Is US Cable Industry Ready for the Challenge?
Cable Companies in the US have long enjoyed being in a monopolistic market. Amongst themselves, they are a fraternity and mostly do not compete in each other's territory. Outside of them, there was traditionally no other service provider who could provide the bundle of voice, video and data to the consumers. While they were competing with the Satellite Providers on video, the challenge was not very threatening to their growth.
However, over the last 2-3 years, certain shifts have happened in the economy and communications industry which have impacted or are threatening to impact the cable industry.
1. The top 2 Telecom operators have entered into video space. ATT and Verizon have made their claim on the video programming distribution space and have entered with a lot of muscle. ATT through its U-verse offering and Verizon with its FIOS offering have captured market share and now have decent number of subscribers. Recent reports put the ATT video subs at 2.3 M and Verizon at 3 M. Compare that to Cable Vision at 3.0 M subs and Cable vision is the fifth largest Cable Operator. These operators have brought in fiber which promises to bring very high bandwidth to the consumer and also their innovation pace is faster than the Cable Industry
2. The Rise of "Over the Top" video players. With the rapid growth in internet and the likes of U-tube Hulu, Joost and others, content is no longer distributed through the traditional TV network. There are many players in the market who provide access to content through internet. If this continues to be a trend, the advertizing revenue would also slowly shift to these new channels of content distribution. Also the negotiation power of the cable operator with content producers would also continue to reduce
3. The rise of Skype, Google Voice kind of players which are enabling free phone service through VoIP are a certain threat to the Traditional Voice service which works on the subscription model. These again ride on the internet and as the Internet becomes ubiquitous on devices, would provide a no/low cost phone solution to the consumer.
4. Cable Operators have always been in the bottom bracket on Customer Satisfaction in the Communications industry. Again, the shift in the market dynamics has made these companies sit up and re-look at customer experience with a bigger sense of urgency.
With the product differentiators fading away, the cable companies need to put on their thinking caps and take the battle to the enemy
In my opinion, there are 5 major areas that the cable companies should focus on to meet the challenge
1. Shift to being service centric from product centric: Traditional business model in Cable has always focused around product subscription based revenue with fixed monthly billing to the consumer for different products like video, High speed internet and Home Phone. But with the products themselves becoming commodity, the need is to engage the customer with innovative services which may sometimes sit on top of multiple products like convergence based offerings, and could provide entertainment services, communication services and many others. The products should move into lower strata enabling a service creation layer on top of the products to bring faster innovation to the consumer. This would also make the companies more customer centric and hence more sticky to their consumers. To make this happen would also require the operators to structure themselves differently from their current product based structure.
2. Instead of fighting "Over the top" become "Over the Top": Providing customers with alternate channels to access the content including through internet, mobile devices and others would really go a long way in retaining the customers from moving to "over the top" providers. Customers would prefer hanging around with their existing service providers if they get the flexibility they need. Some of these initiatives would require deeper relationships with content providers and different business models. Initiatives like "TV Anywhere" by Cable Operators is a step in the right direction.
3. Personalize the customer experience: With competition coming in from all sides and the consumer having plethora of choices, the only way to retain the customer is to personalize his/her experience with the operator. The need of the hour is to understand the customer better and be proactive in reaching out to them before they feel the need to reach out. Cable companies need to focus on Knowledge based customer service, customer analytics, customer profiling, creating multiple channels for enabling easy reach, being proactive in reaching out to customers on potential issues/outages. The customer should be at the center of all innovation and strategy.
4. Get closer to Content: With alternate distribution channels for content becoming a reality, the cable operators are fast losing the stickiness on the video offerings and with that also lowering the negotiation powers with the content providers. Slowly but surely, the importance is moving to content owners from distribution channels. To capitalize on this, there is an increasing trend among Cable Operators to get more content ownership. The recent acquisition of NBC by Comcast is an excellent example of the Operator trying to protect the market by owning the content
5. Faster innovation is the key: Like we discussed, cable business no longer enjoys a monopolistic setup and competition is slowly creeping in. This has created a need for faster innovation. This is a bigger problem than it seems. Cable business, its organizational structure, systems, processes, culture have traditionally not been geared to fast innovation. Making this major shift would require major changes across the organization. This is already happening in varying degrees across the companies. We need to wait and see the results of this in the coming years
These are interesting times ahead for the Cable Industry. While the threats are real, so are the opportunities.
