Are Pay-TV Companies Suicidal?

Rich Tehrani : Communications and Technology Blog - Tehrani.com
Rich Tehrani
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Are Pay-TV Companies Suicidal?

I don’t mean to sound an alarm bell but run for the doors – if you are a cable company or telco, just what the heck are you thinking?

Let me lay out the facts. Kodak is a shell of its former self as is Tower Records which went through bankruptcy. And in each case the move to digital distribution gave consumers alternatives which were either lower cost, more convenient or both.

Just think about this for a second – imagine if Kodak and/or Tower Records decided to increase prices as customers were starting to defect to alternative products. Would you think they were smart?

No, of course not – you would call them suicidal.

Now think about these companies raising prices in this economy. Would you call this an intelligent idea? Of course not.

So why are Time Warner Cable, Comcast, DirecTV and Cablevision all raising prices? Well to offset the increasing cost of content. Price increases are in the 3-7% range and this is happening after the first year the industry saw a loss in subscribers.

Obviously the problem is not an easy one to solve as when costs go up you generally have to either cut expenses or raise prices to ensure you grow profit. You can add new services but there is no guarantee you will launch ones which will generate the needed revenue.

Analysts will tell you the reason the industry is losing subs has more to do with increased prices than it does with competition from OTT services. When I saw this research I got to thinking of a friend who disconnected all of the TVs in his house over five years ago because his daughters were watching too much of it. Over the years, YouTube more or less replaced the television watching time.

The point is even if you cancel Pay-TV due to cost you will replace the service with YouTube, Netflix and others. Think about it – even Sears is now streaming videos. Consumers have real choices. And the question is, once consumers get used to switching to this sort of model which costs less and adds some new flexibility, will they ever pay for pay-TV again? If they don’t then there are some seriously suicidal content distribution companies out there.

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