Tuesday, May 1, 2012

Reintermediation—How Cable Incumbents Close Ranks with New Media

            The Internet has empowered consumers by eliminating middlemen that no longer add value.  I use the following key words to assess when and how direct access helps me: faster, better, smarter, cheaper and more convenient.  For example, one might want to browse in a bookstore—coffee in hand—or one might want to download an e-book in the fastest time, at the lowest price and from a remote and possibly mobile location.

            Cable television operators surely must appreciate that many consumers question what value they add, particularly when their analog technologies managed to deliver a picture far worse than one a digital signal that had travelled over 44,000 miles up to and down from a satellite.  Television riding over the top of an existing broadband link was supposed to be the killer application that would disintermediate costly and not value enhancing cable.  Think again.    You cannot underestimate the ability of cable operators to close ranks with their content affiliates, especially when cable management can offer greater revenues.  Why would ESPN give up a revenue stream coming from just about every cable subscriber in exchange for one than might generate higher margins from a much smaller subscriber base?

            So perhaps it should not come as too great a surprise that content providers are abandoning advertiser-supported Internet-delivered television, such as Hulu, no doubt encouraged by their incumbent cable partners.  I call this reintermediation where an existing distribution channel gets regenerated and re-entrenched, despite the potential for technological innovations to render the channel unnecessary.

            Incumbent cable operators will provide access to content via new media, if and only if we maintain our cable subscription.  So we get conditional “television everywhere” access in exchange for maintaining our old school cable subscriptions and abandoning new Internet-delivery options that could have offered consumers faster, better, smarter, cheaper and more convenient content access options.  These new media also could have offered advertisers and content providers a better value proposition over time.

            Consider the advertiser and content providers keen on attracting a larger audience.  Historically they have feared that new technologies would fragment audiences and provide opportunities to acquire content at lower prices.  Broadcasters, movie studios and movie theater operators initially considered cable an evil—if not illegal—siphon of audiences and revenues.  Over time it became clear that cable could expand geographical reach and audience numbers, while also creating new and profitable content distribution windows.   

            Now it appears that today’s content producers are willing to deny new media access, apparently because the sure thing status quo appears less risky and possibly more rewarding than embracing a larger and more diverse set of distribution options.  Maybe, but recall that the recording industry tried to stifle ala carte, per track access to content without success.  Is it different this time, because incumbent have greater control over their “must see” content?

1 comment:

vinncook said...

New media has been a great influence to subscribers and consumers. But it's a great thing that cable operators were not that affected by them. Cable wraps the subscriber's full loyalty as long as they are satisfied and get what they wanted.