Abstract
The cable television and content industry has been moving towards an al la carte model for several years. With the introduction of streamed content through subscription services such as Netflix, Hulu, Apple TV, and Amazon Prime, cable television subscribers have been cancelling their monthly service in favor of lower cost pay per content options. Comcast Cable Company has failed to respond effectively to the change in consumer preferences. The company continues to offer bundled cable television, broadband Internet, and voice over IP (VOIP) packages. The higher costs of these packages has left many consumers upset over what they chalk up to poor customer service. Comcast’s customer service also has a poor reputation for failing to address consumer needs and using extreme intimidation tactics to keep subscribers. The company currently does not have a feasible al la carte option for consumers. Given the dynamic and increasingly volatile state of the industry and the consumer market, Comcast stands to lose out long-term if the company does not substantially change its business model.
Keywords: Comcast, al la carte television, consumer preferences
Introduction
Changing consumer preferences and the introduction of a la carte television content has been eroding the market share of cable television companies, such as Comcast and Time Warner (Risen, 2015). Comcast’s strategic response to the changing marketplace can best be described as “too little, too late.” As the cable television and broadband Internet service provider has continued to offer bundled packages instead of exclusive pay per content options, cable television subscribers are turning to less costly options. Although Comcast has recently begun to attempt to overhaul its poor reputation for customer service and introduce X1 pay per content boxes, subscribers are still stuck with having to pay higher fees for bundled services.
Comcast has offered On Demand pay per content programming as part of its digital television packages for years, but the monthly costs of maintaining a basic digital television package far exceed the costs of subscribing to Netflix, Hulu, and Amazon Prime combined. The one factor working in Comcast’s favor is its dominance of the broadband Internet market due to superior quality and ownership of existing infrastructure. Even if one wishes to abandon Comcast’s pricier cable television bundles in lieu of a Netflix subscription, subscribers are still dependent on broadband Internet service.
While there are competitors in most markets for broadband Internet service, most have failed to surpass the scope and quality of Comcast’s services. At the same time, Comcast may very well find itself in a perilous position if the company does not respond effectively to consumer needs. As more customers tire of paying the high fees for television content, they may well desert Comcast’s broadband Internet services in exchange for competitors who can offer more price attractive (albeit of less quality) options. Satellite television, mobile phone providers, and Internet search engine companies have also begun to offer their subscribers broadband Internet services and pay per content television packages (Rocco, 2015). Comcast’s strategic approach to the changing marketplace needs to overhaul the company’s business model before it finds itself operating as a niche provider.
Analysis
Comcast’s recent attempt to acquire Time Warner cable fell through in 2015 due to concerns over violation of U.S. anti-trust regulations (Risen, 2015). The company’s long-term strategy of growth through acquisition of its competitors seems to have come to a screeching halt. Instead of being able to dominate the U.S. cable television and broadband Internet market through takeovers, Comcast has been forced to consider other strategic options for the first time. The failed merger has also opened up bigger avenues for Comcast’s competition – including companies such as Dish Network and HBO (Risen, 2015). These companies have recently begun to offer the market online al a carte programming that is not tied directly to cable or satellite television subscriptions (Risen, 2015). In other words, consumers looking to watch specific content can now access the content they want or need without having to bundle those costs with an underlying monthly or annual subscription. This is in direct contrast to Comcast’s business model, which requires consumers to subscribe to a basic cable television package if they want to have broadband Internet service in their homes.
Currently, Comcast subscribers do not have a way to access and pay for content on a need-to-watch basis. Although they do have the ability to purchase additional content, such as movies and television shows through On Demand programming, these costs come as an addition to any standard monthly service costs. Furthermore, existing subscribers also find that in order to reduce their monthly service costs they must “upgrade” to new service bundles that come with additional offerings. For example, an existing subscriber who has a basic digital television and broadband Internet package pays monthly fees of one hundred and forty dollars. The subscriber can reduce his costs to one hundred dollars per month if he changes his plan to Comcast’s Triple Play bundle. This bundle includes broadband Internet, digital cable and voice over IP (VOIP) phone service. What happens if the subscriber does not have a need or desire for VOIP service? Is it worth it to the subscriber to temporarily save on his monthly costs, but add a service that he will never use? The same subscriber could change Internet service providers to a local carrier, purchase a smart television or a pay per content television box, a Hulu or Netflix subscription, and recoup additional monthly savings well beyond his existing Comcast service bundle. Comcast’s current service offerings simply do not make financial or practical sense to the modern consumer.
In 2014, Dish TV and Disney entered negotiations to start offering consumers a “Netflix like television service to people who’d rather stream television over the Internet than put a satellite receiver on their roof” (Nakashima, 2014). As part of the negotiations, Dish TV would be able to offer consumers al a carte access to channels owned by Disney, such as ABC and ESPN. Consumers would be able to pay for access to live broadcasts and content on those channels as needed (Nakashima, 2014). Again, this strategy is in direct contrast to Comcast’s existing business model. Comcast subscribers are able to access channels according to digital cable television tiers. Subscribers have continuous access to these channels, but have to pay a higher cost. In addition, Comcast subscribers may not want or need to watch those channels on a continuous basis. They may be interested in only watching those channels for specific programming, such as certain live sport events or specific television shows.
Although part of this shift in consumer preferences could be explained by the fact that consumers tend to spend less time at home, the shift in preferences could also be explained by the desire to cut household spending. Consumers are likely wanting to spend their discretionary income more effectively and do not see a need to spend large amounts of money on cable television subscription fees for services they do not use. In other words, cable television subscribers are not able to justify the higher costs for less use. It makes more financial sense to simply pay for what one watches. Over time, the cost savings are significant enough to prompt consumers to cut the cord on expensive monthly service bundles. Consumers also achieve more satisfaction from being able to gain instant access to what they want to watch, instead of having to randomly switch through multiple channels to find content that interests them.
Conclusion
An industry market analyst predicts that all television content will be delivered over the Internet within the next ten years (Rocco, 2015). The same analyst also predicts that al la carte options are the way of the future for television and entertainment content (Rocco, 2015). If this analyst is indeed correct, Comcast can simply not continue on its current path. The company must begin to wean its current subscribers off of the monthly service bundle business model. While it is predictable that Comcast may run into problems with a small subset of its subscriber base, the company stands to lose more if it does not change. Instead of forcing its subscribers into expensive service bundles that they do not use, Comcast must design an al la carte package that will capitalize on existing customers’ needs. This strategy will force Comcast’s business leaders to conduct more in-depth market research and focus on serving the customer, rather than its current strategy of dominance and force.
The transition for Comcast will initially prove to be difficult, as it will require a change in the way the company approaches its market. A change in organizational culture is never easy, but Comcast must prove itself to be customer centric if it is going to survive into the next decade as a major television content provider. The X1 box and revamping of its customer service tactics are a start, but will not be enough to sustain the company’s long-term existence.
References
Nakashima, Ryan (2014, March 4). Dish, Disney deal envisions Internet-delivered TV. Las
Vegas Review Journal. Retrieved June 23, 2015 from http://www.reviewjournal.com/news/dish-disney-deal-envisions-internet-delivered-tv
Risen, Tom (2015, Feb. 13). Comcast merger rejection could doom cable TV. US News & World
Report. Retrieved June 23, 2015 from http://www.usnews.com/news/articles/2015/02/13/comcast-merger-rejection-could-doom-cable-tv
Rocco, Matthew. (2015, Apr. 17). Verizon’s ‘custom’ TV plan brings industry closer to al la
carte. Fox Business. Retrieved June 23, 2015 from
http://www.foxbusiness.com/industries/2015/04/17/verizon-custom-tv-plan-brings-industry-closer-to-la-carte/
