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Thursday, July 15, 2010

Does Cable TV Have A Future?

In recent months many articles, interviews, and blog posts from a wide variety of sources have seemed to accelerate the drumbeat for the demise of television as a viable advertising medium. It is impossible to argue that new avenues to view all forms of video are springing up and gaining some traction but the speed of some people’s forecasts for TV going down strikes me as way too fast. Some of the most strident comments that I have read or witnessed face to face and via e-mail are aimed at cable TV. People are increasingly dredging up the old cliché that the cable TV business model is broken.

Clearly, after such a set-up, I do not agree. My arguments are detailed and, for me, a bit complicated. Also, I polled my formal Media Realism panel plus some people of interest outside it. Here is what I have found along with what I think:


Many people say that cable is in trouble because of upcoming funding issues. Some argue that cable is sandwiched between ad supported TV and pay per view. As times goes on, it appears that many people will be willing to pay their content creator for certain programming so why is a middleman such as cable or satellite needed? Nielsen adds fuel to this fire each year by saying that roughly 13% of channels are viewed by subscribers in a given week. Economists weigh in by saying that efficiencies always win in the marketplace so packaging should be passé pretty soon.

It is hard to argue as none of us watch all of the few hundred options that we have. Yet, I feel we like having them. Some tests might emerge soon with some type of simple metering—you pay only for what you watch. If that were the case, I would imagine some HBO series, selected sports, and good dramas either cable produced or network produced could get pretty pricey. Also, some people might cut back viewing after getting sticker shock after receiving the first few itemized cable bills. This would hurt advertisers as viewing might really go down in these a la carte households. Fragmentation over the last 30 years has made it harder and harder to reach large portions of your target but an authentic drop in viewing especially among the more sophisticated would really hurt TV as an ad medium.

An a la carte approach would allow you to create your own personal TV network which TiVo does in a sense with its cloning feature now and other specialty services do as well. But the blue collar audience that watches heavily and sometimes indiscriminately will never go for it. They will stick to their flat fee.

As to the argument by economists that efficiencies always win in the long run, all I can say is that the long run is a long time. Have you ever bought a stock whose fundamentals and earning growth tell you it has to go up? You can go broke or die waiting sometimes. Not everyone embraces change as much as a smart 23 year old. Sometimes it takes a generation for the marketplace to reflect a rational price for something.

The same thing is true here because consumers lag technology. The trendy press tell us that many recent college graduates are not buying TV’s. I checked in to it and it is true to a point. The problem is that their sample is skewed. If you check out recent Ivy League and other elite school grads, many lean on Hulu, Netflix, Roku, Slingbox, and You Tube along with Yahoo and Google News for their video needs. They are also quite adept at stealing films and other video online. Speaking on several campuses last year and speaking to many more young adults, I saw a direct correlation between the quality of the school and the ability to scrounge up many sources of video content both legal and not. So, this group with no TV is prominent, articulate, and gets some press but they are not a large group in the total scheme of things. Long term, it hurts as they will become very affluent if not rich and many advertisers will have a hard time reaching them if they continue to avoid TV as we now know it.




There is something else that cable has going for it that few people appear to discuss or consider. I am talking about inertia. Take a look at a fictional couple, Bob and Mary Brown of Youngstown, Ohio. They are both 59 years old. Mary is retired (she never worked full time) and Bob has about two years to go if he can hang on before the axe falls. Their children are gone and they watch a great deal of TV. On fall weekends, Bob curls up in his La-Z-Boy with a six pack and may watch 12 hours of football over 36 hours. TV is not one entertainment option for them; it is their ONLY real entertainment option. They will likely grumble about cable subscription rates in the future but I bet that they will stay with cable for the remaining 25 years of their lives. Some stunning demographic data was released this past week which said that the bottom 40% (or lowest two quintiles) of wage earners in the US now collectively own less than 1% of the nation’s wealth. Currently, there are 39.68 million Americans on food stamps. The Department of Agriculture projects that 43 million will receive them by the end of 2011. There are millions of Bob and Mary’s across the country. Life was never easy but now it seems to be getting a bit tougher. They will not likely embrace the new digital solutions and so will provide a nice stream of income for cable players for a long time to come.

Cable providers have a poor reputation for service. As Verizon moves in to compete in areas with Comcast and Time Warner and smaller companies, there will surely be some jumping from one service to another. But the cable industry will still spin off some serious cash. Cable players seem unwilling to build a moat around their customers’ homes and keep them safely as subscribers. Right now, customer service is poor and millions leap to the alleged improvement of another cable provider or satellite. This excessive customer churn could be fixed but no one seems to be doing enough about it.

Talking to executives and panel members we find a wide range of comments. A cable sales executive says: “our practice of selling spots and dots is here to stay for many years. Many of our ancillary products are not to enhance the subscriber experience but improve the advertiser experience in a more robust fashion. Often they allow us to separate ourselves from conventional broadcasters……… whom we still compete against mightily.”

A deeply experienced media researcher picks up on that and says “Cable has so many revenue streams (and emerging ones) that it is unlikely that they will go away for a couple of decades. Besides subscriptions they have VOD, telephone, internet along with growing ad revenue. ….the fact is that a distribution outlet for TV is losing value in an age of technology. A stand alone TV station seems most vulnerable to new developments in technology. Great reach can still be delivered via network coverage on a cable system across multiple platforms. The guys with the most to lose are those with only one revenue stream (which is most TV stations).”

One cable executive on my panel says do not forget that over the next few years we will have to redefine “what is cable.” He is not totally objective but is genuinely excited about the new products and services that he will be selling in the years to come. Given his strong ethics, I do not feel that he is blowing smoke.

As many of you know, earlier this year, I cancelled cable and had no TV for a few months. With Hulu, Netflix, Netflix Instant, some Google and You Tube help plus free videos from my local library, I was able to satisfy some 85% of my viewing needs. Most 60 year olds are not so ambitious or patient enough to find things even if they are free but if more people did it there would be more leakage away from advertiser supported video.

Cable also has lots of sports led by the amazing ESPN channels. Yes, they are available to varying degrees online but many men will be hard pressed to give them up on cable. And, the big screen is a must for many with major sporting events. I have seen students check sports scores on their cell phones or other device before class, but for the big game they want a large screen. Live sporting events is content that many people will always be willing to buy. There may more money to be squeezed out of that arena with more pay per view opportunities.

So, is cable dying? I do not think so. But, it needs to keep improving its products and finding ways to enhance the advertiser experience. Customer service needs to improve dramatically in many locales as well. No matter what they do more and more people will move away from them as on line options grow. A handful will abandon TV and cable completely. And, when will Google really do something with You Tube? Then things could really get interesting and fast.


If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

4 comments:

  1. Totally enjoy your comments. I live and work in Africa at an ad agency.

    Cable is the new buzz word in most countries here. FTA (free to air) TV has reach of over 95% as only a small group of the urban rich can afford monthly cable subscrpitions. Interestingly we have seen small cable set ups come up with packages as low as $10 a month meaning cable will be become more of an option at least for the urbanites.

    With the launch of digital tv, it is assumed cable subcription will brust through the roof.

    TV in Africa is pretty much still a novel medium coming second to radio in terms of reach and source of information. Radio still rules. Consider poor infrastructure.

    The urban middle class are however stuck between western media trends (they have financial capability) and traditional viewing habits (most important content is still channel primaril through traditional media)... at 7pm and 9pm sharp, everything comes to a standstill in my country as we all stop to watch THE NEWS....

    Internet access is relatively expensive and most people cannot afford a PC for home use, so the mobile phone is the most likely gadget for online use. Again here there is the glitch of low end mobile phone without necessarily interfaces to allow video. Media planners and ad agency are still trying to figure out how to use mobile phones for advertising.

    Its always interesting to read USA trends, Africa mirrors the same albeit a few decades late.

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  2. thank you for your interest in Media Realism. what African nation do you live in? Also, you may write to me directly at doncolemedia@gmail.com

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  3. Hey Don. I also think it would be hard to place advertising in pay per view events (especially if they are expensive). Why would a viewer be willing to watch commercials in a program they paid to see?

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  4. That is the old HBO argument that has been valid for over 30 years. I always thought that they would let advertising creep in before and after films and their made for cable programming but I believe that they wisely have stayed pure.

    If you went to a la carte billing, I believe, however that you could get away with advertising.

    thanks,

    Don

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