May 5, 2016
The term “Cord Cutter” has become synonymous with cost-savings and on-demand entertainment. According to techopedia.com, the term gained prominence in 2010 as streaming content providers like Amazon Prime, Hulu, Netflix and YouTube became major players in the video entertainment space; stealing customers away from bloated, but lucrative cable packages.
Over the past few years, cable companies have slowly evolved to counteract the emergence of a la carte, on-demand, streaming services; Upgrading data infrastructure, improving customer service standards and reworking existing media contracts to unleash the potential of on-demand and mobile technologies.
In this article, we’ll look closely at five solutions cable companies and telecom giants have that can help them weather the cable-cutting storm, as well as the challenges associated with additional competition in the marketplace.
As the headline of an article published on Wired so eloquently put it, “Cord-Cutting is Gonna Suck in 2016”. Finley, the author of the piece, painted a picture of what cord-cutting really looks like for those of us addicted to new shows and live content. After the dust settles, passionate consumers of current television programs will need to subscribe to multiple streaming services in order to get all of the latest content that they love. In fact, they could end up paying even more than they were previously paying for their traditional cable package.
The average television and internet bundle customer is paying $132 per month according to NBC. Let’s compare this to a few of the streaming services, along with their respective costs:
Just from the list above, it’s clear that a cord-cutter purchasing all of the subscriptions and on-demand streaming services necessary for remaining current would spend more than $80 per month on content alone. This doesn’t include the high-speed internet service required to reliably stream content in HD. Even if a cord-cutter subscribes to all of these packages, they’ll still miss out on the vast majority of live sporting events and news, while having to wait an extra day or two to watch current television series.
There’s a real opportunity for telecom and MSO’s to more efficiently bundle television services with high-speed internet. Online advertisements will tell you that the war of the bundles has already begun, but these packages need to include seamless, customized streaming services that deliver content on the platforms customers use every day.
Netflix provides subscribers with some powerful features that have propelled it to the top of the streaming market.
In response to this offering, and the disruption it caused in traditional television markets, Cox Communications bet heavily on a new platform, called Contour TV. Incorporating live television with thousands of on-demand programs and user-specific mobile access, it was a winner in theory. In practice, it’s a very compelling solution that’s still a bit rough around the edges. Adding in the cost of cable boxes and associated monthly service fees leaves Netflix as the clear cost-based winner.
Cox’s Contour TV Benefits:
As big of a leap forward as Cox’s Contour system is, unfortunately it’s not enough to place Cox ahead of the streaming competition. Just look at some of the reviews in the Google Play store for the Contour App for an idea of where Cox dropped the ball on this rollout:
“… [Contour] is another layer to the sandwich. It’s very unorganized (compared with AT&T U-Verse’s app), and you can’t watch anything away from home. How…stupid is that?….If you have Cox, it’s time for a Slingbox.” -Robert Gonzalez via Google Play Store
“…Catch up with the new world Cox. “Access your channels from anywhere”? How about access 1/2 the channels in half the places. App sucks.” -J. Hester via Google Play Store
Telecoms need to understand that the road to negative customer sentement is paved with good intentions. Undoubtedly the Contour system is a leap forward, but in a world where highly-polished streaming services are the new norm, companies that specialize in the streaming experience are running laps around the more bureacratic cable companies.
As telecoms pivot to the needs of the market, they need to keep a simple phrase in mind: “Reliably accessible.” Cellphones and VOIP services have decimated the traditional landline phone market. In the majority of product bundles offered by cable companies, the phone is provided virtually free of charge. The concept behind giving away a phone line is that if a customer’s home phone is provided by the same provider as their TV and internet service, there’s one less opportunity for a competitor to gain a foothold in the home.
According to a survey commissioned by the Centers for Disease Control and Prevention (CDC), 47 percent of US households use only cellphones. This means that almost half of the US population relies solely on a cellphone for phone service. Wireless carriers have invested heavily in building out infrastructure, and smartphones have rapidly improved in both form and function.
To many consumers, the phone feature of an iPhone or Android handset is seen more of as an app than a primary service. The plethora of alternative communication options has severely diminished the necessity of a landline phone. For example, Microsoft’s Skype service allows users around the world to call each other for free, assuming they have a reliable data connection. Dialing toll-free numbers is completely free, and minutes can be purchased from the Skype website if a traditional phone number needs to be called.
Telecom companies need to reduce focus on home phone service, and instead invest heavily in providing cost-effective internet and television bundles that meet customer’s demands for a la carte channel pricing and streaming services.
When Cox launched the Contour service that we discussed above, they first launched with only an iOS app. They had delayed Android development, and the reason for this might be that roughly 68% of smartphone video is consumed on an iOS device. The really important statistic that cable companies need to understand is that 36% of consumers surveyed by Adobe responded that they watch videos that last 5 minutes or longer on their smartphones, daily1. And 48% of the videos viewed on mobile platforms are consumed via an App.
This means that cable companies must aggressively produce high-quality mobile apps that complement their television services. Time Warner Cable, for example, offers a TWC TV app that allows subscribers to view on-demand content and stream live TV from their smartphone and tablet. It’s also possible to schedule DVR recordings and view the TV Guide to find something awesome to watch. Although, for most live channels, subscribers will need to be connected to their home WiFi in order to stream content.
It’s likely that the limitations on locations where content can be streamed is tied to the intricate contracts that are negotiated between cable companies and television networks. The sooner that these contracts can be revised and modernized to allow for anywhere, anytime streaming, the better cable companies will be able to bring their full weight to the fight with other streaming services.
Virtually every retailer will tell you that the shoppers visiting their stores and websites are more educated and well-informed than ever before. The internet has allowed for information to be shared at the speed of light. In fact, AdWeek reports that 81% of shoppers do online research before making a purchase.
In the advertisement-saturated market of TV and internet service, this means consumers understand how different types of internet connections impact the service they receive, both at home and at work. A sales call where internet service is discussed will likely include a conversation about “Fios” versus traditional copper or DSL infastructure.
The delays in upgrading last-generation data and communications infrastructure is hurting the reputation of some MSO cable companies. For example, Cox Communications struggled to fend off attacks from Verizon FiOS in their Virginia market, as Verizon invested more than $659 million in fiber optic lines; offering direct fiber optic connections to customer’s homes if they were willing to jump ship.
The churn resulting from Cox’s delays in network upgrades, compared to Verizon’s end-to-end fiber optic service resulted in Cox Communications losing some of their residential subscribers. The losses in market share lead Cox Virginia to invest heavily in a new customer retention department. Then, the bundle wars really kicked into high gear.
Customers eventually figured out that if they threatened to cancel their service, they could get discounts. Some customers have since switched back and forth between providers every 1-2 years depending on their contract terms. When they switched back, they were treated as new customers and given introductory rates. To this day, Verizon and Cox are aggressively battling it out in Virginia with billboards offering killer deals on TV, home phone and internet for “new customers”.
To prevent going down the path of decreasing margins and customer churn, MSO cable companies need to take advantage of contractors to supplement their existing team of field engineers. The more quickly network upgrades can be completed, the less likely it is that outside companies will outmaneuver them to deliver technologically superior services to their consumers.
Don’t be afraid to take advantage of outside contractors to rollout system upgrades and deliver service that meets the expectations of a well-informed market. Delays in infrastructure upgrades invite outside competitors to enter the market.
The streaming wars have commenced, and Netflix is currently king of the hill. To knock them off the throne, MSO’s need to make their content more accessible from a variety of platforms. The cost of accessing content needs to come down as well. Thankfully, market competition will force more affordable contract negotiations between MSO’s and network TV channels. The question is, will these negotiations and lower rates reach consumers fast enough to prevent them from cutting the cord altogether?