Analysts have long debated whether or not the Cable and Satellite TV industry is doomed. Subscriptions to Pay TV are at their lowest level in four years as consumers are seemingly beginning to “cut the cord” and cobble together their own solutions for cheaper and more flexible entertainment options. To add to the matter, the American Customer Satisfaction Index reveals that scores for TV service are, on average, lower than any other consumer sector. The lack of satisfaction is attributed to chronic rate hikes, clunky set top boxes, poor customer service, and a lack of control over which channels one pays for.
As pent-up frustrations with traditional Pay TV providers increase, customers are turning to “over-the-top” (OTT) providers including Netflix, Hulu, and Amazon. Late last year, the Xbox One, PS4, and Chromecast emerged making it even easier to watch web-based video. Additionally, emerging disruptive startups continue to reshape the landscape. Aereo, for example, allows consumers to watch and record live TV over the Internet—without having any hardware installed—for a mere $8 a month.
While there is debate about whether OTT will ever completely replace TV, it’s clear that the way consumers watch video is changing. Streaming services have broken down traditional barriers to viewing content and, as the world becomes more mobile, consumers want to watch content wherever and whenever on any device. Additionally, consumers are increasingly “binge-viewing,” or watching at least 2-3 episodes of a single series in one sitting. According to a 2013 Harris Interactive survey, 61 percent of adult viewers binge watch on a regular basis. This trend is shifting the economics of the industry, given that traditional providers rely heavily on advertising and syndicated reruns.
Until very recently, Pay TV providers have been able to successfully dig moats around their current business model, only making incremental tweaks to their products and positioning in the marketplace. Recent deals between Verizon and Intel or Comcast and Netflix suggest the incumbents are making significant investments in innovation. Traditional providers have also made technological improvements such as On Demand programs and “TV Everywhere” apps that allow customers to watch certain channels live on mobile devices. While these are certainly positive product improvements, they are not going to revolutionize the video and TV industry. The truth is, incumbents are reluctant to take the risks required to really innovate the category more radically. It’s the disruptors that are remaking the industry.
Case in point: the fall of Blockbuster and the rise of Netflix. Blockbuster executives were too shortsighted to see the future of the home video industry and failed to recognize how quickly consumer behavior was shifting. Rather than adapting its business model to embrace streaming early on, Blockbuster pursued short-term growth by expanding its stores into outlets for books, toys, and other merchandise. Eventually it jumped on the DVD delivery trend, but it was too late at that point. Blockbuster soon filed for bankruptcy.
In light of recent trends, many industry speculators are quick to proclaim the demise of the TV industry. But perhaps the true threat lies in the missed opportunity. After all, big companies have big capabilities. Having more resources, more reach, and an established customer base, traditional cable providers actually have greater potential than smaller, disruptive players to invest in innovation and reset industry norms. They can not only adapt, but also lead. By rethinking how they deliver their services and repositioning their brands as visionary, nimble, and cool, traditional cable providers can recapture lost subscribers and market share. This involves not only developing a campaign, but also closely examining and responding to unmet needs. Today, consumers crave seamless interoperability between devices, control over their video options, compelling content, and attentive customer service. They’re engaged by 30-second YouTube clips, but are also increasingly prone to watching 30 hours of their favorite TV series on demand. What does that mean for traditional programming? Should TV evolve into something more social? Or is more personalization the key? It’s a complex landscape and there are no easy answers, but the providers that apply their creativity and resources to the challenge will ultimately lead the charge to innovate.
While no one can be certain of the future of TV and video consumption, it’s safe to say that it will continue to evolve. As for incumbent providers, the opportunity is theirs to seize or overlook: Do they want to actively shape their industry’s future or simply follow suit?
Elyse Burack is a Strategy Consultant at Interbrand New York.