Was This Just Short Term Greed Versus Long Term Thinking or the Early Sound of a Death Rattle?
October 27th, 2010
The Fox – Cablevision stand-off has been cast as a financial stalemate between a content supplier and a distributor. Fox wants more money for their broadcast stations and Cablevision doesn’t want to pay more.
Broadcasters have viewed revenue generated from must carry rules as a now essential revenue stream for their stations since their audiences have been in a constant decline for the past 20 years. Cable MSOs have made a lot of money charging consumers for bundled programming they don’t want but have to take to get the channels they want.
So in this stand off, who are the winners? Sports bars in NYC and Philadelphia.
Who are the losers? Consumers, sports fans in particular. Fox, as ratings for sports events they paid dearly for are lower with resultant lower revenue. Cablevision, as they will most likely lose customers who might choose to switch TV providers. Advertisers as they will have lower audiences than they expected.
So, most everybody was a short term loser except local sports bars where fans had to go to see their home baseball and football teams.
Do you think consumers care which company is “right” or “just” in this stand-off? Of course not! They are angry that what they had paid for was not being provided. Do you think that increases good feelings toward Cablevision or Fox? Of course not!
In a column I wrote here called “Raise Your Hand if You Love Your Cable Company” I spoke to the fact that when I have asked that questions to audiences all over North America, no one raises their hand and people guffaw out loud as they think that such a funny question. Who could possibly love their cable company? I have used this question to point out that since there is no positive emotional relationship between the consumer and the cable company, there is no loyalty and that the subscriptions to the TV side of the cable business would start to decline as technology disintermediates the cable TV model. In this follow-up column here I was able to point to the beginning of this subscription decline.
So is this Fox-Cablevision stand-off just a battle of two large media companies who seem to care more about revenue than the public; short term greed versus long term customer relationship? Of course it is, there is no other way to spin it. Fox thought they could win. Cablevision thought they could win. In both cases the definition of win did not include the end users, the viewers.
We now live in a connected society. This gives people power. The power to choose not only what they watch, but when they watch, how they watch it, where they watch it and on what type of screen to watch it on.. Fox knows this enough to have temporarily blocked their programming on-line as well as via cable. A perfect tactic if you want the government to step in. It is this type of available choice that will drive viewers – who have the control – to exercise that control.
A loose analogy here is Napster. After spending a decade increasing prices of CDs from $12.95 to $17.95, forcing the consumer to buy all the songs on a CD whether they wanted all of them or not, was it any surprise that Napster was so quickly embraced? The music industry was basically eviscerated in a three year period. What did they do? They sued the people who had been their customers! Hey, that’s a really good strategy; sue your customers for not buying your product on your terms. While they were busy suing their former customers, Apple launched iTunes and the music industry no longer controlled their destiny but had to bend to a reality not of their making..
The broadcasting business has been in a slow inexorable decline from its peak in the 1970-80s. The MSO cable TV business is now beginning its’ slow inexorable decline. Instead of fighting each other, they should be more worried about the disintermediation that is going on all around them. The only long term solutions are to change how cable is sold to the consumer and to try to create an emotional connection with their customers. Neither of these concepts were/are anywhere in the thinking of these two companies.
If broadcasters and cable MSOs continue with the legacy thinking that prompted this stand-off, they will in fact speed along their relative demise. The consumers will move on, find other ways to watch, demand a different financial relationship, even find other things to watch if they have to keep paying for what they don’t or can’t watch.
Is that a rattle I hear?
October 27th, 2010 at 9:38 am
David:
First, what is “cable MSO.” That is a new acronym to me and probably most other people reading your blog. At least use the tried and true grammar rule of spelling it out the first time and putting the acronym in parentheses before using the acronym again.
Second, I understand your point in theory. However, in practice, for me, and for a lot of other people, the only viable broadband connection is cable. AT&T is not selling even their slowest speed DSL in my area any more because their network routing is so convoluted that I am too far from the central office (20,000 feet the technician told me) instead of the 10,000 feet that it is as a straight line. By the way, I do not live in a ghetto. Even after the current drop in real estate prices, there are still $1 million homes for sale here.
We are seeing the beginning of tiered broadband service on wireless/cellular connections. AT&T and others have also experimented with tiered or capped service on their wired and/or cable connections.
Your argument does not work in a monopoly, duopoly or oligopoly if the same companies are the only suppliers of both TV and broadband and are all pursuing similar strategies.
As we have seen in many other markets, if all of the sellers use the same strategy, then the customers lose at least as much as the sellers (at least in the short and sometimes medium term) when the strategy breaks down. My favorite current example of this is the pipeline break this summer in Bolingbrook/Romeoville, IL that caused a spike in gasoline prices in the Chicago area (and how much elsewhere?) while the break was being repaired and for at least a couple of weeks afterwards.
October 27th, 2010 at 10:31 am
We experienced a similar situation with DirecTV and Versus TV last year.
We bought a higher tier package from DirecTV to get Versus to watch Profesional Bull Riding (PBR). Versus which is owned by Comcast wanted more money from DirecTV to keep the channel. DirecTV refused to pay and took Versus off the air.. (actually they left a blank screen with a message about Comcast wanting more money)
DISH became the official satellite company of the PBR and many fans (not us) went to DISH to be able to keep watching the sport.
This year, DirecTV and Versus worked out the difference (I never heard how) and Versus appeared again.
Who won? Surely not the fans like us.
October 27th, 2010 at 11:10 am
There are two issues at play.
First, is this “lockout” by Cablevision is only going to be interesting if the other cable MSOs also lockout FOX. Cablevision was the first cable MSO to be held hostage by FOX for the big fee increase. If Fox is successful in getting this fee increase, then all the other networks will raise their fees and and all the MSOs plus satellite and everyone else will just have to raise fees and then, yes, the whole entertainment model will likely come crashing down. It is too damn expensive now! I commend Cablevision for standing up to Fox on this and I hope the other MSOs and satellite companies do the same.
Second, other wildcard in all this is the TV and Football leagues. They are not happy with fans being not happy! The value of their franchise is based on fans getting excited. It is hard to get excited when you can’t watch the games! This will create more impetus for the leagues to create their own networks and the implications of that is that they will be available ala carte over the Internet and that undermines the cable and satellite oligopoly.
November 10th, 2010 at 12:20 am
I totally agree and the values of integrity, collaboration, transparency, sharing, fairness and interdependence are already prevailing. I constantly get into very heated debates on “what is the purpose of business” and it does boil down into short term versus long term. The standard answer is to make a profit.
When the simple formula of value given for value received becomes imbalanced with all of the stakeholders, then I believe the downward spiral begins.
I believe there are new business models on the horizon. They will disrupt and bury the current models.