Capitalism is often described as “creative destruction.” Markets evolve to respond to consumer demand, and if a business is unable to adapt, the business fails to survive.
Blockbuster Video, which was the leader in home entertainment not so long ago, is one example. Today the chain is in the process of closing the last 300 of its retail locations. Its business model, while perfectly suited for the 1990s, doesn’t work in an age when viewers have all the options that current technology provides.
That should be a lesson to cable and satellite TV providers, yet it’s one they seem unwilling to learn. Companies still refuse to allow their customers to “unbundle” television channels from their predesigned channel packages. TV viewers end up paying for channels they would rather not invite into their homes, and many have repeatedly asked that they be given the freedom to buy only the channels they want. Content providers stubbornly insist it can’t be done, yet that’s not stopping savvy consumers from doing it anyway.
Devices like AppleTV and Roku, alongside Internet subscription services like Amazon Prime and Hulu Plus, are making it easier for people to get their content online without having to rely on a cable or satellite company. Better still, they are able to exercise complete control over their viewing choices. It doesn’t take a crystal ball to see this is where the market is heading, whether the cable and satellite providers like it or not.
The numbers tell the story. Consumers are abandoning cable. Cable subscriptions fell by 607,000 in the second quarter of 2013, which represents twice as many cancellations as were made in the first quarter. Yet still, cable TV prices continue to rise. These numbers may signal trouble ahead unless the industry adapts.
Cable providers defend their intransigence by pointing out that unbundling would cost them close to $70 billion and force many smaller channels out of business. That may be true. It’s also irrelevant. It is a prediction that relies on the market standing still, which is something markets never do. The home entertainment industry is inexorably moving in the direction of consumer choice, and, as Blockbuster demonstrates, the market tends to get what it wants.
Wise executives should understand that survival requires giving people what they want. In this case, what people want is a greater array of entertainment and payment choices and the ability to keep unwanted content out of their homes.
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