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Wednesday, November 26, 2014

Will Streaming Kill the Cable Bundle?

Several weeks ago, HBO announced that it would launch a “stand-alone, over the top HBO service in the United States” during calendar year, 2015. Essentially, you could watch HBO for five dollars a month streaming on to one of your devices without the expense of a cable subscription. The press had a field day with the announcement and I received dozens of e-mails about it and the possible implications for the cable industry. I thought that it was wise to wait a few weeks and think about the issue and also talk and e-mail a number of media analysts about it.

For years, in passing, a few dozen individuals have told me that the only reason that they subscribed to cable was HBO. I always would nod and smile but also observed that sometimes the programs that they discussed were on Showtime or in Mad Men’s case, AMC, not a premium channel. Additionally, they also mentioned some over the air series that they liked and sports would often play a part in the discussion.

So, if a free standing HBO is offered, will cable get hit with a million plus defections in 2015 solely do to the HBO gambit? I am a bit skeptical. Each month, many thousands of people “cut the cord” and abandon cable. They use some mix of Roku, Netflix, Hulu, Apple TV and even You Tube to fulfill their video needs. Some do it as they truly do not watch much TV and others do it out of economic necessity.

In the November 9, 2014, edition of the Sunday New York Times, there was an excellent article entitled “TV Shrinks to Fit.” The article illustrates how many members of the wired generation do not even own TV’s. They lead busy lives and still love TV. Yet, they watch it on a device. The group is very well educated, many earn very good money, but a television or cable subscription does not fit in to their lives. Interestingly, the majority tend to be women. Young men still have TV’s, often with a large screen, so they can watch sporting events.

So my theory, and I do not have a lot of allies in this regard, is that HBO will actually pick up substantial numbers of these internet savvy upscale young women who never had cable in the first place (see Media Realism, “Does Zero TV Signal The Winds of Change for US Television, May 16, 2013).

As many of you know, I also do some lecturing to college students. Many men expressed great enthusiasm about the rumor that ESPN was considering a stand-alone product delivering all of their platforms via a streaming alternative for approximately 30 dollars. “I would dump cable in a New York minute,” a young Brooklynite told me. When I suggested that the NFL would no longer be available to them, a few young men said they would stick with cable and as, one put it, “continue to get ripped off.” One enterprising fellow said he would cut the cord, go the ESPN streaming route and show up at buddies apartments on game day. “If I bring a six pack of good beer, they will welcome me,” the personable young fellow said.

Many said they would spring for the CBS five dollar streaming deal but backed out to a man when I told them that CBS Sunday and Thursday football was excluded.

So, the Cassandras are not thinking this issue through in my opinion. When could stand alone streaming alternatives really hurt cable? To me, it would hit if many channels aped the HBO offering successfully. If ESPN follows suit (for far more than $5) and is joined by other players, consumer behavior may truly shift. Viewers could cobble together their dream team of HBO, ESPN, NFL, Netflix, Hulu and God knows what and save substantial money over their current cable package. As someone told me yesterday, “I pay for 250+ channels and I only watch six. Buying channels a la carte has real appeal to me. I get my news online. Most of cable is a waste to me.”

It will be great fun to see how this unfolds in the next 24-36 months. As I often say--expect to be surprised.

To my American readers, may I wish you a very Happy Thanksgiving.

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

Wednesday, November 12, 2014

A Blue State Basket of Wal-Mart Goods

For the last several years I have taught a course in Consumer Behavior at a local university. It is fascinating for me as the content needs constant updating and it often leads me in to Behavioral Economics which is a special interest of mine and a rapidly growing discipline.

Each semester I do a lecture about Wal-Mart and then have a class discussion about the company’s impact on retail and even on American life. Also, I do a market “basket of goods” comparing buying a list of products at Wal-Mart and then at other chains and grocery stores.

This fall I decided to put a little twist in the basket of goods. It did not contain my normal middle American selections. This time I compared Wal-Mart prices for goods that were not mainstream but were available at the retail giant and all of the competitors in my sample. These goods are considered expensive by those of moderate income yet all are found at Wal-Mart.

My market basket of goods contained items such as Kind cereals, high end toothpaste, expensive soaps and soups, fruit juice, Lindt chocolate, and “healthy” Granola bars. In previous “basket of goods” Wal-Mart always won vs. the best of the competition by 12-15% (sometimes a competitor would have an individual product for less. No sales items were allowed in the analysis). For this upmarket compilation, it was more like 25% savings at Wal-Mart!

The sample was Wal-Mart, Target, two prominent drug chains, a national grocery chain and two local, high end grocery stores. Across the board, Wal-Mart trounced all competitors. Yardley soap was 99 cents per bar while competitors came in at $1.69+. Kind Cereal was $4.78 which was close to one chain but the local grocery stores had it at $7.36. Toothpaste at Wal-Mart was at least a dollar less expensive than anywhere else. They even sold high end Rembrandt at an excellent price (when I was young there was Colgate, Crest, Gleem, Ipana, and Pepsodent. At one drug chain, I counted 54 different varieties of dental creme). Soups were 30 cents lower relative to everyone else. Expensive chocolate is available at Wal-Mart and averages a dollar to a $1.20 less than all competitors. A 60 ounce container of Ocean Spray Cranberry Juice was only $2.98 but as high as $4.56 at a local grocery store.

Why do I bring this up? None of these products are bought in large quantities by struggling Americans. The upscale must be going to Wal-Mart more than they are willing to admit. The prices are clearly excellent. If these items were not selling, Wal-Mart would drop them and fast.

The financial press discuss how Wal-Mart is struggling a bit as they are losing some high end and younger customers to Amazon. At the other extreme, the very low end income customers are moving to Dollar General as Wal-Mart is perceived as too expensive. In fact, a new study has been released which has demonstrated that Dollar General is less expensive than Wal-mart. Next spring, when I do my next Wal-Mart analysis, I will include Dollar General in the mix with a more conventional “basket of goods” than I had this time.

Demographers often say that people who live in “blue” cities and states vote progressive politically and go to Thai restaurants, drive a Volvo or a Prius,  patronize green stores and farm to table restaurants, and they tend to look down their noses at the Wal-Mart nation. It seems, given my basket of goods this time around in a deep “blue” state, that many sneak in to Wal-Mart and get some high end products at excellent prices.

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

Wednesday, November 5, 2014

Some Dismal Demographic Data

With this post, I am going to do something that I have never done before in Media Realism. I am going to revisit and expand on a post that I put up only a few weeks ago. The post was “Median Income Woes” and first appeared on September 24, 2014.

Essentially, I talked about recently published U.S. income data from the Social Security administration. Since then, and with a few encouraging e-mails from readers, I made a deep dive into the report. What I found was surprising and, may I add, deeply disturbing.

After I looked at the numbers, I checked and double-checked them. Searching across the web, I found a few media outlets and bloggers who picked up certain telling statistics from the report. So, all the stats and factoids that you will see may not totally surprise you. I will bet that you will not be familiar with all of them.

The talking heads on CNN and CNBC keep telling us that the economy is on the mend although all admit that we are experiencing the slowest recovery in measured history from the “Great Recession” of 2008-2009. Where are they misleading us? The key appears to be that they are ignoring basic statistics. They talk of average rather than median income which really distorts what is going on in this country.

So, fasten your seat belts. Let us look at what is really going on.

Here goes:

--The “average” yearly wage in the United States for 2013 was $43,041. If you take inflation into the equation, wages declined from the previous year even if you take the often criticized Federal government estimates as your benchmark. In fact, some have calculated that average wage is $500-600 below the 2007 level. Also, an average includes all wage earners and distorts the data. The 17 hedge fund managers who made over a billion dollars last year and the thousands of executives who made millions in 2013 all pull the average wage up somewhat.

--Let us look at median income, which to me is a far more meaningful statistic. To refresh your memory from Statistics 101, an average is a mean which takes ALL incomes and does a straight calculation dividing total income by total workers. The median is far more subtle. It is the 50th percentile. In other words, approximately half of people are above the median and half are below. The influence of high and ultra high earners are taken out of the statistic. According to the Social Security data, median pay for 2013 was $28,031. Have you heard anyone in the media discuss that? How about the 535 members of Congress or the White House  spin doctors? Look at the spread between median income ($28,031) and average income ($43,041). The high income earners (top 10%) are pulling up the average income data and they are doing it significantly.

--So, if $28,031 was the median that means 50% of Americans made less than that. Digging a bit deeper, it gets worse.

--Some 39% of US workers took home less than $20,000 in 2013

--A staggering 63% of workers made less than $40,000 last year

--And sadly, 72% of us made less than $50,000 in 2013

Remember, the above data comes from the Social Security Administration report. It is not from some political group manipulating the data for their own purposes.

Most consumer analysts say that it takes $50,000 to provide a middle class lifestyle for the quintessential family of four. So, if 72% make less than that, a single breadwinner no longer cuts it anywhere in the U.S. Median household income is about $53,000 as I write. Adjusted for inflation, that is no higher than it was 30 years ago. Both man and wife work because there is no choice.

So, the recovery is largely a fraud if you look at middle America. The “Great Recession” is still going on for million of Americans.

If this keeps up, the middle class is toast. Implications for advertising are profound. People are running hard to survive. Some 25% of apartment dwellers do not have enough savings to cover two months rent. A stunning 40% are in severe trouble if there car needs serious repairs even though the average car on the road is now 11 years old and some malfunction with the vehicles is inevitable.

Yes, even the struggling have a smartphone. That is used by many to say that people are doing okay. May I suggest that you visit a depressed area as I have very recently? Everyone does not live as we do in advertising, marketing or communications. If you want to be a marketer in 2014-2015 America, take a hard look at the REAL America.

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