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Technology Changes Enable Direct-Response Cable

The cable industry, like the direct-response television and magazine industries before it, is undergoing a revolution driven by its customers.

Five years ago, automatic renewal was a pipe dream for the magazine industry. Antiquated legacy systems built around printing subscriber address tapes could not adapt their clunky mainframe systems to support additional fields and the real-time requirements of credit cards.

Today, a vast majority of magazine indirect subscription orders are predicated on periodically charging credit cards on file without requiring any action on the part of the customer. For magazines, the ability to automatically renew via credit cards has dramatically increased magazine retention rates and the lifetime value of the customer.

The folks who ran the subscriber databases for updating addresses still do run this now-commoditized profit center, but credit card renewal has spawned a whole new industry supporting such entities as Time Inc. magazines and American Express Publishing, among others.

Twenty five years ago, the direct-response television industry was held hostage by credit card companies with systems that could not speak to each other, and which refused to process transactions that did not source at a physical location for fear of fraud and bad debt.

To manage around this, direct marketers started working with middle-market credit card clearinghouses targeted at high-risk customers in exchange for a premium, thus building enormous costs into processing toll-free orders.

Cash-on-delivery, bill me and paying by money order have become the predominant way for direct-response television to collect its cash. Today, credit card security innovations, real-time credit card authorization and posting and flexible payment options have provided enormous efficiencies in the cost of selling via direct-response television, enabling the economics to positively shift to allow the infomercial, the sale of memorabilia during a baseball game and, yes, sales via QVC.

Now its cable television's turn.

The issues are the same ones faced elsewhere in industry:

  • Inflexible systems, designed for subscriber management and which require complex vendor permission for MSOs to sell to customers;
  • Software and marketing partners struggling to monitize other company's customers for their own financial benefit;
  • And agents and aggregators hungry to derive per-transaction revenue in a down market.

The cable industry, like others before it, is suddenly seeing a big opportunity to sell to customers who now have the technology, comfort and willingness to buy over new in-home devices.

But, like the magazine and direct response television industries before it, how can cable move forward, when all around them they are boxed in by uneconomic business models, inflexible software and vendors stretching to work in areas outside their core competence?

The answer lies within the walls of the MSOs themselves.

Historically, MSOs have viewed themselves as marketers and distributors of video content and nothing more. The MSOs' role as marketer has historically been to evaluate the "marketing systems" offered by their outside vendors, and decide how best to apply it. What MSOs have not had the luxury of viewing in hindsight is that these "marketing systems" are the result of 35 years of incremental change — not support services built based on real marketing needs.

The typical case in point for cable doing great on product development, but muffing the experience because of legacy system problems is interactive television gaming. Want to pay per play? As a special feature to game billing, all games can act like video-on-demand. If you run out of time, that's OK. You can order another one.

Want to purchase HBO directly from your set-top box? As a special feature and for your own security it takes 24 hours to process an order. In a world of one-click shopping and telephone response systems, does that make sense?

But that's all changing. MSOs and programmers are now adopting software and philosophy to take control of their marketing flexibility from the inside. The greatest successes are always those where the MSO itself integrates flexible payment options, develops its own internally controlled database — parallel but separate from the subscriber management system — and builds plug-ins and open integration specifications for multiple programmers and vendors.

To survive and thrive, it is important that MSOs stop looking for the mega-system and the silver bullet. Welcome to the New World, when MSOs will run and market to their customers on their own terms. See you on the other side, in about five years. Don't blink.