A different take on Comcast’s launch of its Peacock streaming service
Sometimes we see things as customers that are so obvious that we wonder how the companies delivering the product or service could not see it. “How could a company possibly do this?” we ask. While some companies spent countless hours devising business plans that encourage new customers to buy/join and their existing customers to stay, others manage to devise schemes that leave customers with little or no choice but to move to competitive offerings. I call this a blueprint or recipe for how to become the next Blockbuster, the next Kodak.
Rockefeller once tries to use the legal system to prevent electricity from ever happening; major record labels in the U.S. tried to sue to stop digital music distribution from ever happening; Sony went to the U.S. Supreme Court to try to prevent us from ever recording videos (Sony lost this case by the way, with Mr. Rogers having been cited as one of the major reasons to allow the recording of video, something that is now, of course commonplace). While in hindsight, it is obvious that the widespread use of electricity, digital music distribution and video recording was inevitable, in some instances, such a strategy of putting roadblocks in the way of the new technology can make sense. Specifically, such strategies, known as sand fence or roadblock strategies, can be used effectively to forestall adoption of a new technology provided that the organization is simultaneously developing its own offering in this new space.
Timing is everything. Timing here is crucial – you need to be able to forestall competitive entry in the new space long enough for you to launch your offering and build scale and an adopted customer base. This then makes it that much harder for others to compete with your now established offering.
Something analogous is happening today in video distribution, but the timing and incentive structure have been so badly managed/ planned (unplanned?) that it provides a blueprint for how to disrupt your own company and industry.
Enter Time Warner Cable/Spectrum.
It is clear that needing cables attached to the wall in order to watch videos, movies and television will go the way of video cassettes and DVDs. That much is obvious to analysts, customers, industry insiders and executives alike.
Streaming is the future that is here now. How will customers make this transition? Customers will go where they are incentivized to go; incentives take on many forms – economic (via your pricing structure), psychological (image, brand, etc.), ease of use (switching costs, “hassle factor”, etc.). So, let’s examine what Time Warner Cable, now Spectrum, has done to incentivize its customers to leave over the past 3 – 4 years.
Phase I. Physical Boxes.
- Cable wire to the wall. Originally, in the “analog days,” most televisions could be connected to the wall directly by cable wire and we would switch channels up and down on the television set itself.
- Digital conversion. As cable companies converted to digital services, cable boxes were needed on each and every television in order to receive digital services such as on demand movies and the like. For Time Warner Cable, these boxes were initially provided for free, encouraging customers to make the digital conversion.
- Charging for boxes. After a period of time, a per box rental fee was charged for each television that was connected to a box.
- Forced digital conversion. Shortly thereafter, the cable companies moved to 100% digital distribution, which meant that a box was required in order to receive a cable signal. Free conversion to smaller digital boxes was offered and the boxes were originally provided for free with no monthly rental fee, but no guide was provided and the remotes were award and difficult to use. Setting up each television involved a lengthy process and a call to the technical services department to “activate” the box. This needed to be done separately for each television, a time consuming process.
- Start charging for small boxes. Shortly after customers adopted and installed these smaller boxes, one per television in the house, a monthly “rental fee” of $5.95 per television/box was added to your monthly bill. Some customers (depending upon how many televisions you had of course) saw a $30 – $40 jump in their monthly cable bill.
- Call in for better deal. Many customers then called in to try to negotiate a better deal. Some customers succeeded, some did not. For those that succeed in negotiation a better deal, it was often for a limited time, 3 – 6 months.
- Bill increases at end of promotion period. At this point the customer had to call back customer services and once again try to negotiate a better deal. Some customers succeeded, some did not. For those that succeeded in negotiation a better deal, it was often for a limited time, 3 – 6 months.
- Call in for a better deal. Again.
- And again. Rinse, repeat.
- And again. Rinse, repeat. You get the drift.
In my house, I have 7 televisions (yes, I know, way too many televisions). In just over a two-year span, I a) installed 7 different boxes for televisions that used to work simply by connecting the cable to the wall outlet, b) replaced these 7 boxes with 7 different smaller and less functional ones by calling in to “activate” each one by one only to c) see a $45 jump in my cable bill (after taxes and fees) a few months later; then, d) I had to call in every 3 – 6 months after my bill jumped up at the end of the “promotional” period. Over and over. No wonder satisfaction scores of cable companies traditionally rate at the bottom of all industries.
It is important to note that firms and industries are typically disrupted because customers are not happy with existing providers. Uber would likely not have existed if taxi companies had provided better service at fairer prices and availability; Harry’s, Dollar Shave Club and Warby Parker all were formed in large part because customers were tired of paying exorbitant prices for men’s razors and eyeglasses, etc. So, if you are providing a service that rates at or near the bottom of customer satisfaction surveys across all industries, it seems that they very last thing you would ever want to do is to provide an offering that actually encourages your customers to leave. Yet that is precisely what they have done.
Phase II. Streaming Apps.
One of the biggest barriers to switching from one service of any type to another is switching costs. We routinely keep bank accounts that may not give the best interest or terms because of the hassle involved in new checks, auto drafts and the like; we often stay with credit cards that aren’t rated as highly as some others because we’d have to switch bill pay and the list. We all can think of services we aren’t particularly happy with, but we stay with them anyway simply because it’s easier to stay than switch. Switching costs (both monetary and time/effort) typically favor the incumbent.
Today, most cable companies offer apps that can be used on smart TVs, Roku boxes, Apple TVs and the like. While this might appear to be a customer-centric move to a streaming world by cable companies, it actually has provided the exact opposite incentive for their customers.
Let’s look at this in more detail.
Spectrum (not unlike Comcast’s Xfinity app and similar offerings) has an app that will broadcast all channels that you pay for on your iPad, Roku TV, Apple TV, phone etc., while you’re in your own home and for a limited set of channels when you’re away from your home. What you cannot do is use the Spectrum app on a TV in any house other than your own (they do this by limiting the app use to the modem registered in your home).
By charging a monthly fee for the box used for each television in the house and providing an app that can be used for free on each TV, they are providing a financial incentive to customers to get rid of the boxes and switch to the app. So, as an example, what did I do? I bought a Roku device for every TV in my house (payback period about 7 months), returned the boxes, and used the app in each TV in the house.
Now, once this is done, there is absolutely no barrier to leaving and cutting the cord – it is now easy to switch to any app that’s non-Spectrum and is available on a Roku device: Hulu Live, Sling, YouTube TV, etc., are all available at lower price points.
OK, so you’d think this is the end of the story. Incredulously, no. They continue to raise prices.
Talk about pushing your customers away! After the boxes are removed, cutting the cord is easy. There are many competitors offering streaming services that have live TV and sports. The customer is now incentivized to choose the best offering. Level playing fields are fine, but when you HAD an incumbency advantage, why would you ever want to create a level playing field?!
At a time where plethora of streaming is coming online – Roku, Apple TV+, YouTube TV, Sling, etc. (read formidable competitors), right at time with alternative Internet provision (Fiber, 5G, etc.) is becoming much more commonplace, you encourage customers to switch to apps and move from the boxes that tie them to you and then keep raising prices once you’ve created a level playing field!
I always think it’s not fair to simply criticize – it’s important to suggest the alternative. In order to suggest an alternative strategy, think back to the “Roadblock” and “Sand Fence” strategies discussed earlier. They were making the same mistake Universal Studios, Sony, and Rockefeller made back in the day.
In part, the problem they faced was that the competition allowed the SAME EXACT experience on multiple devices. I could have YouTube TV on my TV in Chapel Hill, my son could watch it in his house in Clarksdale, MS, I could watch it on my TV at the beach when I go there and on my computer in the office. No different than Hulu, Netflix or Apple TV+.
So, here, the solution was rather simple. Don’t charge monthly rental fees for the boxes. The boxes actually give a better, more seamless experience than the apps. Don’t raise fees. Don’t require the customer to call in every 3 – 6 months to get a fair price. In addition, provide an app offering that can be used wherever the customer is. It doesn’t matter that this is no better than the competition. You ALREADY have the customers locked in since they are using your boxes in their home. Why would they ever want to switch?
What did they do? Just the opposite, providing all of us with a blueprint of what NOT to do if you don’t want to be disrupted.
Key Lessons for other Industries:
- Don’t charge for the exact device that creates stickiness. By charging a monthly fee for the cable box while simultaneously offering apps (to be used on televisions and mobile devices) for free, you are encouraging – indeed providing a financial incentive to – customers to take the proactive and time consuming task of removing the boxes, returning them to the retail store and installing/setting up the app on each television. Once this is done, you – at best – are on equal footing with the competition.
- Listen to Customer Satisfaction. Lack of customer satisfaction with existing offerings is the single biggest reason for successful disruptive competing products and services.
- Think about what you are Incentivizing your Customer to do at Every Step. Here, at every step, Time Warner / Spectrum led the customer, literally paid them, to move in a path the resulted in their leaving for competitive offerings. From switching cable boxes to charging, not charging, raising fees and creating customer angst at every stage. Then, when competitive offering emerged via streaming apps, they encouraged customers to leave to these offerings.
- Peacock actually has a chance. Comcast’s Xfinity is a superior service. IF Peacock can provide a service competitive to Hulu Live, YouTube TV, Sling and others and it can effectively migrate (read: encourage) its own customers to migrate, it stands a chance. The first good sign is that it’s offered for free for its existing customers. Sounds like a winner if the content is competitive (it needs to be closer to Sling or YouTube TV than to CBS All Access), it stand a chance. Not easy to say in today’s competitive environment.