Cable TV facing triple whammy as recession hits U.S. economy

December 24, 9:55 AMMedia Industry ExaminerJudah Freed

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Cable TV faces tough choices.

Cable system operators face a triple whammy as the economy slumps. Not only are subscribers looking to cut their costs, but so are advertisers, and cable vendors are caught in the middle.

In terms of subscribers, when facing hard times, consumers tend to cut back on any expense not considered absolutely essential, which might mean cable services.

Cable subscribers might reduce their video-on-demand (VOD) or pay-per-view (PPV) buys,  for instance, or cancel premium channels, or cut back to basic tier programming, or eliminate one or two of the services in a triple play of digital video, voice and data services.

So, cable operators now must respond to the recession by investigating how the economic crisis is affecting their total subscriber counts, subscriber retention, and service levels. Cable operators now must develop effective marketing strategies to preserve or expand revenues from their subscribers.

In terms of advertisers, when facing hard times, most companies cut back on their advertising and marketing budgets before trimming any other business expense.

Savvy executives know that's cutting back sales efforts in any business is counter-productive, because what a struggling venture need to do more than anything is to generate revenues. Even so,  the cable operators right now are seeing lots of ad contracts either cancelled or scaled back.

So, cable operators now must respond to the recession by working closer than ever with current and potential advertisers to counter the trend of fewer ad dollars being available. They need to argue the business case of spending money to make money, which seems counter-intuitive to many advertisers.

In terms of cable vendors, when facing hard times, cable operators may choose to downgrade, defer or cancel plant maintenance and improvements, such as converting to switched digital video (SDV) or upgrading to tru2way set-top-boxes, let alone investing in new test and measurement equipment.

Given that cable vendors today are looking at reduced or cancelled orders, the cable system operators might be able to negotiate better pricing now than they could when the market was stronger. However, they cannot drive too hard of a bargain or else they risk putting these vendors out of business.

So, cable operators now must respond to the recession by making clear choices about their cable plant. Both system operators an vendors need to perform fiscal and technical analysis to make strategic choices about what what work on the plant to do now and what to do later.

Cable holds the competitive advantage of serving more households than other other pay-TV service, but this edge is fading. The Television Bureau of Advertising (TBA) reported in August that cable market penetration had sunk to an 18-year low of only 60.9 percent of U.S. households.  This likely has fallen since the financial crisis hit the headlines in September.

Competing direct broadcast satellite (dbs) services have captured 28.2 percent of the pay-TV market, reported TBA. with the remaining two-tenths of a percent going to alternative video delivery systems like telephone fiber and DSL services as well as IPTV and movies by 2nd-day air. These alternatives are gaining customer appeal because of lower costs and a growing reputation for friendler customer service than cable.

At the same time, a small but growing percentage of U.S. television households are opting out of pay TV entirely. They are cashing in their $40 coupons for analog-to-digital converter boxes and preparing for the transition to DTV broadcasting in February 2009.

Cable still dominates the pay-TV market, but the industry need to rethink its strategies for subscribers, advertising and vendors if the industry wants to remain the leading player.
 

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