Bill Virgin: Cable companies could learn a thing or two from banking industry

Staff writerMay 18, 2014 

In the latest chapter of “The Continuing Travails of Click,” we find the municipally owned and operated cable television service proposing a rate increase of nearly 10 percent, which if approved would be, according to News Tribune reporter Kate Martin, the sixth since 2010.

We’ve seen other versions of this running series, and we know things rarely end well. Rates go up for the same or lesser service, causing customers to drop it, which cuts revenue, which means the service provider has to raise rates again to make up for the lost revenue (or cut service levels, or both), which leads to … repeat until customers, revenue and the business are depleted.

It’s probably of no consolation to either Click management or customers that their predicament is hardly unique in business history. But the fact that the script is not unique does at least provide some encouraging news and lessons. Such as: the outcome is only assured if no one does anything to break the cycle of cause-effect-cause-effect.

If the business model no longer works, change the model.

If that advice seems screamingly obvious, yes it is. But you can be paid very large sums of money as a consultant to peddle what everyone already knows, because how much you change the model, and to what, and when, is not so obvious. Some companies, some entire industries, never master it.

But some do make the transition, and successfully, in part because they didn’t wait for a looming crisis and impending doom to change the model.

An industry that didn’t wait, and was consequently successful in warding off competition, is consumer banking. How you interact with your bank, how you store, access and spend your money, is hugely different than how your parents or grandparents did it in the days when depositing and withdrawing money meant a trek to the bank, which had limited operating hours, or finding someone willing to cash a check.

That’s all changed with a succession of innovations — drive-through banking lanes, credit cards, automated teller machines, bank-by-phone, bank-by-computer, now bank-and-pay-by-mobile device.

In each case the industry could have resisted change to the model of doing business. That would have led to trouble, because there were outside players such as Microsoft sniffing around for opportunities to serve as the portal for consumers seeking financial services. Because the industry adopted innovation before would-be competitors could get to it, they retailed their status as the primary provider of financial services to customers. (That banks failed in the past several years was due not to failing to change the model or competition but incompetence at basic principles, such as knowing who they were lending money to.)

A more contemporary example of the need to change the model, and a prime illustration of how hard that is to do, is in the department store business. Sears and J.C. Penney can see that the decades-old model no longer works, but they’ve been at a loss to come up with a viable tweak. The discounters including Walmart and Target aren’t as imperiled, but they too recognize that not coming up with a strategic answer to the online retailers does not hold much promise for the long term.

In the realm of cable television, there is an alternative, but its viability isn’t likely to be tested because no one seems to want it, save consumers, and who pays any attention to them?

That alternative is known as a la carte pricing, and it simply means you buy what you want to watch, not what you’re offered. Not a sports fan? You don’t have to pay for ESPN. Think shopping channels are a waste of bandwidth? There they go.

A la carte matches nicely with actual consumer viewing habits. The survey firm Nielsen recently reported that although Americans have a record number of options — the average home gets 189 channels — consumers consistently watch an average of 17 channels.

Going to a la carte would let consumers trim their escalating cable bills while keeping the service they actually use.

Cable operators, however, don’t like it because they see a lower revenues and an administrative nightmare in tracking who picked what instead of selling packaged bundles and service tiers — and because content providers are dead-set against the idea. The content providers are aghast at the prospect of having their revenue streams sliced to reflect actual viewership, which in turn also impact such things as broadcast rights fees paid to sports leagues, team owners and athletes.

But if that’s not an option, what is? Consumers are coming up with their own options — dump cable, go with high-speed, high-capacity Internet service and find programming there. The cycle will only be accelerated as technology companies make it easier to connect your big-screen TV to the Internet, and if the Supreme Court rules in favor of services that take over-the-air broadcast signals and transmit them to customers via the Internet.

The pressure is growing and time is growing shorter for everyone in the business, not just Click, to change the model. Don’t like the lower-revenue implications of a la carte? Great! How are you with the no-revenue result of staying with the existing model and losing customers?

The impatient fingers of consumers are getting ominously close to pressing the buttons on the remote that will not just change the channel but switch off the existing business model entirely. And once they’re gone, they’re not likely to come back.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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