• by Mitch Oscar , Op-Ed Contributor, August 12, 2008

While attending an industry gathering last week, myself and a few colleagues were asked to muse on the challenging times ahead for the various pay TV platforms. My assignment: cable industry ruminations.

In my opinion, the cable industry is facing more competitive threats than ever, challenging its dominion over the pay TV universe -- pegged presently at 60+ million depending upon the reporting source: satcasters DirecTV and EchoStar continue to steadily augment their customer base of 30 million; telcos Verizon (FiOS) and AT&T (U-verse) have grown their video services to nearly 2 million; the Internet and mobile devices are garnering greater viewership; and the broadcasters are slated to commence digital terrestrial transmissions in February 2009 when all broadcast signals are converted to digital and each TV station has the opportunity to offer upwards of 4 channels. Each of the aforementioned platforms and services are siphoning off subscription and advertising revenue from the coffers of the cable operators.

In order to staunch subscriber migration to other pay TV services, the cablers are heavily promoting their quadruple bypass packages -- a combination of video, broadband, telephony and wireless offerings that have enabled them to upsell their services, which garnered on average $55 monthly subscription fees for video service alone, to $150-$200 per month per subscribing household. Presently, of the 60+ million cable subscribers there are nearly 40 million digital customers consuming a variety (in combination) of services i.e., broadband, telephony and wireless.

The challenge that the cable industry faces in its customer acquisition strategies will be to convert its existing analog subscribers to digital, upsell its current digital subscribers multiple services, expand its subscriber base where possible, and most importantly, create and implement an advertising strategy that clearly demonstrates its value proposition (content, pricing and customer service). If the cable operators are not able to succeed in this tactic then, in my opinion, they will fall prey to pricing wars, the deep pockets of the telcos to survive a protracted engagement of attrition and introductory new services, and eventually, the monolithic stature of satcaster juggernaut (DirecTV and EchoStar) whose redundancy savings and added clout in the marketplace as well as deployment of high speed internet and return path services would further enhance their ability to challenge the cable operators' pay TV hegemony.

To date, local cable inventory has been underappreciated by the advertising community. Although the operators deliver upwards of 55% of the TV viewing eyeballs, they garner approximately $5 billion in ad revenue compared with the local broadcasters' $20 billion, with substantially less cumulative viewers. Historically, local cable sales have been hampered by lack of "acceptable" audience viewing reportage and accurate billing procedurals. Fortunately, for the cable industry, NCC has assuaged the ad community's billing concerns, and in the wings, researchers, like Rentrak and TNS, are deploying second by second, set top by set top, dashboard reporting applications coupled with the introduction of tangential analytics from start ups like TRA and Quantcast.

In terms of enhancing the value of their advertising inventory, the cable operators need to concentrate their strategies on nurturing '3' screen advertising models (video, broadband and wireless) and continue to deploy interactive TV applications that hold the promise of engaging those consumers to whom the message is most relevant. Opting in through telescoping features, requests for interaction, microsites, long form video, addressability, dynamic ad insertion and blind matching these applications with datamining (lifestyle) and subscriber television viewing usage should definitely solve the riddle on how to augment the flow of dollars from competitive pay TV platforms as well as challenge the ad community's analog mentality about the broadcaster's value proposition in the evolving digital realm.