Monday, October 31, 2011

Is Cable Cord Cutting An Economic Or Digital Response?

As cable operators announce their quarterly earnings, it comes as no surprise that cable subscriptions are declining. But rather than cite the rise of broadband and OTT content, the decline of subscribers is attributed to the poor economy. Poor housing starts, unemployment, and household budgeting are the rationale behind cable subscription drops as well as to cord shaving, removing higher priced premium services and digital tiers from the bill. The truth is that cord cutting is a result of BOTH the economic slowdown and the rise of web content.

Broadband has become the most important of the three services coming into the home; cable phone and cable networks lag behind it. That connection to the web brings a ton of short and long form content, what you want, when you want, where you want, and at a fraction of the cost. And younger consumers especially are gravitating to the digital model. The economy will come back but the younger consumer will have been weened off of cable and onto web content.

Google is banking on that transition and recently announced their launch of new digital channels. Web content partners as well as Hollywood celebrities are jumping on board to each "program" their own "channel". Should any of this content prove compelling, their niche could become mainstream.

Cable companies are adapting by looking anew at their cable line-ups and figuring out ways to lower their costs. Time Warner Cable has built a lower cost basic model giving consumers the entry to a smaller tier of networks and to keep them connected to on demand. And the growth of broadband subscribers comes with a larger profit margin. But it may not be enough. Operators must continue to push their role as the ultimate aggregators of content, not just in the home, but also through a mobile platform. That means constructing deals with networks that enable both linear and on demand access to all programming. Operators are competing with the web for revenue. Want access to the NFL Redzone, buy the app from Verizon; want to watch a baseball game, buy the MLB web package. Alternatives to cable are popping up and consumers are finding more choice than every before.

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