“It’s the Economy, stupid”
October 11, 2012
It’s American election time again. A few elections ago, Bill Clinton, then running for his first term, pinned up a notice in campaign HQ that read: “It’s the Economy, stupid!” The sign was to remind all there that whatever the hue and cry of the election, ultimately voters would pick who they thought was competent to heal the economy.
Plus ca change. And the same sign could usefully be displayed in telco and cable company offices up and down the land. A year ago, all the talk was of cord cutting or cord shaving; pay TV subscribers would churn out or spin down, replacing expensive pay-packages with lower priced or pick and mix OTT options.
But Netflix – the vanguard of the OTT ‘threat’ – shot itself in the foot with a misjudged rebrand as it tried to split its old DVD service from online and up shift its prices. It needed more ARPU as it realised content that would let it compete with pay-TV couldn’t be acquired cheaply. It’s recovered, but the notion that a mass-market OTT service could use sheer audience volume to leverage good content that it could bring to market at ‘weather changing’ prices, was shown to be an empty threat.
Meanwhile, the massively profitable established providers responded to the flip side of the threat – the sheer convenience of the ubiquity of an Internet delivered product – with good and, crucially, free, TV Everywhere subscription authenticated services.
So, the OTT tide has waned as its competitive advantages over traditional providers have faded; it isn’t much cheaper on a like for like basis and it isn’t more convenient, indeed it often lacks the advantages of guaranteed QoE and integrated UI.
No, the danger – to all services – is the economy and its continued slide. Traditionally, home entertainment spending is countercyclical; people can’t afford to go out but they compensate with multi-channel TV luxury at home. However, ARPUs that take in a home’s broadband, telephone and television have seen the provider’s bill become the biggest single monthly payment many struggling families have to meet.
Broadband access is now regarded by most families as a utility right up there with power and water, but pay television? When push comes to shove it won’t make the cut and we should expect cord shaving to continue in lock step with any further decline in real term household income.