Analysis of the entertainment sector suggests a recent trend is on the rise for modern telecommunications known as cutting the cord of cable and satellite. Customers no longer feel that their needs are being met and have essentially found an out with respect to paying for cable and satellite television. It seems based on examination of the trends, that these formats of television are no longer worth the budgeting for the monthly expense. The trend seems to be the result of a consumer who prefers the avenue of streaming movie and television services such as Netflix and Amazon Prime. Consumers want to watch what they want and when they want, and not be dictated to by the cable and satellite companies. The question is, how can we find ways to meet the customer needs so that they do not continue cutting the cord? Based on several sources, there are three specific ways in which this can be done.
According to Nielsen, more than 90% of the American population pays for television, but it is projected by the end of the year that roughly 4.7 million American households will cut the cord, which is a number up from about 3.74 million from last year (Bajaj). It seems as though the consumer is unhappy with their cable TV. The question is why? It is because of price.
Presently, as a consumer of AT&T cable TV, the current price begins at $19/month, which at face value is reasonable, but consumers are not finding that it is as they do not receive the needed channels of some of their favorite shows. Primarily, cheaper cable is basic cable, which includes the standard fare of CSPAN, CNN, etc. and no movie channels where many of their favorite shows come on. Consumers must pay a premium of at least $29.99 (AT&T) before it changes.
The current package on your website is listed at $29.99 and that comes with DVR included, and $30 off/ for 6 months. Consumers have the option of adding HBO/Cinemax free for 3 months before they have to pay (AT&T). Movie channels tend to be anywhere between $10-$20 extra depending upon the type of movie channels the consumer wants. Therefore, the consumer's bill can be at least $50 when all is said and done. Now, why is this a problem?
It is an issue because consumers can pay to watch their favorite television shows elsewhere. For example, in an article by Michael B. Farrell of The Boston Globe, the McElhennys are described as the typical American family that enjoys a good television show every now and then but have bypassed their cable provider for different options. They like many Americans have become fed up with the skyrocketing cost of cable television when they can turn on other providers of shows such as Hulu Plus. They are convenient and less expensive and tend to provide more of what consumers want. Consumers like the McElhennys continually complain to cable companies such as Comcast, where they were getting their cable from about the rising costs and the fact that they were getting channels they just didn't need. The following is a comparison chart between the costs of what the McElhennys were paying with Comcast and what they are paying for the other services that essentially offer them the same content (Farrell).
(Figure omitted for preview. Available via download)
As you can see from the chart, families such as the McElhennys got fed up with paying astronomical prices when they are able to take their money elsewhere and save at the same time. Therefore, one of the ways to gain your consumer base back that is cutting the cord is to lower prices of packages. If you were to continue charging prices at AT&T as Comcast does, the trend analysis that we have conducted at McKinsey suggests that you will continue losing customers as significant rates which will not be good for your business revenue in both the short and long run.
In addition to lowering cable prices, it will be beneficial based on trend analysis for you to provide content that consumers want. One of the main gripes that consumers have is that they purchase cable TV and get tons of channels that offer nothing they really want to see and they have to pay a significant amount extra to see what they want. Liana Baker of the Huffington Post adds that video programming costs continue to grow by the day. She continues by stating that consumers should be prepared for blackouts to occur on the major stations they get (i.e. ABC, CBS, NBC) via cable TV due to disputes that continue to take place between cable companies such as yours, and the broadcaster usually wins (Baker). So what do you do to change this trend of blackouts? While this ties into the previously mentioned trend, it also speaks to the types of content that consumers have to choose from. Thanks for services such as Netflix, consumers can catch up with the latest season of "Mad Men," without interruption and without having to pay an extra (Bajaj). You must change the way in which you operate or you risk being at odds with the trend of losing consumers for the reason of content offerings.
Finally, streaming needs to be an option. While you have U-Verse as an option and consumers know they can purchase Internet from AT&T, there is no streaming selection similar to that of Netflix and Amazon Prime, or even a service such as iTunes where consumers can purchase a season of their favorite shows. Larry Magid of Forbes in his article, "Households Abandoning Cable and Satellite for Streaming" notes that consumers are finding they watch a lot more online video from streaming sources, and use their TVs for video games and DVDs. Some consumers have what are known as Roku boxes which stream high definition content onto their TV and Roku does not charge monthly fees. Consumers prefer streaming their shows as they can do it at their own pace. There are streaming apps for different news sources as well. Streaming services also provide original content, which is another interesting aspect of the trend. These companies are finding ways to tap into the consumer trend that is not the usual broadcast and cable network shows but old nostalgic classic shows and fresh and contemporary original content. Many companies Magid adds are coming to understand the purpose and value of streaming (Magid). If AT&T did that, it could potentially recapitalize on a trend that is in effect altering the landscape of entertainment and the way individual Americans watch television.
This realization needs to come to AT&T and they need to get on the bandwagon based on what has been evident in the consumer forum. Consumers are no longer watching cable TV and satellite TV, or paying for it anymore as they once were. They have gotten wise to the trend of other ways to save money and continue to be entertained. While certain reports have suggested that corporate CEOs such as yourself are not worried about losing consumers to services such as Hulu and Roku, it is essential that these trends be taken seriously. While data can be skewed and manipulated, several sources have highlighted these trends as being potentially potent to the AT&T brand if AT&T does not doing anything about it. Your company cannot afford to lose customers like the mentioned McElhennys , who were paying $60 a month for cable TV and now pay roughly $15. They are just one of the many examples of Americans who are fed up with the choice selections and premium prices for junk television and have turned to streaming.
Understanding these trends and analyzing them will assist you in making the right decision to change the trajectory that AT&T is currently on. After all, this is what you ask us to do at McKinsey & Company to provide you with substantial examined information that is valid and viable. We assure you that this information is reliable and can be discussed in the boardrooms so you can make a decision on what you would like to do to prevent your consumer base from departing and going to services such as Amazon Prime and iTunes to enjoy content when they could be paying you and enjoying the content as a result of your company stepping into the ever-evolving technological arena.
"AT&T." Most Popular U-verse Offers & Packages. AT&T, 2013. http://www.att.com/u-verse/shop/#fbid=4SfFKyqSRs.
Bajaj, Vikas. "Ready to Cut the Cord?" The New York Times. The New York Times Company, 6 Apr. 2013. http://www.nytimes.com/2013/04/07/opinion/sunday/ready-to-cut-the-cord.html?_r=0.
Baker, Liana B. "Cable Is Getting More Expensive and Less Reliable, Just as You Suspected." The Huffington Post. 3 Sept. 2013. http://www.huffingtonpost.com/2013/09/04/cable-expensive_n_3862976.html.
Farrell, Michael B. "Many households cutting cable, but not their favorite TV shows." The Boston Globe. The New York Times Company, 16 May 2013. http://www.bostonglobe.com/business/2013/05/15/rise-cord-cutters/CWuXxXNSdcsBUPQwZiz81O/story.html.
Magid, Larry. "Households Abandoning Cable and Satellite for Streaming." Forbes. 19 Mar. 2013. http://www.forbes.com/sites/larrymagid/2013/03/19/households-abandoning-cable-and-satellite-for-streaming/.
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