When an industry is in disarray, with multiple disruptions hitting it from all sides, what’s the right way to plan adequately for an uncertain business future?
That’s what’s happening to the cable and broadcast TV industries right now. For years, the model for broadcast was advertiser-driven. Advertisers paid the networks to broadcast their messages to a large group of TV households. For the cable industry, cable programmers used a subscription model, paying good money for good programming.
But the industry is being turned upside down because of Internet connectivity in homes, Smart TVs and an ever-widening array of viewing options for people. Ultra-cheap streaming video and television services are cutting into the market share of the long-time cable television powerhouses.
Cable television companies have been aware of this for years, but now it can finally and definitively be said that streaming television services pose a serious threat to this industry. Business Insider reports the pay television industry lost 80,000 subscribers from May 2012 to May 2013, the first time the industry has seen dramatic losses like this.
This brings up two business planning questions:
- What can cable television companies do to remain competitive right now?
- How will the cable business shift its business planning to accommodate a new future?
Because technology makes change happen exponentially fast, revamping business plans and reacting to market forces is more difficult than ever before.
Threats to cable TV
The threats to cable TV are coming from multiple sides. The cable television industry has been a threat to itself. Profit margins have been so large over the past several decades that the major players haven’t had to innovate. Why change something when it works so well?
Secondly, cable television companies have also used bundling—hiding the channels consumers really want within a larger overall package—to their advantage for decades. This has allowed industry companies like Direct TV to set higher prices, but now, with streaming media gaining so much traction from users, consumers have a cost-effective alternative.
Cable TV companies are also fiercely guarding their territory. The New York Times recently reported about cable companies like Time Warner and others trying to block the efforts of Intel to develop competing Internet-based cable service to sell to subscribers a bundle of TV channels via the Web. Cable companies fear that this so-called Intel TV, delivered via broadband Internet in homes, could drastically disrupt the US TV market.
These threats all sound very daunting—what can cable television companies do?
Adapt business plans or die?
Consumers sure love to stream media. Netflix recently announced that its customers watched 4 billion hours of streaming video during the first quarter of 2013, which would make it watched more frequently than any other cable television network alone. That’s a big impetus for cable TV companies to deliver a product that meets changing consumer demands.
The good news for cable companies is that this change isn’t happening overnight. Craig Moffet (in this CNBC article) projects that the number of Americans willing to pay for television will drop from nearly 90 percent to about 80 percent by 2020. That’s seven years into the future, so that cushion should give cable companies time to develop a plan to avoid obsolescence.
Taking positive steps
To their credit, cable TV companies are identifying some ways to deliver greater value for the dollars spent with them—here’s a snapshot:
- Cox Communications, for example, is offering a simpler user interface, a more powerful DVR, personalized recommendations, and access via multiple devices. Market research performed by the company revealed these were some of the top demands of end users.
- Comcast unveiled a new user interface that’s smarter, more personalized, and easy-to-use.
- Cable companies are being wooed in parts by Web companies like Twitter to find new partnership between social media and cable services. This could become a stronger path to a new business plan.
Destroy current business models?
Cable companies may eventually have to dismantle their current business models and start again from scratch. Here are some possible, but very speculative, ideas:
If you can’t beat ‘em, join ‘em: Cable companies have serious profit margins now, and they could sink millions into the development of streaming services of their own. Streaming service Hulu has been on the seller’s block for awhile now, and it’s rumored that a cable TV company may purchase Hulu.
Developing exclusive rights to popular shows: Much like Netflix launched “House of Cards” earlier this year, cable television companies could benefit from keeping exclusive rights to television shows on their own streaming networks. Additional ideas include successful miniseries, much like the History Channel’s “Vikings” and “The Bible” that aired earlier this year.
Maintaining rights to popular shows: Cable TV companies may want to better position their businesses by buying the rights to popular live sports shows, NCAA basketball championship, Super Bowl, and other exclusive live events.
Survival of the fittest
It’s always difficult to change the existing power structure, but like it or not, change is coming for the cable television industry. It’s time they look to a different business plan to keep their companies competitive within the changing nature of consuming content. The companies that adapt and innovate will become the leaders of tomorrow.
Dan Stelter is a freelance business/finance web writer and currently runs his own web content firm.
