What’s The Best Cable Unbundling Strategy?

Last week I wrote a post questioning whether TV Everywhere is a sufficient defensive strategy for cable providers.    If the issue for some customers is simply that the price of cable has become too high offering cross platform access for the same price may not solve it.   Even if we see rising consumer uptake of TV Everywhere it may not indicate effective defense, not if the uptake is focused on core users while the mostly likely cord cutters – less upscale, younger, lighter TV viewers – continue to fall away.

Given that line of thought, it was interesting to see yesterday’s item in Reuters on the sudden interest of cable operators in a la carte offers after years of resistance.   In other words, operators seem ready to open another defensive front by offering consumers more limited, lower cost network bundles. Citing some key paragraphs:

“The plan represents a complete reversal from cable operators’ long-held opposition to what is known as ‘a la carte’ programming. Over the last decade, the cable industry battled ferociously with regulators to protect the right to bundle programming, arguing it offered customers the best value.

But executives now say the change is a necessary response to shifting dynamics such as higher carriage costs and using the Web to watch programs, as well as a weak economic recovery that has forced many consumers to cancel cable television subscriptions.”

If unbundling the video offer is an edging its way onto the table, the question becomes how to unbundle to minimize negative impact and maximize retention effectiveness…

The only marketplace example I’m aware of is Time Warner Cable’s TV Essentials package that went into test market last November and is scheduled to expand beyond the test according to press in the last few days.   This is a striped-down basic package that omits ESPN and other sports-focused networks at a price of $30-$40 a month.   The package is not heavily promoted but rather pitched to customers when they call to disconnect service.    No on-demand content is included for free, but for incremental cost.

I understand that operators are under multiple pressures, not just from increasingly price sensitive consumers but from rising programming/carriage costs and from media companies that rely on the bundling of their primary and secondary networks and who are particularly allergic to the notion of a la carte.   And I realize the desire to keep limited low-cost bundles in the background, encouraging as many customers as possible to pay full or premium prices…

Yet I’m not sure the generic bargain-basement approach to unbundling is necessarily best.   There may be a sweet spot in the space between the $30-$40 price of TV Essentials and the average cable video bill of roughly $75.   Though sports programming is most expensive it is also the most irreplaceable; a striped down package that’s only sports or only sports and news may motivate households – particularly lower income households with men – to keep at least one foot in cable rather than cut the cord.

And if younger audiences are among those most likely to defect, some combination of a striped down channel lineup and cross platform on demand access may be most potent…some hybridization of a lower cost bundle and TV Everywhere.   For if Netflix and Hulu (Amazon and iTunes) are the competitors that cord cutters are most likely defecting too, offering an option that’s more similar to these competitors may be the best defensive strategy.

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