers each with their numbers and names of channels (in some cases)...in short these are some reasons why cable TV viewers want to shift online.

Cable companies do not want the gravy train to stop
Time Warner vs. Fox: When Fox demanded 3% more money for its content from Time Warner in New York this month, Time Warner refused to play the noble gentleman and absorb the increase. Instead it chose to go in for a high profile TV campaign titled “Roll Over or Get Tough” advising viewers not to be held ransom by Fox TV, when if you think about it, Time Warner itself was holding viewers for ransom.
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In short, the TV market in America is ripe to be disrupted big time.