By now, you’ve undoubtedly seen the Alec Baldwin-as-alien advertisement that debuted on the Super Bowl for Hulu, an online video service that offers users access to television shows for free. And if you’re not watching much TV these days, then you were probably already aware that much of what’s on TV, and plenty of what’s not, can be seen on the Web for free. So, with the economy in a tailspin, more consumers are turning to the Web for programming and opting to cut cable to shed a monthly expense. What do the cable companies think about this? Consulting magazine’s One-on-One caught up with Shahid Khan, a senior partner with IBB Consulting Group, a boutique firm specializing in broadband related products and services.
Consulting: How concerned are cable companies right now about content that’s available for free on the Internet?
Khan: I think the cable companies have been quite proactive in coming up with the right value propositions and alternate offerings for their customers. Even if a consumers want to get programming online, they’d still need a broadband connection. The cable companies actually provide broadband connections that are superior to what’s available from many broadband service providers.
Consulting: That’s true, but they can’t be happy about a competitor that’s essentially offering for free what they offer with a subscription model.
Khan: Well, they’re all looking to figure out their own “over the top” offerings right now, meaning offerings that aren’t going through the cable pipe, but rather, the broadband pipe. Comcast, for instance, launched Fancast last year. That’s sort of its version of Hulu. It’s ad supported and totally free for consumers, not just Comcast subscribers. Other cable companies will also come up with their own offerings that will compete with the likes of Hulu and TV.com. One thing to keep in mind is that a lot of the free programming that’s available on the net is episodic television or library content. If a consumer wants to watch sports or other live events, they’re still going to need television. The other factor to consider is the quality of the broadcast. If high definition is important to you, then you’re still going to require cable or satellite programming capability.
Consulting: Do you envision a day when more people will be using the Internet to consume what’s traditionally been TV content?
Khan: I think your question is slightly flawed. Your question assumes that the Internet and television will continue to be different media. In the future, the Internet will be connected directly to your TV. Actually, that’s not even the future, that’s happening today. The biggest obstacle has been that consumers don’t want to watch movies on their computer, but that won’t be a problem very much longer. We’ve already seen multiple devices that allow Internet connectivity directly to TV. A lot of televisions are now available with a built-in Netflix service where you won’t need to pay $5 for video on demand. That TV will include 15,000 movies available for $9.99 a month through a Netflix service. Or, you could buy Apple TV and watch movies on that. So, cable companies will have to enhance their own libraries and rethink their traditional $4.99 price point for video entertainment at some point.
Consulting: Are cable companies looking at new pricing models? I’ve seen some reports lately about people canceling their cable subscriptions because of the economy.
Khan: Yes, they’re all looking at new pricing options and creative bundles to attract customers on the lower end of the spectrum. The analog-to-digital shift is a big part of this and pretty much every cable company has announced an offering to attract those customers. But all of us are re-evaluating our monthly spend right now. Cable companies need to sharpen their pencils and come up with better bundles and enhanced packages. Some have already started offering discounted contracts for longer terms. If you sign a two-year contract, for instance, you can lock in at a lower rate.
Consulting: Are cable companies concerned about the possibility of losing customers in a prolonged economic downturn?
Khan: From a cable company perspective, it’s very important for them to not lose a customer. Customer retention is actually more important then getting new customers. Customer retention and churn reduction is the top priority for every cable company. For them, the cost of getting a new customer is significantly higher than retaining a customer. They’ve all put programs into place to address that. Historically, in down times like this, media has done better than other industries. We have research that shows that people will give up taking vacations and eating at fancy restaurants because of the economy. Instead, they’ll stay home and consume content. In down times, people still want to be entertained. So, this industry will be better off than some, but providers will have to constantly think through better, cheaper and more exciting ways to provide that entertainment to the consumer.
Consulting: What’s the future hold for cable companies?
Khan: The cable companies are trying to figure out how to stay ahead of the curve by coming up with new services, better offerings and better value propositions for the customers. They’re trying to figure out how to compete in a very competitive space. I think they’ve done a pretty good job of innovating thus far; cable companies are way beyond cable companies these days. They’re really communications companies. I think they will continue to evolve to provide the right content to the right customer at the right price at the right time. Whether it comes through their cable pipe or their broadband pipe is becoming more and more irrelevant, and that will continue to be the case in the future.