How to throw away a natural advantage

The UK cable TV business is a uniquely dysfunctional family, managing to marry epic individual clumsiness with the kind of domestic chaos that continually threatens to bring the whole family down. Having (nearly) overcome the decades of forced disarray produced by its origin in dozens of separate, local companies, the industry’s getting ready for another gigantic misstep – this time into Video on Demand (VoD).

I suppose, when you own a broadband pipe into every one of your customer’s homes, the logic of VoD must be pretty compelling. It must also be immensely frustrating that, so long after Sky‘s arrival in the UK, the satellite firm still owns the multichannel marketplace despite the complete absence of a return path, no way of delivering Internet access or a phone line and the unavoidable requirement to fix a nasty wart to the side of every home covered.

Cable’s response to Sky’s continued dominance, perhaps understandably, is to push ahead with the medium’s natural advantage and try to make a go of VoD (you can’t do VoD without a network infrastructure and a proper return path so Sky just can’t play). There is, presumably, a point some time in the future when owning a fast, two-way data path into every home finally pays off and cable comes into its own but, as far as I can see, you’d need to be criminally naive to think that that time has arrived. This is still very much Sky’s market and the service of the moment is not VoD (or even NVoD – Near Video on Demand – which is a big hit on both Sky and3 cable) but Sky Plus.

The complete failure of the cable firms to roll out their own Personal Video Recorder (PVR) is perhaps partially explained by the announcement of their VoD plans but VoD won’t come close to competing with Sky Plus (or even my five year-old Tivo) any time soon. By contrast, building a PVR for cable would have been a piece of cake – the technology is straightforward, the manufacturers ready and waiting and the kit cheaper than it’s ever been. Rolling out PVRs into the cable network would be no more difficult than distributing, say, a new generation of remote controls. There’d be no impact on the infrastructure and hardly any CapEx – just a marketing and admin cost plus maybe some investment in an improved EPG (although I’m sure the Tivo people would be quite happy to share theirs). Sky has even done half the marketing job already – everyone knows what a PVR is now (“you know, the thing that lets you rewind live telly”).

So, instead of taking the easy win and, not incidentally, boosting ARPU by taking an extra couple of hundred quid a year from PVR subscribers, the cable industry has, once again, chosen the rocky road of rolling out a new and expensive technology into a resistant marketplace while Sky continues to sell PVRs like ice creams in August. Oy.

1 comment

  1. The object of dysfunction here is the concept of “pay per event” vs. “monthly subscription”. A concept which has analogues in a multitude of services – from TV, to Internet services, to mobile phone tariffs etc. And almost universally – it can be demonstrated that the subscription charging model has more sustained revenues and loyalty (and lower promotional costs) in the long term than “pay per event”. When will the cable co’s learn?

    As an example: I pay over 40 quid a month to Sky. And I only really watch BBC News 24 for an hour or so every day late in the evening. Am I a mug? Maybe. But there are probably many like me – it’s about peace of mind, (“just in case I want to watch something on the Movie channel”) – and ultimately about not using what you’ve paid for. This is how the subscription model makes money for service providers. In my view – it is this aspect that is significantly at play in this issue – not the fact that that it involves costs associated with a new technology for “event” charging. In other words – I think it’s more to do with the human sentiment of “perceived value” than it is about hard logic.

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