What Cable TV Can Learn from Netflix

By Adam Sewall on Oct 01 2011 at 9:00 AM

In increasingly frugal times, online video content providers have forced pay TV to rethink its strategy. The phenomenon of cord cutting has resulted in an exodus of cable customers seeking cheaper options, like Netflix, Hulu and Amazon Instant. 

But cost is just one factor among several.

Peter Stern, Executive Vice President and Chief Strategy Officer at Time Warner Cable, recently discussed the challenges and opportunities that currently face the cable TV industry. His praise for, and jabs at, Netflix reveal what pay TV can learn from the video-streaming service.

 

Beyond ‘Monolithic Packages’

Consumers like choice. Canon or Nikon? Organic or genetically modified? Android or iOS? Given this trend, it's particularly strange that despite the wealth of channels and entertainment options, pay TV’s offerings remain relatively rigid.

"When you have $70 for cable, or $7 for Netflix or zero dollars for whatever you can find for free on the Internet—the gulf is too wide," Stern said. Like many of its competitors, Time Warner in the second quarter lost a lot of subscribers—around 130,000.

Pay TV's cost has climbed at a faster rate than the broader economy. To bridge this gap, Stern said the industry will need to offer more variety. “We need to move away from monolithic packages…. We’re going to have to have more choices,” he said.

The cable operator tested a lower-tier video package costing $30 to $40 late last year. Called TV Essentials, the package included broadcast and about 40 cable channels. While the service was "margin neutral," Time Warner's strategy was to hold onto customers who might be on the fence about keeping their cable subscriptions and sell them higher-tier packages when the economy improved. 

 

Bringing TV Everywhere, Everywhere

The differences between Netflix and Time Warner go beyond price, of course. In comparing the two services, Stern praised Netflix for one thing: its algorithm for content discovery. “The only thing they do better than us—and it sure isn’t content—is that it’s easier to find things in their limited content,” he said. 

There’s truth to that statement, but Stern overlooked Netflix’s approach to cross-device video delivery. Netflix content streams over a number of devices in the living room or on the go: Blu-ray players, game consoles, HDTVs, home theater systems, tablets and smartphones. 

In contrast, Time Warner’s TV Everywhere approach is limited to an iPad app that requires viewers to be connected to their home wireless connection. The app’s interactive program guide and remote DVR manager can be accessed anywhere, but there’s no way to watch live programming on anything but the home network, posing serious limitations to the everywhere aspect. With its iPad app, Time Warner’s version of TV Everywhere is more like TV Everywhere between the kitchen and living room.

Ultimately, enabling viewers to watch video on a range of devices is an effective means of providing greater choice. Licensing and authentication considerations aside, it shouldn’t matter whether a subscriber wants to watch a show on their connected TV or on their iPad. In this category, at least, the TV industry has a few tricks to learn from Netflix. Diversifying pay TV options and innovating how content is distributed across screens are two good starting points.

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