CABLE TV – A VULNERABLE MARKET ?


Cable TV has been a big part of most of our childhood shows. But with the advent of the internet era, it is slowly losing to Subscription video on demand (SVoD) providers. Streaming giant Netflix has taken over the market and is currently eclipsing television viewership. Let us take a closer look at a statistics from Nielsen’s survey. 40% of all US households with Cable TV or broadband connection use a SVoD service like Netflix, Hulu Plus or Amazon Prime, out of which Netflix dominates as expected with a 36% share.

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Such is the phenomenon that households are increasingly subscribing to only the internet to access SVoD and not subscribing to cable television. This is especially prevelant among young families and students.

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The number of households who have broadband connection but do not subscribe to television grew by 16% from to 10.5 million in 2014 as compared to 2012. TV ratings are also on the decline while those of SVoD services like Netflix are shooting up. All this leads us to question whether Cable TV has joined the list of vulnerable markets which are disrupted by the advent of Information and the Internet. We answer this question using the vulnerable market hypothesis by Nelson F. Granados, Robert J. Kauffman, and Bradley King.

  • Easy to Enter: The availability of internet has allowed streaming service providers to use it as a low cost distribution channel, something which the incumbents had never tried out before. The internet gives them access to a global audience and hence they are able to gain volumes which they would not have been able to otherwise.
  • Attractive to Attack: There exists a customer profitability gradient in the entertainment industry which the new entrants are exploiting. The cable TV providers have for long followed a one size fits all approach. They have floated expensive channel bundles and most viewers had to choose from a fixed set of alternatives. But the streaming service allows viewers to compile their own list of channels which view on a regular basis. For less than $10 a month, one can sign up for Netflix and browse what they have to offer. Since there are no termination fees involved, viewers have the flexibility to cancel the subscription as well. Thus streaming service providers have managed to opportunistically pick off the most passionate viewers who have a higher willingness to pay provided they get exactly the content they want to view. This has left Cable service with the leisure and occasional viewers. No wonder the TV ratings are tumbling.
  • Difficult to Defend: Premium networks CBS and HBO announced their won streaming services for next year. In fact CBS shows, past and present can be viewed by subscribing to its streaming network for only $6 a month. This is a major blow to cable service providers since these are marquee brands available only on Pay TV. With such brands announcing their plans to circumvent the existing delivery system, cable TV has just been hit with another bullet. Cable TV providers need to understand the needs of the customer better and provide more customized bundles if they have any chance of a fightback against the SVoD dominance. They have to get rid of the rigid pricing structures and must try to be flexible as per consumer preferences.

Cable service providers have thus got a massive challenge on their hands. As I near the completion of this report, I am myself looking for a streaming service to show me the weekend’s soccer matches. Can Cable TV do something ? Please let me know your views.

References:

  1. Granados, N., Kauffman, R.J., and King, B. 2008. “How Has Electronic Travel Distribution Been Transformed? A Test of the Theory of Newly-Vulnerable Markets”. Journal of Management Information Systems 25(2) 73-96
  2. Nielsen, Total Audience Report Q4 2014. Available at: http://www.nielsen.com/content/dam/corporate/us/en/reports-downloads/2015-reports/total-audience-report-q4-2014.pdf
  3. The Los Angeles Times, “Moves by HBO, CBS could be tipping point for a la carte pricing”  Available at: http://www.latimes.com/business/la-fi-lazarus-20141017-column.html
  4. http://www.huffingtonpost.com/2014/10/17/hbo-cbs-cable_n_6004446.html
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