Media Business Strategies

The Blog of David Polakoff

Cut the Cake…I Mean Cord

Posted by David Polakoff on November 24, 2010

The Windmills of My Immediate Mind

Media Business Strategies – David Polakoff

Cut the Cake…I Mean Cord

 

The Animal House, Delta Tau Chi fraternity boys seek revenge on Dean Wormer and Faber College by “cutting the cake;” slicing a rope, which converts their decorated cake parade float into the 1966 Lincoln Continental, reborn, “Deathmobile,” and charging the grandstand seated school administration.  Today, we hear “cutting the (cable/satellite television) cord” mostly as a decision of economy or technological obsolescence, while in the process, some bask in the “sweet revenge” for years of cable/satellite provider woeful service.  This Windmills of My Immediate Mind installment covers the consumer perspective and a (somewhat, Jonathan Swift) modest proposal – that cable/satellite providers do some of their own cord cutting.

Within the current economic environment, cable/satellite subscribers are disconnecting or reducing their cable spend, forcibly or prudently, due to personal cash flow issues.  Other consumers are consuming media through alternative means and thus find purchased cable/satellite television programming redundant or now of lower utility, and they are disconnecting or reducing their cable/satellite television service (see also the previous post, Cable Knit).

Recently, a poll by Harris Interactive reported that one out of five Americans have canceled or reduced their cable television service in the last six months to save money.  Another,  recent poll from The Diffusion Group found that people who own iPads, or are planning to imminently purchase one, are significantly more likely than average adult broadband users to either downgrade or cancel their subscription TV services.  And in another poll, heavy viewers of television shows and movies on the internet are not necessarily leading candidates to “cut the cord” of their cable subscriptions, according to a new study by Nielsen and the Cable & Telecommunications Association for Marketing.  During the third-quarter earnings call, Time Warner CEO, Jeff Bewkes, remarked, “On the cord-cutting, we’re not seeing it; we doubt that we’re going to see it…although we’ll all watch for it.”  Shortly thereafter, Time Warner Cable announced they will launch a budget-priced cable TV package in a couple of test markets that will likely include all broadcast networks and local stations, but exclude higher-priced cable networks; this a result of experienced losses of lower-end subscribers, which management has attributed to the weak economy.

Pick your poll/survey, the fact is that we are all using our PCs, laptops, iPads, iPods, Smartphones, televisions, NetFlix, GoogleTV, and game boxes to consume entertainment and news as we’ve not done before.  Whether the content is free, pay-per-view, or subscription based, we’re making decisions based upon new consumption behavior and price; cable/satellite subscription options are being rationalized accordingly.

As a media and entertainment industry financial, operational, and strategic consultant, I apply one of my guiding principles as a sailboat charter captain and sailing instructor: The time to take action is the moment you start thinking about it.  When I see storm clouds, I take action; I don’t “wait, hope, and see.”

The Time Warner Cable move to sell a package of reduced channel programming at a reduced price is smart thinking.  It is a good lead-in to my modest proposal for cable/satellite providers’ own “cord cutting.”

Pay-tv channels levy varying fees to distributors largely based upon popularity with consumers.  During the early and growth years of cable/satellite distribution, the carriers needed wide and varied programming to attract subscribers; launching channels was relatively easy.  Over time, some channels achieved immense popularity and others remained or became just niche focused, carrying smaller audiences.  In the current environment launching new cable channels is a huge if not impossible challenge, as there are not many un-served programming needs that would attract a critical mass and distributors are cautious about increasing consumer fees (believe it or not).  Today, those new, niche channels need to launch as a la carte, subscription based, VOD based, or as internet channels.

My proposal is to have cable/satellite distributors “cut the cord” with niche audience focused programming, driving those channels to the alternative distribution means and platforms.  If the programming is so “must have” with their audiences, those consumers will support the channels in their new format/platforms.  If those consumers then “cut the cord,” to their overall cable/satellite subscription, so be it; their numbers are not that huge and the distributors will be lowering their programming costs, reducing their retail rates, and thus giving value to their overall, core customer base; enhancing their consumer loyalty, and reducing churn.

In the process, certain nascent distribution platforms will be enhanced as they carry consumers’ only opportunity to now access programming previously available on cable/satellite.  Traditional business models are changing and my proposal reduces the oversupplied and overpriced cable/satellite package and increases demand and revenue generation for new media businesses.

Are there devils in the details to work out?  Of course.  But holding on to the traditional cable business model is staring storm clouds ahead.  Is there a storm coming in a minute?  No.  In an hour?  Possibly.  But there is a storm coming.  There are analogies here to the ground altering changes of the music and print media industries, but they’re not apples-to-apples with cable/satellite television.  The more proactive and creative the cable/satellite distributors are in being value-price sensitive, the more competitive they’ll be.  Reducing mandates in purchasing of fringe programming, and by providing some degree of better consumer choice in programming purchased, will make cable/satellite programming a more economical and assured purchase decision.

The Delta Tau Chi’s “Deathmobile” need not be a direct hit.

                                                                                                                                                                          

Media Business Strategies is the blog/website of David Polakoff, a New York based, Media & Entertainment Industry Financial Executive.

David Polakoff’s media/entertainment industry experience and expertise results from his tenures in senior financial and development roles with: Ernst & Young, HBO/Time Warner, ITV Studios/itv plc, independent consulting, and multi-channel network, Iconic Entertainment, Inc.  Currently, David provides financial, operational, and strategic services to media/entertainment companies.  Read more in About.

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