Monday, June 25, 2012

Forcing A la Carte Cable Programming Would Hurt The Cable Industry

Without the packaging of multiple cable networks at one monthly subscription price, most cable networks would fail to reach a large enough audience to succeed.  Not enough license fees, not enough advertising revenue, and not enough accessibility to build an audience and get a Nielsen rating.  "If the U.S. government mandated that TV channels be sold individually, only five to 10 traditional TV networks would survive -- destroying up to $300 billion of value, endangering some 1 million jobs and curtailing consumers' video choices, according to an analysis by Needham & Co."  So why can upstarts in the digital web space survive, less capital and fixed expenses, and small means more flexibility.  Their returns are smaller but such is the case of an upstart trying to change the system.

Consumers may desire paying less for cable, but it is the current system that pays for the content that ultimately finds its way from TV to the web.  Changes in programming are happening thanks to a free economy that  encourages competition and new forms of competition.  But this change must happen over time and not be forced by government intervention.  Letting natural market forces change the nature of how and  where people consume content will ultimately shift and move the content model to other technologies and pricing models.

Does Your Cable Operator Provide TV Everywhere?

According to the research, only one in five cable customers know that their provider offers a TV Everywhere experience.  What that means is that few current cable customers know that they can access TV shows through their cable provider's apps on mobile and computer devices.  Not a good sign for those providers that hoped that by finally offering a TV Everywhere experience, their customers would be less likely to cut the cord and go to the web.

For me, I do know that my cable provider offers shows through their app but I, like I assume most others, have gotten conditioned to look elsewhere for my TV Everywhere content.  With iTunes, Hulu, YouTube, Netflix, and others, my cable app is the last place I would think to go too find content.  Add to that my MLB  access and my TV Everywhere experience seems almost complete.  It seems the real challenge for cable operators is that they are so late to the game.  Dish delivers the slingbox experience which makes their access to linear and DVR programming appealing; other cable operators have been reluctant to offer a similar experience.

The other issue and one that really hurts the cable operator today is the rising costs of a cable subscription.  "It’s all about dollars and the perception of value. Cable subscriptions declined 2.7 percent in the first quarter, according to Bernstein data, as cash-strapped consumers look for less expensive TV viewing alternatives."  By not building a differentiated product, consumers can get a similar viewing experience at a much lower cost.  For them, cable programming is a commodity that can be served anywhere.

And so cable operators are facing some real challenges, a service that has lost its value proposition, a product that  is being served cheaper elsewhere, and a next generation consumer that is becoming more oriented to over the top programming.  For cable operators, they may soon find themselves considering a change in the business model, to a dumb pipeline with wired and wireless access for a monthly fee.  With declining profit margins the cable subscription business may finally be losing some steam.