Like hotel chains and taxi companies before them, the cable industry is about to learn a hard lesson in innovation.
In a three-to-two vote, the Federal Communications Commission (FCC) agreed to move forward with Chairman Tom Wheeler’s inventive proposal to introduce competition and innovation into the cable industry, namely by allowing customers to purchase cable boxes instead of renting them at increasingly steep monthly fees.
Some boxes would potentially allow users to combine their favorite cable channels with streaming services such as Netflix, eliminating the need to bounce back and forth between the two.
The simple policy shift would also introduce healthy competition into a grossly monopolized industry that’s grown far too comfortable in its dominance. Exhibit A: When you have to skip a full day of work to wait for the cable guy who never shows up. Customer service at its finest.
Under our current system, customers are stuck paying pricey monthly fees to rent inexpensive cable boxes, which, to cable companies’ delight, ban competing content and silo cable services into expensive and increasingly obsolete “cable bundles.”
Adding salt to the wound is the fact that the cost of cable boxes has risen 185 percent since 1995, while the cost of computers, TVs and cellphones has decreased by 90 percent, according to re/code.
Cutting the Cable Cord
Rather than forking over $100 a month for the three channels they actually watch, more and more millennials are cutting the cord and simplifying the way they consume media.
Nearly one-fifth of millennials prefer to connect their TVs to the Internet, and 25 percent of 18- to 34-year-olds without children drop cable after moving out of their parents’ homes, according to the New York Times.
This has left traditional cable companies clinging to decades-old practices and regulations in the hopes that they will preserve relevancy and ensure a steady paycheck.
“The pay TV industry has been lobbying furiously to stop the cable box proposal, and it’s not hard to see why,” said USA Today.
“A Senate study found that about 99 percent of pay TV customers rent their boxes, spending on average about $231 a year. This generates more than $19 billion in annual revenue.”
Ironically, their fiercest competitors could become their greatest assets should they choose to embrace them rather than fear them. Finding ways to integrate or innovate upon streaming services like Hulu, Amazon and HBOGO are cable companies’ one-way ticket to remaining relevant. Relying upon stale regulations that block competition will only cause more dissatisfied customers to cut their cords.
We’ve seen this same storyline play out within the taxi industry. With the rise of Uber and Lyft, taxi companies in large cities like San Fransisco and NYC have waged fierce regulatory battles against the popular ride-sharing services.
Despite considerable pushback, the healthy competition and innovation afforded by the app-based services is indisputable. The taxi industry has been forced to improve their business model in order to compete, even testing out hailing apps and offering better service in recent years. That’s more innovation than we’ve seen in decades.
Our Take
While the proposal is far from law, the positives drastically outweigh the benefits for both the consumer and the cable industry. Integrating cable services with streaming services could put an abrupt stop to the cord-cutting trend that’s beginning to seem inevitable in the absence of regulatory reform.
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