Every Friday RE:INVENTION’s team reviews a recent news article or research study and provides unique analysis and insights from each of our team members. We call this weekly blog feature, 5×5.
UP THIS WEEK: WHAT’S NEXT FOR THE CABLE INDUSTRY?
This week’s 5×5 forecasts changes ahead for the cable TV industry. According to a recent article in Forbes, the industry’s business model is flawed and rocky waters are ahead. Is the cable industry ripe for disruption? With increasingly negative customer sentiment for cable companies, it’s clear that something has to change fundamentally with the current TV model — but how and what? What’s next for the cable industry?
This Week’s Reference Article:
• The Cable TV Model Not Just Unpopular But Unsustainable, a recent Forbes technology article.
THIS WEEK’S QUESTION
What steps would you take to discover/determine the future of the cable industry?
OUR TEAM’S RESPONSES
Joe Barrus (“The Technologist”)
This is a very interesting article. I find it interesting as it illustrates how the forces of change can be held up by some equally forceful resistance. However, these days resistance is always futile; it just may take longer in some situations than others.
The cable industry has been under pressure to change for quite some time. Consumers are not happy with their product but because they have little choice, they will have to wait until viable options come to bear. But the key here is that the underlying force for change, consumer demand, is still there. It just is simmering.
This just tells me that change is inevitable and while the cable industry has bought some time (intentionally or not), they have the luxury to develop alternative models without the typical pressure many other industries are encountering. But the last thing they should do is squander it.
First thing I would do if I were the cable industry is to try to really tap into what the consumer wants. They know pretty well what they don’t want, but how well do they understand what they want instead? It seems fairly obvious consumers want on-demand content. They get that pretty much everywhere else! But what content? If cable companies can get a better handle on what content from little used channels people want, they can start to develop potential true demand based pricing models that would support an effective a la carte model. Or perhaps get into the content generation business themselves much like Netflix.
I think the cable companies need to look beyond just simply getting into streaming video as that market will be more difficult to defend. Are customers happy with the current content delivery model? That is, on demand from a TV with a remote? Or are customers getting used to alternative Web-based models like YouTube, etc. Perhaps it’s time to think about transforming the traditional cable to TV model to something that seems more like the Web. Perhaps that could drive some innovation around remote technology that could create a sort of hybrid between the traditional TV/remote model and the Computer/Web/Keyboard/Mouse model. That could allow the cable companies to start blending traditional content with new media.
Essentially, I would try to determine what current subscribers really want in content delivery and look beyond established delivery methods. However, I don’t really think it’s going to be current subscribers that will eventually put the pressure on cable companies to change; it is the next generation of subscriber. My 8 year old daughter almost never watches traditional TV/Cable. She gets most of her content from the Web or through alternate on demand services like Netflix through devices like Apple TV. Her older teenage brother rarely watches TV too. He spends most of his time on his phone watching YouTube, etc. When this generation becomes of age as potential paying subscribers, cable companies might not have what they are looking for. Even I at middle age am just a hair away from canceling cable TV. I only have 2 or 3 programs that I can’t readily get from alternative methods that has prevented me from dropping cable altogether. But it won’t be long before I do. So, I think cable companies need to better understand and predict what kind of content and delivery method their future customers will demand.
Once this generation becomes of age, that is when the pressure will surely reach a point that it will offset the resistance if not sooner. As cable companies realize they cannot replace departing customers with new ones, the financial pressures will come to bear and that will trickle back upstream to current content providers who have placed a headlock on change. That will force upstream price setting to come down. Who knows, perhaps that might mean someday we can all afford to go watch an NFL game again!
So, in a nutshell, if I were in a cable company’s shoes I would:
- Find out more detail on what the demand of my current subscriber base is. I would do this in an open forum like on Facebook or an ideation platform to encourage discussion among my customers. This will help reveal the details that you might not get with typical survey’s or suggestion boxes.
- Find a way to tap into behaviors of their future customer base by studying and predicting how they may want their content delivered that will fit their lifestyles once they grow up.
- Then use this information to innovate new delivery methods and technologies. Perhaps the mobile phone becomes the new setbox that can automatically connect to video peripherals no matter where they go?
- Why not set up a community based product development site where they can crowd source from their customers new innovations? That way they can innovate and address dwindling customer satisfaction at the same time? There is so much opportunity to innovate here and they have the means and time to do it well and stay relevant without having to give up market share.
Ultimately, the pressures of change will overcome all resistance as alternative methods come to bear. I wouldn’t be surprised to see that this pressure comes faster than the author of the article predicts. I don’t think cable companies have the luxury of sitting on their laurels. They need to get going now and find a way to get out of the headlock the content providers have on them.
Kirsten Osolind (“Ms. Operations”)
Cable companies outperform the Dow. Margins are strong. Regional cable providers operate as “mini-monopolies”. Subscribers are changing, but at a snail’s pace. Consumers are reluctant to “cut the cord”, deeming new technologies like Hulu and Roku to be supplements to cable subscriptions rather than substitutions. People have talked about multicast for a decade, yet few networks have implemented it. Streaming media was introduced 19 years ago but improvements have been paltry.
It’s no wonder why cable companies feel unmotivated to take action. To wit, this week a cable/wireless innovation-focused joint venture between Verizon, Comcast, Time Warner, and Bright House was terminated.
Lack of head-on competition can cause companies to rest on their laurels. And that marks the moment when an industry is ripe for disruption.
Call it the calm before the storm. The most opportune time to create a clear operational framework for defining innovation problems and approaches that are most likely to resolve them? Before crisis occurs.
The path to innovation — the implications, risks, and choices — varies from company to company. One universal truth holds true: it is almost always better to explore questions before diving into answers. One of the best exercises any company can do to gain insight about future competition and growth strategies: Ask your team to imagine they’ve quit and have unlimited funds to start a competitive company. How would they win?
Forecasting the Future
When it comes to forecasting the future of the cable industry, you don’t have to look far. There’s plenty of existing research out there. According to a recent Needham Insights study, the rapid rise of video viewing over mobile devices has the highest likelihood of disrupting the TV ecosystem. As does unbundling. The study suggests that nearly half the industry’s revenue — $70 billion — would disappear if people didn’t have to pay for bundled television. With Canada recently forcing cable companies to unbundle channels, it may spark interest in similar U.S. legislation.
And the statistics for millennials point to where traditional TV is headed: less than half of millennials (46%) pay for TV, 20% watch TV shows on their smartphones, another 25% on their tablets.
So, What’s Next?
When opportunity knocks, someone is going to grab it. Predicting what’s next for the industry and preparing for it starts with asking the right questions, analyzing trends, embracing technology advances, understanding changing customer expectations and eroding customer segments (customer attrition), and discovering unmet market needs. If cable companies want to stay relevant, they need to be brave enough to disrupt themselves before others disrupt them.
Dennis Jarvis (“The Marketeer”)
Not unlike many successful industries, the cable industry has become bloated and now controlled by six behemoths. Despite abysmal and increasing dissatisfaction with service, chokehold like bundling and rising prices, we the consuming public are forced to put up with it because of an almost an insatiable appetite for content.
I offer myself as a case in point. This past summer, Time Warner (my provider) was going through its battle with CBS, resulting in Showtime programming being cancelled, right in the middle of the concluding season of Dexter, a series I had been watching from day one. On top of this, my NFL season was in jeopardy. What was I to do?
Like any other consumer, I took to the complaint department, threatening to take my business elsewhere, just for that series. Sounds ridiculous, right — a reasonably educated person hung-up on a series and making hollow complaints against this cable giant. So, TW offers-up another station, STARZ to assuage its subscribing Showtime addicts during the TW – CBS kabuki dance. Okay, I decide that I will ride it out and then become engrossed in another series, The White Queen. Now we arrive at September 2 and the TW-CBS skirmish is settled. Great news. I am able to finish watching the finale of Dexter, for which I am about five episodes behind. Once I am Dexter current, I go back to STARZ to get up-to-date on The White Queen. Alas, I see a message that I no longer have access to this station, which was only a complimentary placeholder. I am not happy, but call TW and add STARZ to my package. Thank you for this long-winded lament, but I wanted to take this sorry industry situation to the reality of it for the consumer.
What would I do with this industry? Sorry to offer-up what you expect, but it needs to be broken by a very fundamental change in its reason for being. The cable industry’s roots go back to 1948, but its real epiphany occurred with brash Ted Turner (Yes, Turner.), who was vilified as the “Mouth From the South.” Turner was a genuine maverick with a vision. When everyone else in media was incredulous to the idea of 24-hour news, believing that the networks’ evening new programs covered everything people needed to know, Ted Turner believed whole-heartedly in the CNN concept. We know what happened. The industry needs just that today — a new vision by a bold individual or team who will drive it towards transformation, in the spirit of a Ted Turner or Scot Valley (Netflix). It is no secret as to the market needs. The vision does not need to necessarily come from an outsider. It can be done internally through the formation of an intrepreneurial team charged with challenging all the assumptions of the existing model and reinventing it. If the cable industry does not take-up this charge, another entity will do it.
Jorge Barba (“The Culture Guy”)
Just like my colleague Joe says, the jury is out on who will keep watching cable in its existing form. This is a classic case of a “Napster Moment”. When this happens, I look at a few things to modify or rethink:
- Business model. Who benefits from the existing model? No one is. This is no longer a win-win situation, no matter how good the content is. And from what I read, the benefits offered are no longer “must-haves”. This is a huge signal that the system is stuck, that means it is ripe for innovation.
- Customer segment. This one is interesting because the existing customer base does not include millennials, or the younger generation who get their content through internet enabled devices. One of the least practiced ways to innovate is to shift from your existing user base to a non-consuming base of new customers.
- Format. I would also look to experiment on the format of delivery. You could take a 45 minute show and make it shorter. Or you can play around with the story of the show so the audience can interact with it. Or, you could put one part of the story on cable, and another “fill in the blanks” part on emerging media channels such as Twitter and other social networks. Imagine if could follow the actors from on show on Twitter while they are in character there!
Cable TV is transitioning. It is no longer “just about TV”, it is everywhere where the audience is. How this transition will take place is still to be determined, the only thing that I do know is that it needs to generates excitement, and it needs to be very different from the existing model.
Kane (“K-9 Intern”)
Solving the cable industry’s innovation challenges is ruff. My advice to cable industry execs? Get off the couch! And I have just one plea: please don’t take away my cable TV. I really like watching dog food commercials.
THE FINAL WORD
Each individual solves problems in different ways due to the inherently diverse nature of their backgrounds. In today’s 5×5, we have heard from a technologist, a business operations expert, a marketer, a culture expert and a dog. Though their perspectives and functional expertise vary, the consistencies across their messages bring forth a solution that is likely better than each answer stands on its own. The cable industry is ripe for transformation and RE:INVENTION’s group-driven analysis of the matter serves as a powerful example of crowdsolving.