Monday, 15 November 2010

Cutting the Cord- Are pay tv customers really unhappy ?

Last month I went along to a thought provoking panel discussion on Connected tv hosted by the Mashup events team. It got me thinking about whether the arrival of new over the top (ott) tv services will signal a big upheaval in the TV market.

Three things are clear and I think beyond argument.

Firstly a number of well known internet, technology, software and consumer electronics companies with no previous form in developing TV services (including Google, Yahoo, Apple, Boxee, and Samsung amongst others) are betting they can deliver a step change improvement in the way viewers experience tv content, and incentivise viewers to switch or upgrade to their service. The strength of this belief is underpinned by very significant investments being made in new connected TV products.

Secondly, the current user interface and customer experience of TV is outmoded. We now live in a world where consumers enjoy precision search on the web, get viewing and listening recommendations from their friends on Facebook, and share playlists on sites like Based on customer behaviours on the internet there is appetite for change.

Thirdly there is some limited evidence that a small number of early adopters in the US are willing to cancel their cable subscriptions in favour of access to an alternative, cheaper connected tv service. (The phenomena known as ‘Cutting the Cord’)

However the $64 billion question is whether this behaviour is likely to be extended to the mass market.

The answer will be determined by whether there really is a fundamental customer need that is not currently being satisfied, the ability of new competitors to deliver against this need in both content and customer experience, and the response of pay tv incumbents.

The proponents of the cutting the cord theory argue that pay tv does not deliver a great customer experience as some customers pay for programming / channels they don’t watch, other customers pay twice for the same content (e.g movie lovers who pay for a subscription to a film channel aswell as a DVD rental club), and currently there is no means of enjoying the best & most popular internet video content on the TV.

However the reality is that viewers seem to like to pay for packages that promise choice even if they don’t always take advantage of it (and there is plenty of evidence that they prefer subscriptions to channel bundles rather than a la carte offerings).

And internet video packaged for the TV (such as Vevo’s comprehensive catalogue of music videos) whilst very popular is not pay content, and is not likely to provide a compelling incentive to switch out of a pay offering.

Critically all this assumes that the new players will be able secure an attractive programming line up. This is easier said than done, given the top programming brands rely on income incumbent pay TV platforms for survival and are likely to be cautious about licensing rights to unproven competitors.

So in summary, it doesn’t feel like there is a fundamental need for premium programming that is not being met.

However there is an appetite for an improved user interface & customer experience of programming, and my feeling is that this will be a key battle ground of the future. This is borne out by the experience of the smartphone market. Apple’s IPhone showed that innovation in presentation of services, rather than innovation in the mix of service is a key to success.

Incumbents understand this and are stepping up to the plate with upgraded products. Sky’s recent announcement of 'Sky Anytime + for TV' and Liberty Global’s forthcoming launch of the 'Horizon Gateway' provide an indication of the improvements customers will see which will over time include improved search and social features aswell as much more on demand programming.

See, and

Time will tell whether services offered by new players will trump this. Early releases from Google and Yahoo do look like they offer a fundamentally new and better customer experience, and with this in mind some incumbent operators may choose to partner with the new kids on the block (and take advantage of the new commercial opportunities they offer such as addressable advertising) rather than risk being left with an uncompetitive product.

So whilst there is currently no compelling evidence that ‘cutting the cord’ is going to be a mass market phenomena, established operators will need to be vigilant. We are entering a new era in TV where viewers will expect a much better, more personalised experience. Those that can meet these new expectations will prosper and see off the competitive threat. Those that don’t (and don’t invest) will be exposed in a market that will see plenty of change.

As the CEO of US operator Verizon Ivan Sedienberg recently said ‘"We take the over the top issue with video very seriously," he said. "I think cable has some life left in its model...but that it is going to get disintermediated over the next several years."