February 4, 2010 10:00 AM PST Could cable lose its grip on TV business?
by Marguerite Reardon News.com http://news.cnet.com/8301-30686_3-10447250-266.html?tag=newsLeadStoriesArea.1 Cable companies may be raking in profits as they add more broadband subscribers, but price-sensitive consumers may only be a discount away from ditching them. On Wednesday Comcast, the nation's largest cable operator, announced it had more than doubled its fourth-quarter earnings, due in large part to a promotional push that resulted in 247,000 new high-speed Internet subscribers. Time Warner Cable, which announced fourth-quarter earnings last week, also swung to a profit, buoyed by gains in broadband Internet and phone subscribers. But even though these companies managed to report profits and a boost in new broadband subscribers, they each lost video subscribers. The sluggish economy and slumping housing market are mostly to blame for the poor performance in the TV market. But growing competition, especially from phone companies offering their own TV services, is also taking a toll on cable's subscriber base. Experts warn that if cable operators aren't careful, the subscriber slide could continue. The biggest problem the cable companies face is that their customers don't like them. And if given enough incentive, they are willing to switch providers or cancel their TV subscriptions altogether. A recent survey conducted by Strategy Analytics found that about 47 percent of cable customers said they'd switch providers for a 10 percent discount on their service. And over two-thirds said they would jump ship for a 20 percent discount. Even though telco TV subscribers can also be lured with promotional offers, the Strategy Analytics survey indicates that cable subscribers are more dissatisfied with their services than customers subscribing to competing services from the phone companies. Cable operators are also viewed as less innovative than their phone company counterparts. And as watching TV from the Web on big-screen TVs in the living room gets easier, cable companies are increasingly becoming more vulnerable to losing even more video customers. "Cable is really vulnerable right now," said Ben Piper, an analyst with Strategy Analytics. "Cable has only been forced to really compete in the TV market in the past few years. It pretty much had a monopoly for 30 years. And a key problem they're facing is a low perceived value for the money subscribers are paying." Blame it on the economy The slumping economy hasn't helped either, Piper added. Unlike broadband Internet services, which are now viewed as a necessity by many consumers, high-end TV services are considered to be more of a luxury. And financially strapped consumers see scaling back these services as a good way to cut costs out of the household budget. While few people are willing to do away with TV service completely, nearly half of respondents in another Strategy Analytics' survey published in July 2008 said they would scale back their digital TV subscription if economic circumstances got tough. About 14 percent said they already had scaled back services during the previous year. And another 14 percent said they expected to do this in the coming year. That is exactly what consumers have been doing, as reflected in fourth-quarter results from the nation's two largest cable companies. Comcast and Time Warner Cable each reported declines in video subscribers, including video-on-demand transactions and premium channels, such as HBO. Even though Comcast was able to boost the number of digital video subscribers by 410,000, it lost about 199,000 basic cable subscribers. Time Warner also reported it lost 105,000 video customers. The phone companies haven't been immune to this trend either. Verizon Communications saw a lackluster quarter for its Fios TV service. The company added only 153,000 customers in the fourth quarter. It had added 191,000 new Fios TV subscribers in the third quarter of 2009. But where the phone companies have an edge over cable companies is in how customers perceive them. About 95 percent of phone company TV customers say they are satisfied with their service compared with only 67 percent of cable TV subscribers. In fact, in Strategy Analytics' most recent survey, cable operators underperformed their phone competitors in almost every aspect from customer service to reliability and the overall quality of the service. What's more, the phone companies are viewed as more innovative than the cable companies with more than 50 percent of phone company TV subscribers saying their provider exceeds their expectations in innovativeness, while only 22 percent of cable TV subscribers say that. The over-the-top video threat Another lurking threat to cable's TV business is over-the-top Internet TV services. Consumers are already questioning the value of pay TV subscriptions, especially as the volume of high-quality content available online for free or supported by advertising grows. "People are questioning why they should pay $60 or more a month for something they aren't that thrilled with when they can replicate that experience with Hulu or an Xbox," Piper said. The only two things keeping many consumers from completely cutting the cable cord is access to live content like sports and ease of use. Currently, watching Internet-based video on a big-screen TV still requires a bit of work and some technical expertise. Piper said he believes there will always be a place for paid subscription TV services. But once watching Internet-based video on a TV becomes as easy as clicking on a remote control, he thinks it could chip away at the business model. Video game console makers, set-top box manufacturers, and a slew of software developers are all working hard to make this process as seamless as possible. And the closer these companies get to making this happen, the more pressure they will exert on cable operators and other paid TV providers to change their business model and offer content a la carte, he predicts. "History has proven that customers are willing to pay a premium for content, as long as they feel that they are in control," he said. "Service providers have an opportunity to mitigate defection by giving their customers choice-or at least the illusion of choice. Rethinking existing content bundles and tiers, and allowing customers at least some choice in 'building a bundle,' are immediate steps that any of the TV providers should consider." Comcast sees the light Comcast, more than any other cable operator, is taking this advice to heart. Not only has the company been offering its own Fancast Web site that aggregates TV programming online, but it's also launched its on-demand online service called TV Everywhere that allows cable subscribers to get access to premium cable content from their laptops. Comcast has also invested in a start-up called Move Networks, which has developed technology that transmits broadcast quality video via the Web, the Wall Street Journal reported. Move, which plans to offer an Internet subscription TV services, uses "adaptive streaming" to adjust the quality of the images based on how much bandwidth is available. Comcast is using the Move technology to deliver the TV Everywhere service, according to the Wall Street Journal. But Comcast hasn't said how its own plans for TV Everywhere stack up against Move's plans. Another important investment Comcast is making to head off competition is its acquisition of a controlling stake in NBC Universal, which will give Comcast control of content and also a stake in the popular Web video aggregation site Hulu.com, in which NBC is a partner. Comcast is even working to improve its image as an innovator. Comcast CEO Brian Roberts said Wednesday during the company's quarterly conference call that Comcast will rebrand its cable products under the name Xfinity in an effort to appeal to customers focused on new technologies, like high-speed Internet and all-digital TV. The new brand will go into effect in 11 markets starting February 12. Verizon has its Fios brand for its fiber to the home service, and Cablevision has branded its cable and Internet services Optimum. Even though cable operators are vulnerable as they continue to lose TV customer, adding more broadband subscribers, as Comcast and Time Warner Cable, have each done in the fourth quarter is also very important. Customers who subscribe to TV and broadband Internet services are less likely to cancel their service. And Strategy Analytics found in its survey that these customers are more satisfied with their service than customers subscribing to one service. In fact, bundled subscribers are 19 percent less likely to defect from their current provider when presented a competitive offering that is 10 percent cheaper. And even when the discount is bumped to 20 percent, customers subscribing to more than one service are 10 percent less likely than customers with one service to cancel their service. "Our research shows that, while the 'insulating effect' of the bundle is real," Piper said. "But it's not without its limitations. Not surprisingly, the more compelling the competitive offering, the less effective the bundle is at retaining customers. So cable operators need to think beyond the bundle." ---------------------- Marguerite Reardon has been a CNET News reporter since 2004, covering cell phone services, broadband, citywide Wi-Fi, the Net neutrality debate, as well as the ongoing consolidation of the phone companies. ================================================= George Antunes Voice (713) 743-3923 Associate Professor Fax (713) 743-3927 Political Science Internet: antunes at uh dot edu University of Houston Houston, TX 77204-3011 *********************************** * POST TO [email protected] * *********************************** Medianews mailing list [email protected] http://lists.etskywarn.net/mailman/listinfo/medianews
