Reuters is reporting that cable operators are working on a plan to allow customers to purchase channels on an individual basis, also known as à la carte. This represents a 180 degree change in strategy and position, from an industry that has long held that established advertising models preclude any departure from the 'tiered' channel system. 

Glad to see you're finally coming around, Cable.

Not that you had much choice. And not to be uncharitable, but golly, it feels good.

You see, our camp (those who have been citing the need for à la carte bundling for the past 4+ years) has been rather sparsely populated of late. In countless reports, presentations and one-on-one meetings with Cable executives over the years, we have pointed out that à la carte is not just a consumer preference, it is a Pay TV imperative. Meanwhile, through industry blowhards and paid quote-models, we have been told that it can't work, that it won't work.

Our response has always been that it has to work, if Pay TV is to survive.

And after years of dismissing it out of hand, of categorically rejecting any survey data or consumer insights contradicting their established talking points, Cable is finally listening, the wires and airwaves are filling up with the sounds of pundits finally changing their tunes.

"There is a growing recognition that the current model is broken," one epically overexposed talking head quipped yesterday.

How's that for groundbreaking insight?

US Pay Cable operators posted net subscriber losses for the 15^th consecutive quarter in Q2'11. For fourteen of those fifteen quarters, the industry has regularly pivoted on its explanation.

First, they said net losses were just a 'blip', an anomaly. When losses persisted in sequential quarters, the stagnant economy and high unemployment were to blame. When that no longer held water, the talking point morphed into a we didn't want you anyway argument, that those churning or dropping were low value customers. A report we just published completely discredits that explanation as well.

Fresh out explanations, and having bled 400,000 subscribers in Q2'11, Pay TV really has no choice.

For as long as I've been covering this space, I've cited survey after survey confirming a strong consumer preference for à la carte and indeed, a willingness to pay MORE for à la carte. Consumers feel ripped off, they want to feel that they are in the drivers' seat. They need choice or the illusion of choice.

And contrary to what some suggest, money is not the primary motivator for consumer churn, it's about perceived value. It's about control of content.

Indeed, our latest report, which draws on a recent survey of of 2,000 US households, further confirms this notion. It shows that 21% of American Pay TV subscribers would be willing to pay more than they currently do if it means they have some say in what channels they get.

Glad you've seen the light, Cable. What took you so long?

Executives from Alcatel-Lucent (ALU) presented the company's latest technology roadmaps and innovations at its recent Technology Symposium in (and just outside) Paris. Stephen Carter, Chief Marketing, Strategy & Communications Officer, described the six key trends as ALU sees them:

• Wireless
• Cost Experience Transformation
• The Apps and Content Value Chain
• Cloud
• Critical Network Infrastructure
• Internet of Things

 None of these is a particularly new idea but they neatly sum up the key battlegrounds for ALU’s core customer base, the network service provider industry.

The continued evolution of wireless technologies is well documented, as global 4G rollouts will be the focus of attention for the next few years. But ALU has a key interest in the transformation of fixed line broadband as well, having played the leading role in establishing the dominant xDSL technologies over the past couple of decades. In spite of the global predominance of wireless access technologies, it may come as a surprise that fixed access still has a vital role to play, in mature markets at least.

For many years there has been much talk of fiber-to-the-home as the ultimate fixed broadband solution, but the relatively limited commercial deployments of such solutions (such as Verizon’s FioS) have been slow to emerge and, if anything, are showing signs of plateauing rather than becoming de facto alternatives. BT is the latest telco to stumble on its plans for FTTH (or FTTP – Premises – as it prefers to call it): installations during the trial phase are taking seven hours on average, against a target of four, and it is reported that a quarter of installations are taking as long as two days to complete.

There just doesn’t seem to be any obvious solution to the dreaded last mile challenge, which is less about developing ever more advanced communications technologies than about the need to invest in shovels and spades to dig up roads, pathways and gardens. The labour required for such “replacement” wires is pretty much fixed cost, unless anyone is suggesting an unlikely collapse in labour rates; and, as BT is demonstrating, you just never know what physical or organisational obstacles will lie in the way of new wire installations.

ALU thinks it has come up with a viable alternative to FTTH. As part of its High Leverage Network architecture, for which video services are seen as a major driver, it believes that the established copper access infrastructure can be upgraded to support speeds of up to 900Mbps. Key enabling technologies behind this transformation are vectoring (involving the removal of crosstalk), as well as quadruple bonding of copper pairs. Four pairs are not commonly available, but the technology would still provide bandwidth of nearly 400Mbps over two pairs over a distance of 400 metres.

ALU’s major challenge is to convince its service provider customers that any such next gen network investments will generate sufficient return from new service and application revenues. However positive a spin ALU puts on the potential for new data-sapping video services, our reading of service provider strategies is a high degree of caution about any significant net revenue growth impact from such services. As Telefonica noted recently during its investor day, incumbent telcos are projecting very modest revenue outlook (1-4%) for the foreseeable future, in spite of accounting for new service growth globally across wireless and wireline businesses. New network investment will continue but it is driven by competitive dynamics rather than the expectation of discovering a new pot of gold. Whether regulators decisions on next gen network policies, in Europe in particular, can have any impact on the established trendline seems doubtful at best.

David Mercer

Client Reading: Broadband Service Provider Performance Benchmarking: Europe Q4 2010

 

Kent Displays is not a name which will immediately bring recognition to consumer electronics industry veterans, but it’s one to watch out for. The company, based in Kent, Ohio, makes a unique and patented variant of LCD displays, Reflex™, and after many years of trying different professional applications finally came out with its consumer-oriented Boogie Board towards the end of 2010. According to CEO Albert Green, the company’s initial sales projections of “a few thousand” were vastly exceeded, with several hundred thousand sold in the run up to Christmas. Boogie Boards were available at $39.99 in Brookstone stores if you were lucky enough to find one. Sales will exceed one million this year. What are they? Basically they are small, very light, notepads, and require no power to retain the image since they use reflected light. The image can be erased instantly and this function requires a small 3V watch battery. The writing experience truly is very similar to paper, in fact in many ways it is much better. When the company adds local storage in future iterations, this will become a powerful, simple, low cost and easy-to-use notepad which could synch directly to a PC or smart device for further processing. I can’t wait to get my hands on one before next year’s CES. David Mercer

Cisco today unveiled its long-awaited consumer Telepresence product. A smaller and scaled-down version of the company’s enterprise-grade TelePresence system, “ūmi” (‘you-me’) comes with an HD camera, a console and a remote. The idea of the videophone is far from new. Children of the 60s and 70s may recall George Jetson getting chewed out by his boss, Mr. Spacely, over videochat. In fact, the technology, is older than that, and was conceptualized as early as the late 1800s. The German Bundespost offered (albeit short-lived) commercially-available service the1930’s. AT&T announced its Picturephone product at the 1964 World’s Fair, though the service never quite took off, reportedly maxing out at 500 subscribers nationwide.

This time it’s different…

What makes this time different? According to Cisco’s VP of Consumer Marketing, Ken Wirt, three things are different this time. The quality and ubiquity of HD displays, the increased average household bandwidth, and exponentially increasing processing power have converged to create a ‘perfect storm’ for telepresence.

With apologies to Elvis Costello

Writing about telepresence is like dancing about architecture

Or was that Frank Zappa? In any case, as with HD or 3D, trying to explain telepresence to someone who hasn’t seen it is akin to trying to explain the color blue to a blindfolded person. You kind of have to see it to understand it. I had a chance to test drive the product last week before the official product announcement, and must say that—even as a professional skeptic--I left the demo thoroughly impressed. The so-called “immersive” effect (allowing you to ‘see what others are feeling’ ) is quite noticeable, and is what distinguishes it from a garden-variety Skype video or web-based video chat program. There is near perfect synchronization between audio/video, and people appear life sized on the screen. Ken Wirt cited a study showing that 55% of all conversation is non-verbal. It’s no surprise that it is our body language, the nods and raised eyebrows, shaking heads, smiles and smirks, that distinguish a phone call from a ‘carbon-based’ face-to-face meeting.

The Uncomfortable Topic of Money

The price tag is steep, at $599 for the unit, plus a monthly fee of $24.99 for unlimited ūmi calls, video messaging and video storage. The system will be sold through Best Buy/Magnolia Home Theater stores, bestbuy.com and on the cisco website. The service requires a minimum of 3.5 Mbps to work in 1080p, though it can be optimized for use at lower speeds, as low as 1.5Mbps for 720p. This means that the service will largely be limited to those with cable broadband or FTTx. Cisco believes that 34% of US households have this type of upstream capability—which is in line with Strategy Analytics’ own estimates.

The Network Effect

Back in the early days, the phone company sold “telephone pairs,” with the understanding that the value of the network lies in the number of nodes. A telephone network with one phone is not terribly valuable. Nor is a telepresence unit if there’s nobody on the other end. Cisco has partially circumvented this problem by providing interoperability with Google video chat, though if you’re spending $600 on a unit, you probably want the “real thing.” The real value of telepresence will be realized when there is a robust network of equipped households. While family video-calling seems the most obvious use-case, its utility seems rather limited. How many times do we really want to videochat with Grandma each month? Unless and until the network reaches critical mass, the appeal and draw of video calling will be very limited. Rather than a consumer mass market play, the real opportunity might very well be in the Business to Consumer (B2C) space. If private industry can help subsidize and drive the technology more mainstream, it could hit the critical mass it needs. Cisco talked about a number of other potential applications, three sound like potential winners in driving telepresence forward. These include

Financial Services: A $600 upfront investment and $25/month is a drop in the bucket for a company trying to prove its value to high net worth clients. For the cost of a few steak dinners, a Financial Services company could equip a client’s living room and increase the frequency of “touch points.”

Health Care: While the chatter around Telemedicine never seems to cease, this is one application where it actually could make sense. An insurance company might find it financially beneficial to subsidize a unit for a patient requiring regular and routine examinations, or for medical compliance monitoring (“Did you take your pills Mrs. Smith?”)

Distance Learning: How about tapping into the multi-billion dollar distance learning market in the US.  Equip every “Phoenix” with a system? That’s what I call scale.

I want one… but not for $599 plus $24.99/month

Many who experience the technology firsthand will want one for their own living room. It’s cool. It works well, and the potential applications are only limited by the imagination. It’s light years ahead of pc-based chat. On the flipside, the price is high. Too high. And when you add on the 24.99/month fee, it starts to feel like another cable bill. Survey research conducted by Strategy Analytics in Q3’10 shows that 30% of Americans showed some interest in a service of this type. Importantly, though, 46% of those interested said they are often concerned about their ability to afford regular household bills, 45% said they worried about signing up to new fixed term contracts when buying new products and services.

Adoption Will be Slow But Steady

Cisco would certainly admit that the $599 price point is untenable for the long run, and as volumes slowly ramp up, we should expect to see price points come down. If Cisco is successful in getting private industry into the game, and a subsidy model takes hold, we could see adoption speed up. The other barrier standing in the way of rapid adoption is broadband. While today only one-third of households have the minimum required bandwidth to support the system, this will certainly increase going forward. We estimate that by 2015, over 60% of all US households will have at least 1.5 Mbps upstream capabilities. Stay tuned…we’ll be putting out a Telepresence report in the upcoming

Some say that OTT is the “most over-hyped and over-anticipated phenomenon in tech history,” others would have you believe the end is nigh for traditional pay television as we know it. The truth?  As usual, it’s somewhere in between. A report we’ve just published, “Over-The-Top vs. TV Everywhere: How Disruptive is OTT to the Pay TV Business?” concludes that while the reaction to OTT has been perhaps overhyped, online distribution does pose a potential threat to the traditional pay television model. The numbers to-date, however, don’t necessarily portend an imminent  collapse of pay television as we know it. . In fact, US pay TV service providers added nearly 2 million additional subscribers in the first quarter of 2010, despite an increasing threat services such as Netflix, Hulu, and YouTube. That’s not to OTT should be ignored, however.  Survey research we published in early 2010 showed that US consumers perceive a relatively low “value for money” for pay television services.   OTT services can potentially capitalize on pay TV’s biggest shortcomings, namely a lack of flexibility in selecting channel packages, and a low perceived value for money. -Ben Piper

Google last week unveiled GoogleTV, heralded by Intel CEO Paul Otellini as "the biggest improvement to television since color."  And hey, what fun is a huge announcement without unrestrained hype, hyperbole, and flashy demos?  Right? Whooops!

Never Work with Children, Animals, or Bluetooth

Demos often seem predestined to fail.  Anyone who has been on the receiving end of a trade show demo can attest to that.  Well, this isn’t working as planned, but you get the idea moments are hardly rare. So it was not a big surprise to see the Google TV demo hampered and delayed by technical glitches.  For a  technology meant to harness the power of Internet, and bring the experience to the television seamlessly, this was not particularly confidence-inspiring.  But we still get the idea…

Introducing WebTV 2.0?

Some of us are old enough to remember painful previous attempts at bringing the experience of the Web to the television screen.  Was WebTV simply misunderstood?  Or was it ahead of its time? Perhaps both.   What WebTV fundamentally missed was the singular and individual nature of Internet experience  One could argue that it did little more than render the tv screen a monitor viewable by the whole family.  The result was an experience similar to having someone read over your shoulder.  Creepy and annoying. To be sure, the technology has been there for years—it’s the business case that has been lacking.

Why it just might work this time

GoogleTV has a fighting chance this time, for several reasons…

Cord cutting is fast becoming a reality

Today things are markedly different.  With a growing abundance of online video, “Cord cutting,” the notion of Cable and Satellite customers moving to unmanaged free or almost free Internet-based platforms, is fast becoming a reality. Strategy Analytics sees the number of so-called "cord cutters" exceeding 10% of US television households by the end of the year. Video will continue to dominate, accounting for over half of all of all consumer Internet traffic in the next five years.

Source: Strategy Analytics

Although the GoogleTV talking points bill the platform as “complementary” to cable, satellite and Telco TV, make no mistake—GoogleTV is a competitor to traditional “managed” pay tv.

It satisfies a demonstrated need

While it has been possible to emulate a pay tv environment with a game console, a tv and a PC, the level of sophistication required to knit these together into a seamless and enjoyable viewing experience went far beyond the aptitude or interest of the average consumer. GoogleTV may just bridge that gap. Observational research of Connected Media Users in the US and Europe, performed under the auspices of Strategy Analytics’ Digital Home Observatory, uncovered some common missing elements consumers identified in today’s Over the Top (OTT) ecosystem In addition to the desire for an integrated experience across devices, respondents brought up the wish for a more personalized viewing experience, and the ability to discover new relevant content based upon their existing likes and interests, and more relevant advertising and payment options. These are all places where GoogleTV can deliver.

The Power of the Value Chain

As strange as it may seem to see Sony chief Howard Stringer sharing the stage with Google and talking about “openness,” a critical success factor for GoogleTV is the power of its value chain, and the A-list partners it has teamed up with. Along with Sony, the presence of Intel and Logitech, as well as BestBuy and Dish bring some credibility to the table.

TBD?

Pricing

Rumors are floating around about likely price points, but nothing firm as of yet. This could be critical, as a $399 Logitech “companion box” sounds like it may collect dust on the BestBuy shelves.

Content

Somewhat surprisingly absent from last week’s announcement was any real mention of the content side. Sure, there was lip service paid to “You Tube Lean Back,” but nothing of any great consequence. YouTube, which turns five this year, is starting to offer full-length movies, though it still lacks enough professional content to make it a viable alternative, and UGC (User Generated Content) is, by nature, ephemeral. How many times can you watch “David After Dentist?” And what about Sony’s extensive library of television series and movies?

Net Neutrality

As I mentioned in an earlier blog, the goings on with the FCC are doing very little to inject any sort of confidence or certainty into the minds of investors. And even though Chairman Genachowski’s “Third Way” strategy appears to be the current path, the fight has not even started with the MSOs and Telcos. Expect this to be tied up in court for the next few years. And that, we get. -Ben Piper

"The FCC is not having a one-night stand with Net neutrality,” said FCC Commissioner Michael Copps back in 2008, “ but an affair of the heart and commitment for life.”   Today’s ruling by the U.S. Court of Appeals for the District of Columbia may amount to a trial separation for the lovely couple.  The court delivered a painful kick in the shins to the FCC today, ruling that the agency  overstepped its boundaries in 2008 by imposing an enforcement action against Comcast, alleging the cable company’s  broadband network management practices to be in violation of the FCC's policy principles. Today’s ruling vacates the enforcement, which had called on Comcast to be more transparent in its network management practices.   While today’s decision may raise more questions than it delivers answers, it may be useful to consider some of the short and medium term implications.   The court’s decision is more about the FCC’s authority than on “Net Neutrality” per se  My number one prediction?  The mainstream media will get it wrong.   They will suggest that this is a ruling against Net Neutrality.  To be clear, today’s ruling is about the role and the regulatory boundaries of the FCC—not necessarily a ruling against Net Neutrality or the concept of an Open Internet.  The FCC in a statement said the agency remains "committed to promoting an open Internet and to policies that will bring the enormous benefits of broadband to all Americans."   This decision will be challenged, but that could take years.  In the meantime, look for the service providers to begin “testing the waters.”   I’m no lawyer, but as a more than casual industry observer, I can predict with some certainty that this is not a definitive ruling.  It will more than likely end up in the Supreme Court—but don’t make any plans yet.  Broadband is now classified by the FCC as a “lightly regulated information service,” and as such it skirts many the regulations imposed on traditional Telecom services with regards to open networks. Some suggest that the FCC, as a rulemaking body, can simply reclassify broadband, and impose tougher regulation.   Whatever the final disposition is, time is on the side of the service providers.  The glacial speed of change in DC means that in the upcoming months (and even years), Comcast and other service providers—granted a temporary reprieve—will likely begin testing the waters, and recommence traffic prioritization and other various and sundry network management antics.   What about OTT?   An affirmative decision on Net neutrality has always been a cornerstone of the future of unmanaged over-the-top (OTT) video.  Today’s ruling throws a monkey wrench in those works.  Until the next challenge, Comcast (and any service provider for that matter), reserves the right to prioritize and manage traffic streams as they see fit.   “Sure we’ll get your YouTube video—just not all at once.” And oh yeah, what about the future of the US National Broadband Policy?   Here’s hoping the FCC is reunited with its soul-mate.   -Ben Piper

In a report to be published in the few days, my colleague Martin Olausson and I talk about the new challenges facing France Telecom (Orange), in light of a recent ruling by the French Competition Authority. According to a commission appointed by France's Competition Council, Orange’s exclusive carriage of channels on its “Orange TV” IPTV platform “has drawbacks in the short, medium, and long-term,” rendering it “undesirable to maintain.” This decision could potentially have repercussions on the entire industry, and Orange will need to fundamentally alter its marketing strategy to stay in the game. A few thoughts…

If not content, then what?

Strategy Analytics has long held that content—particularly exclusive content—would be a key differentiator and driver of IPTV uptake. Recent developments in the hyper-competitive French market threaten to change that model.  Orange, which was unable to differentiate itself on the basic services level, has pursued an aggressive content strategy in recent years, spending over €200 million to acquire exclusive rights to sports and other content, packaged under its Orange Sport and Orange Cinéma Séries brands. The strategy has worked quite well for the operator, and utilizing exclusive content to market its pay TV services has led to rapid growth of its pay TV segments. Now all of that is in limbo, and the operator will need to find other ways to stand out.

Pricing matters…but differs by region

One of the takeaways of a report we published back in September was that platforms don’t matter to customers—features do.   Well, features and price. Further customer survey work we have just completed confirms that price as a churn motivator depends largely on the individual market. Our research shows French consumers to be the least motivated by price, and those in the UK most influenced. Much of this has to do with consumer perception. In France, all the major triple play service providers offer very similar packages at essentially the same price. Our interpretation is that the typical French consumer might not feel it worth the time to make a switch—even for a 20% discount. The perceived disparity is much greater in markets such as the UK, where pricing and bundling disparities are much more pronounced.

Challenge is in finding ‘non-content differentiators’

The recent ruling by France's Competition Council suggests that the “traditional” differentiation through content may not be viable for much longer. As such, operators will be forced to find other ways to differentiate and “own” the customer. The easiest way to do this, in our opinion, is to control the gateway into the home and offer a better QoE, and more value for money (i.e. better bundles) for the consumers than the competition.

Sony has introduced what it calls a new device category at CES 2010: the “Personal Internet Viewer”. This takes the form of Dash, a small, 7” touch screen internet access device with WiFi access to the home network. It will launch in April 2010 and retail at $199. Dash is based on Flash technology, so, “for Flash, get Dash”. Dash is based on Chumby’s internet service. It currently features more than 1000 internet services and applications across social networking, news, music and video, and can access video from Sony’s Bravia internet video platform. It can run multiple applications simultaneously. One drawback is that it is only mains-powered, so in-home portability is out of the question. Nevertheless we felt this was a very nice implementation of a simple to use, and relatively inexpensive internet access device. At $199 it could well become a favourite for kitchens and bedrooms. We were also impressed with the progress made by Plastic Logic, a company originating from the well-known hub for advanced display technologies – Cambridge in the UK. PL was showing off its QUE ProReader e-reader. At $649 the product is aimed very much at the professional needing to access multiple documents on the move, such as newspapers, books, newsletters and reports. Barnes and Noble is behind the QUE bookstore, and connectivity is via WiFi and AT&T’s 3G network. The device is extremely thin, light and easy to read, and battery life is supposedly several days in normal use. If volume sales lead to cost efficiencies and price declines this technology could find its way into the mass market. In the meantime the company is looking towards adding colour and eventually video capabilities. Client Reading: Consumer Imperatives for Digital TV Media Browsers

When I switched my home television service  from DirecTV to Comcast last summer, the slick sales guy on the other end of the line promised me that I would be receiving an identical channel lineup to the one I was currently receiving.  “Apples to apples,” he promised. “Only cheaper.”   What’s not to like? You’d think that I, someone who gets paid to research and write about digital television, would have done more due diligence on his own account.  I didn’t. So, when it became apparent that two “must have” channels for me (NatGeo and BBC America) were not in my Comcast tier, I called again to inquire.  Seems that to get those, I would have pay an additional $15 a month to buy up to the next highest tier, one filled with numerous channels of no use or interest to me.   Suddenly the calculus changed.  This was no longer a good deal.  

This time, it’s not coming from the FCC

Recent movements suggest that change may be afoot.  No sooner had Comcast announced the launch of its OTT-mitigating Fancast Xfinity TV service than rumors started circulating about Apple’s talks with CBS and ABC.  Seems the folks in Cupertino are mulling a subscription-based video service, obviating the need for iPhone/iPod users to depend solely on the Apple iTunes service for downloads. If the Apple service is successful at elegantly bridging  the '’screen gap,” and delivering compelling online content to the tv screen, it could fundamentally alter the way MSOs sell content.  The much maligned “bundled” system currently in place, whereby consumers are required to purchase content in blocks of channels--rather than individually--could finally be on the chopping block.  And that’s good news. What is interesting, though, is that the catalyst for this change will be the market—not a government mandate as previously feared. A la carte used to be somewhat of a cause célèbre in the television world, and one that the FCC has been wrestling for years. It was only the more recent emergence of “net neutrality” that has stolen the spotlight from the issue. Former FCC Commissioner Powell’s administration commissioned a 2004 report finding that, under an mandated a la carte scheme, customers would end up paying more.  That report has since been largely discredited and found to be riddled with misinformation and half-baked analysis.  Successor Kevin Martin embraced “cable choice,” though apparently more for the way it allows parents to monitor and block channels, than for household consumer budgetary reasons. One analyst firm  rather dramatically predicted ‘economic ruin’ if the FCC went ahead with its plan.

Who moved my talking points?

Government-mandated a la carte is bad for cable consumers, who would wind up paying higher prices to receive the same level of service and fewer channels than they receive today.”-NCTA Issue Brief, January 2009

The National Cable Television Association (NCTA ) talking points were crafted to respond to a possible “government takeover” of television.  In the context of a market driven change, the memo reads somewhat differently.  Most of the arguments fly out the window, and the market will call the cable industry’s bluff on the supposed technological barriers to offering personalized programming. As usual, the problem does not lie in the technology, but rather in the business model The very nature of cable advertising is in flux, brought upon largely by digital television.  The 30-year old model in place today, whereby flagship channels lead certain tiers and support fledgling new ones, could be facing some changes.  While the NCTA estimates that half of cable companies’ revenues come from national ad sales, this is certainly shifting.  Intelligent two-way networks will herald in addressable advertising—the next step in demographic targeting. Indeed, vendors I spoke with only months ago alluded to some “user identification” scenarios that could pinpoint actual viewers within a household, based on their “jitter signature.”  Seems that we all shake and tremble in our own unique ways, and it is possible to use these signatures like fingerprints, and serve up completely targeted advertising.  To be sure, , vendors will need to overcome the “creep out” factor first, but the general idea is the same.  Linear advertising as we know it is going the way of the dodo, and the MSO’s ‘old math’ will need to change.

It’s not about choice…it’s about the illusion of choice

Our research shows time and time again that consumers are tired are feeling that they are being screwed by their pay television providers.  The nickel and diming in all aspects of consumers’ lives has grown out of control.  Our latest survey work (to be published in Q1) found that only about 20% of pay tv customers felt that the ““value for money” they were getting from their pay television operator exceeded expectations. Part of the issue is consumers’ feeling that they have no control, that they are somehow being  taken advantage of.. Choice—or more importantly, the illusion of choice—is an extremely powerful tool.   Think of the immensely popular Build a Bear Workshop franchise, whose stores dot shopping malls across the world.  BABW allows customers to design and personalize their very own stuffed creatures by visiting eight “stuffed animal-making stations,” where they can choose (and buy) everything from stuffing to clothing.  The concept has been a huge hit, and the company is now a $300 million/year concern, with over 400 stores worldwide.  What is the secret to the company’s success?  Certainly not selling adorable plush animals; anyone can do that.  Rather, BABW has perfected the illusion of choice and flexibility.  All customer start at the same default position: buying a bear.  The trick is, they end up paying more for the additional  features relevant to them.

How about “Build a Bundle?”

What prevents MSOs from employing a similar strategy—allowing customers to design their own bundled offerings?  All would start at the same default position, the $XX/month basic tier.  The real money comes in the add-ons.  Critics say this is not how advertising works in the cable industry.  Guess what?  It’s about to change. My (still untested) hypothesis is that, if customers were given the choice to “personalize” a  television bundle, ARPUs would actually increase--or at least stay the same.  Allowing them to configure a package conveys the illusion of choice and control, and makes customers think they are in the driver’s seat. Sounds like a great project-opportunity…phone lines are open if someone out there wants us to test the concept.