Why Traditional TV Companies Will Fail: Consumers Hate Them

Subscription television providers -- cable, satellite, and fiber alike -- are in a stew. They see themselves as beset by problems: customers cutting the cord, increased Internet traffic without commensurate increase in revenues, competition from wireless. So they do what they can, whether that means reducing TV availability on the Internet through negotiation with content business partners, setting data caps, or opposing net neutrality.

But as the latest American Customer Satisfaction Index data shows, there's a more basic problem. Customers hate them, and their current policies to fix their business problems only make that, and their ultimate fate, worse.

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In its press release, the ACSI focused on big drops in customer satisfaction for AT&T (T), T-Mobile, Nokia (NOK), and DISH Network. But there are some more interesting patterns in the data that ACSI sent to BNET. Here's a subset (click to enlarge):

Almost every provider saw a drop in customer satisfaction, and the scores are, on the average, low. Subscription television providers even make wireless carriers look as though they bathe every morning in customer love, and that's not easy.

Is it any wonder? For years, telecommunication companies of all stripes have kept prices artificially high because they could make more money that way, whether by keeping competition out or creating scarcity (only so much minutes/data/time for you) that makes for higher prices.

The industry successfully lobbied to dilute net neutrality to almost nothing, leaving subscription television providers able to use data caps as a competitive weapon, making it inconvenient or even financially unfeasible for a growing number of consumers to obtain video entertainment online rather than through the anointed television gatekeepers. And, no matter what the providers claim to the contrary, this is all about online video.

The bane of bundling
The providers all want customers to continue their television subscriptions and, more importantly, to do so only through pre-selected packages of bundled channels. Providers are trying to buck a trend of unbundling. Not so long ago, corporations added new hardware rather than more efficiently use existing capacity through virtualization. Consumers bought albums because they couldn't download only the tracks they wanted. Readers had to buy a whole newspaper or magazine; now they go to a web site and read only what they want.

Unlike publishing, software, computing services, and even hardware, television providers so far have avoided unbundling services and products. Do you watch only a half dozen channels on a regular basis? Too bad, because you still pay for hundreds. It is the magic of increased consumption, like a fast food restaurant pushing consumers to order larger sizes of meals. The larger the order, the higher the final margin dollars.

However, the fast food restaurant still provides items on a single basis, so people can at least choose how much indigestion to embrace. TV providers took the "all combo meals, all the time" approach, because it protects revenue and profits.

That's why online video has been so dangerous to providers' business as usual. Getting video over the Internet shatters the bundling mechanism. Even if providers were to exactly replicate the service to satisfy consumers, they would make far less than they do now.

Creating their own competition
Thus, consumer satisfaction with providers continues to shrink because people know they're being taken for a ride even if they don't articulate how. And that's exactly what will sink the providers in the long run. Here's an interesting bit of analysis that ACSI sent to BNET:

The bad news is that decliners outnumber gainers by a wide margin: only 27% of the companies improve, 64% deteriorate, and 9% remain the same. Because the information sector is heavily dependent on repeat consumer business, lower customer satisfaction implies that those companies that bucked the trend and strengthened their customer relationships are likely to take market share, while those that didn't will face challenges and more price pressure. In the former group, winning companies include Motorola, Sprint, and possibly Qwest, DIRECTV, and Microsoft, but Samsung, Nokia, AT&T, T-Mobile, Comcast, Time Warner, DISH Network, and possibly Verizon are in the latter category.

Suddenly, consumers would have a choice, not of traditional TV providers, but of Internet carriers that could connect them to Netflix, Hulu, YouTube, or any other source of entertainment. Just as suddenly, provider arguments of how streaming video over the Internet would be financial ruinous would be out the window. So would their businesses.

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