July 24, 2014

For Pay-TV Operators, Offense is the Best Defense

As summarized by Re-code on Monday, paperwork filed with the U.S. Copyright Office stated that Aereo ended 2013 with less than 78,000 subscribers dispersed across 10 cities. In NYC, where Aereo first launched its service, only 27,000 consumers had signed up – hardly the flagship success that management was expecting. No wonder they kept actual subscriber counts close to their chest.

To what extent was this an indictment of Aereo’s business model (offering broadcast-only stations with a nice cloud-based DVR for $8-$12 per month), versus the result of aggressive bundled pricing on the part of legacy pay-TV operators?

A funny thing happened to me last week: I gave up my 5-year status as a cord cutter and subscribed to a real cable TV service. This was not your ordinary cable TV service, mind you, but an ‘economy’ package that, in combination with a faster broadband connection, just happened to suit my needs rather well without having to spend more money than I did before.

Let me provide some context. For three years, I did not “subscribe” to cable TV because the gent from Comcast who installed my broadband service voluntarily left off the basic TV filter (nice guy). For just the $50 per month I spent on a 15 Mbps Internet service, I was able to hook up a cable to my TV and receive what is known as ‘basic TV’ – that is, the broadcast channels freely available in my area, equivalent to what I receive if I put up an OTA antenna, but over a coax cable instead.

Of course, this is not what Comcast intended and eventually the company became aware of its mistake and asked me pay $25 more each month to receive this ‘basic TV’ service. Because I didn’t want to go through the hassle of setting up an antenna in a residential area of 100-year old homes eclipsed by 100-year old trees, I capitulated. An additional $25/month was thus added to the $50/month charges I was paying for a 15 Mbps (downstream) Internet service. In all, the total cost of my package was $75 plus fees.

Recently I inquired about upgrading my broadband service to a faster tier and contacted Comcast to outline my alternatives. To my surprise, I was eligible for a 50 Mbps downstream broadband service and true ‘basic cable’ (what Comcast called ‘Digital Economy’) for only $75 a month. Are you kidding me? For the same price I was paying for my 15 Mbps Internet service with ‘basic TV’ I could triple my downstream speed and add a nice selection of cable channels? Sign me up!

To make this happen, I had to buy a $25 set-top box (with a $10 delivery fee) and a new DOCSIS 3.0 modem (which I needed anyway), so there were some additional out of pocket costs. That said, the package Comcast proposed was exactly what I needed. No, it was not competitive pressure that forced Comcast to make this offer, as only Comcast, DirecTV, and Dish could provide pay-TV service and only Comcast and CenturyLink offer high-speed broadband service. Nonetheless, I was still able to sign up for this package.

The decision to buy into this service combination at this price was easy, but I had to ask for it (operators are not overly willing to sell this package unless is it a ‘last resort’). I’m not a big sports viewer at home, so the fact that ESPN was not included did not make the offering any less compelling (I get my sports fix from regular broadcast or from the local sports pub). By not including ESPN and other sports-centric channels, however, Comcast was able to offer a basic package of cable channels with 50 Mbps broadband at a very reasonable cost. It was the right combination of content at the right price. Remember, I was originally searching for faster broadband, not a new tier of cable TV service.

Another cord cutter has been drawn back into the fold….

I’m not an expert on what range of services and bundles were offered in the MSAs where Aereo set up business, but if the largest cable TV service provider in the US is willing to offer me such a package at such a price, and in my less-than-urban town, sign me up.

Interesting note: TDG’s research revealed that TV packages without sports-centric channels would attract a sufficiently-sizable segment of the US TV viewing population. Of course, this strategy is defined by tradeoffs: while it may entail lower ARPU for video services, it beats the hell out of losing a current subscriber to someone else, broadband-based or otherwise.

In the end, despite the SCOTUS decision, Aereo failed because legacy operators (sometimes silently, sometimes loudly) rolled out limited, lower-price Internet/TV bundles designed for cord cutters like me – those looking for faster broadband but open to ‘add on’ cable channels that ‘complement’ their home broadband service, a strategy TDG suggested several years ago and which Comcast and others are now employing.

Once again, TDG’s analysis has proven to be in front of the curve.

So what’s next? Just ask TDG.

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