Monday, December 20, 2004

From itvt: An Open Letter to the Cable Companies

As you may or may not know, before I dove into the world of entrepreneurship, I worked in marketing for companies in the cable industry. I often thought that the top cable operators were clueless when it came to marketing. They were still living in the glory days of the past when they had a monopoly. They didn't get that once customers had a choice they would dump the service provider who ignored them when they weren't a customer and made them feel small when they were. They'd find the one who made them feel important, up to and after obtaining their business.

The top cable operators have much the same attitude toward their "partners." And I do mean to be ironic with the quotation marks there. There was very little partnership involved, rather just a lot of ass kissing expected, attempts to commoditize even the most innovative products or technologies and an aversion to actually paying for value. And with an attitude like that, not appreciating when you're getting value, you can be sure they didn't understand how to deliver value.

Since I left the full-time employ of this industry I have said repeatedly that cable will lose. That's right, just lose. There is no reason to use cable for basic video services. Satellite is cheaper and better quality. Cable had the edge on high speed data, but they believe in actual anti-Marketing moves to make sure that if a customer leaves them to get video somewhere else, the cable ops will practically push them into someone else's arms for data services too. And DSL will get more bandwidth available and more ubiquitous accessibility. Then watch out, either on their own or in partnership with satellite companies, the telcos will eat cable's lunch. The only place where cable might have an edge is in apps where interactivity is really required: video-on-demand, networked PVR, things like that. But you need content for such an interactive service, and they hate to pay for anything. And when you don't want to let your "partners" make any money/ guess what, they go out of business or stop investing in innovation for your market segment.

I still follow the industry, and even do the occasional side marketing project for my old cable buddies, and I like to keep up with the digital video and interactive TV market by receiving the Interactive TV Today email newsletter (and BTW, yes, I do wish they would move to an RSS format.)

This week they featured a really priceless piece of Op-Ed writing. And since they don't provide web links, I am reproducing the piece here. If you're interested in this market, I do recommend subscribing to the newsletter of course.

This letter really says it all, skewering the hubris of the cable ops, and their short-sightedness.

"Op Ed: An Open Letter to the Cable Industry--From the CEO of a VOD Content Company

As CEO of a prominent video content provider, I was honored to be invited to your offices recently to discuss being a part of your video on demand offering. We know how important VOD is to cable. In fact, to hear your CEO talk, one would think that VOD is the solution to most of the world's problems.

But the trip back home was even more rewarding. I don't think I ever laughed so much. Dot-com business models are back, and they reside in your office. You wanted to deploy our entire library but did not expect to pay a single cent for that privilege.

What's more, you stated that you would also prefer that we not charge customers directly for our shows. Oh, and you don't want us to use advertising inside on-demand shows. Essentially, you want us to give you video content for free--without any possibility of making money--so you can sell digital cable! Oh wait. You don't want our content for free; you want us to pay for encoding and transport too. Is there anything else we can do to sweeten the pot for you?

Let me get this straight. By your own accounts, you've spent $80 billion upgrading your infrastructure to digital. Now you're getting clobbered by satellite; telcos are rushing into the video business at breakneck speed (picking up your executives along the way); you're losing billions to churn, while your service is so compelling your customers would actually rather spend their entertainment dollars driving to a video rental store or waiting every month for DVD's in the mail.

You make it clear that the key to winning in the digital onslaught from satellite and others is in offering video on demand, and in providing great, compelling content. You see lots of revenue potential in VOD to recoup your investments, and you are moving full speed ahead.

We all agree. Digital cable is wonderful, and VOD is amazing. You would think it would sell itself. How about giving it all away for free? What's that? You don't want to give away your product for free? Well neither do we. In fact, the entire content-production industry is insulted you think you can even ask. What intoxicating vanity you must have.

"Free VOD" is a valid marketing strategy to be sure. But, while NBC provides their channel free to consumers, Tom Brokaw and the cast of ER expect to be paid.

Years ago, "on cable" was slang for infomercials and "Wayne's World"-style public access shows. Of course, pioneering networks and content companies changed all that--despite the repressive business tactics of the MSO's, I might add. People subscribed to cable not because of the pipes but because of the content. Oh, and you're quite welcome.

So, if I understand it correctly, the strategy now is to dump as much content as you can get for free onto VOD--tens of thousands of hours. This reminds me of the theory about 10,000 monkeys producing Shakespeare. Throw enough product out there and someone is bound to buy it: No sense in trying to actually understand what your customers want, and no sense in starting now.

That's quite a marketing strategy you got there. I am sure Wharton MBA students will be reading about it years from now, enshrined in case studies next to marketing success stories from New Coke to Michael Dukakis.

Thanks, but we have audiences who are excited about our content and gladly pay a premium. In fact, they are already paying lots of money for this content. Too bad you won't see any of that money. But thanks for the free entertainment at your offices. Keep waiting by the phone for those VOD profits. Meanwhile, hold on to your Netflix stock and keep an eye on the telcos--because that's where I will be tomorrow.

The CEO of a VOD Content Company.

(Editor's note: [itvt] has confirmed the identity of the author of this opinion piece, who wishes to remain anonymous, and who says that the piece "represents the sentiments of dozens of my peers in the content industry." If you have strong opinions on the issues raised in the piece, or if you wish to submit an op ed of your own on this or any other topic, please email us at

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