263-Cable T.V. and Customer Retention
Recently, I decided to test the waters for a less expensive television experience. I have been a loyal cable subscriber for thirty-five years, but friends have told me that other systems, especially satellite, are cheaper. I went online to DirectTV.com to check their packages. We have been spending about $112 a month. The equivalent package from DirectTV appeared to be about $81 a month. I was shocked at the size of the price difference. DirectTV was more than 25% less expensive than Comcast, my cable supplier.
Given the size of these price differences, I did some investigation into what is happening in the market. Today there are four potential television service suppliers: cable, telephone companies, such as AT&T and Verizon, satellite and internet companies, such as Netflix and Hulu. The cable companies command 60% of the market. Phone companies have less than 15% of the market. The satellite firms, including DirectTV and Dish, control most of the rest. The internet firms are still small, though they may become larger in the future. Over the years, the cable companies have held a high price umbrella over the satellite companies. Now the phone companies are getting under this umbrella as well. The cable companies lost two million subscribers last year. The phone companies picked up most of that loss, while the satellite firms picked up a bit. The combination of the phone and satellite companies took virtually all the growth there was in the market.
Customer retention is a big deal. Even in fast-growing markets, you would like to be able to retain your customers when competitors seek them out. The cable companies have sought to retain customers by emphasizing more services to higher spending customers. These customers tend to be less price-sensitive. It appears that the cable companies are going to have to alter their courses. They simply can not afford to let their competitors take away their market share. Eventually, the competition will be as big and as strong as they are. They will lose the market leverage that a leader enjoys. For examples see GM in autos, IBM in the PC market and U.S. Steel in the steel market.
The T.V. market is speaking in clear tones. The phone and satellite companies offer a better value proposition. The cable companies have to listen soon.
The performance of the cable TV industry over the last 16 years has been an epic failure. The industry has held a price umbrella over its competition and is gradually being driven from the market. These high cable prices have encouraged and financed the exponential growth of alternatives to cable TV. The industry has not become hostile yet because cable TV is willing to give up customers to hold its prices high. This Leaders Trap pricing approach won’t last much longer. Cable TV is gradually ceding market share to the Internet streamers. Eventually, the alternatives to cable will have to compete among themselves in a tougher price environment.
Cable TV prices have risen far faster than inflation over the last 10 years. The cable TV industry is in a Leaders Trap and is rapidly losing market share. Cable TV dominated the TV market for many years. The industry began losing customers in 2006. By 2022, the industry was losing between 4.5 and 5 million subscribers a year. In the July 2022 US market, streaming captured 34.8% of the total market, surpassing cable TV at 34.4% and broadcast TV at 21.6%.
The cable TV industry has set an umbrella over the streaming market. Companies like YouTube and Hulu have used this umbrella to raise their prices at an even greater rate than has the cable TV industry. However, the streaming competitors have been careful to keep their prices notably below those of cable TV so they continue to gain share. See HERE and HERE for more explanation.
Oh, one other thing, I am a subscriber to YouTube TV. The switch from cable to streaming saved me over 30% of my former cable bill.
HOW CAN THESE BLOGS HELP ME?
If you face a competitive marketplace, read these blogs. We wrote them to help you make better decisions on segments, products, prices and costs based on the experience of companies in over 85 competitive industries. Much of the world suffered a severe recession from 2008 to 2011. During that time, we wrote more than 270 blogs using publicly available information and our Strategystreet system to project what would happen in various companies and industries who were living in those hostile environments. In 2022, we updated each of these blogs to describe what later took place. You can use these updated blogs to see how the Strategystreet system works and how it can lead you to better decisions.