Wednesday, February 29, 2012

It's Not Cord Cutting, It's Cord Switching

Customers love their TV content. But ask a cable company executive and they all point to a drop in basic subscribers quarter over quarter. They don't call it cord cutting; rather, a bad economy, unemployment, and low housing starts. Except those customers still want their TV content and they are in fact cord switching to telco and satellite providers. In fact, they have captured subs from cable operators as well as found new consumers, too.

"The growth was driven by telecom-based services AT&T (NYSE: T) U-Verse and Verizon FiOS, which added 208,000 and 194,000 video customers during the fourth quarter, respectively. Satellite companies DirecTV (NYSE: DTV) (up 125,000) and Dish Network (NSDQ: DISH) (added 22,000) also contributed to this growth." So while Comcast, Time Warner Cable, Cablevision, Charter and others lost basic subs, telco and satellite grew.

If the cable excuses hold, then the reasoning to why seems clear. Telco and satellite are offering similar services at a lower cost. Consumers may be regarding cable tv providers as a commodity industry and in such cases, the lowest price prevails. Cable companies have tried to adapt by building out lower priced entries into basic subscriber packages but it may not be enough for consumers to switch back.

And Cablevision in their recent Q4 financials announced that they may not even try this route. "Cablevision also will eliminate deep discounting for new customers, which should ease the financial impact on the company." It may lower costs, but it will lower revenue and sub numbers too. For now, they may not be cord cutting, but will only continue to switch to the lowest cost provider of TV services.

Should Broadband Usage be Priced Like A Utility

Homeowners don't seem to bat too much of an eye at their utility bills. Water, electicity, and gas bills come due monthly and we tend to not pay much attention to them unless the price changes radically. We know that prices are regulated and there is little we can do but watch how much water, electricity, and gas we use. They are tightly measured and unless there is a leak, they are secure.

But is broadband usage a different story? Should homeowners be expected to pay for broadband usage as others offer unlimited access? Can we be sure we are measured accurately and can we completely control how it is being consumed? As more and more content becomes accessible through the web and with pushes and notifications, we may be somewhat at the mercy of the app. True most content is not nearly as big as long form video content; still, we are getting more and more addicted to our web connectivity.

Unlike other cable operators, Time Warner Cable still wants to try and push through a broadband fee based on usage. While some try to throttle high users of broadband, Time Warner wants to incent low users to get measured by usage and receive a benefit for not using the web too much. They have a new test in the works. "Under the new pricing plan, consumers will get a $5 reduction in their monthly bill if they accept a cap of five gigabytes monthly." Of course, should they exceed their limit, they will pay a penalty. At only a $5 monthly savings, I find it hard to believe that any family would grab on to such a deal.

The wireless companies are all trying to get more dollars for usage billing. Unlimited access may become a thing of the past. Certainly cable would like to find more revenue by charging this way as well; Time Warner Cable may be the most aggressive, but others are watching the test.