Viacom to Cable Firms: "We wanted to break up anyway"
In TV is Next, we noted that the 50% reduction in revenue for the newspaper and recorded music industries was caused by disaggregation. When the customers of those companies could buy only what they wanted, or get parts of what they wanted for free, those industries lost the ability to force customers to buy expensive packages. Stated simply, $15 CD sales plummeted and were replaced by $.99 individual song downloads.
We have said that the likely lower revenue future of the broadcasting and cable network companies would be caused by disaggregation. It was one thing to force customers who watch 10 channels to pay for 300 – 500 channels when they had no other choices. In recent years, streaming video and OTT (over-the-top) devices meant those expensive 500 channel packages were not a sustainable model.
Today, the Wall Street Journal published an article titled "Viacom, 60 Cable Firms Part ways in Rural U.S." ( http://online.wsj.com/articles/viacom-60-cable-firms-part-ways-in-rural-u-s-1403048557 ). The article notes that two months ago, 60 small rural cable operators blacked out Viacom’s channels including Nickelodeon, MTV, and Comedy Central rather than pay the increase in pricing that Viacom demanded. The cable companies prepared for large customer defections…which did not happen.
We thought it was worthwhile to offer some commentary and explanation on the important points in the WSJ article. If you’re skimming this article, we think item 5 is the most important one.
1) The cable companies thought they’d lose 10% of their customers. Overall losses were closer to 2%. Channel blackouts used to generate outrage among cable customers who blamed the cable companies for their high bills and ignored the high affiliate fees charged by the networks. Now, customers are more interested in a lower monthly bill than in a bigger channel lineup. The cable companies calculated they’d lose fewer subscribers by blacking out Viacom channels than they would with Viacom and higher cable bills. The actual subscriber losses were one fifth of what was expected.
2) This is not an ongoing dispute. In the past, the networks and cable companies would often fight down to the deadline, and come to an agreement shortly before or shortly after the existing contract expired. On rare occasions, cable channels were blacked out while the two sides fought publicly to get customers to blame the other side. These disputes tended to be settled in a matter of days or weeks. That is not what is happening here. Negotiations have terminated. The cable companies are moving on without Viacom.
3) Viacom is trying to downplay the minimal customer defections by noting that the blackout is happening in rural areas where customers don’t have multiple options. That’s fair enough, but Viacom also notes that customers who want to change their cable operator also have to switch their internet provider which is disruptive. Most people would prefer to go without MTV than to make an appointment with another cable company, learn a new system, reprogram their DVR, and switch their internet provider.
4) Others cable operators are watching. Some of these cable companies have gotten calls from larger cable operators wanting to know more about customer defections. This tiny fight which only impacts 1% of total pay TV households is only the start. Cable operators are now more worried about losing customers due to high bills than to dropping channels. Expect to see more cable operators drop more channels.
5) This is all possible because viewers have other options. Much of the dropped Viacom kids programming is available on other services like Amazon Prime and Netflix. When viewers have other options, it’s hard to sell them big expensive packages featuring hundreds of channels they never watch.
6) Viacom is also trying to downplay these results by pointing out that these cable companies are in rural conservative areas of the country, and that loyal Comedy Central viewers are concentrated in liberal urban areas. Another fair point. It’s true that viewing choices differ between local markets. We’re not suggesting that everyone watches the same 10 channels. We’re suggesting that people want to pick the 10 or so channels they are willing to pay for and not pay for everything else.
7) The WSJ article notes that Viacom is blocking episodes of "The Daily Show with Jon Stewart" on its websites for the broadband customers of the cable operators who have dropped its TV channels. We have no opinion on the legality of such a move, but we do have a few suggestions for Viacom. First, blocking viewers who want to see your show may not be the best way to generate viewership and interest. Second, if Viacom doesn’t succeed in driving its viewers away, it may just drive them to $0 revenue options. We would not be surprised if episodes of that show were available for free on Bit Torrent and Popcorn time. And as we noted here: https://www.linkedin.com/today/post/article/20140529021857-104497299-will-popcorn-eat-netflix?trk=mp-reader-card Viacom does not have the option to sue cable customers for downloading its content for free. As we explained in TV is Next, networks are going to have to choose between lower revenue options and $0 revenue options.
We have said that the likely lower revenue future of the broadcasting and cable network companies would be caused by disaggregation. It was one thing to force customers who watch 10 channels to pay for 300 – 500 channels when they had no other choices. In recent years, streaming video and OTT (over-the-top) devices meant those expensive 500 channel packages were not a sustainable model.
Today, the Wall Street Journal published an article titled "Viacom, 60 Cable Firms Part ways in Rural U.S." ( http://online.wsj.com/articles/viacom-60-cable-firms-part-ways-in-rural-u-s-1403048557 ). The article notes that two months ago, 60 small rural cable operators blacked out Viacom’s channels including Nickelodeon, MTV, and Comedy Central rather than pay the increase in pricing that Viacom demanded. The cable companies prepared for large customer defections…which did not happen.
We thought it was worthwhile to offer some commentary and explanation on the important points in the WSJ article. If you’re skimming this article, we think item 5 is the most important one.
1) The cable companies thought they’d lose 10% of their customers. Overall losses were closer to 2%. Channel blackouts used to generate outrage among cable customers who blamed the cable companies for their high bills and ignored the high affiliate fees charged by the networks. Now, customers are more interested in a lower monthly bill than in a bigger channel lineup. The cable companies calculated they’d lose fewer subscribers by blacking out Viacom channels than they would with Viacom and higher cable bills. The actual subscriber losses were one fifth of what was expected.
2) This is not an ongoing dispute. In the past, the networks and cable companies would often fight down to the deadline, and come to an agreement shortly before or shortly after the existing contract expired. On rare occasions, cable channels were blacked out while the two sides fought publicly to get customers to blame the other side. These disputes tended to be settled in a matter of days or weeks. That is not what is happening here. Negotiations have terminated. The cable companies are moving on without Viacom.
3) Viacom is trying to downplay the minimal customer defections by noting that the blackout is happening in rural areas where customers don’t have multiple options. That’s fair enough, but Viacom also notes that customers who want to change their cable operator also have to switch their internet provider which is disruptive. Most people would prefer to go without MTV than to make an appointment with another cable company, learn a new system, reprogram their DVR, and switch their internet provider.
4) Others cable operators are watching. Some of these cable companies have gotten calls from larger cable operators wanting to know more about customer defections. This tiny fight which only impacts 1% of total pay TV households is only the start. Cable operators are now more worried about losing customers due to high bills than to dropping channels. Expect to see more cable operators drop more channels.
5) This is all possible because viewers have other options. Much of the dropped Viacom kids programming is available on other services like Amazon Prime and Netflix. When viewers have other options, it’s hard to sell them big expensive packages featuring hundreds of channels they never watch.
6) Viacom is also trying to downplay these results by pointing out that these cable companies are in rural conservative areas of the country, and that loyal Comedy Central viewers are concentrated in liberal urban areas. Another fair point. It’s true that viewing choices differ between local markets. We’re not suggesting that everyone watches the same 10 channels. We’re suggesting that people want to pick the 10 or so channels they are willing to pay for and not pay for everything else.
7) The WSJ article notes that Viacom is blocking episodes of "The Daily Show with Jon Stewart" on its websites for the broadband customers of the cable operators who have dropped its TV channels. We have no opinion on the legality of such a move, but we do have a few suggestions for Viacom. First, blocking viewers who want to see your show may not be the best way to generate viewership and interest. Second, if Viacom doesn’t succeed in driving its viewers away, it may just drive them to $0 revenue options. We would not be surprised if episodes of that show were available for free on Bit Torrent and Popcorn time. And as we noted here: https://www.linkedin.com/today/post/article/20140529021857-104497299-will-popcorn-eat-netflix?trk=mp-reader-card Viacom does not have the option to sue cable customers for downloading its content for free. As we explained in TV is Next, networks are going to have to choose between lower revenue options and $0 revenue options.
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