Home Run Days Are Over for CTAM Crowd
Content and technology have always been a cable marketer's best friend. Sure, the right pricing, good packaging, solid promotions and snazzy sales lines always helped. But the core driver for cable's success stories through the years has been content and technology.
Today's marketers probably can't remember a time when there was no MTV, ESPN or CNN in the lineup. And they might be pressed to recall the days when Sex and the City or The Sopranos
didn't dominate television awards shows.
To keep the engine running, cable engineers invented the DOCSIS platform and souped up the Internet with a broadband pipe. Cable modems are saving the MSOs on Wall Street these days.
All that serves as a backdrop for cable marketers heading to Los Angeles for this week's CTAM Digital conference, which continues to expand its scope by including Internet Protocol (IP) telephony services.
Voice over IP (VoIP) is one of a myriad of new services cable can offer. It joins a list that includes high-definition TV (HDTV) and digital video recorders (DVRs) as well as VOD and its subsets of free on-demand, subscription VOD and transactional VOD. There are also tiered data services that go beyond speed to include PC applications and content.
That's good, because the cable industry is going to need them all.
It's apparent from investor conference calls that Wall Street is concerned about a lot of things, these days. They are concerned about basic-subscriber losses at several MSOs. They are concerned about a slowdown in cable-modem growth, and continued pricing pressure and market-share gains from DSL. They are concerned whether VoIP is rolling out fast enough to mitigate some of those ominous high-speed trends.
They are concerned about how effective VOD, HDTV and DVR will be in combating satellite. They are concerned how much Rupert Murdoch will rewrite the competitive rules. What happens when Murdoch gives DVRs away for free? Just where will these 1 million new DBS subscribers a year that Murdoch is promising come from?
Even Comcast Corp.'s play for Disney had some wondering whether it was a tacit admittance that cable had peaked.
The answer on the is-cable-peaking question: "not necessarily." But how well cable does two, three and four years out will depend on how successful marketers are at selling new services.
And the challenge is that cable's future may not rest with a single "home run," but a series of "singles," "doubles" and perhaps "triples."
VoIP stands as the best hope, a nice high-margin, add-on business. But the RBOCs and AT&T aren't standing still. Modem penetration is as high as 30% at some MSOs. VoIP could penetrate half that or more, but that would still put it at only 15% to 20% of cable homes. And pricing pressure from competition could reduce margins, in time. It may be a "double," at best.
DVRs look like the next best opportunity. It's an everyman product, more so than HDTV. But cable starts in a dead heat with DBS. Maybe all digital boxes become DVR boxes, eventually, portending a nice 30% penetration rate. But actual revenue-per-subscriber will be smaller, and the success of DVRs will be better measured in churn reduction.
HDTV has similar characteristics, with a smaller starting base. It's a necessary piece of ammunition, but isn't going to generate the kind of average revenue per unit (ARPU) that high-speed has produced.
Wall Street has given up on ARPU estimates for VOD, as most MSOs push usage and churn-reduction features. However, VOD could be a legitimate ARPU generator — perhaps at $10 a month or so — if transactional movies become a real business and if the industry can agree on measurement stats for basic-cable content that is a financial win for everyone. If the ESPN rate-hike mess can be solved, surely the bright minds in the industry can figure the measurement issue out.
And data tiering, whether it includes features like firewall, security, digital photography or broadband content (music, news, games, sports and even movies), holds some promise.
Making the subsets of VOD viable and creating date tiering strategies will take work. It is not easy. But satellite can't do either of them.
And that's the lesson for cable marketers heading to Los Angeles. The "home run" days could well be over. The future will be in making the myriad of services cable can offer add up, cumulatively, to a "home run."
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