Content, Cost and Convenience Will Win the Digital Video War

September 28, 2011
To start off, this is one of the most challenging pieces I’ve written for Tech of the Hub. Every time I start to write this piece, there’s another announcement or change in the market. Maybe that’s why I enjoy writing about this area so much. Every day is a new day! So, before things change again…

The total number of satellite and cable subscribers are dropping. Why? In these uncertain economic times, consumers spend their dollars more deliberately. We now live in a world where there are alternatives to the traditional distributors of content, cable and satellite. The alternatives are provided by players such as Amazon, Netflix, Google, Apple and Roku, among many others who use the disruptive power of the Internet. These disruptive players address the frustrations that consumers have had with the cable and satellite companies. Most consumers are driven by cost, content and convenience. (Don’t worry, audio and video quality is still at the top of my list.) To define the three “C”s a bit more:

  • Cost: What you pay per month for the service. How much does the equipment cost to purchase or lease every month?
  • Content: Is there anything I’m interested in watching? Is new content always being added? 
  • Convenience: Is it easy to use the service? Can I watch the programming I’m interested in when I want and where I want?

Up to this point, cable and satellite companies have done things their way. It’s all about the bundle – hundreds of channels with lots of content. The lack of a la carte offerings and the need to rent equipment from the cable company has been a pain point for many customers. Pay-per-view movies are costly. Some consumers don’t want to pay for hundreds of channels when they don’t watch most of them.

Video streaming has excelled in the areas of convenience and cost. Either you get all-you-can-watch library for a flat rate (Netflix, Hulu Plus, Amazon Prime) or you pay for each program you watch (iTunes, Amazon, VUDU). Content is available on demand. You can access the content in the living room, or from any number of mobile devices or tablets (yep, you don’t even need a TV). Recommendation engines suggest content tailored to your taste.

With the loss of subscribers, cable and satellite companies have now decided to address their shortcomings in the areas of cost and convenience. Just yesterday, according to Reuters, cable companies have started to think about offering packages with a smaller number of channels to customers, a step short of true a la carte. The cost of sports and broadcast stations has driven up the cost of your cable bill. Excluding some of these channels from a package (i.e. ESPN), could create a lower-cost option for consumers.

Other efforts by the cable and satellite companies have focused on the areas of content and convenience. Some recent moves by the cable and satellite companies include:

  • Dish adding a streaming video library available to its customers for an additional $10 per month as a feature of its “Blockbuster Total Access” offering.
  • HBO making most of its library available through its HBO Go streaming video app. The catch is you have to subscribe to HBO through your cable or satellite provider. Consumers cannot purchase HBO Go by itself.
  • Starz walks away from Netflix and rolling out content such as Torchwood: Miracle Day that you can only watch on Starz. Furthermore, it is not available for purchase a la carte on iTunes or Amazon.
  • Fox shows, are available on web-based Hulu only eight days after they first air on television, unless you subscribe to Dish (other providers to follow) or Hulu Plus.
  • Cablevision and Time Warner offering the ability to stream live programming to tablets connected to a home network. Comcast has a similar product called AnyPlay in the works. All of these are examples of the “TV Everywhere” initiative.
  • Verizon’s FlexView letting you watch Pay-Per-View content on a variety of devices.

Looking at these developments you can see how cable channels that feature original content like HBO and Starz are doing everything they can to drive people to cable packages. Why won’t studios and channels like HBO and Starz go direct to the consumer? At this point, it’s about sheer numbers. There are roughly 100 million Pay TV subscribers in the United States. Cord cutters (folks who have cancelled cable) are a very small fraction of this number. Broadcast and pay channels make more money from their satellite and cable distribution deals than from on-line video. Every time you pay that big cable bill, you’re telling content providers that’s where the content should be. Fresh, first-run content is expensive. Only players with healthy subscriber numbers and growth will be able to get the content necessary to sustain themselves.

With all the flux in the market, it’s just like party politics: almost no one is popular right now: be it Netflix, cable or satellite. The only thing that has made cable and satellite companies rethink their approach is the loss of subscribers. Comcast, Time Warner, Dish and DIRECTV together lost over 700,000 subscribers last quarter.

Netflix has endured a lot of criticism lately for its price hike and splitting of the services. The best way for Netflix to combat its bad karma is with content announcements. Of the three “C’s”, content represents the most value to the consumer. Add a bunch of new material to Netflix, and consumers will stop complaining about the price hike.

This week was a step in the right direction. Don’t think that the alternative players won’t react as well. The biggest criticism about all-you-can-watch video streaming services is the lack of fresh content. Earlier this week, Netflix struck separate deals with Dreamworks Animation and Discovery Networks to add to their content. Amazon signed a deal to add a couple of thousand more movies and TV show episodes from Fox.

Who’s going to win this battle? The service that does the best job of balancing the combination of content, cost and convenience. At the end of the day, consumers will decide the winners with their wallets. 


US Pay-TV Subscriptions Decline by 380,000 in Q2 – IHS

Related Posts:
Netflix’s Growth Challenges
Netflix’s Price Increase is the Stick after the Carrot

Tags: Amazon, Apple, cable, comcast, DirecTV, FIOS, HBO, Hulu, iTunes, Netflix, streaming, TV, VUDU

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