In my last e-newsletter, I cited the so-called
Incumbent's Curse, which holds that breakthrough product innovation can only
be accomplished by younger, unencumbered companies not tied to traditional
ways of doing things. This is because cautious executives of large, established
companies (i.e. the incumbents) tend to focus more on preserving their existing
models than on innovating to meet these new market realities. I raised this
concept as a way of framing the question of whether MSOs should pursue IP-based,
broadband-delivered video, the risks associated with doing so and the potential
impact on cable's core basic tier
MSOs and the Video Solutions Business
When it comes to video, MSOs seem to consider themselves to be in the "TV-only" business,
rather than the broader "video solutions" business. Historically this definition
would have been right. But today, with the proliferation of technology and
the fragmentation of viewer interests, the real business that cable is in is
delivering video solutions to meet consumers' myriad preferences. MSOs must
focus on holding onto as large a share of the consumers' viewing time as possible.
In this light, DBS is not the only competition. Rather it is all the other
companies that are or will be providing video alternatives meant to disrupt
the status quo, TV-based relationship between MSOs and their customers. This
list includes some obvious names like SBC, Verizon, Akimbo, Tivo, etc. But
it also includes some non-obvious ones like Google, Yahoo, Cingular, Apple
and others. (By the way, at CES, DISH showed one way that it is going to compete
beyond the TV with its "DishPod" devices that handily connect to its PVR via USB).
Competing in the Future
All of these companies are broadening the scope of how video is consumed and
raising the expectations of consumers, particularly the younger, more tech-savvy
ones. These companies are each able to exploit their own unique competitive
advantage over the cable industry as new technologies are deployed.
The cable industry's laudable efforts in HD, PVR and On-Demand dramatically
enhance the TV-based experience. However, all of these features still rely
on the basic tier and the set top box as core elements of the business model.
The basic tier approach of aggregating a group of linear channels will come
under increasing pressure in a world dominated by searchable, on demand viewing
patterns. People accustomed to the greater control the internet provides will
grumble more loudly when paying for stuff they don't need or use. And a set
top box that doesn't communicate with other devices, particularly the PC and
portable devices, will eventually come to be seen as an anachronism.
Complementing, not Competing with Basic Cable
Cable can address these issues by pursuing an IP/broadband strategy that complements
basic cable. However, today's MSOs' efforts seem limited to offering short
clips on their portals provided by programmers or other sources. In some
cases these clips are packaged elegantly, in other cases they are hodge-podge.
But none of these come close to adding up to a cogent strategy to generate
new revenues, drive new value across the PC and TV platforms or defend against
the imminent competition.
Lying behind this inaction are fears of cannibalizing the incumbent TV-based
basic subscription business model. This is a clear risk, but how likely is
it? With a careful emphasis on creative programming and pricing, I think MSOs
could position video delivered to the PC over broadband as being complimentary,
and not competitive to the programming on basic cable. The key is to provide
new, differentiated value that takes advantage of IP and broadband's capabilities.
IP and broadband allow MSOs to deliver additional programming to the home
flexibly and inexpensively. This programming can fill tiny niches, because
the cost of distribution is so low. The programming can be accessed from multiple
PCs within the home using WiFi investments consumers have already made. And
the programming can be ported to all of the gee-whiz devices coming to market
that will revolutionize the way that video is consumed in the years to come.
True, programming on the PC could also be sent over home wireless networks
to the TV, which is the Microsoft Media Center PC dream. That would be very
disruptive. But I believe that as the penetration of HDTV sets increases, consumers
will come to view these high-end TVs as what they use when they want their
premium/optimal viewing experience. When thought of this way, consumers will
be underwhelmed by the prospect of watching low definition video sent over
from their PCs, on their expensive new sets.
The emphasis of all of this must be on creativity, so that the video solutions
feel like a complement, not a competitor, to basic cable and are perceived
by the consumer as adding real incremental value to their TV-based experiences.
Cable is in the unique position of being able to innovate on the broadband
platform because it already "owns" those consumers through their monthly broadband
subscription. The key to success for MSOs is to take advantage of the best
of their incumbent business models, but not be slaves to them. By doing so,
they will avoid the Incumbent's Curse, and lead, not follow, the migration
to IP/broadband-delivered video.