Thursday, January 31, 2013

Cable Fees Add Up

In Les Misérables, the storekeeper's big number extols how to get more money from the customer, "charge them for the mice..." and all the other "extras".  In the airline industry, baggage, food, and perhaps soon, pillows and blankets, all cost extra.  For the cable industry, the big extra is the cable box.  As cable operators transitioned from analog to digital, TV sets all required a cable box to connect the cable wire to the TV set and unscramble each channel's signal.    More TV sets to connect in the home, the more cable boxes to rent, the more revenue per household.

In the past, Comcast offered "special adapters and that those adapters - two per household - would be free."  But not in Philly anymore or perhaps anywhere.  These are not the big boxes, the ones that access on demand or can DVR programs, or even pause and rewind the show being watched.  These low level adapters simply unscramble signals.  More costs to get access to what was once free to the consumer.

But perhaps this is just one more tipping point to move from big screen to tablet, from connected to wireless.   As costs rise, consumers will be less likely to want to connect more TVs.  Bedrooms will be more likely to find laptops and tablets, then TVs, for consumers to watch content.  It may even cause consumers to more quickly cut their cable cord.  It may be an attempt to grow the revenue stream and improve the profit margins of cable, but it may also lead to more detrimental results.

Netflix Is A TV Network

With tomorrow's launch of its premier series House of Cards, Netflix could be considered a TV network.  While it does not yet have a daily news show, I wouldn't be surprised if that was in their future.  What they do have is a mix of old and now new TV series.  First comes House of Cards, second is Arrested Development, and more is certainly in the pipeline.  Couldn't this describe a TV network.

In the infancy of cable TV, reruns were the staple of a network's programming wheel.  Each charged a monthly license fee that the cable operator passed on to the consumer, and each tried to find an advertising model to build a second screen.  With revenue growth came investment in original series, first just one to test the waters and then more as each series brought more and more revenue back to the network.  So now it is Netflix following the same cable strategy.

Unlike a cable network, Netflix is using the web to talk build a business model directly with the consumer.  With a monthly fee of $8, Netflix costs more than many single cable networks, but acts more like a cable operator in providing a library of content that exceeds what any one network could offer.  And consumers have been willing to pay the fee as it can be less expensive than a cable subscription.  Netflix hopes that offering exclusive original series, like what a cable network creates, can successfully bring more subscribers to their world.  Bring a successful ad model to augment subscription fees and Netflix will be a true competitor to cable.