Some fixes for cable TV’s poor reputation

Cable TV companies are losing customers daily.

But if you take a close look at Time Warner Cable’s and Comcast Corp.’s recent financial update, both companies are losing customers they don’t really want anymore. That’s basic cable customers. Instead, both are gaining digital TV customers, who are likely to pay more per month and use less bandwidth.

So, while 68 percent of cable TV users say they’ll drop their service for a 20 percent discount elsewhere (read: Cable TV users just want a 20% discount, says report), are customers are really willing to run?

Readers give several reasons why they’re unhappy with their cable or other paid TV service but won’t drop  it (read: “Why do unhappy customers stay with cable TV?“). Some legitimate reasons include the physical inability to subscribe to an alternative, higher cost if you have multiple TVs,  or they’re locked into a long term contract. (I’ve added the poll at the bottom of this post.)

Ben Piper, an analyst with Strategy Analytics who published yesterday’s report about unhappy cable users, answered a few more questions about the state of cable:

Gadgetress: Readers are constantly berating cable TV. Much more positive responses for IPTV and satellite TV services.

Ben Piper: Our research certainly supports that observation. Overall, customers in our survey reported high satisfaction with their current digital television provider. Seventy-one percent of respondents reported to be “somewhat” or “very” satisfied with their current service.

While this may seem like positive news for the digital television industry, the story changes somewhat when viewed at the individual platform level. The differences among Cable, Satellite, and Telco TV subscribers was marked, with Telco/IPTV customers reporting 95% overall satisfaction, compared to 67% for Cable.

When viewed at a more granular level, Cable underperformed in virtually every metric. The disparity was most pronounced in the areas of ‘Choice of Channels,’ ‘Quality of Channels,’ ‘Picture Quality’ and ‘Innovativeness.’

Q: Internet TV services (Verizon FiOS and AT&T U-verse) are the newest but least available. Is it just a matter of time before even these services develop a horrible customer service reputation?

Piper: The entry of the Telcos into the TV arena has been a game changer. Up until four or five years ago, Cable companies enjoyed decades with virtually no competition (a “cozy duopoly” with Satellite, some have said), and so had very little incentive to “delight customers at every turn.” With Verizon and AT&T shaking things up, this is bound to change.

Q: Any indication that consumers will pay more for better customer service?

Piper: In last year’s survey, customer service was among the lowest rated metrics, and we pointed it out as an area where cable could improve. To be fair, I think certain cable companies have taken demonstrable steps to improve customer service, some offering service credits for missed or late appointments, and shortening the dreaded “sometime between 7 and 2″ appointment window to a two-hour window.

We’ve also looked at what types of factors keep customers from switching. It’s interesting that the perceived “pain in the neck” (or whatever other part of the body) factor is sufficient to keep some from ever getting rid of their existing service. Customers dread having to make the call, schedule new installation, return the set top box, etc. We view this as a huge opportunity for competitive service providers to swoop in. Those that can eliminate (or at least mitigate) the inconvenience and make the transition as “seamless” as possible will be winners.

Q: What TV service is actually the cheapest?

Piper: It’s tough to say on a national level, as cable is priced competitively by market. In addition, service providers make it difficult to compare “apples to apples (Back on the soapbox for a minute) Customers in our survey reported-across the board, and irrespective of platform-a very low “value for money” perception. This is a cautionary signal for pay tv. With the expanded availability of so-called “Over the Top” (OTT) content options such as Hulu and Netflix, we anticipate a certain amount of “cord cutting.” In fact, some research we did back in July suggested that consumers were much more inclined to scale back or drop their pay television than their broadband pipe to the home.

Q: TV services are constantly negotiating for TV channels, which demand more money and ultimately means a higher bill. Can TV services avoid rate hikes? Does it really cost that much to offer TV?

Piper: The pay tv business model is complex, so it’s difficult to give an easy answer. That said, I think that the market might force a shake up of the existing model, particularly with regards to “content tiers.”

The very nature of cable advertising is in flux, brought upon largely by digital television. The 30-year old model in place today, whereby flagship channels lead certain tiers and support fledgling new ones, could be facing some changes. While the NCTA (National Cable Television Association) estimates that half of cable companies’ revenues come from national ad sales, this is certainly shifting. Intelligent two-way networks will herald in addressable advertising-the next step in demographic targeting.

Q: Since cable companies continue to add the more valuable digital customers, are they not concerned with losing basic video customers? And where are those basic customers going?

Piper: Comcast, who reported today, saw a loss of 623,000 video customers in 2009, though video revenues were still up 1.1%. 78% of Comcast’s customers are currently digital cable, and they plan to continue their “All Digital” strategy through 2010.

The push has been on for some time to migrate cable customers from analog to digital. On a national level, just over two-thirds of cable customers in the US are digital, and the effort is certainly there to continue to move in that direction. Digital cable is a superior product– there is no question about that.

The issue has been a lack of coherent and convincing marketing to make customers want to switch. I’m always amazed at what advertisers seem to take for granted—the assumption seems to be that the average customer understands what VOD is, or what the relative benefits of HD over Standard Def are. I think too often they over-estimate the level of customer sophistication.

As to where those customers go…it is something we try to pick up in our semi-annual surveys. It’s a tricky metric to track (compared to say, wireless), given the fragmented patchwork of cable across the country. Comcast may operate in one county, but not the adjacent one, etc. Generally, though, we don’t think customers are dropping cable completely-they are either upgrading to Digital, or switching to Telco TV (if available) or Satellite.

Related TV news:

• Cox raising cable TV, HD and Internet prices in Orange County
• How much money did Time Warner make last year? $1.1 billion
• DirecTV prices going up in 2010 too
• AT&T U-verse raising TV, phone, Internet prices in 2010
• Minimum Time Warner Cable bill: $8.50/month
• Psssst: Digital cable TV is cheaper than analog cable
• Time Warner 2010 price hikes mostly affect those who order the least
• Cable TV bills will go up if Fox, CBS get their way
• Is Time Warner really cheaper than Verizon FiOS?
• Cable TV bills quadrupled in 10 years, but look what you now get
• Time Warner Cable offers cheapest deal in Spanish — not English